31Mather Wills, Estates, Trusts Fall 2010

Wills, Estates, & Trusts
St. Mary’s University, Fall 2010 – Victoria Mather

Ch. 1 – Intro
1. The Power to Transmit Property at Death: Justifications & Limitations a. The Right to Inherit and the Right to Convey – Until the 1980s, right to inherit property generally not viewed as natural right or constitutionally protected. i. Jefferson – The dead have neither powers nor rights over property; ceases to be his upon death & reverts to society. ii. Blackstone – Inheritance a civil, not natural right; Wills are governed by law, varying by jurisdiction. iii. Locke – Where a practice is universal, it’s reasonable to think the cause is natural. 1. God gave man a strong desire to propagate, which gives children a title to share in the property of their parents. iv. Hodel v. Irving (1987) – Escheating severely fractionalized Indian lands—unfair taking of property? 1. Property owners could’ve avoided effect of law by selling/giving during owner’s lifetime (or thru will/trust). 2. The right to pass on valuable property to heirs is a valuable right; a total abrogation of such rights can’t be upheld. 3. Fifth Amendment curtails power of govt. to limit the right to convey property at death. v. Shaw Family Archives v. CMG Worldwide – Marilyn Monroe’s will—can govt. increase property rights that pass as part of decedent’s estate? 1. One can’t devise by will a property right he didn’t own at time of death. 2. Law of the domicile of the testator at his death applies to all questions of a will’s construction (majority rule). b. The Policy of Passing Wealth at Death i. Policies for: 1. Reduce anxiety if family is provided for. 2. Reinforce natural family ties. 3. Protect testators 4. Prevent family fights 5. Benevolence 6. Evidence of success 7. Incentive to earn & save ii. Brittain – Inheritance is one of the purest forms of getting something for nothing —more justification for taxing it. iii. Halbach – Inheritance may grant wealth to donees without regard to their competence & performance, but economic reasons for allowing inheritance are viewed in terms of proper rewards & socially valuable incentives to the donor. iv. Bentham – Inheritance provides incentive for younger generation to care for elders. v. Policies against:

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1. Too much power concentrated in small group (oligarchy). 2. Financial dynasties 3. Accident of birth means automatic success. vi. Argument against allowing transmission of wealth – Perpetuates wide disparities in distribution of wealth, concentrates inherited economic power in hands of a few, & denies equality of opportunity to the poor. vii. Ascher (Socialist) – All property owned at death, after payment of debts & administration expenses, should be sold & proceeds paid to US govt. viii. Kristol – Should discourage the inheritance of large fortunes—shouldn’t outlast lifetime of the one who made it; should dissolve into smaller fortunes upon death. ix. Inheritance in the Erstwhile Soviet Union – Abolition of inheritance in USSR did NOT work; inheritance proven to be incentive to work and encouraged savings. x. Blum & Kalven – Progressive income tax can help minimize unequal inheritance th xi. 20 century trends for estate planning: 1. Passing property to heirs during lifetime 2. College education – main occasion for intergenerational wealth transfer. 3. Need for money in old age due to longer expectancy 4. “Baby boomers” a. Invest in stock – have wealth for retirement b. Inherit wealth from parents nd c. Need for estate planning (factors of divorce, 2 families, or no heirs) c. The Problem of the Dead Hand i. Restatement (Third) of Property: Wills & Other Donative Transfers §10.1 – Controlling consideration in determining the meaning of a document is the donor’s intention. 1. Property owners have nearly unrestricted right to dispose of property as they please. 2. Donor’s intention determines meaning and effect of a donative document. ii. Shapira v. Union National Bank – What kind of restrictions on possible heirs are reasonable and enforceable under a will? 1. Right to inherit is civil, not a natural right nor guaranteed by Constitution. 2. Court has duty to honor testator’s intentions within limitations of law & public policy. A stipulation that the son should marry a Jewish girl was reasonable under the circumstances. 3. Testator intent v. Public policy or social good – Courts will usually try to honor testator’s intent, but other factors are sometimes more convincing. iii. Incentive Trusts and the Dead Hand 1. Warren Buffet –Perfect amount to leave to children is enough so they feel like they could do anything, but not so much that they could do nothing. 2. Incentive Trust – Decedent can stipulate what heirs must do to inherit: Pursue education, Moral incentive, or Career incentives are typical. 3. Earn a dollar, get a dollar – Trust matches every dollar earned by beneficiary. Transfer of the Decedent’s Estate a. Probate and Nonprobate Property i. Probate property – Passes thru probate under the decedent’s will or by intestacy. ii. Nonprobate property – Passes outside of probate under an instrument other than a will.

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Joint tenancy property (real and personal) – Decedent’s interest vanishes at death; survivor has whole property; e.g. bank accounts, mutual fund accounts, real estate, etc. especially between married couples. 2. Life insurance – Paid directly to beneficiaries. 3. Contracts with payable-on-death provisions – Pension plans, 401(k) plans, etc. paid directly to beneficiaries. 4. Interests in trusts – Trustee holds property for beneficiaries and is distributed upon decedent’s death. a. In most states, inter vivos trust has displaced testamentary trust as the preferred type of trust in sophisticated estate planning. Administration of Probate Estates i. The Functions of Probate 1. Provides evidence of transfer of title to new owners (collect & identify assets, clear title, make it marketable again). 2. Protects creditors by providing a procedure for payment of debts 3. Distributes decedent’s property to those intended after creditors are paid. ii. Probate Terminology and History 1. Appoint personal representative to oversee winding up of decedent’s affairs (inventory, processes claims, distributes property) a. Testate—executor; Intestate—administrator. b. Personal rep must post a bond unless it’s waived in the will (typical). 2. Probate court supervises administration of estate (chancery court, surrogate’s court, orphan’s court, etc.). 3. Testate – Decedent devises real property to devisees and bequeaths personal property to legatees. 4. Intestate – Real property descends to heirs; personal property is distributed to next-of-kin. 5. Surviving spouse wasn’t an heir at common law—only had curtesy or dower rights iii. A Summary of Probate Procedure 1. Opening probate a. First, to probate will seek letters testamentary (letters of administration if intestate) in jurisdiction where decedent was domiciled at death (primary jurisdiction). i. Ancillary administration needed if real property is located in another jurisdiction. b. Common form probate – ex parte proceeding, doesn’t require notice or process issued to anyone, due execution proved by executor’s oath—sufficient if no objections. c. In solemn form – notice to interested parties given by citation, due execution of will proved by testimony of attesting witnesses, greater court participation. 2. Formal v. Informal probate – Uniform Probate Code provides for both types of probate.

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Formal – a litigated judicial determination after notice to interested parties (solemn form probate). Court supervises/approves every step of personal representative in administering estate. b. Informal – Streamlined process; personal representative administers estate without court approval of every step (common form probate). i. Typical executor/administrator is trusted family member. 3. Barring creditors of the decedent – Every state has law (nonclaim statutes) requiring creditors to file claims within a specified time period. 4. Closing the estate – Everything must be completed for personal rep to get judicial approval that discharges him from fiduciary responsibility. iv. Is Probate Necessary? 1. To avoid probate, property owner could transfer all his property into a joint tenancy or inter vivos trust during his lifetime, or make arrangements for other forms of nonprobate transfer. 2. Statutes in most states allow avoidance of probate if amount of property is small. 3. Increasingly, probate is necessary only for very large estates or to clear title to real property. v. Universal Succession – Beneficiaries step into shoes of decedent because details were worked out beforehand (UPC allows, but is most common in Europe & Louisiana). vi. Will Contests 1. Challenger must have standing to contest (pecuniary interest or other interest). 2. Must be challenged on sufficient grounds (typically either testator’s mental rd state or the effect of 3 parties on testator. Key Texas Probate Code Sections i. Admission of Will to Probate 1. §59. Requisites of a Will – Every will should be in writing, signed, & be attested by at least 2 credible witnesses if not wholly in the handwriting of testator. Can be made self-proved with appropriate affidavits of testator & witnesses. 2. §84. Written Wills a. Self-proved wills require no further proof. b. Written will may be proved by sworn testimony/affidavit of at least 1 subscribing witness, taken in open court. c. If not self-proved, a will wholly in handwriting of testator may be proved by 2 witnesses to his handwriting 3. §81-82. Contents of Application for Letters Testamentary/Administration a. Requirements: Name & domicile of each applicant; Name, age, domicile of decedent and details of death; Description of property; Date of will, name/residence of executor or one to whom will is issued; Names of survivors (details on possible changes between will completion & decedent’s death); 4. §88. Proof Required for Probate or to Obtain Letters a. Must prove person is dead (within 4 years); Jurisdiction/venue; Citation served & returned; Applicant isn’t disqualified. ii. Will Contest

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§10. Persons Entitled to Contest Proceedings – Any person interested may file opposition in writing at any time before any issue is decided by court. 2. §93 – 2-year time limit to contest after will has been admitted to probate. a. Exception – 2 years after discovery of fraud, forgery, incompetence, etc. Statute of Limitations for Probate 1. §73-74. Period for Probate and Time to File Application for Letters Testamentary/Administration – Within 4 years after testator’s death. Selection of the Personal Representative 1. §77. Order of Persons Qualified to Serve a. One named as executor; Surviving spouse; Principal devisee/legatee; Any devisee/legatee; Next of kin; A creditor; Any person of good character in the county; Anyone else not disqualified. 2. §78. Persons Disqualified to Serve as Executor or Administrator a. Incapacitated person; Convicted felon (unless pardoned or had rights restored); Minor; Non-resident of TX; Corporation not authorized to act as fiduciary in TX; One the court finds unsuitable. Independent Administration 1. §145. Independent Administration – May be created by direct provision in the will; Consent by all distributes to make executor or some other qualified person independent admin. Notices 1. §128A. Notice to Certain Beneficiaries after Probate a. Personal representative shall give notice to beneficiaries or would-be beneficiaries within 60 days of order admitting will to probate 2. §294. Notice by Representative of Appointment a. Within 1 month after receiving letters, personal rep shall publish notices requiring all persons having claims against estate to present such claims. Also file a copy of such publication with the court. 3. §295. Notice to Holders of Secured Claims a. Within 2 months after receiving letters, personal rep shall give notice to all persons he knows to have a claim against the estate. File copies with court clerk. Inventory 1. §250. Inventory & Appraisement a. Within 90 days after his qualification, rep shall file inventory with court clerk that includes all real property in TX and all personal property of estate with fair market value of each item. Where Probate Isn’t Needed 1. §48. Proceedings to Declare Heirship—When & Where Instituted a. When one dies intestate owning or entitled to real or personal property, or no will is probated, the county court may determine the heirs and their interests. 2. §49. Who May Institute Proceedings to Declare Heirship a. Qualified personal rep; Anyone claiming to be a creditor or owner of (part of) estate; Guardian of estate of a ward.

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§52. Recorded Instruments as Prima Facie Evidence a. Affidavit statement of facts concerning family history, genealogy, marital status, or identity of decedent’s heirs is required to declare heirship. 4. §89A. Contents of Application for Probate of Will as Muniment of Title a. Shall state: Name/domicile of each applicant; Name, age, domicile of decedent; Facts showing venue; Description of real/personal property; Date of will, names of executor & witnesses; Children born/adopted after will creation; other similar details. ix. Small Estates Affidavit 1. §137. Collection of Small Estates upon Affidavit a. Intestate estates valued at $50,000 or less don’t need appointment of a personal rep. Professional Responsibility a. Types of errors common in wills, estates, & trusts practice i. Clear mistake 1. Drafting – Getting amount, property, or beneficiary wrong 2. Execution – Proper number of witnesses, procedures, signatures, etc. ii. Detail mistakes 1. Failure to obtain proper info from client (current situation, future plans, marriage, divorce, children, moving, etc.) iii. Knowledge mistakes 1. Failure to understand more complex estate planning issues (tax, future interest, rule against perpetuities, other technical issues. b. Duties to Intended Beneficiaries i. Simpson v. Calivas – Whether drafting attorney owes a duty to an intended beneficiary. 1. New Hampshire case holds there is such a duty. 2. Majority of courts that have considered this issue have found such a duty, emphasis on foreseeability of injury to intended beneficiary. 3. Negligence of lawyer was matter for a court of general jurisdiction, which entertains tort & contract suits. ii. Privity – A legal relationship; connection in same item at the same time. 1. Does attorney owe duty to would-be beneficiary if attorney is negligent? a. Common law – Privity bar; attorney isn’t liable to anyone but client/decedent. Ten states (including TX) say lack of privity between drafter & intended beneficiary prevents malpractice action. b. Modern trend – Attorney is liable. c. Texas (2006) – Personal representative may sue attorney. c. Conflicts of Interest i. A v. B – Whether law firm may disclose confidential info of one co-client to another coclient. 1. Lawyer shall explain matter to extent reasonably necessary to permit client to make informed decisions regarding the representation. 2. Model Rule 1.6 doesn’t except info relating to commission of fraudulent act or that relating to client’s act that is likely to result in substantial financial injury .

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Lawyer’s disclosure of confidential info communicated by 1 spouse is appropriate only if other spouse’s failure to learn of info would be materially detrimental to that other spouse or frustrate intended testamentary arrangement. ii. Prudent practice is to speak with each client separately early in representation to find any potential hidden conflicts, then follow up with engagement letter or other form of waiver agreement.

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Ch. 2 – Intestacy: An Estate Plan by Default
1. The Basic Scheme a. Intro i. Most people die without a will (intestate). Reasons: unpleasantness of death, time, cost. Law of state where decedent was domiciled at death governs disposition of personal property, real property—governed by laws of state where located. ii. Uniform Probate Code §§2-101, 2-102, 2-103, 2-105 1. §2-101. Any part of decedent’s estate not disposed of by will passes by intestate succession to decedent’s heirs as prescribed herein. 2. §2-102. Intestate share of a decedent’s surviving spouse: a. 100% if decedent’s parents are dead & all descendants are nuclear family. b. First $300,000 + ¾ if a parent of decedent survives. c. First $225,000 + ½ if surviving spouse has other kids. d. First $150,000 + ½ if decedent had descendants not by surviving spouse. 3. §2-103. Share of Heirs other than Surviving Spouse a. Remainder of estate passes to other survivors in this order: Decedent’s descendants by representation; Decedent’s parents; Decedent’s siblings; Grandparents, aunts/uncles, cousins 4. §2-105. No Taker – If no taker, intestate estate passes to state. iii. TPC §38. Persons Who Take upon Intestacy 1. Single – To children; if no children, both parents inherit all; if only 1 parent, parent gets ½, siblings get other ½; if no parents, siblings get all. 2. Married – If no kids, spouse gets all (but only ½ of lands, other half by descent & distribution); if kids, spouse gets 1/3, kids get 2/3. b. Share of Surviving Spouse – Primary policy is to carry out probable intent of average intestate decedent. i. Most states – surviving spouse receives at least ½ share; many states give all. ii. Policy – Family protection; preserving economic health of family after a death. iii. TPC §45. Community Estate – Passes to surviving spouse if no kids or all kids are children of both. iv. Same-sex Marriage, Domestic Partners, & Intestate Succession – Policies for spousal intestate shares seem to apply to domestic partners, but it is in flux. v. Simultaneous Death – If there is no sufficient evidence of the order of deaths, beneficiary is deemed to have predeceased donor. 1. Uniform Simultaneous Death Act – If 2 joint tenants die simultaneously, property is distributed ½ to A’s heirs and ½ to B’s heirs.

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Janus v. Tarasewicz – Both husband and wife got sick at same time, but wife lived 3 more days before dying. Doctors’ diagnoses of death were made in accordance with usual medical standards—held that she survived him. 3. USDA was amended in 1991 to require survivorship by 120 hours (majority). 4. TPC §47. Requirement of Survival by 120 Hours. a. Applies to community property, beneficiaries under a will, heirs, joint tenancy, insurance, but with deference to a will’s instructions. 5. Uniform Determination of Death Act – Requires clear & convincing evidence of death. c. Shares of Descendants st i. Per stirpes (common law) – Each line of descendants treated equally; fractionally by 1 generation. st ii. Modern per stirpes (per capita with representation) – Estate divided equally at 1 generation in which there are living heirs. 1. If children survived decedent, distribution is identical to per stirpes. 2. Almost half of states (including TX) use this method. iii. Per capita at each generation (uniform probate rule) – Treats equally each taker at each generation with the other takers at that generation. iv. Negative Disinheritance 1. Old rule – can’t disinherit; would have to devise entire estate to others. 2. UPC §2-101 (including TX) authorizes a negative will; barred heir is treated as having predeceased the intestate. d. Shares of Ancestors and Collaterals i. Intestate decedent’s ancestors take only when not survived by a descendant. ii. If not survived by spouse, descendant, or parent, intestate passes to siblings & their st st descendants (1 line collaterals). If no 1 line collaterals: 1. Parentelic system – passes to grandparents & their descendants (TX). 2. Degree-of-relationship system – passes to closest of kin, counting degrees of kinship. 3. About half of states have abolished laughing heirs, typically drawing line at grandparents & their descendants. 4. If intestate leaves no survivors entitled to take, property escheats to state. iii. Half-Bloods 1. UPC/majority view – half-blood is treated the same as whole-blood. 2. Texas – half-blood is given ½ share. Transfers to Children a. Meaning of Children i. Adopted Children – Modern trend is to treat adopted kids as heirs, although TX draws distinction between “heirs of the body” (issue) and “heirs at law”. 1. Restatement (Third) of Property: Wills & Other Donative Transfers §2.5 a. An adopted individual is child of adoptive parents and no longer a child of either genetic parent. b. If adopted by a stepparent or relative of either genetic parent, individual remains child of genetic parents. 2. Hall v. Vallandingham – whether adopted children can inherit thru genetic parents’ family.

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Jurisdiction had statute that did not allow dual inheritance; that would confer upon adopted child more rights & privileges than those had by natural children. b. Because adopted children have no rights to inherit from natural parents, they shouldn’t inherit thru natural parents. c. Texas would have allowed this inheritance. 3. Adult adoption usually treated the same as minor adoption. a. Adoption of adult may be useful in preventing a will contest. b. Can protect same-sex partner 4. Minary v. Citizens Fidelity Bank & Trust Co. – whether adoptive child should always inherit thru an adoptive parent. a. Adoption of adult for purpose of making him an heir has been a long accepted practice in law, but typically used by (not thru) adopting party only. b. This case (adopting one’s wife so she will inherit) thwarts testator intent and cheats rightful heirs. c. Modern trend in other states would seem to allow this practice. 5. Doris Duke and adoptive parent’s remorse – adoption is not revocable. ii. Posthumous Children 1. Where, for purposes of inheritance, it is to a child’s advantage to be treated as in being from time of conception instead of birth, child will be so treated. 2. Texas allows posthumous children to be counted as heirs if born within 300 days of decedent’s death. iii. Nonmarital Children 1. Common law – No inheritance. 2. All states now permit inheritance from the mother. iv. Reproductive Technology and New Forms of Parentage 1. Posthumously conceived child is different from posthumously born. 2. Woodward v. Commissioner of Social Security – Posthumously conceived heir 3. In re Martin B. 4. Surrogate motherhood and married couples 5. Assisted reproduction & same-sex couples b. Advancements i. Uniform Probate Code §2-109 c. Guardianship and Conservatorship of Minors i. Guardian of the Person ii. Property Management Options 1. Guardianship of the property 2. Conservatorship 3. Custodianship 4. Trusts a. An exercise in lawyering b. Will of Howard Brown (with testamentary trust) Bars to Succession a. Homicide i. In re Estate of Mahoney

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ii. The Chinese System and Other Conduct-Based Restrictions on Inheritance Disclaimer i. Drye v. US ii. Disclaimers to Qualify for Medicaid

Ch. 3 – Wills: Capacity and Contests
1. Mental Capacity a. The Test of Mental Capacity i. Capacity Test Testator must be an adult (18) & capable of knowing and understanding: 1. Nature & extent of property 2. Persons who are the natural objects of testator’s bounty 3. Disposition of testator’s property 4. Must be capable of relating these elements to one another. ii. Capacity notes – Capacity is measured at time will is made. 1. Testator’s intent is preeminent—can’t evaluate true intent if no capacity. 2. Policy is to protect one’s family as well as society. 3. Texas also requires testator to be at least 18 years old & of sound mind. 4. One of the functions of witnesses to will – ensure properness. 5. Attorney has duty to protect client’s intentions—evaluate/notate capacity. iii. In re Estate of Washburn – Testator revised will after Alzheimer’s. 1. Every person is presumed sane until evidence is shown to rebut presumption. 2. If presumption of competency is rebutted, respondent must prove capacity by preponderance of the evidence. iv. Wilson v. Lane – Proof that testator was capable of forming certain rational desire with respect to disposition of assets is required to sustain will. 1. One is mentally capable to make a will if he has sufficient intellect to enable him to have a decided and rational desire as to disposition of property. 2. One can be disabled, eccentric, & have dementia yet still have mental capacity. 3. Party contesting the will on grounds of incapacity has burden of persuasion. v. Ante-mortem probate – 3 states permit probate of will during testator’s life. vi. Capacity Thresholds 1. Capacity to make a will is governed by a different legal test & requires less mental ability than to make a contract, but greater than required for marriage. 2. One under conservatorship may write a valid will if during a lucid interval. vii. Why Require Mental Capacity? 1. Assures a sane person that his desired disposition will be executed even if he later becomes insane and makes a bad will. 2. Protects a senile/incompetent testator from exploitation of others. 3. Protects decedent’s family b. Insane Delusion – Refusal to believe something is true or persistence in believing something is false despite all evidence to the contrary. i. To cause will to fail – delusion must affect the will disposition (e.g. false belief about member of family). Court can strike whole will or just a portion affected by delusion. ii. Majority view – Delusion is insane even if there is some factual basis for it if a rational person in testator’s situation couldn’t have drawn same conclusion. iii. Breeden v. Stone – whether delusion materially affected will’s disposition.

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Before a will can be invalidated by insane delusion, delusion must materially affect will’s disposition. 2. Will contest can be based on both or either capacity or delusion tests. 3. Despite decedent’s use of alcohol & illegal drugs, testator still passed capacity test, and delusion didn’t affect will’s disposition. iv. Mistake v. Insane delusion – Mistake is easily corrected by showing the fact, causing testator to revise will; under insane delusion, testator would argue facts. v. Dead Man’s Statutes – Minority of states prohibit testimony by interested party of decedent’s oral statement in support of claim against decedent’s estate. 1. Purpose – Protect estate from false claims respecting business & other transactions after deceased person’s lips are sealed. Undue Influence a. Undue influence – coercion. i. When will of testator is coerced into doing that which he doesn’t desire to do. ii. Factors to consider: Fiduciary/confidential relationship; Beneficiary’s motive/ opportunity; Weak/susceptible testator; Unnatural disposition; Beneficiary active in procurement of will; Previous wills, patterns of disposition. iii. Undue influence can cause portions of will or entire will to be stricken. iv. Doctrine of substituted judgment – Get testator to use undue influencer’s intentions. v. Restatement (Third) of Property: Wills and Other Donative Transfers §8.3 1. Donative transfer is invalid to the extent it was procured by undue influence, duress, or fraud. b. What Influence Is Undue? i. Estate of Lakatosh – clear case of undue influence. 1. Burden may be shifted so as to require proponent to disprove undue influence. 2. Contestant must prove existence of confidential relationship, friend received bulk of estate, and decedent’s intellect was weakened. ii. Presumptions, Burden Shifting, and Undue Influence 1. Burden of proof is on will contestant; undue influence difficult to prove. a. Circumstantial evidence is sufficient if contestant proves: donor was susceptible; alleged wrongdoer had opportunity & disposition; and result appears to be effect of undue influence. 2. Confidential relationship – Fiduciary, reliant, or dominant-subservient. 3. Suspicious circumstances – Examples include weakened testator; wrongdoer helped prepare/procure will; wrongdoer effected change in donor’s attitude toward others; decided discrepancy between wills; continuity of purpose; etc. 4. Rule for rebutting presumption of undue influence – Grantee must prove that grantee acted in good faith throughout transaction & grantor acted freely, intelligently, and voluntarily. iii. In re Will of Moses – tough case of undue influence 1. Undue influence presumed where beneficiary was actively concerned with preparation/execution of will, or where relationship includes suspicious circumstances. iv. Lipper v. Weslow

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Undue influence test – whether such control was exercised over testator’s mind as to overcome her free agency & free will, substituting another’s will & causing testator to do what she wouldn’t otherwise have done. 2. Contestants must prove will resulted from alleged wrongdoer substituting his will for the testator’s. v. No-Contest (in terrorem) Clauses – Beneficiary who contests will shall take little or nothing instead of stipulated provision. 1. Most courts enforce no-contest clause UNLESS suit is brought in good faith and with probable cause (TX, UPC). a. Sometimes interpreted as will construction suit instead of contest. vi. Bequests to Attorneys 1. Many courts hold presumption of undue influence if attorney-drafter receives a legacy, except when attorney is related to testator. 2. Attorneys (and their employees & heirs) may only draft & benefit in wills for rd spouses, ascendants, descendants, or relatives in 3 degree by consanguinity or affinity. a. OK – parent, grandparent, sibling, child, grandchild. b. Void – spouse’s cousin, great aunt, grand nephew, or more distant. Planning for and Avoiding a Will Contest i. Most common grounds for contest: incapacity and undue influence. ii. Warning signs: Conditions likely to anger a beneficiary; Disposition to individual unpopular with other beneficiaries; Multiple/blended families; radical departure from former wills. iii. Common strategies used by attorneys/clients to avoid will contest include: letter to attorney, video conference, family meeting, medical/psych exam, extra precautions at execution, disinterested witnesses, no-contest clause, inter vivos trust/gifts.

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Fraud test – Testator is deceived by deliberate misrepresentation and does that which he wouldn’t have done otherwise. Misrepresentation must include intent to deceive with purpose of influencing testamentary disposition. b. Fraud can void an entire will or just portions of it. c. Fraud in the inducement – Misrepresentation causes testator to execute/revoke/change will. i. Voidable d. Fraud in the execution – Intentional misrepresenting character/contents of instrument signed. i. Void. Duress – When undue influence become overtly coercive. a. A donative transfer is procured by duress if wrongdoer threatened to perform or did perform a wrongful act that coerced donor into making transfer that donor wouldn’t have otherwise made. b. Latham v. Father Divine i. Where a legatee has taken property under a will, after agreeing to devote such property to a purpose intended & declared by testator, equity will enforce a constructive trust to effectuate that purpose to avoid fraud. ii. A constructive trust is an equitable remedy, used whenever necessary to satisfy justice (can right attempted wrongs and prevent unjust enrichment). Court disposed of property the way testator would have if not for undue influence/fraud. Tortious Interference with an Expectancy

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P must prove interference involved conduct tortious in itself, e.g. fraud, duress, undue influence. Schilling v. Herrera – Intentional interference with an expectancy of inheritance? i. To state a cause of action for intentional interference with an expectancy of inheritance, complaint must allege: 1) existence of expectancy, 2) intentional interference with expectancy thru tortious conduct, 3) causation, and 4) damages. 1. Beneficiary isn’t directly defrauded or unduly influenced; the testator is. ii. If adequate relief is available in a probate proceeding, that remedy must be exhausted before tortious interference claim may be pursued. If D’s fraud isn’t discovered until after probate, P is allowed to bring later action for damages. rd This type of action isn’t a will contest but an effort to recover tort damages from 3 party. Anna Nicole Smith & Probate Exception to Federal Jurisdiction – The exception prohibits federal courts from entertaining a suit that encroaches on state probate courts’ traditional jurisdiction.

Ch. 4 – Wills: Formalities and Forms
1. Execution of Wills a. Attested Wills i. Formalities 1. Policies for formality: ritual, evidentiary, protective, & safe harbor. 2. Court should be convinced statements of transferor were deliberately intended to effectuate a transfer. 3. Requirements of transfer may increase reliability of proof presented to court. 4. It is easier to determine a person’s wishes at death if those wishes are recorded in a standardized form. 5. Basic formalities: Writing, Testator’s signature, & Attestation by witnesses. 6. Comparison of Statutory Formalities for Formal Wills a. Statute of Frauds (1677) – Writing, signature, attestation/subscription by 3 witnesses. b. Wills Act (1837) – Writing, subscription, attestation/subscription by 2 witnesses. c. UPC (1990) – Writing, signature, attestation/signature by 2 witnesses. d. Revised UPC (2008) – Writing, signature, attestation/signature by 2 witnesses OR notarization. 7. UPC § 2-502(b) – Holographic will is valid if signature and material portions of document are in testator’s handwriting. 8. Will execution ceremony a. Will fastened together; pages numbered (__ of __). b. Assemble attorney, 2-3 disinterested adult witnesses, & notary. No one enters/leaves during this time. c. Have testator read will, or have it read aloud. d. Ask testator: Is this your will? Do you understand it? Does it reflect your wishes? Do you want these witnesses to be witnesses? e. Have testator sign; witnesses watch. f. Read attestation clause aloud; have witnesses consent and sign. g. Execute self-proving affidavit. TPC §59. h. Make copy for attorney files.

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ii. Writing, Signature, and Attestation: Strict Compliance with formal requirements of Wills Act mandatory under traditional law for will to be admitted to probate. 1. In re Groffman – Witnesses weren’t present together when Groffman signed. a. Court refused to admit will to probate because T didn’t acknowledge his signature to BOTH witnesses at the SAME time OR sign it before BOTH witnesses. (He did one of each.) 2. Stevens v. Casdorph – “Presence” of witnesses a. Testator must sign will or acknowledge such in presence of at least 2 witnesses at the same time, and such witnesses must sign will in presence of testator & each other. (Witnesses didn’t see testator sign.) b. Attestation clause recites that will was duly executed; not a requirement, but it gives rise to presumption of due execution. 3. The Meaning of “Presence” in Will Execution a. Line of sight test – Presence only if testator is capable of seeing witnesses in act of signing. (Common law; Minority view) b. Conscious presence test – Presence if testator, through sight, hearing, or general consciousness of events, comprehends witness in act of signing. (Modern trend, majority view, TX). 4. The Meaning of “Signature” in Will Execution a. All states require testator to sign will. Signature with full name at end of document almost always satisfies requirement. b. A nickname, mark, or abbreviation can be sufficient if intended as signature. c. Order of signing – Testator must sign/acknowledge before witnesses, unless all sign as part of a single transaction d. Delayed attestation – Witnesses must sign within a reasonable time. i. Some debate as to whether after T’s death is ok.) 5. The Meaning of “Writing” and Video or Electronic Wills a. Only requirement is a reasonably permanent record of the markings making up the will. b. Electronic will doesn’t satisfy writing or signature requirement of traditional Wills Act, but it might be allowed under substantial compliance or harmless error rule. 6. Qualifications for Witnesses a. At least 14 years old; 18 is preferred. b. Mentally competent c. Interest v. Disinterest i. Common law – interest would invalidate will. ii. Modern trend uses purging statute. iii. Supernumerary Rule – Can admit will to probate as long as there are 2 disinterested witnesses iv. UPC – interest is irrelevant. 7. Texas utilizes Purging Statutes. a. TPC § 61 – Excess rule amount. Bequest that makes a subscribing witness an heir in the will is void, but such witness shall be entitled to take whatever he would receive by intestacy proportions.

14

b.

c.

d.

TPC §62 permits interested witness to take if their testimony about will execution can be corroborated by some other disinterested credible person. c. TPC §84(b) – Attested will can be established by just 1 witness; appears to allow interested witness(es) to take if will is admitted to probate with only 1 disinterested witness. 8. Estate of Morea – Purging statute issue a. Generally, purging statues disallow interested witnesses from benefitting under a will’s bequest. b. Here 2 of 3 witnesses were interested. Court upheld will because son would have received more thru intestacy than under will, so he became a disinterested witness. c. Most purging statutes only purge the benefit a witness would receive under the will that is in excess of what one would take thru intestacy. 9. Safeguarding a Will a. Attorney can retain client’s will in lawyer’s files or firm’s safe deposit box & provide client with a copy that notes where original is located. Curing Defects in the Execution of Attested Wills i. Excusing Execution Defects by Ad Hoc Exception – Some courts have occasionally excused or corrected an obvious execution defect, while others have taken the position that there can be no relief from the rule of strict compliance. 1. In re Pavlinko’s Estate – TEXAS VIEW a. Husband and wife signed each other’s wills by mistake. b. Court used strict adherence to Wills Act to nullify wills altogether, even though testators’ intent was obvious. 2. In re Snide a. Similar to previous case, but opposite holding. b. Admit will to probate & reform in line with testator intent because wills were identical and executed according to statutory formality. ii. Curative Doctrines: Substantial Compliance and Harmless Error 1. Substantial Compliance – Court may deem a defectively executed will as being in accord with statutory formalities if defective execution fulfills purposes. 2. Harmless Error (Dispensing Power) – Court may excuse noncompliance with statutory formalities if clear & convincing evidence that decedent intended document to be his will. 3. TEXAS doesn’t adopt either of these doctrines. Notarized Wills i. UPC §2-502(a)(3) – Will is valid if it is signed by 2 witnesses OR a notary. ii. Notary’s seal authenticates signature because notary verifies identity of person signing document. Noncupative (Oral) Wills i. Common law allowed these to transfer personal property. Now usually limited to a low dollar amount (or just personal property). ii. Must be testator’s last illness, recorded within certain number of days, & witnessed. iii. Generally, oral will doesn’t revoke a prior written will that is still valid. iv. TEXAS doesn’t allow oral wills, but 20 states still recognize.

b.

15

2.

Holographic Wills – Permitted in 27 states, including TEXAS (TPC §§ 60, 84b). i. Must be written wholly in testator’s handwriting & signed; witnesses not required. 1. Texas courts construe broadly: allow if material provisions are in handwriting, may disregard printed provisions. ii. Conditional wills – only effective if certain events occur. 1. Majority view considers testator’s state of mind & enforces will regardless of whether the exact condition stipulated occurred. iii. Sham wills – Invalid if one can show testator didn’t have true testamentary intent. iv. Statutory wills exist in a few states. 1. Statutes provide will forms for people to use: Fill in blank forms, or incorporate by reference to statutory provision. 2. Usually 2 will forms in statute: one for a very simple will (no kids); the other for those with children, maybe with a simple trust. v. Estate of Gonzalez – impact of preprinted will forms on holographic wills. 1. Some courts use preprinted language to determine context; testator’s testamentary intent is clear. 2. Other courts ignore all preprinted words & determine whether handwritten words fulfill requirements of holographic will. vi. Signature and Handwriting in Holographic Wills 1. Will may be signed at end, beginning, or anywhere else on face of document. 2. If not signed at the end, doubts arise as to whether decedent intended name to be a signature. 3. Extent of testator’s handwriting requirement has changed over time, from more strict to more lenient. a. Entirely written, signed, and dated. (TEXAS) b. Material provisions. c. Material portions, allowing context and extrinsic evidence. (UPC) vii. In re Estate of Kuralt Revocation of Wills a. Revocation by Writing or Physical Act (UPC §2-507; TPC §63) i. All states permit revocation of a will by 2 methods: 1. Subsequent writing executed with testamentary formalities. 2. Physical act such as destroying, obliterating, or burning the will whether or not the burn, tear, or cancellation touched any of the words on the will. a. State statutes must be followed for revocation to be effective. 3. Revocation/cancellation should specify whether applies to whole or part. ii. Harrison v. Bird iii. Probate of Lost Wills – If original isn’t available, most states will permit thru a copy or by clear & convincing evidence. 1. TPC §85 – Texas allows. iv. Thompson v. Royall v. Partial revocation by physical act 1. Revoking a will in part by act of revocation—strike thru & edit. 2. Not allowed at common law (TEXAS view). 3. Generally permitted by modern trend. b. Dependent Relative Revocation and Revival

e.

16

3.

i. If testator purports to revoke will upon a mistaken assumption of law or fact, the revocation is ineffective if testator wouldn’t have revoked will had he known truth. 1. Will 1 makes dispositions; Will 2 revokes, but there is a mistake. 2. Or revocation of Will 1 was conditioned on validity of Will 2. ii. DRR is doctrine of intent, presuming testator would prefer prior will over intestacy since nd 2 will was based on inaccuracies if: 1. There is an alternative disposition (prior will), or 2. The mistake is recited in revoking instrument. iii. LaCroix v. Senecal iv. Estate of Alburn – Court applied DRR because testator would not have wanted to die intestate—wills gave large bequests to people who wouldn’t benefit under intestacy. v. Revival st nd nd 1. Testator executes 1 will, later executes 2 will, then revokes 2 will. st 2. Common law revived 1 will – automatic revival. nd st 3. Large majority of states – 2 will legally revokes 1 will upon execution. 4. Modern views: a. Intent (modern trend, UPC) – presume no revival, but may rebut. nd b. Revival only if no express revocation in 2 will. c. TEXAS – No revival; must re-execute will to revive. c. Revocation by Operation of Law: Change in Family Circumstances (e.g. divorce, marriage, birth) i. UPC § 2-804 ii. TPC §69 – If marriage is dissolved after testator makes a will, all provisions in the will shall be read as if former spouse (and his/her relatives) failed to survive testator. Components of a Will a. Integration of Wills – All papers present at time of execution, intended to be part of the will, are integrated into the will. i. Issue arises when pages aren’t physically connected, and there is no internal coherence, or there is evidence that a staple has been removed, or one page is in one font whereas rest of will is in another font. b. Republication by Codicil – Will is treated as re-executed as of date of codicil. i. Original will must be valid; Will modification executed with same formalities. ii. Shouldn’t be applied automatically, but only where updating the will carries out testator’s intent. c. Incorporation by Reference – Separate document already in existence is clearly identified in will, expressing obvious intent to incorporate. i. UPC § 2-510 – A writing in existence when will is executed may be incorporated by reference if the language of the will manifests this intent and describes the writing sufficiently to permit its identification. ii. Clark v. Greenhalge iii. Simon v. Grayson iv. UPC § 2-513 – A will may refer to a written statement or list to dispose of items of tangible personal property not otherwise specifically disposed of by will. Writing must be signed & describe items with reasonable certainty. v. Johnson v. Johnson – Validly executed codicil operates as republication of will no matter what defects may have existed in earlier execution; instruments are now incorporated as 1.

17

4.

Acts of Independent Significance – Doctrine of nontestamentary facts i. UPC § 2-512 – Will may dispose of property by reference to acts and events that have significance apart from their effect upon dispositions made by the will. ii. “Contents of safe deposit box” – ok; “Contents of desk drawer” – not ok. Contracts Relating to Wills – When one enters a contract to make/revoke a will, contract law applies. a. If contract is broken, will is probated, but contract beneficiary can seek remedy under contract. b. Contracts to Make a Will – Many states subject contracts to make a will to Statute of Frauds. i. Must be in writing; may be able to receive specific performance. (TPC §59A) ii. Remedies possible: 1. Quantum merit – recover FMV of services from estate. 2. Part performance if one can show: terms proven by clear, convincing evidence; actions unequivocably referable to existence of a contract. c. Contracts Not to Revoke a Will i. Joint and mutual will – devises property as result of contract. ii. Most states have statutes requiring that will refer specifically to existence of contract, & no contract is presumed from execution of joint or mutual will. (TPC §59A; UPC § 2-514).

d.

Ch. 5– Construction of Wills
1. Mistaken or Ambiguous Language in Wills a. The Traditional Approach: No Extrinsic Evidence, No Reformation i. Plain meaning rule – Extrinsic evidence may be admitted to resolve some ambiguities, but plain meaning of words of the will can’t be disturbed by evidence that another meaning was intended. ii. No reformation rule – No correcting mistaken terms in will to reflect testator’s intent. iii. Mahoney v. Grainger iv. Plain Meaning, Ambiguity, and Extrinsic Evidence b. Slouching Toward Reformation: Correcting Mistakes without the Power to Reform Wills i. The Causes and Effects of Will Defects ii. Arnheiter v. Arnheiter iii. Estate of Gibbs c. Openly Reforming Wills for Mistake i. UPC §2-805 ii. Langbein, Curing Execution Errors and Mistaken Terms in Wills iii. Fleming v. Morrison Death of Beneficiary Before Death of Testator a. Intro i. Estate of Russell b. Antilapse Statutes i. UPC §2-605 ii. Words of Purchase, Words of Limitation, and the Meaning of “And” v. “Or” c. Class Gifts i. Restatement (Third) of Property: Wills and Other Donative Transfers §§13.1, 13.2 ii. Dawson v. Yucus iii. Application of Antilapse Statutes to Class Gifts Changes in Property after Execution of Will a. Ademption by Extinction

2.

3.

18

b. c. d. e.

i. In re Estate of Anton ii. UPC §2-606 Stock Splits and the Problem of Increase Satisfaction of General Pecuniary Bequests Exoneration of Liens Abatement

Ch. 6 – Nonprobate Transfers and Planning for Incapacity
1. 2. Intro to Will Substitutes a. Langbein, Nonprobate Revolution and the Future of the Law of Succession Will Substitutes and the Wills Act a. Revocable Trusts i. Farkas v. Williams ii. Uniform Trust Code §603 b. Payable on Death Contracts and Other Nonprobate Transfers i. In re Estate of Atkinson ii. Estate of Hillowitz iii. Langbein, Nonprobate Revolution and the Future of the Law of Succession Will Substitutes and the Subsidiary Law of Wills a. Intro i. Restatement (Third) of Property: Wills and other Donative Transfers §7.2 b. Revocable Trusts i. In re Estate and Trust of Pilafas ii. State Street Bank and Trust Co. v. Reiser c. Life Insurance i. Cook v. Equitable Life Assurance Society ii. A Superwill d. Pension and Retirement Accounts th i. Langbein, 20 Century Revolution in Family Wealth Transmission ii. Defined Benefit v. Defined Contribution Pension Plans Pour-Over Wills and Revocable Trusts in Modern Estate Planning a. Intro b. Norman Dacey and Avoiding Probate i. Marketing of Living Trusts and Unauthorized Practice of Law c. Consequences During Life of Settlor d. Consequences at Death of Settlor: Avoidance of Probate e. Pour-Over Wills i. UPC §2-511 ii. Clymer v. Mayo Planning for Incapacity a. Durable Power of Attorney b. Directives Regarding Health Care and Disposition of the Body i. Advance Directives: Living Wills, Health Care Proxies, and Hybrids 1. Dresser, Precommitment: A Misguided Strategy for Securing Death with Dignity 2. Euthanasia and Assisted Suicide

3.

4.

5.

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ii. Disposition of the Body 1. Elder Law

Ch. 7 – Restrictions on the Power of Disposition: Protection of the Spouse and Children
1. Rights of the Surviving Spouse a. Introduction to Marital Property Systems i. Separate property (common law; England, most of US) – Husband & wife separately own all property each acquires, except items they assign to joint ownership. 1. Individual autonomy over earnings. 2. At death, surviving spouse receives elective share in deceased’s estate. ii. Community property (civil law; Spain, France, 8 states including TX) – Husband & wife own all acquisitions from earnings after marriage in equal, undivided shares. 1. Sharing of earnings as economic partners. 2. Each spouse owns undivided ½ interest in community property. iii. Uniform Marital Property Act (1983) – Adopted community property principles, but used phrase “marital property” instead. b. Rights of Surviving Spouse to Support i. Social Security – Spouse can generally draw his own earned benefits or ½ of the other spouse’s benefit, whichever is greater. If a worker dies, surviving spouse will generally receive worker’s full monthly benefits. ii. Employee Pension Plans 1. ERISA requires that an employee’s spouse have survivorship rights if employee predeceases spouse. 2. If employee survives to retirement, pension must be paid as joint & survivor annuity (unless non-employee spouse consents). 3. Waiver of rights to benefits are allowable but strictly construed. iii. Homestead – Most states have homestead law securing family home to surviving spouse and minor children, free of decedent’s creditors’ claims (probate homestead). 1. Surviving spouse will often have right to occupy family home for lifetime. 2. UPC - $15,000 protected; TPC - $15,000 allowance in lieu of homestead. 3. Generally homestead is exempt from claims of all creditors iv. Personal Property Set-Aside – Surviving spouse to receive tangible personal property. 1. UPC – up to $10,000. 2. TPC - $5,000 in lieu of other exempt property. 3. Property exempt from sale by constitution & state laws generally exempt in probate. v. Family Allowance – Every state has statute authorizing probate court to award allowance for maintenance & support of surviving spouse (& dependent children). 1. UPC – up to $18,000. 2. TPC – up to 1 year of support, if needed. vi. Dower & Curtesy 1. At common law, dower entitled widow to life estate in 1/3 of husband’s land. 2. Curtesy comparable to dower for husband but husband received life estate in entire parcel upon requirement of the birth of child. c. Rights of Surviving Spouse to a Share of Decedent’s Property

20

d.

i. The Elective Share and its Rationale 1. Elective share – Spouse can take under decedent’s will or renounce will and take fractional share (typically ⅓) of decedent’s estate; partnership theory of marriage; lots of variance among state laws. a. Partnership theory – ½ of decedent’s property acquired during marriage. b. Support theory – Smaller share but applied to all decedent’s property. 2. All separate property states except GA have elective share. 3. Same-Sex Marriage & Domestic Partners – While some states recognize gay marriage or civil unions, federal law still denies benefits to same-sex couples. ii. Property Subject to the Elective Share 1. Under UPC, elective share is augmented estate, including values of all property (net probate estate, nonprobate transfers to surviving spouse & others, and surviving spouse’s property & nonprobate transfers to others). 2. UPC and 2008 Amendments – Add up all property of both spouses and split according to % based on length of marriage. a. Sliding scale: 1 yr – 3%, 3 yr – 9 %, 10 yr – 30%, 15 yr – 50%. b. Minimum share for spouse - $75,000 supplemental elective share if spouse’s own assets are below. iii. Must the Surviving Spouse Accept a Life Estate? 1. Surviving spouse is usually credited with the value of all other interests given her by will; if amounts don’t satisfy elective share, difference must be made up either by pro rata contributions from all other beneficiaries (UPC, majority) or from residuary estate. 2. UPC now provides that life estate renounced by surviving spouse is not charged against elective share. iv. Waiver 1. Right of election allows surviving spouse to take statutory share in spite of decedent spouse’s will. 2. All separate property states enforce waiver of right of election by prenup. 3. UPC §2-213 adopts enforcement standard of Uniform Premarital Agreement Act, applying it to prenuptial and postnuptial agreements. a. See Texas Family Code 4.001 et seq. 4. Reece v. Elliott a. Wife voluntarily and knowledgeably entered into agreement, consulted with independent counsel, & admitted to clearly understanding agreement meant she would have no claim to husband’s listed assets. b. Prenuptial agreements are favored by public policy & will be upheld so long as parties enter into agreements voluntarily and knowledgeably. 5. To avoid subsequent challenges to prenups, one should prepare schedule of each party’s assets, attaching good faith valuation of each asset to schedule. Rights of Surviving Spouse in Community Property i. Basic information 1. Community Property – H & W own earnings & acquisitions from earnings of both spouses during marriage in undivided equal shares.

21

2.

Separate property includes such acquired before marriage & during marriage by gift or inheritance; may convert by agreement. 3. CP States: AK, AZ, CA, ID, LA, NM, NV, TX, WA, WI. 4. How CP issues are handled in Texas: a. Management – Each spouse can manage property that would be separate if they keep separate; otherwise, joint management. b. Income from separate property treated as community property. ii. Putting Survivor to an Election 1. Widow’s election creates one trust of all community property (both spouses’ shares) that pays widow all her income for life. (Some tax consequences.) 2. H & W can transfer all CP into revocable trust, paying income to them for joint lives and life of survivor, remainder to kids. No tax consequences. e. Migrating Couples and Multistate Property Holdings i. Traditional conflict of laws rules: 1. Law of situs controls problems related to land. 2. Law of marital domicile at time personal property is acquired controls characterization of such property. 3. Law of marital domicile at death of 1 spouse controls survivor’s marita l rights. ii. Moving from a Separate Property State to a Community Property State – risk of shut out 1. Some states recognize quasi-community property – Separate property aquired elsewhere by one spouse but would have been characterized as community property if couple had lived in CP state at time of acquisition. a. Texas uses quasi-community property only in divorce actions. iii. Moving from CP State to Separate Property State – risk of double dipping 1. Community property continues to be community property. 2. Uniform Disposition of Community Property Rights at Death Act (enacted by 14 separate property states) doesn’t allow community property to be subject to elective share. States without this provision would allow double dipping. 3. Community property with right of survivorship – Decedent spouse can’t dispose of share of CP by will; it passes under right of survivorship to widow. Rights of Descendants Omitted from the Will a. Protection from Intentional Omission i. Domestic Approach 1. Child has no statutory protection against intentional disinheritance. b. Protection from Unintentional Omission i. Pretermitted heirs – Children born or adopted after will is executed. 1. Civil law forced succession for children & limited right to disinherit them. ii. Gray v. Gray – Alabama had pretermission statute in place, but it didn’t apply because decedent did not include other children in his will and had already created trust for child. iii. Pretermission statutes include UPC §2-302 and TPC §67. 1. UPC – Protects only children born/adopted AFTER execution of will. 2. Other statutes also operate in favor of kids alive when will was executed. iv. Kidwell v. Rhew 1. Purpose of pretermitted-child statute is to avoid inadvertent omission of children unless an intent to disinherit is expressed in the will.

2.

22

2.

Pretermitted-heir statute spoke only in terms of an executed will & shouldn’t apply in instances where there is no will (e.g. inter vivos trust).

Ch. 8 – Trusts: Introduction and Creation
1. Intro a. General points about trusts i. Separates legal title (held by trustee) and equitable title (held by beneficiaries). ii. Purposes of trusts in today’s society: Avoid probate; Avoid/reduce taxes; Delay distribution or save $ for kids, grandkids, charity, etc.; Protect private wealth from heirs’ creditors; Keep property in family b. Parties to a Trust i. Settlor (trustor, grantor) – One who creates trust. 1. Inter vivos trust – Created during settlor’s life by 1 of 2 ways: a. Declaration of trust – Settlor declares to hold certain property in trust. b. Deed of trust – Settlor transfers property to another as trustee. 2. Testamentary trust – Created by will. 3. Settlor may be trustee, beneficiary, or both so long as settlor isn’t the only B. ii. Trustee 1. Bifurcation – Trustee holds legal title to trust property, but beneficiaries have equitable interests. 2. Trust may have 1 or more; trustee may be individual or corporation; trustee rd may be 3 party, settlor, or beneficiary. 3. Court will appoint trustee if settlor doesn’t name one. 4. Trustee has fiduciary duties, filling 3 principal roles: investment, administration, & distribution. 5. Individual v. Corporate Trustees a. Individuals – Often have strong sense of settlor’s wishes and cost less than corporate trustee, but may be inexperienced. b. Corporate – Experienced in portfolio management & more likely to recover damages if breach, but will charge higher fees & are inflexible. iii. Beneficiaries – Holder of equitable title 1. Beneficiaries must be identified and may be groups, individuals, or institutions. 2. Trust v. Legal Life Estate – Legal life tenant has possession & control of the property, whereas trustee, not life beneficiary, has legal title to trust property. a. Life estates present a number of issues that can be avoided with a trust; trustee acts in best interests of the trust as well as the life and remainder beneficiaries. c. Commercial Uses of the Trust i. Generally replaced in business by corporations which enjoy more permissive regulation. ii. Trust today is preferred form of organization for mutual funds & asset securitization (mandatory under federal law for pensions). Creation of a Trust a. Intent to Create a Trust i. Particular words of art aren’t necessary, only grantor’s intention to create a trust. ii. Trust is created when legal title to property is held by one person for another’s benefit. 1. Trust never fails for lack of a trustee; court can always appoint one.

2.

23

b.

c.

iii. Precatory Language – Unenforceable moral obligations in trust instructions aren’t required to be followed. iv. Equitable charge – Creates a security interest in transferred property from A to B where C must receive some portion of it. v. Revocable v. Irrevocable 1. Majority: Presume written trust is irrevocable, unless provision to the contrary. 2. Minority: Presume written trust is revocable unless provision makes it irrevocable (TPC §112.051). vi. 112.004. Statute of Frauds issues 1. Generally trusts in Texas must be in writing, contain terms of trust, & be signed by grantor. 2. Exceptions: If personal property trust, and a. Transfer of trust property to trustee who isn’t settlor or beneficiary, and intent to create trust, OR b. Declaration of trust by grantor in writing, holds for beneficiary, possibly including grantor in trust. Necessity of Trust Property – Can’t exist without res i. Unthank v. Rippstein – To establish trust, subject and beneficiary of trust must be certain and testator’s words must be imperative, imposing obligation on trustee. ii. Resulting trust – Equitable reversionary that arises by operation of law. Transferee isn’t entitled to beneficial interest, so it reverts back to transferor or his estate. iii. Brainard v. Commissioner 1. Statement that one declared a trust in profits of stock trading didn’t create trust because res wasn’t in existence then; just an unenforceable promise to create trust in future. Trust became effective and enforceable when he carried out his declaration after profits came into existence. 2. Where there is not res at time of a declaration of trust, settlor must manifest anew his intent to create a trust when res comes into being. iv. Speelman v. Pascal – Whether there was res when promise was made. 1. Delivered letter making promise was an assignment of future royalties and was a completed gift. 2. This was a promise to give something when it came, which was the best one could promise at that time. 3. Different court, time, & type of issue from Brainard. v. Restatement (Third) of Trusts §41 – An expectation or hope of receiving property in the future, or an interest that hasn’t come into existence or has ceased to exist doesn’t qualify as a res sufficient to create a trust; however, one may assign future earnings from an existing contract. vi. Taxation of Grantor Trusts 1. Grantor trust – Income is taxable to settlor because he retains substantial control & is deemed by the Code to still be owner of trust assets. Necessity of Trust Beneficiaries i. General rule: Trust must have 1 or more ascertainable beneficiaries—trustee must owe fiduciary duties to someone. 1. Charitable trust doesn’t need an ascertainable beneficiary to be valid. 2. Beneficiaries of private trust may be unborn or unascertained when created.

24

d.

ii. Clark v. Campbell 1. To create a valid bequest in a private trust, beneficiary must be capable of claiming the benefit. 2. Beneficiaries may be designated by class, if capable of delimitation. iii. In re Searight’s Estate 1. Bequest for the care of a specific animal is an honorary trust or a gift with a valid power when exercised; gift didn’t violate rule against perpetuities. iv. Trusts for Pets and Other Noncharitable Purposes 1. Lack of ascertainable beneficiary nixes trusts for benefit of pet animals and other noncharitable purpose trusts like preservation of monuments or tombs. 2. Honorary trust – Transferee not under legal obligation to carry out settlor’s stated purpose, but if declining, property reverts to settlor or his successors. a. Honorary trust for noncharitable purpose is void if it lasts beyond all relevant lives in being at trust creation plus 21 years. 3. Most states have statutes permitting trust for such purposes for a given amount of time. Necessity of a Written Instrument i. Trust law doesn’t require a writing to create valid trust; inter vivos oral declarations ok. 1. Wills Act does require testamentary trust be in writing; Statute of Frauds requires inter vivos trust of land to be in writing. ii. Oral Trusts for Disposition at Death – Enforceable, but good evidence is needed. 1. In re Estate of Fournier a. While not required to be in writing, oral trust must be established by clear and convincing evidence. 2. Olliffe v. Wells – No semi-secret trust a. Trust where trustee was “to distribute in such manner as in his discretion best calculated to carry out wishes which I have expressed” was too indefinite to be carried out.

Ch. 9 – Rights to Distributions from the Trust Fund
1. Rights of the Beneficiary to Distributions a. Mandatory trust – Trustee must make specified distributions to identified beneficiaries. b. Discretionary trust – Trustee has discretion over income, principal, or both; often the only limit would be improper motives. i. Spray and Sprinkle trusts – Trustee has discretion to distribute income, principal, or both among various beneficiaries. ii. Support truts – Similar t discretionary, but utilizing standard for support (not subsistence, manner of living one is accustomed to). c. Marsman v. Nasca i. Will directing trustees to pay beneficiary such amounts “as they shall deem advisable for his comfortable support & maintenance” required trustee to become familiar with B’s needs (under duty to inquire) and to make distribution from principal to meet needs. ii. Discretion isn’t absolute in a discretionary trust. d. Extended Discretion – Settlor attempts to go beyond discretion (absolute, sole, unfettered). i. No language entirely removes any trust power from a court of equity. ii. Trustee should still use good faith, proper motives, & interests of Bs (UTC §814).

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Exculpatory Clauses i. Exculpatory clauses drafted by trustee attorneys invalid unless proven to be fair and adequately communicated to settlor. f. Trusts in Texas – 111.035(b) i. May not create trust for illegal purpose ii. May not excuse breach of trust in bad faith, intentional or reckless indifference to Bs iii. Trustee must respond to Bs’ request for accounting, act in good faith, keep Bs over age 25 reasonably informed. Rights of the Beneficiary’s Creditors a. Discretionary Trusts i. Pure discretionary trust – Trustee has absolute, sole, or uncontrolled discretion over distributions to beneficiary. 1. B’s creditor has no recourse against B’s interest in trust but may be entitled to court order directing trustee to pay creditor before making any further distribution to B. ii. Support trust – Trustee obligated to make distributions as necessary for B’s need s. 1. B can’t alienate interest, nor can creditors of B reach B’s interest, except suppliers of necessaries. iii. Discretionary support trust – Combines explicit statement of unfettered discretion with a distribution standard (not formally recognized as separate category by traditional law). 1. Most courts treat like pure discretionary trust, foreclosing B’s creditors’ claims. iv. Uniform Trust Code §504 1. Unifies rules of creditor rights in all forms of discretionary trusts. 2. B’s creditor can’t compel discretionary distribution even if B could compel it (exception for child support & alimony). v. Protective Trusts – Trustee is directed to pay income to A, but if A’s creditors attach A’s interest, A’s mandatory income interest is automatically changed to discretionary one. 1. Useful where spendthrift trusts are not allowed. b. Spendthrift Trusts i. B can’t voluntarily alienate interest, no can creditors reach the trust interest. It imposes disabling restraint upon Bs & their creditors; usually requires specific spendthrift clause. ii. Possible limits: child support, alimony; necessaries; unpaid taxes; attorney fees for trust; torts (minority view); grantor as beneficiary iii. Scheffel v. Krueger – Statute did not include tort action in exemptions to spendthrift provision even though circumstances of case weighed heavily in favor of a tort exemption. iv. Shelley v. Shelley – Spendthrift provisions of trust weren’t effective to bar claims of child support and alimony. 1. US and states can reach into spendthrift trusts for tax liens. 2. In Texas, settlor can’t be beneficiary of spendthrift trust. 3. In Texas, can reach for child support & taxes but not alimony. v. Bankruptcy Law and Trust Asset Protection c. Self-Settled Asset Protection Trusts i. Normally settlor can’t shield assets from creditors by placing them in trust for settlor’s own benefit.

e.

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ii. Some states and offshore jurisdictions now allow these; usually purpose is to isolate funds from tort liability (used often by doctors). Modification and Termination of Trusts a. Intro i. If settlor and all Bs consent, irrevocable trust may be modified or terminated; trustee has no say. ii. Unborn individuals or classes use virtual representation (TX), and members of a class may be represented by those with identity of interest. iii. If settlor is deceased, U.S. uses material purpose test (Claflin doctrine) – trust can’t be terminated/modified if it would be contrary to a material purpose of the settlor. iv. Equitable deviation doctrine – Trustee can deviate from trust terms when compliance would defeat or substantially impair purpose on account of unforeseen circumstances. 1. Tex. Trust Code 112.054 – Eases doctrine, allowing modification/termination if it furthers the purposes of the trust, achieves tax objectives, or prevents waste. b. Deviation and Changed Circumstances i. In re Trust of Stuchell – Court didn’t permit deviation so that retarded B could avoid benefit in order to remain on public assistance—wasn’t permitted at common law. ii. Restatement (Third) of Trusts §66—Unanticipated Circumstances 1. Court may modify or Trustee may deviate because of unanticipated circumstances if modification/deviation will further purposes of trust. iii. In re Riddell 1. Circumstances weren’t anticipated by settlor, giving rise to equitable deviation; settlor would have created supplemental needs trust if it had been foreseen. 2. Courts won’t ordinarily deviate from trust provisions, but they have power to do so, if reasonably necessary to effectuate trust’s primary purpose. iv. Trust Protectors 1. Becoming more common in domestic trusts because donor can’t foresee all potential problems that might 2. Courts distinguish between administrative and distributive deviations —more lenient with administrative. c. Claflin and Material Purpose i. In re Estate of Brown – An active trust may not be terminated, even with consent of all Bs, if a material purpose of settlor remains to be accomplished. ii. Revocable v. Irrevocable Trusts 1. Majority – Trust created by written instrument is irrevocable unless there is an express or implied provision that settlor reserves power to revoke. 2. Texas – A trust is revocable unless declared to be irrevocable. d. Trustee Removal i. Trustee removal typically viewed as remedy for breach of trust, not a modification of trust’s terms. ii. Traditional law permits removal only for cause: dishonesty, serious breach of trust, etc.

Ch. 10 – Trust Administration: The Fiduciary Obligation
1. Powers of a Trustee a. Trust powers come from trust instrument.

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2.

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State legislation has broaded trustees’ powers, usually using incorporation by reference or the basic powers set forth in Trustees’ Powers Act. (Tex. Trust Code 13.001, .028 – grant of powers) The Duty of Loyalty a. Absolute Duty of NO SELF DEALING. i. No further inquiry rule is applied—if self dealing, no excuses; Bs receive full remedies. ii. Court or grantor may authorize; under limited circumstances, Bs may authorize. b. In re Rothko i. Trustee (or spouse) can’t purchase from himself at his own sale without permission previously obtained from court order. c. Co-Trustees i. Generally, if multiple trustees, they must act as a group and with unanimity, unless trust instrument provides to the contrary. ii. May delegate ministerial functions, but not discretionary functions, to one co-trustee. iii. In many states (including Texas), majority can act if 3 or more trustees (TPC 113.085). iv. Since co-trustees must act jointly, co-trustees are liable for each other’s acts where they consented or acted negligently. 1. TPC 114.006 – May dissent from decision in writing and avoid liability as cotrustee. The Duty of Prudence a. Trustee shall administer trust like prudent person, exercising reasonable care, skill, & caution. b. Prudent Man Rule and the History of Trust-Investment Law i. Traditionally, trust investment meant safe & conservative investments to preserve corpus. ii. Classic standard of care was what one would use in managing/investing his own property with reasonable/ordinary skill & prudence. 1. However, if trustee has special skills/training, held to higher standard. iii. Each investment evaluated separately; trend was very conservative, resulting in low returns because very safe investments were encouraged. c. The Prudent Investor Rule and Modern Trust-Investment Law i. The Prudent Investor Rule 1. Standard of prudence applies to entire portfolio, not individual investments. 2. Uniform Prudent Investor Act §2. Standard of Care; Portfolio Strategy a. Trustee as prudent investor considers purposes, terms, distribution requirements, and other circumstances of trust with reasonable care. b. Trustee’s decisions evaluated in context of trust portfolio as a whole & part of overall investment strategy having risk & return objectives reasonably suited to the trust. 3. Uniform Prudent Investor Act §3. Diversification ordered. 4. Trustee may delegate more freely, but still requires prudence; more complicated investments may require expert help. 5. Texas adopted Uniform Principal and Interest Act (TTC ch. 116) – Permits trustee to make adjustments between principal & income in certain cases, to a reasonable rate of return. ii. Risk, Return, and Diversification in Practice 1. In Re Estate of James

b.

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Fiduciary holding funds for investment may invest in such securities as would be acquired by prudent persons of discretion & intelligence in such matters. b. When determining whether prudent person standard for investment has been violated, court may examine trustee’s conduct over entire course of investment to determine prudence. 2. Calculating Damages for Imprudent Investment a. Make-whole standard – Hold trustee liable for any losses incurred & gains foregone as result of breach to put B in at least the position he would have been in had breach not occurred. 3. Uniform Prudent Investor Act §1 – Prudent investor rule may be expanded, restricted, eliminated, or otherwise altered by trust provisions. 4. Uniform Prudent Investor Act §4 – Within reasonable time, trustee shall review trust assets, making decisions in best interests of trust. 5. Wood v. US Bank a. When diversifying, trustee should consider purposes of trust, amount of trust estate, financial/industrial conditions, type of investment (mortgages, bonds, stock, etc.), distribution as to geographical location & industries, dates of maturity, etc. b. Rule requiring a trustee act with undivided loyalty for B prohibits trustee from owning its own stock. c. To abrogate duty to diversify trust assets, trust must contain specific language authorizing/directing trustee to do so. 6. Permissive v. Mandated Retention of Inception Assets and Duty to Diversify a. Permissive authorization to retain undiversified portfolio doesn’t excuse trustee from liability to diversify in absence of good reasons not to diversify. rd 7. Social Investing – Not permitted if trust Bs are disadvantaged in favor of 3 parties. a. Uniform Prudent Investor Act; TTC 117.007 (solely in Bs’ interests) iii. Delegation 1. Traditional law didn’t allow trustee to delegate. 2. UPIA permits delegation in ministerial matters (selecting, instructing, & monitoring agent) but not discretionary issues. (TTC 117.011) 3. Non delegation rule is now somewhat relaxed, but trustee must still supervise and use reasonable care when selecting & delegating. 4. Delegated v. Directed Trusts a. Delegated trust – Responsibilities of trusteeship are divvied up by trustee, delegating certain matters to experts. b. Directed trust – Trust instrument provides that trustee must follow rd direction of 3 party (settlor splits up responsibilities). Impartiality and the Principal and Income Problem a. When trust has multiple Bs, trustee must strike balance between them, giving due regard to their respective interests in investing, managing, & distributing property. b. Trustee must take into account any preferences that settlor may have expressed in governing instrument or elsewhere along with Bs’ interests. Not necessarily impartial.

a.

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Texas has adopted Uniform Principal and Income Act (TPC 16.001). i. Trustee given ability to adjust between principal & income if necessary and is unable to treat income and remainder Bs fairly. ii. Some exceptions for spouses, since grantor’s intent is usually to provide for spouse, regardless of remainder interest. d. Howard v. Howard i. Although trustee owes duty to remainder Bs as well as life income B, he must carry out those duties in light of any preference expressed in trust instrument. ii. Income B’s other resources weren’t relevant to administration of trusts; trustee required to pay all net trust income to income B, without any reference to other resources/needs. Clear intent to prefer spouse over remaindermen. e. In re Matter of Heller – Trustees who were also remainder Bs weren’t barred from electing unitrust status; trustees owed fiduciary obligations to ALL Bs, including themselves. Subrules Relating to Trust Property a. Duty to Collect and Protect Trust Property i. Without unnecessary delay – As promptly as possible. ii. Examine property to make sure it is what trustee ought to receive. iii. Act as prudent person in preserving property. b. Duty to Earmark Trust Property i. Designate it as trust property as opposed to trustee’s own. ii. Exception: May hold bonds payable to bearer instead of trustee; still must keep records. iii. 2 views on liability: 1. Common law (majority view) – Strict liability for failure to earmark; trustee liable for any loss whatsoever. 2. Modern trend (minority view) – Liable for any loss attributable to failure to earmark c. Duty Not to Mingle Trust Funds with Trustee’s Own i. Guilty of breach of trust if trustee comingles trust funds with his own, even if trustee doesn’t use trust funds for his own purposes. ii. Views on liability: 1. Common law – Strict liability for any loss, even if it would have occurred had there been no comingling. 2. Modern trend – Liable only to extent the comingling caused the loss. 3. Texas – If increase in value, assume it is Bs’; if decrease in value, assume it is trustee’s. Duty to Inform and Account a. Duty to Inform i. Duty to inform Bs of existence of trust & significant developments in trust administration; respond promptly to request by B for info. ii. Fletcher v. Fletcher – Bs are entitled to see trust instrument and examine trustee accounting records. b. Duty to Account i. Trustee protected from liability to B if facts underlying claim were fairly disclosed in accounting filed with court, served with notice, & B didn’t object.

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ii. Texas (TTC 13.151) – Trustee has duty to account at request of B or interested party, within 90 days of request, no more than once/year. 1. Appears that trustees have duty of full disclosure as fiduciaries to Bs of all material facts known to them (case law). Contents of entire trust have bearing on B’s interest. iii. National Academy of Sciences v. Cambridge Trust Co. 1. Trustee made no reasonable effort to ascertain true state of facts misrepresented in accounts—fraud. 2. Entries in accounts made honestly by trustees after reasonable efforts to determine truth of representations won’t be deemed fraudulent.

Ch. 11 – Charitable Trusts
1. Intro a. Charitable trust must be for benefit of charitable purpose, not ascertainable B. b. Exempt from Rule Against Perpetuities, more easily identified under cy pres doctrine. c. State attorney general is principal party with standing to enforce charitable trust. Nature of Charitable Purposes a. Shenandoah Valley Nat’l Bank v. Taylor i. Approved charitable purposes include relief of poverty, advancement of education or religion, scholarships, promotion of health, change in law, promote single issue, promote temperance, govt. purposes, & other purposes benefitting community. 1. Not charitable: scholarship for 1 person, benefit political party, illegal purpose, something for everyone, etc. ii. Distinction between charitable trust (public) and benevolent trust (private); benevolent trust is void if it violates rule against perpetuities. b. Mortmain statutes – Some jurisdictions have regulation restricting deathbed gift to charity; most have been repealed or declared unconstitutional. Modification of Charitable Trusts: Cy Pres a. Cy pres (“as nearly as possible”) doctrine – If settlor’s exact charitable purpose becomes illegal, impossible, or impracticable, court may direct application of trust property to another similar charitable purpose. b. In re Neher – Where paramount purpose is to give property for general charitable purpose but also includes grantor’s intentions on execution, such direction may be ignored when compliance is impracticable and gift may be executed cy pres thru a scheme framed by court for carrying out general charitable purpose. c. Cy Pres v. Administrative Deviation i. Court will permit administrative deviation when compliance would defeat or substantially impair accomplishment of trust purposes on account of changed circumstances not anticipated by donor. ii. Cy pres allows for modification of donor’s stated purpose, whereas deviation focuses on donor’s prescribed rules of administration. d. Discriminatory Trusts i. If trustee of racially restrictive trust is govt. body, courts have held administration of trust in discriminatory manner is an unconstitutional discriminatory state action. ii. Majority – Settlor would prefer charitable trust continue without racial restriction.

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3.

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Ch. 12 – Powers of Appointment: Building Flexibility into Trusts
1. Intro a. b. c. Power of appointment gives person holding power the ability to distribute trust property. Settlor is able to postpone and delegate decisions about who should receive. Terminology i. Donor – One creating the power. ii. Donee – One holding the power. iii. Objects – Persons in whose favor power may be exercised. iv. Appointee – Person for whom a power is exercised in their favor. v. Takers in default – Who receives property if donee fails to exercise power. vi. Appointive property – Property subject to power. d. Types of Powers of Appointment i. General power – Exercisable in favor of donee, his estate, his creditors, or creditors of his estate. ii. Special power – Power that isn’t a general power; also limited or nongeneral power. iii. Powers are exercisable by deed, by will, or both. 1. Testamentary power – Exercisable by will. 2. Inter vivos power – Exercisable during life. e. The Relation-Back Doctrine: Does the Appointive Property Belong to Donor or Donee? i. When donee holds special power of appointment, donee in effect has ability to “fill in” some blanks donor left. Law treats property as if it were transferred from donor. Creation of a Power of Appointment a. To create POA, donor must manifest an intent to do so, either expressly or by implication. i. Not required to use magic words of POWER or POWER OF APPOINTMENT. ii. Words that merely express a desire are precatory; not sufficient. Exercise of a Power of Appointment a. Best way to exercise power is to clearly stipulate such in a will. b. When drafting, instrument may select what law should apply and may require donee to explicitly exercise POA. c. Exercise by Residuary Clause in Donee’s Will i. Majority (TX) – Residuary clause does NOT exercise POA. ii. Minority – Residuary clause DOES exercise POA. iii. Blending Clause – Language in a will’s residuary clause (e.g. “all property including any that I may have a POA over…”) DOES exercise POA generally. 1. Unclear whether this meets requirement that donee exercise explicitly. d. Limitations on Exercise of Power of Appointment i. In most jurisdictions, donee of a general POA can appoint outright or in further trust and can create new POAs. ii. As for specific powers: 1. Appointment in further trust: Not allowed at common law; Modern trend allows. TX follows modern trend (TPC 181.082). 2. Creation of new POAs: Both modern trend and TX permit. iii. Exclusive v. Nonexclusive powers 1. If exclusive, may appoint to any, all, or none of the objects of power. 2. If nonexclusive, must give something to all objects. 3. Determine from words of instrument—if unclear, usually presume exclusive.

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Fraud on a Special Power i. May not appoint to non-object of the power; VOID if attempted. ii. May not appoint to object in attempt to circumvent this limitation —“fraud on the power” and can be voided. Ineffective Exercise of a Power of Appointment i. Allocation (marshalling) – Applies when appointive property and property owned by donee are disposed of under a will. 1. Usually possible appointment to non-object or violation of RAP. 2. If donor blends assets in a will, doctrine will make most effective disposition, allocating as best as possible between different interests. ii. Capture – Applies when donee makes ineffective appointment, but donee’s intent can’t be given effect thru allocation. 1. General rule – Property passes to takers in default or donor’s estate; Capture is exception to this rule. 2. Applies only to general powers & if attempted exercise is ineffective or incomplete, usually due to lapse (appointee died) or RAP issue. 3. General power allows for donee to appoint to his own estate, which would be preferable to an ineffective appointment.

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