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WILLS TRUSTS AND ESTATES, Second Half of Course- TRUSTS - Coggle Diagram

- - - - Freedom of disposition --> idea that one has the ability to do what one wishes with their property after they die
      - allow "dead hand " to control property
        
        Some constraints
        
        Protect spouses
        
        Protect children?
        
        Limit restrictions
      - in reckoning what is contrary to public policy, courts should balance the donor's freedom of disposition against other social values and the effects of dead-hand control on the subsequent conduct or personal freedoms of others -- Restatement 3rd of trusts
    - - A property right not owned by the testator at the time of death may not be devised by will.
      - right of publicity after death-- more commonly recognized now
  - - - Probate Terminology 42
        
        Probate succession - property that you die owning that you can pass
        
        Testacy- with a will
        
        personal representative is an executor
        
        real and personal property devised to devisees
        
        Intestacy - without a will
        
        personal representative is an administrator
        
        governed by intestacy statutes
        
        heirs are persons designated by applicable statute to take descendants intestate property
        
        Non-Probate succession-property that passes automatically to someone because of how the property is titled
        
        Will substitutes like pay-on-death accounts and inter vivos trusts
        
        Jointly held property
    - - under RUFADAA representatives have access to to the records of decedents electronic communications to help wrap up estates
    - - Probate Core Functions
        
        Protects creditors by providing a procedure for payment of the decedents debts
        
        DIstributes the decedent's property to those intended after the decedent's creditors are paid
        
        provides evidence of transfer of title to the new owners
      - Personal Representative Roles
        
        Collect, Manage and protect assets
        
        Process claims of creditors
        
        Pay the taxes
        
        Distribute property to those entitled
      - Governing Law
        
        Law of decedent's domicile at death governs personal property
        
        Law of situs (location) of real property governs real property
        
        Result
        
        Usually, the fiduciary opens the estate where the decedent was domiciled
        
        Ancillary probate may be required for out of state real property
      - Authority of the fiduciary
        
        The court will issue one of two documents
        
        testate: letters testamentary
        
        Intestate: letters of Administration
      - Bonding
        
        The law frequently requires bonding of the personal representative
        
        waiver of bond by will is common
      - Types of Probate--- FORMAL AND INFORMAL
        
        There is a move to allow less formal, and therefore less costly, probate
        
        pros and cons of informal
        
        con- court involvement prevents wrongdoing, which isn't as protected in a less formal setting
        
        pro- time and expenses lowered with less involvement
        
        general rule--> any disfunction in family--> formal probate probably better
      - Creditors claims
        
        At some point, claims against a decedent's assets will be barred
        
        Two types of bar:
        
        Bar a short period after notice, usually by publication, but might be required to give actual notice to known creditors
        
        Bar a longer period after death
    - - Yes, provided that during life the client arranges to transfer all of his property by way of will substitutes. Probate provides backup function
      - Costs:
        
        Probate fees
        
        Personal representative commission
        
        Attorney's fees
        
        (maybe appraiser)
        
        (maybe guardian)
  - - - An attorney who drafts a will owes a duty to identified intended beneficiaries of the will who may enforce the attorney’s contract with the testator as third party beneficiaries.
    - - Case A v B: Can a lawyer disclose confidential information from one co-client to another co- client? Under the New Jersey Rules of Professional Conduct, a lawyer may disclose a client’s confidential information where the lawyer’s services have been used to commit a fraudulent act and the disclosure is needed to rectify the consequences of that act.
      - Solutions:
        
        A well drafted engagement letter?
        
        A thorough conflicts check?
- - - - Time cost uncomfort
      - not everything included in will due to bad planning
    - - best guess as to intent of testator with no underlying instructions
    - - No living person has heirs
      - expectancy of heirship/devisee is not a legal interest until death of the testator
    - - UPC
        
        SECTION 2-101. INTESTATE ESTATE. Uniform Probate Code
        
        (a) Any part of a decedent’s estate not effectively disposed of by will passes by intestate succession to the decedent’s heirs as prescribed in this [code], except as modified by the decedent’s will.
        
        (b) A decedent by will may expressly exclude or limit the right of an individual or class to succeed to property of the decedent passing by intestate succession. If that individual or a member of that class survives the decedent, the share of the decedent’s intestate estate to which that individual or class would have succeeded passes as if that individual or each member of that class had disclaimed his [or her] intestate share.
        
        NOTE: Allows for testate and intestate in the same set of assets! if not all given away, left intestate
        
        Note part b!
        
        The ability to cut people out as heirs by a Will provision
        
        Shouldn't a Will give everything away?
        
        disclaimer
        
        UPC 2 -102- Share of Spouse
        
        The intestate share of a decedent’s surviving spouse is:
        
        (1) the entire intestate estate if:
        
        (i) no descendant or parent of the decedent survives the decedent; or
        
        (ii) all of the decedent’s surviving descendants are also descendants of the surviving spouse and there is no other descendant of the surviving spouse who survives the decedent;
        
        (2) the first $300,000, plus 3/4 of any balance of the intestate estate, if no descendant of the decedent survives the decedent, but a parent of the decedent survives the decedent;
        
        (3) the first $225,000 plus 1/2 of any balance of the intestate estate, if all of the decedent’s surviving descendants are also descendants of the surviving spouse and the surviving spouse has 1 or more surviving descendants who are not descendants of the decedent;
        
        (4) the first $150,000 plus 1/2 of any balance of the intestate estate, if 1 or more of the decedent’s surviving descendants are not descendants of the surviving spouse.
        
        2)300000 plus 3/4 if a dead persons parent survives spouse gets a bit less
        
        1) if descendants are shared or there is no parent or descendant alive spouse gets most
        
        3) 225000 plus 1/2 if descendants are all shared but there is a step descendant not in relation to dead person spouse gets even less
        
        4) 150000 + 1/2 if there are surviving descendants not related to alive person spouse gets least
        
        2-103 Share of Heirs other than surviving spouse
        
        (a) Any part of the intestate estate not passing to a decedent’s surviving spouse under
        
        Section 2-102, or the entire intestate estate if there is no surviving spouse, passes in the following order to the individuals who survive the decedent:
        
        (1) to the decedent’s descendants by representation;
        
        (2) if there is no surviving descendant, to the decedent’s parents equally if both survive, or to the surviving parent if only one survives;
        
        (3) if there is no surviving descendant or parent, to the descendants of the decedent’s parents or either of them by representation;
        
        (4) if there is no surviving descendant, parent, or descendant of a parent, but the decedent is survived on both the paternal and maternal sides by one or more grandparents or descendants of grandparents:
        
        (A) half to the decedent’s paternal grandparents equally if both survive, to the surviving paternal grandparent if only one survives, or to the descendants of the decedent’s paternal grandparents or either of them if both are deceased, the descendants taking by representation; and
        
        (B) half to the decedent’s maternal grandparents equally if both survive, to the surviving maternal grandparent if only one survives, or to the descendants of the decedent’s maternal grandparents or either of them if both are deceased, the descendants taking by representation;
        
        (5) if there is no surviving descendant, parent, or descendant of a parent, but the decedent is survived by one or more grandparents or descendants of grandparents on the paternal but not the maternal side, or on the maternal but not the paternal side, to the decedent’s relatives on the side with one or more surviving members in the manner described in paragraph (4).
        
        (b) If there is no taker under subsection (a), but the decedent has:
        
        (1) one deceased spouse who has one or more descendants who survive the decedent, the estate or part thereof passes to that spouse’s descendants by representation; or
        
        (2) more than one deceased spouse who has one or more descendants who survive the decedent, an equal share of the estate or part thereof passes to each set of descendants by representation.
        
        Fountain out
        
        Spouse
        
        Descendants
        
        Descendants of dead persons parents
        
        Grandparents
        
        Parents
        
        Descendants of dead persons Grandparents
        
        UPC 2-105 Escheat
        if it cant go to family member goes to state
  - - - Spouse included --- cohabititating parteners commonly not considered unless circumstances show equitable relief underUCERA
    - - Representation
        
        Representation means that decedents represent dead parents if parents would have taken
        
        This is the idea that the descendant of a deceased taker can take the share of the deceased taker
        
        This means that if there is a living person between you and the decedent, you get nothing
      - Three systems of representation
        
        English or traditional per stirpes
        
        division based on pool of 1st living generation--- deaths ignored
        
        Modern per stirpes- the rule we'll use for exam----shares are split at nearest level to decedent where people are alive --- Someone has to be alive where split occurs
        
        1 share for each living member , 1 for each dead member with descendants
        
        (2) Modern Per Stirpes. Nearly half of the states follow a modified version of English per stirpes that is called modern per stirpes or per capita with representation. Under this system, one looks first to see whether any children survived the decedent. If so, the distribution is identical to that under English per stirpes. If not, as in Figure 2.3, the estate is divided equally (per capita) at the first generation in which there are living takers, which is usually the generation of the decedent’s grandchildren. Under modern per stirpes, in other words, the root generation at which the decedent’s estate is divided into shares is the one nearest to the decedent in which one or more descendants of the decedent are alive. Any deceased descendant in that level is represented by her descendants using an English per stirpes distribution.52
        
        Per capita at each generation ---- modern per stirpes but lower generations regroup and split evenly at each level.
    - - CONSANGUINITY --relation by blood
        
        Descendants- relation straight below you
        
        Ancestors- relation above you
        
        Collaterals - everybody else
      - Laughing heirs - people not close enough to care if your alive or dead
        
        and stepchildren
        
        and in laws
      - Transfers to children -step children do not get treated as children. Mother in law Father in law not treated as parent
        
        May also affect more distant heirs
    - - Not allowed to prevent child from taking intestate share.... estate must be devised to other persons entirely instead
  - - - Adopted children
        
        when child is adopted, no longer connected in any way to original family, instead now fully part of new family .
    - - if father dies before birth, if child is born within 9 months then child has a share
    - - Most states permit paternity to be established by evidence of the subsequent marriage of the parents, acknowledgment by the father, an adjudication during the life of the father, or clear and convincing proof after death
    - - Surrogacy -- surrogacy contract determines who parents are
      - Posthumously conceived children have the right to inherit under Massachusetts intestacy laws if the genetic relationship to the decedent is established and the deceased parent consented to the posthumous conception and posthumous support of the child or children.
      - Half blood/ whole blood are treated the same as regular children.
    - - Advancement
        
        What is an advancement--- "deposit on inheritance" given during life that will count against share
        
        Note: applies ONLY to intestacy
        
        If there's a Will, the concept is called ademption by satisfaction (later)
        
        The focus is on donor intent
        
        How do you prove that?
        
        UPC APPROACH 2-109
        
        Not an advancement unless there's a writing
        
        Two possibilities
        
        Decedent declared in contemporaneous writing
        
        Recipient acknowledged in writing
        
        Value at earlier of possession or death of decedent (usually the former)
        
        Only " counts" against the recipient unless decedent says otherwise
        
        Someone who gets an advancement never has to give it back, but if they do not they do not get any more of the remaining estate
      - Hotchpot
        
        In civil and property law, hotchpot is the blending, combining or offsetting of property to ensure equality of a later division of property.
        
        if one gets an advancement , the value is added to the remaining pot and split evenly from that, with the recipient getting advancement as part of it
  - - - Prohibits a slayer from inheriting from victim
      - Where the statutes of descent require distribution of a decedent’s assets to the party responsible for the wrongful killing of the decedent, the estate must pass as statutorily required but equity imposes a constructive trust requiring the killer to hold the assets in trust for the decedent’s next of kin.
    - - Disclaimer (voluntary bar)
        
        What is it? -- never letting ball into your hand-- not accepting property in any way.
        
        Uses
        
        Avoid creditors
        
        Save taxes
        
        Be careful: huge tax consequences when the money is big
- - - - From 2-502
        
        (c) Intent that the document constitute the testator's will can be established by extrinsic evidence, including, for holographic wills, portions of the document that are not in the testator's handwriting. [L 1996, c 288, pt of §1]
        
        b) A will that does not comply with subsection (a) is valid as a holographic will, whether or not witnessed, if the signature and material portions of the document are in the testator's handwriting.
      - Majority of states allow holographic wills
      - A will "completely in the handwriting of the testator" is a common formation
      - Note that Ohio does not allow
    - - Notarized wills
        
        Think about how this is different from a self proving affidavit
        
        The notary substitutes for the witnesses
        
        Even in a state that authorizes them, I wouldn't do them yet
    - - Core formalities (UPC 2-502)
        
        Writing
        
        Will must be in writing
        
        Signature
        
        What is it? any mark that it is intended to show their signature /// determined by who is holding the pen -- if someone else signs for them at their direction in their presence- signature by proxy
        
        Signed v subscribed (Ohio requires subscribed) sub scribe - under - written signature must be at bottom of will nothing can be below it
        
        Witnesses
        
        any adult; someone who does not have interest in the will
        
        (3) Signed by at least two individuals, each of whom signed within a reasonable time after the individual witnessed either the signing of the will as described in paragraph (2) or the testator's acknowledgment of that signature or acknowledgment of the will.
        
        Requires Conscious Presence of signing
        
        interested individuals
        
        no one getting a gift under the will should be a witness
        
        majority (slim) will is valid but the interested witness loses the gift
        
        minority(and UPC) the will is valid and the interested witness keeps the gift
        
        Interested witness is not a good idea- later (contest)
      - Strict Compliance
        
        That's the goal
        
        many states insist on it
        
        an attestation clause raises a presumption of due execution
        
        a self proving affidavit goes farther- but not in Ohio
      - Model execution Ceremony Page 164
      - Safeguarding
        
        Client runs risk of losing or misusing will
        
        Attorney might look to be soliciting business by keeping wills, and would have to manage many over time
      - Substantial compliance
        
        Does the execution satisfy the purposes of Wills Act formalities?
        
        If so, probate it
        
        Most courts still require strict compliance
        
        Question of formalism vs. outcome
        
        Compare harmless error
        
        Australia requires the court to be satisfied... that the deceased intended to document to constitute his will
        
        Allows the court to excuse noncompliance
        
        A minority of states adopted UPC 2-503
        
        Ohio is one of them
        
        necessity for clear and convincing evidence of intent of the testator
      - Uniform Electronic will act
        OHIO Sb 230 introduced september 15 2021 proposes recognition of electronic will; transfer on death designation affidavits; declarations governing the use or continuation, or the withholding or withdrawal, of life sustaining treatment; and powers of attorney
  - - - A1 allows written revocation
        
        Express " I hereby revoke all prior Wills and Codicils"
        
        By inconsistency:
        
        Will 1 - house to A; Will 2 - all that I own to B
        
        Will 1 - house to A, everything else to B; Will 2 - house to C ---- house would go to C; everything else to B , second part of will 1 would not be inconsistent with Will 2 so it would still hold
        
        Complete disposition in later Will = revocation
        
        A written revocation on the back of a will that does not otherwise comply with statutory requirements for revocation cannot effect a revocation by cancellation unless the written revocation obliterates or defaces the text of the will.
      - A2 allows physical act with intent and purpose of revoking
        
        The fact that a decedent’s original will that was in her possession before her death is missing after her death gives rise to a rebuttable presumption that she revoked the will by destroying the will.
    - - Revoke a WIll on mistaken assumption of law or fact
        
        LaCroix - not the typical case
        
        LaCroix :Under the doctrine of dependent relative revocation, if a testator revokes all or part of her will intending the revocation to be effective only if a subsequent will or codicil can be validly substituted, and the subsequent will or codicil is actually not valid, then the revocation fails to the extent that the condition on which it was based was not met.
        
        (usually that later Will is valid)
        
        Restatement (3d) property 4.3
        
        Would the Testator prefer the earlier will or intestacy
    - - § 2-509. Revival of Revoked Will
      - (a) If a subsequent will that wholly revoked a previous will is thereafter revoked by a revocatory act under Section 2-507(a)(2), the previous will remains revoked unless it is revived. The previous will is revived if it is evident from the circumstances of the revocation of the subsequent will or from the testator’s contemporary or subsequent declarations that the testator intended the previous will to take effect as executed.
      - (b) If a subsequent will that partly revoked a previous will is thereafter revoked by a revocatory act under Section 2-507(a)(2), a revoked part of the previous will is revived unless it is evident from the circumstances of the revocation of the subsequent will or from the testator’s contemporary or subsequent declarations that the testator did not intend the revoked part to take effect as executed.
      - (c) If a subsequent will that revoked a previous will in whole or in part is thereafter revoked by another, later will, the previous will remains revoked in whole or in part, unless it or its revoked part is revived. The previous will or its revoked part is revived to the extent it appears from the terms of the later will that the testator intended the previous will to take effect.
      - Hypo: Will 2 expressly revokes Will 1. Testator revokes Will 2. Is Will 1 effective :: some states do some states dont
    - - Divorce - presumptively revokes a provision in a decedent's will for a the decedent's divorced spouse
        
        UPC: Will and Non probate transfers
        
        Treated as disclaimer of ex and all ex's relatives
      - Marriage or birth of children
        
        Majority no longer revoke
        
        Treat as "pretermitted" - later
    - - By writing (all states allow)
      - By physical act (all states allow)
      - BY operation of law
    - - (a) A will or any part thereof is revoked:
      - (1) by executing a subsequent will that revokes the previous will or part expressly or by inconsistency; or
      - (2) by performing a revocatory act on the will, if the testator performed the act with the intent and for the purpose of revoking the will or part or if another individual performed the act in the testator’s conscious presence and by the testator’s direction. For purposes of this paragraph, “revocatory act on the will” includes burning, tearing, canceling, obliterating, or destroying the will or any part of it. A burning, tearing, or canceling is a “revocatory act on the will,” whether or not the burn, tear, or cancellation touched any of the words on the will. . . .
  - - - All papers that are present at the time of execution and are intended to be part of the will are treated as part of the will
      - Where a purported will contains more than one page, it must be made clearly apparent that the testator intended that all of the pages together should constitute his last will and testament.
    - - a validly executed will is treated as re-executed as of the date of the codicil
    - - UPC 2-510
        
        A will may incorporate by reference any informal document not executed in the manner of a will that was in existence at the time of execution of the will, or a codicil to the will, and is shown by adequate proof to be the document referenced in the will.
      - Manifest intent AND describe sufficiently ---> must want it to be included in will and must already exist
      - Clark v. Greenhalge (245)
        
        A will may incorporate by reference any informal document not executed in the manner of a will that was in existence at the time of execution of the will, or a codicil to the will, and is shown by adequate proof to be the document referenced in the will.
      - Compare the personal property memo- it contemplates a later document :
        
        Majority of states allow- must be signed.
    - - § 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 testator’s death. The execution or revocation of another individual’s will is such an event.
  - - - Possibilities for contracts
        
        Make a will in a certain way (and dont revoke it)
        
        Don't revoke an existing Will
        
        Dont make a will
      - Keith v Lulofs (258)
        
        Brady Bunch- all to spouse for life, then 1/2 to my kids and 1/2 to spouses kids
        
        The mere fact that the provisions of two wills mirror each other is insufficient to show an intent to make the provisions of the wills irrevocable.
  - - - … and for revoking a will (later)
- - - - in order to have mental capacity, the testator must show that they they are capable of knowing and understanding
        
        1 Nature and extent of property
        
        2 The Natural objects of his or her bounty
        
        3 A full Understanding the testamentary act
        
        Making a Will
        
        Who gets the property
        
        (how these fit together)
      - A few isolated acts of abnormal behavior cannot satisfactorily rebut an inference of testamentary capacity.
      - Low threshold to meet
      - Presumption of competence-- contestant always has the burden initially
      - Right to be weird? -- not letting judges make calls on disposition positions -- however must still have capacity
      - lucid intervals of mental capacity is also sufficient enough
      - Effect of Guardianship-- legal determination that you cannot handle your onw affairs
        
        Cant do a will after being put under guardianship
        
        What about the period just before guardianship ?--- very good evidence that you lack capacity
    - - Insane delusion
        
        Believing something that doesn't comport with reality --- even if delusion, can still make valid will if complying
        
        Compare mistake -- drawing wrong conclusion versus believing facts that don't exist
        
        If delusion, will can be reformed and parts that are delusion can go to intestacy
        
        Must prove delusion and that the Will or gift in the Will was the product of the delusion
      - Best Practice
        
        Medical/ psych evaluation?
        
        Videotape the execution?
        
        Pre-mortem probate (if available)?
  - - - 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
      - Four kids:
        
        One gives constant attention and presents
        
        One begs
        
        One tries to convince that he's the most worthy
        
        One threatens to cut off relationship
        
        Likely none of these are Undue Influence
      - Contestant has burden of proof
      - Typical elements:
        
        Susceptible donor
        
        Wrongdoer had opportunity
        
        Wrongdoer had disposition to exert undue influence
        
        Result (disposition)
      - Burden shifts in confidential relationship with suspicious circumstances
        
        suspicious circumstances factors
        
        the extent to which the donor was in a weakened condition, physically, mentally, or both, and therefore susceptible to undue influence;
        
        the extent to which the alleged wrongdoer participated in the preparation or procurement of the will or will substitute;
        
        whether the donor received independent advice from an attorney or from other competent and disinterested advisors in preparing the will or will substitute;
        
        whether the will or will substitute was prepared in secrecy or in haste;
        
        whether the donor’s attitude toward others had changed by reason of his or her relationship with the alleged wrongdoer;
        
        whether there is a decided discrepancy between a new and previous wills or will substitutes of the donor;
        
        whether there was a continuity of purpose running through former wills or will substitutes indicating a settled intent in the disposition of his or her property; and
        
        whether the disposition of the property is such that a reasonable person would regard it as unnatural, unjust, or unfair, for example, whether the disposition abruptly and without apparent reason disinherited a faithful and deserving family member.
    - - No contest Clauses( 311)
        
        "if you contest will you lose your gift"
        
        When might one work? if you give them enough money, yes
        
        Will they be enforced?
        
        some say
        
        Only if contest lacks probable cause
        
        Always
        
        Never
      - Benefits for lawyers (312)
        
        Gifts
        
        Rule violation unless relative
        
        Fiduciary appointments- naming self as executor
        
        Acceptable withe appropriate explanation
      - Warning signs:
        
        Change in plan
        
        Disinheritance of family member/s
        
        Bulk of estate to non-family member
      - What to do
        
        Extra precautions at Will signing:
        
        Videotape
        
        Conversation about the plan?
        
        Medical professional evaluation?
        
        Explanation to family
        
        By letter?
        
        In person?
      - Ante Mortem probate (316)
        
        Ohio is one of the minority of states that allow it
        
        No one does it
      - Mediation/Arbitration (317)
        
        Growing trend,but not widely used
  - - - Think of a continuum from:
        
        Acceptable requests
        
        Undue influence
        
        Duress
    - - cult preventing member from creating new will -- race issue or duress?
      - Remedy?
        
        Constructive trust
        
        Moves money from the wrong hands to the right hands
        
        Useful in many situations
        
        No Will made, Will not revoked, etc
  - - - Knowing or recklessly made a statement that is untrue
      - Must be material to transfer -reason everything was left to someone was because of the statement made
    - - In the execution- Misrepresentation of contents of document
      - In the inducement- Misrepresentation of facts outside the document
  - - - Existence of expectancy
      - Intentional interference through tortious conduct
      - Causation
      - Damages
  - - - "proponent "
    - - "contestant"
- - - - plain meaning rule
        
        extrinsic evidence can be used to solve ambiguities, but the plain meaning of the words of a will cannot be disturbed by evidence that the testator intended another meaning
      - no reformation rule
        
        testator may not reform a will to correct a mistaken term to reflect what the testator intended the will to say
      - Ambiguities
        
        Patent Ambiguity
        
        ambiguity is evident from the face of the will; example two thousand (25,000)..... both conflict, therefore, ambiguious on face
        
        Patent ambiguity - (smacks you in the face) you can tell there's a problem from the language of the Will
        
        Older rule- no remedy
        
        Newer rule- allow extrinsic evidence
        
        Latent ambiguity
        
        (ambiguity when applied to facts)
        
        Equivocation- two or more persons or things fit exactly ; (same names )
        
        Personal Usage - "Mrs. Moseley" (nicknames)
        
        No Exact Fit
        
        How does an attorney prevent ambiguity
        
        Best practices--- BE SPECIFIC-- put burden on the client " you tell me how you want this done"
        
        Should attorneys be held liable for ambiguity ?
    - - Relief for Mistakes (343)
        
        usually not available
        
        Courts sometimes make it sound like ambiguity
        
        Arnheiter( 343) - wrong address - court read out the number
        
        Gibbs (345) -wrong middle initial and address- court read it out
        
        both read out to make ambiguous so ext. evidence can come in
    - - Reformation to correct mistakes
        
        Still a minority position
        
        And probably requires clear and convincing evidence
        
        Is it a good idea?
        
        Estate of Duke (350) --- if she was alive she gets it, if they die at the same time goes somewhere, never specified where if she died.
        
        This was holographic
        
        "the categorical bar on reformation [of unambiguous Wills] is not justified"
        
        Required clear and convincing evidence AND evidence not only of mistake but also of testator's actual intent
        
        Reformation of an unambiguous will is permissible if clear and convincing evidence establishes an error in the expression of the testator’s intent and establishes the testator’s actual specific intent at the time the will was drafted.
        
        OHIO would probably reject this reasoning and go to intestacy
      - Compare the Treatment of Ambiguity and Mistake
        
        Ambiguity - extrinsic evidence is allowed to clarify the meaning
        
        Mistake- no extrinsic evidence is allowed (unless in a minority state)
      - Reformation to correct tax mistakes (358)
        
        Everyone hates the IRS!
      - UPC2-805
  - - - What happens if a taker dies before the testator?
        
        Void devise
        
        Taker is already dead when Will is executed
        
        Taker is not human or an entity
        
        lapse
        
        Taker dies after execution but before death of testator
        
        if taker dies before will ---- gift is void
        
        if taker dies during middle period between will creation and testator dies --- gift lapses
        
        if taker is not human or entity-- void
      - Classifying gifts
        
        Specific - a specific Item of property (e.g., my diamond ring)
        
        General - a gift from the general assets of the state (e.g., $10000)
        
        Residue- all the rest of my property; everything else
      - Lapse
        
        NB: Wills can expressly override these rules
        
        Lapse of specifc - falls into residue
        
        Lapse of general - falls into residue
        
        Lapse of residuary-
        
        Goes to other residuary takers, if any (majority rule)
        
        If no other residuary takers, goes to intestate heirs
        
        Class gift- goes to other living members of the class
      - Void devises
        
        Est of Russell 360
        
        Roxy the Airedale terrier was alive at execution but predeceased the testatrix
        
        (foxtail!)
        
        No longer the majority rule
        
        Extrinsic evidence vs. armchair evidence
    - - UPC 2-605
        
        Within specified degree of consanguinity (close relatives)
        
        passes to living issue (descendants)
      - Its about presumed intent
      - Its a default rule
        
        Words of survivorship? with alternative gift?
        
        Ohio rule- compare "surviving" with "if he survives me"
      - UPC 2-603 provides that words of survivorship, such as in a devise to an individual ' if he or she survives me' or in a devise to ' my surviving children' are not, in the absence of additional evidence a sufficient indication of an intent contrary to the application of this section
        
        Majority rule in most places still says that if he survives me is sufficient indication of preclusion of ant lapse statute
    - - For a devise to be defined as a class gift, the number of beneficiaries and the size of the shares must be uncertain, depending on the number of class beneficiaries surviving at the time of the testator’s death.
      - most states apply antilapse statutes to single generation class gifts ; in some states however the antilapse statutes do not apply
    - - A's gift has lapsed. Does an antilapse statute apply?
        
        yes
        
        Distribute to A's Descendants
        
        no
        
        Is A's gift part of a class gift ?
        
        yes
        
        Reallocate among other class members
        
        no
        
        Is the lapsed devise specific, general, or residuary?
        
        Specific or general
        
        1 more item...
        
        Residuary
        
        1 more item...
  - - - Specific devises only
      - If the specific item is not in the testators possession at death, the taker does not receive anything and the item is addeemed
      - Where a specific devise is removed from an estate by the act of an attorney-in-fact that was not known or assented to by the testator, the devise is not adeemed, i.e., cancelled, to the extent that identifiable proceeds remain in the possession of the estate.
      - Identity theory of ABE -- The identity theory is utilized by many states as a means of identifying the validity of the testator's wishes. Simply put, if a bequest is not part of the estate at the time of death, it is adeemed. The intent theory relies on the testator's intent with their bequests.May 3, 2018
      - Intent theory of ABE (in this case "modified intention")The intent theory relies on the testator's intent with their bequests. States will adeem property unless proper evidence is presented that shows that doing so would be incongruent with the testator's final intent. If a case is successful, you can expect to receive property that is close in value as compensation.
      - Modern trend towards giving testator something unless they are part of getting rid of specific devise
      - Change in form or substance
        
        I devise 100 shares of Peet 's coffee
        
        Peet's goes private - I get money
        
        Peet's gets bought by Starbucks - I get SBUX stock
        
        any other kind of property -- hard to equate in form or substance-- Lamborghini to civic
      - NOTE: using identity theory for exam---- if thing isn't there, receiver gets nothing
    - - Another common problem-- generally seen as change in form not change in substance
    - - General Pecuniary $$$ Bequests - ADEMPTION BY SATISFACTION
        
        The analog of advancements
        
        Must prove intent to adeem
        
        Some state, like the UPC, require a writing
    - - Exoneration of liens
        
        What is it ? House worth 500k and has 300k mortgage. testator owns also 500k in cash ." leave house to son and cash to daughter" .... problem is he doesn't pay off the mortgage and dies ... who pays? question of exoneration
        
        exoneration with a lean--- estate pays off mortgage son gets full house daughter only gets 200k after paying off lien
        
        if you don't exonerate-- son gets house with mortgage that has to be paid off -- bank will make executor refinance the house and it will probably have to be sold .... son gets whatever left
        
        Split of authority
        
        Address in will
    - - Example 1
        
        if estate contains 400 ---a get s 100 ;b gets 100 ; c gets 200
        
        if the estate contains 200-- a 100 b 100 c 0
        
        100k to a ,100k to b, residue to c
      - Abatement is when estate doesnt have enough money to cover all gifts made
      - abatement goes from bottom to top. first to lose residuary, then general, then specific
      - Example 2
        
        if all that remains is bank account with 100k and no car, who gets it?
        
        a car addeemed by extinction; b gets 100k ; c gets 0
        
        (statute could say otherwise, but normally if its not there you get nothing for specific gifts)
        
        car worth 100k to A, 100k to B, res to C
      - Example 3
        
        if only 100k in bank
        
        a gets 50 ;b gets 50
        
        100k a ;100k b ;res to c
- - - - Trusts
        
        A legal arrangement for dealing with property
        
        Players:
        
        Settlor- conveys property to trust
        
        Trustee- holds legal title to property
        
        Safeguards,manages, distributes
        
        Beneficiary- holds equitable title to property
        
        Gets the benefits of the property
        
        To make a trust need:
        
        Corpus
        
        Ascertainable beneficiary
        
        Trustee
        
        Purpose
        
        Types
        
        inter vivos- created during the lifetime of the settlor
        
        Testamentary- created in a will
        
        Irrevocable/ revocable
        
        Mandatory/discretionary and in between
        
        Short- term v. perpetual
    - - Important sources of law
        
        Uniform Trust Act ---> similar to UPC
        
        Most rules are default rules
        
        Uniform Prudent Investor Act
        
        Restatement of Trusts
    - - The fiduciary relationship
        
        Split of titles gives rise to fiduciary duty of Trustee to beneficiary
        
        Fiduciary administration- distribution questions
        
        Split of titles gives rise to questions involving third parties, mostly creditors
        
        Trust is not a juridical entity
        
        The Trustee must be sued
        
        beneficiary has equitable title
      - Inrto to fiduciary administration
        
        Duty of loyalty
        
        Act soley for beneficiaries
        
        No self- dealing
        
        Duty of prudence
        
        Act in accordance with standard of care
        
        Other duties: impartiality, inform and account, no commingling
    - - Sorry, property profs, no one does legal life estates
      - A trust gives an equitable life estate
    - - Topic for business associations
      - Be aware that they exist. were focusing on private trusts
  - - - Trust intent is required--- intent to have the specific trust arrangement in place
        
        Think about what a trust relationship is
      - if the words suggest that relationship, the court may find that it's a trust
      - What if there's no trustee? The court will name one
      - A trust must have active duties or fail as passive (fail= gift)
      - Precatory language is a problem -- hopeful but not directive
      - Formalities
        
        If testamentary, must meet testamentary formalities
        
        if inter vivos...
        
        Jimenez v. Lee (414)
        
        Ann landers letter
        
        NB: a person does not have to accept trusteeship
      - Merger
        
        In order to have a trust, a trustee must owe duties to someone other than herself
        
        Could be future duties
        
        if only owe duty to yourself, trust goes away.
      - Compare trust to gift
      - Required for a trust
        
        Trust intent
        
        Trust res
        
        Ascertainable beneficiaries
    - - Trust Property
        
        called "the res"
        
        Any transferable interest
        
        What isn't transferable
    - - Not "ascertained" -- whats the difference ? ascertained means current but ascertainable means future. doesn't have to be current
      - Clark v Campbell 428
        
        Ascertainable beneficiaries
        
        Stuff to "my friends"
        
        Too indefinite? Why not let extrinsic evidence clarify?
        
        Passes as part of residue- is that the right result ?
    - - Est of fournier 439
        
        Think about what happens if this created a trust ?
        
        If not ?
      - Olliffe v Wells 443
        
        Secret trusts and semisecret trusts
        
        Why is the Wills act a problem
        
        The disposition is not clear from the will
        
        Secret- all extrinsic evidence
        
        Semisecret- trust fails for want of beneficiary.
      - Statute of frauds issues
        
        If SOF includes transfers of interests in real property, must have a writing
        Pappas (mentioned on 447)
- - - - Think about the probate/non probate dichotomy
      - With a revocable inter vivos trust, the present transfer takes it out of the Wills Act
        
        This is the majority modern view
      - Review the trust we discussed for the family
    - - Fulp v Gilliland 457
        
        During the period of revocability, who does the trustee serve
        
        How is the inter vivos trust different from outright ownership
        
        Does the power to revoke override the trustee's duty of impartiality to all the trust beneficiaries
        
        As note 2 points out, what happens after the Settlor dies is a mess
    - - First question: which is it?
      - Revocable or irrevocable- split of authority
        
        UTC presumes revocable
      - Best practice: state which it is
      - How to amend or revoke?
        
        The way the instrument requires
        
        If no requirement any manner that shows Settlor's intent
      - Patterson v Patterson 464
        
        "by written instrument"
        
        "the UUTC does not require strict compliance with trust provisions" FREQUENTLY IT DOES
        
        WOW
        
        458 "may"
    - - Since a revocable trust is usually a Will substitute should the subsidiary law of wills apply?
        
        construction
        
        revocation on divorce
        
        Etc.
    - - State Street bank 469
      - should creditors be able to reach
        
        Generally yes, power to revoke is enough whether settlor is a beneficiary or not
      - Compare JTRS and life insurance proceeds
      - Spousal rights - later
    - - Think about principal and income separately
        
        define each principal -- corpus (building is principal money from building is income)
      - Think in terms of time
      - Think in terms of distributions
        
        Which beneficiaries
        
        Mandatory/discretionary
  - - - Its a contract
      - Someone owns the policy
      - Cook v equitable life 482
        
        Illustrates a difficulty of using nonprobate transfers
        
        Majority rule: substantial compliance
        
        Revocation on divorce
        
        Under Indiana law, an insured party may only change the beneficiary of a life insurance policy in the manner set out in the policy, and a designation of an alternate beneficiary by will is ineffective.
    - - Principal types of plans
        
        Defined benefit
        
        Relatively rare in the private sector, widely available for gov't jobs
        
        Defined contribution
        
        Like an investment account
        
        More control by the employee re: investments and benefits
        
        IRA
        
        Not done through an employer
      - Good estate plans must consider retirement funds
      - Nunneman 490
        
        Think about the documents:
        
        IRA- designated beneficiary: friend
        
        Will- all to mother
        
        Note(?) - all, including IRA, to mother
        
        What would the average lay person think.
        
        Under Arkansas law, a testator can change the beneficiary of an IRA account by will if the will sufficiently identifies the policy and shows an intent to change the beneficiary.
      - How to change a beneficiary- best practices
        
        Are testamentary formalities required?
        
        No - nonprobabte
        
        These are basically contracts- they provide for how the change must be accomplished
        
        NEVER assume that you can change a beneficiary by Will
        
        Another reason why you need a complete asset list from a client
      - egelhoff v egelhoff
        
        ERISA preemption of a state statute applies when the state statute affects the administration of an ERISA-governed plan in a way that interferes with the objectives of the ERISA statute.
        
        ERISA
        
        Federal statute governing retirement plans
        
        ERISA provides enhanced protection for spouses
        
        Does ERISA supersede the state's revocation on divorce statute?
        
        Which do you agree with, majority or dissent
      - Related issues
        
        Coud you do an end run by suing the recipient ex spouse after the funds are distributed on a theory of unjust enrichment
        
        NO- also preempted, according to Supreme Court
        
        What about slayer statutes?
        
        An Ohio appellate court said preemption
    - - Where a joint bank account is created with funds belonging to one person, a gift of the funds to the other person is presumed and the presumption may only be rebutted by clear and convincing evidence.
  - - - An attorney-in-fact has the authority to create a trust on behalf of the principal if the power of attorney indicates that the principal intended the attorney-in-fact to have such authority.
      - A conservatorship typically begins when an interested party files a petition with the appropriate court. Under UGCOPAA § 401(b), a court may appoint a conservator for an adult if it finds by clear and convincing evidence that the adult for whose benefit the conservator is sought “is unable to manage property or financial affairs because . . . of a limitation in the adult’s ability to receive and evaluate information or make or communicate decisions, even with the use of appropriate supportive services, technological assistance, or supported decision making”64 and the “appointment is necessary to . . . avoid harm to the adult or significant dissipation of the property of the adult.”
      - A power of attorney creates an agency relationship in which an agent is given a written authorization to act on behalf of a principal. An agent under a power of attorney, traditionally called an attorney-in-fact,72 can be granted the power to do almost anything for a principal. A written instrument setting forth the terms of the agent’s authority provides evidence of that authority, which encourages third parties to deal with the agent as a representative of the principal.
      - Because at common law an agent’s authority terminates on the principal’s incapacity,73 an ordinary power of attorney is of limited use in incapacity planning. Enter the durable power of attorney. Unlike an ordinary power of attorney, a durable power of attorney remains effective during the incapacity of the principal and until the principal dies. A durable power of attorney thus provides “a simple way to avoid guardianship [and conservatorship by] allowing an agent to manage a principal’s assets when necessity or incapacity requires it.
    - - Const. right to make healthcare decisions
      - One issue : conflicting directions
        
        person ,family members, Medical personnel
      - Advance directives
        
        Advance directives are of three basic types: (1) instructional directives, such as a living will, which specify either generally or by way of hypothetical examples how one wants to be treated in end-of-life situations or in the event of incompetence;92 (2) proxy directives, such as a health care proxy or durable power of attorney for health care, which designate an agent to make health care decisions for the patient; and (3) hybrid or combined directives incorporating both of the first two approaches, directing treatment preferences and designating an agent to make substituted decisions.
      - End of life issues
        
        Organ donation
- - - - Notice elective - the surviving spouse can choose whether to claim it or not
      - These statutes give the surviving spouse the right to claim a portion of the deceased spouses estate
        
        Frequently one third of estate
        
        Must announce any gift in the will
        
        Can be waived
      - Bottom line:unless waived,the surviving spouse gets to choose between any gift in the will and the elective share
      - Probate/nonprobate
        
        The elective share applies to all probate and some non probate property- based on statute
      - Who is entitled to claim elective share
        
        A spouse
        
        Must be legally married
        
        Includes common-law marriage
        
        Does not include cohabitating partners
        
        Length of marriage irrelevant
        
        Source of wealth irrelevant
      - Death of surviving spouse before electing
        
        One issue is whether the estate of the surviving spouse should be able to elect against the decedents will
        
        Most states say no
      - Incompetent spouse
        
        Note that a representative of a living surviving spouse may be able to elect while the surviving spouse is alive
        
        Majority require consideration of all circumstances
        
        Who?
        
        Agent under DPA
        
        Guardian
      - Abandonment
        
        Majority- yes can elect
        
        Minority- a surviving spouse who abandoned or failed to support cannot elect
        
        Compare this to slaying -most would deny
      - Whats the goal?
        
        Don’t let dead spouse defeat purpose of elective share by arranging for property to move by non probate transfer
        
        Good review of non probate transfer: the decedent kept significant control to benefit from property and arranged for it to pass at his death
        
        If non probate was excluded, would defeat elective share right of the surviving spouse
      - Statutory reform
        
        Augmented estate
        
        Probate estate plus certain listed non probate transfers
        
        Meyers case indicates it’s difficult to contemplate every type of non probate transfers
        
        POD accounts (court said it could not be read into statute)
        
        look at statute on 548
      - UPC approach
        
        Think about all the ways one could keep control over wealth while alive and then have it transfer at death
        
        Look at 1969 UPC - heavily influenced many states (551) our exam statute will be similar
        
        (1) The 1969 Uniform Probate Code. Under the 1969 UPC, the surviving spouse is entitled to an elective share of one-third of the augmented estate. Under UPC § 2-202 (1969), the augmented estate includes the probate estate plus the following nonprobate and inter vivos transfers made without consideration at any time during the marriage:
        
        a. a transfer in which the decedent retains the right to possession or income from the property;
        
        b. a transfer that the decedent can revoke or that permits the decedent to invade or dispose of the principal for his own benefit;
        
        c. a transfer in joint tenancy with someone other than the spouse;
        
        d. a transfer made within two years before death exceeding $3,000 per donee per year ($3,000 was, at the time, the maximum amount exempt from the federal gift tax under the annual exclusion; it is now $15,000 (see page 944)); and
        
        e. property given to the surviving spouse during life, including a life estate in a trust, and property received by the spouse at death derived from the decedent, such as life insurance and pensions.
        
        The purpose of augmenting the probate estate with items (a) through (d) was, in the words of the comment to § 2-202, “to prevent the owner of wealth from making arrangements which transmit his property to others by means other than probate deliberately to defeat the right of the surviving spouse to a share.” What result in Sullivan, Bongaards, and Myers under these provisions? Notice the limitation to transfers p. 552made during the marriage. A premarital transfer, including to a revocable trust created before the marriage, is not included in the augmented estate.25
        
        Later upc tried to come closer to community property- attempt to further the partnership theory of marriage
        
        Interesting idea re: length of marriage ...
      - waiver
        
        First consider prenuptial/postnuptial
        
        All states enforce prenuptial waivers
        
        Almost all enforce postnuptial waivers
      - UPAA and UPMAA 556 focus on
        
        Voluntariness of waiver
        
        Disclosure of property and finances
        
        Access to independent legal counsel (be careful)
      - Focus on disclosure of assets
        
        Reece 559
        
        How precise a disclosure is required
        
        This case- number of shares, no valuation
        
        Best practice : list assets with good faith valuation of each on and be sure that you can find the list
    - - During marriage, all earnings and property acquired from earnings belongs to the community ; each spouse owns one half
      - At death each spouse controls half
      - How else might one get property?
        
        Own before marriage - not community property
        
        Gift inheritance - not community property
      - Tracing
        
        One must be able to determine where each $ came from
        
        Most states : if you can’t prove where it came from, it’s community property
        
        W brings 50k to marriage; h earns 50k during marriage; they spend 50k. How much of the remaining is community property ?
        
        Couples may agree about character of property
      - Rights of survivorship
        
        Community property cannot be held in a common law joint tenancy
      - Community property Disposition during life and death
        
        Inter Vivos gifts are restricted- rules vary
        
        At death of first spouse, each has the power over half
        
        Deceased spouse can pass one half
        
        Surviving spouse owns other half
        
        What about an inter vivos trust
        
        Inter vivos gift?
        
        Passes at death?
    - - Couples who move from one state to another
        
        Law of situs controls issues concerning real property
        
        The law of material domicile at the time that personal property was acquired controls personal property characterization
        
        The law of material domicile at death controls the survivors rights
        
        The most common issue I see in practice dis a couple who moves from a community property state to a separate property state- they should think about whether they want community property to retain its characterization and agree
    - - Other protections for surviving spouses
        
        Social security benefits- many spouses receive payments based on their deceased spouses earnings
        
        Pensions -ERISA gives rights to the spouse if a covered employee predeceases the non employee spouse
        
        Homestead- keeps a family home from being sold to pay creditors
        
        Personal property exemption- usually protects a small amount of money from creditors
        
        Family allowance - court allocates some estate funds to support the family
        
        Dower and curtesy - gone
    - - Separate property states
        
        Each spouse owns his or her earnings and acquisitions from earnings unless agreed to otherwise
      - Community property states
        
        All earnings and acquisitions from earnings during the marriage belong to the spouses in equal undivided shares
  - - - Disinheriting a child
        
        Allowed in every state except Louisiana
        
        Even if child is a minor
        
        The parental duty to support ends at death
        
        But disinheriting a child invites a will contest
    - - New Zealand’s family maintenance
        
        Gives the court great power to do what it thinks is right
        
        See how that works in the lambeff case
        
        Consider need and conduct
      - Compare Ohios way of dealing with wrongful death - people who believe that they were harmed can make the case that they should receive part of the wrongful death award
  - - - Old rule: will is revoked- too harsh a rule
      - Majority rule- premarital will is not revoked ,but the omitted spouse is given some portion of the estate
      - Usually the intestate share
      - Can be overcome by proof that testator didn’t want future spouse to receive anything
      - Prestie 583 considers whether an amendment to an I.V trust is proof that overcomes the presumption
      - All this reminds us- getting married? Write a will
    - - Perhaps more difficult issue
      - Why would simply not giving an intestate share not make sense
      - Pretermitted= omitted
        
        refers to after-born children only
      - Look at UPC 587
      - Gray 588- agreement on divorce- child not afterborn
      - Some statutes protect preborn and after born
      - Jackson 595 what about non-probate assets ? This court said no
    - - How might it happen?
      - testator executed will before he is married
      - Testator executed will before he had a child
  - - - Spouses
      - Children
      - Other family members?
- - - - Fiduciary Administration
        
        Trend: from mere conveyance to long term management
        
        Trend: from amateur to professional trustee
        
        Note 3 types of trusts on
        
        Business trusts
        
        Irrevocable trusts
        
        revocable trusts
    - - Trustee Powers
        
        Frequently enumerated
        
        In a statute
        
        In the trust itself
        
        The UTC and all states give broad default powers to a Trustee
        
        Can be changed expressly in the trust
  - - - C. The Duty of Prudence 622
        
        The Investment Function 635
        
        Prudence in investment
        
        Old states provided “legal lists” and the “prudent man rule “
        
        Now : Prudent investor rule
        
        Allows investment in “ any type of property or type of investment”
        
        Trustee must consider “ overall… risk and return objectives “ and diversification of the Trust res
        
        UPIA 636-7 - states were highly influenced by this
        
        Look at C
        
        Duty at inception
        
        Look at UPIA 4
        
        Trustee must assess the trust res within a reasonable time after it is transferred to him
        
        Unless the trust directs otherwise trustee cannot simply keep the res as it is when he got it that violates the prudent investor standard
        
        Prudent investing and market risk
        
        The old problem
        
        Greater risk greater reward
        
        Lower risk lower reward
        
        How should that affect trustees as prudent investors
        
        Enter portfolio theory
        
        Instead of examining each investment decision, look at the portfolio as a whole
        
        trustee must consider the risk tolerance of that particular trust
        
        Recurring problems in applying the prudent investor rule
        
        The duty to diversify - don’t put all eggs in one basket
        
        Janes 644 71 % of estate in Kodak stock - assets went to trust
        
        Court found failure to diversify was imprudent
        
        Court looked at the stock itself AND the circumstances of the trust
        
        Remedy? Trustee must pay based on when he should have diversified
        
        Is owning a huge block of great stock imprudent?
        
        Reason not to diversify
        
        Trust res in single asset that cannot be diversified
        
        Family residence/farm/vacation homes
        
        Family business
        
        High tax or transaction costs
        
        Advice to trustee: document your good reason for not diversifying and perhaps get beneficiary and/or court approval
        
        Damages
        
        The goal is to compensate the trust for the harm caused by the failure to act as a prudent investor
        
        That measure of damages should include money lost, but also could include income that the lost ,only would have produced
        
        The Custodial and Administrative Functions 660
        
        Functions
        
        Custody
        
        Take title to the property
        
        Properly safeguard the property
        
        Administration
        
        Keep records
        
        Bring/defend claims
        
        accounting
        
        Information
        
        These give the Trustee many subsidiary duties, all under the umbrella of prudence
        
        Duty to collect and protect
        
        Collect all the property that the trust is supposed to have
        
        From Settlor?
        
        From Executor?
        
        From prior Trustee?
        
        Protect the property
        
        Appropriate placement
        
        Insurance?
        
        Duty to Earmark
        
        Trustee must title the property in a way that makes it clear that it is Trust property
        
        Usually this means
        
        A separate account that identifies the Trust as the owner
        
        Retitling assets like real property
        
        If impossible (artwork? Bearer bonds?), Trustee must keep records of ownership
        
        Duty not to commingle
        
        A Trustee who commingles violates two duties - loyalty and prudence
        
        This also applies to attorneys!
        
        Duty to keep adequate records
        
        A trustee should be able to account for every dollar that comes into or goes out of the Trust
        
        A Trustee should be able to provide his reasoning for every decision
        
        This is about accountability to the beneficiaries and the court
        
        Doesn't have to be a formal set of "books"
        
        Must be enough to allow meaningful oversight
        
        Duty to bring and defend claims
        
        Think about the basis for this - behave in a prudent way with respect to the assets that you own
        
        Trustee Selection and Divided Trusteeship 663
        
        Trustee selection
        
        Individual v corporate Trustee
        
        What qualities do you want in a Trustee
        
        What are a trustee's duties
        
        Who is best suited to carry out the duties
        
        Consider remedies if things go bad?
        
        Delegation
        
        Should a Trustee be able to delegate
        
        Older rule: could not delegate discretionary duties
        
        Newer rule: can delegate if prudent in the delegation
        
        UTC 807
        
        Notice the focus on the skills of the Trustee
        
        Notice the care that must be taken in finding the delegatee
        
        Trust with multiple trustees
        
        Sometimes, Settlor will divide functions
        
        Investment
        
        Distribution
        
        Power of appointment- late- give a beneficiary some power to direct distributions
        
        Directed trusts- give someone power over the Trustee
        
        Causes many questions regarding fiduciary duty
        
        The Distribution Function 623
        
        Prudence in distribution
        
        Basics terms
        
        Mandatory discretionary distributions
        
        Sprinkle/spray
        
        Support
        
        Discretion in distribution
        
        Marksman 623- surviving husband of settlor is to be provided with “reasonable maintenance,comfort, and support “
        
        Mandatory income distribution
        
        Discretionary principle distribution “after having considered the various sources of support for him””for his support and maintenance”
        
        Did trustee have a duty to inquire
        
        Constructive trust over amounts that should have been paid
        
        Exculpatory clauses for trustees -viewed with suspicion - often enforced to protect Trustees from personal liability
        
        Duty to inquire
        
        How might a trustee fulfill that duty.?
        
        Delicate balance between getting enough information and prying
        
        Think about how one encourages people to seek help
        
        Consider other available resources
        
        Restatement 2Trusts and R3T reserved the presumption about whether a trustee should consider other resources available to the beneficiary
        
        Best practice : write answer into trust
        
        Lots of litigation - even if a trustee is “to consider other available resources “ what does that mean?
        
        How absolute is discretion
        
        Is discretion different if modifier is attached
        
        Sole absolute uncontrolled exclusive
        
        Most courts say no- courts can still examine the trustees decision
        
        duty of prudence
        
        Imposes an objective duty of care
        
        Behave as reasonably prudent trustee
        
        UTC 804 formulation
        
        Consider the purposes terms distributional requirements and other circumstances
        
        Exercise reasonable care, skill, and caution
        
        Applies to all functions
    - - D. The Duty of Impartiality 673
        
        The Principal and Income Problem 675
        
        Principal and income
        
        Principal- usually increases in value- like a share of stock
        
        Income- money that an asset produces- like a stock dividend
        
        Frequently, increases in value of a company take one form or the other
        
        ie, usually, high dividend payers don't increase as much in value
        
        Enter the U.P.I.A- allows a Trustee to reallocate wealth increases as principal or income
        
        Another possibility: a unitrust- Trustee will pay a set percentage of trust res
        
        Heller 677- reminds us that the duties of loyalty and impartiality are still applied
        
        Due Regard and the Terms of the Trust 673
        
        Investment/ Management
        
        Name an asset that grows in value but produces no income --> piece of land/property not being rented out; gold; jewels;
        
        Name an asset that makes income but declines in value --> mining/well extraction project;
        
        Consider a trust that gives income for life to A, remainder to B at A's death
        
        How would each asset favor A or B
        
        B wants 1st --> maximum growth lowest income
        
        A wants 2nd --> maximum income
        
        Answer to prevent impartiality is to diversify between both types
        
        Trust Terms
        
        Sometimes a Trust will state a preference for a beneficiary like the example on 673
        
        More often, the Trustee will need to look at the structure of the trust and make an independent decision
        
        Is a corporate Trustee better when it comes to impartiality?
        
        Duty of impartiality
        
        If the trust has more than one beneficiaries, the Trustee must act impartially in
        
        Investment
        
        Management
        
        Distribution
        
        Usually, we talk about distribution, but all three are involved
    - - E. The Duty to Inform and Account 680
        
        Affirmative Disclosure 688
        
        Trustee obligation to disclose
        
        A Trustee is obligated to disclose information in some circumstances
        
        Allard 688- a trustee must inform beneficiaries with all the material facts about a "nonroutine" transaction- here: sale of only asset
        
        Sale of major asset of the trust
        
        Hard-to-value asset like closely held business
        
        Accountings and Repose 692
        
        Accountings and Repose
        
        If Trustee fairly discloses a transaction and court or beneficiaries approve, the trustee can't later be held accountable
        
        Formal: go to court with notice to beneficiaries
        
        Informal obtain approval of all beneficiaries
        
        National academy of Sciences - Trustee kept paying widow after remarriage (violated terms of Trust) - Academy didn't object to accountings - Trustee liable
        
        What should the Trustee have done?
        
        Responding to a Request for Information 681
        
        Responding to requests for information
        
        UTC 105 makes some duties mandatory, and trust cant alter that
        
        Why would a settlor try to allow a trustee not to account
        
        Wilson 682 - Trust attempted to absolve Trustee of duty to account
        
        Court held that settlor could not deny beneficiaries the ability to prevent or redress breaches of fiduciary duty
        
        "necessary to enforce their rights"
        
        Duty to inform and account
        
        For the beneficiaries to be able to ensure that the trustee is fulfilling his fiduciary duties, the beneficiaries need to know what's going on
        
        Obligation to respond to requests for information
        
        Duty to disclose in some circumstances
        
        Accountings and repose for the Trustee
        
        UTC 813 spells out the detail of the information that a Trustee must give
    - - B. The Duty of Loyalty 608
        
        Duty of Loyalty
        
        Trustee must administer the trust solely in the interests of the beneficiaries
        
        Hartman 608 - trustee cannot purchase assets from the trust
        
        Held to account- remedy is to give the money back
        
        Gleeson 609 - good faith and honesty do not overcome the rule
        
        Similarly, Trustee cannot sell assets to the trust
        
        No further inquiry
        
        Good faith and honesty cant overcome the rule, but there are possible defenses
        
        Settlor authorized the conflict in the terms of the trust
        
        Beneficiaries consented after full disclosure
        
        Trustee sought and received court approval
        
        Trustee can take reasonable fees for services
        
        Institution can invest its own funds
        
        Remedies for self dealing
        
        Trustee is held to account
        
        Depending on facts, this might mean
        
        Transferring property back to trust
        
        Disgorging any profits from transaction
        
        Rothko
        
        Best duty of loyalty case ever
        
        "conduct.. was manifestly wrongful and indeed shocking"
        
        Executors: Reis, Stamos, Levine
        
        Gallery would receive 50% commission- Reis was involved with the gallery
        
        Stamos- "not too successful artist" wanted to curry favor with the gallery
        
        Levine- no self interest but knew of Reis divided loyalty
  - - - Settlor, 75 year old woman with 3 adult children and two minor grandchildren creates a trust
      - Trustee is a trusted friend
      - Decisions to be made:
        
        Who are the current beneficiaries
        
        Settlor only? Plus children? Plus grandchildren
        
        What kind of distributions?
        
        Mandatory? Discretionary?
    - - During life of settlor
        
        Pay all income to settlor
        
        Pay $$ from principal in the discretion of the Trustee
      - At death of Settlor
        
        Separate Trust for each child, same dispositive provisions
      - At death of child
        
        Separate Trust for each grandchild, same dispositive provisions
    - - During life of settlor
        
        Pay income and principal to settlor in the discretion of the trustee OR
        
        Pay income and principal to settlor and children or
        
        Pay income and principal to settlor and children and grandchildren
      - At death of Settlor
        
        Separate Trust for each child, same dispositive provisions
      - At death of child
        
        Separate Trust for each grandchild, same dispositive provisions
    - - The trust is almost infinitely flexible
      - Well be using this trust as an example throughout this section, so you might want to keep the facts handy
    - - provisions are dispositive when they tell the trustee how to dispose of the trust assets. Remember can be mandatory or discretionary
    - - Trustee discretion builds in flexibility
      - Mandatory provisions ensure that settlors wishes will be carried out
    - - Power - trustee has ability to do something without violating the terms of the trust or the law
      - Duty - Trusty must exercise any power in a way that doesn't violate any trustee duties
- - - - Alienation and discretionary trusts
        
        Think about the interest the beneficiary has in a pure discretionary trust
        
        ex "Trustee shall distribute to A as much of the income and principal as Trustee in her discretion deems appropriate"
        
        A gets only what trustee decides to distribute
        
        Who would pay anything for an interest like that? (voluntary)
        
        Creditor cannot compel distribution (involuntary)
        
        (NB:: beneficiary could force distribution if breach of fiduciary duty)
        
        UTC 501: creditor can get an order attaching present or future distributions if there's no spendthrift provision
      - Hamilton order? order directing that any payouts get paid to creditor and not to beneficiary;;;; similar to a lien
      - A common reason for creating a discretionary trust is to provide flexibility in distributions over time. A trustee may be given discretion over when, to whom, or in what amount to make a distribution. The trustee must exercise this discretion in accordance with the trustee’s fiduciary duties (see Chapter 9 at page 623).
      - Under traditional law, a creditor of a beneficiary of a pure discretionary trust has no recourse against the beneficiary’s interest in the trust. Nor can the beneficiary voluntarily alienate her beneficial interest. A creditor or transferee cannot, by judicial order, compel the trustee to pay him.
      - To summarize: Under Hamilton and UTC § 501, a creditor cannot compel a trustee to make a discretionary distribution. The creditor can obtain an order requiring that, if any distributions are to be made to or for the benefit of the beneficiary, the creditor shall be paid first.
      - In a few states, a Hamilton order is prohibited by statute, in effect making all discretionary trusts also spendthrift trusts
    - - Unlike a creditor of a discretionary trust beneficiary, a creditor of a spendthrift trust beneficiary cannot obtain an order attaching a future distribution to or for the benefit of a beneficiary.
      - A spendthrift trust is created by imposing a restraint on a beneficiary’s ability to transfer or otherwise alienate the beneficial interest.
      - The utc collapses the categories
        
        Applies to discretionary trusts with or without a spendthrift provision
        
        Creditor cannot compel distribution
        
        Even if
        
        There's a standard (e.g. "support" or "maintenance")
        
        Trustee abused discretion by not distributing
        
        Exception for judgment of support or maintenance for spouse or child
      - Protective trusts
        
        clever estate planning
        
        Give the beneficiary a mandatory interest that switches to a discretionary interest if creditors try to attack
      - Practice: ALWAYS include a spendthrift provision when drafting a Trust
        
        Even if you are in a jurisdiction that presumes spendthrift like NY
    - - Self settled asset protection
        
        Should a settlor be able to protect assets from the claims of his own creditors
        
        Traditional Trust law and UTC 505: NO
        
        Even if discretionary, creditors can reach the maximum amount the trustee could pay to the debtor/beneficiary
        
        Growing minority of states recognize, including Ohio
        
        Huber v Huber 721
        
        Conflict of laws rules regarding public policy might override asset protection
        
        Again possible exceptions for spouses children and tort creditors
      - Fraudulent transfers/voidable transactions
        
        If a settlor attempts to put assets in an asset protection trust after there's a judgement against him, think fraudlent transfer
        
        What if the claim is threatened or pending? (maybe)
        
        What if the claim hasn't arisen (no)
        
        Bankruptcy law - APT assets may get pulled into bankruptcy estate
        
        Remember that the lawyer can get in trouble too!
    - - Should Trust assets "count" when determining eligibility for state support like medicaid?
        
        Federal law says "yes" for Self- settled Trusts and "no" for third party created Trusts
      - A huge policy debate and a complex specialty of estate planning/ elder law
    - - Imagine that you're a beneficiary
        
        Are you happy with having a beneficial interest in the Trust, or do you want the money outright?
      - Imagine that you're a creditor of a beneficiary
        
        Do you want the Trust assets to satisfy the beneficiary's debt?
        
        Did the beneficiary " look rich" when the beneficiary incurred the debt?
    - - Think back to property law - American law generally disfavors restraints on alienation
      - Think of this in trust context- is it really any one beneficiary's money?
        
        Is it the settlor's ?
        
        Is it all the beneficiaries'?
        
        Should a beneficiary be able to sell his interest
    - - There are buyers for assets like an income stream
        
        (would anyone buy a discretionary interest?)
      - Typically not well compensated, so Settlors want to prevent such a sale
    - - Voluntary: beneficiary sells the interest in the Trust
      - Involuntary : creditor gains the distributions from the Trust to pay a debt
  - - - Beneficiary consent
        
        Even if a Trust is irrevocable, the Settlor and all beneficiaries can consent to modify or terminate the Trust (Trustee can't object)
        
        If the settlor cannot or does not consent, America follows the Claflin doctrine, focusing on the Settlor's material purpose
        
        Spendthrift trust
        
        Beneficiary must wait to obtain benefit until reaching an age
        
        Discretionary trust
        
        Support trust
      - Applying the Claflin doctrine
        
        Est. of brown 734 - classic scenario- educate nephew's children, then support nephew and wife, the outright to nephew's children
        
        Not a support Trust- do you see why?
        
        Not a spendthrift Trust- do you see why?
        
        What was the material purpose that the court saw ?
        
        Assure a lifelong income for nephew and wife
        
        Court says mere successive interests would not have shown that- do you agree?
      - UTC 411 and Claflin
        
        Material purpose is alive and well - a lot of variation in the ways states adopted this idea
        
        ORC 5804.11 (B) A noncharitable irrevocable trust may be terminated upon consent of all of the beneficiaries if the court concludes that continuance of the trust is not necessary to achieve any material purpose of the trust. A noncharitable irrevocable trust may be modified, but not to remove or replace the trustee, upon consent of all of the beneficiaries if the court concludes that modification is not inconsistent with a material purpose of the trust. A spendthrift provision in the terms of the trust may, but is not presumed to, constitute a material purpose of the trust. In determining what constitutes a material purpose of a trust, a court may but is not required to consider extrinsic evidence indicating a settlor's intent at the time the instrument was executed.
      - Which Beneficiaries
        
        Consider a trust with future beneficiaries who may be minors or unborn
        
        Minors? Could let a guardian decide
        
        Unborn? Again, a guardian could decide
        
        UTC and Ohio allow the court to let fewer than all beneficiaries consent as long as all beneficiaries are "adequately protected"
        
        Consider present distribution- what happens to future beneficiaries ?
      - Compare the Restatement
      - Example
        
        Trust paid income outright to sons, discretionary principal, to son's issue per stirpes at death or, if no issue, to estate to pass by Will.
        
        Trust was fully discretionary with income to daughter, did not allow for principal distributions, same provisions at death
        
        Why? Settlor feared a bad man would take the daughter's money
        
        Daughter in bad nursing home - needs money
        
        Modify?
    - - Deviation and changed Circumstances
        
        Think about how long trusts can last - things change
        
        Beneficiary circumstances
        
        The world outside the Trust
        
        Allow proposed deviation only if necessary to accomplish a purpose of the Trust
        
        Simply "being better for the beneficiaries" is not enough
        
        Compare dispositive deviation with administrative deviation
        
        Court more likely to allow the latter
      - UTC 412 (adopted in ohio)
        
        very liberal approach, giving the court a lot of power
        
        NB: still directs the court to look at Settlor's probable intention
        
        What circumstances might trigger this
        
        Riddell 742- create a special needs trust for daughter with schizophrenia
        
        How does a court determine Settlor's probable intent?
      - Combination, Division and uneconomic Trusts
        
        Most drafters allow
        
        Many statutes allow
        
        Tax objectives: courts frequently allow a fix
        
        In other cases, courts have modified a trust because an unanticipated change in circumstance has frustrated the settlor’s tax objectives. This is an application of equitable deviation.
        
        Courts tend to be receptive to petitions seeking to modify or reform a trust to obtain an income or estate tax advantage. In some cases, courts have corrected a drafting error that, if left uncorrected, would result in a tax inefficiency,
      - Under the equitable deviation doctrine, a court will permit a trustee to deviate from the administrative terms of a trust if compliance would defeat or substantially impair the accomplishment of the purposes of the trust in light of changed circumstances not anticipated by the settlor.
    - - In a trust decanting, a trustee who under the terms of the original trust (the first trust) has a discretionary power over distribution exercises that power to distribute the trust property to a new trust (the second trust) with updated provisions, leaving behind the sediment of the first trust’s stale provisions. Thus:
      - Basic idea: if a trustee has the power to distribute to a beneficiary outright, the Trustee could distribute to a new Trust for that beneficiary (or those beneficiaries)
        
        No Claflin problem? An open question
        
        Breach of Trustee's fiduciary duty? possibly
      - Ohio allows decanting. ORC 5808.18
      - Hodges 750 - Trustee must follow statutory requirements and live up to fiduciary duties when decanting
    - - By whom?
        
        Settlor?
        
        Trustee?
        
        Beneficiaries?
        
        Court?
      - Think about the reasons why someone might want a Trust modified or terminated
        
        Desire for assets? Problem with the way it's functioning?
    - - Consent of all beneficiaries IF not contrary to a material purpose of the Settlor (Claflin doctrine)
      - Changed circumstances not anticipated by Settlor that defeat or substantially impair accomplishment of the purpose of the Trust (equitable deviation doctrine)
    - - The two doctrines are still very much alive, though somewhat softened
      - Majority recognizes Trust "decanting" - Trustee of a discretionary Trust can distribute the assets to a new Trust (with new terms)
    - - Remember: if the Trust is revocable and the Settlor is alive, the Settlor can always amend or revoke the Trust
      - These materials focus on situations in which
        
        The trust was revocable when created, but the Settlor is dead
        
        The trust is irrevocable
  - - - Breach of Trust/ breach of fiduciary duty
      - Modification (usually, beneficiaries aren't happy with some Trustee action or inaction
    - - Trustee should be free to exercise good judgment
      - Beneficiary needs leverage to ensure good treatment
    - - Allows removal on petition or on court's own initiative
      - Ohio has adopted first three grounds but not the most liberal fourth ground
      - Note that wrongdoing is not required
      - Davis- a typical case
      - Virtual representation - an important concept
        
        Works when there is no inherent conflict of interest between beneficiaries
- - - - Commonly named charitable purposes from restatement
        
        Relief of poverty
        
        Advancement of education
        
        advancement of religion
        
        Promotion of health
        
        Governmental/municipal purposes
        
        Other purposes with community benefit
      - Shenandoah Bank - Trust to give money to schoolchildren
        
        Notice who challenged the validity of the Trust- next of k in
        
        Basis? Violated the Rules Against perpetuities
      - Compare charitable purpose and "mere benevolent" purpose
        
        Does number of beneficiaries matter?
      - How do you tell the difference between a charitable distribution and a gift distribution?
      - NB: in a state that no longer follows the RAP, this type of challenge would not work
      - The trust must have been created to accomplish a charitable purpose and not merely provide a financial benefit to an indefinite number of beneficiaries.
    - - The court
    - - Will the assets be exempt from income tax?
      - Will contributions be tax-exempt
      - Know your stuff or call a tax lawyer
  - - - The cy pres doctrine
        
        "As close as possible"
        
        To the Settlor's intent in creating the charitable trust
        
        Used when the original purpose becomes
        
        Illegal
        
        Impossible
        
        Impracticable
        
        (wasteful?)
        
        Use when the Settlor showed "general charitable intent"
      - Cy pres is shorthand for the Norman French phrase cy pres comme possible, meaning “as nearly as possible.” Under traditional cy pres doctrine, if a charitable trust’s specific purpose becomes illegal, impossible, or impracticable, a court may direct application of the property to another purpose that is within the settlor’s general charitable intent
      - Cy pres in action
        
        Nehers will 776 - Trial court found no general charitable purpose, appeals court reversed
        
        The UTC has a presumption of general charitable intent
        
        Drafting: if Settlor wants Trust ONLY for specified purpose, be clear about that. Problem: may cause tax problems
      - Cy pres and the "Wasteful" Trust
        
        Starts with the idea that a Trust is required to spend too much money on its charitable purpose, i.e. more than is needed to accomplish the purpose.
        
        The Buck Trust is a famous example- huge money for one of the wealthiest counties in the country- was it "wasteful?"
    - - Cy pres, which is applicable to a charitable trust, may be contrasted with equitable deviation (see Chapter 10 at page 739), which is applicable to both private and charitable trusts. A court will permit a trustee to deviate from the administrative terms of a trust, such as those governing the investment of the trust property, if compliance would defeat or substantially impair the accomplishment of the purposes of the trust in light of changed circumstances not anticipated by the settlor.
      - Cy pres vs. Equitable deviation
        
        Not always an easy line to draw: purpose vs administrative terms
        
        The Barnes Foundation
        
        Suit by Pa. attorney general: open to the public
        
        Problem: not enough income
    - - Discriminatory Trusts
        
        If a court enforces a discriminatory Trust, is that state action that violates the Constitution?
        
        Racial restrictions get removed (Girard College)
        
        Gender restrictions might not get removed
        
        Religious restriction?
        
        Happily it's very uncommon now to see a Settlor attempt to put a discriminatory restriction in a private trust
  - - - Enforcement of Charitable Trusts
        
        State attorney general enforces as parens patriae
        
        Some states hold that ONLY the attorney general can enforce
        
        Does that make sense for a Trust that has, e.g., one institutional beneficiary?
    - - Can a settlor enforce?
        
        Sometimes
        
        Smithers 792 is a good illustration
        
        who will be more vigilant in overseeing the charity
        
        Does the Settlor have a property interest? No
        
        Perhaps for tax reasons
        
        Maj (and UTC) allow a Settlor to enforce
    - - Local Politics
        
        Remember: charities hold lots of wealth- everyone wants a piece!
        
        The Hershey Trust- nudged by the Pa. attorney general to sell the Trust's stock in Hershey
    - - There are some cases that allow a person, usually a potential recipient of charitable $$$, to enforce
    - - Federal Supervision
        
        Usually through tax law
        
        Income exempt from tax
        
        Contributions are deductible
        
        No PRIVATE INUREMENT - what does that mean?
  - - - Charitable purpose required
      - Can go on forever- cy pres allows for easier modification
      - Enforcement by state attorneys general instead of beneficiaries
    - - Assets held by charitable trusts and other charitable forms of operation are huge
        
        Lots of legal work either in-house or by outside attorneys
- - - - powers of appointment
        
        Non fiduciary power to distribute property … basically trumps everything else
      - Ex
        
        Settlor makes trust
        
        Discretionary income and principal to spouse for life
        
        Power in spouse during life or by will to appoint any or all trust property to herself or any of the settlors descendants
        
        At spouses death, outright to settlors descendants , per stripes
      - Terminology
        
        Donor -person who creates power
        
        Donee- power-holder- person who can exercise power
        
        Permissible appointees (or objects) - the people to whom the property could be appointed
        
        Takers in default- person who takes property if not appointed
        
        Appointive property- property that can be appointed
      - Why use?
        
        Increased flexibility at cost of control
        
        Tax planning (wealthy)
        
        Might help with asset protection
      - Protection
        
        If the power is properly drafted
        
        Donee not treated as owner for tax purposes
        
        The donee's creditors cannot attack the property subject to the power
        
        Remember that donee may also be beneficiary
      - General and non general powers
        
        General if donee can appoint to any of
        
        Donee
        
        Donee's creditors
        
        Donee's estate
        
        The creditors of donee's estate
        
        (Equates to outright ownership if donee can pay for things)
        
        Anything else =non-general (special) power
      - from donee perspective
        
        almost always beneficiary of trust, has some power over trust assets that donee otherwise would not have
        
        Basically a power to withdrawal from trust if presently exercisable
      - Time and manner of exercise
        
        Inter vivos(lifetime) v testamentary
        
        Can be both
        
        presently exercisable v postponed
      - Does the donee “own “ the property
        
        Usually turns on whether the power is general
        
        If so, donee is treated as owner
        
        If presently exercisable,even more so
      - Donee duty
        
        If power of appointment is held by a beneficiary, there isn’t any fiduciary obligation on the donee
        
        Might be different if donee is trustee
        
        Remember that sometimes the same person is a trustee/ beneficiary/ donee
    - - Tax implications
        
        Equate general power with ownership
        
        Income taxable to donee
        
        Transfer or non use may trigger transfer tax
        
        Exception : the ascertainable standard” health support maintenance and education”
        
        Exception 5 and 5 power “ the greater of 5000 and 5% of the value of the trust corpus
        
        Shows why you need to know the tax implications
        
        Flexibility without transfer tax liability
    - - Special power? Creditors can’t reach
      - General power? More states say reachable
      - Irwin union bank - beneficiary could withdraw up to 4% of the principal
      - Court did not allow creditors to attach the 4%
      - illustrates older rule- were seeing this change in recent cases
  - - - Best practice:
        
        Know whether ur client is a donee of any powers of appointment
        
        Read the powers
        
        Make informed choice about whether to exercise
        
        Be explicit in the exercise
        
        Beals (832)~ does a residuary clause exercise a power?
        
        A good example of why one follows the best practices above
    - - Nature of the instrument
      - By will? Writing? Writing delivered to the trustee?
      - Specific reference
        
        To exercise, donee must make specific reference to the power
        
        Why? Avoid unintentional exercise
      - The UPC has softened this rule a bit- like substantial compliance or harmless error
      - Cesar illustrates stricter rule
    - - Permissible exercise
        
        Permissible appointees : Timmons - example of impermissible exercise to appointee who was not permissible appointee
        
        Appointment in further trust : brown 844 - must appointment be outright or can the donee create a trust for the permissible appointees?
        
        Maj: general power? Can appoint in trust
        
        Special power? Probably can appoint in trust
      - Exclusive and non exclusive
        
        Exclusive power allows the donee to exclude one or more permissible appointees
        
        Non exclusive requires something to be given to each appointee
        
        Deciding which depends on interpretation of language
    - - Powers of Appointment -Disclaimer and Release
        
        Remember the definition - giving up something
        
        A donee who disclaims a power is treated as never having has the power if the disclaimer is valid and complies with any other applicable rules
        
        Compare release- giving up the power after you have it
        
        Both disclaimer and release can have tax and other consequences
      - Powers of Appointment - Contract to exercise
        
        Not very common
        
        Generally enforceable as long as the power is presently exercisable and the exercise in in favor of a permissible appointee
        
        If a contract to exercise a testamentary power is not enforceable, you might be able to obtain the same result by a contract to make a Will in a certain way
        
        Not very common
    - - Donee must manifest the intent to exercise the power
      - Donee must comply with any formal requirements imposed by donor
      - The appointee must be permissible
  - - - Failure to exercise a power- general powers
        
        IF there is a taker in default (which there should be), appointive assets go to the taker in default
        
        If there is no taker in default:
        
        Traditional: donor or donors estate
        
        UPAA: donee or donee's estate unless donee released or otherwise expressly declined to exercise the power, then donor or donor's estate
        
        Rationale: donor wanted donee to benefit from general power
    - - Failure to exercise a power- special (nongeneral) powers
        
        If there is a taker in default (which there should be), appointive assets go to the taker in default
        
        If there is no taker in default
        
        To the permissible appointees as long as they are a defined and limited class
        
        Compare" anyone except donee, etc" with "my issue"
        
        It that doesn't work, to donor or donor's estate
        
        Why not to donee or donee's estate?
- - - - Trusts - Construction and future interests
        
        You studied future interests in property - here's where they start to make sense
        
        The average Trust contains equitable current and future interests
        
        Usually life estate, often future life estates, remainder
        
        Ex: income to spouse for life, then income to child for life, then remainder to grandchildren
        
        Usually contingent interests- beneficiary must survive at time of enjoyment
      - Good news
        
        Much more simple than what you studied in property
        
        You need to know
        
        Contingent v. vested
        
        Most trust gifts are contingent on the beneficiary surviving at the time of enjoyment
        
        Reversion or possibility of reverter in Settlor if Trust is badly drafted or weird events happen
        
        Reversion follows vested remainder
        
        Possibility of revereter follows contingent remainder
      - All future interests fall into one of two categories: (1) reversionary interests retained by the transferor, and (2) nonreversionary interests given to the transferee
      - There are three kinds of reversionary interests: (a) reversion, (b) possibility of reverter, and (c) right of entry for condition broken (also known as power of termination). There are three kinds of nonreversionary interests: (a) vested remainder, (b) contingent remainder, and (c) executory interest.
      - These six interests are called future interests because a person who holds one of them is not entitled to current possession or enjoyment of the property. Instead, the person may become entitled to possession or enjoyment in the future. A person who is entitled currently to possession or enjoyment is said to have a present interest.
      - Vested vs contingent remainders
        
        Vested future interest- the taker will take when the prior interest expires
        
        Contingent future interest- the taker will take when the prior interest expires ONLY IF the contingency (usually survival) occurs
        
        Best practice:
        
        Always make contingent gifts in trusts- require survival
        
        Avoid vested subject to divestment (859)
        
        At the end, think about the fact that even a charity may not be there anymore
      - Executory Interests
        
        Clients seldom want these
        
        Typically, something like " give it to this person for life, but if something happens, take it away"
        
        We discouraged that
    - - A reversion is the interest remaining in the grantor, or in the successor in interest of a testator, who transfers a vested estate of a lesser quantum than that of the vested estate which he has.1
      - O conveys property in trust “to A for life, then to A’s children who survive A.” A’s children have a contingent remainder. O has a vested reversion, which will be divested if A leaves surviving children.
      - A possibility of reverter is the future interest that remains in a grantor who conveys a fee simple determinable, that is, a fee estate that will terminate automatically upon the happening of a specified event. Thus:
      - Case 3. O conveys land “to the School Board so long as the land is used for a school.” The School Board has a fee simple determinable. O has a possibility of reverter, which will become possessory automatically upon the expiration of the determinable fee.
      - A right of entry for condition broken, also known as a power of termination, is the future interest that is retained by a grantor who conveys a fee simple subject to a condition subsequent.
      - Case 4. O conveys land “to the School Board, but if it ceases to be used for school purposes, O has a right to reenter.” The School Board has a fee simple subject to condition subsequent; O has a right of entry, which O has the option to exercise or not.
    - - A remainder is a future interest in a transferee that will become possessory
      - Remainders are either vested or contingent. A remainder is vested if it: (a) is given to a presently ascertained person, and (b) is not subject to a condition precedent other than the termination of the preceding estates. A remainder is contingent if it: (a) is not given to a presently ascertained person, or (b) is subject to a condition precedent in addition to the termination of the preceding estates.
      - O conveys a fund in trust “for A for life, then to B.” B has a remainder that will become possessory upon the expiration of A’s life estate. Because B’s remainder is certain to become possessory, it is an indefeasibly vested remainder. If B dies during A’s life, B’s remainder, like B’s other property, passes under B’s will or by intestacy.
      - O conveys a fund in trust “for A for life, then to B if B survives A.” B has a remainder, for it is possible (but not certain) that B will take the property on A’s death. If B is then alive, B will take. If B is then dead, the property will revert to O. Because B’s remainder is subject to a condition precedent (surviving A), we call it a contingent remainder.
      - Suppose a remainder is given to a class of persons, some but not all of whom are ascertained, and the remainder is not subject to a condition precedent. This remainder is vested in the present members of the class subject to partial divestment or subject to open by additional persons coming into the class.
      - O conveys a fund in trust “for A for life, then to A’s children.” If A has no children at the time of the conveyance, the remainder is contingent because the takers are unascertained. If A has a child, B, then B will have a vested remainder subject to partial divestment or subject to open. If A has any more children, B’s share will be diminished. B’s share will depend on how many children, if any, are subsequently born to A. If A has another child, C, B will be partially divested, that is, divested of C’s share. The class gift will remain subject to partial divestment (or open) until A’s death.
    - - Future Interest Reform
        
        Greatly simplifies future interests down to the categories I discussed
        
        Recognizes that these are the most commonly given interests
  - - - Construction of trust instruments
        
        Common law rule: prefer vested interests
        
        Reasons for the old rule on 865
        
        Thats why drafters need to be explicit in making interests contingent
        
        "to my surviving issue, per stirpes"
        
        The materials on 869 give insight on why you should not use vested remainders or any other vested interest
      - The problem with vested interests
        
        If an interest is vested, the taker gets it whether dead or alive
        
        Why would you do that?
        
        Tait 870 illustrates a problem- if a gift is vested, does that mean an anti-lapse statute would apply?
        
        Avoid by making contingent - sensing a theme?
      - Drafting
        
        Remember that whenever you draft a gift you need to think about where the gift would go if the taker doesn't survive
        
        Don't assume that people will die in the "right" order
    - - Multigenerational classes
        
        Maj: implied condition of survivorship
        
        Compare "children with issue"
      - Survival until when?
        
        With good drafting, not an issue
        
        Ex: to "my then- surviving issue" or "to my issue who survive my spouse"
        
        Any survivorship requirement should include a temporal element
      - Avoiding Complexity
        
        The materials on 874 and forward are more cautionary tales about avoiding vested interests
        
        Ohio has adopted the reforms, but these situations seldom arise
        
        Requiring survival with a temporal element resolves all those issues
      - Gifts to Classes
        
        "group-minded"
        
        A gift is made to a described group
        
        We will focus on some common issues that arise
      - Class gifts - gifts of income
        
        Dewire (880) - remainder violated the RAP- raises the common question:
        
        Who is in the class?
        
        Consider " pay the Trust income to my grandchildren for life"
        
        Do you have to be there when the class gift starts? yes
        
        What happens if you die while the class gift is going?
      - Drafting
        
        Are class gifts a good idea?
        
        Consider separate trusts instead?
        
        Remember, Trustee can generally separate trusts
        
        Drafting can be incredibly complex
      - Gifts to Children
        
        A single- generation class
        
        Courts usually decide that this means only the surviving members of the class
        
        Look at the example- it uses the word "surviving"
      - Gifts to issue or descendants
        
        A multi- generation class gift
        
        Compare "issue" with "issue, per stirpes" or "issue by representation"
        
        don't ever use "issue" by itself
        
        Avoid the "by representation or per capita" question
        
        Adopted members usually included
        
        Assisted reproduction is an open question
      - Gifts to heirs
        
        Again, the problems here usually could have been avoided by better drafting
        
        The problem is usually "heirs when?"
        
        Draft: "heirs determined at that time under the law of ___"
        
        Estate of Woodworth (887) - illustrates the "heirs when" problem
        
        Good news:- forget the Doctrine of Worthier Title and the Rule in Shelley's Case
      - The Rule of Convenience
        
        A class closes whenever any member is entitled to take his or her share
        
        Immediate gifts- class closes when any member can take
        
        Postponed gifts- class closes when the class is entitled to possession, usually the death of the preceding life tenant
- - - - An interest must vest, if at all, within 21 years of a life in being at the creation of the interest
      - In a trust, all interests are "created" when the Trust is created
        
        Execution of inter vivos irrevocable Trust or death for Testamentary Trust or revocable Trust
      - What causes problems in Trusts?
        
        Contingent future interests, either life estates or remainders
    - - Who can be a life in being?
        
        Anyone alive at the creation of the interest
      - Easy case: testamentary trust
        
        Children Alive?
        
        Grandchildren alive?
        
        Wife alive?
        
        Great-grandchildren alive?
    - - DOES THE CONTINGENCY RESOLVE WITHIN 21 YEARS OF A LIFE IN BEING AT CREATION OF THE INTEREST
    - - limit dead-hand control
        
        Very relevant in the Trust context
      - Keep property alienable
        
        Perhaps not as relevant in the Trust context?
    - - It is VOID
        
        Might lead to Trust going back to Settlor or Settlor's estate
    - - does not appy to vested interests
      - Always identify vested and contingent interests
    - - One is presumed able to bear children from birth until death under traditional rap analysis
      - Fertile octogenarian example on 907
      - With reproductive technology, not so fantastical anymore?
  - - - Reform- Savings clauses
        
        Example on 911
        
        If the rule would cause a problem, end the Trust and distribute the property like this . . .
        
        i.e., end the Trust 21 years after the death of the last life in being
        
        Requires contingent interest to vest at that point
        
        can include survivorship requirement
    - - Reform- Cy Pres- like Fix
        
        Essentially, extend cy pres to private trusts
    - - Reform- Wait and see
        
        Replace "what might happen" with "what does happen"
        
        Adopted by most states
    - - Everyone hates the rule!
      - Famous case said it's not malpractice to mess up regarding the rule
    - - The majority of states allow perpetual trusts, which scraps the rule
      - Are perpetual Trusts a good idea?
        
        Driven by professional trustees?
  - - - If you get a RAP question, a future interest to grandchildren will succeed but a future interest to great- grandchildren will fail