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GENERAL INTRODUCTION
I.
The Statute of Wills: a law which provided legal recognition that property could
be transferred by will, a document executed with the requisite formalities.
II.
Recent Changes in Trusts and Estates Law:
a. Moved away from formalism that traditionally characterized it towards an
emphasis on clients intent
b. Laws of the 50 states are becoming more similar as a result of the Uniform
Probate Code
c. Now involves the use of instruments in addition to wills
d. Medical directives and various forms of powers of attorney allow individuals
to make advance arrangements for their incapacity
e. The judicial process for probating wills or administrating estates has been
vastly simplified.
III.
Doctrines:
a. Donative Intent: norm in American trusts and estates law has always been to
allow property owners to do what they want with their property, during life
and at death. It is subject to relatively few limitations.
i. General Principal: a governing instrument, such as a will, dictates
outcomes to the extent that it addresses a matter even if the choices
made by the testator seem unfair.
ii. Application: applies even when there is no explicit direction from the
decedent, for example, when there is no written document or an
estate planner failed to adequately consider various contingencies.
iii. Default Rules: State laws provide default rules designed to
approximate what the decedent would have wanted.
b. The guiding principle in estate planning and estate administration is
effectuating the transferors intent.
THE LEGAL SYSTEM GOVERNING TRUSTS AND ESTATES
I.
Wills the traditional method for disposing of property
a. Friedman, Dead Hands: A Social History of Wills, Trusts, and
Inheritance Law
i. Highly Formal Document:
1. Must be in writing,
2. Must have a certain number of witnesses
3. Must be signed by testator
4. Testator must intend the document to be his will
ii. Nobody HAS to have a will; the State will be happy to distribute your
property without one, using intestacy laws.
1. Only property that is owned by the decedent at death is included
in the probate estate and disposed of by will, or in the absence
of a will, through intestacy.
iii. Trust one of the most important will substitutes
1. Definition: a trust is a legal arrangement in which certain assets
land, money, stocks and bonds are put in the hands of a
trustee, who manages the assets and has control over them, but
who exercises his power on behalf of the beneficiaries.
II.
III.
(1) the representation of one client will be directly adverse to another client;
or
(2) there is a significant risk that the representation of one or more clients
will be material limited by the lawyers responsibility to another client, a
former client or a third person or by a personal interest of the lawyer.
(b) Not withstanding the existence of a concurrent conflict of interest under
paragraph (a), a lawyer may represent a client if:
(1) the lawyer reasonably believes that the lawyer will be able to provide
competent and diligent representation to each affected client;
(2) the representation is not prohibited by law;
(3) the representation does not involve the assertion of a clime by one client
against another client represented by the lawyer in the same litigation or
other proceeding before a tribunal; and
(4) each affected client gives informed consent, confirmed in writing.
III.
IV.
ii. The lawyer may disclose his own availability to serve as a fiduciary and
it is acceptable for the lawyer to be named:
1. As a fiduciary under a will or trust that the lawyer is preparing for
the client, so longa s the lawyer discusses with the client
information reasonably necessary to enable the client to make an
informed decision in selecting the fiduciary.
c. Counseling
i. Lawyers are responsible for communicating with their clients, and
ensuring that clients understand matters adequately so that they can
make informed decisions.
ii. A lawyer who proceeds reasonably to advise a client with the intent of
providing the client with legal advice on how to comply with the law
does not act wrongfully, even if the client employs that advice for
wrongful purposes or even if a tribunal later determines that the
lawyers advice was incorrect. Act reasonably and you are ok.
Malpractice
a. Definition: When the lawyers actions create a legal cause of injury that
damages a person to whom the lawyer owes a duty of care, and the lawyer
has no valid defense, he may be held liable for malpractice.
b. Avoiding Malpractice: primary reason for not precluding liability of 3 rd parties
may be that unless a 3rd party has the right to sue a lawyer for breach of
duty or malpractice, no one will have the right to bring an action for
damages.
i. Estate itself usually has not suffered harm, and the recovery may be
limited to the relatively minor cost of the state planning.
ii. For 3rd party to prevail must prove that the attorney breached a duty
owed to the decedent; standard of care is that the attorney should
exercise skill and knowledge ordinarily possessed by attorneys under
similar circumstances.
iii. Suits have been instituted for: error in execution; failure to accomplish
testator goals/intent; error law; failure to update estate plan for new
laws or facts; failure to investigate heirs and assets; failure to advise T
on effect of his intent on taxes or other Bs; breach of contract to make
will; negligent estate planning that causes addl taxes; errors in
drafting; allowing execution when T lacked capacity; delay in
implementation of plan; missed deadlines; limiting representation to
discreet issues
iv. Most causes of action are based on the tort of negligence and include
breach of fiduciary duty, professional malpractice, infliction of
emotional distress, fraud, breach of good faith and fair dealing, and/or
negligent misrepresentation.
c. Privity:
i. Important Information: you can purchase life insurance for you or
someone else; it is one of the most important forms of non-probate
assets; AND if deceased owns a policy on himself, proceeds are subject
to estate tax; if deceased originally purchased policy but transferred
ownership at least 3 years before death, proceeds are NOT taxable.
ii. Schneider v. Finmann
1. Facts: T bought policy, transferred several times then back to
himself. P says D negligently advised T to transfer, or failed to
i. These are children who do not fall within the marital presumption
outlined above.
ii. The US SC has established a constitutional requirement that states
must provide some statutory mechanism by which nonmarital children
could try to establish paternity and inherit from their fathers.
iii. Most states responded to this by adding language to the intestacy
statutes that provided nonmarital children with several ways by which
they could establish paternity.
iv. UPC simply states that there is no difference in statuts between a
marital and a nonmarital child for purposes of inheritance form his
genetic parents.
UPC 2-117. No Distinction Based on Marital Status
(a)There is no difference in status between a marital and a nonmarital child for purposes
of inheritance from his genetic parents.
v. Statutory Presumption of Paternity. UPA 204
1. A nonmarital child must do more than a marital child to establish
that a particular man is his legal father.
UPA 204. Presumption of Paternity. provides that a child may establish the
paternity of the man from whom they are trying to inherit by either: (1) Statutory
presumption;(2) Voluntary acknowledgement; or (3)Through court proceedings, i.e., an
adjudication.
Statute Says
(a) a man is presumed to be the father of a child if:
(4) after the birth of the child, he and the mother of the child married each
other in apparent compliance with law, whether or not the marriage is or
could be declared invalid, and he voluntarily asserted his paternity of the
child, and:
(A) the assertion is in a record filed with [state agency maintaining
birth records];
(B) he agreed to be and is named as the childs father on the childs
birth certificate; or
(C) he promised in a record to support the child as his own; or
(5) for the first two years of the childs life, he resided in the same household
with the child and openly held out the child as his own
(b) a presumption of paternity established under this section may be rebutted
only by an adjudication under [Article] 6.
vi. Voluntary Acknowledgement of Paternity
1. In the absence of a presumption, a child can establish the mans
paternity if the purported father executed an effective
acknowledgement of his paternity. (UPA 201(b)(2))
vii. Adjudication of Paternity
1. Under UPA 601, in the absence of a presumption or voluntary
acknowledgement of paternity, a child, his mother, or other
parties may bring an involuntary paternity action, and a court
may issue an order establishing paternity after an adjudicatory
proceeding.
a. Genetic testing may be used if the man is still alive (UPA
502)
Adopted Children
a. Intro
i. Legally adopted children fall within the definition of child in the
intestacy statutes of all states. Adopted children may inherit through
their adoptive parents, and their parents may inherit from or through
them.
ii. Adoption usually severs the ties between the adopted child and the
genetic parents and thus prevents inheritance from or through them,
except in some states when a stepparent adopts the child.
iii. Cahn, Perfect Substitutes or the Real Thing?
1. Statutes. Early statutes distinguished rights of adopted vs.
biological. Didnt want the adopted children to usurp legitimate
children.
a. Some statutes explicitly specified differences between the
rights of adopted children and biological children to inherit
from their parents.
b. Historically, under the stranger to the adoption rule, an
adopted child generally could not inherit from relatives who
were not a party to the adoption.
c. Adoptive children could continue to inherit from their
biological relatives in some states, and their biological
relatives could inherit from them even after the adoption.
d. Even outside the general laws of intestacy and wills, the
adoption statutes allowed the adoption agreement to
determine the adoptees rights.
UPC 2-118. Adoptee and Adoptees Adoptive Parent or Parents.
(a) [Parent-Child Relationship Between Adoptee and Adoptive Parent or Parents.] A
parent-child relationship exists between an adoptee and the adoptees adoptive parent
or parents.
UPC 2-119. Adoptee and Adoptees Genetic Parents.
(a) [Parent-Child Relationship Between Adoptee and Genetic Parents.] Except as
otherwise provided in subsections (b) through (e), a parent-child relationship does not
exist between an adoptee and the adoptees genetic parents.
(b) [Stepchild Adopted by Stepparent.] A parent-child relationship exists between an
individual who is adopted by the spouse of either genetic parent and:
(1) the genetic parent whose spouse adopted the individual; and
(2) the other genetic parent, but only for the purpose of the right of the adoptee or
a descendant of the adoptee to inherit from or through the other genetic parent.
b. Adult Adoption
i. UPC 2-115(1) defines an adoptee as an individual who is adopted,
this includes an individual who is adopted as an adult. Thus, under the
UPC, adult adoptees are children for purposes of interpreting the
intestacy statutes.
c. Equitable Adoption (aka adoption by estoppel)
(b) [Terms of Relationship.] A class gift that uses a term of relationship to identify
the class members includes a child of assisted reproduction, a gestational child,
and, except as otherwise provided in subsections (e) and (f), an adoptee and a
child born to parents who are not married to each other, and their respective
descendants if appropriate to the class, in accordance with the rules for intestate
succession regarding parent-child relationships.
II.
relative of the genetic parent functioned as a parent of the child before the child reached
[18] years of age.
a. UPC 2-115(4) functioning like a parent means behaving toward a child
in a manner consistent with being the childs parent and performing
functions that are customarily performed by a parent, including fulfilling
parental responsibilities toward the child, recognizing or holding out the child
as the individuals child, materially participating in the childs upbringing,
and residing with the child in the same household as a regular member of
that household.
i. Curious standard.. This is the ideal parent! Saying functioned as a
GOOD parent.
UPC 2-705. Class Gifts Construed to Accord with Intestate Succession;
Exceptions.
(f) [Transferor Not Adoptive Parent.] In construing a dispositive provision of a transferor
who is not the adoptive parent, an adoptee is not considered the child of the adoptive
parent unless:
1. the adoption took place before the adoptee reached [18] years of
age;
2. the adoptive parent was the adoptees stepparent or foster
parent; or
3. the adoptive parent functioned as a parent of the adoptee before
the adoptee reached [18] years of age
III.
Who is a Parent?
a. In General
i. The rules for establishing the parent-child relationship discussed above
in the context of the child also apply to the inheritance rights of their
parents. In other words, inheritance typically flows in both
directions.
(2) the child died before reaching [18] years of age and there is clear and
convincing evidence that immediately before the childs death the parental
rights of the parent could have been terminated under law of this state other
than this [code] on the basis of nonsupport, abandonment, abuse, neglect, or
other actions or inactions of the parent toward the child.
ii. Majority Rule: while the parent of a nonmarital child must support and
acknowledge the child in order to inherit from child, there is no similar
rule for marital parents. A married father (or mother) who fails to
support his child may still inherit.
IV.
Texas Probate Code 43. DETERMINATION OF PER CAPITA AND PER STIRPES DISTRIBUTION.
When the intestate's children, descendants, brothers, sisters, uncles, aunts, or any other relatives of the
deceased standing in the first or same degree alone come into the distribution upon intestacy, they shall
take per capita, namely: by persons; and, when a part of them being dead and a part living, the
descendants of those dead shall have right to distribution upon intestacy, such descendants shall inherit
only such portion of said property as the parent through whom they inherit would be entitled to if alive.
b. Rules Common to All Representation Statutes
i. If there is a surviving spouse, descendants and other heirs are entitled
to a share of the intestate estate only from what is not reserved
from the surviving spouse.
1. Entitled to portion remaining after surviving spouse takes
statutory amount.
ii. If the decedent is survived by a descendant, the decedents ancestors
and more remote collateral heirs do not take.
1. Descendants take to the exclusion of collateral heirs
iii. If all of the decedents children survive the decedent, the
representation rules are not necessary. The children will share the
portion of the estate to which they are entitled equally per capita.
1. Thus, if the decedent is survived by all of her children (1st
generation descendants), the entire portion of the decedents
iv.
v.
vi.
vii.
viii.
iii. Procedure:
1. Step 1: Find the first generation where there are living
descendants. Determine the number of shares by dividing the
estate into as many equal shares as there are:
a. (1) living children of the decedent, if any, and
b. (2) deceased children in the same generation with
descendants then living.
c. Step one is identical to the original UPC modern per
stirpes method. In other words, perform step one at
the highest generation where someone is alive.
2. Step 2: distribute one share per capita to each living member of
the first generation where there are living members.
3. Step 3: combine the remaining shares, if any, into a pot for
sharing by lower generations. It is at Step 3 that the Per Capita
at Each Generation method breaks from the modern per stirpes
method.
4. Step 4: Move down to the net generation and basically repeat
steps 1 to 3 until the entire estate is distributed.
iv. EXAMPLE 5: D had 3 children A, B, and C. D is only survived by on C,
who has a young son X. Ds son B died many years ago without any
children. Daughter A died recently leaving 3 children of her own U, V
and W.
1. Procedure and Result:
a. First at the highest generation where there is at least 1
descendant that survives the D, we determine the number
of shares by dividing the estate into as many equal parts
as there are living descendants of the D and deceased
descendants who are represented by their living
descendants. One these facts, we determine the number of
shares at the child generation because at least one child
(C) is alive at the Ds death. Since son B did not survive
and did not leave any children to represent him, his
potential share is lost. Thus, only two shares are created,
one for the surviving child (C) and the other for As
descendants.
b. Second since C is alive, we distribute to C the half to
which he is entitled per capita.
c. Third we place the remaining into a pot by sharing by
the lower generation descendants.
d. Fourth we repeat steps 1 to 3 as to the amount in the
pot. As a result, U, V and W each get 1/3 of (1/6)
remaining in the intestate estate on a per capita basis.
2. While the answer is the same as with per stirpes and per capita
with representation, the reasons are different. Whereas with per
stirpes and the original UCP, U, V and W acquired their share as
representatives of A, which the revised UPC version they do so as
members of the next generation per capita.
Class Email:
STRICT PER STIRPES:
#1
Determine the number of shares by dividing the estate into as many equal shares as there are: (1) living
children of the decedent, if any, and (2) deceased children with living descendants. [THE ESTATE IS
DIVIDED AT THE LEVEL OF THE CHILDREN ALWAYS]
#2
Distribute one share to each living member of the highest generation.
#3
Move down to the next generation, repeat as needed.
**********MODERN PER STIRPES AKA PER CAITA WITH REPRESENTATION (TEXAS)
#1
Find the first generation where there are living descendants. [NOTE: THIS IS THE DIFFERENCE
WITH PER STIRPES]. Determine the number of shares by dividing the estate into as many equal shares as
there are (1) living children of the descendant, if any, and (2) deceased children in the same generation who are
represented by their living descendants.
#2
Distribute one share to each living member of the highest generation.
#3
Move down to the next generation, repeat as needed.
********UPC PER CAPITA AT EACH GENERATION
#1
Find the first generation where there are living descendants. Determine the number of shares by
dividing the estate into as many equal shares as there are (1) living children of the descendant, if any, and (2)
deceased children in the same generation who are represented by their living descendants.
#2
Distribute one share per capita to each living member of the first generation where there are living
members.
#3
Combine the remaining shares, if any, into a pot for sharing by lower generations. [NOTE: THIS IS
THE DIFFERENCE WITH MODER PER STIRPES].
#4
Move down to the next generation, repeat as needed.
Texas Probate Code 38. PERSONS WHO TAKE UPON INTESTACY.
(a) Intestate Leaving No Husband or Wife. Where any person, having title to any estate, real, personal or
mixed, shall die intestate, leaving no husband or wife, it shall descend and pass in parcenary to his kindred,
male and female, in the following course:
1. To his children and their descendants.
2. If there be no children nor their descendants, then to his father and mother, in equal portions. But if
only the father or mother survive the intestate, then his estate shall be divided into two equal portions,
one of which shall pass to such survivor, and the other half shall pass to the brothers and sisters of the
deceased, and to their descendants; but if there be none such, then the whole estate shall be inherited by
the surviving father or mother.
3. If there be neither father nor mother, then the whole of such estate shall pass to the brothers and
sisters of the intestate, and to their descendants.
4. If there be none of the kindred aforesaid, then the inheritance shall be divided into two moieties, one
of which shall go to the paternal and the other to the maternal kindred, in the following course: To the
grandfather and grandmother in equal portions, but if only one of these be living, then the estate shall be
divided into two equal parts, one of which shall go to such survivor, and the other shall go to the
descendant or descendants of such deceased grandfather or grandmother. If there be no such
descendants, then the whole estate shall be inherited by the surviving grandfather or grandmother. If
there be no surviving grandfather or grandmother, then the whole of such estate shall go to their
descendants, and so on without end, passing in like manner to the nearest lineal ancestors and their
descendants.
(b) Intestate Leaving Husband or Wife. Where any person having title to any estate, real, personal or mixed,
other than a community estate, shall die intestate as to such estate, and shall leave a surviving husband or wife,
such estate of such intestate shall descend and pass as follows:
1. If the deceased have a child or children, or their descendants, the surviving husband or wife shall take
one-third of the personal estate, and the balance of such personal estate shall go to the child or children
of the deceased and their descendants. The surviving husband or wife shall also be entitled to an estate
for life, in one-third of the land of the intestate, with remainder to the child or children of the intestate
and their descendants.
2. If the deceased have no child or children, or their descendants, then the surviving husband or wife
shall be entitled to all the personal estate, and to one-half of the lands of the intestate, without remainder
to any person, and the other half shall pass and be inherited according to the rules of descent and
distribution; provided, however, that if the deceased has neither surviving father nor mother nor
surviving brothers or sisters, or their descendants, then the surviving husband or wife shall be entitled to
the whole of the estate of such intestate.
II.
c. Attractive to many people for their convenience and because they may be
executed and changed with few formalities.
Probate Avoidance
a. Probate process is judicial procedure where by the PR of the D (i) gathers
property of D from all sources and inventories it, (ii) notifies creditors of the
death of D, determines which claims are legit and pays them, (iii) IDs the Bs
of the Ds estate and the property to which they are entitled, and (iv)
distributes estate property to Bs with clear title, unencumbered by
obligations.
b. Should One Avoid Probate?
i. Reasons to Avoid Wills and Probate that are Still True
1. The will might be invalidated due to an infraction of one of the
formalistic rules that apply to the drafting, amending and
revoking of wills.
2. The formalities required to amend a will may be greater than
those required for a will sub.
3. If one owns real property in another state, ancillary probate
proceedings will be required there, adding time and cost to the
process.
4. For high profile individuals, a will is a public document, so the
media might report on matters the individual would prefer to
keep private.
5. Some statutory protections and restrictions apply to wills only.
ii. Some of the Stated Reasons to Use Will Subs are Illusory
1. Trusts are less expensive than wills. Attorneys fees for preparing
revocable trust agreement and the other docs needed to do a
complete plan are usually more expensive than preparing a
traditional will.
2. Probating a will is expensive. In most states now, fees are based
on an hourly rate. Additionally, time and cost of probating a will
is often insignificant especially for (1) smaller and simple estates
and (2) wills where no one contests.
3. Estate taxes can be avoided if probate is avoided. Most assets
owned at death are includible in Ds gross estate and subject to
estate tax regardless of whether they are probated or not.
iii. In Fact, There are Advantages to Going Through Probate
1. The claims of creditors are addressed and resolved during
probate.
2. There is an inheritance defense associated with acquiring
superfund property.
3. The proceedings are controlled by a judge. This may handle
disputes between Bs or between Bs and the PR.
4. In most cases, the PR is required to prepare an accounting and
report of her activities. Safeguard against dishonest PR.
iv. Other Matters to Consider
1. It may be better to have entire estate plan in one document.
2. The Docs used to avoid probate may be confusing to an
unsophisticated person.
CREATION OF TRUSTS
INTRODUCTION
I.
Terminology for Trusts
a. Qualified Beneficiary
i. UTC 103. Definitions.
1. (13) Qualified B means a B who, one the date the Bs
qualification is determined
a. (A) is a distribute or permissible distribute of trust income
or principal;
b. (B) would be a distribute or permissible distribute of trust
income or principal if the interests of the distributes
described in subparagraph (A) terminated on that date
without causing the trust to terminate;
c. (C) would be a distribute or permissible distribute of trust
income or principal if the trust terminated on that date.
ii. Comment to UTC 103
1. Due to the difficulty of IDing Bs whose interests are remote and
contingent, and because such Bs are not likely to have much
interest in the day-to-day affairs of the trust, the UTC uses the
qualified B to limit the class of Bs to whom certain notices must
be given or consents received.
CREATION
I.
Trustee
a. Choosing a Trustee
b. Acceptance
i. UPC 701. Accepting or Declining Trusteeship.
1. (a) Except as otherwise provided in subsection (c), a person
designated as trustee accepts the trusteeship:
a. (1) by substantially complying with a method of
acceptance provided in the terms of the trust; or
b. (2) if the terms of the trust do not provide a method or the
method provided in the terms is not expressly made
exclusive, by accepting delivery of the trust property,
exercising powers or performing duties as trustee, or
otherwise indicating acceptance of the trusteeship.
2. (b) A person designated as trustee who has not yet accepted the
trusteeship may reject the trusteeship. A designated trustee who
does not accept the trusteeship within a reasonable time after
knowing of the designation is deemed to have rejected the
trusteeship.
3. (c) a person designated to act as trustee, without accepting the
trusteeship, may:
a. (1) act to preserve the trust property if, within a reasonable
time after acting, the person sends a rejection of the
trusteeship to the settlor or, if the settlor is dead or lacks
capacity, to a qualified B; and
II.
III.
REVOCABLE TRUSTS
I.
Structure
II.
Funding the Trust
a. UPC 2-511. Testamentary Additions to Trusts.
i. (a) A will may validly devise property to the trustee of a trust
established or to be established (i) during the testators lifetime by the
testator, by the testator and some other person, or by some other
person, including a funded or unfunded life insurance trust, although
the settlor has reserved any or all rights of ownership of the insurance
contracts, or (ii) at the testators death by the testators devise to the
trustee, if the trust is identified in the testators will and its terms are
set forth in a written instrument, other than a will, executed before,
concurrently with, or after the execution of the testators will or in
another individuals will if that other individual has predeceased the
testator, regardless of the existence, size, or character of the corpus of
the trust. The devise is not invalid because the trust is amended after
the execution of the will or the testators death.
ii. (b) Unless the testators will provides otherwise, the property devised
to a trust described in subsection (a) is not held under a testamentary
trust of the testator, but it becomes a part of the trust to which it is
devised, and must be administered and disposed of in accordance with
the provisions of the governing instrument setting forth the terms of
the trust, including any amendments thereto made before or after the
testators death.
iii. (c) Unless the testators will provides otherwise, a revocation or
termination of the trust before the testators death causes the devise
to lapse.
III.
Purposes and Advantages
a. Lifetime Purpose Planning for Incapacity provides a means to manage
property if the settlor becomes incapacitated.
i. A Trustee can manage the persons property and no conservatorship
(judicial determination of incapacity required) will be needed. The
person can choose the successor trustee and provide guidance in the
terms of the trust as to how determination of incapacity is to be made
and how the property should be managed and used thereafter.
b. After-Death Purposes Avoiding Probate popular because it avoids
cumbersome, expensive probate process of some states
i. Costs: transferring property through probate may cost more than using
a revocable trust. The concerns over the cost of probate must be
balanced with the greater cost at the front end: drafting a revocable
trust typically costs more than preparing a will.
IV.
V.
VI.
VII.
FIDUCIARY DUTIES
INTRODUCTION
A trust divides title between the trustee, who holds legal title, and the B, who holds
equitable title.
Langbein, Mandatory Rules in the Law of Trusts
o Enforceable duties: a trust must create enforceable duties. A settlor may not
so negate the responsibilities of a trustee that the trustee would no longer be
acting in a fiduciary capacity. If the trustee has no enforceable duties, the B
would no enforceable interest.
o Core duties of loyalty the duty to administer the trust solely in the
interests of the Bs; impartiality the duty of due regard to the interest of all
the Bs of a trust; and the duty of prudence in the conduct of trust
administration the care norm, requiring the exercise of reasonable care,
skill and caution. None of these duties appear in the UTC, so none are
protected from settlor modification.
o Trust law allows the settlor to conclude that particular fiduciary rules would
overprotect or otherwise complicate the particular trust and its purposes;
hence, the Bs would be better served by abridging them. However, cant
abrogate them completely, because eliminating all FDs would make the trust
illusory.
o The requirement that a trust must have enforceable duties has the
consequence of placing aggregate limits on the manner and the extent to
which a settlor can oust the default law.
DUTY OF OBEDIENCE (TO THE TERMS OF THE TRUST)
Trustee must carry out the terms of the trust, as directed by the settlor. The duty of
obedience underlies the other 2 primary FDs, the duty of loyalty and the duty of
care of prudence.
Atkinson, Obedience as the Foundation of Fiduciary Duty
o Root of the fiduciary relationship is one persons acting for another. The duty
of obedience derives directly from that basic principle. The fiduciary: serve
the one the principal designates, as the principal designates. The fiduciary
must obey this directive, and the directive is the duty of obedience.
o You cannot have a fiduciary relationship without the 3 primary duties. At the
base of the fiduciary triangle is the duty of obedience: to benefit those
designated by another, one must be both loyal and careful.
UTC 801. Duty to Administer Trust.
Upon acceptance of a trusteeship, the trustee shall administer the trust in good
faith, in accordance with its terms and purposes and the interests of the Bs, and in
accordance with this Code.
DUTY OF LOYALTY TO THE BENEFICIARIES
I.
Self-Dealing Duty of loyalty prohibits the trustee from entering into a
transaction on behalf of the trust with himself in his individual capacity.
II.
Conflict of Interest Trustee must avoid transactions in which her loyalty might
be divided for indirect reasons. A trustee must avoid any transaction that serves
the interests of a 3rd person, even one not related to the trustee, or serves an
interest other than that of the Bs.
III.
Exceptions to the Duty of Loyalty
trustee, or a person that owns a significant interest in the trustee, has an interest that
might
affect the trustees best judgment.
Comment to UTC 802.
This rule is less severe with respect to transactions involving trust property entered into
with persons who have close business or personal ties with the trustee. Under subsection
(c), a transaction between a trustee and certain relatives and business associates is
presumptively voidable, not void. Among the fats tending to rebut the presumption are
whether the consideration was fair and whether the other terms of the transaction are
similar to those that would be transacted with an independent party.
e. Proprietary Mutual Funds UTC authorizes a corporate trustee to invest in
proprietary mutual funds (funds the corporation manages).
UTC 802. DUTY OF LOYALTY.
(f) An investment by a trustee in securities of an investment company or
investment trust to which the trustee, or its affiliate, provides services in a
capacity other than as trustee is not presumed to be affected by a conflict between
person and fiduciary interests if the investment otherwise complies with the
prudent investor rule of [Article] 9. In addition to its compensation for acting as
trustee, the trustee may be compensated by the investment company or
investment trust for providing those services out of fees charged to the thrust. If
the trustee receives compensation from the investment company or management
services, the trustee must at least annually notify the persons entitled under 813
to receive a copy of the trustees annual report of the rate and method by which
that compensation was determined.
(h) this section does not preclude the following transactions, if fair to the Bs:
.. (4) A deposit of trust money in a regulated financial-service institution
operated by the trustee;
f. Advances by Trustee trustee can advance her own funds to the trust and
be repaid, without interest, if the advance will protect the trust estate or is
necessary for expenses of administration. A trustee may also lend money to
the trust and be repaid with reasonable interest, if funds are not otherwise
available on equal or better terms.
g. Voting Stock if trust owns corporate stock, the trustee will need to vote the
stock.
UPC 802. Duty of Loyalty.
(g) In voting shares of stock or in exercising powers of control over similar
intersts in other forms of enterprise, the trustee shall act in the bests interests of the
Bs. If the trust is the sole owner of a corporation or other form of enterprise, the
trustee shall elect or appoint directors or other managers who will manage the
corporation or enterprise in the best interests of the Bs.
PROVIDING INFORMATION TO THE BENEFICIARIES DUTY TO INFORM AND
REPORT
I.
Common Law Duty
a. In order for B to enforce interest in the trust, B must have info about trust, its
assets, transactions engaged in by trustee, and income earned by the trust.
b. Most trustees, particular those advised by lawyers, provide annual
accounting to Bs of trusts they manage.
II.
(d) A B may waive the right to a trustees report or other information otherwise
required to be furnished under this section. A B, with respect to future reports
and other information, may withdraw a waiver previously given.
III.
Representation
a. UTC provides for representation for Bs who lack legal capacity or are not yet
born. The UTC provides for representation by fiduciaries, which is consistent
with older law. In addition, UTC permits representation of minor and unborn
children by a parent of the children. [303]
b. UTC also permits representation by a person who as an interest
substantially identical to the interest of the person being represented.
[304]
i. Example: if trust provides a remainder interest for children of a person,
an adult child can represent unborn or minor children the childs
siblings.
ii. Provisions apply only if the person representing the another B
does not have conflict of interest that would affect the
representation.
II.
i. Goals: (1) produce income and (2) maintain value of the trust.
ii. Duty to invest prudently has evolved used to be very strict with
limited control by trustees to rules that facilitate investment decision
making based on modern portfolio theory and other developments in
investment strategies.
b. Langbein, The Uniform Prudent Investor Act and the Future of Trust
Investing.
I. OLDER STANDARDS OF PRUDENT INVESTING
1. Used to be a restricted list of presumptively proper trust
investments, like government bonds and well-secured first
mortgages. Stock was later added, with various other court or
legislature-approved corporate issues.
2. Prudent Man Rule: trustees should observe how men of
prudence manage their own affairs, not in regard to
speculation, but in regard to the permanent disposition of their
funds, considering the probable income, as well as the probably
safety of the capital to be invested.
a. Prudence = reasonableness; similar to reasonable man
rule.
b. Main idea was to avoid speculation.
II. THE UNIFORM PRUDENT INVESTOR ACT
1. Legislature retained the prudence standard. Prudent man has
become the prudent investor.
2. Act makes 3 great changes:
a. Act articulates a greatly augmented duty to diversify trust
investments.
b. In place of old preoccupation with avoiding speculation, the
Act substitutes a requirement of sensitivity to the risk
tolerance of the particular trust, directing trustee to invest
for risk and return objectives reasonably suited to the
trust.
c. Act reverses the much criticized nondelegation rule of
former law and actually encourages trustees to delegate
investment responsibilities to professionals.
c. Interest, Dividends, Rents, and Capital Gains
Prefatory Note to the UPIA. Objects of the Uniform Prudent Investor Act.
UPIA makes 5 fundamental alterations in the former criteria for prudent investing. All are
to be found in the R.3d of Trusts: Prudent Investor Rule.
1) The standard of prudence is applied to any investment as part of the total portfolio,
rather than to individual investments. Portfolio embraces all the trusts assets.
2) The tradeoff in all investing between risk and return is identified as the fiduciarys
central consideration.
3) All categoric restrictions on types of investments have been abrogated; the trustee
can invest in anything that plays an appropriate role in achieving the risk/return
objectives of the trust and that meets other requirements of prudent investing.
4) The long familiar requirement that fiduciaries diversify their investments has been
integrated into the definition of prudent investing.
5) The much criticized former rule of trust law forbidding the trustee to delegate
investment management functions has been reversed. Delegation is now
permitted, subject to safeguards.
(f) A trustee who has special skills or expertise, or is named trustee in reliance upon
the trustees representation that the trustee has special skills or expertise, has a duty to
use those special skills or expertise. Special Skills.
f. Diversification
SECTION 3. DIVERSIFICATION.
A trustee shall diversify the investments of the trust unless the trustee reasonably determines that,
because of special circumstances, the purposes of the trust are better served without diversifying.
g. Costs
i. Duty to incur only costs that are appropriate and reasonable for the
trust. Comment describes the provision as a direction to minimize
costs.
SECTION 7. COSTS.
In investing and managing trust assets, a trustee may only incur costs that are
appropriate and reasonable in relation to the assets, the purposes of the trust, and
the skills of the trustee.
h. Not By Hindsight
i. T must make decisions based on the information available at the time
the decision is made. T has duty to investigate the truth of info relating
to the investments and must be diligent in seeking info, but will not
be judged by the success or lack of success of investments.
Decisions will NOT be judged in hindsight.
SECTION 8. REVIEWING COMPLIANCE.
Compliance with the prudent investor rule is determined in light of the facts and
circumstances existing at the time of a trustees decision or action and not by
hindsight.
i. Delegation
i. T cannot turn things over to investment advisor but must continue to
monitor work done on behalf of trust.
ii. Rules governing delegation balance potential benefits to trust of
appropriate delegation with risks of overbroad delegation.
iii. Comment: If the T delegates effectively, the Bs obtain the advantage
of the agents specialized investment skills or whatever other
attributes induced T to delegate. But if T delegates to an incompetent,
the delegation can work harm upon the Bs.
SECTION 9. DELEGATION OF INVESTMENT AND MANAGEMENT FUNCTIONS.
(a) A trustee may delegate investment and management functions that a prudent
trustee of comparable skills could properly delegate under the circumstances.
The trustee shall exercise reasonable care, skill and caution in:
a. (1) selecting agent;
b. (2) establishing scope and terms of the delegation, consistent with the
purposes and terms of the trust; and
c. (3) periodically reviewing the agents actions in order to monitor the
agents performance and compliance with the terms of the delegation.
(b)In performing a delegated function, an agent owes a duty to the trust to
exercise reasonable care to comply with the terms of the delegation.
(c) A trustee who complies with the requirements of subsection (a) is not liable to
the Bs or to the trust for the decisions or actions of the agent to whom the
function was delegated.
(d)By accepting the delegation of a trust function from the trustee of a trust that is
subject to the law of this State, an agent submits to the jx of the courts of this
State.
NOTE: Choosing: would be reasonable to just google investment advisors
o When asked (as attorney) for referral, give THREE options
o Trustee needs to talk to people, look at credentials (letters after their name), talk to other
clients, interview several investment advisors.
o If advisor loses the money, trustee wants to be able to show that trustee did everything
possible to choose prudently. Trustee should document everything done while searching
for advisor.
NOTE Trustee must keep up with ins and outs of $. Example: if T gives B money for school, it is good
practice to get tuition bill saying why money was spent and validating amount disbursed.
SECTION 4.
Requires Trustee to review assets and apply prudent investor standards
DUTY OF IMPARTIALITY
I.
Intro
a. Trust typically provides for more than on B, and Bs interest may occur at
different times.
b. Duty of impartiality tells T to manage the trust in a way that keeps the
interest of the current B and the future Bs in mind.
c. It is not a duty to treat all Bs in the same way.
d. Related to duty to invest prudently and to the rules governing allocation of
income and principal. T must make investment decisions that do not prefer
income Bs over remainder Bs or vice versa.
ALLOCATION OF PRINCIPAL AND INCOME
I.
NOTES
a. Typical trust might provide life estate to one or more people and a remainder interest to others.
b. Determination of what constitutes income will determine what amount to distribute to the B
and what amount to leave in the trust for eventual distribution to the descendants.
c. Terms of trust can provide guidance on allocating receipts and expenses, but if the terms do not
include directions on principal and income, sate law provides these rules in the UP&IA.
i. Traditional income allocation: interest, dividends, and rents are allocated to income,
while settlors contributions to the trust and proceeds from the sale of assets (capital
gains) are allocated to principal.
ii. Trustee is permitted to make an adjustment between income and principal, if prudent
investment decisions have led to accounting results that place an inequitable amount in
either income or principal. This allows T to engage in prudent portfolio investing while
maintaining fair allocations for both income and remainder Bs.
UNIFORM PRINCIPAL AND INCOME ACT
SECTION 103. FIDUCIARY DUTIES; GENERAL PRINCIPLES.
(a) In allocating receipts and disbursements to or between principal and income, . . . a fiduciary:
(1) shall administer a trust or estate in accordance with the terms of the trust or the will, even if there is a
different provision in this [Act]; . .
(3) shall administer a trust or estate in accordance with this [Act] if the terms of the trust or the will do
not contain a different provision or do not give the fiduciary a discretionary power of administration;
and
(4) shall add a receipt or charge a disbursement to principal to the extent that the terms of the trust and
this [Act] do not provide a rule for allocating the receipt or disbursement to or between principal and
income.
(b) [A] fiduciary shall administer a trust or estate impartially, based on what is fair and reasonable to all of the
beneficiaries, except to the extent that the terms of the trust or the will clearly manifest an intention that the
fiduciary shall or may favor one or more of the beneficiaries. A determination in accordance with this [Act] is
presumed to be fair and reasonable to all of the beneficiaries.
SECTION 104. TRUSTEES POWER TO ADJUST.
(a) A trustee may adjust between principal and income to the extent the trustee considers necessary if the trustee
invests and manages trust assets as a prudent investor, the terms of the trust describe the amount that may or
must be distributed to a beneficiary by referring to the trusts income, and the trustee determines, after applying
the rules in Section 103(a), that the trustee is unable to comply with Section 103(b).
(b) In deciding whether and to what extent to exercise the power conferred by subsection (a), a trustee shall
consider all factors relevant to the trust and its beneficiaries, including the following factors to the extent they
are relevant:
(1) the nature, purpose, and expected duration of the trust;
(2) the intent of the settlor;
(3) the identity and circumstances of the beneficiaries;
(4) the needs for liquidity, regularity of income, and preservation and appreciation of capital;
(5) the assets held in the trust; the extent to which they consist of financial assets, interests in closely
held enterprises, tangible and intangible personal property, or real property; the extent to which an asset
is used by a beneficiary; and whether an asset was purchased by the trustee or received from the settlor;
(6) the net amount allocated to income under the other sections of this [Act] and the increase or decrease
in the value of the principal assets, which the trustee may estimate as to assets for which market values
are not readily available;
(7) whether and to what extent the terms of the trust give the trustee the power to invade principal or
accumulate income or prohibit the trustee from invading principal or accumulating income, and the
extent to which the trustee has exercised a power from time to time to invade principal or accumulate
income;
(8) the actual and anticipated effect of economic conditions on principal and income and effects of
inflation and deflation; and
(9) the anticipated tax consequences of an adjustment.
Comment
Purpose and Scope of Provision. The purpose of Section 104 is to enable a trustee to select investments using
the standards of a prudent investor without having to realize a particular portion of the portfolios total return in
the form of traditional trust accounting income such as interest, dividends, and rents. Section 104(a) authorizes
a trustee to make adjustments between principal and income if three conditions are met: (1) the trustee must be
managing the trust assets under the prudent investor rule; (2) the terms of the trust must express the income
beneficiarys distribution rights in terms of the right to receive income in the sense of traditional trust
accounting income; and (3) the trustee must determine, after applying the rules in Section 103(a), that he is
unable to comply with Section 103(b).
Impartiality and productivity of income. The duty of impartiality between income and remainder
beneficiaries is linked to the trustees duty to make the portfolio productive of trust accounting income
whenever the distribution requirements are expressed in terms of distributing the trusts income.
Factors to consider in exercising the power to adjust. Section 104(b) requires a trustee to consider factors
relevant to the trust and its beneficiaries in deciding whether and to what extent the power to adjust should be
exercised. . . . If a trustee who is operating under the prudent investor rule decides that the portfolio should be
composed of financial assets whose total return will result primarily from capital appreciation rather than
dividends, interest, and rents, the trustee can decide at the same time the extent to which an adjustment from
principal to income may be necessary under Section 104. On the other hand, if a trustee decides that the risk
and return objectives for the trust are best achieved by a portfolio whose total return includes interest and
dividend income that is sufficient to provide the income beneficiary with the beneficial interest to which the
beneficiary is entitled under the terms of the trust, the trustee can decide that it is unnecessary to exercise the
power to adjust. . . .
Examples. The following examples illustrate the application of Section 104:
Example (1) T is the successor trustee of a trust that provides income to A for life, remainder to B. T has
received from the prior trustee a portfolio of financial assets invested 20% in stocks and 80% in bonds.
Following the prudent investor rule, T determines that a strategy of investing the portfolio 50% in stocks and
50% in bonds has risk and return objectives that are reasonably suited to the trust, but T also determines that
adopting this approach will cause the trust to receive a smaller amount of dividend and interest income. After
considering the factors in Section 104(b), T may transfer cash from principal to income to the extent T considers
it necessary to increase the amount distributed to the income beneficiary.
Example (2) T is the trustee of a trust that requires the income to be paid to the settlors son C for life,
remainder to Cs daughter D. In a period of very high inflation, T purchases bonds that pay double-digit interest
and determines that a portion of the interest, which is allocated to income under Section 406 of this Act, is a
return of capital. In consideration of the loss of value of principal due to inflation and other factors that T
considers relevant, T may transfer part of the interest to principal.
SECTION 401. CHARACTER OF RECEIPTS.
(b) Except as otherwise provided in this section, a trustee shall allocate to income money received from an
entity [e.g., a corporation, a partnership, or a limited liability company].
(c) A trustee shall allocate the following receipts from an entity to principal:
(1) property other than money;
(2) money received in one distribution or a series of related distributions in exchange for part or all of a
trusts interest in the entity;
3) money received in . . . liquidation of the entity . . . .
(f) A trustee may rely upon a statement made by an entity about the source or character of a distribution if the
statement is made at or near the time of distribution by the entitys board of directors or other person or group of
persons authorized to exercise powers to pay money or transfer property comparable to those of a corporations
board of directors.
SECTION 404. PRINCIPAL RECEIPTS. A trustee shall allocate to principal:
(1) to the extent not allocated to income under this [Act], assets received from a transferor during the
transferors lifetime [or] a decedents estate . . ;
(2) money or other property received from the sale, exchange, liquidation, or change in form of a
principal asset, including realized profit, . . .
(5) net income received in an accounting period during which there is no beneficiary to whom a trustee
may or must distribute income; and
(6) other receipts as provided in [Part 3].
SECTION 405. RENTAL PROPERTY.
To the extent that a trustee accounts for receipts from rental property pursuant to this section, the trustee shall
allocate to income an amount received as rent of real or personal property, including an amount received for
cancellation or renewal of a lease. An amount received as a refundable deposit, including a security deposit or a
deposit that is to be applied as rent for future periods, must be added to principal and held subject to the terms
of the lease and is not available for distribution to a beneficiary until the trustees contractual obligations have
been satisfied with respect to that amount.
SECTION 501. DISBURSEMENTS FROM INCOME. A trustee shall make the following disbursements
from income . . . :
(1) one-half of the regular compensation of the trustee and of any person providing investment advisory
or custodial services to the trustee;
(2) one-half of all expenses for accountings, judicial proceedings, or other matters that involve both the
income and remainder interests;
(3) all of the other ordinary expenses incurred in connection with the administration, management, or
preservation of trust property and the distribution of income, including interest, ordinary repairs,
regularly recurring taxes assessed against principal, and expenses of a proceeding or other matter that
concerns primarily the income interest; and
(4) recurring premiums on insurance covering the loss of a principal asset or the loss of income from or
use of the asset.
SECTION 502. DISBURSEMENTS FROM PRINCIPAL.
(a) A trustee shall make the following disbursements from principal:
(1) the remaining one-half of the disbursements described in Section 501(1) and (2);
(2) all of the trustees compensation calculated on principal as a fee for acceptance, distribution, or
termination, and disbursements made to prepare property for sale;
(3) payments on the principal of a trust debt;
(4) expenses of a proceeding that concerns primarily principal, including a proceeding to construe the
trust or to protect the trust or its property;
(5) premiums paid on a policy of insurance not described in Section 501(4) of which the trust is the
owner and beneficiary;
(6) estate, inheritance, and other transfer taxes, including penalties, apportioned to the trust; and
(7) disbursements related to environmental matters, including reclamation, assessing environmental
conditions, remedying and removing environmental contamination, monitoring remedial activities and
the release of substances, preventing future releases of substances, collecting amounts from persons
liable or potentially liable for the costs of those activities, penalties imposed under environmental laws
or regulations and other payments made to comply with those laws or regulations, statutory or common
law claims by third parties, and defending claims based on environmental matters.
SECTION 505. INCOME TAXES.
(a) A tax required to be paid by a trustee based on receipts allocated to income must be paid from
income.
(b) A tax required to be paid by a trustee based on receipts allocated to principal must be paid from
principal, even if the tax is called an income tax by the taxing authority.
REMOVAL OF TRUSTEES
NOTES:
Requires serious breach of trust. Trustee is required to be average, so there will
be many minor breaches. 706(b)(1) states that breach must go above minor to
SERIOUS.
706(b) Not inconsistent with material of the trust is required before trustee can
be removed.
o Purpose of the trust is that Bs cant get the money, control the assets.
Therefore Bs cant remove the trustee just because Bs all agree they want a
different on.
o On the other hand, if Bs are reasonable and have good reason to remove
trustee, then it would violate the purpose of the trust to remove trustee.
o Can be friendly removal (old uncle ready to quit, wants to appoint successor
trustee because he is tired of doing it.)
UTC 706. REMOVAL OF TRUSTEE.
a) The settlor, a cotrustee, or a B may request the court to remove a trustee, or a
trustee may be removed by the court on its own initiative.
b) The court may remove a trustee if:
(6)the trustee has committed a serious breach of trust;
(7)lack of cooperation among cotrustees substantially impairs the
administration of the trust;
(8)because of unfitness, unwillingness, or persistent failure of the trustee to
administer the trust effectively, the court determines that removal of the
trustee best serves the interests of the Bs; or
(9)There has been a substantial change of circumstances or removal is
requested by all of the qualified Bs, the court finds that removal of the
trustee best serves the interests of all of the Bs and is not inconsistent with a
material purpose of the trust, and a suitable cotrustee or successor trustee is
available.
c) Pending a final decision on a request to remove a trustee, or in lieu of or in addition
to removing a trustee, the court may order such appropriate relief under sections
1001(b) as may be necessary to protect the trust property or the interests of the
Bs.
Grounds for removal: Failure to care for trust property, self-dealing with trust
property to the detriment of the Bs or refusing to provide information to the Bs
despite repeated requests (over a period of time) can be grounds for removal.
Court can also remove trustee if co-trustees cannot or will not cooperate in
managing the trust. Removal for lack of cooperation need not involve breach of
trust, but the failure to cooperate must significantly affect management of the
trust.
o Example: if a trust has two trustees and the two trustees cannot agree, no
decisions can be made for the trust. The court may decide to remove one or
both of the trustees.
For removal for substantially changed circumstances, the court needs to determine
that removal is in the best interests of the Bs and that removal is not inconsistent
with material purpose(s).
POWERS TO DIRECT
3. Conclusion
a. Trustee must first consider the intent of the settlor to the
extent it can be determined from the trust document and
any information about the relationship between settlor and
B.
b. Support usually means the Bs accustomed standard of
living, so lavish vacations and fancy cars may be within the
standard.
c. Trustee should consider needs of future Bs and the amount
of property in the trust relative to current Bs needs as well
as needs of future Bs.
ii. Education: clearly covers education; may also cover room and board,
books, fees and other costs.
1. Technical training as well as college or grad school are typically
covered.
2. Related costs for education private primary school, study
abroad, music lessons, sports instruction are less likely to viewed
as education, unless specifically provided for in the trust.
3. Trustee must consider not only the standard for distribution, but
also other resources of B (unless trust says otherwise) and other
purposes of trust.
iii. Emergency: considered a restrictive standard; distribution can be
made under the standard only if the sort of emergency the settlor
envisioned has occurred.
1. Determination of emergency depends on trustees discretion
and, if necessary, courts determination.
2. Courts tend to defer to trustees determination of whether an
emergency has occurred and will define emergency narrowly
when deciding whether the trustee has acted reasonable in not
making distribution.
iv. Welfare, Best Interest, Happiness: nonascertainable; broad
discretion in trustee. Trustee can choose to honor any reasonable
request from B for a distribution, without concern about secondguessing by another B or the court.
1. Trustee must still be reasonable and must act in good faith, but
court will give trustee a lot of latitude in exercise of discretion.
2. Trustee can choose not to distribute, or distribute for almost any
purpose.
a. Issue: whether creditor can get a court to order the trustee to turn over the
trust property or pay distributions from the trust to the creditor instead of
first making payment to B.
i. Doctrine of Derivative Title creditor cannot have more rights to
property than owner (B). Creditor steps into shoes of debtor.
ii. In general, Creditor can only garnish what debtor (B) owns.
iii. With the exception of a settlor of a revocable trust, Bs are not deemed
to be the owners of the assets; they only own a right to distributions.
Consequently, Creditors may not normally garnish the assets of the
trust; they may only intercept distributions to which the B is entitled.
Creditors can still go after Bs other assets.
b. Where the B is not the settlor, the creditors of the B who have a judgment,
whether obtained before or after the Bs interest is created, can reach assets
in the trust only to the extent the B has rights to demand assets or
distributions.
i. Thus, like the B, creditors of a B may be restricted in accessing the Bs
interest in distributions of income or property of the trust by:
1. Spendthrift provisions
2. The discretion of the trustee, and
3. The standards for distribution imposed by the terms of the trust.
ii. Each of the restrictions adds a layer of protection for the B, warding off
actions by creditors to collect.
iii. These protections are more permeable with respect to preferred
creditors, like taxing authorities and children and ex-spouses owed
child/spousal support.
iv. Once property is distributed to a B, it is fair game.
c. Where the B is also the settlor, creditors may be able to attach the
property in the trust directly and not have to limit themselves to
distributions.
i. When a settlor creates either a revocable trust or an irrevocable trust,
existing creditors may attach the settlors interest without restriction.
ii. With respect to revocable trusts, later creditors of the settlor can reach
the assets in the trust unimpeded, either during settlors lifetime or
after settlors death.
iii. Even with respect to irrevocable trusts with spendthrift clause, if settlor
has retained an interest in the trust, creditors may garnish the settlors
interest to satisfy their claims, unless the settlor established an asset
protection trust in one of a few foreign or state jxs that permit such
trusts.
d. Uniform Fraudulent Conveyance (or Transfer) Act: establishes that if someone
transfers assets to another for less than adequate consideration at a time
when he is already indebted, the transfer is generally considered in fraud of
creditors, regardless of intent to defraud. Not only is debtor still liable, but so
is the transferee, even if they are innocent. These rules apply with equal
force to trusts.
See Common Types of Trust Distribution Standards Hand Out (Day 20)
II.
Creditors of a Beneficiary Who is Not The Settlor
a. Mandatory Distributions: With respect to distributions pursuant to mandatory
provision, and absent a spendthrift clause covering such distributions,
because the B has the right to demand payment of a distribution, a creditor
ii. Follow one of these 3 methods Reason being, people who look at
documents know the intention (other attorneys, probate courts, tax
courts, professional trustees all are familiar with the methods.) It also
makes problems easier to fix. Start with a KNOWN plan = easier to
follow, then easier to fix.
iii. See Handout - Its Gold.
d. Spendthrift Clauses: adds another layer of protection from claims of creditors
beyond protection that discretionary standard provides.
i. Prevents both voluntary and involuntary alienation of trust interests by
B. Precludes a B from assigning or selling interest in a trust; prevents
creditor of B from attaching the Bs interest, with the result that the
creditor must wait until after payment is made then attempt to collect
from B.
1. UTC 502 see below
2. Comment to 505: the effect of a spendthrift provision is
generally to insulate totally a Bs interest until a distribution is
made and received by the B.
a. Restatement and UTC 505(a)(2) a settlors creditors
can reach a self-settled spendthrift trust explicitly rejecting
the protections allegedly offered by an offshore or Alaskanstyle trust.
b. Consequently, the drafters rejected the approach taken by
Alaska and Delaware, both of which allow a settlor to retain
a beneficial interest immune from creditors claim. Under
the Code, whether the trust contains a spendthrift
provision or not, a creditor of the settlor may reach the
maximum amount that the trustee could have paid to the
settlor-B.
3. Example: No B shall have any right to anticipate, sell, assign,
mortgage, pledge or otherwise dispose of or encumber all or part
of any trust estate established for his benefit under this
agreement. No part of such trust estate, including income, shall
be liable for the debts or obligations of any B or be subject to
attachment, garnishment, execution, creditors bill or other legal
or equitable process.
ii. Generally affect both mandatory or discretionary standards. See UTC
503(c) below.
iii. UTC 506 allows a creditor to reach a mandatory distribution if it has
not been made within a reasonable time after designated distribution
date. In essence, at this point, payments mandated by express terms
of the trust are in effect being held by trustee as agent for B and
should be treated as part of Bs personal assets. Comment to UTC
506.
iv. Most creditor-debtor relationships are voluntary; for these creditors,
caveat emptor applies if they rely on assets held for debtor in trust,
they are stuck with spendthrift limitation. Lender beware.
SECTION 502. SPENDTHRIFT PROVISION.
a) A spendthrift provision is valid only if it restrains both voluntary and involuntary transfer of a
beneficiarys interest.
b) A term of a trust providing that the interest of a beneficiary is held subject to a spendthrift trust, or
words of similar import, is sufficient to restrain both voluntary and involuntary transfer of the
beneficiarys interest.
c) A beneficiary may not transfer an interest in a trust in violation of a valid spendthrift provision and,
except as otherwise provided in this [article], a creditor or assignee of the beneficiary may not reach the
interest or a distribution by the trustee before its receipt by the beneficiary.
SECTION 503. EXCEPTIONS TO SPENDTHRIFT PROVISION.
(a) In this section, child includes any person for whom an order or judgment for child support has
been entered in this or another State.
(b) A spendthrift provision is unenforceable against:
o (1) a beneficiarys child, spouse, or former spouse who has a judgment or court order against the
beneficiary for support or maintenance;
o (2) a judgment creditor who has provided services for the protection of a beneficiarys interest in
the trust; and
o (3) a claim of this State or the United States to the extent a statute of this State or federal law so
provides.
(c) A claimant against which a spendthrift provision cannot be enforced may obtain from a court an
order attaching present or future distributions to or for the benefit of the beneficiary. The court may
limit the award to such relief as is appropriate under the circumstances.
SECTION 505. CREDITORS CLAIM AGAINST SETTLOR.
(a) Whether or not the terms of a trust contain a spendthrift provision, the following rules apply:
(1) During the lifetime of the settlor, the property of a revocable trust is subject to claims of the
settlors creditors.
(2) With respect to an irrevocable trust, a creditor or assignee of the settlor may reach the maximum
amount that can be distributed to or for the settlors benefit. If a trust has more than one settlor, the
amount the creditor or assignee of a particular settlor may reach may not exceed the settlors interest
in the portion of the trust attributable to that settlors contribution.
(3) After the death of a settlor, and subject to the settlors right to direct the source from which
liabilities will be paid, the property of a trust that was revocable at the settlors death is subject to
claims of the settlors creditors, costs of administration of the settlors estate, the expenses of the
settlors funeral and disposal of remains, and [statutory allowances] to a surviving spouse and
children to the extent the settlors probate estate is inadequate to satisfy those claims, costs,
expenses, and [allowances].
(b) For purposes of this section:
(1) during the period the power may be exercised, the holder of a power of withdrawal is treated in
the same manner as the settlor of a revocable trust to the extent of the property subject to the power;
and
(2) upon the lapse, release, or waiver of the power, the holder is treated as the settlor of the trust only
to the extent the value of the property affected by the lapse, release, or waiver exceeds the greater of
the amount specified in Section 2041(b)(2) or 2514(e) of the Internal Revenue Code of 1986, or
Section 2503(b) of the Internal Revenue Code of 1986, in each case as in effect on [the effective date
of this [Code]] [, or as later amended].
SECTION 506. OVERDUE DISTRIBUTION.
(a) In this section, mandatory distribution means a distribution of income or principal which the trustee is
required to make to a beneficiary under the terms of the trust, including a distribution upon termination of the
trust. The term does not include a distribution subject to the exercise of the trustees discretion even if
(1) the discretion is expressed in the form of a standard of distribution, or
(2) the terms of the trust authorizing a distribution couple language of discretion with language of
direction.
(b) Whether or not a trust contains a spendthrift provision, a creditor or assignee of a beneficiary may reach a
mandatory distribution of income or principal, including a distribution upon termination of the trust, if the
trustee has not made the distribution to the beneficiary within a reasonable time after the designated distribution
date.
SECTION 507. PERSONAL OBLIGATIONS OF TRUSTEE. Trust property is not subject to personal
obligations of the trustee, even if the trustee becomes insolvent or bankrupt.
III.
II.
UTC 411(a) provide that if settlor and all the Bs agree, they can modify (or terminate)
an irrevocable trust. Because the settlor is included in the decision, modification can
occur even if trust had a material purpose inconsistent with modification (see Material
Purpose Doctrine)
UTC 411. MODIFICATION OR TERMINATION OF NONCHARITABLE IRREVOCABLE
TRUST BY CONSENT.
(a) [Alt #1 A noncharitable irrevocable trust may be modified or terminated
upon consent of the settlor and all Bs, even if the modification or termination
is inconsistent with a material purpose of the trust.]
[Alt #2 If, upon petition, the court finds that the settlor and all Bs consent
to the modification or termination of a noncharitable revocable trust, the
court shall improve the modification or termination even if the modification
or termination is inconsistent with a material purpose of the trust.
c. Modification or Termination Without Settlors Consent (Usually After Settlors
Death)
i. Material Purpose Doctrine:
1. Claflin v. Claflin established the rule that modification by Bs will
be permitted only if the modification is not contrary to the
(b)A [representative] may act on behalf of the individual represented with respect
to any matter arising under this [Code], whether or not a judicial proceeding
concerning the trust is pending.
(c) In making decisions, a [representative] may consider general benefit accruing
to the living members of the individuals family.
iv. Changed Circumstances Equitable Deviation
1. The Doctrine of Equitable Deviation allows a court to modify a
provision to give effect to the intent of the settlor rather than to
change it. A court can modify a provision not only due to
changed circumstances, but also due to unanticipated
circumstances.
a. Courts are more willing to use this doctrine to modify
administrative terms (those addressing operation of the
trust) rather than dispositive terms (those addressing
distributions).
b. UTC 412 provides that dispositive as well as
administrative provisions may be modified due to changed
circumstances. Even termination of the trust is possible if
doing so will further the purpose of the trust.
UTC 412. MODIFICATION OR TERMINATION BECAUSE OF UNANTICIPATED
CIRCUMSTANCES OR INABILITY TO ADMINISTER TRUST EFFECTIVELY.
(a) The court may modify the administrative or dispositive terms of a trust or
terminate the trust if, because of circumstances not anticipated by the settlor,
modification or termination will further the purposes of the trust. To the extent
practicable, the modification must be made in accordance with the settlors
probable intention.
(b)The court may modify the administrative terms of a trust if continuation of the
trust on its existing terms would be impracticable or wasteful or impair the
trusts administration.
(c) Upon termination of a trust under this section, the trustee shall distribute the
trust property in a manner consistent with the purposes of the trust.
v. Modification to Fix a Mistake: if a trust provision resulted from a
mistake, then extrinsic evidence can be used to show the mistake.
Clear and convincing evidence is required to establish mistake.
1. The mistake may be either one of inducement, when the settlor
was mistaken as to a fact or the law, or one of expression, when
the language in the document fails to carry out the settlors
intent.
UTC 415. REFORMATION TO CORRECT MISTAKE.
The court may reform the terms of a trust, even if unambiguous, to conform the
terms to the settlors intention if it is proved by clear and convincing evidence that
both the settlors intent and the terms of the trust were affected by a mistake of
fact or law, whether in expression or inducement.
vi. Small Trust Termination: Trusts often contain provision permitting
termination if the value of the assets in the trust drops below a
specified amount.
Termination
a. According to the Terms of the Trust:
i. A trust will usually terminate pursuant to its terms.
ii. A trust will also terminate if the corpus is gone.
UTC 410. MODIFICATION OR TERMINATION OF TRUST; PROCEEDINGS FOR
APPROVAL OR DISAPPROVAL.
(a) In addition to the methods of termination prescribed by Sections 411 through
414, a trust terminates to the extent the trust is revoked or expires pursuant to
its terms, no purpose of the trust remains to be achieved, or the purposes of the
trust have become unlawful, contrary to public policy, or impossible to achieve.
b. By Agreement: if the settlor and all Bs agree, they can terminate a trust. UTC
411(a).
c. Without Settlor Consent or After the Settlors Death: all provisions discussed
in connection with modification also apply to termination.
i. For example: a court can terminate a trust if all Bs agree and if the
court determines that continuance of the trust is not necessary to
achieve any material purpose of the trust. 411(b).
e. Takers in Default: the persons who will take the property if the donee fails to
exercise the power and the donees power terminates (often at donees
death)
f. Testamentary Power of Appointment: a power that can be exercised only by
will
g. Presently Exercisable Power of Appointment: a power the donee can exercise
during life, through an intervivos instrument. A presently exercisable power
is exercisable when it is granted.
i. Example: E is settlor of trust. In trust she provides for J for life. She also
gives J a power to appoint, by will, the property remaining in the trust
at Js death to any descendant of J. If J does not exercise power, then
on Js death the property will be distributed to her descendants, by
representation, or if no descendant is alive when J dies, then to AGS.
1. E is Donor; J is Donee; trust property is Appointive Property; Js
descendants are Permissible Appointees, and Takers in Default;
AGS is contingent taker in default. Power is testamentary power
because J can exercise the power only by will.
2. If Es trust had provided that J could exercise the power at any
time during her lifetime, in favor of any descendant of hers, by
written instrument delivered to the trustee, then the power
would be a Presently Exercisable Power.
h. General Power of Appointment: power to appoint in favor of the donee, the
donees estate, the donees creditors, or the creditors of the donees estate.
i. A general power of appointment can be broad to anyone or can be
limited to one or more of the four categories listed for example, to
the donee.
ii. The distinction between general and nongeneral powers comes from
tax law, and different tax consequences follow depending on whether a
power is general or nongeneral.
iii. Example: E grants J the power to appoint the property not just to Js
descendants but also to her estate.
i. Nongeneral Power of Appointment: A power that cannot be exercised in favor
o the donee, the donees estate, the donees creditors or creditors of the
donees estate.
i. A nongeneral power can be broad to anyone in the world other than
the donee, the donees estate, the donees creditors or the creditors of
the donees estate or it can be narrow to the settlors descendants
or to H and G.
ii. A nongeneral power may also be called a special power or limited
power.
iii. Example: E gave J a power to appoint, by will, the property remaining
in trust at Js death to any descendant of J.
j. Power of Withdrawal: the right to withdraw the property, or a specified
amount of property, from a trust. A power of withdrawal is a general power of
appointment, because the donee can withdraw property for her own benefit.
i. Example: J may withdraw from the trust an amount not exceeding
$5k/year. If J does not exercise the power of withdrawal in any year, the
power shall lapse.
WILL VALIDITY
There are 3 types of wills: attested will (formal with 2 witnesses; drafted by lawyer
usually), holographic will (handwritten by T), and oral will (virtually unused).
INTRODUCTION
Freedom of Testation means people can opt-out of default system of intestacy by
executing a will.
Will is a donative instrument that is custom-tailored to reflect how an individual
(the T) wants property distributed at death.
Will must meet certain requirements; requirements concern document itself as well
as Ts mental state (testamentary capacity).
LEGAL REQUIREMENTS FOR THE TESTATOR
I. Age and Testamentary Capacity
a. Typically states require that T be 18 and of sound mind to make a will.
b. Testator (1) must understand he is making a will; (2) must know the extent
and character of property; and (3) must know the natural objects of his
bounty
II.
Testamentary Intent
a. Means that the decedent intended the document to be a will and to become
operative on his death.
b. Strong but rebuttable presumption of testamentary intent exists if the will
contains language to that effect, such as this is my last will and testament.
Absent that language, court may infer testamentary intent from other words
in document itself. Some courts allow extrinsic evidence.
FORMALITIES REQUIRED IN THE WILL
Prob Code Sec. 57. WHO MAY EXECUTE A WILL.
Every person who has attained the age of eighteen years, or who is or has been lawfully married, or who is a
member of the armed forces of the United States or of the auxiliaries thereof or of the maritime service at
the time the will is made, being of sound mind, shall have the right and power to make a last will and
testament, under the rules and limitations prescribed by law.
Sec. 59. REQUISITES OF A WILL.
(a) Every last will and testament, except where otherwise provided by law, shall be in writing and
signed by the testator in person or by another person for him by his direction and in his presence, and
shall, if not wholly in the handwriting of the testator, be attested by two or more credible witnesses
above the age of fourteen years who shall subscribe their names thereto in their own handwriting in the
presence of the testator. Such a will or testament may, at the time of its execution or at any subsequent
date during the lifetime of the testator and the witnesses, be made self-proved, and the testimony of the
witnesses in the probate thereof may be made unnecessary, by the affidavits of the testator and the
attesting witnesses, made before an officer authorized to administer oaths under the laws of this State.
Provided that nothing shall require an affidavit or certificate of any testator or testatrix as a prerequisite
to self-proof of a will or testament other than the certificate set out below. The affidavits shall be
evidenced by a certificate, with official seal affixed, of such officer attached or annexed to such will or
testament in form and contents substantially as follows:
THE STATE OF TEXAS
COUNTY OF ________________
Before me, the undersigned authority, on this day personally appeared _______________,
_______________, and _______________, known to me to be the testator and the witnesses,
respectively, whose names are subscribed to the annexed or foregoing instrument in their respective
capacities, and, all of said persons being by me duly sworn, the said _______________, testator,
declared to me and to the said witnesses in my presence that said instrument is his last will and
testament, and that he had willingly made and executed it as his free act and deed; and the said
witnesses, each on his oath stated to me, in the presence and hearing of the said testator, that the said
testator had declared to them that said instrument is his last will and testament, and that he executed
same as such and wanted each of them to sign it as a witness; and upon their oaths each witness stated
further that they did sign the same as witnesses in the presence of the said testator and at his request;
that he was at that time eighteen years of age or over (or being under such age, was or had been lawfully
married, or was then a member of the armed forces of the United States or of an auxiliary thereof or of
the Maritime Service) and was of sound mind; and that each of said witnesses was then at least fourteen
years of age.
___________________________, Testator
___________________________, Witness
___________________________, Witness
Witness
Subscribed and sworn to before me by the said ____________, testator, and by the said
________________ and _______________, witnesses, this ______ day of________________ A.D.
________________.
(SEAL)
(Signed)____________________________
(Official Capacity of Officer)
(b) An affidavit in form and content substantially as provided by Subsection (a) of this section is a "selfproving affidavit." A will with a self-proving affidavit subscribed and sworn to by the testator and
witnesses attached or annexed to the will is a "self-proved will." Substantial compliance with the form
of such affidavit shall suffice to cause the will to be self-proved. For this purpose, an affidavit that is
subscribed and acknowledged by the testator and subscribed and sworn to by the witnesses would
suffice as being in substantial compliance. A signature on a self-proving affidavit is considered a
signature to the will if necessary to prove that the will was signed by the testator or witnesses, or both,
but in that case, the will may not be considered a self-proved will.
(c) A self-proved will may be admitted to probate without the testimony of any subscribing witness, but
otherwise it shall be treated no differently than a will not self-proved. In particular and without limiting the
generality of the foregoing, a self-proved will may be contested, or revoked or amended by a codicil in
exactly the same fashion as a will not self-proved.
I.
Introduction:
a. Statutory formalities include that the will be in writing, be signed by T, and
attested by 2 or 3 witnesses
b. Will formalities serve four functions:
i. Evidentiary function: assure permanent reliable evidence of Ts intent
exists;
ii. Channeling function: assure Ts intent is expressed in a way
understood by those who need to interpret it.
iii. Ritual (Cautionary) Function: assure Ts intent to dispose of property is
serious and T understands this is a will, and is final.
iv. Protective Function: assure T is protected from own lack of capacity.
c. CLASS NOTE:
i. 57 Who May Execute Will:
1. Sound mind test: substantive requirement; not really form.
(d) In this section, "disability" means a physical impairment that impedes the ability to sign or make a
mark on a document. ----- NOT ON REVIEW!
IV.
V.
b. How to Sign
i. Best Evidence that T intends doc to be will is a full name on signature
line. Courts have recognized that Ts may use other means to indicate
that they have intent to make this doc their will.
1. subscribe means to sign below. T can sign anywhere, but
WITNESS must subscribe, sign at bottom of the will.
ii. UPC and Rest. says T may sign name or make a cross or a mark, like an
X, or use a term of relationship like Dad. These work if done with
the intent of adopting the doc as the Ts will.
c. Who Can Sign
i. If T is physically unable to sign, even with help of someone else
guiding his hand, UPC allows for someone else to sign, but provides
certain safeguard against fraud:
1. Person must be in the range of Ts senses such as hearing: the
signing doesnt have to be in Ts line of sight.
2. Hatfield gives classroom example if he can see them (even if
out of the room), it is ok. He must be able to turn right around
and see them, not have to take even a step to adjust positioning.
3. Example: T maintained conversation with witness throughout the
events; this will suffice Witness was in Ts conscious
presence.
ii. NOTE: In Muhlbauer v. Muhlbauer, Court refused to probate will when
wife guided blind husbands hand in signing will. New will would have
substituted wife for Ts children and would have made her sole B. Court
said there was no believable testimony that T ever specifically
requested any person to assist him, and there was testimony that he
was never asked to make his own mark.
Publication
a. Most states no longer require this. T used to be required to publish the
will by signifying to attesting witnesses that the doc they were being asked
to sign was Ts will this is my last will.
b. Courts began to allow T to manifest intention by behavior that indicated that
doc was will.
c. While it is not required, most attorneys routinely have T recite the particular
magic words as a matter of good form helpful if witnesses are later called
to testify in will contests as to Ts capacity and intent to make a will.
d. NOTE As a matter of law, the witnesses MUST KNOW it is a will they are
signing.
The Witness Requirement
a. Introduction: Will must be witnessed, i.e., signed by 2-3 people other than T,
in order to be valid. Most states require 2. Witnessed will is also called an
attested will.
i. Witnessing requirement is often viewed as protective function for the T
to ensure that making the will is Ts wish and that it is not signed under
duress.
ii. If there is a contest, witnesses can be required to testify in court as to
their view of Ts capacity and circumstances surrounding the will.
iii. Class Note: historical image 2 boys would have their heads smashed
together when witnessing will so they would remember it.
1. Role of Witness: to be able to come to court and testify that he
was of sound mind, everything looked fine, no gun to Ts head,
etc.
2. T can have proxy signatures, witnesses cannot have proxy
signatures.
3. Ts can sign with a mark, witness MUST sign their own name.
4. Ts need not sign at the end of the will, witnesses must subscribe.
b. Who May Be a Witness
i. Basically, any competent person. The signing of the will by an
interested witness does not invalidate the will or any provision of it.
1. Witnesses should NOT be Bs to the will. If someone has a
financial interest in the will, there is incentive to lie.
ii. Must be over the age of 14 years under 59. (This will NEVER be a
problem. Cant imagine a situation where 2 14 years would have to
save us at will execution.)
iii. Sometimes witnesses wont swear some will affirm rather than
swear, for religious or whatever reason. Witnesses should know T
enough to know his name, age, and as long as T is not doing
something really weird, that T is of sound mind.
c. Where Must the Testator and Witnesses Be?
i. Witnesses must either observe T sign the will, or T must acknowledge
to them that it is either his signature or his will.
ii. Must the Testator Sign or Acknowledge in the Witnesss Presence?
1. Kirkeby v. Covenant House:
a. Issue: whether the trial court erred in determining that Ts
1992 will was invalid because it was not acknowledged in
the presence of witnesses.
b. Holding: Neither witness validly witnessed Ts
acknowledgement. Neither witness was close enough at
hand to have known that the instrument, which was later
presented to them, was, in fact, the instrument upon which
T had previously acknowledged her signature, or whether
T had actually signed that instrument at the time she
stated her acknowledgement.
iii. Must the Witnesses Sign in the Testators Presence?
1. The witnesses MUST sign in the presence of the T. At first,
presence was defined as being in the line of sight, still the
standard in some states.
2. UPC 2-502(3) simply requires that there be at least 2
individuals, each of whom signed within a reasonable time after
he witnessed with either the signing of the will or the Ts
acknowledgement of that signature or acknowledgement.
Majority rule.
d. When the Witnesses Must Sign
i. Within a reasonable time after witnessing either the signing of the will
or the Ts acknowledgement.
ii. What if witnesses sign before T? Courts are fine with this as long as
everyone signs in one sitting one continuous event.
III.
IV.
iv. STILL. Just dont do it. Clients can pay fees, not give gifts.
ACTEC COMMENTARY ON MRPC 1.8
Gifts to Lawyer. MRPC 1.8 generally prohibits lawyer from soliciting a substantial
gift from a client, including a testamentary gift, or preparing for client an
instrument that gives lawyer or person related to lawyer a substantial gift. The
substantiality of a gift is determined by reference both to the size of the clients
estate and to the sixe of the estate of the designated recipient.
e. Representing Multiple Clients
i. Husbands and Wives an estate planning attorney must always be
aware of conflicts inherent in representing husbands and wives since
rep of one may affect ability to rep the other. Complications come
down to conflict of interest theme.
1. Potential for conflict:
a. Assets the other doesnt know about, and wants to give to
someone else; bills the other doesnt know about; children
the other doesnt know about; bf/gf the other doesnt know
about.
b. One is planning to get divorced and the other does not
know
c. Difference in desires about what to do with the property
d. Fact that there is confidential information from one client
2. Separate Rep, Diff Lawyer: I only represent the one that makes $
(safest)
a. Makes your life easier. Downside is that the clients are
paying for two lawyers; more complicated; no one sees the
BIG PIC.
b. If they come in together, chances are they wont respond
positively to telling them one needs another lawyer lose
both.
c. Situations where pure separate rep is requested/needed is
obvious.
3. Separate Rep, Same Lawyer: worst choice. Risk is neither client
hires you.
a. Doesnt solve conflicts problem, client may tell you a secret
that makes it impossible for you to do your job for him. You
must withdraw cant disclose secret, and cant rep other
knowing secret.
4. Jointly: what they wanted when they came in together. Most
common.
a. Anticipate problems, want help solving those problems.
b. They need to understand confidentiality issues one
comes in without the other and tells secret, you must tell
the other.
i. I keep no secrets, means secrets that are relevant
to what is going on. Cheating is not necessarily
relevant. Cheating that has an effect on what cheater
wants to do with the will is relevant, so you must
disclose to the other spouse.
c. Can do this as long as you make it perfectly clear in writing that you have
the will, you dont have to be hired (but can be hired) by executor, etc.
d. Problem with retaining docs estate planning involves tax planning, tax
statutes change all the time. Questions arise as to continued duty to inform
client about tax law changes that could effect the estate.
i. Example: L prepared and completed estate plan for C. At Cs request, L
retained original documents executed by C. L performed no other legal
work for C in the following two years but has no reason to believe that
C has engaged other counsel. Ls representation of C is dormant. L
may, but is not obligated to, communicate with C regarding changes in
the law. If L communicates with C about changes in the law, but is not
asked by C to perform any legal services, Ls representation remains
dormant. C is property characterized as a client and not a former client
for MRPC purposes.
e. Class Notes: Reaping/Harvesting Estates
i. There is value in people dying off. Something to think about when
buying a practice of estate planning attorney.
ii. On the other hand it is the lawyers headach to make sure you can find
the file.
iii. Worry is that there may be an ongoing duty to client to keep them
informed on changes of the law.
1. NO DUTY, but attorneys still worry about it. Murky subject.
2. When the will is drafted, letter is sent to client saying this
concludes my representation, you can call me if you need future
services, I have your will so tell the family. Later huge changes
to tax law technically no duty, but what does the client
expect?!
3. 800 clients undertake letter campaign:
a. How do you do this? Must have enough staff, correct
addresses, etc.
b. Kick a sleeping dog you contact client with update after
telling her you WONT update her. Does she expect future
updates?
c. It looks like you are trying to solicit business, and thats
cheesy.
f. Class Notes: What are the Ethics Rules?
i. Govern conduct. Violate them subject to discipline (disbarred,
suspended, reprimanded, fined). Cannot bring legal action on these
violations.
ii. Malpractice differs because it is premised on the client being damaged
attorney didnt act as a reasonably prudent attorney; could also be
predicated on contract. Can use model rules to determine how a
prudent attorney should act, though.
iii. Malpractice claims are on the rise for trust and estate attorneys
highly emotional situation; disappointed Bs; $ on table is changing
hands dead persons property is up for grabs; technical aspects it
is very easy to make mistakes.
g. Class Notes: How do discipline and malpractice differ from will contest?
i. Doesnt seek damages, seeking to have that document declared as
NOT the will
III.
V.
Republication by Codicil
a. Ts often execute codicils (instruments that partially revoke a prior will)
these have the same effect as if they were executed as part of the orginal
will. Codicils are like mini-wills
b. Doctrine of Republication by Codicil: a codicil incorporates all the provisions
of the will it is updating. Rep. by Codicil is typically CL.
i. Provides that if a T executes a will and later executes a codicil to that
will, the will begins to run again from the date of execution of codicil.
So codicil not only includes its own provisions but it also includes
provisions of original doc.
ii. Republication moves the date of the will forward and changes
applicable dates for application of other doctrines inc. by reference,
revocation by marriage, and omitted children.
c. Class Notes: Technically a codicil is a will. Not two different types of docs like
will vs trust
i. Intended to AMEND rather than revoke prior will.
ii. Formalities same as will. 2 witnesses, testator, SPA Codicil to will
executed on..
iii. Not very common now because you can just change & reprint the will
on computer
iv. Hypo: Will (3/1/2010); Codicil (3/1/2012). Whats date of will? 3/1/2012.
This is important because there could be changes in property or
persons. Deemed to have re-executed the will codicil affirms
previous will and makes changes.
Events of Independent Significance
a. Doctrine of events of independent significance allows the probate court to
look to events or acts outside the 4 corners of the will to determine which
property goes to which Bs.
i. Events of independent significance are otherwise objective events that
occur in the outside world without regard to Ts specific intent as to
who should receive what property at Ts death. Good drafting refer to
events that are clearly independent of Ts dispositive plan.
ii. Examples: birth, death, and adoption of children as well as act of
acquiring or disposing of property. Things that happen that affect the
will, but not done with intent to affect the will You dont have
children to manipulate will formalities.
b. Class notes: significant to the will, but significance is independent to the will
somehow.
i. Example: I give $ to my children. Then 10 years later T has another
child.
ii. Example: put tape on things you want from Nana. These are NOT
things of independent significance these are done so Nanas
intentions are carried out. Doing this solely to make gifts at death.
iii. Example: Car and bank account #123456 to B, if he survives me but if
not to my sister L. Under the doctrine, a court may declare this
provision valid because Bs survival (or not) is an event that has
significance apart from its effect upon the dispositions made by Ts
will. The will as written and which complies with the required
formalities anticipates this event.
1. Type of car didnt buy and sell cars to manipulate who gets it
2. Bank account doesnt matter if amount changes, B gets
balance.
iv. IMPORTANT: depositing items in a safe, safe deposit box, then
referencing the location is fine as an act of independent significance. If
she had said the items in the top desk drawer, NOT independently
significant.
v. Rationale these acts/events are UNLIKELY to be easily manipulated
by a third party. It is easy to take things out of a drawer; it is not easy
to take things out of a safe.
vi. Goal protect Ts intent so, we want to prevent manipulation by 3rd
party. It is unlikely that T can be tricked into putting something in a
safe deposit box.
UPC 2-512. EVENTS OF INDEPENDENT SIGNIFICANCE
A will may dispose of property by reference to acts and events that have
significance apart from their effect upon the dispositions made by the will, whether
they occur before or after the execution of the will or before or after the Ts death.
The execution or revocation of another individuals will is such an event.
INTERPRETING THE MEANING OF A WILL USING EXTRINSIC EVIDENCE
I. Class Notes
a. Interpretation relies on plain meaning of the words, looks at will as a whole,
integrating all provisions = 4 Corners Doctrine. Sometimes more than one
interpretation is possible (ambiguity). (a) Which interpretation do we use? (b)
use extrinsic evidence?
i. Courts are hesitant to use extrinsic evidence (anything outside the 4
corners) because of slipper slope we wouldnt need wills eventually.
Courts TODAY are much more willing to look at extrinsic evidence to
be fair to Ts intent. Pushing us away from FORM towards FAIR.
b. If ambiguities cannot be resolved, the gift fails. It is VOID.
II.
Resolving Ambiguities The Historical View
a. Test: in order for court to determine Ts wishes and not defeat them, it must
consider language interpreted in light of all of the surrounding
circumstances.
i. 4 Corners Doctrine: Use plain meaning of language; Read various
provisions together to give effect to as many provisions of the will as
possible. Historically was the RULE, now it is the GOAL.
III.
IV.
b. Patent Ambiguity: one that appears on the face of the will itself. Example: I
leave all of my property as follows to A, to B, and to C. Did T make
mistake and forget to leave the last to someone, or mean to say 1/3 to A,
B, and C? Court can tell there is problem just by looking at the will.
Ambiguous because of things within the 4 corners.
c. Latent Ambiguity: a provision that is not apparent upon reading the will but
rather becomes apparent when the provisions are applied. Example: I leave
$10k to John Smith. T knew 2 John Smiths very well and it is not clear which
one he meant. The court does not know until they look for John Smith that
there is a problem.
i. Courts historically would consider latent ambiguities with extrinsic
evidence. These ambiguities are only noticed when we consider
extrinsic evidence, so dont stop there look at EE until ambiguity is
resolved.
Resolving Ambiguities The Modern View
a. Modern rule focuses on the substance rather than the form of the ambiguity.
No distinction between latent and patent; if ambiguous, all relevant extrinsic
evidence is used to resolve.
b. Rest. 3d 10.2: in seeking to determine the donors intention, all relevant
evidence, whether direct or circumstantial, may be considered, including the
text of the donative doc and relevant extrinsic evidence.
i. Extrinsic Evidence time to which evidence relates primary focus is
on Ts intention at time of execution, but post-execution events can
sometimes be relevant in determining donors intention. Example: post
execution statements of T can relate to donors intention at time of
execution. Additionally, if donative doc was ambiguous when executed,
post-execution evidence of intent may be considered in resolving
ambiguity if they shed light on donors intent at time of execution or on
what donors intent would probably then have been had ambiguity
been recognized or subsequent event anticipated.
c. Courts impose constraints on considering such evidence if will is not
ambiguous first question is whether there is an ambiguity with regard to
intent in the first place.
Extrinsic Evidence and Mistake Reformation of Wills
a. Restatement and UPC support the view that reformation for mistake should
be allowed. Require clear and convincing evidence. NOTE -- a mistake isnt
really an ambiguity.
b. Texas does NOT allow mistakes to be fixed. The lawyer should have been
more careful; remedy shouldnt be reformation of the will, the remedy is to
sue the lawyer.
c. Drafting lawyers like when the court fixes mistakes; down side is that you
have to go in and admit your mistake. Mitigates damages, though.
d. Texas: B cannot sue drafting lawyer for malpractice because no one has
privity with lawyer lawyers client is DEAD. Therefore, no remedy for Bs.
The executor, however, can sue if ALL property went down in value.
would have been entitled had all of them survived the T passes to the
surviving devisees and the surviving descendants of the deceased
devisees. Each surviving devisee takes the share to which he would have
been entitled had the deceased devisees survived the T. Each deceased
devisees surviving descendants who are substituted for the deceased
devisee take by representation the share to which the deceased devisee
would have been entitled had the deceased devisee survived the T. For
the purposes of this paragraph, deceased devisee means a class
member who failed to survive the T and left one or more surviving
descendants.
c. (3) For the purposes of 2-601, words of survivorship, such as in a devise
to an individual if he survives me, or in a devise to my surviving
children, are not, in the absence of additional evidence, sufficient
indication of an intent contrary to the application of this section.
d. (4) if the will creates an alternative devise with respect to a devise for
which a substitute gift is created by paragraph (1) or (2), the substitute
gift is superseded by the alternative devise only if an expressly
designated devisee of the alternative devise is entitled to take under the
will.
NOTE: 4 elements must be met in order for the antilapse statute 2-603 to apply:
The intended B must predecease the T or be deemed to have predeceased T
The intended B must leave living descendants
The intended B must be a family member, defined as the Ts grandparents, a
descendant of the grandparents or the Ts stepchild; the reach of the statute is
very inclusive, covering almost all relatives who would receive property if the T
died intestate.
The will must neither provide for an alternative gift (to a taker in default) nor
state specifically that the antilapse rules are not to apply, because such a
statement would supercede application of the default rules.
NOTE: if the antilapse provisions of UPC 2-603 do not apply, the gift will lapse and
become part of the residue.
ii. Contrary Intent and Words of Survivorship
1. COMMENT: drafters note that one of the most significant
questions in lapse cases is whether mere words of survivorship
such as in a devise to my daughter, A, if A survives me, or to
my surviving children automatically defeat the antilapse
statute. If they do, then As gift would lapse and would not be
saved for her descendants under the antilapse statute. If they do
not, then As gift will be preserved and will be given to her
descendants. statute should be given the WIDEST POSSIBLE
CHANCE to operate and should be defeated ONLY by finding of
intention that directly contradicts the sub gift created by the
statute.
c. Ademption by Extinction
i. T may refer to property in his will that he owns at date of execution but
no longer owns many years later when he dies. If this happens
issue: whether to ignore bequest as if it does not exist (to adeem the
gift) or to substitute something else and give the sub to the B.
d.
e.
f.
g.
i. If you get a nasty piece of property, then sign deed over to sister
you did own it, so you may have liability. Creditor claims go with it, tax
consequences (income).
Disclaimers can be dangerous.
i. Valid disclaimer is NOT an assignment. Treated as having never owned
it. Invalid disclaimer IS an assignment.
ii. Valid = disclaim; invalid = assign. WORST of both worlds if you screw
up!
iii. Probate Code vs. Internal Revenue Code Rules if you follow IRC, you
will always satisfy the probate code.
Must be filed within 9 months of death and before disclaimant takes
possession or derives benefit in any way.
Irrevocable once it is filed; Disclaimant has NO POWER over what happens.
Just saying treat me as if Im dead. So you really must explain to B what
happens.
i. Think about antilapse statute if will abrogates this, then property may
NOT go to your children like you intend when you disclaim.
ii. Cannot say I will disclaim only if it goes to my children.
You can disclaim by part or fraction. Can disclaim one of three gifts, can
disclaim so much of X that equals $__.
II.
III.
IV.
(b) If a subsequent will does not expressly revoke a previous will, the execution
of the subsequent will wholly revokes the previous will by inconsistency if the T
intended the subsequent will to replace rather than supplement the previous
will.
(c) The T is presumed to have intended a subsequent will to replace rather than
supplement a previous will if the subsequent will makes a complete disposition
of the Ts estate. If this presumption arises and is not rebutted by clear and
convincing evidence, the previous will is revoked; only the subsequent will is
operative on Ts death.
(d) The T is presumed to have intended a subsequent will to supplement rather
than replace a previous will if the subsequent will does not make a complete
disposition of the Ts estate. If this presumption arises and is not rebutted by
clear and convincing evidence, the subsequent will revokes the previous will
only to the extent the subsequent will is inconsistent with the previous will;
each will is fully operative on the Ts death to the extent they are not
inconsistent.
Revocation by Subsequent Instrument
a. Can be express (I hereby revoke all prior wills; or implied (inconsistent
subsequent will that changes disposition of property completely.).
Revocation by Physical Act
a. Burn, tear, write CANCELLED or VOID.
b. T may also revoke only part of the will; T can do this by writing CANCELLED
or VOID across a provision, or just by drawing a line through the provision.
Presumptions with Regard to Revocation
a. Mutilated Will If will is found with revocatory marks, rebuttable
presumption is that the T intended to revoke the will. Can be rebutted by
evidence that establishes that T did not mutilate the will with intent to
revoke it. Example: single mark or tear could be a mishap.
b. Lost Will presumption is that T destroyed the will with intent to revoke.
Extrinsic evidence can be used to overcome this presumption.
i. Class Notes: there is a difference between a original will and copy a
copy of a will is NOT a will because a destroyed will is revoked,
therefore we dont know if the copy is that of a revoked will. The court
has 2 options: (1) Nana must have destroyed the will, therefore
revoked, therefore she died intestate. (2) Nana lost the will, therefore
lets open a can of worms as to the content.
1. Undisputed copy may be alright.
2. To prove contents you must rely on extrinsic evidence. Copy
could be extrinsic evidence.
3. Witnesses who signed the will can testify that he did in fact have
a will. Now we must prove the contents these witnesses wont
KNOW the contents.
4. Drafting lawyer could theoretically testify, but he probably wont
remember the will without seeing the copy to refresh memory.
Lawyer could look at file for notes and copies of the will. May
have letter to T summarizing will.
5. Burden is on proponent to prove will was not destroyed, then to
prove contents. DONT have to prove how the will was
destroyed/lost.
6. Anyone else who read the will could come testify accountant,
etc.
ii. In re Estate of Beauregard
1. Facts: T died at 40, roommate K had a copy of Ts will, but not
the original.
2. Issue: whether K presented enough evidence to rebut the
presumption that T had destroyed the lost will with intent to
revoke.
3. PH: Trial Court found that because K could only submit a copy of
Ts will, presumption that where a will once known to exist
cannot be found after death of T, there is a presumption that it
was destroyed by the maker with intent to revoke. K failed to
rebut this presumption.
4. Holding: exam of evidence does not lead to inevitable conclusion
that DCs findings were clearly erroneous; affirmed.
5. Reasoning:
a. Whether evidence is sufficient to rebut presumption is
determined by facts and circumstances of each case.
Presumption rebutted if a preponderance of evidence
establishes T didnt intend to revoke.
b. Trial Judge weighed (1) that T was fully competent so
unlikely he would have lost will, short period of time for T
to lose will. (2) competent so he would have destroyed
copies; little time to change his mind. Supreme Court judge
said not enough to show that a different conclusion might
well have been reached.
6. Court basically said K skipped a step the first step is dealing
with the presumption that the will was destroyed. K did not
overcome this there was no evidence that would say lost rather
than destroyed.
REVOCATION BY CHANGED CIRCUMSTANCES
I. Revocation by Marriage Omitted Spouse
a. A few states still revoke the will in its entirety if the T marries, but marriage
will generally not revoke the will if evidence shoes that T did not intend that
marriage revoke the will or that T executed the will contemplation of
marriage.
II.
Revocation on Divorce
a. Reasonable inference is that divorce should remove gifts to ex under the will
so divorce revokes any gifts to the ex spouse. If the exes still want to give
each other stuff, they can execute a new will.
b. Divorce ITSELF revokes the gifts default provision. Rule applies to wills and
will substitutes, like revocable trusts. It revokes bequests to former spouses
and converts interest in jointly held property to a tenancy in common.
UPC 2-804. REVOCATION OF PROBATE AND NON-PROBATE TRANSFERS BY
DIVORCE; NO REVOCATION BY OTHER CHANGES OF CIRCUMSTANCES.
. (b) [Revocation upon Divorce.] Except as provided by the express terms of a
governing instrument, a court order, or a contract relating to the division of the marital
estate made between the divorced individuals before or after the marriage, divorce or
annulment, the divorce or annulment of a marriage:
i. The nexus between the revocation of the old will (or part of it) and the
attempted execution of a new will or provision in terms of how close in
time the two events were; and
ii. How similar the terms of the two wills (or provisions) are.
iii. The closer in time revocation and execution are and the more similar
the terms of the two documents, the more likely it is that a court will
find that DRR is appropriate to apply.
e. Courts less frequently need to employ DRR to resolve cases under the new
provisions of the UPC since they are based more on an intent-furthering
framework than an absolute concern about formalities.
f. Comment to UPC 2-507. DRR Each court is free to apply its own DRR. . . .
Note, however, that DRR should less often be necessary under revised
provisions of the Code. DRR is the law of second best, i.e., its application
does not produce the result T actually intended, but is designed to come as
close as possible to that intent.
i. When there is good evidence of Ts actual intention, however, the
revised provisions of the Code would usually facilitate the effectuation
of the result the T actually intended.
WILL CONTESTS IMPROPER EXECUTION, LACK OF CAPACITY OR INTENT AND
UNDUE INFLUENCE
I. Class Notes
a. Putting together documents atty must make sure will is defended if it is
ever attacked.
b. Could be contested on a variety of grounds lack of legal or testamentary
capacity; undue influence; fraud; duress; any given doc could be attacked
saying thats not the will.
i. Most end up ebing settled Family Settlement Agreement everyone
named in will and everyone who could take agrees to basically ignore
the will and allows them to do what they would do indirectly/eventually.
c. Procedural Issues: Interested persons, creditors, named executor, nosey
neighbor do NOT have standing. In Texas, 4 years to admit the will; 2 years
to bring will contest.
d. Court Hearing (probate hearing) is ministerial process takes 30 seconds.
Client comes into office and says there is reason to question what the other
Bs are doing (admitting a will that is questionable) RUN to the court house to
stop it. This preserves the burden on the proponent of the will. After will is
admitted, then burden is shifted to anyone contesting the will.
i. You have the right to a jury trial, but may not want one clients dont
always come across as likeable in will contests.
e. Deceased owned property someone needs to take care of the property.
Court appoints a temporary administrator who has NO dog in the fight to
deal with bills, pets, etc.
II.
Estate of Graham
a. T had no kids, was uncle to several. T left his estate to 2 nieces, daughters of
his full sister. Nieces and nephews of half sister challenge the will. They
argue T didnt execute under formalities of Texas Probate Code 59; T lacked
testamentary capacity; will executed under undue influence and fraud; T
lacked testamentary intent; T mistaken as to contents of will.
b. Issue: whether T possessed requisite mental state to leave will.
III.
IV.
(a) A donative transfer is invalid to the extent that it was procured by undue influence, duress, or fraud.
(b) A donative transfer is procured by undue influence if the wrongdoer exerted such influence over the
donor that it overcame the donor's free will and caused the donor to make a donative transfer that the
donor would not otherwise have made.
(c) A donative transfer is procured by duress if the wrongdoer threatened to perform or did perform a
wrongful act that coerced the donor into making a donative transfer that the donor would not otherwise
have made.
(d) A donative transfer is procured by fraud if the wrongdoer knowingly or recklessly made a false
representation to the donor about a material fact that was intended to and did lead the donor to make a
donative transfer that the donor would not otherwise have made.
VIII.
Class Notes
a. Remember no one knows EXACTLY what they own (I dont know exactly
how much money is in bank account, interest is always changing; dont know
exactly how much my house is worth because I havent sold it) So TEST is if
someone told you they have $100k in the bank, and they wanted it to be
used in a certain way, they probably pass the test. Alzheimers patients, on
the other hand, do not understand this type of stuff.
i. The test only requires a lucid couple moments if you get the client at
a good time of day and they understand questions about money and
family and can relate them all together, then they have passed the
test.
ii. Attorneys have a duty of care to see if they can get their client in their
moment of clarity if this is becoming an issue. This is low standard
because it is only effective after T is dead much lower than standard
of capacity to enter a K. Example: People with Downs Syndrome can
leave a will, but cannot make a K.
iii. May have to make several trips to the nursing home to find this lucid
moment. DUTY
RESTATEMENT (THIRD) OF PROPERTY: WILLS & OTHER DONATIVE TRANSFERS
8.1 Requirement Of Mental Capacity
(a) A person must have mental capacity in order to make or revoke a donative transfer.
(b) If the donative transfer is in the form of a will, a revocable will substitute, or a revocable gift, the
testator or donor must be capable of knowing and understanding in a general way the nature and extent
of his or her property, the natural objects of his or her bounty, and the disposition that he or she is
making of that property, and must also be capable of relating these elements to one another and forming
an orderly desire regarding the disposition of the property.
(c) If the donative transfer is in the form of an irrevocable gift, the donor must have the mental capacity
necessary to make or revoke a will and must also be capable of understanding the effect that the gift may
have on the future financial security of the donor and of anyone who may be dependent on the donor.
Comments:
f. Burden of proof. The party contesting the validity of a donative transfer has the burden of persuasion in
establishing that the donor lacked mental capacity to make the transfer. Section 3407 of the Uniform Probate
Code captures the prevailing view on the burden of proof and the view adopted in this Restatement:
UPC Section 3407. [Formal Testacy Proceedings; Burdens in Contested Cases.]... Contestants of a will have
the burden of establishing lack of testamentary intent or capacity, undue influence, fraud, duress, mistake or
revocation. Parties have the ultimate burden of persuasion as to matters with respect to which they have the
initial burden of proof. . . .
h. Effect of adjudication of mental incapacity. . . .An adjudication of mental incapacity to manage property does
not conclusively establish that the protected person subsequently lacked capacity to make, revoke, or amend a
will or a revocable will substitute. Such an adjudication does, however, raise a rebuttable presumption that the
protected person lacked the requisite capacity, shifting the burden of proof to the proponent to show that the
protected person possessed the requisite capacity when taking the action in question.
m. Lucid interval. A person who is mentally incapacitated part of the time but who has lucid intervals during
which he or she meets the standard for mental capacity . . . can, in the absence of an adjudication or statute that
has contrary effect, make a valid will or a valid inter vivos donative transfer, provided such will or transfer is
made during a lucid interval.
Illustrations:
5. G executes a will leaving his property to his friend, A. G's family contests the will on the ground of
mental incapacity. G had suffered from mental illness after suffering a stroke. The will is valid if, at the
time he executed the will, G satisfied the standard for mental capacity for executing a will as set forth in
Comment c.
6. G's daughter D contests the will of her father on the ground of mental incapacity. G had suffered from
schizophrenia and had been in and out of mental hospitals for 20 years. G was on medication when
executing the will. The will is valid if G, when executing the will, was experiencing a lucid interval
during which he satisfied the standard for mental capacity for executing a will as set forth in Comment
c. . . .
s. Insane delusion. An insane delusion is a belief that is so against the evidence and reason that it must be the
product of derangement. A belief resulting from a process of reasoning from existing facts is not an insane
delusion, even though the reasoning is imperfect or the conclusion illogical. Mere eccentricity does not
constitute an insane delusion.
A person who suffers from an insane delusion is not necessarily deprived of capacity to make a donative
transfer. A particular donative transfer is invalid, however, to the extent that it was the product of an insane
delusion.
PREVENTING CHALLENGES IN TERROREM OR NO CONTEST CLAUSES
UPC 2-517. PENALTY CLAUSE FOR CONTEST.
A provision in a will purporting to penalize an interested person for contesting the
will or instituting other proceedings relating o the estate is unenforceable, if
probable cause exists for instituting proceedings.
8.5 NOCONTEST CLAUSES
A provision in a donative document purporting to rescind a donative transfer to, or a fiduciary appointment of,
any person who institutes a proceeding challenging the validity of all or part of the donative document is
enforceable unless probable cause existed for instituting the proceeding.
Comment:
a. Scope. A no-contest clause, also called an in terrorem clause, is enforceable unless probable cause existed for
instituting the proceeding. A no-contest clause typically provides for the rescission of any benefit to a devisee,
beneficiary, or donee who challenges the validity of the document, or of a term of the document.
b. Rationale. The starting point for analyzing the validity of no-contest clauses is the policy in favor of the
freedom of disposition. The donor's intentionexpressed in this case in the no-contest clauseis given effect
to the maximum extent allowed by law. See 10.1. A no-contest clause may serve several worthwhile purposes.
Such a clause may deter unwarranted challenges to the donor's intent by a disappointed person seeking to gain
unjustified enrichment at the expense of others. The clause may prevent costly litigation that would deplete the
estate or besmirch the reputation of the donor when the donor is no longer alive to provide a defense. Such a
clause may also discourage a contest directed toward coercing a settlementthe so-called strike suit.
Against the benefits of a no-contest clause is the concern that the jurisdiction of the court to determine the
validity of a donative transfer not be defeated. A purported donative transfer by a donor who lacked the capacity
to make the transfer, or a transfer that was procured by wrongdoing, should be invalid. This Restatement,
therefore, supported by Restatement Second, Property (Donative Transfers) 9.1, the Uniform Probate Code
3905, and the majority of decisions and statutes, provides that a no-contest clause is valid and enforceable
(b) The degree of proof necessary to establish that property is separate property is
clear and convincing evidence.
THE SPECIAL CASE OF OMITTED SPOUSES AND CHILDREN
OMITTED SPOUSES
o Pretermitted spouse is a person who was left out of a spouses will that was
written prior to marriage. Many states provide protection to this spouse,
generally giving rights to property included in the probate estate, not the
more expansive augmented estate.
o Omitted spouse statutes usually presume that T would have wanted to
change the will to cover the new spouse, just never got around to doing it.
Can be rebutted if:
The parties entered into premarital or marital agreement to waive
inheritance rights;
After marriage, the T uses other means, such as trusts or insurance
policy benefits to provide substantially for the spouse; or
The spouse was given something in the will even though the will was
written prior to the marriage AND the will expressly states that it
excludes any persons the T might marry in the future.
OMITTED CHILDREN
o Unlike omitted spouses, children intentionally omitted from a will are not
entitled to demand a share of the estate. Generally, you have the right to
disinherit children, for cause or not.
o Texas: rely exclusively on community property and homestead rights, but do
provide SOME protection.
Family allowance is not automatic. Even if the judge does grant it the
amount is low.
o Intentional Disinheritance Doesnt always have to be because parents are
mean (rare)! Lots of reasons to disinherit kid addicted to drugs, OR kid
wants $ to go to favorite charity.
UPC 2-302. OMITTED CHILDREN
(a) Except as provided in subsection (b), if a T fails to provide in his will for any of
his children born or adopted after the execution of the will, the omitted afterborn or after-adopted children receives a share in the estate as follows:
a. (1) If the T had no children living when he executed the will, an omitted
after-born or after-adopted child receives a share in the estate equal in
value to that which the child would have received had the T died
intestate, unless the will devised all or substantially all of the estate to the
other parent of the omitted child and that other parent survives the T and
is entitled to take under the will.
b. (2) If the T had one or more children living when he executed the will, and
the will devised property or an interest in property to one or more of the
then-living children, an omitted after-born or after-adopted child is entitled
to share in the Ts estate as follows:
i. The portion of the Ts estate in which the omitted after-born or afteradopted child is entitled to share is limited to devises made to the
Ts then-living children under the will.
ii. The omitted after-born child is entitled to receive the share of the
Ts estate, as limited in subparagraph (i), that the child would have
(c) An agent that acts with care, competence and diligence for the best interest of
the principal is not liable solely because the agent also benefits from the act or
has an individual or conflicting interest in relation to the property or affairs of
the principal.
(d)Absent a breach of duty to the principal, an agent is not liable if the value of the
principals property declines
(e) Except as otherwise provided in the power of attorney, an agent is not required
to disclose receipts, disbursements, or transactions conducted on behalf of the
principal unless ordered by a court or requested by the principal, a guardian, a
conservator, another fiduciary acting for the principal .
COMMENT. There is little clarity in state power of attorney statutes about what fiduciary
means. (d) is a departure from traditional CL duty of loyalty which required an agent to
act solely for the benefit of the principal. This is a policy decision because most agents
under powers of attorney are family members who have inherent conflicts of interest
with the principal arising from joint property ownership or inheritance expectations. (h)
codifies agents duty to account to principal. Rather than create affirmative duty of
period accounting, (h) says agent is only required to disclose receipts in certain
circumstances.
UPAA 119. ACCEPTANCE OF AND RELIANCE UPON ACKNOWLEDGED POWER OF
ATTORNEY.
. (c) A person that in good faith accepts an acknowledged power of attorney
without actual knowledge that the power of attorney is void, invalid or terminated, that
the purported agents authority is void, invalid, or terminated, or that the agent is
exceeding or improperly exercising the agents authority may rely upon the power of
attorney as if the power of attorney were genuine, valid and still in effect, the agents
authority were genuine, valid and still in effect, and the agent had not exceeded and had
not properly exercised the authority.
HEALTH CARE DECISIONS DURING INCAPACITY
In the event of incapacity, an individual may be unable to make his own decisions
about health care, treatment, and end of life matters. Here are the default rules of
what happens without a plan.
WHAT HAPPENS WITHOUT PLANNING? Most states provide hierarchy of default
health care decision makers, called surrogates. Spouses usually first, kids
clergyman.
o History
Quinlan NJ SCt found that Ms. Quinlan should have the choice to be
removed from life support, with that right exercised by her father, and
that drs could not face criminal punishment for ending medical
treatment pursuant to patients right of privacy. Right of privacy is
broad enough to encompass a patients decision to decline medical
treatment under certain circumstances.
Cruzan US SCt held that Cruzans parents had not met the proper
evidentiary requirements (C&C), but the Court did not reject an
individuals right to EOL decision making.
Basic Boundaries involving right to privacy with respect to medical
treatment In Quinlan and Cruzan (the right to die is within the
individuals constitutionally protected interests and can be expressed
by a proxy via C&C evidence of the patients intent) facilitated the
creation of a basic rubric under which state courts could, within the
confines of their state constitutions, decide EOL disputes.
Patient Self Determination Act requires that federally funded health
care institutions and health maintenance organizations show that their
patients have been informed that they have the right to make
decisions concerning medical treatment, including through advance
health directives.
o Schiavo
Schiavo was in an incurable state she would always remain in an
unconscious, reflexive state, totally dependent on others to feed her
and care for her private needs. She could remain in this state for many
years.
Three Issues: (1) whether trial court was required to appoint guardian
ad litem; (2) whether trial court erred in admitting social science
evidence from Beverly Tyler; and (3) whether conflicting testimony was
insufficient to support trial courts decision by C&C evidence.
Whether Sciavo would choose to continue the constant medical
care and the supporting tubes in hopes that a miracle would
recreate her missing brain tissue, or whether she would wish to
permit a natural death process to take its course and for her
family members and loved ones to be free to continue their lives.
Holding: The evidence was sufficient to allow death; C&C standard of
proof, while very high, permits a decision in the fact of inconsistent or
conflicting evidence.
Court reconfirms that a courts default position must favor life.
COVERING THE COSTS OF MEDICAL AND LONG-TERM CARE
MEDICARE for people 65+, and for individuals with certain disabilities. Doesnt
cover prescriptions, but does cover hospital care.
MEDICAID for poor people, and for nursing home care, covers prescriptions.
o Requires Medical Assistance
o Cannot Have Too Many Assets ($2k)
o Cannot Have Too Much Income (more than average cost of nursing home
care)
o Estate Recovery Liens
PLANNING FOR THE CARE OF CHILDREN ON THE DEATH OR DISABILITY OF A
PARENT
DEATH OF A PARENT
o When one parent dies, the surviving parent is generally assumed to be the
custodian of the child, regardless of what the deceased parents will
provides. The parent who is last to die nominates the guardians.
o When both parents die, their wills may nominate a guardian, who will be
given physical custody of the child, and/or a conservator, who becomes
legally responsible for managing the childs financial assets. Usually they are
the same person.
o While parents nominations are not legally binding, most courts will give
great deference to the parents preferences. Some statutes say courts will
give due regard to preferences.
Court has to appoint guardian based on the best interest of the child.
The court is probably going to appoint the person named, but doesnt
have to.
o A guardian must accept an appointment before it becomes effective; merely
probating a will is insufficient. If the parents have not appointed a guardian
or the appointed guardian declines, the courts typically choose a relative
who is next of kin.
o Guardians typically take physical custody of the minor, decide where child
will live, make educational and medical decisions, and decide on religious
training.
They do NOT have to provide for the child from their own funds and
may receive money payable for the support of the child to the minors
parent or guardian under the terms of any statutory benefit or
insurance system or any private contract, devise, trust;
Unless the custodian adopts the child then financial
responsibility, but the child probably still has all the $ from the
dead parents.
Typically ends when the child is no longer a minor.
Uncertainties:
The parent cannot be certain that the court will accept
nomination because the appointment only takes effect once the
will is probated
If the other parent is still living and is not legally incapacitated,
then that parent generally assumes legal custody upon death of
the first parent, and the testamentary appointment is irrelevant.
o Texas: guardian of the estate (deals with money and property) =
conservator; and guardian of the person (custody of the child) = custodian.
Can only nominate one person or married couple per role, and then
you can name successors.
Can name these guardians through anything that has the same
requirements as a will signed by 2 witnesses, acknowledged by
notary; durable power of attorney. In Texas, put this in the will or in a
separate document. Separate document is better because (1) it may
be a while before the will gets probated (4 years, then 2 years to bring
contest); (2) this is the single reason over which married couples fight.
There are dumbasses in both families have to pick the LEAST
ridiculous of all the dumbasses.
o UGMA Uniform Gift to Minors Act precedent to UTMA
o UTMA Uniform Transfers to Minors Act completely inflexible, basically a
statutory trust. It is not great, but it is better than nothing. Terms are
specified by statute; lasts until the minor reaches 21. Not the best way to do
things; causes all sorts of complications, especially tax complications.
STANDBY GUARDIANSHIP
PARTIAL DELEGATION EDUCATIONAL AND MEDICAL CONSENTS
CHILD WITH DISABILITIES
FINANCIAL PLANNING FOR A CHILD
o Come from two sources: the will and the probate law of the domiciliary state.
o Law grants the PR the same power over the title to the property of the estate
that an absolute owner would have, in trust however, for the benefit of the
creditors and others interested in the estate.
o UPC 3-711 authorizes 27 powers, including managing (retaining, selling,
insuring, voting stock, abandoning, repairing, etc.) assets and business,
litigating, settling and paying debts and taxes, retaining other professionals
to help in decision-making, etc.
Liability of the PR
o Failing to uphold these duties can make PR individually liable for damages
that occur. PR may have to reimburse injured parties from his own funds if PR
breached FDs to the estate or violated the states probate law.
o There may also be a penalty or surcharge of up to 100% imposed on PR by
statute.