wills and trusts Flashcards
Intestate succession
Property that does not pass by will upon a decedent’s death will be distributed according to the state’s applicable intestacy statutes
D only survived by spouse, no kids
- In most states, if D is survived only by a spouse and no descendants, surviving spouse inherits the entire estate
- In some states, however, a certain portion of the estate will be given to the decedent’s parents’ and their issue
Non UPC rule if D is survived by spouse and kids
In most states, if the decedent is survived by a spouse and descendants, the surviving spouse will inherit a portion of the estate, and the surviving descendants will inherit the rest.
UPC approach if D has spouse and kids
Under the UPC, the surviving spouse will inherit the entire estate if all of the descendants are descendants of the surviving spouse
What if decedent is not survived by a spouse, but has kids
In most states, if decedent is not survived by a spouse, the decedent’s surviving descendants will inherit estate equally
What if D has no spouse, no kids
parentelic approach
- If decedent is not survived by spouse or kids, but their parents are alive, parens will inherit the estate equally
- if there are no surviving parents, the descendants of the decedent’s parents will inherit
Strict per stirpes
- Under strict per stirpes, estate is divided by number of members in first generation of kids who are either alive or survived by descendants
- each living member takes share, and deceased member’s share drops to next generation
Modern per stirpes
- modern per stirpes works same as strict per stirpes, except estate is divided equally at first living generation with a living taker, not the first generation after decedent
Per capita at each generation
- UPC approach
- estate divided at closest generation to decedent with a living taker (like modern per stirpes approach)
- shares of deceased descendants at each level are pooled together and drop down to next level
CL rule on advancements
at common law, gifts to heirs during T’s life were considered advancements and were automatically deducted from their share of the estate
Modern approach to advancements
today, gifts to heirs during Ts life are not advancements on intestate share unless
- the D declared his intent to make the gift an advancement in a contemporaneous writing; or
- heir acknolwedged it to be an advancement in writing
USDA standard
To prove you survived someone else, you must demonstrate that by clear and convincing evidence of survival by 120 hours
Formalities for an attested will
- intent
- writing
- signature
- witnesses
Intent requirement for attested will
T must intend the instrument to function as their will
Witness requirement for wills
will must be signed in the joint presence of, and attested to by, at least two witnesses
Requirements for holographic will
- in handwriting
- intent to be a will
- signature
Handwriting requirement for holographic wills
- in most states, the entire will must be in T’s handwriting and signed
- some states also require holographic wills to be dated
- under the UPC however, only material provisions must be in handwriting (beneficiary + gift)
Intent requirement for holographic will
- it must be clear in the document that it was intended as T’s will
- UPC: words of intent need not be in handwriting and can be shown by extrinsic evidence
Codicil
A codicil is a testamentary addition to a will, executed with the same formalities as a will
Effect of executing a codicil
A valid codicil republishes the will as of the date of the codicil
holographic codicils
A holographic codicil is valid, as is an attested codicil to a holographic will
Substantial compliance doctrine
Under the minority/UPC approach, a document that substantially complies with formality requirements will be recognized as valid, if shown by clear and convincing evidence that T intended it to serve as his will
Will substitute definition
An inter vivos transfer of property will avoid probate and is therefore a will substitute
Time limit to contest will
A will contest must be filed within 6 months after a will is admitted to probate
Who does NOT have standing to contest a will
creditors, spouses of beneficiaries under prior wills, pretermitted heirs
no contest clauses
No contest clauses are enforceable unless the claimant has probable cause to contest the will (majority/UPC rule)
Grounds for contesting will
- lacking capacity
- insane delusion
- undue influence
- fraud
how to show T lacked capcaity to execute will
Claimant must show, at the time T made the will, T lacked the ability to know:
- the nature of the act (why)
- the nature/character of their property (what)
- natural objects of his bounty (who)
- plan of attempted disposition (how)
who what why how when
Insane delusion
T is operating under an insane delusion, which is a belief not based in fact or reason
test for insane delusion
A rational person in T’s situation would not have reached the same conclusion
fraud in inducement for wills
Fraud in inducement occurs when a person misrepresents a fact related to the instrument (usually regarding property or beneficiaries)
Fraud in execution for will
Fraud in the execution occurs when a person misrepresents the contents or nature of the instrument executed by T
Revoking wills, generally,
Generally, a will may be revoked in whole or in part.
revocation of codicils and wills
- revocation of a will revokes its codicils
- revocation of a codicil does not revoke underlying will
Revocation by subsequent instrument
A will can expressly revoke a prior will or impliedly revoke it by inconsistent terms
What happens when there are multiple wills
- the last will controls
- the wills should be read together to the extent possible, but last controls to the extent it is inconsistent with the prior will
How to distinguish codicil from new will
To distinguish a codicil from a will, look for a residuary clause. A will typically has one, but a mere codicil does not
Revocation by physical act
A will may be revoked when T commits a physical act with the intent to revoke, or directs a third party to do so in their direction and in their presence
Lost wills
JDXs are split as to whether a will not found at T’s death creates a presumption that it was revoked
- burden is on proponent to establish existence of will by clear and convincing evidence
- duplicate originals can be used as evidence, but duplicate copies cannot
Destruction of a copy of a will
revocation of a duplicate revokes all copies, but destruction of an unexecuted copy does not serve as revocation of all cpoies
Governing law
- law in JDX of decedent’s domicile at death governs disposition of personal property
- law in JDX of real property governs disposition of that property
- BUT decedent may also select which state law governs terms of will
Line of signt
Under the traditional view, a witness signs the will in the testator’s presence if they are within the testator;s line of sight
Conscious presence test
Under the modern view, a witness signs the will in the testator’s presence if they sign the will within the testator’s range of senses
Common law disinsterested witness rule
Under CL, the signing of the will MUST be witnnessed by two disinterested witnesses (people who do NOT receive any benefits under the will)
Modern approach to interested witnesses
Virtually every state has abolished the common law interested witness rule, and allow interested witnesses to validly witness the signing of a will.
minority modern approach to interested witnesses
- in a minority of states, the interested witnes forfeits his interitance unless two additional disinterested witnesses serve as valid witnesses
- Some states only allow interested witnesses to inherit their intestate share of the estate
Personal signature requirement for holographic wills
in states that recognize holographic wills, they are only valid if the testator signs it personally (no proxy signatures)
Integration of documents in a will
Integration of documents arises when pages or portions of a will become separated. A document will be integrated into a will if
- the testator intended the document to be part of the will: AND
- the document was physically present at the time the will was executed
Incorporation by reference
Incorporation by reference deals with the incorporation of extrinsic doucments into the will (rather than pages or portions of the original will)
When will a doc be incorporated by reference
In most states,a document or writing may be incorporated by reference when
- T intended to incorporate the document into the will
- the document was in existence at the time the will was executed; AND
- the document is sufficiently described in the will
Facts of independent significance
A court may give effect to events that would change the disposition of a T’s estate after the T has executed their will IF those events have significance apart from a change in the testator’s testamentary scheme
Devises through unattested memorandum
Devises to persons named in an unattested memorandum, not incorporated by reference, are invalid on the basis that the memo has NO independent significance apart from the will
if it meets incorporation by reference, however, it’s OK
What can a codicil do
A codicil can explain, modify, amend, or revoke provisions of an existing will
Republishing will
At the time a person executes a codicil, the original will is treated as republished and is deemed to have been executed on the date the codicil is executed
Codicil curing defects in will
Republication can cure defects in a will that might affect the validity of specific devises (e.g., republication by codicil that is properly witnessed can save a devise to an interested witness)
Can a codicil republish an invalid will
Most courts hold that a codicil cannot republish an invalid will as a whole
Holographic codicil curing holographic will
In states that recognize holographic wills, a holographic codicil can validate a will that was not originally valid because it failed to meet statutory requirements
Revocation by subsequent written instrument
A will can be revoked by
- a subsequent written instrument executed for the sole purpose of revoking prior will; or
- subsequent will/codicil that contains a revocation clause or provisions inconsistent with the prior will (only revokes to extent there is conflict)
Revocation by physical act
A will is revoked if the T or anothe person at his direction and in his presence burns, tears, destroys, or obliterates the will with intent to revoke it
Revoking will by words of cancellation
- under CL, words of cancellation are valid only if they come in physical contact with the words of the will
- under UPC, words of cancellation need not touch any words of will, but must be somewhere on the will to validly revoke it
Revocation through marking it up partially
In most states, when marks of cancellation (crossing out a word) are found on a will known to last have been in the testator’s possession, a presumption arises that marks were made by T with intent to revoke.
it sure as shit doesnt say shiv
overcoming presumption of partial revocation through marking
The burden to overcome this presumption is on the party claiming that the devise has not been revoked
- if devise is revoked, it passes as part of residuary estate.
- Some states do not permit partial revocations at all
Revocation by divorce
- in some circumstances, dispositions under will are revoked by operation of law
- at CL divorce did not revoke T’s devise to former spouse
- TODAY, however, divorce revokes provisions in will to former spouse UNLESS the will or court expressly provides otherwise. Devise may be revived if the spouses remarry
What if provision in favor of former spouse is revoked by operation of law
If provision in favor of former spouse is revoked by operation of law, the devise passes as if the former spouse predeceased the testator
Dependent relative revocation
Under DRR, a valid revocation of a will may be ignored if the will was revoked under T’s mistaken belief of law or fact that the T could revive an earlier will, or modify his disposition of property by codicil or new will
When does DRR apply
DRR only applies when the court can determine that the T would have preferred the disposition in the revoked will over the disposition resulting from a finding that they died intestate
Revival of a will at CL
Under CL, the revocation of a subsequent will automatically revives the prior will (no intent requirement)
Revival at modern law
Under the modern view, most states permit revival of a revoked will if
- it is evident T intended revoked will to take effect as executed; or
- T republishes the revoked will with a subsequent will or codicil that complies with formalities for execution
Lapse
If a beneficiary named in a will predeceases the testator, absent an alternate disposition of the devise specified by T, the devise lapses into the residue unless a jurisdiction’s anti lapse statute preserves the devise
Anti lapse statutes
Generally, under an antilapse statute, devises will vest in the descendants of the predeceased beneficiary if they
- are a blood relative of T; and
- have descendants who survive T
Residue of residue at CL
Under CL, an invalidated residuary devise passed to T’s heirs through intestate succession
Residue of residue modern approach
Under the modern approach, if the residue is devised to two or more persons, an invalidated residuary devise will pass to the other residuary beneficiaries rather than the T’s heirs
Ademption
Under the doctrine of ademption, if the subject matter of a specific devise is not in the estate at the time of T’s death, the devise adeems or fails
Intent for ademption at CL
At CL, testator’s intent for ademption was irrelevant
intent and ademption modern view
In most JDXs today, a specific devise will adeem ONLY IF the T indended for the devise to fail. If they did not intend for it to fail, beneficiary is entitled to
- any prop in T’s estate which T acquired as a replacement for the specific devise, or
- a monetary devise equal to the value of the specific devise
Generic descriptions of property in will
Any property described in generic terms is interpreted under the circumstances at the time of T’s death, rather than when the will is executed
Slayer statutes
A person who feloniously and intentionally kills the decedent is barred from claiming a share of their estate as either an heir or beneficiary under the D’s will.
- generally, the estate is distributed as if killer predeceased the decedent
Disclaiming interest
A beneficiary under a will can disclaim or renounce their interest under a T’s will causing the disclaimed property to pass as if they predeceased the T
Requirements forr a valid disclaimer
A valid disclaimer must
- be in writing
- describe interest being disclaimed sufficiently; AND
- be delibered or filed
Timing of disclaimers at CL
Under CL, a disclaimer must be made within a reasonable amount of time
Modern timing for disclaimers
Some states require a disclaimer to be made within 9 months after T’s death
Timing of disclaimers under UPC
Under the UPC, a disclaimer may be made at any time
Specific devise
A devise is specific if the subject matter of the devise is specific real or personal property
General devise
A devise is general if it can be satisfied with any of the estate’s assets
Demonstrative devises
A devise is demonstrative if the T makes a general devise AND specifies a specific source that the general devise it should come from
Abatement
If there are more claims against the estate from creditors than assets to cover devises made under the will, the devises abate.
Priority of abatement
Creditors of the estate always have priority to assets over beneficiaries. Absent a provision in the will, property abates on a pro-rata basis in the following order
- intestate property
- residuary devises
- general devises
- specific devises
Exoneration at CL
At CL, a specific devise of encumbered real property was entitled to have the mortgage on the property paid from the estate as a debt from the decedent
Exoneration modern approach
Today, a beneficiary of real property assumes the morgage, regardless of a general directive in the will to pay debts
CL approach to stock dividends
At CL (and some states today), a stock dividend constitutes property interest that is separate from shares of stock received through a specific devise
- under this rule, beneficiary of the underlying shares of stock does NOT receive additional shares that were obtained through stock dividend
Stock dividend definition
Shareholders may participate in dividend reinvestment programs that automatically reinvest quarterly dividends into buying more shares of a corp’s stock
Majority view to stock dividends
Under the majority view, beneficiaries are entitled to additional shares owned by the testator that were acquired as a result of stock splits or dividends
Class gifts
A T may devise property to a class of individuals
What if a class member predeceases T
If a member of a class predeceases T, their share is split evenly among the remaining members. It does NOT lapse into the residue
Devise to class member who predeceases T but qualifies under anti lapse statute
A devise to a class member who qualifies under anti lapse statute would pass to descendants, not the rest of the class
Devises to children
T may devise property to their “children”, “heirs”, “issue
- under these circumstances, courtw ill look to intestacy statutes to determine how it should be split
Disinheritance
A child that is intentionally ommitted from a will is not entitled to a share of the estate
Majority approach to disinherited kids and disinheritance clause
In most states, a general disinheritance clause is not sufficient to show intent to omit child from the will
Pretermitted children
A pretermitted child is one who is unintentionally omitted from a will. This occurs usually when they are born or adopted after execution of the will, or are thought to be dead but are really alive
What are pretermitted children entitled to from estate
A pretermitted child is entitled to the share they’d have gotten had T died inttestate so long as they did NOT intend to omit the child from their will
Children as a class
- At CL, only biological, full blood kids are included in this class
- In most JDXs today, adopted kids, half blood, and kids born out of wedlock are also included
Conditions prohibiting marriage
conditions that prohibit marriage are void as against public policy
What does “surviving” mean
- in most states, “surviving” means beneficiary has to survive date of distribution of estate
- in some states, it just means outliving the testator
Writing requirement for will contracts
in most states, contracts to make a will must be in writing
- even if a JDX doesnt specify this matter in their probate code, they usually reach this conclusion by applying the SOF
Damages when a party breaches a will K
if a party breaches a valid K to make a will, the court will usually probate the new will and impose a constructive trust in favor of the original intended beneficiary under the contractual agreement
Valid will K
valid K (mutual assent+consideration+no defenses) to make a will generally is enforceable and typically takes certain forms
- K to make joint/mutual will
- K to make a certain devise by will
- K not to revoke will or certain provision
- K to refrain from executing a will
mutual will
a mutual will is a separate will of at least two people that contain similar or reciprocal provisions
joint wills
a joint will is a single document executed by at least two people which contain similar or reciprocal provisions
Lack of capacity
A will is invalid if T lacked mental capacity when will was executed. To prevail in will contest on these grounds, contestant must prove T did NOT know or understand
- nature and extent of his property
- persons who are the natural objects of his bounty; or
- disposition he was making of property
presumption for capacity
generally, there is a rebuttable presumption in favor of T having mental capacity
Undue influence
A will is invalid if T executed it while under undue influence. Undue influence occurs when a person exerts such control and influence over T as to overcome their free will
What contestant must show in will contest on undue influence
To prevail in a will contest for undue influence, contestant must prove that
- T was susceptible to undue influence
- wrongdoer had opportuntiy to exert undue influence
- wrongdoer actively participated in drafting the will; AND
- will evidences a result that appears to be effect of undue influence
Presumption of undue influence
Generally, there is a rebuttable presumption of undue influence if a confidentail relationship existed between the alleged wrongdoer and T such that circumstanes surrounding the drafting of the will are suspicious (close relative, attorney, caretaker involved in drafting T’s will and gets something from it)
Family consent laws
Family consent laws permit close relatives (typically in a statutory order) to act as a surrogate decisionmaker for an incapacitated patient if there is no authorized agent acting under durable power of attorney
Priority of relatives in most family consent laws
Typically, the surrogate decisionmaking order is as follows:
- spouse (unless separated)
- adult child
- parent
- adult sibling
NOTE: if there are multiple members of the same class, a majority of those must agree on which health care decisions should be made
Living will
A living will is a document in which one specifies which life prolonging measures one does, and does not, want to be taken if they become incapacitated
durable power of attorney
a durable power of attorney is a document that enables an individual to designate an agent on his behalf in the event that they become incapacitated
immunity for power of attorney
Generally, the agent under a durable power of attorney is immunized from civil liability for health care decisions made in good faith
Execution requirements for power of attorney AND living will
Generally, both the living will and power of attorney must be signed, in writing, and witnessed by at least two persons or notarized
Personal representative
A personal representative handles all matters associated with probate
- if decedent does not name a personal rep, the court will appoint one
Life insurance
Life insurance is a K made between a policyholder and an insurance company
- usually, life insurance Ks prohibit the change of a beneficiary under the policy by execution of a will
- most courts uphold such limitations that are set out in the insurance K
- some courts permit a policyholder to change beneficiary by will if insurance co does not object
Totten trusts
A totten trust is created when a person opens a bank account for themself as trustee for another. Trustee is sole owner of account through his life, absent clear and convincing evidence of diff intent
- at trustee’s death, funds go to beneficiary free and clear of the trust
revocability of totten trusts
Totten trusts are revocable by will and during trustee’s lifetime if
- trustee withdraws all funds from account; OR
- trustee delivers a signed revocation to bank naming a new beneficiary
joint T bank accounts
Generally, a surviving joint T is entitled to money in a joint bank account when the other joint T dies, UNLESS the account was set up merely for their convenience
Creditors to joint T bank account
- Under CL, deceased JT creditors have no claim to $ in bank account
- Under UPC, if decedent’s estate is insufficient to pay creditors, creditors claims to fund in JT bank account are superior to surviving JT
Inter vivos gifts
An inter vivos gift is a gift between living perons. It is a valid transfer of property when:
- donor intends to make a gift
- donor delivers gift (actual or constructive)
- donee accepts the gift (presumed if it is something of value)
Who has standing to contest a will
Generally, only those with a pecuniary interest in a will have standing to contest it. This includes any person who
- is a beneficiary under the will
- should be a beneficiary under the will; or
- would benefit if D died intestate
majority view on no contest clauses
Under majority view, no contest clauses are unenforceable if probable cause exists to challenge the will action (contestant has good faith and reasonable belief in challenging it)
Minority approach to no contest clauses
- minority wholly enforce these clauses
- other strictly prohibit them as a matter of public policy
purpose of no contest clauses
the purpose of a no contest clause is to discourage potential will contestants by forcing them to choose either
- the gift bestowed to them in the will or
- nothing if their contest fails
reformation for mistake
most courts will permit modification of a will to conform to T’s intent if there is clear and convincing evidence of a mistake
Invalidity by fraud
A will is invalid if the will reflects the T’s belief in false information arising from another person’s fraudulent misrepresentation
requirements to prevail in contest on fraud
To prevail in a contest for fraud, the contestant must prove
- misrepresentation of a material fact was made to T
- misrepresentation was made to induce reliance by T; AND
- T relied on misrepresentation in disposing of property in will
What happens if a will is ambiguous
If a will is ambiguous, courts allow extrinsic evidence to resolve the ambiguity (i.e., the facts and circumstasnces around will may be considered to resolve ambiguity)
Trust definition
A trust is a fiduciary relationship between the trustee and trust beneficiaries. When a trust is created, property is divided between legal and equitable title
legal title
The trustee holds legal title to the property and becomes the owner of record for it
Equitable title
The beneficiary holds equitable title and is entitled to the financial benefits of the property
Settlor
The settlor is the person who creates the trust
Express trust
An express trust is created when a person has the intent to create a trust and complies with the requisite formalities to create it
Implied trust
An implied trust is created by conduct, regardless of whether there was intent to create a trust
Requirements for a valid express trust
A valid express trust is created if five elements are met
1. The settlor has intent to create the trust
2. There is trust property (the res)
3. An ascertainable beneficiary exists
4. There is a trustee (won’t fail for lack of one, though)
5. All parties comply with requisite formalities
Intent to create an express trust
- The settlor’s intent may be determined by written or spoken words or conduct
- There are NO specific words required to create a trust
- The settlor only need to intend to create the legal relationship and duties of a trust
Precatory language
Precatory language merely expresses the settlor’s wishes regarding his property, not his intent
Capacity requirement for trust
The settlor must have capacity in order to create a trust
same who what when where why as will contests
Res
The res refers to the property that make up the trust as a whole. Just about anything that can be owned and transferred can make up the res
Description of the res
The res must either be
- specifically described with certainty; or
- ascertainable with certainty from the description of it
When does an ascertainable beneficiary exist
At the time of trust creation, the settlor must either
- specifically identify the beneficiary by name; OR
- sufficiently describe how the beneficiary is to be identified (“my children” is OK; “my friends” likely isn’t)
Beneficiary’s ability to possess title
The beneficiary must be able to possess title to the property (e.g., an animal cannot be a beneficiary)
- note: a beneficiary need not have capacity to manage property (kids can be beneficiaries)
Can settlors and trustees be beneficiaries?
Yes. A settlor and trustee can be a beneficiary. However, a sole trustee cannot be the sole beneficiary of the trust.
Lack of trustee
Although a trust must have a named trustee, the trust will not fail solely for lack of one. A court may appoint a trustee if the settlor did not name one or if the trustee dies, resigns, or is removed
Creation of trust involving RP
The creation of a trust involving RP must satisfy the SOF.
Creation of a trust involving just personal prop (no RP)
A trust involving personal property, with no real property, need not comply with the SOF
Formalities for testamentary trusts
A testamentary trust is a trust that enters into existence upon the death of a person and disposes of their property. Testamentary trusts must be executed with the same formalities of a will
Common law/majority view on revocability
Under the CL and majority approach, a trust is irrevocable UNLESS the settlor expressly retains the right to revoke or amend the trust
UTC/minority approach to revocation of trusts
Under the UTC, a trust is revocable unless the trust EXPRESSLY provides otherwise
Pourover provisions
- a pourover provision in a will devises property to a previously existing trust under the terms of that trust
- a pourover provision is distinguishable from a testamentary trust, as a pourover provision does NOT create a trust – it just transfers property to an existing trust
Can a pourover provision transfer assets to a testamentary trust
No. A pourover provision cannot devise property to a testamentary trust because that trust would not come into existence until the settlor dies.
Charitable trust
A charitable trust is a trust that has the purpose of accomplishing a substantial amount of social benefit to the public at large, or to a reasonably large class
Beneficiary of a charitable trust
The beneficiary of a charitable trust may be indefinite, named, or contain a class of persons described by the trust
Application of RAP to charitable trusts
The rule against perpetuities does NOT apply to charitable trusts
What if a charitable trust fails to state a specific charitable purpose or beneficiary
A charitable trust will NOT be invalidated for failure to state a specific charitable purpose or beneficiary
- generally, courts will select a purpose or beneficiary that is consistent with the settlor’s intent if they had a general charitable intent
Cy pres doctrine
The cy pres doctrine may be applied to continue the charitable trust in a manner consistent with the settlor’s general charitable intent
What if the settlor names a specific charitable beneficiary, but they terminate
If the settlor names a specific charitable beneficiary, the trust will termiante upon that charity’s termination
Discretionary trust
A discretionary trust grants the trustee absolute power and discretion to make good faith determinations regarding when and how much of the trust property should be distributed to the beneficiaries of the trust.
When might a court interfere with a discretionary trust
A court may interfere if the trustee is making distribution determinations in bad faith
Support trust
A support trust is a trust that contains a provision directing the trustee to pay the beneficiary as much of the income or principal as is necessary for the beneficiary’s education and support. Support trusts can be pure or discretionary
Pure support trusts
Pure support trusts limit the trustee’s discretion. The trustee is obligated to spend only so much of the available trust property as is necessary for the education and maintenance of the beneficiary
Spendthrift trusts
Spendthrift trusts contain provisions designed to protect beneficiaries from their own carelessness. Generally, they serve two main functions
- beneficiary is NOT permitted to sell or assign his beneficial interest; AND
- the beneficiary’s creditors CANNOT reach their beneficial interest
When can creditors reach a beneficiary’s interest under a spendthrift trust
- Settlor is the beneficiary of the spendthrift trust (a self settled trust)
- The creditor is seeking reimbursement for necessities (food, medical care, etc)
- The creditor has an order for child support or spousal support
Rights of creditors to a trust beneficiary
The creditors of a beneficiary of a trust have NO greater rights in the trust property than the rights of the beneficiary. If the trust prevents a beneficiary from receiving the trust principal, then his creditors have no right to reach the trust principal either
When can a beneficiary’s creditor reach their interest in the trust
Absent a spendthrift provision, the beneficiary’s creditors are able to reach the beneficiary’s interest by attachment of the interest income to the benficiary (i.e., they can’t go after the principal, but can go after interest income if no spendthrift provision)
Reaching beneficiary’s interest post distribution
Whether or not a trust contains a spendthrift provision, creditors can reach the beneficiary’s interest once it is distributed to the beneficiary. Once trust income is paid to the beneficiary, a creditor may initiate appropriate proceedings to reach that income in order to saisfy a claim
Alienability of trust interest
Trust interests are alienable, devisable, and descendible unless the terms of the trust provide otherwise
Invasion of trust principal
Generally, an income beneficiary is only entitled to the trust income UNLESS the trust authorizes the trustee to invade the principal
When may a trustee invade the trust principal
- only one beneficiary exists
- the beneficiary would ultimately receive the trust principal (not permitted if invasion would be inconsistent with S’s express directions in creating trust)
- significant change in circumstances
- trust grants trustee the discretion to invade the principal (expressly or impliedly)
Requesting a court to permit a deviation from administrative provisions
Trustees and beneficiaries can request that the court permit a deviation from administrative provisions in the trust instrument. Generally, a court will permit a deviation if the purposes of the trust:
- have been satisfied
- have become unlawful; OR
- are impossible to carry out
Cy pres doctrine
If it becomes unlawful, impossible, or impracticable to carry out the purposes of a charitable trust, cy pres allows the court to modify the terms of a charitable trust “as near as possible” the original intent in order to prevent the trust from failing
When is cy pres applicable
The doctrine of cy pres is applicable only if
- property is placed in a trust for a charitable purpose that has become unlawful, impossible, or impracticable to carry out; AND
- the settlor manifested a general charitable intent to devote property to charitable purposes
Absence of a reverter clause
The absence of a reverter clause is evidence of the settlor’s general intent. However, if there is a reverter clause, court will likely revert trust property to parties specified in the reverter clause when it becomes unlawful, impossible, or impracticable to carry out purpose of the trust
Modification of trust by parties
Generally, a trust is irrevocable and cannot be modified unless the settlor retained the right to do so in the terms of the trust instrument
- however, in a minority of JDXs, the settlor is free to modify or revoke the trust instrument WITHOUT express authorization to do so
When may a trust be terminated
A trust may be terminated if
- trust revoked or expires pursuant to its terms
- material purpose is satisfied or becomes unlawful, contrary to public policy, or impossible to carry out
- settlor and beneficiaries unanimously agree to terminate
- all beneficiaries agree AND no material purpose remains
- termiantion will further purpose of trust due to unforseen circumstances
- court or trustee determines value of trust property is too low to justify cost of adminsitration
What happens when trust is terminated
If a trust is validly terminated, the trust property generally vests in the beneficiaries who may distribute the property in any manner they choose.
- however, trustee may retain a reasonable amount of trust property to cover debts, expenses, and taxes
fiduciary requirements of trustee
A trustee is a fiduciary. As a fiduciary, the trustee must
- manage the trust property exclusively for the benefit of ALL the trust beneficiaries; AND
- administer the trust in good faith pursuant to the terms and purposes of the trust
Duty of care for trustees
The trustee possesses a duty to exercise the degree of care and skill as a person of ordinary prudence would exercise in dealing with his own property
- focus is on trustee’s conduct, not the results of such conduct
Exculpatory clauses for trustees
- under the majority view, the settlor may limit the potential liability of a trustee by including an exculpatory clause in the trust instrument
- however, exculpatory clauses don’t excuse the trustee for acts done in bad faith
UPIA
The uniform prudent investor act requires the trustee to exercise the degree of care and skill as an investor of ordinary prudence would exercise in investing his own property (e.g., diversifying investments, avoiding risky investments and speculation, etc)
Trustee’s duty of loyalty
Trustee owes a duty of loyalty to beneficiaries where the trustee may NOT obtain any personal gain from administering the trust, except for fees
Self dealing
- self dealing is a per se breach of the duty of loyalty
- self dealing includes any transaction involving trust property that the trustee enters into for his own gain
Waiver of duty of loyalty
- the settlor may expressly waive the trustee’s duty of loyalty in the trust instrument
- however, a waiver will not excuse the trustee for acts done in bad faith
trustee duty to act impartially
The trustee possesses a duty to be impartial with respect to all the beneficiaries of a trust when investing, managing, and distributing trust property (cannot favor one B over another)
assets to be allocated to trust income
The following assets generally must be allocated to the trust income
- receipt of rental payments from trust property
- corporate distributions (cash dividends, ROIs)
Assets to be allocated to trust principal
- funds received from the sale of trust property
- repayment of loan principal
Power of appointment
A power of appointment is usually conveyed by will or trust, granting the donee the right to appoint or distribute property left by the donor
- holder of power of appointment does NOT receive full title to the donor’s property, only the power to appoint or distribute it
General power of appointment
A general power of appointment is created when the donor does NOT leave any restrictions as to the appointment of the property.
- donee is free to appoint property to himself, creditors, or anyone else
Special power of appointment
A special power of appointment is granted when the donor leaves restrictions as to the appointment of the property
- donee may not exercise a special power for their own benefit, typically
Power of appointment in a residuary clause
A power of appointment may be exercised in a general residuary clause of a will only if
- the power of appointment is a general power; OR
- the testator’s will manifests an intention to include the property subject to a power
Acceleration of a future interest
a future interest may be accelerated, allowing the future interest holder to take possession immediately if the present interest holder
- loses title to the property; OR
- disclaims the property
RAP
Under the common law, a future interest MUST vest within 21 years of the death of a life in being at the time it was created. If there is ANY possibility that the future interest will not vest within this time period, the interest will be invalidated
Wait and see and RAP
In many JDXs, courts will wait and see if the future interest actually does fail to vest within 21 years after the death of a life in being, rather than invalidating it for any possibility that it will fail to vest within the time period
Modern trend for wait and see
Under a modern trend, some courts will reduce age contingencies exceeding 21 years to validate a conveyance that otherwise violates RAP
fee simple
A fee simple is the default estate. It is created with language such as “O to A”, “O to A and his heirs”, “O to A forever”
defeasible fee
A defeasible fee is a conveyance in fee simple in which the grantor places express conditions on the conveyance (“O to A on the condiiton that…”)
Fee simple determinable
A FSD is a conditional conveyance in which the grantor retains a possibility of reverter. The possibility of reverter vests automatically when the condition is not met. Created with durational language such as “while”, “during”, “until”
FSSCS
A FSSCS is a conditional conveyance in which the grantor retains a right of entry. The right of entry does NOT vest automatically when the condition is not met (grantor must reclaim). FSSCS is created with conditional language such as “provided that” “on the condition that”
FSSEI
A FFSEI is a conditional conveyance in which a third party is granted an executory interest in the property.
executory interest
An executory interest is a future interest that divests an earlier interest
Shifting vs springing EI
- shifting divests a prior grantee (not grantor)
- springing divests the grantor
Life estate
a life estate is a present possessory estate that is limited by a person’s life
transferability of LE
A LE is transferable. The transferee’s interest in the property terminates upon the death of the measuring life
vested remainder
A vested remainder is a future interest that is both
- given to an ascertained grantee
- not subject to a condition precedent
contingent remainder
A contingent remainder is one which is either
- given to an unascertainable grantee; or
- subject to a condition precedent
FI that follows life estate
- if land goes back to grantor, grantor has a reversion
- if it goes to a third party, they have a remainder
