Wills and Trusts

Question 1

Types of Trusts

Answer 1

(1) Express Private Trust
(2) (express) Charitable Trust
(3) (express) Honorable Trust
(4) Resulting Trust (equitable remedy)
(5) Constructive Trust (equitable remedy)

Question 2

Express Trust (definition)

Answer 2

A trust arises from the expressed intention of the owner of property (the settlor) to create a trust in his property by giving legal title to a trustee to manage the money, with equitable title going to the beneficiaries to enjoy the distributions from the trust.

There are two kinds of express trust: 1) private trusts and 2) charitable & honorable trusts.

Question 3

Lifetime (inter vivos) Trust

Answer 3

A trust established during the settlor’s lifetime, it does not require a court adjudication to establish.

A settlor can be a trustee or a beneficiary of his own trust, but cannot be the SOLE beneficiary and SOLE trustee - there must be at least one other person to act as a fiduciary.

The settlor can retain the power to terminate or amend the trust in life - i.e. this trust is REVOCABLE.

Question 4

Testamentary Trust

Answer 4

A trust established in the settlor’s Will, this trust must be supervised by the court.

Question 5

Express Trust (elements)

Answer 5

To be valid, a trust requires:
(1) A settlor (2) to make a delivery of legal title to (3) property (4) to a trustee, for the benefit of a beneficiary, (5) with the intent to create a trust for a lawful purpose, (6) in a validly executed document.

If the trust lacks:
- settlor's capacity,
- proper delivery, 
- a proper trustee (with an exception below),
- proper beneficiaries,
- proper intent,
- proper purpose,
- or valid execution,
The trust will be invalid.

NOTE: A trustee does NOT need to be named, the court can appoint one.

Question 6

Settlor (requirements)

Answer 6

A settlor can be anyone age 18 or older with the capacity to enter into contracts (e.g. not insane)

Question 7

Delivery of Title (requirements)

Answer 7

Titled assets in the trust must be formally transferred to the trustee for the trust to be valid.
Ex: S creates trust of his stock for his children, care of trustee T; but S dies before shares could be re-registered in T’s name. No valid trust.

Question 8

Property Requirement in Trust (“Res”)

Answer 8

The property (“res”) that settlor puts in the trust must be something the settlor currently owns, not a mere expectancy of ownership in the future.

The property must be identifiable. “All my property” is sufficient.

Question 9

Trustee requirements

Answer 9

The person who holds the legal title to the trust property for the beneficiary, the trustee can be anyone EXCEPT:

1) minors
2) judicially declared incompetents
3) convicted felons
4) those incapable because of drunkenness, dishonesty, want of understanding, or improvidence,

If the settlor does not name a trustee in testamentary trust, the court will appoint one. (inter vivos trust will fail because there cannot be valid delivery and res transfer without named trustee).

Question 10

Beneficiaries (requirements)

Answer 10

A beneficiary in a private trust must be definite and ascertainable; if not, the trust fails.
Ex: trust for “my good friends” is invalid.

If the beneficiary is ambiguous, the trustee holds the property in a resulting trust for the residuary beneficiary of a will (or intestate heirs in the absence of a will).

EXCEPTION: “family” or “next of kin” IS considered definite and the trust does not fail - use intestacy rules to determine who fits the description.

Question 11

Intent to Form a Trust (requirements)

Answer 11

The settlor must intend to create an enforceable obligation - mere precatory language (“I wish,” “I request/desire”) is not enough.

The trustee must be given duties to perform; if the trustee has no duties to perform it is called a “passive trust” which is not a trust.

The court looks to the circumstances to determine intent - use of the word “trust” is not conclusive of intent.

Question 12

Lawful Purpose in Forming a Trust

Answer 12

A trust cannot call for the commission of a crime, for the destruction of property (even the settlor’s own!), and cannot have a condition against public policy.

NOTE: trusts cannot restrict marriage or promote divorce, except:

1) a trust that gives income to a spouse UNTIL remarriage is permissible
2) a trust that restricts marriage of the beneficiary to a certain ethnic group or religion is permissible!!!

Question 13

Valid Trust Execution

Answer 13

For a testamentary trust, must comply with Wills requirements and the statute of frauds.

For an inter vivos trust, can either (1) declare trust by property owner that he holds in trust, or (2) transfer title to the trustee with intent. No writing required unless res is land (then must comply with statute of frauds.

Question 14

Pour-Over Gifts

Answer 14

A testamentary (Will) gift from the settlor into an existing revocable trust - his own or any other.

This gift avoids Will formalities.

Requirements: The trust must already be in existence at the time of the testamentary gift, OR must be executed concurrently with the Will (this is an exception to the Wills rule on refusal to incorporate by reference to extrinsic documents).

The gift can be into an empty trust executed at the same time - thus it is an exception to the requirement that a trust needs an identifiable “res” to form. The pour-over is considered identifiable enough.

A life insurance payout upon the settlor’s death, directly into a trust, is a pour-over.

Question 15

Life Insurance Pour-Over

Answer 15

To pour over a life insurance payout into a trust upon death, the insured (settlor) can:

1) create an unfunded revocable trust and name the trustee as policy beneficiary (thus upon settlor’s death the money goes to trustee in legal title, and must be put in the trust), or
2) Have the trust be a testamentary trust and have the life insurance policy contract name “the trustee named in my Will” as the policy beneficiary.

Question 16

Totten Trust

Answer 16

A Totten trust is a bank account in the depositor’s name as “trustee for” a named beneficiary.

1) Depositor makes deposits and withdrawals as he wishes during his lifetime (i.e. depositor can always reach the principal)
2) Beneficiary has no beneficial interest during the depositor’s lifetime but gets whatever is in the account when depositor dies (could be nothing)

A Totten trust has no special requirements for formation, even “Sam ITF John” is enough.

A Totten trust is revocable.

Question 17

Revoking a Totten Trust

Answer 17

There are 4 ways to revoke:
1) Depositor withdraws all the money in the account
2) Depositor makes an express revocation during his lifetime by:
-making a writing naming the beneficiary and the bank AND
-having the revocation notarized AND -delivered to the bank.
The beneficiary and bank must be specifically named, otherwise no revocation.
3) Revocation in a Will - must meet the same requirements as lifetime revocation.
4) The death of a beneficiary results in the revocation of the Totten Trust and the money goes free and clear to the depositor.

Question 18

Changing the Beneficiary of a Totten Trust

Answer 18

A depositor can change the beneficiary of a Totten Trust BUT it must meet the same requirements as a revocation.

Question 19

Creditors of a Depositor and a Totten Trust

Answer 19

Because the depositor can always reach the Totten Trust, his creditors can reach it as well, bother before and after the depositor’s death.

Question 20

Joint Bank Account

Answer 20

A joint bank account is one held by two parties with right of survivorship. Express right of survivorship language must appear in the agreement when parties create account.

Question 21

Setting Aside the Right of Survivorship in a Joint Bank Account

Answer 21

If the challenger shows by clear and convincing evidence that a survivorship was 1) not intended when the account was established, and 2) that the account was opened only as a matter of convenience to the depositor, then the survivorship can be set aside.

This is hard to satisfy.

Question 22

Charitable Trusts and Honorable Trusts (requirements)

Answer 22

Express trusts that have 1) indefinite beneficiaries, who are of a 2) reasonably large group. The trust must be for 3) a charitable purpose.

The trust can be perpetual.

Honorable Trust: not for charitable purpose, but no private beneficiaries who can enforce it (for pets, graves).

• Trustee can choose to carry it out.
• If trustee does not carry it out, a resulting trust is imposed for settlor’s estate.

Question 23

Cy Pres Doctrine

Answer 23

For charitable trusts, if the stated purpose can no longer be accomplished or the designated charity goes out of existence, the court can use this doctrine to make the trust be as near as possible to what the settlor wanted.

Question 24

Honorary Trust

Answer 24

This is a non-trust - formed when no human being is the beneficiary of the private trust.

Generally these are invalid, with 2 exceptions:
1) Pet trust: a valid trust can be made to benefit a pet, though it can last no longer than the duration of the pet’s lifetime.

2) Cemetery Trust: a trust for the perpetual care and maintenance of cemeteries and burial plots. They are classified as charitable trusts despite not being for the public good. They can be perpetual without a RAP problem.

Question 25

Constructive Trust

Answer 25

An equitable remedy designed to disgorge unjust enrichment. The “trustee’s” only duty is to transfer the money to the person who, in equity, should own the property.

Ex: S was originally going to give money to A in Will, but changed her mind and wanted to give the money to B. A interfered before S could write a new will and S died. A gets the money in a constructive trust, under the duty to transfer to B - A never touches it.

Question 26

Resulting Trust

Answer 26

A resulting trust is an equitable remedy imposed when an express trust fails for any reason (e.g. failure to identify the beneficiaries).

Also imposed when the settlor has made an incomplete disposition of the assets transferred in an express trust (called a “resulting trust by reversion”).

Question 27

Purchase Money Resulting Trust

Answer 27

If A pays the purchase price for land but title is placed in B’s name, no resulting trust arises in the absence of fraud or deceit.

The statute of frauds bars testimony contradicting the deed naming B as grantee.

EXCEPTION: a conveyance to B upon payment of consideration by A is presumptively fraudulent as against creditors of A, and a resulting trust arises in favor of the payor’s creditors. (The idea is to prevent A from dodging debts)

EXCEPTION 2: if there is clear and convincing evidence that the grantee expressly or impliedly promised to reconvey the land to the purchaser, then a constructive trust can be imposed to benefit the purchaser (prevents fraud by title holder).
- This does not challenge the naming of B as titleholder, but instead suggests she promised to transfer.

Question 28

Statutory Spendthrift Rule

Answer 28

A spendthrift clause in a trust prohibits voluntary and involuntary transfers of a beneficiary’s interest.

All income interests are AUTOMATICALLY given spendthrift protection, unless a provision in the trust expressly authorizes transfer of the income interest.

If the settlor is the beneficiary, no spendthrift protection.

Question 29

Exceptions to the Statutory Spendthrift Rule

Answer 29

An income beneficiary’s income can be reached:

1) by creditors who furnish necessaries
2) in a suit to enforce child support or maintenance
3) by the federal government asserting a tax lien
4) by creditors to the extent of income beyond that needed for education and support.
- Creditors must show this is their last resort remedy and all others have been exhausted.
5) A 10% levy provided by statute, after creditors have judgment.

Question 30

Modification/Termination of Trust by Settlor, Beneficiaries

Answer 30

Settlor must reserve the right to revoke or modify in order to later modify or terminate unilaterally. Trusts are presumed revocable.

Even if all beneficiaries consent, a trust cannot be modified/terminated if the termination would be contrary to purposes of the settlor (the Claflin doctrine). Joinder of settlor waives this.

Spendthrift trusts cannot be terminated without settlor’s consent.

Question 31

Judicial Modification of Trust (At beneficiaries’ request)

Answer 31

Modification by court is only appropriate when the objectives of the trust would be defeated or substantially impaired if the trust is not modified, due to circumstances the settlor did not anticipate.

This usually involves restriction on the sale of trust assets by the trustee.

It applies to administrative provisions of the trust - the trust’s core goal must always reign.

BUT can modify nondispositive provisions without court order for tax purposes.

Question 32

Trust Termination by Settlor

Answer 32

A revocable trust (where the settlor is also the beneficiary) can be revoked at any time.

An irrevocable trust (all other trusts) cannot be revoked or amended, unless:

1) the power to do so is expressly reserved in the trust instrument, or
2) the beneficiaries all consent.

If any beneficiary is a minor, the trust cannot be revoked. Consent of unborn beneficiaries need not be obtained.

Question 33

Trustee’s Basic Powers

Answer 33

A trustee can do almost anything that a fee simple owner can do, but must act as a fiduciary.
Thus he CANNOT:
- engage in self-dealing,
- borrow money on behalf of the trust,
- lend money to the trust (without express authorization),
- continue a business in trust property.

He CAN:

• sell property
• mortgage property
• lease property
• make ordinary repairs
• contest, compromise or settle claims

Question 34

Trustee’s Duties

Answer 34

A trustee must:

1) not delegate fiduciary responsibilities
2) make periodic accountings
3) exercise reasonable care and skill
4) segregate trust property (no commingling with his own)
5) prevent breach of a co-trustee
6) Make trust property productive (aka must invest it)

Question 35

Self-Dealing

Answer 35

Trustee cannot:

1) lend money to the trust
2) borrow from the trust (including loans to relatives)
3) buy property from the trust
4) profit from the trust (except for appropriate trustee fees)
5) take advantage of confidential information as a trustee

There are NO DEFENSES to this - good faith and reasonableness are not defenses.

Question 36

Remedies for Trustee’s Breach of Fiduciary Responsibilities

Answer 36

1) Beneficiary can sue to remove the trustee
2) Beneficiary can ratify the transaction and waive the breach.
3) Beneficiary can sue for any loss. An action to recover losses to the trust is called a surcharge.

NOTE: if trustee breached self-dealing by engaging in a deal with a third party (e.g. a sale of trust property), if the third party is a BFP, no remedy against him.

Question 37

Exculpatory Clauses in Trust Instrument

Answer 37

1) Such clauses do not protect trustees from liability for breach of fiduciary duty in a testamentary trust
2) Such clauses DO protect trustees in an inter vivos trust.

Question 38

Trustee’s Liability in Contract

Answer 38

If the trustee signed on behalf of the trust, there is no personal liability for the trustee.
Ex: Jon Jones Trust, by Mary Jones, Trustee.

If the trustee signed personally and merely mentioned the trust, the trustee has personal liability.
Ex: Mary Jones, Trustee of Jon Jones Trust. PERSONAL LIABILITY!

Even if there is personal liability, the trustee can be reimbursed/indemnified if:

1) contract was within the powers of the trustee, AND
2) trustee was acting in the course of proper administration of the trust

Question 39

Trustee’s Liability in Tort

Answer 39

A trustee or her agent is ALWAYS personally liable for a tort. A prudent trustee buys liability insurance.

She may be entitled to reimbursement/indemnification if:

1) Trustee was acting within her powers, AND
2) Trustee was not personally at fault (i.e. the agent did it).

Question 40

Trustee’s Investment Power

Answer 40

Trustee MUST invest the corpus of the trust.

The trustee is alowed to pursue the “modern portfolio theory” of investment, where the trusee creates a custom-tailored investment strategy for the trust.

Key factors:

• trustee must consider the total expected return;
• trustee must consider the role each investment plays with the overall trust portfolio
• end purpose is flexibility and overall prudence

Question 41

RAP and Trusts

Answer 41

RAP does not apply to charitable trusts.

For all other trusts, an interest must vest within LIB+21 years to be valid.

The NY Reform Statute automatically reduces age contingencies to 21 years.

Question 42

The Suspension Rule and Trusts

Answer 42

Any interest is void if it suspends the power of alienation for a period longer than LIB+21 years. That is, when there are no persons who could, together, transfer fee simple title.

This issue comes up with spendthrift interests in the trust, or life estates created in unborn beneficiaries/an open class that might have unborn beneficiaries.

Question 43

Transfer of Beneficiary’s Interest (general) and creditors’ rights

Answer 43

Generally, a beneficairy can voluntarily transfer his interest in trust and creditors can access his benefit.

Question 44

Support Trust (definition and qualities)

Answer 44

A support trust is one in which the trustee is only required to use so much of the interest and principal as needed for the beneficiary’s support (health, education, maintenance).

A support trust CANNOT be assigned and CANNOT be reached by creditors, even without a spendthrift clause.

Question 45

Allocation of Receipts and Expenses

Answer 45

Under the Uniform Principal and Income Act (UPAIA)

• Trustee must administer trust fairly to all beneficiaries
• Interest and dividend income to beneficiary: if distribution does not effectuate trust, trsutee can adjust between principal and income

Question 46

Proper Execution of Wills

Answer 46

A will is a formal writing for disposing of a person’s property upon their death. Testator must have the PRESENT INTENT to make the writing their will. Must meet all formal requirements of the Statute of Wills.

NOTE that because a will is not operative until T’s death, a B has an expectancy (not a future interest) until T’s death.

• A will must distribute property, appoint an executor, or revoke another written instrument. Cannot have a will for SOLE purpose of disinheriting an intestate heir.
• Must be age of majority and of sound mind to make a will; also a conservator can make aw ill for someone.

Formal Statute of Wills Requirements:

(1) Will must be in writing
(2) Must be signed by T
(3) Must sign or acknowledge will in joint presence of at least 2 witnesses
(4) 2 witnesses must sign will during T’s lifetime, and
(5) Witnesses must understand instrument is T’s will.

Question 47

Revocation of Wills (general)

Answer 47

x

Question 48

Dependent Relative Revocation (revocation of Wills)

Answer 48

x

Question 49

Revival of Will

Answer 49

x

Question 50

Integration of Wills

Answer 50

x

Question 51

Republication by Codicil

Answer 51

x

Question 52

Incorporation (of other writing) by Reference in Will

Answer 52

x

Question 53

Interpretation of Wills in general

Answer 53

x

Question 54

Classifications of gifts (interpretation of wills)

Answer 54

x

Question 55

Abatement, Ademption, and Lapse

Answer 55

x

Question 56

Intestate Succession definition

Answer 56

If there is no testamentary instrument for dispensing of the decedent’s property on their death, then the estate goes to intestacy, the default rules for distribution to heirs.

Question 57

Shares of Surviving Spouse and Others in Intestate

Answer 57

Spouse:

• Spouse takes ALL CP and quasi-CP in intestacy (because he is already entitled to 1/2, and now is taking the other half in intestacy)
• For decedent’s SP, spouse takes:
  (1) ALL if there is no issue nor parents of decedents;
  (2) 1/2 if ONE issue/parent surviving;
  (3) 1/3 if TWO OR MORE issues/parents surviving.

Other Heirs:
Order of intestate succession:
-Issue; if none, to
-Parents; if none, to
-Decedent’s siblings or their issue; if none, to
-Grandparents or their issue; if none, to
-Issue of predeceased spouse; if none, to
-Decedent’s next of kin; if none, to
-Parents of predeceased spouse or their issue; if none, to
The State.
***NOTE parents and more remote kin never inherit if there are issue.

Typically the issue take “per capita” if all at same level; if unequal degree of kinship, per capita with right of representation.

This means, each person in the first generation in which there are living takers has an equal share, and the share of a dead person at that level passes to his issue.

*****IF Q specifies “Per Stirpes” this is a situation where estate is divided at the level of decedent’s children regardless of whether there are living takers.

Question 58

Simultaneous Death in Intestate

Answer 58

• Intestate succession – Must prove by clear and convincing evidence the heir survived decedent by 120 hours
• Testate estate – must prove by clear and convincing evidence beneficiary survived T

Question 59

Omitted Spouse

Answer 59

Spouse omitted from premarital will receives intestate share (1/2 of CP plus up to 1/2 of SP) unless:

(1) can show the omission was intentional
(2) spouse provided for by transfers outside will
(3) spouse made valid agreement waiving right to share in decedent’s estate

Question 60

Omitted Children

Answer 60

Child omitted from Will before birth (that is, a child born after a will is executed) receives an intestate share, unless:

(1) can demonstrate omission was intentional
(2) T had other children and left estate to parent of omitted child
(3) T proivded for child by transfers outside will

Question 61

Special Issues in Intestate Succession

Answer 61

Adopted Children:
-Generally, adopted children are treated like natural children for the purpose of intestacy. They do not take from their natural parents and vice versa, only adopted.
Exception is when adopted by spouse of natural parent.

Stepchildren and Foster Children:
-Generally stepchildren and foster children have no inheritance rights.
Adoption by Estoppel premits child to inherit from or through stepparent or foster parent when there was reliance on promise or attempt to adopt (eg gained custody of child on promise to adopt, or confused guardianship proceeding with adoption proceeding).
-Essentially, did the parent hold the child out to the world as their own (use of same last name, etc)

Nonmarital Children:
Parent-child relationship exists with natural parents regardless of marital status of parents.
Relationship to Mother: easily established.
Relationship to Father:
Presumed father-child relationship if:
-F and M are married (or child born within 300 days of end of marriage);
-F and M attempted to marry (though voidable) and child born during void marriage or within 300 days;
-F is named father on birth certificate, pays or is ordered to pay child support;
-F openly holds child out as his own.

***NOTE a private acknowledgement is insufficent – must publicly declare.

Paternity judgment establishes relationship.

Question 62

Witnessing Wills and Interested Witness Presumption

Answer 62

Ws must watch T sign together, but the Ws do not need to sign together. But both must sign before T dies.
W must be competent at execution of will.

• W with a beneficial interest is competent but this raises the presumption that will was procured by duress, menace, fraud, or undue influence.
• If will fails because interested witness fails to overcome presumption of duress etc, they take only the amount they would take under intestacy.
• NOTE*** If it is proven W ACTUALLY committed a wrong (not merely fails to over turn presumption) they take nothing.

Question 63

Harmless Error Doctrine (for wills)

Answer 63

If witnessing requirement is not properly adhered to, W can nonetheless be admitted to probate if proponent of will shows by CLEAR AND CONVINCING EVIDENCE that at the time T signed he intended it to be his will.

Question 64

Holographic Wills

Answer 64

Permitted in CA if the signature and material provisions of the will are in T’s own handwriting.

• Bc signature does not need to be at end of will, T writing his name at the begining of a holographic will is sufficient for signature requirement.
• If there’s more than one will, the typed one may govern unless it can be shown holographic will was later in time.
• Handwritten changes to a holographic will after will is completed are given effect.
• Handwritten changes to an attested will are not given effect, and may work a revocation of the will.
• NOTE that a handwritten codicil to an attested will might be valid if it adheres to all requirements.