Wills and Trusts

Question 1

Ademption

Answer 1

Generally, when specifically bequeathed property is not owned by the testator at death, the bequest is adeemed (it fails).

Under a widely-recognized exception to the ademption doctrine, if a guardian or conservator is appointed for the testator after the will is executed and the bequeathed property is sold by the guardian, the beneficiary is entitled to the sale proceeds—at least to the extent they have not been expended for the testator’s care.

Further, the UPC and some state statues provide that the devisee of specifically devised real estate is entitled to any real property owned by the testator at death which the testator acquired as a
replacement for the specifically devised real property. But this is not a majority rule.

Question 2

Validity of a Will

Answer 2

In many states, a valid will must be in writing, signed by the testator, and witnessed by two witnesses. Additionally, the testator must be 18 years of age or older and have the intent that the document serve as his will. However, if you see an unwitnessed will, consider whether the document could serve as a holographic will.

Question 3

Holographic Wills

Answer 3

Holographic wills are unwitnessed wills and are recognized by about half the states. Holographic wills are valid if signed and (in many states) if the material portions are in the testator’s handwriting.

For states that follow the Uniform Probate Code (UPC), courts may use their dispensing power to save an invalid will so long as there is clear and convincing evidence that the decedent intended the document to be their will.

Question 4

Revocation of a Will

Answer 4

Revocation by a physical act can occur by the execution of a new will or by some other physical act, such as cancellation or other writings on the document. The act of revocation must be done with the intent to revoke the will.

Either the testator or someone acting at the testator’s direction and in his conscious presence may revoke the will.

Under the dependent relative revocation doctrine, a first will is not revoked if a later will is found invalid. If a testator revokes a will or bequest based on mistaken assumptions of law or fact, the revocation of the will is ineffective if it appears that the testator would not have revoked had he had accurate information.

Question 5

Anti-Lapse

Answer 5

The general rule is that if a beneficiary does not survive the testator, the gift to the beneficiary will “lapse” or fail and go to the residuary of the estate.

However, all states have antilapse statutes. Under a typical antilapse statute, if a beneficiary dies before the testator and was related to the testator by blood and had issue who survived the testator, the gift to the beneficiary is “saved” from lapsing because the beneficiary’s issue will take the gift in lieu of the deceased beneficiary.

“Issue” refers to lineal descendants of a person -that is, children, grandchildren, great-grandchildren, etc

Question 6

Effect of divorce on a will

Answer 6

If a testator is divorced after making a will, all gifts to the former spouse are revoked, and the will takes effect as though the former spouse predeceased the testator.

In a minority of states that follow the Uniform Probate Code, a divorce revokes bequeaths not only to the former spouse but also to the relatives of the former spouse.

However, the typical statute does not apply if a divorce proceeding is pending when one of the spouses dies. This approach derives from the fact that, until the divorce
is finalized, no property division order will be entered; thus the moral and legal claims of each spouse in the property of the other have not yet been satisfied.

Question 7

Interpreting Wills

Answer 7

A will is governed by the law of the testator’s domicile at the time of death. Time-honored rule of construction that a will “speaks” at the time of death.

A will is interpreted according to the plain meaning of its language and is said to speak
at the time of the testator’s death. However, a will may be interpreted according to the testator’s intent at the time of the testator’s death.

A will may contain conditional language that provides for alternative disposition of a
testator’s probate estate depending on the occurrence or nonoccurrence of a condition.

An “heir’’ in estate law is a term of art that refers to an individual who takes a decedent’s property when a decedent dies intestate. A person who takes under a will is referred to as a “beneficiary.”

A bequest of generically described property (e.g., my automobile) applies to property that meets the
generic description at the testator’s death.

Question 8

Intestate Succession

Answer 8

Intestate succession explains how property is divided if a person dies without a will or if the will is invalidated or it does not make a total disposition of the testator’s estate.

If the decedent’s spouse does not survive the testator, there are three available schemes to divide property among his children: per capita with representation, per capita at each generation, and classic per stirpes.

Under per capita with representation, to decide who gets the shares of the estate, find the first generation where there is living issue. Give one share for each such living issue, and one share for each person in that generational level who predeceased T but left issue still surviving. Then, each deceased person’s share will pass on to her issues.

Under per capita at each generation, the shares will be decided as described above, except that cousins will be treated alike. This means that all the shares belonging to the deceased persons at the first generation with living issue will be combined and distributed equally at the next generation.

Under classic per stirpes, the stirpital shares are determined at the first generation regardless of whether there are living takers. Then, each deceased person’s share passes to her issues.

Question 9

Consanguinity versus parentelic

Answer 9

If there is no spouse and no children, there are two methods of determining heirship—the civil law
consanguinity method and the parentelic method adopted by the UPC. Under the consanguinity method,
heirship is determined by degree of relationship: all persons of the same degree of relationship to the
decedent take equal shares (so an uncle and a niece are in the third degree of consanguinity and would
be heirs entitled to equal shares). Under the parentelic method, descendants of the decedent’s parents take to the exclusion of descendants of the decedent’s grandparents (so a niece would be an heir but an uncle would not).

Question 10

Types of gifts in a will

Answer 10

A specific bequest is a gift of property that is particularly designed and is to be satisfied only by the receipt of the particular property described.

Question 11

Power of Attorney

Answer 11

All states have adopted statutes authorizing advance directives and durable health-care powers. An advance directive specifies the patient’s treatment
preferences should he or she become incapacitated.

A durable health-care POA empowers a designated agent to make health-care decisions for the principal in the event of the principal’s incapacity. Unless the durable POA specifies otherwise, a designated agent is empowered to make health-care decisions for the principal whenever the principal lacks capacity; the power is not limited to a particular illness or for a particular time period.

Had the patient not executed a durable health-care power, a majority of the relatives would have had to agree upon health-care decisions. However, when an agent has been designated by the patient, the agent may act on behalf of the patient without consulting family members who are not designated agents of the patient.

In the absence of specific instructions, a designated agent shall make decisions for the principal in accordance with the agent’s determination of the principal’s best interest considering the principal’s personal values to the extent known to the agent.

An individual acting as an agent is not subject to civil or criminal liability for health-care decisions made in good faith.

Question 12

Slayer Statute

Answer 12

Most states have adopted slayer statutes, which typically bar those who have feloniously and intentionally killed a decedent from taking
a portion of the decedent’s estate.

Question 13

Allocation of receipts to income and principal beneficiaries of a trust

Answer 13

Receipts earned during the administration of a trust are allocable either to income or to principal. The Uniform Principal and Income Act specifies how such receipts should be allocated.

Rents and cash dividends received from a corporation are allocable to income and are distributable to the income beneficiary of the trust.

Sales proceeds and dividends paid in the stock of the distributing corporation are allocable to principal and added to the principal of the trust.

Question 14

Rule of Convenience

Answer 14

When a trust remainder is given to a class, the class closes when there is no outstanding income interest, and at least one member of the class is then entitled to demand possession of his or her share of the remainder.

A class member may demand possession of his or her
share of the remainder upon termination of the income interest only when the class member’s interest is not otherwise subject to a condition precedent.

Question 15

Disclaimer

Answer 15

When a beneficiary timely disclaims an interest in a trust, that beneficiary is treated as if he had predeceased the testator.

Under the common law, if a life estate is disclaimed, the
remainder interest accelerates and becomes immediately distributable to the remaindermen of the
trust if the remainder is vested but not if the remainder is contingent.

Question 16

Trust when Remaindermen is a Class

Answer 16

When a trust remainder is given to a class, the class closes when there is no outstanding income interest, and at least one member of the class is then entitled to demand possession of his or her share of the remainder.

A class member may demand possession of his or her share of the remainder upon termination of the income interest only when the class member’s interest is not otherwise subject to a condition precedent.

When trust principal is not immediately distributable, the trustee must continue to hold trust assets until the ultimate remaindermen are ascertained. During this period, trust income will be
distributed or retained according to any instructions contained in the trust instrument.

Question 17

Spendthrift Clause

Answer 17

Under the UTC and common law, a spendthrift clause is a valid clause in a trust that
prohibits alienation or assignment of the beneficiary’s interest and may not be reached by creditors with the exception of child support judgments, or creditors tending to the
necessities of the beneficiary.

A trustee working under a spendthrift clause may not
(unless otherwise granted by the trust) use the trust principal to pay off creditors.

Child support exception - The rationale is that public policy favors the timely and complete payments of child support payments rendered in a judgment of a court

Question 18

Beneficiary’s Power of Appointment

Answer 18

The UTC and common law provide that a person writing a will or trust can give their beneficiaries a power of appointment, which enables the beneficiary to designate who will receive specific trust or estate property. There are two types of powers of appointments.

A general power of appointment provides for an unlimited class of people in favor of whom the beneficiary can exercise a power of appointment.

A special (or limited) power of appointment provides for a limited class of people in favor of whom the beneficiary can exercise a power of appointment. Appointments to impermissible appointees are invalid.

Under the UTC, the failure to exercise a power of appointment will result in the relevant principal to go back to the Settlor, since it will have been treated as lapsed. The Settlor will have a resulting trust over the property/principal under the unexercised power of
appointment. However, a minority rule is that if the power of appointment was not exercised, it is essentially treated as a lapsed gift where the power holders’ heirs take in place of the power holder.

Question 19

Effect of Prenup on Will

Answer 19

A prenuptial agreement in which spouses waive rights to a share of each other’s assets upon death or divorce does not bar either party from making subsequent gifts or bequests to the other spouse.

Such an agreement bars only claims that do not arise from a voluntary gift or bequest.

Question 20

Adoption

Answer 20

Adopted children are treated as if they are blood children.

An adoption typically severs the parent-child relationship
between the child and his biological parents. A few states do not sever the parent-child relationship when the child is adopted by a relative of a biological parent.

Question 21

Personal Representative of Testator’s Estate

Answer 21

An individual named as personal representative in a decedent’s will has priority to receive letters testamentary from the court overseeing the administration of the estate.

Where, however, the will is silent regarding the appointment of the personal
representative, the court will appoint a person granted priority under the governing statute if that person is otherwise qualified.

Under the Uniform Probate Code, a surviving spouse has first priority only if the spouse
is a devisee of the decedent.

Question 22

Bequest of Stock

Answer 22

Historically, a bequest of stock owned by a testator when the testator’s will was signed excluded subsequently acquired shares of the same stock acquired by the testator as the result of a stock
dividend.

Shares later acquired as a result of a stock split have always been included in the bequest of stock owned by a testator when the will was signed. Today, under the UPC, stock dividends are typically treated like stock splits. A
devise of stock owned by the testator when the will is executed includes such additional stock owned by the testator at death, whether acquired by a stock split or a stock dividend.

Question 23

Valid Trust

Answer 23

A valid trust requires (1) a settlor with present intent to create a trust, (2) an identifiable beneficiary, (3) trust corpus and (4) a trustee (if an inter vivos trust).

An inter vivos trust
is a trust made during the lifetime of the settlor, the creator of the trust. An inter vivos trust is not created until funded with the trust corpus.

A trust will be valid so long as the settlor has legal capacity (age, and of sound mind), testamentary intent, a signed writing, separation of legal and equitable title (no merger), reasonably ascertainable beneficiaries, a trustee, and trust res. A trust can be funded with res later, but the creation of the trust will not take place until it is funded.

Under the UTC, an inter vivos trust that does not involve real estate can be created orally.

Question 24

Trustee’s Duties

Answer 24

Duty of care requires the trustee to invest and manage the trust’s assets as prudent investor would. A trustee’s investments should not be evaluated in isolation but in the context of the portfolio as a whole and as a part of an investment strategy.

Question 25

Trustee's Duty of Loyalty

Answer 25

The duty of loyalty requires the trustee to administer the trust solely in the interest of the beneficiaries. This means that the trustee may not engage in self-dealing regarding the trust assets. Courts follow the “no further inquiry rule” regarding trustee self-dealing, which says that the court will not inquire about the trustee’s motivation or the fairness of the action and will only seek to determine the measure of damages. Any trust beneficiary can cause a self-dealing purchase by a trustee to be set aside or obtain a damages award. If a beneficiary elects to set aside the transaction, the trust property purchased by the trustee is returned to the trust and the amount the trustee paid for the property is refunded by the trust. If a beneficiary seeks damages, those damages are based on the difference in the fair market value of the trust assets at the time of the self-dealing transaction and the amount paid by the trustee

Question 26

Trustee's Duty to Allocate Property

Answer 26

The duty to allocate property to principal and income dictates whether receipts earned during the administration should be allocated to the income or the principal. Most states have adopted the Uniform Principal and Income Act, which specifies how receipts should be allocated. The general rule is that ordinary expenses should be allocated to income and extraordinary expenses should be allocated to the principal. Assets Allocated to Principal (PLEAD): money derived from Principal assets, Life insurance proceeds, Eminent domain awards, All property other than money received from an entity, Distribution of stock. Assets Allocated to Income (RIM): Rental income, Interest, Money.

Question 27

Duty to Invest Prudently

Answer 27

A trustee shall administer the trust as a prudent person would using reasonable care, skill, and caution. For example, the trustee should diversify unless a trust provision expressly prohibits it. “A trustee’s investment and management decisions respecting individual assets must be evaluated not in isolation but in the context of the trust portfolio as a whole and as a part of an overall investment strategy having risk and return objectives reasonably suited to the trust.” The trustee has a duty to monitor investments prudently made to assure that retention of those investments remains prudent. If retention is not prudent, the trustee should sell the imprudent investments and reinvest the proceeds in prudent investments. A trustee, however, is not liable for declines in value due to a downturn resulting from general economic conditions.

Question 28

Revocability of Trust

Answer 28

Under the common law, a trust is irrevocable unless the settlor expressly retains a power to revoke the trust. Conversely, under the Uniform Trust Code, a trust is revocable unless the terms of the trust expressly provide otherwise. A revocable trust is amendable even if the trust instrument does not expressly grant the settlor the power to amend. If a trust is revocable, the settlor may terminate the trust at any time. If the trust is irrevocable, the settlor may terminate the trust if all beneficiaries are in existence, and all agree. After the settlor dies, an irrevocable trust can be terminated if both the income beneficiaries and the remaindermen unanimously consent, and if there is no material purpose of the trust yet to be performed.

Question 29

Cy Pres

Answer 29

Cy pres is a common-law doctrine that is also part of the UTC. Under the UTC, if (1) a particular charitable purpose has become unlawful, impracticable, or impossible; (2) no alternative charity is named in the trust; and (3) the court finds that the settlor had a general, rather than a specific, charitable purpose, then the court may apply the doctrine of cy pres and direct that the trust property be distributed in a manner consistent with the settlor’s general charitable intent.

Question 30

Pourover Will

Answer 30

One type of trust is one that is created when a will makes a gift to a trust. Valid if (1) the trust is identified in the will and (2) the terms are incorporated in a writing executed before or concurrently with the execution of the will.

Question 31

Discretionary Trust

Answer 31

In a discretionary trust, the trustee has discretion to decide when to make a distribution to a beneficiary. The beneficiary cannot demand any disbursements. Neither can a creditor, except for child support or alimony in some states.

Question 32

Support Trust

Answer 32

In this type of trust, the trustee must pay what is necessary for the beneficiary’s support. The meaning of “support” is fact dependent.

Question 33

Spendthrift Trust

Answer 33

Spendthrift Trust restrains both the voluntary and involuntary transfer of a beneficiary’s interest. The only creditors that can reach a beneficiary’s distribution before it reaches the beneficiary are child or spousal support creditors, a judgment creditor who has provided services for the protection of a beneficiary’s interest in the trust, the state or the United States, or a creditor with a claim for necessaries (only some states recognize this exception).

Question 34

Charitable Trust

Answer 34

A charitable trust is a trust created for a charitable purpose. The beneficiaries must be a large number of individuals who are not readily identifiable. This type of trust may be terminated if the charitable purpose becomes unlawful, impracticable, or impossible. However, the doctrine of cy pres may save the trust. A charitable trust can never benefit any names individual person. However, it is still valid if the trust benefits a person who is not named but ascertainable from the language of the trust. A charitable trust cannot be against public policy, such as being used for discriminatory purposes. A court would likely find that there is no charitable intent for a political purpose

Question 35

RAP and Trusts

Answer 35

RAP generally applies to trusts and invalidates interests that may fail to vest within 21 years of a life in being at the time of the creation of the interest. Here, the trust is perpetual, this its interests are not sure to vest within 21 years of a life in being at the time of the creation of the interest - the trust could go on and on forever which is exactly the type of dead hand control that RAP seeks to invalidate. Here, provided that the trust is not a charitable trust, RAP would invalidate it. Both modern wait-and-see statutes and the Uniform Statutory Rule Against Perpetuities upon which the statute in the facts is modeled provide that before using either reform to validate an otherwise invalid nonvested interest, one should first determine if the nonvested interest violates the common law Rule. If it does not, then there is no need to reform.

Question 36

Void for Public Policy

Answer 36

Provisions of trusts that violate public policy are void. Trust provisions that restrain a first marriage have generally been held to violate public policy. Although courts have upheld some restrictions on marriage—for example, remarriage—none have upheld a complete restraint on a first marriage. A restraint on marriage might be upheld if the trustee’s motive was merely to provide support for a beneficiary while the beneficiary is single.

Question 37

Ademption by Satisfaction (Advancements)

Answer 37

This doctrine applies when there is a will (unlike the advancements doctrine). The Uniform Probate Code (UPC) states that a lifetime gift is not a prepayment unless: (1) the will says so, (2) the testator declares in a contemporaneous writing that the gift is to be deducted from the will, or (3) the devisee acknowledges in writing that the gift is in satisfaction of the bequest.

Question 38

CL Advancements Doctrine

Answer 38

A lifetime transfer to an heir was presumptively treated as a down payment on the heir’s intestate share and thus is taken into account when computing the heir’s intestate share. At common law, this only applied to a gift to a child (not, say, a gift to a sibling), but most states have broadened it to include any heir. Majority law: most states today say that a lifetime transfer is presumed to be a gift and is ignored in computing the heir’s intestate share unless there is evidence to show that the decedent intended the gift to be an advancement.

Question 39

Dispensing Power

Answer 39

The UPC adopts the dispensing power under which a court can validate a will so long as there is clear and convincing evidence that the decedent intended the document to be her will.

Question 40

Incorporation by Reference

Answer 40

A writing that is not valid as a will may be incorporated by reference into a will if the will manifests an intent to incorporate the writing and the writing is identified with reasonable certainty. This writing must exist at the time the will is executed. (The UPC and some states recognize the right of a testator to dispose of tangible personal property by a signed memorandum, whether it is prepared before or after the execution of the will, even if it does not comply with the formalities of a will.)

Question 41

Abatement

Answer 41

When the assets of an estate are insufficient to satisfy all the gifts made by someone’s will, then the gifts to the beneficiaries will be reduced (abated) in the following order: intestate property, residuary gifts, general gifts, and specific gifts.

Question 42

Wills, Mental Capacity

Answer 42

A testator must have capacity to execute a will. The burden of proving that the testator lacks mental capacity rests on the contestant. A testator meets this requirement if the testator knows (1) the nature and extent of his property, (2) the persons who are the natural objects of the testator’s bounty (i.e., family members), (3) the nature of the instrument that the testator is signing, and (4) the disposition that is being made in the will.

Question 43

Wills, Undue Influence

Answer 43

This is present when the wrongdoer exerts such influence over the testator that it overcomes the testator’s free will and causes the testator to make a gift he would otherwise not have made. The burden of establishing undue influence generally is on the will contestant who must show the following (mnemonic=SODA): (1) the testator was susceptible to undue influence, (2) the alleged influencer had the opportunity to exert undue influence, (3) the alleged influencer had a disposition to exert undue influence, and (4) the will appears to be a product of undue influence. Most courts only invalidate portions that are infected by undue influence

Question 44

Honorary Trust

Answer 44

This is a trust that does not have a charitable purpose or a definite beneficiary. It is often a trust to take care of a thing (e.g. cemetery plot) for a noncharitable purpose. Under the UTC, this is valid but may not be enforced for more than 21 years. Under common law, such a trust would not be valid if it violates the rule against perpetuities, but a court may characterize the trust as a “power” and allow the trustee to exercise that power in accordance with the trust terms for 21 years.

Question 45

Remedies for Trustee Breach

Answer 45

The remedies include: Suspending or removing a trustee, decreasing compensation, compelling a trustee to perform trust duties, compelling payment of damages, etc. (There are several other remedies, including asking the court to “order any other appropriate relief.” In a self-dealing case, the trust beneficiaries may rescind the transaction and ask for the self-dealing purchase to be set aside (the trust property is returned to the trust and the amount paid is refunded by the trust) or recover any profits the trustee made by reason of the breach.

Question 46

General Powers of Appointment

Answer 46

The class of people that the beneficiary can exercise the power of appointment in favor of is unlimited (she can use it for herself, her creditors, or someone else). Majority view: In most states, a general residuary clause in a will (“I give all of my estate . . .”) does not exercise a power of appointment. However, if the general residuary clause is coupled with a blanket exercise clause (e.g., “including all property over which I have a power of appointment”), any power of appointment held by the donee is exercised, unless the donor of the power specifically requires reference to it. Minority view: a general testamentary power of appointment can be exercised by general language in the beneficiary’s will (such as the residuary clause) even if it makes no reference to the power in the instrument (e.g., “Everything to my husband”—the husband will get it), unless the creating instrument of the power made an express gift in default or the instrument stated that the power needed to be specifically mentioned.

Question 47

Special Powers of Appointment

Answer 47

The class of people that the beneficiary can exercise the power in favor of is limited. A special testamentary power needs to be specifically exercised. The Uniform Probate Code (UPC) adopts a substantial compliance rule which says that if it could be shown that the powerholder intended to exercise a power, a blanket exercise clause may be sufficient.

Question 48

Approaches for Class Gifts

Answer 48

* Rule of convenience: when a gift is made to a group, such as “my children,” the class closes when at least one member is entitled to distribution. * UPC approach: The UPC states that when a class gift is made, each living beneficiary will take their share and the deceased beneficiary’s share will pass to their surviving descendants. (If there are no surviving descendants then the gift will fail.) Note: this applies even if the beneficiary is not related to the settlor (and thus differs from most antilapse statutes). * Common law approach: Under the common law, if the gift or remainder to a deceased beneficiary has already vested and there is no applicable statute, then it will go to whomever the instrument says it should go to or whomever the deceased person has specified in their will or through intestacy. (This also applies to gifts that are not made to classes.) * If a testator gives a gift to a group of unrelated individuals and one predeceased him, the deceased would not take, and neither would his descendants, unless the antilapse statute saved the gift.