Wills & Trusts (Delaware) Flashcards
Wills: Testamentary Capacity + Burden of Proof
Any person of 18 YEARS of age with SOUND AND DISPOSING MIND AND MEMORY
Capacity is presumed and the burden of proof is on the challenger to prove there was no testamentary capacity by showing by CLEAR AND CONVINCING EVIDENCE that: (1) the will was executed by a testator who was of WEAKENED INTELLECT, (2) the will was drafted by a person in a CONFIDENTIAL RELATIONSHIP with the testator, and (3) the drafter received a SUBSTANTIAL BENEFIT.
Wills: Lawyers Obligation Concerning Capacity
It is the obligation of the lawyer to COMMUNICATE DIRECTLY with the testator to assess legal capacity PRIOR to drafting the instrument
Wills: Execution - Statutory Requirements
The will must be:
1) In WRITING,
2) SIGNED by the testator or some person signing for them in their presence with their direction (anywhere on the document),
3) Attested and subscribed by TWO OR MORE CREDIBLE WITNESSES in the testator’s presence.
Wills: Execution - Credible Witness With Interest
Any person competent can be a witness, even if they have an interest in the will.
Wills: Execution - Timing of Witnesses Signature
Witnesses must sign in the presence of the testator, but the witnesses do not need to see the testator sign
Wills: Execution - Self-Proving Affidavit
An attested will may be made self-proving if in the presence of a NOTARY, the testator acknowledges the will and the witnesses sign an affidavit that they were witnesses. Here, witnesses will not need to testify in court that they were witnesses
Wills: Execution - Holographic Will
A handwritten will by the testator is OKAY, so long as the statutory requirements are met.
Wills: Execution - Oral Will
Oral wills are NOT RECOGNIZED in Delaware.
Wills: Pre-Mortem Will Validation
A testator can seek validation of a will BEFORE DEATH by giving NOTICE to potential will contestant, who MUST CHALLENGE WITHIN 120 DAYS of receipt of notice.
Wills: Revocation - Statutory Requirements
To revoke a will, the testator must either: (i) CANCEL the will or (ii) the testator must EXECUTE A NEW WILL.
Wills: Revocation - Physical Act + Lost Will
The testator must have CAPACITY and INTENT to revoke, and must do so by PHYSICAL ACT (e.g., burning, tearing, crossing out)
A will that is LOST is presumed destroyed.
Wills: Revocation - Replacement Will (Complete v. Partial Difference)
If a new will COMPLETELY DISPOSES of the testator’s property, the old will is COMPLETELY REVOKED by inconsistency. However, if the new will only PARTIALLY DISPOSES the property, the old will is only revoked to the extent it is inconsistent.
Wills: Codicil + Partial Revocation by Codicil + Formalities
A written document that amends a will, to the extent possible the will and codicil are read together.
A codicil revokes any part of a will by SPECIFIC REFERENCE and SUBSTITUTION OF NEW LANGUAGE or by inconsistency with the will.
A codicil must be executed with the requisite formalities of a will.
Wills: Effect of Will When Codicil Is Revoked v. Effect of Codicil When Will Is Revoked
Revocation of a will will revoke ALL CODICILS, but when a codicil is revoked everything else remains.
Wills: Revocation - Dependent Relative Revocation
DDR allows a court to DISREGARD a revocation that is based on a mistake of law or fact if, but for the mistake, the testator never would have made the revocation
Wills: Revocation - Revival of Revoked Wills
If a second will is executed thereby revoking the first, and the second will is later cancelled before testator’s death, the first will is VALID and is probated
Wills: Revocation - DDR v. Revival
DDR is triggered when testator MISTAKENLY creates an invalid second will, whereas revival is triggered where the testator makes a valid second will, but cancels it before death.
Wills: Revocation - By Divorce + Separation + Trusts
Divorce or annulment REVOKES any disposition or appointment of property made to former spouse. Property passes as if the spouse PREDECEASES the testator.
Separation is INSUFFIIENT
This rule DOES NOT APPLY to trusts
Wills: Republication By Codicil
A codicil REPUBLISHES a will as of the date of the execution of the codicil and REDATES the will as of the date of its execution.
Wills: Incorporation By Reference + Requirements
Delaware permits writings that are NOT PART OF THE WILL to govern disposition of property under the will
The following requirements must be met:
1) The other document EXISTS at the time the will is executed,
2) The Testator’s INTENT TO INCORPORATE is clearly manifested, and
3) The will must EXPLICITLY REFER with sufficient specificity.
Wills: Incorporation By Reference - Tangible Personal Property + Requirements
A separate written list of personal property items (e.g., jewelry) may be prepared BEFORE OR AFTER the will is executed, and modified after its preparation.
The writing must:
1) be in the HANDWRITING OF, OR SIGNED BY, the testator and must IDENTIFY the items with REASONABLE CERTAINTY,
2) Must NOT BE INCONSISTENT with the terms of the will or any other writing
Wills: Incorporation By Reference - Pour Over Will + Existence of Inter Vivos Trust
A provision in a will that leaves property to a TRUST.
The trust can be created BEFORE OR AFTER THE EXECUTION OF THE WILL by the testator
Wills: Acts of Independence Significance
A change in a devise will be effective if it has significance OTHER THAN testamentary disposition (e.g., sale of car before disposed of in will)
Construction: Ambiguity on the Face of the Will
If a will is ambiguous, the court will ascertain the testator’s intent from the FACTS AND CIRCUMSTANCES, including extrinsic evidence
Construction: Undue Influence Elements
The contestant must show:
1) A SUSCEPTIBLE TESTATOR,
2) OPPORTUNITY to exert influence,
3) The ACTUAL EXERTION of such influence, and
4) A RESULT demonstrating its effect
Construction: Undue Influence - Burden of Proof + Confidential Relationship
The presumption is that a testator had the requisite capacity to make a will
Once the elements are shown of undue influence, the burden shifts to the defendant to REBUT by showing the testator possessed the requisite testamentary capacity absent undue influence.
If the will contestant can establish by CLEAR AND CONVINCING evidence that: (i) the will was executed by a testator with WEAKEND INTELLECT, (ii) the will was drafted by a person in a CONFIDENTIAL RELATIONSHIP with the testator (e.g., attorney-client, power of attorney, caregiver), and (iii) the drafter received a SUBSTANTIAL BENEFIT, the burden will shift to the proponent of the will.
Construction: Mistake
Delaware does NOT permit extrinsic evidence to correct a mistake
Construction: Fraud
If the Testator relied on an INTENTIONAL DECEPTION OR MISREPRESENTATION, the will or part of it may be invalidated.
Limits on Testation: Rights of Surviving Spouse
A surviving spouse may be able to claim 1 or more of the following:
1) Elective Share
2) Surviving Spouse Cash Allowance ($7,500)
3) Omitted/Pretermitted Spouse’s Share (deceased spouse’s premarital will only)
4) Spouse’s Intestate Share
Limits on Testation: Rights of Surviving Spouse - Elective Share + Timing
A spouse can OVERRIDE a will by electing to take a share EQUAL TO 1/3 of the elective estate (LESS the total of transfers to the surviving spouse by the decedent)
The surviving spouse must file an action within 6 MONTHS of the grant of letters testamentary or of administration
Limits on Testation: Rights of Surviving Spouse - Waiver
The right to an elective share may be waived by a written contract (e.g., prenuptial agreement)
Limits on Testation: Pretermitted Spouse
If a decedent made a will BEFORE MARRIAGE and leaves a surviving spouse, the spouse is entitled to an INTESTATE SHARE if he or she is NOT PROVIDED FOR by will or otherwise
Limits on Testation: Rights of Surviving Spouse - Divorce + Remarriage
A divorce REVOKES any gift made by the will to the former spouse
Remarriage will REVIVE any revoked provisions
Limits on Testation: Slayer Statute
A slayer (a person who pleads guilty or convicted of first or second degree murder or manslaughter) is NOT ALLOWED to benefit from the decedent’s estate. Property passes as if the killer died BEFORE the decedent.
Limits on Testation: Omitted/Pretermitted Children
A child born after execution of a will and for whom no provisions have been made is ENTITLED TO AN INTESTATE SHARE of the parent’s estate, unless specified otherwise in the will
Limits on Testation: Posthumous Children + Adopted Child
A posthumous child born after testator’s death is TREATED AS BEING ALIVE at the time of the testator
An after-adopted child is treated the same as an after-born child.
Intestate: Probate Estate v. Nonprobate Property
This property is governed by the intestate statutes, which includes the following:
1) Individually titled property,
2) Title held as TIC
The following IS NOT probate:
1) Property held in a trust,
2) Property held by JTWROS or TBE
3) Beneficiaries of retirement accounts
4) Securities or bank accounts registered POD or TOD
5) Property the testator did not own at death
Intestate: Lifetime Gifts and Convenience Accounts + Completed Gift Requirements
If a transfer made during the testator’s lifetime is a COMPLETED GIFT, the property that was given away is NOT AVAILABLE to testator’s heirs
To be a completed gift, the following must occur:
1) Intent to IMMEDIATELY TRANSFER an ownership interest,
2) DELIVERY of the gift (actual or constructive)
3) ACCEPTANCE (presumed unless there is any contrary evidence)
Intestate: Surviving Spouse - No Surviving Issue Or Parents
If there are no surviving issue or parents of the decedent, the spouse takes THE ENTIRE ESTATE
Intestate: Surviving Spouse - NO Surviving Issue, But Surviving Parents
If there are no surviving issue but the decedent is survived by a parent or parents, the spouse takes: (i) $50,000, (ii) HALF OF PERSONAL PROPERTY, and (iii) a LIFE ESTATE in the real estate
Intestate: Contradicting Will and Insurance Instrument
If the will contradicts an insurance instrument with a POD clause, the INSURANCE INSTRUMENT PREVAILS
Intestate: Surviving Spouse - Surviving Issues of Surviving Spouse
All of whom are issue of the surviving spouse, the spouse takes: (i) $50,000, (ii) HALF of the personal property, and (iii) a LIFE ESTATE in the real estate
Intestate: Surviving Spouse - Surviving Issue Not of Surviving Spouse
The spouse takes HALF of the personal property and a LIFE ESTATE in the real estate
Intestate: Estate Distribution If No Surviving Spouse
The estate passes PER STIRPES, meaning they take their deceased parents share by representation
Intestate: Estate Distribution If No Surviving Spouse - No Surviving Issues
If there are no surviving issues or spouse, the estate goes to the decedent’s PARENTS
Intestate: Estate Distribution If No Surviving Spouse - No Surviving Issues Or Parents
If there are no surviving issues, spouse, or parents ,the estate goes to the BROTHERS AND SISTERS AND ISSUES of each sibling per stirpes
Intestate: Estate Distribution If No Surviving Spouse - No Surviving Issues, Parents, or Issues of Parents
The estate goes to the NEXT OF KIND AND ISSUE of the next of kin per stirpes
Intestate: Adopted Children (Rights from Adoptive Parents v. Natural Parents)
An adopted child is treated as the NATURAL CHILD of the adoptive parents, therefore he or she inherits from the adoptive parent
After adoption, the rights of inheritance of the natural parents are TERMINATED (adoption of a child by the spouse of a natural parent has NO EFFECT on the relationship between the child and that natural parent)
Intestate: Nonmarital Children + Stepparents
A child born out of wedlock inherits from MOTHER, and may be considered a child of the father if: (1) the parents participated in a marriage ceremony before or after child’s birth (even if void), (2) there is an adjudication of PATERNITY
Stepchildren CANNOT inherit from their stepparent
Intestate: Advancements + Requirements
If a person dies intestate as to their entire estate, an advancement occurs when the decedent gives property to a beneficiary during the decedent’s lifetime intending that the transfer be an ADVANCEMENT ON THEIR INHERITANCE
An advancement must: (1) be DECLARED an advancement in a CONTEMPORANEOUS WRITING of the deceased, or (2) ACKNOWELDGED to be an advancement IN WRITING BY THE HEIR
Intestate: Effect of Advancement
If a lifetime transfer is found to be an advancement, it is treated as PART OF THE ESTATE, and is subtracted from the amount going to the heir who received the advancement
Intestate: Escheat + Procedure + Presumption of Death
Property escheats (passes to the state) if THERE ARE NO HEIRS or any known kindred who can inherit OR is unclaimed
The state must bring suit in the Court of Chancery in the county where the property is located
A person missing for SEVEN YEARS is considered deceased
Intestate: Escheat of Unclaimed Property - Notice to Owner + Presumption of Abandoned Property
Th state escheator must send written notice to an owner of property and publish in the newspaper
Most property is presumed abandoned if they are UNCLAIMED after 5 years
Administration: Probate + Witnesses + Timeliness
After decedent’s death, it must be admitted to probate and proved in the office of the Register of the Wills in the county of the decedent’s domicile
UNLESS THE WILL WAS SELF-PROVING (with affidavit), the signature of the witnesses or testator must be proven
A person with custody of the will must deliver the will WITHIN 10 DAYS of learning of the testator’s death
Administration: Lost Wills
A lost or destroyed will can be “established” if the proponent can prove the legal existence of the will, its loss, and its contents
Administration: Personal Representative - Procedure
The personal representative’s authority comes from the Register of Wills through letter testamentary and administers the estate
Administration: Inventory Requirement
WITHIN 3 MONTHS of the grant of letters, the personal representative must file an inventory of ALL ESTATE ASSETS in the office of the Register of Wills, this includes an appraisal of property (FMV at time of death)
Administration: Creditor Claims + Notice
Creditors have 8 MONTHS from the date of death to file claims against the estate.
The personal representative MUST PROVIDE creditor’s with notice WITHIN 40 DAYS of the grant of letters on the designated county website/courthouse AND newspaper notice at least 3 times during that period.
Administration: Estates Under $30,000 + Requirements to Distribute Estate
If the total value of the decedent’s probate estate is LESS THAN $30,000 and no real estate was owned, NO PROBATE IS NEEDED, rather an AFFIDAVIT IS USED to deal with estate assets.
To administer the estate by Small Estate Affidavit, the party must provide an affidavit that incudes the following:
1) NO PETITION for the appointment of a personal representative is pending or granted,
2) THIRTY DAYS have elapsed since the decedent’s death,
3) Value of the estate does NOT EXCEED $30,000
4) All known DEBTS ARE PAID,
5) The SURVIVING SPOUSE’S ALLOWANCE HAS BEEN PAID, and
6) The decedent had NO SOLELYOWNED REAL ESTATE
Administration: Will Contests Methods
In Delaware, there are two statutory methods to contest: 1) caveat and 2) right of review
Administration: Will Contests Methods - Caveat + Who May File A Caveat
A caveat against the allowance of a will may be filed ANY TIME BEFORE THE WILL IS PROVED.
Only persons with a PECUNIARY INTEREST may file a caveat.
Administration: Will Contests Methods - Right of Review
Any interested person not voluntarily present at the time the will was proved HAS 6 MONTHS AFTER PROOF to petition for review
Administration: No Contest Clauses
A no contest clause voids the bequest to anyone contesting the will or attempting to set it aside. These are GENERALLY ENFORCEABLE unless the beneficiary SUBSTANTIALLY PREVAILS in the contest.
Distribution: Ademption
Occurs when a specific bequest of property is NO LONGER OWNED BY DECEDENT at the time of their death, the beneficiary DOES NOT RECEIVE the bequest or any substitution UNLESS the will provides otherwise
Distribution: Lapse (Timing of Death)
Generally, a named beneficiary must survive in order to take the gift. When a beneficiary named in the will dies BEFORE OR WITHIN 120 HOURS of the testator, the gift lapses
Distribution: Anti-Lapse Statute
The anti-lapse statute saves a gift to a predeceasing beneficiary who is a GRANDPARENT or LINEAL DESCENDANT OF A GRANDPARENT of the testator. The issue of the deceased take PER STIRPES
Distribution: Anti-Lapse Statute - Residue
The anti-lapse rules apply when there is 1 residuary taker, but the anti-lapse statue DOES NOT apply when there is more than 1 residuary taker. If more than 1, the other residuary takers will receive the portion of the predeceased beneficiary
Distribution: Abatement + Order
If the estate assets are INSUFFICIENT to meet the bequests made under the will, the estate is ABATED (reduced) in the following order (gifts are eliminated in this order):
1) Intestate Property
2) Residuary Bequests
3) General Bequests and Devises
4) Specific Bequests and Devises
Distribution: Devise of Encumbered Property + Exceptions
If property is devised which is SUBJECT TO A MORTGAGE, the beneficiary is entitled to have the mortgage PAID OUT OF THE RESIDUARY ESTATE, UNLESS:
1) the will does not direct payment of debt,
2) the devisee is a NONRELATIVE, and
3) the RESIDUARY beneficiary is a relative
Distribution: Simultaneous Death + Survivorship Period
If there is not sufficient evidence that the persons have died other than simultaneously, the property of each person will be disposed of AS IF EACH PERSON HAD SURVIVED.
There is a 120 hour (5 day) survival requirement that applies to INTESTACY, NOT WILLS. Any heir who fails to survive the decedent by 120 hours is deemed to have predeceased the decedent.
Trust Creation: Inter Vivos Trust + Oral
An inter vivos trust is established DURING the testator’s lifetime and is revocable or irrevocable
Delaware requires a WRITTEN DOCUMENT specifying the trustee designation, terms, and fiduciary powers, NO ORAL TRUSTS PERMITTED
Trust Creation: Testamentary Trusts
A testamentary trust takes effect at the testator’s death pursuant his will.
Trust Creation: Implied Trusts - Resulting Trust
A resulting trust is a REMEDIAL DEVICE used to effectuate the TRUSTOR’S PRESUMED INTENT when he either: (1) FAILED to create an express trust, or (2) FIALED to dispose of all equitable title
Trust Creation: Implied Trust - Constructive Trust
A constructive trust is a flexible REMEDIAL DEVICE imposed by the court to ADDRESS FRAUD OR TO PREVENT UNJUST ENRICHMENT
Trust Creation: Honorary Trust + Termination
An honorary trust DOES NOT name a regular person as the beneficiary, but provides for (1) the CARE OF AN ANIMAL, or (2) other NONCHARITBALE PURPOSES (e.g., maintenance of a grave)
A trust for the care of an animal terminates AT THE DEATH of the animal, noncharitable trusts have NO LIMIT on duration
Trust Creation: Charitable Trusts
A trust for a charitable purpose, AND DOES NOT NEED DEFINITE BENEFICIARIES
Express Trust Creation: Required Elements
1) Capacity (18 years old with sound and disposing mind and memory)
2) Intent
3) Ascertainable property,
4) Ascertainable beneficiaries, and
5) Valid purpose (not illegal or contrary to public policy)
Express Trust Creation: Formalities
A trust must be executed in WRITING by either: (1) TRUSTOR, WITNESSED by 1 disinterested party or 2 credible persons, OR (2) writing executed by TRUSTEE who is a DISINTERESTED person
Express Trust Creation: Lack of Trustee
If a trust is intended, but no trustee is named, dies, or resigns, courts will APPOINT A TRUSTEE rather than permit the trust to fail
Express Trust Creation: Precatory Language
Precatory language (e.g., “i hope”) is INSUFFICIENT to create a trust
Express Trust Creation: Existing Corpus + Exception
To create a trust, the property must be EXISTING AND IDENTIFIABLE (e.g., in the hands of the trustee), UNLESS it is a revocable inter vivos trust that is referenced in a POUR-OVER WILL
Revocable Inter Vivos Trust: Merger of Legal And Equitable Interests + Exceptions
If the identity of the trustor, trustee, and beneficiary is the same, the legal and equitable interests are said to be MERGED, and not trust is created.
However, there is no problem if:
1) there are TWO trustees, even though 1 trustee is the sole beneficiary, or
2) There are 2 or more beneficiaries
Revocable Inter Vivos Trust: Gift By Will To Revocable Trust
A gift by will to a revocable trust is valid SO LONG AS the trust is IDENTIFIED in the testator’s will and its terms must be set out in a written instrument
Revocable Inter Vivos Trust: Rule Against Perpetuities + Real Property (And Exception)
The Rule Against Perpetuities DOES NOT APPLY to a trust holding personal property
Real Property has a 110-year limitation to devising in a trust UNLESS the real property is held by an entity owned by a trust
Revocable Inter Vivos Trust: Terms of Governing Instrument
A grantor may expand, restrict, eliminate, or otherwise vary the rights and interests of beneficiaries and the fiduciaries’ powers, rights, and liability
Revocable Inter Vivos Trust: Interpretation
The trustor’s intent controls, the court may determine this intent by considering the trust in light of the circumstances surrounding its creation
Trust Administration: Trustee Powers
The trust will delineate the powers granted to the trustee, subject to FIDUCIARY DUTIES imposed by law.
Trust Administration: Trustee Powers - Sale Ordered By Court
A trustee may petition the Court of Chancery to order the sale of real estate or personalty held in the trust, the court will allow if it is in the BEST INTEREST OF THE TRUST ESTATE
Trust Administration: Trustee Powers - Reasonable Expenses
In general, a trustee MAY INCUR REASONABLE EXPENSES in connection with management of the trust property
Trust Administration: Trustee Powers - Ability to Lease
A trustee CANNOT ENCUMBER, MORTGAGE, OR LEASE the property beyond the term of the trust
***Trustee Fiduciary Duties
Duty of Care and Loyalty
Trustee Fiduciary Duties: Duty of Care
Under the duty of care, the trustee must act with CARE, SKILL, PRUDENCE, AND DILIGENCE under the circumstances that a PRUDENT PERSON acting in a like capacity and familiar with such matters would use
Trustee Fiduciary Duties: Duty of Care - Investments
Delaware permits GREATER LATITUDE for investing
Trustee Fiduciary Duties: Duty of Care - Duty to Make Property Productive
The trustee must invest trust assets so they are PRODUCTIVE, but a trustee’s overriding duty is to see that CORPUS IS PRESERVED AND PROTECTED
Trustee Fiduciary Duties: Duty of Loyalty
The trustee is obligated to administer the trust property FOR THE BENEFIT OF ALL BENEFICIARIES, and not to engage in SELF-DEALINGS or in a situation where there is a CONFLICT OF INTEREST with the trust
Trustee Fiduciary Duties: Duty of Loyalty - Interested Transactions
An interested transaction is VOIDABLE, but a court will uphold the transaction if: 1) the trustee can show the transaction was FAIR and (2) that the BENEFICIARIES CONSENTED to the transaction after receiving full disclosure of its terms
Trustee Fiduciary Duties: Duty of Loyalty - Duty to Segregate Property
Trustee must NOT COMMINGLE trust assets with assets of another trust or with trustee’s own assets
Trustee Fiduciary Duties: Duty of Loyalty - Duty of Impartiality
The trustee must balance the interest of the INCOME BENEFICIAIRES and the REMAINDER BENEFICIARIES
Trustee Fiduciary Duties: Duty of Loyalty - Duty to Account + Exception + Inter Vivos Trusts
Trustees named under a will MUST FILE AN ACCOUNTING AT LEAST ONCE EVERY 2 YEARS
A trustee may not need to file an accounting if the trustee receives a WRITTEN WAIVER and CONSENT from each of the INTERESTED PARTIES (i.e., trustor, beneficiaries, trust protectors/advisers)
Trustees named in an inter vivos trust NEED NOT FILE ACCOUNTING except as provided in the trust
Trustee Liability: Breach of Trust + Remedies
A trustee must act in good faith and fair dealing and will be liable for a breach of those duties
Remedies:
1) Compel trustee to perform duties
2) Trustee must compensate trust
3) Enjoin
4) Remove trustee
5) Require accounting
6) Reduce trustee’s compensation
7) Recover lost property.
8) Void Trustee’s act
9) Beneficiaries can recover damages
Trustee Liability: Breach of Trust - Damages for Breach
A beneficiary may recover damages for a trustee’s breach, including: (1) RESTORING VALUE of the trust and trust distributions to what they would have been before breach, and (2) RECOVERING THE PROFIT that the trustee made by reason of the breach
Trustee Liability: Breach of Trust - Limitations Period
A beneficiary may bring an action WITHIN 1 YEAR from the knowledge of the claim
Trustee Liability: Breach of Trust - Beneficiary’s Consent, Release, or Ratification + Exception
A beneficiary may NOT HOLD a trustee liable for breach if he: (1) CONSENTED, (2) RELEASED, or (3) RATIFIED the transaction, UNLESS the trustee induced the beneficiary’s action by IMPROPER CONDUCT
Trustee Liability: Limitation on Personal Liability of Trustee - Contracts and Liabilities Incurred Against Property
A trustee is NOT PERSONALLY LIABLE on a contract entered into in the trustee’s fiduciary capacity IF the trustee DISCLOSES the fiduciary capacity in the contract, and is NOT personally liable for debts incurred against property held in a fiduciary capacity.
Trustee Liability: Limitation on Personal Liability of Trustee - Torts and Obligations from Ownership of Property
The trustee is liable for TORTS COMMITTED in the course of administering a fiduciary fund
Trustee Liability: Limitation on Personal Liability of Trustee - Indemnification
A trustee is entitled to indemnification by the trust for any personal liability EXCEPT for those OUTSIDE the powers granted to them as trustee.
Trustee Liability: Limitation on Personal Liability of Trustee - Exculpatory Clauses
Exculpatory clauses are PERMISSIBLE so long as the breach was NOT COMMITTED, RECKLESSLY, INTENTIONALLY, or IN BAD FAITH
Trustee Liability: Limitation on Action Contesting Trust Validity
A contest of a trust validity MUST be initiated no later than the first to occur of:
1) 120 D AYS after the date the trustee notified in writing the person who is contesting the trust.
2) TWO YEARS after the trustor’s death
3) If the trust was revocable at the trustor’s death and specifically referenced in the trustor’s will, the time in which a petition for review of the will could be fined, or
4) The date the person’s right to contest was precluded by adjudication, consent, or limitation
Trustee Liability: Allocation Between Income and Principal - Trustee’s Discretionary Standard
If the trust provides a standard, follow that. If no standard is available, the trustee should administer a trust or estate IMPARTIALLY based on what is FAIR AND REASONABLE TO ALL, though the trust may explicitly allow favor of a certain beneficiary
Trustee Liability: When Trustee Fails to Qualify or Ceases To Act - Failure of Trustee
A trust will NOT fail due to lack of trustee (court will appoint if none exist)
Trustee Liability: When Trustee Fails to Qualify or Ceases To Act - Resignation of Trustee
A trustee may RESIGN if: (1) the TRUST TERMS PERMIT it, (2) the trust is silent but establishes procedure for appointment of a successor trustee, upon 30 days written notice to the beneficiaries, or (3) with APPROVAL FROM COURT OF CHANCERY
Trustee Liability: When Trustee Fails to Qualify or Ceases To Act - Removal of Trustee
The Court of Chancery may remove a trustee if one of the following is true:
1) the trustee has committed BREACH OF TRUST,
2) A LACK OF COOPERATION among co-trustees SUBSTANTIALLY impairs the administration of the trust, or
3) Court finds a SUBSTANTIAL CHANGE IN CIRCUMSTANCES INABILITY of the trustee, or HOSTILITY between trustee and beneficiaries that threatens efficient administration of the trust
Creditor’s Rights in Trusts: Spendthrift Provisions
Prohibits the beneficiary from selling, gifting, or otherwise transferring their interest AND prevents beneficiary’s creditors from reaching the trust
Creditor’s Rights in Trusts: Spendthrift Provisions - Discretionary Trust
If the trustee is given discretion to trust distributions, the beneficiary’s creditor CANNOT COMPEL the trustee to transfer any trust property to them
Creditor’s Rights in Trusts: Spendthrift Provisions - Transfer for Charity
An income beneficiary of a spendthrift trust MAY make a written assignment of UP TO HALF their income to charity
Creditor’s Rights in Trusts: Spendthrift Provisions - When A Spendthrift Clause Is Ineffective
Spendthrift clauses are ineffective when:
1) A claim for SPOUSAL OR CHILD SUPPORT,
2) Self-settled trusts (when beneficiary is trustor)
Creditor’s Rights in Trusts: Support and Discretionary Trusts
Trusts that give trustees the DISCRETION to SUPPORT a beneficiary only to the extent necessary, it is up to them to determine distribution. Courts are reluctant to question a trustee’s discretion, but if the beneficiary NEEDS to distribution for support, then the beneficiary or creditor can insist on distribution
Creditor’s Rights in Trusts: Asset Protection Trust + Requirements
Delaware permits creation of trusts for ASSET PROTECTION by transferring assets into an IRREVOCABLE TRUST to protect assets from future creditors
Statutory Requirements:
1) Trustor creates IRREVOCABLE TRUST
2) At least 1 trustee is a DELAWARE RESIDENT,
3) Trustor may retain certain rights.
4) 4 year SOL for creditor’s claims
Creditor’s Rights in Trusts: Asset Protection Trust - Limitations (Who Can Pierce Trust)
The creditor protection DOES NOT EXTEND TO:
1) Child support, alimony, or debts related to divorce,
2) Forced heirs, and
3) Tort claimants who were injured BEFORE the creation of the trust
Modification of Trusts: By Trustor + Silence
So long as the trust itself allows for modification, it is permissible by the trustor
If silent, the trust is IRREVOCABLE
Modification of Trusts: By Consent + By Court
If the TRUSTOR AND ALL BENEFICIARIES consent to modification, then a modification can be made.
A court may direct or permit the trustee to deviate from the terms if, due to circumstances unknown and unanticipated by trustor, compliance would DEFEAT OR SUBSTANTIALLY IMPAIR the trustor’s intent
Modification of Trusts: By Corporate Trustee
A corporate trustee who finds the costs administering the trust DEFEAT OR SUBSTANTIALLY IMPAIR the purpose, may after WRITTEN NOTICE to all interested persons, terminate the trust and distribute the trust property to beneficiaries
Termination of Trusts: By Beneficiaries + Spendthrift Clause (And Exception)
Beneficiaries can terminate the trust if: (1) ALL beneficiaries consent, and (2) there is NO FURTHER PURPOSE to be served
A spendthrift trust CANNOT BE TERMINATED, unless trustor consents
Non-Express Trusts: Resulting Trust
A resulting trust is one found by the court based on the presumed intent of the trustor.
Non-Express Trusts: Resulting Trust - Failure or Termination of Express Trust
Where an express trust fails to dispose of an entire interest in property, a resulting trust may be found by the court
Non-Express Trusts: Resulting Trust - Purchase Money Resulting Trust
A purchase money resulting trust may be created when one person pays for property but title is taken by another, this may be found to be (1) a GIFT) or (2) a LOAN
Non-Express Trusts: Constructive Trust + Unjust Enrichment Elements
A constructive trust is an EQUITABLE REMEDY in which FRAUD OR UNJUST ENRICHMENT has occurred
Unjust enrichment:
1) Something of value was put into the name of another person,
2) It is unfair to allow the person who has title to retain the benefit
Charitable Trust: Purpose + Beneficiaries + Rules Against Perpetuities
The trust MUST have a charitable purpose, but CANNOT BE TOO LIMITED
Definite beneficiaries are NOT required.
Charitable trusts ARE NOT subject to RAP
Charitable Remainder Trust
A charitable trust may name a specific beneficiary and have some benefit to a charitable beneficiary
Charitable Trust: Cy Pres Doctrine
If a particular charitable purpose becomes UNLAWFUL, IMPRACTIABLE, IMPOSSIBLE, or WASTEFUL, the Court has the power to MODIFY OR TERMINATE the trust in a manner consistent with the TRUSTOR’S ORIGINAL CHARITABLE PURPOSE
Statutory Business Trust + Requirements
A statutory trust is an UNINCORPORATED BUSINESS ASSOCIATION created pursuant to a trust instrument
Requirements:
1) AT LEAST 1 TRUSTEE is a resident of Delaware,
2) the business and affairs are MANAGED BY TRUSTEES,
3) Beneficial owners have LIMITED LIABILITY and SHARE IN PROFITS AND LOSSES,
4) PERPETUAL EXISTENCE,
5) Delaware law governs, and
6) Trust files a CERTIFICATE OF TRUST with Secretary of State
Trust Alternatives: Durable Personal Power of Attorney + Requirements
Here, an agent makes decisions about money management on one’s behalf, a FIDUCIARY DUTY OF LOYALTY is created
Requirements:
1) In WRITING (with power of attorney language),
2) SIGNED by principal,
3) In the presence of a NOTARIAL OFFICER, and
4) In the presence of 1 WITNESS who is neither related nor entitled to any portion of the estate.
Trust Alternatives: Durable Personal Power of Attorney - Notice + Agent Certification
A notice form is provided to be signed by the principal
The agent must execute an “agent certification” that acknowledges agent’s scope of authority
Trust Alternatives: Durable Personal Power of Attorney - Revocation
The death of the principal will AUTOMATICALLY revoke the power of attorney, but a principal can revoke if competent
Healthcare Power of Attorney
A healthcare POA can advance healthcare directive or withdraw medical treatment IF the individual BECOMES INCOMPETENT
Healthcare Power of Attorney: Life-Sustaining Treatment + Requirements
An advance healthcare directive can include a statement of an adult individual’s desires with respect to life-sustaining procedures, artificial nutrition, and pain alleviating treatment when TERMINALLY ILL.
An advance healthcare directive must be:
1) In WRITING,
2) DATED,
3) SIGNED by the person making the declaration,
4) In the PRESENCE OF 2 OR MORE ADULT WITNESSES (not related or entitled to portion of estate)
Healthcare Power of Attorney: Designation of Agent
If no agent is designated, the default people who can make that decision if the patient cannot is as follows:
1) Spouse,
2) Adult child,
3) A parent,
4) Adult sibling,
5) Adult grandchild,
6) Adult Niece or Nephew
Healthcare Power of Attorney: Revocation
An individual who is MENTALLY COMPETENT may revoke all or part of an advance healthcare directed by either a: (1) SIGNED writing, or (2) in ANY MANNER that communicates an intent to revoke done in the presence of 2 COMPETENT PERSONS (1 who is a healthcare provider)
Uniform Transfer to Minors Act + Effect of Transfer (Gift v. Debt)
A minor cannot legally accept a specific bequest, the UTMA avoids the need for creation of a trust where transfers are made to minors.
This is an IRREVOCABLE transfer that gives the minor an INDEFEASIBLY VESTED LEGAL TITLE to the property. If the transfer is a gift, it will be owned upon reaching 21 years of age, if by debt, it will be owned upon reaching 18 years of age.
Uniform Transfer to Minors Act: Duties and Powers of Custodian
The custodian is generally charged with the FIDCUCIARY DUTY to invest the property and expend it to the minor or for minor’s benefit.
Guardianship
If a person is INCAPACITATED, a guardianship may be established upon petition to the Court of Chancery
Guardianship: Applicable Individuals + Parent Designation
Guardians may be appointed for a minor, mentally infirm, or incapacitated adult.
The Court will give preference to the nomination of a guardian that a surviving parent made in WRITING or in WILL
Spousal Allowance + When This Occurs
Along with the spousal elective share (1/3 of estate), the spouse is entitled to $7,500 cash in the estate.
Spousal allowance occurs for both intestate and testate shares.
Intestate: What Is An Issue Entitled To Take? + What If Issue Is A Minor
The balance of any intestate estate remaining after the surviving spouse’s share would be distributed to decedent’s issue.
If the issue is a minor at the time of receipt, he cannot legally receive a specific bequest of property. The administrator would have the choice of placing the share in a trust for the issue’s benefit or under the Uniform Transfers to Minors Act.
