Wills and Trusts Flashcards
Probate
● Orderly judicial system for transferring property at death.
● Probate is required when the estate exceeds $150,000.
○ Gross Estate: FMV of all of decedent’s property at the time of his death
○ Net Estate: value of what is left after subtracting the total amount of any debts owed on the property’s gross estate at time of death.
● Property that does NOT pass through probate:
○ Joint tenancy
○ property in inter vivos trusts.
○ Community property (or SP) that passes outright to a surviving spouse.
Will Definition
- A will is a revocable instrument intended to provide for the disposition of one’s property at death.
Will - Validity
o Must be in writing
o Signed by testator (or directs someone to sign) in front of two witnesses simultaneously present
Line of sight doctrine
Nickname could be okay if well known nickname and witnesses present
CA also adds direction of testator and a conservator clause
o Acknowledged as a testamentary document before two witnesses
Must be 18+ and mentally capacities
UPC – within reasonable time, OR acknowledged by T before a notary
CA conscious presence
o UPC Harmless Error Doctrine
Treated as executed if proved by clear and convincing evidence that the Decedent indented to constitute a will
o CA Substantial compliance
Regarding the witness requirement, can be satisfied if clear and convincing evidence that T intended to create a will
Will - Lack of Capacity
Capacity to make a will requires an understanding or recollection of:
(1) the nature and extent of one’s property;
(2) the natural objects of one’s bounty;
(3) the disposition one is making of that property; and
(4) an orderly distribution scheme.
Substantial Compliance
CPC allows for substantial compliance if the proponent of the will established by clear and convincing evidence that, at the time the testator signed the will, the testator intended the will to constitute the testator’s will.
Wills - Interested Witnesses
UPC is unconcerned if a witness receives a bequest under a will
Unless there are at least two other subscribing witnesses to the will who are disinterested witnesses, the fact that the will makes a devise to a subscribing witness creates a presumption that the witness procured the devise by duress, menace, fraud, or undue influence
This presumption shifts the burden of proof to the witness to rebut.
This presumption does not apply where the witness is a person to whom the devise is made solely in a fiduciary capacity
* Look for an argument that the testator actually created an obligation not a benefit on the beneficiary
Test 1 for Undue Influence
- Susceptible to undue influences
- Opportunity to assert influence
- Disposition to unduly procure an improper favor
- Unnatural disposition caused by the influence
Test 2 for Undue Influence
o Confidentiality and
o suspicious circumstances
Fraud in the Inducement
o when a testator is deceived by a misrepresentation that is intended to influence the testamentary disposition and the testator would not have made such disposition if the misrepresentation had not occurred.
Fraud in Execution
o Misrepresents the character or contents of the instrument signed by T, which conflicts with T’s intent
Supernumerary
- Interested witness’ participation does not raise a presumption that the witness procured the devise by menace, fraud, duress or undue influence.
Remainderman
Such a codicil can bestow a life estate to a surviving beneficiary, and can designate another beneficiary as the remainderman after that life terminates. It can supersede a provision in an earlier will without specifically mentioning the earlier will because the Probate Court will read the valid testamentary documents together.
remainderman, that is, he will receive the house in fee simple absolute after beneficiary dies
Holographic Wills
If valid, then incorporates the provisions of earlier drafts
Requirements
* Shows intent to adopt earlier predated document
* Distinctive Handwriting
* Intentionally provides for order distribution
* Dated
* Signed (initials could be sufficient)
A later document cannot republish a prior document that itself is invalid as a testamentary document, but such a document can be incorporated by reference.
* Alternatively, proponents of the will can argue that this is a valid handwritten codicil that republishes the 2000 will and cures any errors in it.
Material provisions
* Traditionally, must be entirely handwritten
* CA and UPC must at least have material provisions handwritten
* Material provisions are not in handwriting or vice versa
* This hybrid character may be resolved by incorporation by reference.
* Assuming that the 1994 will is authenticated, adequately described, and presently existing (even though previously revoked), this outside typed document may then be “incorporated” into the 1998 will under the mix-and-match approach and used to ascertain the material provisions.
Revocation
CA allows for a duplicate original to be probated.
If original will was last in the possession of the testator and cannot be found, there is a rebuttable presumption that the will was revoked by a physical act
* But this does not apply if original will was given to someone else to hold.
Photocopy can substitute for will if provided clear and convincing evidence of testator’s testamentary plan
Revocation by a post-it note might not be enough since it can be detached or removed and is not an adequate act of destruction under CPC.
Written Revocation
- The writing expressly revoking the prior will must be valid
- If it satisfies the requirements for a holographic will or holographic codicil, in which case the express revocation technique could be effective.
Physical Revocation
- A will also may be revoked if the testator has the intent to revoke and either himself or through another destroys the will.
- If someone other than the testator is directed to destroy the will, the destruction must be done in the testator’s presence.
Revocation by presumption
- The testator is presumed to have revoked his will where the will is lost and cannot be found, only if the will was last in the testator’s possession.
- Can be rebutted by: natural disaster resulting in lost will.
Termination by opreation of law
- In many jurisdictions, a bequest to an ex-spouse is terminated by operation of law.
- Resulting Trusts: A resulting trust is an equitable reversion that arises by operation of law whenever an express intentional trust fails or does not completely dispose of the trust property. When this happens, the undisposed property goes back to the settlor in a resulting trust.
- Constructive Trusts: A trust created through the court’s power as a remedy for unjust enrichment. The constructive trust requires the unjustly enriched person to transfer the property to the intended party.
Revival
Under most Wills Acts, will provisions must be in writing; only oral death-bed wills have a slight chance of validity in some jurisdictions.
Evidence of informal revival by oral declarations is generally inadmissible.
While revival of a prior will is not automatic, where there is evidence of the testator’s intent to revive the prior will, the 1994 will can be revived under the terms of Section 6123, here in its entirety since that is what the evidence shows T wanted.
No contest clauses in will
CA provides that frivolous challenges are likely to result in forfeiture.
* Direct contests: Forgery, improper execution, lack of capacity, menace, duress, fraud, undue influence, revocation, and/or disqualification of a beneficiary that is a fiduciary.
Wills - Incorporation by reference
CA provides broadly that a writing in existence when a will is executed may be incorporated by reference if the language of the will manifests this intent and describes the writing sufficiently to permit its identification
Exception: for tangible personal property valued at a total of $25k or less ($5k per item), then the document does not have to be existence at the time the will is executed.
It can be in writing and signed. If the writing is not signed or in the testator’s handwriting, extrinsic evidence can be used to establish the testator’s intent
Wills - Integration
It can occur when it is clear that two or more separate writings are intended by the testator to comprise his or her will
The documents must be coherent in nature and intended to be read together
Wills - Election
If testator invades CP interests to a spouse, then can have standing to claim an election in that CP interest (like a house being willed to daughter instead of spouse)
If the elector has been expressly provided for by a trust (instead of the will) that may defeat his/her eligibility to force an election.
If he/she does elect against the will ,that would mean that he/she forfeits his community property right in the residence
She can claim all the community property and one third of Testator’s separate property
Modification by Interlineation
Traditional common law – mistake would invalidate the gift
Under the transitional approach, the court would simply strike the incorrect language
Modern rule, the court would reform the will to achieve its approach
In general, revocation and substitution of gifts by interlineation will only be valid if the new gift is less than the original gift.
In addition, the interlineation is only partial and does not convey T’s intent in handwriting along with the other terms –
* “OK” and the date are too ambiguous.
* Since the interlineation is incomplete and increases the gift, the act is improper in California, which requires that the entire provision be handwritten, not just parts of it, and the gift fails.
Will - Ambiguity
The court will admit extrinsic evidence to resolve the ambiguity under both the traditional and modern rule, provided that it is not self-serving. [The transitional or subtraction rule would not resolve the ambiguity.]
Latent ambiguity
* Do not appear on the face of the will; appears to be clear, but is unclear in the context of its application or circumstances two or more meanings)
* Extrinsic evidence can be considered to resolve latent ambiguities under the traditional approach.
Patent ambiguity
* Appear on the face of the will. Term is inherently contradictory or subject to different meanings on its face; the word itself conflicts.
Codicils
A codicil is a subsequent testamentary document that partially revokes or amends and earlier will.
Follows same requirements as a Will
Requirements
* Signed writing
* 2 Witnesses
* Date
o Does not need to be dated, but if not, then assume that dated will is most recent
If the new writing qualifies as a valid holographic codicil, it would “republish” the will to which the codicil refers (the original will) as long as the prior will was originally valid and still in existence.
Dependent Relative Revocation (DRR)
If a later testamentary document is characterized as a will providing an indirect revocation of the original will, and it turns out to be invalid, then the original will can be revived under the doctrine of DRR, since the revocation of the earlier document is conditioned on the validity of the subsequent testamentary document.
Wills contest
Because there is a contest here, the court will have to take evidence to support the validity of the photocopy.
Under California Probate Code § 8220(a), an uncontested will may be proved on the evidence of one of the subscribing witnesses, if the evidence shows that the will was executed in all particulars as prescribed by law.
Under § 8220(b), evidence of execution of a will may be received by an affidavit of a subscribing witness to which there is attached a photographic copy of the will, or by an affidavit in the original will that includes or incorporates the attestation clause.
Here, however, more proof may be needed because of the contest. Evidence must be presented when the original is lost to sufficiently prove that the photocopy is valid. This requires: 1) proof of due execution, 2) proof it was not revoked, and 3) proof of the will’s contents.
Mirror Image or Reciprocal Wills
A mirror-image or reciprocal will is one of two separate wills with distribution plans that are virtually identical.
These types of wills are commonly used by couples who wish to leave each other their property, with the condition that it be distributed to the children when the surviving spouse dies.
Modernly, Courts may be looser in applying formalities here
Extrinsic Evidence
Extrinsic evidence not included in a will is generally admissible to:
* prove whether the will is valid;
* prove whether the testator intended to execute or revoke a will;
* interpret an erroneous description;
* interpret an ambiguity; or
* correct a scrivener’s error.
Note, however, that extrinsic evidence is not admissible to add a provision or otherwise alter or reform the will. UPC §§ 2-502; 2-507.
Advancements
- No requirement that an advancement be made prior to the execution of the will,
- Under CPC, the court merely requires
o A testamentary declaration of intent that the inter vivos gift be dedicated from the testamentary gift OR
o The testator’s contemporaneous written statement of intent that the gift is to be deducted from the testamentary gift OR
o The transferee’s written acknowledgement that the gift is in satisfaction of the testamentary gift - Under CPC, if the recipient of the property advanced fails to survive the decedent, the property is not taken into account in computing the intestate share to be received by the recipient’s issue unless the declaration or acknowledgment provides otherwise, so the girls do not benefit from this statute.
- Hotchpot
o Under CPC, an equal distribution is made at the first level of living heirs. If any of those heirs are deceased and leave issue still living, their share will be distributed equally between their issue.
o If any deceased heirs do not leave issue, then their share will be added back to the original distribution and divided among the remaining closest heirs.
o If an advancement has been made to an heir, that amount must be deducted from his share under a hotchpot calculation.
o The hotchpot calculation adds the amount advanced to the amount remaining in the estate, uses that total as a basis for the hypothetical calculation of shares, and deducts the amount of the advancement from the share going to the recipient of the advancement.
Joint Tenancy
- Joint tenancy and right of survivorship
- Right of survivorship
o Deceased co-owner’s heirs don’t get any of the property, even if willed to them.
o Right of survivorship must be clearly indicated (not default)
o A right of survivorship cannot be devised by will. - Time, Title, Nature of interest, and Possession
o Bequest in a will will normally satisfy the 4 unities.
o JT can be severed when any of the 4 unities are severed (usually caused by partition, mortgage, transfer
o Split in authority to whether a bequest severs JT. - When a person conveys their interest in JT, the new owner becomes a TIC with the other owners, but the co-owners are still JT with each other
Tenancy in Common
- Default form of co-ownership
- Allows for any proportionate share, equal or unequal
o When a co-owner dies, their share goes to their heirs and beneficiaries, not the surviving owners. - Technically, each owner has the right to use the whole property
- Shares can be transferred to anyone for any reason (e.g. leaving one’s share of tIC in a will)
- No right of survivorship
Residue
- Under the traditional rule, there was no residue to the residue.
- If a residuary devise lapsed because of the death of a residuary recipient, the attempted gift to the predeceased beneficiary passed by intestacy.
- Modernly, the UPC and California law provide that the share of a residuary devisee that fails for any reason (with no provision to the contrary) is reabsorbed into the residue and passes to the other residuary devisee(s).
- CPC provides in pertinent part that if a residuary gift is transferred to two or more persons, the share of a transferee fails for any reason, and no alternative disposition is provided, the share passes to the other transferee in proportion to their other interest in the residuary gift.
Trusts Requirements
o Settlor who intends to establish a trust
o Purpose – valid and lawful purpose
o Trustee
Not always necessary, Court can appoint one
o Corpus
The corpus of a trust is the sum of money or property that is set aside to produce income for a named beneficiary.
Trust property must be clearly described and separate.
o Beneficiaries
At least one beneficiary, cannot be solely trustee
Think about RAP
Missing original/hard copy - Trusts
Presumption of revocation does not apply to lost trusts
Spendthrift Trust
A spendthrift provision restrains or limits the beneficiary from reaching the assets in the trust property. It must restrain voluntary and involuntary transfers of the beneficiary’s trust interest in the property to be valid. As a result, because the beneficiary cannot reach her trust funds, creditors also cannot reach the trust funds.
A spendthrift provision is enforceable unless the beneficiary is also the settlor
A spendthrift provision prevents creditors from accessing the trust property before it is distributed.
Some states have exceptions; Spendthrift trusts do not protect against claims for (1) spousal and child support (2) claims by the federal government (3) creditors who have supplied necessaries.
Secret Trust
The creation of a secret trust in a will is enforceable.
A secret trust is created by an independent understanding that a trust exists even though the will is silent as to its existence.
This is an alternative theory for enforcing the trust, since no terms of the trust appear in the will, and must be supported by extrinsic evidence.
Semi-Secret Trust
Traditionally, a semi-secret trust in a will was not enforceable when it included some but not all terms of the trust. It was considered incomplete and therefore did not fully form a valid trust.
Modernly, many jurisdictions have abolished the distinction between semi-secret and secret trusts and will admit extrinsic evidence allowing them to enforce both.
Exists only when something in the express language of the will hints that the devisee or property was not intended to take the property for his or her own benefit.
The courts will not admit extrinsic evidence of who the gift is for, and the gift fails
Support Trusts
If a support trust provides that the trustee pays income to support the beneficiary only in the amount necessary for such support, then the beneficiary’s interest can be protected from creditors.
Trusts - Revocation
can always revoke their will while s/he is alive. Requires legal capacity. A clause indicating that the will is irrevocable has no legal effect.
The majority of jurisdictions do not permit a settlor to revoke a trust unless she has reserved the power to do so in the terms of the trust
If the settlor does reserve such a power, revocation must be effectuated in the manner and under the conditions specified in the terms.
Modifying an express trust
A modification must have the consent of the beneficiaries and requires an unanticipated change in circumstances.
The modification may not defeat a material purpose of the trust (including the distribution scheme).
Modifying the residuary trust
Court may allow modification of trust in response to new and unforeseen circumstances with proper consent from all beneficiaries and the trustee
Modification must be consistent with the original purpose of the trust
Claflin Doctrine
where all the beneficiaries consent but the trustee does not, the trust cannot be modified or terminated if doing so would be contrary to the settlor’s material purpose.
Material purpose rule safeguards the settlor’s freedom of disposition; beneficiaries cannot overcome a material purpose of Settlor.
What constitutes an unfulfilled material purpose is a fact-specific inquiry
Equitable Deviation
(1) there are circumstances not anticipated by the settlor/ circumstances have changed since the trust’s creation, and (2) the proposed modification furthers the purpose of the trust.
o Scrivener’s Error
Drafting error and under modern law, the court can either strike out part of the name, etc.
Trusts - Merger Doctrine
If an individual becomes both trustee and beneficiary, the trust can be terminated and distributed under the merger doctrine.
Pour over Trust
Where the settlor has included a clause whereby all of the settlor’s assets at the time of his death pour in to the trust for the benefit of other beneficiaries, a pour-over Will is created.
Can be pre-existing or can be established concurrently with the execution of the will.
Unitrust
Can be enforceable because the primary beneficiaries are limited to the trust income, with the corpus going to a charitable remainderman. This kind of mixed-use arrangement likely has tax benefits, and involves good estate planning
Trustee Duties
A trustee must follow the instructions established by the grantor.
In doing so, a trustee has a number of duties to the beneficiaries of the trust. Among the relevant duties are: (a) a duty of care; (b) a duty to distribute benefits in accordance with the trust instructions; and (c) a duty to treat beneficiaries equally.
Only in certain circumstances is the trustee allowed to use discretion in how to distribute the income of the trust, namely, in a discretionary trust or a support trust.
Where a trustee has breached her fiduciary duties, she may be held personally liable, and/or may be removed from their position by the court.
Duty of Care
duty to act as a reasonably prudent person in her dealings as trustee. This includes investing reasonably, making reasonable distribution, aet.
Duty of loyalty
Duty to distribute in accordance with directions given in the trust instrument. This duty is breached when the trustee acts in a way inconsistent with the specific instruction
Duty of equal treatment
- A trustee should give the same care and deference to each beneficiary of the trust, in accordance with the trust purpose. Ordinarily this applies to fair treatment of primary and secondary beneficiaries, but also of same class too.
Duty to defend trust
- – protect and preserve rights of trust, including defending from improper demands from creditors
Duty to segregate funds
- – no commingling
Duty of prudence in investment of trust assets
o Prudent investor rule
o Diversification is important
- Duty not to delegate critical functions
do not to delegate critical functions
Self Dealing
Under the traditional rule, a trustee may not engage in any act of self-dealing with trust assets.
Most jurisdictions engaged in no further inquiry when such conduct occurred.
Modernly, a court may consider whether the conduct of the trustee was reasonable and in good faith.
Trust Remedies
o Surcharges the trustee
o Set aside improper transactions
o Trustee removal if written in the will, otherwise must have good cause in court
o Statute of limitations
Trustee Defenses
o Consent:
if the beneficiary is a legally competent adult with full knowledge of all relevant facts and legal rights, and her consent was not induced by the trustee’s improper conduct, then the beneficiary cannot hold the trustee liable for a breach of duty where the beneficiary consented to the breach.
o Statute of Limitation has ran
o Equitable defense of Laches:
unreasonable delay prejudices the trustee
o Exculpatory Clause
The effect of provisions in the terms of the trust which purport to relieve the trustee of liability for breaches of duty depends upon the scope of the purported exculpation.
A clause attempting to relieve the trustee of all liability for any breach of duty is void as against public policy.
Provisions which purport to provide limited relief from liability will be enforced to the extent that they do not seek to relieve the trustee for liability of bald faith, intentional breaches of duty, or recklessness. Any exculpatory clause not ruled void will be construed very narrowly by the courts.
Charitable Trust
- Courts look with favor on all attempted charitable donations, testamentary or inter vivos, and will endeavor to carry them into effect if possible.
- Requirements
o Proper purpose
Benefits community by relieving poverty, advancing education and/or religion, promoting health, supporting government or city purposes, or any other purposes (homeless) that benefits the community at large.
o Trustee
No need to appoint; probate court will appoint
Writing satisfied via written will containing all essential terms
o Distribution terms - Do not need to name Trustee
- Does not need to specify termination date
Express Trust
o An express trust is created when the settlor (with capacity) gives his property to the trustee to hold and manage for an ascertainable beneficiary.
o Testamentary - A type of trust created as part of the settlor’s last will and testament
o Inter vivos settlor transfers property during his/her lifetime
Revocable
* trust set up during the settlor’s life where the settlor reserves the right to revoke the trust (end the trust and recover the trust assets). A trust that is revocable inter vivos becomes irrevocable upon death.
Irrevocable
* A trust where the settlor cannot change or end the trust after its creation.
Discretionary Trusts
o Where the settlor confers power to the trustee to distribute the trust’s income and principal at his/her discretion.
Act of independent significance
o Under the doctrine of acts of independent significance, a will may dispose of property by reference to acts and events that have independent significance (non-testamentary), whether they occur before or after the execution of the will or testator’s death.”
o These are acts that did not occur because of the will, and are not testamentary in nature.
o Courts prefer all instructions for distributions to be incorporated into the will itself
o However, if the list functioned primarily as an inventory of holdings rather than serving a testamentary purpose, changes would be based on management of her collection, and the court will harmonize those independent changes with the will.
o Modernly, however, beneficiaries inherit assets subject to encumbrances and Beneficiary must assume responsibility for the loan secured by the lien unless he disclaims the bequest.
Cy Pres
o A charitable trust can be modified if
The grantor evidenced a general intent to create charitable trust and
The material purpose of the trust has become
* Impossible
* Impractical
* Illegal
* Wasteful
For general/specific purposes – look to four corners of conveyance
o Court may require company to hold the proceeds in a constructive trust, which will allow it to designate a substitute beneficiary and allow proceeds to go to an organization with goals similar to the previous charity’s purpose.
o A nonconventional charitable trust may be more problematic
Testamentary support or special needs trust
- Requires
o Settlor
o Corpus
o Trustee
o Beneficiary - Additional fact patterns
o If X declines to serve as trustee, the court can appoint a new one
o Attempt to avoid interference with eligibility for government benefits
Looks for residuary beneficiary becoming a direct take and thus might lose eligibility for benefits
CA Intestacy
o Under intestate succession rules, the surviving spouse takes the community property and the spouse’s share of separate property. If the decedent dies without leaving a surviving spouse or domestic partner, and/or after the surviving spouse has taken his share, the portion of the estate remaining goes to the decedent’s blood relations, first to issue and then to others by degree of relationship. If there is no surviving issue or parent, the estate passes to the issue of the parents.
o A person who fails to survive the decedent by 120 hours is deemed to have predeceased the decedent for the purpose of intestate succession, and the heirs are determined accordingly.
o Right of representation. The issue of an heir will take by right of representation when the biological or adoptive parent is predeceased. If necessary, paternity can be supported by clear and convincing evidence that the father has openly held out the child as his own.
UPC Intestacy
o Applies the per capita at each generation rule.
o 1) SS, 2)children 3) parents 4) siblings, or nephews by right of rep 5) grandparents, aunts, uncles and their descendants, 6) great grandparents 7) if no relatives, property escheats to the state
o The estate is divided at the first level of living takers.
o The shares of predeceased takers of that generation drop down, are pooled, and are distributed equally among takers at the next generation.
o The share of a taker without issue is extinguished and reabsorbed into her siblings’ shares.
Specific Bequest
The doctrine of ademption applies only to specific bequests. If the subject matter of a specific bequest is missing or destroyed (extinct), the beneficiary takes nothing (not even the insurance proceeds or sales proceeds received for the property by the testator).
Courts are inclined to avoid ademption by a variety of means, including the classification of a specific bequest as general or demonstrative, the classification of an inter vivos distribution as a change in form, consideration of the testator’s intent when he disposed of the subject matter, or application of statutory exceptions to the doctrine.
Demonstrative Gift
These are treated as specific gifts to the extent they are satisfied out of the fund or property specified in the gift and as general gifts to the extent they are satisfied out of property other than the fund or property specified in the gift.
Trusts - Change in Form
Under CPC, a beneficiary is entitled to securities of another organization acquired as a result of a merger, consolidations, reorg, or other distribution by the organization or any successor, related, or acquiring organization.
Ademption
Ademption voids a bequest in a will if the item no longer exists or has been transferred to another.
It is possible to avoid ademption by characterizing the gift as general (“my car”) rather than specific (identifying the specific car) or by arguing that there has been a change in form rather than substance
Look for act of independent significance
* Sell original car and buy new car to make testator feel good, not to modify the bequest in a will
Identity theory
Intent theory
* Does the language show intent…
Ademption by extinction
UPC states more broadly that fire and casualty insurance shall be paid out to the devisee of the specific gift.
Identity Theory
Identity theory of ademption applies to gifts that can be identified as an item the testator owned at the time his will was executed, or at time of death. Under identity theory, a specific devise is extinguished if the property is not in the testator’s estate at time of death
Intent Theory
(UPC): Under intent theory of ademption, when a specific devise is no longer in the testator’s estate at the time of his or her death, the devisee will receive a gift of equal value if it can be proved that the testator did not intend the gift to be adeemed.
Ademption by Extinction
The doctrine of ademption applies only to specific bequests. If the subject matter of a specific bequest is missing or destroyed (extinct), the beneficiary takes nothing (not even the insurance proceeds or sales proceeds received for the property by the testator).
Courts are inclined to avoid ademption by a variety of means, including the classification of a specific bequest as general or demonstrative, the classification of an inter vivos distribution as a change in form, consideration of the testator’s intent when he disposed of the subject matter, or application of statutory exceptions to the doctrine.
Abatement
Abatement is the proportional reduction of gifts when the estate’s funds or assets are insufficient to pay them in full. Gifts of a higher priority are satisfied by using lower priority gifts.
Order of satisfaction (lowest priority/ first used to highest priority/ never used)
* Intestate Property
* Residuary Estate
* General Bequest
* Demonstrative
* Specific Bequest
Anti-Lapse
Facts: When the beneficiary predeceases the testator, his gift lapses.
However, modernly, it may be salvaged under an anti-lapse statute, which would allow the gift to descend to the issue of the predeceased beneficiary.
The anti-lapse statute is limited to close relatives.
The contents of X will fall into residue.
Right of representation
Contrary intention - any failed bequests are to fall into the residue
Must survive testator by 120 hours under CP, which requires clear and convincing evidence of survivorship
Class Gift
A class gift is a gift to a group of persons that share a common characteristic. Under modern anti-lapse (UPC and CA), the predeceased class member’s share passes to her surviving descendants (per capita at each generation). The class must close at some point.
Requirements
* General gift
* To ascertainable beneficiaries with the common characteristic
If minors in class, may need a custodian of property or trust
Latent ambiguity
Patent ambiguity
Consider if violates the RAP because there is a chance that it will not vest (at least in part) until 21 years after a life in being. Heirs can continue to be born for decades after the trust goes into effect.
Minor Beneficiary
Minor cannot receive the bequest directly
The court will appoint a guardian of property or impose a constructive trust over the thing
Conditional Devise
Consider whether violation of personal rights or public policy (health and welfare)
Consider vagueness
Creditor’s Rights
- Under California law, trusts established for a beneficiary that is not the settlor can be drafted to protect against creditors by limiting the extent to which the trustee is required to satisfy debts. Creditors must be satisfied first
- Revocable Living Trusts - creditors can reach trust assets in a revocable inter vivos trust during life, but not after death.
- Once settlor dies, becomes irrevocable, but creditors can reach assets if:
1) Assetsa were under control of the settlor at time debts incurred
2) Settlor could have used the assets during his lifetime - Irrevocable trusts - Creditors cannot reach assets in an irrevocable trust to satisfy the settlor’s debts because the settlor no longer holds legal title to the assets.
- Exception: Claims that can pierce the shield of a spendthrift provisions include
o Self-settled trust – Cannot create a trust where grantor is the primary beneficiary in order to shield from creditors. Can use off-shore trusts though.
o Child support, alimony. In CA, access usually limited to trust income and principal remains shielded
o Furnishing necessary support – persons who furnish necessary support can reach spendthrift trust assets.
o Tax Lien – US or state can reach the interest to satisfy tax claims against the beneficiary
o Excess over amount needed for support – creditors can reach the amount not needed for support (e.g A needs $40k per year for support, but gets $50l, creditors can reach the $10k)
o Tort creditors: courts are split as to whether tort creditors can reach the assets of the spendthrift trust
Insurance Policy as a testamentary document
- A policy can be a testamentary document
- It generally is included in the augmented estate for purposes of election, but this gets complicated when the surviving spouse is the beneficiary
Omitted Children
- In general, a child may be disinherited if the child is left out of a will or other testamentary document created by a parent.
- However, where a child is unknown to the parent at the time the testamentary document is created, and the parent had no reason to know of the child, that unknown child will not be considered to be intentionally disinherited, and may be able to recover his intestate share of the parent’s estate.
- If testator mistakenly believed the child to be dead/missing, the child has legal rights and is entitled to receive a share in the estate equal to the intestate share that would have passed had the testator died without a will (CPC § 21622). When the omission of a child from a will is induced by fraud, the remedy for omitted children is transfer of their share under principles of intestacy.
- A child’s intestate share in a modern per stirpes system, which is the majority view taken, will be an equal share determined at the first level of living takers, in this case among the children.
- Omitted children will receive no share if the decedent devised or directed the disposition of his estate to the other parent of the omitted child, or provided for the child by way of a transfer intended to substitute for a devise.
o Look for an intentional omitting by testator - An omitted child may not invade the share of the parent
- No contest clause
o If Diane was born prior to the will, the clause is indirect evidence that testator has provided for the omitted child via life insurance.
Omitted Spouse
- Spouse omitted
- Will executed before testator married spouse and testator made no alternative testamentary provision for her and he has no expressly disinherited her. Then, omitted spouse is entitled to force her intestate share under CPC***
Pretermitted Child
- Normally, when a child is born after a will is drafted but before the testator’s death, he can claim as an omitted child.
- However, under California Probate Code §§ 6571(b) [applying pre-1998] and 21621(b) [applying as of 1/1/98], when substantially all of the testator’s estate is left to the parent of an omitted child, the courts will not treat said child as omitted and will view the gift to the parent sufficient based on the assumption that those funds will be used to help the child or that they will later be bequeathed to him or her upon the death of the surviving parent.
Tortious Interference with Expectancy
- Free standing tort and can be brought after probate concludes
- To private a cause of action for tortious interference with expectancy, P must show
o A valid expectancy to inherit
o Intentional interference with that expectancy
o Independent tortious conduct (such as undue influence ,fraud, or deceit)
o A reasonable certainty that, absent the tortious interference, P would have received the expectancy; and
o Damages
Payable on Death Accounts
- Fall outside of probate because they transfer assets by right of survivorship.
Stock increases
- Increases in value can go to the beneficiary as long as the language is clear that it is for the stock and not for a $$$ worth of stock.
- If it was a stock split, beneficiary may not have been entitled to the additional stocks acquired by the split.
Powers of Appointment
- A special power of appointment requires the donee to distribute the property among members of a specified group or class of persons.
- A special power of appointment does not allow the donee to appoint the property to herself, her estate, or to her creditors or creditors of her estate.
- The recipient has the authority to determine who receives funds, how much, and when.
- Look to see if State law will not allow a trustee to exercise a power of appointment, this arrangement is valid.
- Benefit: avoid leaving property to predeceased beneficiaries.
- Allocation Doctrine “unblends” the appointive property from property blended with the appointive person’s property to ensure that only eligible appointees take the appointive power
- Powers of appointment are distinguished based on (1) whether or not the donee can be an appointee, and (2) when the power can be exercised.
General POA
o Allows the donee to distribute the property to anyone, including himself.
o Creditors rights: under the general power of appointment, creditors cannot reach the appointive property unless the donee exercises her power. Upon exercising her power, creditors can only reach the property that was appointed.
o Failure to exercise a general power of appointment results in the property being returned to the donor’s estate.
Special POA
o Requires the donee to distribute the property among members of a specified group or class of persons. (not allowed to distribute the property to himself, his estate, or creditors of his estate)
o Exclusive Special power of appointment: Allows the donee to give all the appointed property to one or a few members of the group permitted by the appointment.
o Non-Exclusive Special Power: Must give at least some of the property to each permissible appointee
o Creditor’s Rights: Under specific power of appointment, creditors cannot reach the appointive property.
o Failure to exercise a special power of appointment to an ascertainable limited group with no express default taker results in equal property distribution shares among the possible appointees (traditional rule).
Inter Vivos POA
o An inter vivos power can only be exercised by the donee during her lifetime. A donee exercises her inter vivos power by executing a deed.
Testamentary POA
o A testamentary power can only be exercised after the donee’s death in her will.
o Testamentary power of appointment can be released, either completely or partially, while the donee is still alive.
Life Insurance Policys
- The insurance policy proceeds are non-probate assets and transfer according to the terms of the life insurance policy.
- In most jurisdictions, a court will defer to the terms of a non-probate transfer
UPC Testate Scheme
- Surviving spouse
● SS receives a lump sum. The rest is distributed accordingly
● Lump sum is set by the jurisdiction. So high that the SS usually receives the majority of the estate.
● UPC 2-102: A decedent’s surviving spouse will receive the entire intestate estate if (A) no descendant or parents of decedent survive D, OR (B) all of D’s surviving descendants are also the surviving spouse’s descendants - Descendants of Decedent (children)
- To parents of decedent
- Siblings, or nieces and nephews by right of representation
- Grandparents, aunts, uncles, and their descendants,
- Great grandparents
- If no relatives, property escheats to the state
CPC Testate Scheme
- Surviving spouse
● Receives all community property and a proportion of SP.
● SP proportion:
○ If no surviving issue, parent, or sibling, then all
○ If (a) child or issue of only deceased child, (b) no issue but parents or issue of parents, then ½.
○ If more than one child, or child + deceased child’s issue, then ⅓ - Issue
● Equal shares if same degree of kinship - Parent of decedent
● Equal shares if both alive - Issue of Parents (ie siblings) or issue of siblings
- Grandparents or issue of grandparents (aunts, uncles)
- Issue of Predeceased spouse
- Next of Kin
Gift v. Trust
Gift = intent, delivery, acceptance
Trust = delivery usually delayed, acceptance not required
No Further Inquiry Rule
traditionally apply the no further inquiry rule: the transaction benefitting the trustee is inherently suspect without further inquiry, and are voidable on action of the beneficiaries.
■ GR for rule against self dealing: a trustee is in a fiduciary relationship with the trust beneficiaries, and must administer the trust solely in the interest of the trust beneficiaries and not for her own benefit.
○ The modern trend modifies the no further inquiry rule and considers whether the trustee acted reasonably and in good faith under the circumstances.
