Will and Trusts

Spring 2001

THE POWER TO TRANSMIT PROPERTY AT DEATH

In Lewis v. State Bar of Ca., the attorney, who had no previous experience in
probate matters, handled a probate case. The attorney obtained a loan from the
estates proceeds w/o clients written consent. The attorney was disciplined by the
state board and contested the severity of the punishment. The court adopted a
lighter punishment as there was no bad faith. The concurring judge counsels that
new attorneys often lack the proper skills.

Shannon says know your limitations or get help

Some Definitions

Codicil: a supplement or addition to a will

Intestate: to die without a will

Inter vivos: between the living, from one living person to another

Testacy: the state or condition of leaving a will at one’s death

The power of the dead hand and its limitations

Dead hand concept: when a person uses his wealth to influence the conduct of others
after his death (through will and trust conditions)

Society places limitations on the power of the dead hand.

In Shapira v. Union National Bank, the plaintiff contested his father’s will which
conditioned his bequest upon his marrying a Jewish girl. The son argued that the
condition upon his inheritance is (1) unconstitutional, (2) contrary to public
policy and unenforceable because of its unreasonableness, and that he should be
given his bequest free of the restriction. The court held that conditions are
reasonable restrictions upon marriage and do not violate public policy.

The P argued that the will was unconstitutional because the right to marry is
protected by the constitution and therefore protected from restrictive state action.
The court agrees but states that the court is not enforcing any restriction upon his
right to marry – rather it is enforcing the testators restriction upon his sons
inheritance. (14 th amend prohibits restrictive state action, court says this is not
state action) The court reasoned that the right to receive property by will is a
creature of the law, and is not a natural right or one guaranteed or protected by
either the Ohio or the United States constitution. From a constitutional
standpoint, a testator may restrict a child's inheritance.
 A partial restraint of marriage which imposes only reasonable restrictions is
valid, and not contrary to public policy. The great weight of authority in the
United States is that gifts conditioned upon the beneficiary's marrying within a
particular religious class or faith are reasonable. (such a restriction might be
unreasonable if the son was not given enough time or if there were not many
available Jewish girls)

Note: a will or trust is ordinarily invalid if it is intended or tends to encourage disruption

of a family relationship (e.g. provisions encouraging separation or divorce, provisions
barring family members from speaking to other family members)

Note: Wills that provide income to wife unless she remarries (as opposed to placing the
same condition on daughter) have largely been upheld.

During the lifetime of older generation, conflicts might be resolved (son could introduce
dad to non-Jew wife and he might like her and change the will) – but once dad is dead no
“re-contracting” is possible – so the dead hand controls even though if dad was alive he
might change his mind

The law of wills largely involves statutory construction

What about a will that calls for destruction of property? some courts have suggested that
this is waste and will not be allowed – although the owner can certainly destroy his
property before he dies

Professional Responsibility

Does an attorney who drafts a will owe a duty of reasonable care to the intended
beneficiaries?

Normally in order for there to be a duty there must be privity between the parties.
However there are some exceptions

The following case represents the majority rule on the privity issue:

In Simpson v. Calivas, the plaintiff brought a negligence and contract action

adjacent the attorney who drafted the fathers will. The Plaintiff/son claimed that
the attorney failed to draft a will, which incorporated the actual intent of the
father. D argued that an attorney who drafts a will owes no duty to intended
beneficiaries. The court disagreed and held that there is such a duty. The court
reasoned that if the possibility of injury is foreseeable then an exception to the
normal rule of privity should apply. In the case of a will the risk to persons not in
privity is apparent. An intended beneficiary states a cause of action by pleading
sufficient facts to establish that an attorney has negligently failed to effectuate the
testators intent as expressed to the attorney. The suit may be based on either tort
theory or contract theory or both.

The defendant also argued that since the probate court determined the intent of
the testator, P’s action was barred by collateral estoppel. The court holds that
while the validity and construction of the will were matters for the probate court

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 to decide – the negligence of the lawyer was a matter for a court of general
jurisdiction.

Note: In Texas, the lack of privity of contract between the drafter and the beneficiary
prevents a malpractice action by the beneficiaries. (but be careful if client owns property
in another state) In Texas you need privity for malpractice suits but can still be liable
under ethical rules.

In Hotz v. Minyard, the daughter thought she was to inherit the dads business.
However, Dad drew up a second will knew that gave business to son. Dad told
attorney not to tell daughter about the second will. Attorney discussed the first
will with daughter and daughter claimed she was left with the impression that she
would get the business. Daughter sued attorney and claimed that he breached his
fiduciary duty to her by misrepresenting the dad’s will.(the first will had been
revoked but attorney held it out as if it was still good) D argued that attorney
owed daughter no duty since he was acting as Dads attorney in connection with
the will. Court disagrees as attorney had an attorney/client relationship with the
daughter also (did her will and taxes). While attorney was not required to
disclose the existence of the second will, he owed daughter duty to deal with her
in good faith and not actively misrepresent the first will. (The tort involved was
negligent misrepresentation)

In the above case, the attorneys dual representation of dad and daughter ends up
creating a conflict. He should have told the daughter that she needs separate
counsel or told her to ask dad about the will.

Omitted spouse statute Some states, like CA, have omitted spouse statutes. Under such a
law, if a person marries after making a will, the will is revoked as to the spouse (and
spouse will get a share of the estate) The rationale is that the dead spouse probably would
have wanted the property to go to the spouse. In order, to avoid such problems an
attorney can take steps to account for future changes or put in a provisions that expressly
leaves out new spouses.

Notes from problem on page 49:

Including “just debts” clause does not do anything as statutory law already requires the
payment of debts. Including the clause can result in problems. For example, if there is
property subject to a mortgage, normally the beneficiaries can take the property subject to
the mortgage. But inclusion of a ”just debts” clause may force the estate to pay off the
mortgage first.

Need to mention an alternate executor

If Howard dies and then wife dies three days later – there would two actions (way to
avoid this) plus All his property would go to her and then all property would go to her
heirs. In this case the will says “my kids” – so Howards kids might end up with nothing

There is a potential conflict in that one lawyer is representing both parents who have
different children – those children might have adverse interests

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Managing a Minors Property

There are two principal reasons for a parent with a minor child to have a will:

(1) to designate a guardian of the person in case both parents die during the
child’s minority (otherwise a court will appoint a guardian)

(2) to deal with management of child’s property (a guardian of the person has no
authority to deal with child’s property) There are three alternatives for
property management:

i. Guardianship (or conservatorship): the guardian has duty to

preserve the property, can only use the property to support the
ward, must have court approval to act. Strict court supervision is
burdensome and costs money (in a conservator arrangement only
one annual trip to court house is required for accounting) Least
preferred method as there are numerous limits placed on the
guardian

ii. Custodianship: a custodian is a person who is given property to

hold for the benefits of a minor under the state Uniform
Transfers to Minors Act. The custodian has power to spend for
the benefit of minor. The custodian is a fiduciary but no
accounting to the court is required.

iii. Trust: Most flexible arrangement. Can be tailored to testators

particular desires. Is the preferred method.

Texas Guardianship Law

§676 Guardians of minors: If parents live together, both are natural guardians, if
they disagree, court will make appointment of one of the parents (based on best
interest of child). If one parent is dead, survivor is natural guardians. If parent did
not appoint guardian, nearest ascendant (i.e. grandparents) in direct line is
entitled to guardianship, then nearest kin, then court appointment.

Only the guardian of the estate can deal with the wards property (as opposed to
the natural guardian)

§680 Selection of Guardian by Minor: A minor a 12 may choose the guardian if

the court approves and choice is in best interest of child.

§681 Person Disqualified to Serve as Guardians: a minor, a person whose

conduct is notoriously bad, an incapacitated person, a person who is party to a
lawsuit concerning the welfare of the child, person indebted to the ward, person
asserting a claim adverse to the ward, a person found unsuitable by the court

§690 Persons Appointed Guardian only one person may be appointed guardian,
but one person may be appointed guardian of the person and another of the
estate. Can have joint appointment of husband and wife or of joint managing
conservators

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Probate and Non Probate Property

Probate property: property that passes under the decedents will or by intestacy

Nonprobate property: is property passing under an instrument other than a will which
became effective before death. Distribution of non probate assets does not involve a court
proceeding, but is made in accordance with the terms of a contract or trust or deed.
Examples:

(1) Joint tenancy property: under theory of joint tenancy, the decedents interest
vanishes at death. The survivor has the whole property relieved of the
decedents participation.

(2) Life insurance: proceeds of a policy on decedents life are paid by the
insurance company to the beneficiary named in the insurance contract

(3) Contracts with payable-on-death provisions: decedent may have contract

with a bank or employer to distribute property held under contract to a named
beneficiary (e.g. tax deferred investment plans like IRA’s)

(4) Interests in trust: trust property is distributed to the beneficiaries by the

trustee in accordance with the terms of the trust instrument

See example on page 135 – you have to ascertain whether assets are nonprobate or
probate before determining divisions

INTESTACY: AN ESTATE PLAN BY DEFAULT

Most people die without a will either because they are afraid of death or don’t want to spend
money to get a will

Distribution of the property of someone who dies without a will is governed by the statute of
descent of the pertinent state

Disposition of personal property is governed by the law of the state where decedent was
domiciled

Disposition of real property is governed by the law of the state where real property is located

Share of the Surviving Spouse

UPC

Under the Uniform Probate Code the spouses share is different depending on whether
there are any kids and whose kids they are (see p.73)

Also under the UPC the order of inheritance is: spouse, kids, parents, siblings,
grandparents, descendents of grandparents, and finally to the state

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UPC gives spouse less if decedent spouse has surviving children (that are not surviving
spouses children also)

UPC give spouse a larger share in order to carry out the probable intent of the decedent

Most states give the spouse a one-half share if there is a surviving child (studies indicate
that most decedents want the surviving spouse to get most, if not all of the estate)

In a few states, statutes disqualify a spouse from inheritance if the spouse abandoned or
refused to support the decedent

Note: “issue” is a lineal descendent

In Hawaii, gays can register with the state as ”reciprocal beneficiaries” and are given
many of the benefits of surviving spouses

Elective share provisions: under the UPC, a surviving spouse of a one-year marriage gets
only 3% of the decedents estate if decedent leaves a will and the spouse elects to take
against the will

Homestead: nearly all states have homestead laws designed to secure the family home to
the surviving spouse and minor children, free of the claims of creditors – generally the
spouse has the right to occupy the family home for her lifetime (TX §270-273)

Personal Property Set Aside: in many states the surviving spouse also has the right to
have set aside to her certain tangible personal property of the decedent up to a certain
value -- UPC sets limit at $10,000, In Texas, the amount is $60,000 – so spouse may be
able to peel off some of the property before it goes to probate

Family Allowance: every state has a statute authorizing the probate court to award a
family allowance for maintenance and support of the surviving spouse (and often of the
dependent children) (Tx §286-288)

Under a Family Allowance provision, certain personal property is exempt from

probate (the same exemptions from creditors in the property code are cross-
referenced in the probate code) this property is set aside at the beginning of the
probate process

TPC§271 – says exempt property shall be set aside for benefit of surviving
spouse and minor children

How it works: In one case, the husband had a son from a prior marriage and a
second wife. The husband left the entire estate to the son except for a homestead
interest in the house (which W2 would have got by law anyway) W2 went into
court to set aside certain exempt personal property (including a new truck) she
said she was entitled to the truck in fee simple – court says you only get to use
truck during the settlement of the estate. If at windup there are assets left then the
son gets the truck (§278) If estate is insolvent then she would get truck (does not
make much sense but this is what Shannon siad!)

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 Under TPC286-291 Decedents spouse and minor children are entitled to
maintenance for a year from the time of the death of testator or intestator
(historically known as widows allowance)

Note: no family allowance if surviving spouse had substantial separate proerty

Community Property

There are 8 community property states; La., TX, NM, AZ, Ca, NV, WA, and Idaho

In a community property system the husband and wife own the earnings and acquisitions
from earnings of both spouses during marriage in undivided equal shares

In a community property state the manner in which title to property is taken is not
controlling. The time of the acquisition and the source of funds (or credit) used in the
assets acquisition determine whether the assets belongs to the community or is the
separate property of one of the spouses

Separate property includes property acquired before marriage and during the marriage by
gift or inheritance (and in TX the recovery for personal injuries)

Property acquired after marriage is presumptively community

Under the UPC community property scheme (p.73) if spouse dies intestate, the surviving
spouse gets all the community property and the first 100 to 150 thousand (depending on
whether there are issues) plus an additional % of the rest of the estate. Therefore, In most
cases, the spouse will get all of the property.

TEXAS LAW (see handout – numbers below refer to handout)

“Community property consists of the property, other than separate property,

acquired by either spouse during marriage”

There is a presumption that all property is community property

Inception of title rule: the separate or community character of an asset is

determined at the time the asset is acquired, and no subsequent actions will alter
its character

Spouse in TX can now create Community Property Survivorship Agreements

which permit spouse to hold community property with right of survivorship –
must be in writing and signed by both parties. see TPC 451, 452

Such an agreement can be revoked if signed by both parties or signed by

one and delivered to the other

Income from separate property is community property and reinvested dividends

are community property. However, growth in value remains separate property

Handout (p.6) under the old law if someone owned a house as separate property
(but was still paying on mortgage) then got married and salary is used to pay

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 mortgage – even though community property was being used to pay the mortgage
– the property would remain separate property. Now: if community funds have
been used to enhance the value of the separate property, then some portion of it is
community property.

(p.10-11) Spouses can now convert separate property to community property.

The name you use on the title to property is not controlling – however, if you buy
property with separate funds and can trace it, it will remain separate property

Note: there is no joint tenancy in TX, so real property held by both is community
property (under joint tenancy law, both spouse hold property together until other
spouse dies, decedent spouses interest does not pass to surviving spouse; rather it
simply disappears and surviving spouse owns in fee)

TPC §45, deals with community property and says that if all kids of the dead
spouse are also descendents of surviving spouse, then all community property
goes to surviving spouse. If there are mixed children, under §45(b) surviving
spouse does not get the decedent spouses ½ of the community property,
decedents children will get his half.

TPC §38 deals with separate property:

If there are children No children

Personal 1/3 to spouse spouse gets all

property 2/3 to children

Real 1/3 LE to spouse ½ Fee to spouse

property 2/3 LE plus ½ Fee passes according to
3/3/ remainder rules of descent

Intestate Distribution Among Descendents and Collateral Kin

Shares of Descendants

All states provide that the child’s descendants shall represent the dead child and divide
the child’s share among themselves

There are three methods:

English distribution per stirpes: divide the property into as many shares as there
are living children of the designated person and deceased children who have
descendants living (allocate by children: four kids = 4 parts)

Modern (American)per stirpes method divide decedents estate into shares at the
generational level nearest decedent where one or more descendants of the
decedent are alive and provide for representation of any deceased descendant on

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 that level by his or her descendants – under this approach you start at the nearest
genrational level where there are survivors (Tx follows this method, see TPC§43)

UPC method: the initial division is made at the level where one or more
descendants are alive (as under modern per stirpes) but the shares of deceased
persons on that level are treated as one pot and are dropped down an divided
equally among the representatives on the next generational level

A
_____________________________________________

  
B C 3
 
 _______________
  
D E F

English: D1/2, E1/4, F1/4

Modern: D1/3, E1/3, F1/3

UPC (if there is a third child who is still alive): 3 gets 1/3, and D,E, and
F each get 2/9 as they divide 2/3

Note: the only spouse that ever takes is the decedents own spouse – so under intestate
laws in-laws never take

Negative will: An old American rule was that disinheritance was not possible by will
(bob shall get nothing) to disinherit Bob you had to devise the entire estate to other
persons. Under the UPC you can now have a negative will.

Shares of Ancestors and Collaterals

When the intestate is survived by a descendant, the decedents ancestors and

collateral’s do not take. When there is no descendent, the estate usually goes to
parents.

Collateral kindred: all persons who are related by blood to the decedent but who
are not descendants or ancestors

If there is no spouse or parent, the decedents heirs will be more remote ancestors
or collateral kindred

Laughing heirs: remote collaterals, “so distant as to suffer no sense of

bereavement”

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 The UPC does not permit inheritance by intestate succession beyond
grandparents and their descendants
Under TX law the estate is split into two “moites” and one goes to paternal side
until and heir is found and one goes to maternal side until an heir is found

Non-marital Children

Traditionally, children born out of wedlock could not inherit

Trimble v. Gordon (US): it is unconstitutional to deny a non-marital child

inheritance rights form his father

Most states now permit paternity to be established by clear and convincing proof
after death of father

Some states allow body to be exhumed for DNA testing

Other states (including Tx) have presumed paternity laws – Family Code §152

Under TPC §42(b) – if kid can establish she is decedents child, she can inherit

Note: No living person has heirs, they have heirs apparent. Heirs apparent have a mere
expectancy which is not a legal interest and can be destroyed by deed or will.

Problem from page 96 (1): X= decedent and there is no surviving spouse or children, but
Mom is alive so is brother and his children. Who takes?

Mom
__________________________
  
X S B

______________
 
A B

Under UPC = mom takes all

Under TX (§38) = ½ to mom, other ½ to siblings and their descendents

Problems in Making Gifts to Descendents

The law presumes that the word children means only the immediate offspring of the
parent and does not include grandchildren.

Including the words “issue” or “descendents” leaves problems depending on whether the
jurisdiction follows the English, Modern or UPC system.

The best way to avoid such problems is to define issue or per stirpes in the instruments.

Adopted Children

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 At common law “children” or “issue” always meant a blood relationship.

Under the stranger to the adoption rule: the adopted child is presumptively
barred except when the donor is the adoptive parent

Most states now allow adoptive children to inherit

In Minary v. Citizens Fidelity Bank and Trust, mom left a will that paid
income to the husband and sons. When the last beneficiary died the estate
was to be distributed to her then surviving heirs. Alfred (son) adopted his
wife so she would be able to inherit. The court held that widow of
surviving life beneficiary of trust, adopted by life beneficiary as his child
long after execution of will and death of testatrix was not an heir entitled
to take remainder of trust under will providing that upon death of last
surviving beneficiary remainder should be distributed to 'my then
surviving heirs' according to laws of descent and distribution. The court
reasoned that even though the state law permits such adoption and even
though it expressly provides that it shall be 'with the same legal effect as
the adoption of a child,' we, nevertheless, are constrained to view this
practice to be an act of subterfuge which in effect thwarts the intent of
the ancestor whose property is being distributed and cheats the rightful
heirs.

Note: Had the trust, In the above case, been drafted in a different fashion
(inclusion of “special power of appointment”, these problems could have been
avoided)

Simultaneous Death

A person succeed to the property of an intestate or decedent only if the person survives
the decedent for an instant of time

Under the old Uniform Simultaneous Death Act, where there is no sufficient evidence of
the order of deaths, the beneficiary is deemed to have predeceased the benefactor

The UPC provides that an heir or devisee or life insurance beneficiary who fails to
survive by 120 hours is deemed to have predeceased the decedent (note that the will in
TWEN class #10 # 1 – would trump this statute because the will says “if she survives
me” here she survived her by 1/150,000 of a second)

The claimant must establish survivorship by clear and convincing evidence

TPC §47: Tx follows the 120hr rule – relates to intestacy and insurance policies

HYPO: What if Husband dies instantly and Wife dies two hours later:

Sister  H  W

A B

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 Under USDA: there is sufficient evidence of survival so property goes to spouse
and then to her kids

If wife dies first, under USDA, her ½ goes to her kids and his ½ goes to his sister

So depending on which spouse dies first there is a difference in who takes what

TX: under the §47 120 hour rule = ½ of property distributed as if husband
survived (to sister) and other ½ is distributed as if wife survived (to her kids)

Note: §47 does not apply if a different provision has been made in the will, e.g. “if she
survives me” means survival by an instant of time

Posthumous Children

It is to a child’s advantage to be treated as in being from the time of birth, the

child will time of conception rather than from the time of birth, the child will be
so treated if born alive

Court have established a rebuttable presumption that the normal period of

gestation is 280 days

The UPC presumes that a child born to woman within 300 days after the death of
her husband is a child of that husband

Administration Of Probate Estates

First step in probate in appointment of personal representative to oversee the winding up

of the decedents affairs, principal duties are :

1. inventory and collect the assets of the decedent

2. manage the assets during administration
3. receive and pay the creditors and tax collectors
4. distribute the remaining assets to those entitled

Executor: person named in will as personal representative

Administrator: if person in charge of administering estate is not named in will, the

administrator is selected from a statutory list (surviving spouse, child, ect.)

Probate court: the court in that county that has jurisdiction over administration of a
decedents estate

The terms “devise” and “bequeath” essentially mean the same thing

Probate performs three functions:

(1) provides evidence of transfers of title to new owners by a probated will or

decree of intestate succession
(2) protects creditors by requiring payment of debts

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 (3) distributes the decedents property to those intended after the creditors are
paid

Primary/domicilary jurisdiction: where the will should be probated, or letters of

administration should first be sought, is the jurisdiction where the decedent was
domiciled at the time of death

Ancillary administration: is required if real property is located in another jurisdiction

Each state has a detailed statutory procedure for issuance of letters testamentary to an
executor or letters of administration to an administrator authorizing the person to act on
behalf of the estate

Some states allow informal proceeding

Every state has “nonclaim statutes” which require creditors to file claims within a
specified time period or they are barred

Closing the estate: creditors must be paid, taxes must be paid, and judicial approval is
required

Purpose of probate process:

 collect and inventory assets

 satisfy creditors claims
 distribute estate to rightful folks
 reflect the passage of title
 manage the estate

TEXAS

Venue is proper where the dead person lived, TPC §6

Jurisdiction: §4 the Const grants concurrent probate jurisdiction in county courts and
district courts. The biggest cities have separate statutory probate courts.

Uncontested matters are usually handled by a county judge, whereas contested

matters are usually removed to the Dist Ct.

One principal reason to have a will is to avoid dependent administration (in which court
is heavily involved in the process – which means high costs)

Independent Administration §145

 Directed by will
 What has to be returned to the court = an inventory, appraisement , and list of
claims of the estate (not claims against the estate)
 Even if will does not provide for independent administration, it is still OK if
all distributees agree
 Even if there is no will, still OK if all distributees agree

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  Executor has to follow statute
 Under 149C there is a method for removing independent administrators (for
misconduct)
 Distributee can demand an accounting after 15 months
 Within 120 days the Administrator must post bond (unless waived by will),
file inventory (within 90 days) and give notice of administration (within a
month)

Duties of Administrator

 apply for and obtain Letters Testamentary

 Inventory the property including appraisals – TPC 250
 Compile a list of claims of the estate – TPC 251

Notice to Creditors

Must give general notice by publication in a newspaper – TPC 294(a)

Can give permissive notice to unsecured creditors by sending them a certified

letter (they then have 4 months to file or any claims are barred). If no notice is
sent then general SOL’s apply: 2 years for tort claims and 4 years for debts

Must send notice to secured creditors – TPC 295

Election: claimants has to elect how claim will be preferred, can choose either”

(1) Matured secure claims (is due now) or

(2) Preferred Debt and Lien (lien stays with property) (Creditor might
elect to do this if there are not enough assets in the estate or it may
be in their fiscal interest)

But executor still has the option to just pay off the debt

Order of Priority of claims to be paid: TPC §322

1. funeral expense
2. administration expenses
3. secured claims
4. delinquent child support
5. taxes (estate, property, income)
6. costs of confinement in prison
7. repayment for medical assistance
8. all other claims

Exoneration of liens: If a will makes a specific devise of land on which there is a

mortgage, does the land pass free and clear of the mortgage? In some states the devisee
will take free of the mortgage (it is presumed that the testator would have wanted the debt
paid out of the residuary estate). IN TX, if there is a 50,000 debt and 50,000 is supposed
to go to T, debt does not get paid and T takes 50,000.

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 Note: A joint checking account is a probate asset as it is community property (unless
there is some survivorship agreement)
Informal Resolution – for small estates

§75 if there is a will it has to be filed

§94 no will is effective until probated

Four types of informal resolutions in Texas:

(1) SMALL ESTATE ADMINISTRATION TPC 137

 limited to intestate estates

 50,000 cap – the cap does not include non-probate assets, so you could
have one million in non-probate assets and still qualify
 clearing title to real property – under (c) can use affidavit to clear title –
but only if the only real property is the homestead

(2) MUNIMENT OF TITLE TPC 89, 89C

 can have a limited form of probate, solely to clear up title – have will
probated just to provide link in title
 no need for executor/administrator – once process is completed the will
and court order are filed in the deed record
 is a way to avoid costly probate and clear title

(3) HEIRSHIP PROCEEDINGS TPC 48

 for intestate estates

 you might use this process if you cannot use the Small Estate
Administration because there is real property other than the home
 used to clear title

(4) Affidavits of Heirship

 non-statutory affidavit of heirship

 §52 and 52(c) allow filing
 historical practice – trace tittle informally through affidavits, the
affidavits are then filed without a court proceeding

BARS TO SUCCESSION

Homicide

What happens if wife kills husband and then is positioned to inherit his estate?

In states that have no statute from preventing a slayer from taking by descent or
distribution from the estate of her victim have followed three different approaches:

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 (1) legal title passed to slayer may be retained by him as devolution of property
is controlled entirely by the statutes and denial of inheritance would impose
an additional punishment not provided for by statute
(2) Legal will not pass to slayer because of the equitable principle that no one
should profit by his own wrong or crime
(3) Legal title passes to slayer but equity holds him to be a constructive trustee
for the heirs or next of kin of decedent (legal title is left alone, but use/benefit
goes to other heirs – creates a legal fiction)

IN re Estate of Mahoney, the wife was convicted of manslaughter (husband was

victim). Probate court gave his estate to parents even though under rules of
descent it should have gone to her. Since there is no statute prevent her from
taking the court adopts doctrine #3 (from above). The court notes that the
doctrine will not apply if the killer is insane or already has a vested interest in the
property. The wife further argues that while such doctrine might apply to murder,
it does not apply to manslaughter. The court disagrees and notes that the line is
drawn between voluntary and involuntary manslaughter.

A number of issues arise under the homicide statutes:

 Does the statute apply to non-probate transfers?

 If the killer is barred from taking, who takes?
 Is a criminal conviction required? many states allow the court to determine
whether, under the preponderance of evidence standard, the individual would
be found criminally accountable for the killing

A number of the statutes function by creating a legal fiction that the slayer predeceased
the victim

Note: in China, the probate courts consider who treated the decedent well. The system
rewards good behavior, even by worthy non-relatives at the expense of the decedents
family members who did not support the decedent

Note: In Ca., person are deemed to have predeceased a decedent if they abused (physical,
financial, neglect) an elder or dependent adult

In TX, TPC §41(d), a conviction will not work a forfeiture of the estate, except in the
case of a beneficiary of a life insurance policy – but the courts, through case law, use the
constructive trust doctrine

Disclaimer

What if person does not want the property?

Under common law, someone has to own the property – so if heir refuse to accept --- the
common law treaties the heir’s renunciation as if title had passed to the heir and then
from the heir to the next intestate successor

If a person dies testate, the devisee can refuse to accept the devise, thereby preventing
title from passing to the devisee

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 Almost all state shave enacted disclaimer legislation that provides that the disclaimant is
treated as having predeceased the decedent (the decedent might want to do this in order to
save estate taxes (pass property directly to kids) or to avoid creditors)
Problem (p.150) disclaimed interest passes but is only what disclaimer would have
received, so her kids get to divide ½ (instead of 1/5 each)

IN TX, property of disclaimer passes as if disclaimer was dead (but one court said that
statute only speaks to whom it goes, not how it is divided up)

In Troy v. Hart, the sister died intestate and brother (Lettcih) was set to receive
some of the estate. Lettcih was in a hospice and was receiving
Medicare/Medicaid. His sister got him to sign a disclaimer (although he already
had a legal representative who had power of attorney) The rep hired and attorney
to sue sister. If Lettich got the money it would have gone to state or used to pay
for health care. There was a public policy issue about whether Medicaid recipient
can disclaim. Court suggests that the money that would have gone to him should
be used to reimburse Medicaid as a mater of public policy.

Note: You cannot disclaim to avoid IRS --- the federal governments tax lien attaches to a
debtors interest in an estate even though it is disclaimed (disclaimer can avoid other
creditors under state law)

WILL CONTESTS

Mental Capacity

There are a numbers reasons why court shave traditionally required the testator to have mental
capacity:

(1) will should represent testators true desires

(2) mentally incompetent person is not a person
(3) protect decedents family
(4) decisions should be reasoned
(5) protect society from irrational acts
(6) protect senile person from being exploited

Test for Mental Capacity; testator only has to have ability to know (court must go through four
prongs)

(1) the nature and extent of the testators property

(2) the persons who are the natural objects of the testators bounty
(3) the disposition the testator is making
(4) how the elements relate so as to form an orderly plan for the disposition of the
testators property

Capacity to make a will is governed by a different legal test and requires less competency than
the power to make a contract or a gift --- basically did the person understand that they were
making a will (rather than a grocery list)

The fact that the testator is declared incompetent alone is not enough – must go through the four
prongs

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Standing: people with an economic interest that would be adversely affected

The party asserting that the will is valid must show that testator had capacity, unless the will is
challenged after it has been probated, then the challenger has the burden

Insane Delusion

A person may have sufficient mental; capacity to execute a will but may be suffering
from an insane delusion so as to cause a particular provision in a will – or perhaps the
entire will – to fail for lack of testamentary capacity

An insane delusion (a legal concept) is a false conception of reality – one to which the
testator adheres against all evidence and reason to the contrary

In re Honigman, the court held Where, after husband and wife had been happily
married nearly 40 years, husband publicly and repeatedly expressed suspicions of
his wife's unfaithfulness, and of misbehaving herself by hiding male callers in
cellar of her own home, in various closets, and under the bed, and by hauling
men from street up to her second-story bedroom by use of bed sheets, and
husband claimed to have heard noises which he believed to be men running about
his house, question of sanity of husband, whose will cut off his wife with life use
of her minimum statutory share plus a small amount of cash, was for jury. Jury
decided to believe wife. The court stated the test: 'If a person persistently believes
supposed facts, which have no real existence except in his perverted imagination,
and against all evidence and probability, and conducts himself, however logically,
upon the assumption of their existence, he is, so far as they are concerned, under
a morbid delusion; and delusion in that sense is insanity

Commentators note that the juries and judges often ignore the eccentric testators intent
(which supposedly is given the highest regard) in favor equitable consideration for the
family

Living probate: permitted by a few states: a process whereby a will can be probated
during the testators life in order to declare the validity of a will and the testamentary
capacity and freedom of undue influence of the person executing the will

Undue Influence

Have to prove (that the will resulted because another person substituted his mind for the
drafters)

 existence of influence
 effect of influence (overpower mind/will of testator)
 that product of undue influence was some gift that would not have been
made w/o undue influence

In Lipper, the testator cut widow and children, of her deceased son, out of her
will. She left the estate to her other two children, one of whom lived next door,
was an attorney, and drafted will she signed 22 days before death. IN the will she
sets out an explanation for why she cut them out: they had unfriendly attitude,

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 never came to see her, did not send enough cards, ect. Daughter-in-law claimed
that the Son had the opportunity for undue influence, says testator did not read
will, and that she did visit and send cards. The daughter-in-law established a
confidential relationship, the opportunity, and perhaps a motive for undue
influence by defendant Lipper (the son). Proof of this type simply sets the stage.
Contestants must go forward and prove in some fashion that the will as written
resulted from the defendant Lipper substituting his mind and will for that of the
testatrix. Here the will and the circumstances might raise suspicion, but it does
not supply proof of the vital facts of undue influence--the substitution of a plan of
testamentary disposition by another as the will of the testatrix. All of the evidence
reflected that testatrix, although 81 years of age, was of sound mind; of strong
will; and in excellent physical condition. Moreover, subsequent to the execution
of the will she told 3 disinterested witnesses what she had done with her property
in her will, and the reason therefor. A person of sound mind has the legal right to
dispose of his property as he wishes, with the burden on those attacking the
disposition to prove that it was the product of undue influence.

Note: In Lipper, the no-contest clause was ineffective because they did not get anything
under the will anyway (have to give some kind of gift for no-contest clause to be
effective)

No-Contest Clause: such a clause provides that a beneficiary who contest the will shall
take nothing, or a token amount, in lieu of the provisions made in the will. Such a clause
raises conflicting policy concerns; enforcement can discourage unmeritorious litigation
and prevent family quarrels, while enforcement can also inhibit a lawsuit proving forgery
or fraud or undue influence. The majority of courts enforce a no-contest clause unless
there is probable cause for the contest.

If the contestant loses, the clause will be upheld unless there was probable cause
to bring the claim, (if it is a hotly contested issue)

Bequests to Attorneys: A presumption of undue influence arises when an attorney-drafter

receives a legacy, except when attorney is related to the testator. (attorney can rebut
presumption by offering clear and convincing evidence). Under the Model Rule of
Professional Conduct it is unethical to receive a testamentary gift from client, unless
client is related.

In TX (TPC 58b) devise or bequest to attorney (or his heir or employee) who prepares
will, will be void unless they are close kin

In re Will of Moses, attorney had been representing testatrix since several years
before her death. He became her lover and she left him most of her estate. The
court stated that that such relationship gave rise to a presumption of undue
influence which could be overcome only by evidence that, in making the will,
Mrs. Moses had acted upon the independent advice and counsel of one entirely
devoted to her interest. Here, Mrs. Moses hired an independent attorney to draft
the will, but never discussed with him: her relationship with attorney or her
desire to exclude blood relatives. Therefore the court held that there was no
meaningful independent advice or counsel touching upon the area in question and
it is manifest that the role of the attorney in writing the will, as it relates to the

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 present issue, was little more than that of scrivener. The chancellor was justified
in holding that this did not meet the burden nor overcome the presumption.

The court above seems to base its decision on the fact that a younger man was
having sex with an older women – court presumes he was influencing her as it
did not see how he could be attracted to her (court might have decided case
differently if he was an older man with a younger woman)

In Re Kaufmann’s Will, rich millionaire moved from Washington to New York to

escape family. He took up painting and got a boyfriend. Boyfriend became live-in
over and financial manager. Millionaire made will that left all his money to
boyfriend. Millionaire died. In will, he left a coming out letter to family. Brother
sued to have will set aside on the ground of undue influence. Court found that
undue influence tainted wills and gifts. Court says that boyfriend was the
dominant partner and exerics3ed control over decedent

In Contrast, a recent Texas case with facts similar to the above, held no undue influence
where one man left all his estate to his male “lifemate” with whom he had lived for 30
years

Some wills include an explanation as to why the kin were cut out, however, there are
some dangers in doing this:

 What you say should be accurate (otherwise details will be contested)

 The will will become public if there is a court challenge – and any secret will
be exposed
 Estate can be sued for libelous statements made in a will – testamentary libel

If you think a will might be contested, what can you do?

 insert no-contest clause

 have a videotape discussion with the client – where client gives explanation
 letter from client setting forth her wishes
 documentation of testators mental capacity
 explanation in will

Will contests usually involve four categories:

1. unnatural disposition (Lipper case)

2. later marriage where there were children by a prior marriage
3. client has no close relations – but has siblings , nephews , nieces
4. client has alternative lifestyle

Fraud

Fraud occurs where the testator is deceived by a misrepresentation and does that which
the testator would not have done had the representation not been made

Misrepresentation must be made with the intent to deceive and the purpose of influencing

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 Two types:

Fraud in the inducement: occurs when a person misrepresent facts, thereby

causing testator to execute a will, to not execute a will, or include provisions to
his favor (e.g. A wants to give B her property, but O says B is dead so she gives
property to O when B was still alive)

Fraud in the execution: person misrepresents the character or contents of the

instrument signed by the testator (O, with poor eyesight, asks for her will so she
can sign it, X gives her a different will to sign)

In the following case, the plaintiffs asked for a constructive trust to be placed upon the
defendants to recift alleged fraud or undue influence

In Latham v. Father Divine, woman executed a will leaving her whole estate to
Father Divine (cult leader). Plaintiffs allege that the woman wanted to revoke and
change the will in order to give plaintiffs the estate. Plaintiffs further argue that
that she attempted to carry out that intention by having a new will drawn, but
that, by means of misrepresentations, undue influence, force, and murder,
testatrix was prevented by defendants from signing new will. Plaintiffs ask for a
judicial declaration that defendants held property under will as constructive
trustees for plaintiffs. Court states that a constructive trust will be erected
whenever necessary to satisfy demands of justice. The court states the rule that,
where a legatee has taken property under a will, after agreeing outside the will, to
devote that property to a purpose intended and declared by the testator, equity
will enforce a constructive trust to effectuate that purpose, lest there be a fraud on
the testator. Court holds that plaintiffs alleged sufficient facts to entitle plaintiffs
to a judicial declaration that defendants held property under will as constructive
trustees for plaintiffs.

In Pope v. Garrett (TX), expectant heirs, by physical force, prevented testator from
executing a will in favor of her friend. Court imposed a constructive trust in favor of the
friend, the trust applied to all heirs (even the innocent ones) because they would be
unjustly enriched otherwise

Tortious Interference with Expectancy: a tort action which alleges intentional interference
with an expected inheritance or gift. P must prove that the interference involved conduct
tortious in itself, such as fraud, duress or undue influence. It does not challenge the
validity of a will but seeks to recover tort damages from a third party for tortious
interference

Execution of Wills

Purposes served by formal requirements: (such as will be in writing, witnessed, ect)

(1) ritual functions

(2) evidentiary: increase reliability of proof presented to the court
(3) protective: safeguard testator from undue influence
(4) channeling: gives testator some assurance that his wishes will be carried out

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 Under the UPC, the will must be:

(1) in writing
(2) signed by the testator (or at his direction)
(3) signed by at least two individuals, each who witnessed the testator signing
the will or the testators acknowledgment of his signature

In re Groffman, D’s argued that the will was not properly executed. Groffamn
was visiting some friends and told them he had his will and wanted them to sign
it (he had already signed it beforehand). One by one the witnesses went with
testator into another room and signed the will. The legal problem was that the
signature of the testator must be made or acknowledged in the presence of two or
more witnesses present at the same time. Here, both witnesses acknowledged the
testators signature but not at the same time. The will was denied probate because
it did not meet the formal requirements.

The above case represents the minority rule, most jurisdictions do not require “presence
at the same time”

In TX (TPC 59) the will must be in writing, signed by testator, and attested to by two
witnesses (14 years or older) who sign in presence of the testator, they can sign before the
testator and do not have to see him sign the will

Some states require “line of sight” – which means the testator actually has to see
the witnesses sign

In Texas the witnesses just has to sign in the presence of the testator – “the
testator is in such a position that he could readily have seen by some slight
physical exertion on his part”

Note: telephone presence is denied – must be actual presence

Teller watches man sign will – witness in his presence? No

Signature: In TX any mark will do as your signature

What about addition after T’s signature? (since most states require T to sign at the end)
the majority rule is that the will is good but the added gift is ignored

Videotape:

In TX, the witness does not have to know she is witnessing a will. No jurisdiction
requires an attestation clause (that W is witnessing a will) but is prudent to bolster will in
case a witness comes back and says that not the will or protects against a forgetful
witness or hostile witness – attestation clause is prima facie evidence of the facts therein

Recommended method of executing a will (TEXT p. 243)

If you follow this method will is valid in every state

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 (1) fasten pages together securely and have them numbered
(2) be certain testator has read and understands will
(3) the lawyer, the testator, two disinterested witnesses, and a notary should be in room
together until ceremony is finished
(4) attorney asks T the following questions: (A) is this your will (B) have you read it and
do you understand it (C) does it dispose of your property in accordance with your
wishes
(5) Ask T ; do you request W1 and W2 to witness
(6) witnesses are situated so they can see T sign
(7) attestation clause
(8) W’s sign and give addresses
(9) self-proving affidavit: typed at end of will, swearing that that will has been duly
executed – then signed by testator and witnesses – this helps in proving up the will
(see TPC§84)

TPC§59(b) What if they sign affidavit but not will? self-proving affidavit signatures may
be used as signature of will, but then will must be proved (not self-proved b/c signature
can only be used for one purpose)

In TX, to prove will, only need testimony of one attesting witness – If no witness is available you
have to prove the will by signature – to eliminate this problem Tx allows a self-proving
affidavit:

this is a sworn statement that is notarized by the notary public – it recites all elements of
proof that the witnesses would testify to in open court and serves as a substitute for the
witnesses testimony in open court

An attestation clause is corroborative only while a self-proving affidavit is evidentiary

Invalid affidavit does not invalidate will

Interested Witness

At common law a beneficiary could not act as a witness – in Tx, it will not affect the
validity of the will but the beneficiary may lose his legacy

Rule: if a subscribing witness to a will is also a legatee or devisee of that will, and the
will cannot be otherwise established, the bequest is void (TPC 61.62)

Three ways interested witness can still take:

1. If the will can be proved by the testimony of a disinterested attesting witness

2. if testimony proving the will is corroborated by one or more disinterested

persons who testify that the testimony of the subscribing witness is true and
correct

3. if the witness would have been entitled to a share of the estate had there been
no will, he will be entitled to as much of a share as does not exceed the value
of the bequest to him in the will

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 Note: many states have statutes that permit deposit of will with the clerk of the court for
safekeeping

Mistake

In re Pavlinkos Estate, husband and wife wanted to leave all property to each
other. Lawyer drafted two wills, but by mistake, wife signed husband will and
husband signed wife’s will. The court refused to probate the will as the Wills Act
required the will to be signed by the testator.

The court follows the traditional view that courts do not correct mistakes.

Note: one attorney tried to cut and paste in order to correct mistake – will not work

Holographic Wills

Many states, including Texas, permit holographic wills

A holographic will is a will written by the testators hand and signed by the testator.

Many states require that the holographic will be entirely handwritten (supposed to add to
evidentiary value) other states allow printed will forms, as long as the material parts are
in the testators handwriting

In re Estate of Johnson, the testators will was on a printed form filled in by her.
The issue was whether the handwritten portions were sufficient to satisfy the
requirements that all material portions of the will be entirely in the handwriting
of the testator. Court said no. The handwritten portion must clearly express a
testamentary intent. Here, the only words which establish testamentary intent are
found in the printed portion of the form. The word “estate” alone is not enough.

Courts will often see if the handwritten words make sense without the printed portion. (in
above case, handwritten words did not make sense w/o printed words)

All Tai-Kin Wong’s  Xi Zhao, my best half /signed/ Held not enough, does not refer to
any property and no words indicating a gift.

What if a will is written to become operative if death from a stated event occurs? i.e. “I
am going on a journey and may not return. If I do not, I leave everything to my adopted
son” What if return from journey and dies a month later, is the will still valid? Most
courts have said yes.

The main issue is holographic cases is : was the writing intended as a will? does it reflect
testamentary intent

TPC §60 – must be wholly written in handwriting of testator – no witnesses needed

TPC §84 a will in the handwriting of the testator may be proved by two witnesses to his
handwriting

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 Note: many jurisdictions require a signature at the end of the will – Tx does not – so if
will says “I George Gunn … “ this is sufficient for his signature – as long as you can
prove it is his handwriting

IN TX, the TPC does not require a date – but this can cause problems in showing which
will was first (if there was more than one will)

Another problem with holographic wills is their meaning, for example if will leaves
everything to his “family”, what does family mean: descendants? immediate family?
parents? everyone?

Holographic will might be appropriate in an estate practice if:

 if client is out of town and wants to make changes to will

 use it while formal will is being prepared

TPC §64,65 provide for oral wills – in a very narrow range --- can make oral will to
dispose or personal property as long as will is made in time of last sickness, value of
property cannot exceed $30 unless there are three credible witnesses (you cannot dispose
of real property this way)

Revocation of Wills

There are two ways to revoke a will:

(1) by subsequent writing executed with testamentary formalities (attested will

or holographic will)
(2) by a physical act such as destroying, obliterating, or burning the will

AN oral declaration to revoke a will, without more, is not enough

Revocation by inconsistency: a subsequent will wholly revokes the previous will by

inconsistency if the testator intends the subsequent will to replace rather than supplement
the previous will. A subsequent will that does not expressly revoke the prior will but
makes a complete disposition of the testators estate is presumed to replace the prior will
and revoke it by inconsistency (can be in full or in part)

The general rule is that if you destroy the will then you destroy all codicils unless it can
be shown that the codicil was meant to be treated independently

In Harrison v. Bird, the attorney mad e two copies of will and kept one, Client
decide she wanted to revoke will and told attorney so over the phone. Attorney
tore will up and mailed her the pieces. The letter that said will was torn up was
found but not pieces. The intended beneficiary offered a will for probate. Court
says that If the evidence establishes that she had possession of the will before her
death, but the will is not found among her personal effects after her death, a
presumption arises that she destroyed the will. Moreover, if she destroys a copy
of the will that is in her possession, a presumption arises that she revoked her will
and all duplicates, even though a duplicate exists that is not in her possession.
Here, the evidence was not sufficient to rebut the presumptions.

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 In the above case, attorney tearing up the will did not constitute a revocation – but it was
presumed that she destroyed the pieces and therefore revoked the will

Lost wills: a that is lost, or is destroyed without the consent of the testator, or is destroyed
with the consent of the testator but not in compliance with the revocation statute can be
admitted into probate if its contents are proved

In Thompson v. Royall, the testator made a will but then wanted to revoke it. A
judge, however, told her to hold onto the will as a memo and just write that will
is null and void on the cover. The judge wrote it out and she signed it. She died
and the will was then offered for probate. The court held that the attempted
revocation was ineffective, because she did not revoke the will in accordance
with the statute (not wholly in her handwriting) and did not physically obliterate,
mutilate or cancel any written parts of the will.

Under UPC approach, words of cancellation need not touch the words of the will, but
must be written on the will.

A will can be revoked by a later writing, but that later writing has to comply with the
statute (i.e. if later writing is an attested will it must be signed and attested to by
witnesses)

TPC§63 revocation is accomplished by subsequent will or by destroying or canceling the

will or causing it to be destroyed in testators presence

Doctrine of dependent relative revocation: if a testator purports to revoke his will upon a
mistaken assumption of law or fact, the revocation is ineffective if the testator would not
have revoked his will had he known the truth.

If you have revoked prior will by a new will, but new will was not valid, then this
doctrine might serve to negate the new will and revive the old will

But how do you probate a destroyed will? In TX (TPC 85) a will which cannot be
produced must be proved by credible witnesses or other evidence (a photocopy)

DRR applies only where:

(1) there is an alternate plan of disposition that fails or

(2) the mistake is recited in the terms of the revoking instrument

Components of a Will

Doctrine of Integration: all papers present the time of execution, intended to be part of the
will, are integrated into the will

Best idea is fasten all the pages together and number the pages

The bigger problem is with documents not present at the execution but referred to in the
will

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 Doctrine of Republication by Codicil: a will is treated as reexecuted (republished) as of
the date of the codicil, so if a testator revokes first will by a second will and then executes
a codicil to the first will. The first will is republished and the second will is revoked

Doctrine of incorporation by reference: any writing in existence when a 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

In Clark, the will made reference to a memorandum – whereby testator would

designate who gets her personal property. She decided she wanted a certain
painting to go to Clark and made a note in the notebook. The will was made in
’77, the notebook in ’79, the reference to the painting was made in ’80, and a
codical to the will was made in ’80. After she died, the executor wanted the
painting and refused to recognize memo. Court said as a general rule, a proper
will can incorporate a memo if the memo was in existence at the time of the will.
But there is another rule: under the doctrine of republication by codicil, the
codicil acts to republish the will in ’80 and the notebook entry is before the will
execution and is therefore incorporated by reference.

Note: UPC substantial compliance doctrine might allow the inclusion of later memos –
but most courts do not

Acts of Independent Significance: if the beneficiary or property designations are

identified by acts or events that have a lifetime motive and significance apart from their
effect on the will, the gift will be upheld

For example if T’s will say “I leave my car to A” and T’s car is a junker, T then
gets a new luxury car and dies. A gets the new car. The new car does not revoke
the gift. However, it would if the will said “I leave my Pinto to A” and T then
trades in Pinto for Lexus.

If T bequests the “contents of the drawer or the safety deposit box” then recipient get
everything in it.

In TX, the legacy does not include “contents” unless the will directs that contents are
included. “Contents” does not include intangible property (stocks) or property that
requires formal transfer of title (real property or if keys to a car were in the drawer)

CONTRACTS RELATING TO WILLS

Contracts to Make a Will

Parties agree among themselves to make a will

These arise in situations such as promise to make a will in exchange for agreement to
marry, or serve as nurse, or to not contest a will

In many states the contract must be in writing and the promisee is only entitled to sue for
value of the services rendered (quantum meruit)

27
 Example: T makes contract with A to leave everything to A at death if A will take care of
T for life. T executes a will leaving her estate to A. Subsequently, A changes her mind and
decides not to care for T. T rescinds the contract. Upon T’s death A will still be entitled to
take as the will was not properly revoked, a breach of contract will not revoke the will
(however, some court might allow a constructive trust)

Contracts not to Revoke a Will

Most often arise where husband and wife have executed a joint will or mutual will

Joint will: one instrument executed by two or more persons as the will of both

There are no legal consequences peculiar to joint or mutual wills unless they are executed
pursuant to a contract between the testators not to revoke the will

The UPC §2-514 provides that:

A contract to make a will or devise, or not to revoke a will or devise, or to die intestate, if
executed after the effective date of this Article, may be established only by (i) provisions
of a will stating material provisions of the contract, (ii) an express reference in a will to a
contract and extrinsic evidence proving the terms of the contract, or (iii) a writing signed
by the decedent evidencing the contract. The execution of a joint will or mutual wills
does not create a presumption of a contract not to revoke the will or wills.

TPC §59A, contract can be established only by provisions of will stating that contract
does exist and what its material provisions are (otherwise there is no contract)

In Via v. Putnam, husband and wife made mutual wills that devised each spouses
estate to the survivor and provided that the residuary estate would go to the
children upon the survivors death. The wife then died, husband remarried,
husband died. New wife sought to collect under the predetermined spouse statute.
The children argue that they are third-party beneficiaries of the contract between
the decedent and their mother and that they deserve creditor status. As creditors,
they would have priority over the share of the pretermitted spouse and would
receive the entire estate. The argument is that husband breached contract with
first wife when he remarried and failed to take steps to protect the interests of the
third-party beneficiaries (the children). The court holds that held that testator's
children, as third-party beneficiaries under mutual wills of their parents, were not
entitled to creditor status in contravention of interests of testator's surviving
spouse. The court reasons that Florida has a strong public policy concerning the
protection of the surviving spouse of the marriage in existence at the time of the
decedent's death. This policy has been continuously expressed in the law of this
state and is controlling

The above case represents the minority rule. The majority rule is that the third-party
beneficiaries prevail over the second wife (other courts have imposed constructive trusts
for the benefit of third party beneficiaries)

CONSTRUCTION OF WILLS

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Most construction problems could have been avoided by appropriate drafting

Admission of Extrinsic Evidence

A majority of jurisdictions follow the plain meaning rule: (no extrinsic evidence rule) a
plain meaning in a will cannot be disturbed by the introduction of extrinsic evidence that
another meaning was intended

In Mahoney v. Grainger, T made a will before her death and told attorney that
first cousins should share the estate. The will read “I Bequest my estate to my
heirs at law.” The sole heir at law was a maternal aunt. (was first in line so takes
all) Cousins argued that the outside statements should be introduced to prove her
testamentary intent. Court disagreed. There is no doubt as to the meaning of the
words “heirs at law.” The fact that it was not in conformity to the instructions
given to the draftsman who prepared it or that he made a mistake does not
authorize a court to reform or alter it or remold it by amendments. In the case at
bar there is no doubt as to the heirs to law of the testatrix. The aunt alone falls
within that description. The cousin are excluded.

Note: In the case above, attorney would probably be liable for malpractice

Virtually all jurisdictions allow evidence in of the “surrounding circumstances” what was
going on at the time of the signing/making, e.g. in the above case, surrounding
circumstance evidence might include her relationship with aunt and cousins , were they
close or did they hate each other

Personal Usage Exception: if the extrinsic evidence shows that the testator always
referred to a person in an idiosyncratic manner, the evidence is admissible to show that
the testator meant someone other than the person with the legal name of the legatee (see
p.413 note 3)

There are two type of ambiguities (this distinction is ignored by TX courts, it is either an
ambiguity or is not one):

Latent: ambiguity does not appear on the face of the will but shows up when
applied

Patent: ambiguity that appears on the face of the will

3 categories of evidence:

 facts and circumstances evidence: nature of the relationship between testator

and other person
 direct statements to lawyer
 direct statements to some third party

Texas courts allow evidence from all three categories If there is a determination that there
is an ambiguity

DEATH OF BENEFICIARY BEFORE DEATH OF TESTATOR

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If the devisee does not survive the testator, the devise lapses (fails)

However, most states have anti-lapse statutes, which substitute another beneficiary for the
predeceased devisee

If there is no anti-lapse statute or statute does not apply or testator did not want statute to
apply, the common law rules regarding lapsed devises will apply: (these are default rules,
they do not apply if testator provides otherwise)

Specific or general devise rule: if a specific or general devise lapses, the devise
falls into residue

No-residue-of-a-residue rule: if the devise of the entire residue lapses, because

the sole residuary devisee or all the residuary devisees predecease the testator, the
heirs of the testator take by intestacy. If a share of the residue lapses, the lapsed
residuary share passes by intestacy to the testators heirs rather than to the
remaining residuary devisee (the majority of states do not follow this rule)

Class gift: if the devise is to a class of persons, and one member of the class
predeceases the testator, the surviving members of the class divide the gift

Void devise: where a devise is dead at the time the will is executed, the devise is
void

An anti-lapse statute applies to a lapsed devise only if the devisee bears the particular
relationship to the testator specified in the statute (is also a default rule)

UPC Anti Lapse statute: applies only to devise to a grandparent or a lineal descendant of
a grandparent

TX §68 applies to devisees who are descendants of the testator or the testators parents

In Allen v. Talley, the issue was whether the decedent's will contained words of
survivorship which precluded application of the anti-lapse statute. The will stated
“I give, devise and bequeath unto my living brothers and sisters” One brother
and one sister survived the testator as did three children of the other brothers. The
children argued that those words are not words of survivorship, that they do not
create a class gift, and that the anti-lapse statute applies. The court applied the
following canons of construction (1) Primary concern of court in construction of
a will is to determine testator's intent (2) When construing will, testator's intent
must be ascertained by reviewing will in its entirety (3) Absent ambiguity, court
must construe will based on express language used. The court concluded that
when the phrase "living brothers and sisters" is construed in light of the entire
sentence, it is clear that Mary intended that it was her brothers and sisters who
were living at the time of her death who were to participate in the ownership of
her estate. The court holds that will contained words of survivorship which
precluded application of anti-lapse statute.

Many courts hold that phrase like “if he survives me” will preclude application of anti-
lapse statute.

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 In Jackson v. Schultz, stepchildren of testator contracted to sell his house to D. D
refused to perform the contract and argued that the children did not own the
house: since will gift was to “her and her heirs and assigns”. Here, the wife
predeceased the testator and therefore, D argues, the gift to the children lapsed.
The court states that when the word “or” is used following a primary devise, it is
a word of substitution. Moreover, “or” may be substituted for “and” to carry out
obvious testamentary intent. Otherwise the gift would have gone to the state as he
had no other heirs. Thus, the court permits the “and” to be read as “or” which
substitutes the children for the wife.

A class gift is treated differently from a gift to individuals. Surviving members of the
class devise the total gift, including the deceased members share.

In Dawson v. Yucus, devised a ½ of 1/5 interest in some land to Wilson and the
other ½ to Burtle. The clause also stated that “I do that those farm lands should
go back to my late husbands side of the house. Burtle died before testator, Wilson
argues that it was a class gift and he should take the whole 1/5. Trial court said
the death of Burtle created a latent ambiguity. The issue is whether clause two
was a class gift. Court says no.

Defintion: a gift of an aggregate sum to a body of persons uncertain in number

at the time of the gift, to be ascertained at a future time, and who are all to take
in equal or in some other definite proportions, the share of each being dependent
for its amount upon the ultimate number of persons

Test: If from such language it appears that the amounts of their shares are
uncertain until the devise or bequest takes effect, the beneficiaries will generally
be held to take as a class; but where at the time of making the gifts the number
of beneficiaries is certain, and the share each is to receive is also certain, and in
no way dependent for its amount upon the number who shall survive, it is not a
gift to a class, but to the individuals.

Exception: the mere fact that the testator mentions by name the individuals who
make up the class is not conclusive, and that if the intention to give a right of
Survivorship is collected from the remaining provisions of the will, as applied to
the existing facts, such an intention must prevail.

Here, testator named the individuals, Wilson and Burtle, and gave them each a
one-half portion of her interest in the farm, thus making certain the number of
beneficiaries and the share each is to receive. The shares in no way depend upon
the number who shall survive the death of the testatrix. There is nothing in the
language of the will that indicates the testatrix intended to create a class or
survivorship gift.

What happens if there is a gift “to A and the children of B”? Is it a class Gift?

In re Moss, (English case) the testator left his shares in the newspaper to be
divided among his niece and the children of his sister (after his wife dies and
when they reach 21), The niece predeceased the testator. The issue was whether
the share to the niece lapsed and became part of the residue or was it a class gift
and only survivors of the class take. The court says that the gift is “in effect” a
gift to a class, and that such a gift was intended to go to the living.

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 The prevailing American view is that a gift “to A and the children of B” is a gift to an
individual and a class in the absence of additional factors.

Most states apply their anti-lapse statutes to class gifts.

Changes in Property After Execution of Will: Specific and General Devises

Specific devises of real and personal property are subject to the doctrine of ademption by
extinction

Doctrine of ademption by extinction: when a testator disposes, during his lifetime, of the
subject of a specific legacy or devise in his will, that legacy or devise is held to be
adeemed. E.g. if T’s will devise Blackacre to his son, T then sells Blackacre to buy
Whiteacre, the gift of Blackacre is adeemed and Son has no claim to Whiteacre

Adepmtion does not apply to general or demonstrative devises – a demonstrative legacy

is a general legacy payable form a specific source: e.g. the sum of 10,000 to be paid from
the sale of my GM stock, most courts say stock or other assets must be sold to satisfy the
bequest

In Wasserman v. Cohen, Drapkin (testator) created a trust, in which, at her death

trustee was ordered to convey to P an apartment building. Prior to her death,
Drapkin sold the apartment building. P now argues that she is entitled to the
proceeds of the sale. The issue is whether the doctrine of ademption by extinction
applies to a specific gift of real estate contained in a trust. Courts says that to be
effective, a specific legacy must be in existence and owned by testator at the time
of his death. (while the doctrine may be considered harsh, it is easily understood
and applied by draftsmen, and can be easily avoided by careful drafting) The
court hold that a trust should be construed according to the same rules
traditionally applied to wills.

The focus is not on intent, but whether the devise is in existence

There are ways (used by courts) to avoid ademption:

1. Classify the devise as general or demonstrative rather than specific

2. Classify the inter vivos disposition as a change in form, not substance (for
example if gift is 100 shares of X company and X company merges into Y
company)
3. Construe the meaning of the will as of the time of death rather than as of the
time of execution
4. Create exceptions (if testator is incompetent – adepmtion does not apply)

Note: a gift of stock includes stock splits and dividends – does not include cash
distributions

Divorce or Marriage After Will Execution: Elective Share Statutes

In most states, a divorce revokes any provision in the decedents will for the divorced spouse

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TX §69 treats divorced spouse as if he predeceased the other spouse

Under UPC approach: divorce revokes any revocable disposition to former spouse or any relative
of former spouse

Under Texas law, divorces revokes the disposition to the former spouse, but if alternate gift is to a
stepchild, the child would still take

Tx Fam Code: divorce revokes a former spouse designation as a beneficiary under life insurance
policy

In most states, if T gets married after making his will, the spouse may take a “forced share” of the
estate. Moreover, pretermitted child statutes allow a child born after will to take.

UPC 2-301 Entitlement of Spouse: Premarital Will: she gets what she would have received if T
had died intestate, except for any devise to a child of testator or descendant of a child of testator
(unless will provides otherwise see p.534) (TX does not have an omitted spouse statute, so spouse
will only get ½ of community estate)

The Elective Share

Under elective share statutes, the spouse can take under the decedents will or can
renounce the will and take a fractional share of the decedents estate

There is a wide variation state to state

The elective share was originally created in common law property states to overcome the
male bias

Policy Reasons for such a statute:

 surviving spouse contributed to the decedents acquisition of wealth and

deserves a portion of it
 a decedent who disinherits his surviving spouse is seen as having reneged on
the bargain
 decedent should support the other spouse

The original elective share statutes included probate assets only. A question now is
whether the elective share should be extended to some or all nonprobate transfers:

In Sullivan v. Burkin, the testator created a trust and transferred some property to
it. The income of the trust was payable to him and he could revoke it at any time.
At his death the trust was payable to George and Harold (D’s). The husband died
and noted in his will that he had intentionally neglected to make provision for
wife (they were seperated). She decided to take an elective share of his estate
and argued that the inter vivos trust was part of the estate. She claimed that the
trust was an invalid testamentary disposition (since he general power
appointment over the assets). Court concluded that under present law the husband
had created a valid trust. In the future, as to any inter vivos trust created or
amended after date of this opinion, estate of decedent, for purposes of surviving
spouse's statutory share, shall include value of assets held in an inter vivos trust

33
 created by the deceased spouse as to which the deceased spouse alone retained
power during his or her life to direct disposition of those trust assets for his or her
benefit, as, for example, by exercise of a power of appointment of the revocation
of the trust.

Old UPC approach is to create an “augmented estate” (the probate estate augmented with
certain non-probate assets), and surviving spouse is entitled to 1/3. The augmented estate
includes transfer listed on p.508 and property given to spouse during marriage (to be fair)

New UPC (p.509) tries to achieve a result closer to a community property system.

Rights of issue excluded from will

A child has no statutory protection against disinheritance – there is no requirement that

parents leave child anything

However, the law does not favor cutting out children when the testator leaves no spouse –
judges might find way to get property to children

Pre-termitted statutes are designed to prevent unintentional disinheritance of

descendants

In Azcunce Case, the issue was whether a child who is born after the execution of
her father's will but before the execution of a codicil to the said will is entitled to
take a statutory share of her father's estate under Florida's pretermitted child
statute--when the will and codicils fail to provide for such child and all the other
statutory requirements for pretermitted-child status are otherwise satisfied. We
hold that where inter alia the subject codicil expressly republishes the original
will, as here, the testator's child who is living at the time the codicil is executed is
not a pretermitted child within the meaning of the statute. We, accordingly, affirm
the final order under review which denies the child herein a statutory share of her
father's estate as a pretermitted child.

Espinosa case, held that daughter who was not named in will lacked standing to bring
malpractice action but estate did have standing.

In re Estate of Laura, testator intentionally excluded grandchildren – but one of

them had kids. The issue was whether the great grandchildren could take court
said no – since he cut off his grandchildren he probably intended to cut off their
children.

TX§67- a pretermitted child is one who is born or adopted after the execution of the will
– he will take if he is not provided for or mentioned in the will and is not provided for by
any non-probate transfer taking effect at testators death

 does not apply to grandchildren

 a contingent gift is sufficient provision for the child

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Will Substitutes

In Wilhoit v. Peoples Life Insurance, Sarah was the beneficiary of a life insurance
policy and choose to let the life insurance company keep the money and pay
interest. The contract with the insurance company said that if she died the money
was to be paid to her brother. He died before her and in her will she left the
money to her stepson. However the contract still said the money should be paid
to brother, and brother heirs argued that under the law of insurance the money
should go to them. The court said that the agreement with the insurance company
was not an insurance contract since they had already paid the policy. The court
strikes down the payable-on-death designation in the agreement because it is a
testamentary act not executed with the formalities required by the wills act.

The court applies the traditional rule: POD designations in contracts other than life
insurance contracts are invalid.

In Cook v. Equitable Life Insurance, the deceased had a life insurance policy that
named his ex-wife as the beneficiary. Before he died the deceased made a
holographic will in which he bequeathed the policy to his new wife and son. The
new wife argued that strict compliance with the policy provision was not
required, As a general rule an attempt to change the beneficiary of a life
insurance contract by will and in disregard of the methods prescribed under the
contract will be unsuccessful. There is an exception if the insured did everything
in his power to change the beneficiary but was not able to. Here, the court says
that the deceased had ample time and opportunity to change the policy but did
not. Thus, the proceeds of the policy go to the first wife. The court notes that
public policy requires that the insurer, insured and beneficiaries should be able to
rely on the certainty that policy provisions will control except in extreme
situations.

Remember, in TX divorce will void designation of former spouse in life insurance policy

Multiple Party Bank Accounts

A joint bank account can be one of three types:

1. Joint tenancy account: both can draw on account and survivor owns the
balance
2. POD account: one party does not have power to withdrawal but is entitled to
the balance when the other dies
3. Agency account: one party has the power to withdrawal but is not entitled to
the balance when the other dies

Texas has a model form for banks, TPC 439A

In Franklin v. Anna National Bank of Anna, decedent put his wife’s sister on his
bank account because he had trouble seeing. The account was a joint account
with right of survivorship. Prior, to his dearth decedent sought to get the sister off
his account and put another on, but the bank would not change the signature card
based on his letter alone. He died and the issue is whether the sister should get

35
 the money as the surviving joint owner. The instrument creating a joint tenancy
account presumably speaks the whole truth. In order to go behind the terms of the
agreement, the one claiming adversely thereto has the burden of establishing by
clear and convincing evidence that a gift was not intended. The court held that
evidence established that decedent lacked donative intent at time he opened joint
savings account, and thus established that money in account was part of
decedent's estate.

Three important features of a joint tenancy:

1. the creation of a joint tenancy in land gives the joint tenants equal interests
upon creation
2. a joint tenant cannot devise his or her share by will (as joint tenants interest
vanishes at his death)
3. a creditor of a joint tenant must seize the joint tenants interest during life

Note: If you have three joint tenants; A, B, and C, and A while still alive, sells his interest
to G, G will become a 1/3 cotenant, while B and C are still joint tennats

In TX, joint tenancy property passes by will or intestacy (does not disappear unless
parties agree otherwise §46)

see TPC 436-41

Planning For Incapacity

The Durable Power of Attorney

A durable power of attorney continues throughout the incapacity of the principal until the
principal dies (designates an agent)

Such powers must be created by written instrument

The power is like a trust but differs in three ways:

1. the power ceases when the principal dies (a trust continues after settlers
death)
2. if agent dies, the power terminates (if trustee dies, court will appoint another)
3. parties readily deal with trustees bit are cautious about dealing with agents

In Franzen v. Norwest Bank Colorado, husband created a trust to provide for

himself and wife. He died and she became beneficiary and could direct trustee to
deliver estate to her. Bank contacted her nephews, who were the remainder men,
the did not want to assume responsibility of her affairs. Her brother got a power
of attorney that authorized him to act of her behalf, he wanted to revoke the trust.
The nephews were leery of brothers motives, and challenged d power of attorney.
A power of attorney is an instrument by which a principal confers express
authority on an agent to perform certain acts or kinds of acts on the principal's
behalf. Colorado law requires a specific reference to the trust in the agency
instrument (agents authority to alter a trust is narrowly construed.) However, law

36
 was passed after the power of attorney was executed and did not have retroactive
effect. Moreover, under common law, specific reference to the trust instrument
was not required in power of attorney instrument generally authorizing the agent
to revoke trusts.

Durable power of attorney soften create problems (greedy relatives)

TPC § 481 The Texas Durable Power of Attorney Act

Directives Regarding Health Care and Disposition of the body.

Each person has a constitutional right to make health-care decisions including the right to
refuse medical treatment

Living Wills: contains directives concerning termination of medical treatment, provides

that a signers life shall not be artificially prolonged by extraordinary measures when there
is no reasonable expectation of recovery from extreme physical or mental disability

Under federal law, hospital must advise every patient of the right to sign a n advance
directive

Durable Power of Attorney for Health Care: allows a person to appoint another person to
make healthcare decisions for him

Note: if someone is worried that a person might be abusing his power of attorney – what
can they do? not much – while person is living, no one would have standing – only step
would be to try and have himself appointed as guardian of the estate

Advance directives provide such info about an incompetent patients wishes in advance. It
makes the patients wishes known about medical treatment before the patient needs the
care. There are three kinds:

(1) Directive to Physicians (living wills)in TX the directive instructs the doc
not to use life support to extend the natural process of dying (if you are in the
terminal phase of an illness)

(2) Durable powers of Attorney: a power of attorney that will remain of effect
(or even become effective) upon the incapacity of the principal. This allows
someone else to make your health decisions if you cannot

(3) Out of Hospital Do Not Resuscitate Order: an order (signed by doc) that
allows patients in the terminal phase of an illness to refuse life-sustaining
treatment when outside the hospital

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TRUSTS

Trust is a receptacle – you give the receptacle to the trustee (who could be yourself) – put assets
into receptacle

Intro

A trust is a devise whereby a trustee manages property for one or more beneficiaries

Property owner transfers property to trustee who then holds legal title for the benefit of
the beneficiary

It is similar to a gift in that no consideration is necessary

The trust is a flexible tool that can be used for numerous purposes to include:

 revocable trust
 marital trust
 trust for incompetent person
 trust for minor
 dynasty trust
 discretionary trust

There must be delivery of some trust property (called the “res”)

Can you have an oral trust? in most states yes, but in TX (Tex Prop Code 112.004) the
trust must be in writing, unless trust is personal property, is transferred by oral declaration
for benefit of someone other than settlor

Parties

The settlor: person who creates a trust

Must have legal capacity (must be 18)

Can be oral, but if trust property is real property must be in writing

In order to have a valid trust, the trustee must owe equitable duties to someone
other than herself

Can create an intervivos trust (during life) or a testamentary trust (created by

will)

If the settlor is not the trustee of an inter vivos trust, a deed of trust is necessary,
the deed must be delivered (must have transfer)

You can create a self-settled trust – person transfers (as settlor) assets to self as
(trustee) but someone else has to benefit – cannot wear all three hats).see
problem p.559

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The trustee:

The trustee has certain obligations – has fiduciary duty to beneficiaries

There may be one or several; trustees. The trustee may be an individual or a

corporation

Rule: a trust will not fail for want of a trustee (if intended trustee dies or refuses –
court will appoint another trsutee)

The trustee holds legal title to the trust property

In order to have a trust, it is necessary for the trustee to have some duties to
perform

see problem p.561

The Beneficiaries:

The beneficiaries hold equitable interests

Personal creditors of the trustee cannot reach the trust property

A Trust Compared with a Legal Life Estate

Author says Trust is much better than a legal life estate for a number of reasons:

(1) Sale: the legal life tenant has no power to sell a fee simple
(2) Reinvestment of proceeds of sale:
(3) Borrowing of money: the real estate cannot be mortgaged by the life tenant
without permission of remaindermen
(4) Leasing
(5) Waste
(6) Expenses
(7) Creditors
(8) Miscellaneous

Revocable Trust: O declares himself trustee of property to pay the income to O for life,
then on O’s death to pay the principal to O’s children. O retains power to revoke the trust.
The revocable trust avoids the delays costs and publicity of probate.

while alive, settlor can revoke trust or make changes

A revocable trusts can be created by:

 Declaration of trust: whereby the settlor becomes the trustee of the trust
property
 Deed of trust: names a third party as trustee

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In Texas, all trusts are revocable unless instrument states otherwise

Pour-over gift: pour over money that would otherwise be probate into a trust

Creation of Trust – Intent to create trust - the grantor must manifest an intention to
create a trust relationship

When grantor conveys property to a grantee to hold “for the use and benefit” of
another, this is a sufficient manifestation of an intention to create a trust.

In Jimenez v. Lee, Daughter brought action against her father to compel him to
account for assets which he allegedly held as trustee of educational trust for
daughter's benefit. The court held that defendant held savings bond and savings
account in trust for benefit of plaintiff, that, accordingly, he did not hold shares of
bank stock acquired with trust assets as a 'custodian' under the Uniform Gift to
Minors Act, that plaintiff was entitled to impose a constructive trust or equitable
lien on the stock, that mere fact that trust assets were registered in daughter's
name along with her parents' names did not, under doctrine of merger of legal
and equitable title, extinguish the trust and that defendant had a duty to account
and to prove that expenditures were made for trust purposes.

Where gifts of savings bond and cash were made for educational needs of minor,
fact that the respective donors did not expressly direct the donee's father to hold
the subject matter of the gift "in trust" was not essential to creation of a trust
relationship; it was sufficient that the transfers were made with the intent to vest
beneficial ownership in the minor.

Precatory language: language indicating that the testator intends to create a trust with
legal duties (as opposed to a mere moral obligation that is unenforceable at law)

Necessity of trust property: a trust cannot exist without trust property – the trust
property may be any interest in property that can be transferred (e.g. one dollar,
contingent remainder, leasehold, royalties, life insurance – anything that is property)

In Unthank v. Rippstein, held that decedent's notation 'I * * * herewith bind my

estate to make the $200 monthly payments provided for * * *' in decedent's letter
on which he made the notation was an ineffectual attempt to bind his estate in
futuro and an unenforceable promise to make future gifts, and did not create a
trust.

The sentence “send 200 a month” evidenced no testamentary intent and thus was
denied probate

A trust involves a duty to deal with some specific property, kept separate from the
trustees own funds. A debt involves an obligation to pay a sum of money to another. The
crucial factor in distinguishing between the two is whether the recipient of the funds is
entitled to use them as his own and commingle them with his own monies.

40
Resulting trust: arises by operation of law in one of two situations: (a) where an express
trust fails or makes an incomplete disposition or (b) where one person pays the purchase
price for property and causes title to the property to be taken in the name of another
purchaser who is not a natural object of the bounty of the purchaser – (see p.584) the
trustee must reconvey the property to the beneficial owner upon demand – is basically a
reversion – O to A for life, if A dies before O then property reverts back to O

Note: if trust is funded with check that is not honored – no trust

Constructive trust: also arises by operation of law – in such circumstances that the holder
of the legal title may not in good conscience retain the beneficial interest, equity converts
him into trustee

TX – property code:

 A trust cannot be created unless there is trust property

 A person has the same capacity to create a trust by declaration, inter vivos or
testamentary transfer, or appointment that the person has to transfer, will, or
appoint free of trust.
 A trust is created only if the settlor manifests an intention to create a trust.

In Clymer v. Mayo, Administrator of estate petitioned for instructions on impact

of decedent's divorce on estate's administration, and decedent's parents brought
actions for declaratory and equitable relief to preclude decedent's former husband
from participating in estate and to remove administrator. the residue from a will
poured into two different trsust:

Trust A: to help with estate taxess, 50% of her income went into trusts –
court get rid of trust A because the purpose was to divide the property
similar to what a community property state would have done, since there
was a divorce it is not relevant

Trust B: funded by life insurance, retirement benefits, pension. T failed

to change beneficiary of retirement fund. Disclaimer must be clear and
unequivocal – divorce papers stated that H would have no right to
retirement fund but did not address trust issue

But court said to allow ex-husband to take would be against T’s

intentions and against public policy

No Texas case on point but Shannon says see §69 (pre-deceasing presumption)
but no comparable provisions as to trust – tx court would likely follow above
case

Can no-contest clause apply to a trust made by will? no clear rule but wise to put
clause in both trust and will

In Brainard, the taxpayer tried to limit his income taxes by playing the stock
market and setting up a trust of all the stock profits. The trsut was to benefit his
wife and children, The rest of the income was divided up among the four

41
 beneficiaries (but was not actually distributed to them). IRS said that this was s
ham and since taxpayer made the income he must pay the taxes. TRUST issue --.
was there any res? court said no – no trust property could be created until income
was made – profits were not in existence at the time taxpayer tried to declare the
trust

Shannon says If taxpayer had been more specific it could have worked

In Speelman, held that a delivered letter to the plaintiff confirming that the
decedent was to give the plaintiff certain percentages of decedent's shares of the
profits from the then nonexistent stage musical version of 'Pygmalion,' known
later as 'My Fair Lady,' was an assignment of future royalties and a completed
gift.

see example on p.593

Revocable Trusts

In Pilafas, there were two issues whether he revoked his will and whether he
revoked his trust. The court holds that the Evidence was sufficient to establish
that will was revoked and decedent died intestate; decedent took possession of
original will after he executed it, he meticulously kept important documents, and
his son diligently searched home after death and was unable to find original will.
However, common-law presumption that will last seen in testator's possession
that cannot be found after his death has been revoked does not extend to
revocable inter vivos trust. In trust the beneficiaries have interests that cannot be
revoked unless the settlor has the power to revoke by the terms of the trusts. He
cannot revoke if he did not reserve a power of revocation.

Trusts, unlike wills, normally cannot be revoked by physical act because a third party is
involved

In Resier, Dunnebier created an intervivos revocable trust, which he would

control. He conveyed some stock to the trust. He then sought a loan from the
bank, who made a loan to him based partly on his interests in those companies.
He died and probate estate was not enough to satisfy the will. The bank argued
that they should be able to get after the trust assets since the trust instructs the
trustee to pay debts. During lifetime, when trustee creates trust for his benefit,
creditors can reach the maximum amount which could be paid for his benefit.
Court says if they can reach it during lifetime, they should be able to reach it
when he dies.

A question of validity arises when there is a revocable declaration of trust, under which
the settlor declares himself trustee for the benefit of himself during lifetime, with the
remainder to pass to others at his death.

In Farkas v. Williams, Frakas bought some stock and had them issue in his name
as trustee for Williams (an employee of his) until he died. The issue was whether
the instruments created valid inter vivos trust after the death of the settlor. As a
general rule, if no interest passed to beneficiary before the death of settlor, the

42
 intended trusts are testamentary and hence invalid for failure to comply with the
statute on wills. The specific issues were (1) whether upon execution of the so-
called trust instruments defendant Williams acquired an interest in the subject
matter of the trusts, the stock o, (2) whether Farkas, as settlor-trustee, retained
such control over the subject matter of the trusts as to render said trust
instruments attempted testamentary dispositions. The court holds that (1) he
intended to give Williams an interest (the authors of the Restatement have
referred to the interest of a beneficiary under a trust who must survive the settlor
(and where the settlor receives the income for life) as a contingent equitable
interest in remainder). and (2) he had power to revoke, but Retention by settlor of
power to revoke, even when coupled with reservation of a life interest in trust
property, does not render the trust inoperative for want of execution as a will.

In the above case, there was not much of a transfer of property (kept must of bundle) but
as a matter of policy the court upholds the revocable trust

Elements of a revocable trust: written instrument, delivered to a third party, clear

intentions , and named beneficiary other than settlor

A trust is a management relation whereby the trustee manages property for the benefit of
one or more beneficiaries. The trustees holds legal title to the property but owes fiduciary
duties to the beneficiaries. Beneficiary interest is called “equitable title” because an
equity court enforces their rights against the trustee.

Necessity of Trust Beneficiaries

A trust must have one or more beneficiaries, but there are exceptions; the beneficiaries
may be unborn or unascertained when the trust is created. But, if at the time the trust
becomes effective the beneficiaries are too indefinite to be ascertained, the attempted
trust may fail for want of ascertainable beneficiaries

Settlor Trustee Beneficiary

A B “friends”

In Clark v. Campbell, testator left a gift to his friends. The issue was whether the
bequest for the benefit of the testator's "friends" must fail for the want of
certainty of the beneficiaries. By the common law there cannot be a valid bequest
to an indefinite person. There must be a beneficiary or a class of beneficiaries
indicated in the will capable of coming into court and claiming the benefit of the
bequest. A class must be capable of delimitation (e.g. children, issue, or sisters).
The word "friends," unlike "relations," has no accepted statutory or other
controlling limitations, and in fact has no precise sense at all. Moreover, no
sufficient criterion is furnished to govern the selection of the individuals from the
class.

The case also discussed the power of appointment: giving one of the beneficiaries certain
powers to name other beneficiaries (example – to wife for life and then to such children
as she designates in her will)

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Note: one exception to the above rule is if it is for a charitable trust – if it said to
“charities”

Settlor Trustee Beneficiary

A B “doggie”

In re Searights Estate, provisions in will of deceased that deceased's dog was

bequeathed to certain person and that executor should deposit $1000 to be used
by him to pay person to whom dog was bequeathed, at rate of 75 cents a day for
keep and care of dog as long as it should live, The issue was whether the
testamentary bequest for the care of the dog was the proper subject of a
“honorary trust”? Text writers on the subject of trusts and many law professors
designate a bequest for the care of a specific animal as an 'honorary trust'; that is,
one binding the conscience of the trustee, since there is no beneficiary capable of
enforcing the trust. To call this bequest for the care of the dog, Trixie, a trust in
the accepted sense in which that term is defined is, we know, an unjustified
conclusion. The modern authorities, as shown by the cases cited earlier in this
discussion, however, uphold the validity of a gift for the purpose designated in
the instant case, where the person to whom the power is given is willing to carry
out the testator's wishes. Whether called an 'honorary trust' or whatever
terminology is used, we conclude that the bequest for the care of the dog, Trixie,
is not in and of itself unlawful.

The problem with animals as beneficiary is that they have no standing in courts

Under the Rule Against Perpetuities, an honorary trust to support a pet animal is void if it
can last beyond relevant lives in being at the creation of the trust plus 21 years.

Normally an inter vivios trust of land must be in writing. However, under certain
circumstances a court will enforce an inter vivos trust of land or an oral trust arising at
death

This often comes up a person puts title to land in another, relying upon the transferees
oral promise to reconvey (to avoid creditors or achieve some tax benefit)

In Hieble v, Hieble, the mother who thought she was dying from cancer conveyed
some real property to her son with the understanding that if she recovered he
would transfer it back. She got better but son refused to transfer property back.
The court held that held that where mother transferred interest in property to her
son without consideration after having undergone surgery for malignant cancer
and in fear of a recurrence, son had orally agreed to reconvey property to mother
upon her request and confidential relationship existed between mother and son,
mother was entitled to have constructive trust imposed upon property upon son's
failure to reconvey property. The court follows the restatement approach: 'Where
the owner of an interest in land transfers it inter vivos to another in trust for the
transferor, but no memorandum properly evidencing the intention to create a trust
is signed, as required by the Statute of Frauds, and the transferee refuses to
perform the trust, the transferee holds the interest upon a constructive trust for the
transferor, if the transferee at the time of the transfer was in a confidential
relation to the transferor.'

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 In another case, the dad transferred property to son to avoid divorce court and told court
that he made transfer for consideration (satisfied debts to son). When son would not
reconvey property, court held that he had perpetrated a fraud on the court and therefore
did not have clean hands. No constructive trust.

Secret Trusts

In Olliffe v. Wells, Ellen died and A testator devised the residue of his estate to A.
"to distribute the same in such manner as in his discretion shall appear best
calculated to carry out wishes which I have expressed to him or may express to
him;" and appointed A as his executor. Held, that the devisee took no beneficial
interest in the devise; that the trust on its face was too indefinite to be carried out;
that it could not be established against the heirs or next of kin of the testator by
evidence of oral communications made to A. by the testator, whether before or
after the execution of the will, showing that the trust was for charitable purposes;
but that the heirs or next of kin took by way of resulting trust.

The above case represents the majority view (but Shannon thinks it is bad law)

TWO TYPES:

 secret trust: occurs when person leaves a legacy to another in the will but w/o
anything in the will indicating an intent to create a trust, but a promise by the legatee
to use the trust for a certain purpose – in order to prevent unjust enrichment of
legatee courts will admit proof of the promise and impose a constructive trust upon
legacee (I leave everything to X)

 semisecret trust: occurs if will indicates that person is to hold the legacy in trust but
does not identify the beneficiary (like in Wells) – since the will shows on its face on
intent not to benefit legacee, it is not necessary to introduce evidence of the promise
so legacy fails (I leave everything to X as trustee to carryout my wishes)

The restatement view is that evidence regarding outside oral agreement should be heard
in both cases

Discretionary Trusts

Mandatory trust: trustee must distribute all the income: O transfers property to X to
distribute all of the income

Discretionary trust: the trustee has discretion over payment of either the income or the
principal or both – for example: O transfers property to X in trust to distribute all the
income to one or more members of a group consisting of A’s children and spouse in such
amounts as the trustee determines

The following case addresses what the trustee duties are and whether he has absolute
discretion:

In Marsman v. Nasca, the wife swill provided that: “It is my desire that my
husband, T. Fred Marsman, be provided with reasonable maintenance, comfort

45
 and support after my death.” The husband requested some funds from the trusts.
The trustee asked him to provide a written explanation and then only gave him
$300. (trustee made it seem difficult to get cash and never inquired about the
husbands needs)The husband fortunes slipped and he became in need of cash so
he gave the remainder interest in his house to his daughter if she would pay the
bills. He remarried and surviving wife now argues that If the trust had properly
taken ca e of him, he would not have had to give remainder away and thus it
would have gone to her. The issue is : Does a trustee, holding a discretionary
power to pay principal for the "comfortable support and maintenance" of a
beneficiary, have a duty to inquire into the financial resources of that beneficiary
so as to recognize his needs? If so, what is the remedy for such failure? The court
held that (1) will directing trustees to pay beneficiary such amounts "as they shall
deem advisable for his comfortable support and maintenance" required trustee to
become familiar with beneficiary's finances and to make distribution from
principal to permit beneficiary to continue to live in marital home; (2) purchasers
of remainder interest in trust beneficiary's house, who agreed to pay house
expenses, were not constructive trustees and could not be required to convey
house to beneficiary's wife; (3) amounts wrongfully withheld from beneficiary
were required to be held in constructive trust in favor of beneficiary's estate; and
(4) exculpatory clause in will from liability protected trustee from personal
liability.

Discretion is not absolute, there are duties and obligations to include:

 trustee cannot be a passive reactor

 has a duty to advise, inform and inquire
 what would a reasonable person do

Note: the above case also contained an exculpatory clause inserted by drafting attorney
who was also trustee, which provided that: "No trustee hereunder shall ever be liable
except for his own willful neglect or default." The court held that since there was no
evidence of abuse of the attorneys fiduciary relationship with the client, the clause is
effective.

Creditors Rights: Spendthrift Trusts

In a spendthrift trust, the beneficiaries cannot voluntarily alienate (transfer) their interests
nor can their creditors reach their interests

Typically, T will devise property to X in trust to pay income to A for life and upon A’s
death to distribute the property to A’s children. A spendthrift clause in the trust provides
that A may not transfer her life estate and it may not be reached by creditors

Thus A is given a stream of income that A cannot alienate and creditors cannot reach

IN Shelly v. Shelly, Father set up trust to pay income to son for life. Trust
contained spendthrift clause , plus son could not touch principal unless
authorized by trustee in its absolute discretion. The son married defendant and
had two children, they then divorced and son ran off. Ex-wife now wants to get
into trust for alimony and child support. The court states that as a general rule the
spendthrift provision of a trust is not effective against the claims of the

46
 beneficiary's former wife for alimony and for support of the beneficiary's child.
The trustee argues that such a rule is inconsistent with the testator privilege to
dispose of his property as he please. The court states that The privilege of
disposing of property is not absolute; it is hedged with various restrictions where
there are policy considerations warranting the limitation. Public policy requires
that the interest of the beneficiary of a trust should be subject to the claims for
support of his children. Parents have the obligation to support their children. If
we give effect to the spendthrift provision to bar the claims for support, we have
the spectacle of a man enjoying the benefits of a trust immune from claims which
are justly due, while the community pays for the support of his children. The
court also concludes that husband has duty to support former wife, lest the state
be called upon to support her.

The court said children could get after trust principal and income, while former
spouse could only get after income.

The protection of spendthrift trusts from creditors has several exceptions:

 Self-settled trusts: a spendthrift trust cannot be set up by the settlor for the settlors
own benefit (have some offshore places and two states that do allow this)
 Child support and alimony
 Furnishing necessary support
 Federal tax lien
 Excess over amount needed for support (but brats are accustomed to substantial
luxury)
 Percentage levy: some states allow creditor to reach a certain percentage
 Tort creditors: allowed to reach it in some states

Note: a beneficial interest in a spendthrift trust cannot be reached by creditors in

bankruptcy

In US v. O’Saughnessy, The United States District certified a question to the

Minnesota Supreme Court as to whether the beneficiary of a discretionary trust
had "property" or any "right to property" in nondistributed trust principal or
income before the trustees exercised their discretionary powers of distribution
under the trust agreement. The beneficiary owed some back taxes and the IRS
sought to get after the trust property. However, the IRS can get after that property
that is the beneficiaries property, whether something is property is a question of
state law. The court holds that Because discretionary trusts give trustee complete
discretion to distribute all, some, or none of trust assets, beneficiary has "mere
expectancy" in nondistributed income and principal until trustee elects to make
payment; creditors, who stand in shoes of beneficiary, have no remedy against
trustee until trustee distributes property.

In some states the creditor can get an order that the trustee pay him before the
beneficiary.

Note: In TX, if the settlor creates an irrevocable trust to pay him income and remainder to
someone else – creditors can only get after the income to settlor.

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 The ability to create a trust has been used to provide for elderly or person with
disabilities. You can set up a trust to pay for things that the state/federal program does not
pay for (the trust will not be counted as an asset that might disqualify the person). But if
it is a self-settled trust it will be looked at with more scrutiny.

Modification and Termination of Trusts

If the settlor and all of the beneficiaries consent, a trust may be modified

If, however, the settlor is dead or does not consent, the question arises whether
the beneficiaries can modify or terminate the trust If they all agree

In re Trust of Stuchell, P was the life-income beneficiary of a trust. Upon, her

death the remainder was to be distributed to her children. However, one of her
children was retarded and required state care. If he got his trust share he would
lose his state benefits. Thus, the mother sought to modify the trusts in order to
supplement his public assistance. The court notes that the restatement permits
modifications owing to circumstances not known to the settlor and not
anticipated by him but does not permit deviation from the terms of the trust
merely because it would be advantageous to the beneficiaries. The court holds
that there is no authority to permit the modification of the trust.

Court will not revoke trust to prevent state from getting Medicaid payments

Settlors intent often controls long after death

In TX you can have judicial modification or termination of the trust if: 112.054

1.The purposes of the trust have been fulfilled or have become illegal or
impossible to fulfill

2. Because of circumstances not known or anticipated by the settlor, compliance

with the terms of the trust would defeat or substantially impair the
accomplishment of the purposes of the trust

An attorney (with settlors permission) can give a beneficiary or independent third party
the power to modify or terminate the trust, in the form of a special power of appointment.

Majority rule: a trust cannot be terminated prior to the time fixed for termination, even
though all the beneficiaries consent, if termination would be contrary to a material
purpose of the settlor.

Generally, a trust cannot be terminated if it is a spendthrift trust, If the beneficiary is not

to receive the principal until attaining a specified age, or if it is a trust for support of the
beneficiary.

In re Estate of Brown, the settlor set up a trust to pay the education of his
nephews kids and then to provide for the care maintenance and welfare of his
nephew and wife. The kids have been educated and nephew now seeks to
terminate the trust. Nephew argued that arguing that sole remaining purpose of

48
 trust was to maintain their lifestyles and that distribution of remaining assets was
necessary to accomplish such purpose. Court states that the rule is An active trust
may not be terminated, even with the consent of all the beneficiaries, if a material
purpose of the settlor remains to be accomplished. The court held that
termination could not be compelled because settlor's intent to assure lifelong
income to lifetime beneficiaries would be defeated if termination were allowed.

Tx Property Code: Removal of Trustee: trustee may be removed if:

1. he materially violated or attempted to violate the terms of the trust

2. he becomes incompetent or insolvent

3. in the discretion of the court for other cause

Changing trustees: Can the beneficiaries remove the trustee and have a new trustee
appointed? Unless the trustee has been guilty of breach of trust or has shown unfitness,
the answer is no.

The most fundamental duty is the duty of undivided loyalty to the beneficiaries: the
trustee must administers the trust solely in the interest of the beneficiaries

In Hartman v. Hartle, the will directed the executors to sell the real estate and to
divide the proceeds among her children. The executors sold part of the real
estate known as the Farm, at public auction, for $3,900 to one of testatrix' sons,
who actually bought the property for his sister, who is the wife of one of the
executors. The wife then resold the property for $5,500. P argues that the price
was too low and that the sale was illegal and void. Court holds that A trustee
cannot purchase from himself at his own sale, and his wife is subject to the same
disability, unless leave so to do has been previously obtained under a court order.

Self-dealing: if the trustee engages in self-dealing; good faith and fairness to the
bencifiries are not enough to save the trustee from liability. In the case of self-dealing no
further inquiry is required, the trustees good faith and fairness are irrelevant.

Trust pursuit rule: if the trustee, in wrongfully disposing of trust property, acquires other
property, the beneficiary is entitled to enforce a constructive trust upon the acquired
property

Other duties:

(1) Duty to collect and protect trust property

(2) Duty to earmark trust property
(3) Duty not to mingle trust funds with the trustees own

If assets are co-mingled and used to purchase an asset – if there is a loss, the individual
bears the loss – if there is a gain it is the trust gain

Trust beneficiaries are entitled to an accounting on demand, 12 months after creation of a

trust and every year thereafter

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The Class-Closing Rule

What happens if a disposition is to “A for life, then to B’s children”? If A dies during B’s
lifetime what should be done with the property as B may have more children

RULE: a class will close whenever any member of the class is entitled to possession and
enjoyment of his share – the key point in time is when one member is entitled to payment

One a class is closed, no person born hereafter can share in the property

Immediate gifts: when there is an immediate gift the class closes as soon as any member
can demand possession (exception: if no members of the class are born the class closes at
the death of the designated ancestor of the class)

Postponed gifts: if the gift is postponed until a life tenant dies, the class will not close
under the class closing rule until the time for taking possession – thus a gift to a
remainderman will not close until the life tenant is dead, and it will not close then unless
one remainderman is entitled to possession

Gifts of specific sums: if a specific sum is given to each member of the class, the class
closes at the death of the testator regardless of whether any members of the class are then
alive

Remember: anti-lapse statute is only applicable if after the will is signed and before
testator dies – one of the persons named in the will dies

In Lux v. Lux, grandmother left a will with the following provisions:

2. All the rest, residue and remainder of my estate, real and personal, of
whatsoever kind and nature, and wherever situated, of which I shall die seized
and possessed, or over which I may have power of appointment, or to which I
may be in any manner entitled at my death, I give, devise and bequeath to my
grandchildren, share and share alike.
'3. Any real estate included in said residue shall be maintained for the benefit of
said grandchildren and shall not be sold until the youngest of said grandchildren
has reached twenty-one years of age.

She was survived by five grandchildren. But the son planned to have more
children. After holding that the testator intended that the real estate be held in
trust the issue and that the class is too remain open until the corpus is distributed,
the court turned to the issue of what the testator intended when she said that the
corpus has to be preserved until the youngest grandchild becomes 21. There are
four possibilities(see case) Points made by case:

 trust can be created even though the word “trust” is never used
 unless a contrary intention appears in the will or such appointment is
deemed improper, executor will be named as trustee
 will does not have to name trustee
 absent some intent that trust income should be accumulated – it
should be paid to beneficiaries

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  testator said “property should not be sold” – but because of changed
circumstances if property was not sold it would defeat the whole
purpose of the trust

Future Interests

Future interests: the person who holds one of them is not entitled to present possession or
enjoyment of the property but may or will become entitled to possessions in the future

Types:

In the transferor (grantor)

 reversion (follows LE, FT, cont. remainder)

 possibility of reverter (follows fee simple determinable)
 Right or entry/termination (follows condition subsequent)

In the transferee (grantee)

 vested remainder
 contingent remainder
 executory interest

Reversion: is a retained interest that always arises by operation of law anytime

the transferor has conveyed a lessor estate than the transferor had

Remainder: a future interest in a transferee that will become possessory, if at all ,

upon the expiration of all prior interests simultaneously created. They are either
vested or contingent:

Vested: (1) is given to a presently ascertainable person

(2) is not subject to a condition precendent

Contingent: (1) is not given to a presently ascertainable person or

(2) is subject to a condition precendnet

A vested remainder subject to divestment is a remainder given to an ascertained

person with a proviso that the remainder will be divested if a condition
subsequent happens

Executory interest: may divest another transferee if a specified event happens:

o Shifting: the interest will shift from one transferee to another (cuts off
another transferee)
o Springing: the property will spring out from the transferor to the transferee
(cut off transferors interest)

Transferability and taxation:

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 Vested remainders and (in most states) contingent remainders are transferable
(vested remainders are alienable – can be left to heirs or sold)

The federal government subjects to estate taxation any transfer of a property

interest

FEDERAL TRANSFER TAX SYSTEM

Federal wealth transfer taxation consist of three different taxes:

1. gift tax
2. estate tax
3. generation skipping transfer tax

Inheritance tax: tax on the right to inherit --- amount of tax is based on the amount that passes to
each transferee and the transferees relationship to decedent (exemption is larger for close
relatives)

Estate tax: tax is imposed on the total value of property that passes at death – is not affected by
amount passing to transferee or on transferees relationship

There is a generous exemption – this year is $675,000 – in 2006 it will be $1 million

Computing the federal estate tax:

(1) determine the value of all assets includable in the decedents gross estate

o the concept of gross estate for federal estate tax purposes is much broader
than the concept of the probate estate for estate admin purposes (see handout
pg. 4)
o interests included in a decedents gross estate are given a new basis equal to
their date of death value
o gross esatte i

(2) the second step is too ascertain the value of the decedents taxable estate by
subtracting from the gross estate the deductions to which the estate is entitled – see
tables pg .982 and p.2 of handout

o get deduction for debts, taxes, and expenses

o charitable bequests qualify for a charitable deduction with no limit
o marital deduction: transfers from one spouse to the other are not taxed – no
limit

(3) add amount of adjusted taxable gifts (if any)

(4) determine tenative estate tax
(5) subtract any credits

The maximum federal estate tax rate is 55%

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Note: estate stacking is when husband does no estate planning, dies, then whole estate gets
poured on wife – has the effect of increasing taxes when she dies since he could have reduced
some taxes through planning

The estate and gift taxes are unified: a single rate schedule applies to both gift and estaste taxes.
The rate are progressive on the basis of cumulative lifetime and death transfers.

When the one million exemption is fully phased the credit againsnt tenantive tax will be
$345,800. (The exemption is used as a credit so you have to use the percentage of the
exemption to get credit amount). Since the taxes are unified, the credit is used by both. If
a person gives away gift over $10,000, the tax amount is subtracted from the credit, and
whatever is left is the amount used as a credit against the estate tax (see p.984)

Gift Tax

There is a gift tax on the transfer of property that exceeds the $10,000 per-donee annual
exclusion and the exclusion for medical expenses and tuition payments

The annual exclusion amount is tied to inflation and will go up in $1,000 increments

No donative intent is required – application of tax is based on the objective facts of the
transfer—if there is no or nominal consideration it is a gift

Note: no need to file gift return if gift is below $10,000

Medical and tuition payments (to qualify for exception) must be made directly to the
institution

There are some limits on ceratin lifetime gifts made within three years of death (mainly
includes life insurance) Most gifts within three years are OK but with life insurance – if
the policy is transferred within three years, the policy amount will be included in the
gross estate – Congress wanted to prevent death bed transfers of life insurance polices to
avoid taxation on full amount

Basis: if you receive a gift you get donors basis – if property is acquired from a decedent
the basis of the property is the value at decedents death

But if appreciated property was acquired by decedent by gift during one year before his
death and then property is reacquired by donor from decedent – donors basis is decedents
adjusted basis

Gifts of future interest: the annual exclusion (10,000) is not available for gifts of future
interests. Thus if O gives property worth $100,000 to A for life and remainder to B
(remainder worth is $40,000) – the whole remainder is subject to tax (rathger than just
$30,000)

However, IRC §2503(c) says that transfer for the benefit of a minor shall not be
considered a gift of a future interest(and thus eligible for annual exclusion) if

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  trustee has power to expend all income and principal on donee before
donee reaches 21
 unexpended income passes to donee when he reaches 21
 no person other than minor has a beneficial interest
 if he does not reach 21, it must be payable to his estate or have a
general power of appointment

In Estate of Cristofani v. Commisioner, D created an irrevocable inter vivos trust

to which she contributed property during each of the two years preceding her
death. The value of each contribution was $70,000. She treated the contributions
as seven $10,000 annual gifts – no tax. The primary beneficiaries of the trust
were D's two children. D's five minor grandchildren had contingent remainder
interests in the trust – grandchildren only got interest if their parent didi not
survive settlor by 120 days. In addition, the trust provided that D's two children
and five grandchildren each had the unrestricted right to withdraw an amount not
to exceed the amount of annual gift tax exclusion under sec. 2503(b) ($10,000),
within 15 days following each of D's contributions to the trust. IRS determined
that D was not entitled to gift tax exclusions for transfers benefiting D's
grandchildren on the grounds that they did not receive a "present interest" in
property as required by sec. 2503(b). The IRS said the gifts to children were
annual gifts, but the gifts to grandchildren were gifts of future interest and
therefore not covered by annual exclusion, HELD: The unrestricted right of
withdrawal given to each of D's grandchildren was a present interest in trust
corpus. Court reasons that the grandchildren has a present right to withdraw from
the trust – that they did not exercise it is irrelevant.

All that is required is the legal right to demand money

What if the settlor does not want him to get the money at 21? he can insert a
“Crummey withdrawal right”: after he reaches age 21 he gets a 30 day window
during which he has the right to withdrawal

Transfer of property between spouses: any transfer during life or death between spouses
is not taxed

Exception: a terminable interests (i.e. a life estate) does not qualify for the
exception

Note: if spouse gives stock worth 10K to one spouse (W  H) and then H dies
and leaves it to W – and stock is now worth 100K – the wife does get a stepped
up basis if the transfer is within one year of H’s death

Some differences between community and separate property states:

New Basis at death rule

o community – whole jointly owned property has stepped up basis

o separate – only decedents portion of property gets stepped up basis

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 10K gift tax exclusion

o community -- spouse gives 20K gift – presumed to be two separate gifts of

10K apices – no tax
o separate – presumed to be one gift of 20K (subject to tax) unless other spouse
elects to “split” the gift

How gift tax exclusion applies to various trusts:

If the trust must be distributed annually – the donor can take 10K exclusion upon
original transfer

If the trust is discretionary – the settlor cannot take exclusion because don’t know
if it will be distributed

If trust is revocable – there is no gift and thus no tax – only when there is a
distribution is there a gift and then a tax (revocable trust assets are included in
gross estate for estate tax purposes.)

Marital Deduction

§2056 allows a marital deduction for certain dispositions of property to a decedents

spouse

The marital deduction enables spouses to split their gifts and estates for transfer tax
purposes

Unlimited amounts of property (other than certain terminable interests) can be transferred
between spouses without the imposition of either a gift tax or an estate tax

But unless tax planning is done some exemptions may be lost – if H wills all property to
W, no taxes will be paid because of marital deduction but the whole estate will be taxed
at W’s death – taxes can be avoided by using H’s exemption – this is done by placing $1
mil of the assets in a marital deduction power of appointment trust or a QTIP trust which
W elects to be taxable at H’s death

The gross estate include value of life insurance proceeds on life of decedent if:

(1) at death, decedent possesed any of the incidents of ownership under the
policies
(2) the policy proceeds were payable to insureds executor or estate

Incidents of ownership include: right to change beneficiary, to surrender, cancel

or assign the policy or to borrow against its cash value

If X takes out policy on X and names a family member as beneficiary, proceeds

will be taxed if insured holds any incidents of ownership – even if it is a term
policy with no cash surrender value

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 If decedents policy proceeds go to spouse in lump sum, proceed qualify for
marital deduction

Beneficiary can disclaim ownership of life insurance if:

 in writing
 within 9 months of W’s death
 prior to H taking ownership of the proerty

Marital deduction gift: point of the marital deduction clause (in a will) is to provide the
smallest marital deduction that will result in no estate tax – it is used to take advantage of
the first spouse’s tax credit

By-pass trust (credit shelter trust): involves using a marital deduction gift, with the
corpus of the estate going into the trust. the marital deduction will be subject to taxation
in W’s estate, but the corpus of the bypass trust will not be taxed in her estate because the
life estate in that trust will terminate on W’s death

In a bypass trust the residuary estate goes into the trust – it is a pour-over trust
that is funded at death

Goal of the trust is to give the surviving spouse an interest in the money but not
ownership – that way the estate is not stacked

If a by-pass trust is drafted properly – the first spouse should pay zero and the
wife should not pay any tax on trust

If we have to include the value of the trust in the second spouse estate – it was
not properly and was not a by-pass trust – a by-pass trust is not included in the
second spouse gross estate

What do you include in gross estate when someone dies? anything they own – is broader
than probate estate (includes retirement funds and certain lifetime transfers)

Interests that qualify for the marital deduction: (remember the marital deduction does
not necessarily eliminate any estate tax on marital assets, rather the deduction permits
deferral of the tax until the death of the surviving spouse)

(1) Outright fee simple transfers

But what if spouse is worried that other spouse will not mange the money or might be
susceptible to “predators” – how can the spouse make a transfer that will alleviate these
concerns but still qualify for the marital deduction

(2) marital deduction power of appointment trust

o all trust income must be paid to spouse at least annually for life

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 o the spouse must be given a general power of appointment under which she
can appoint the trust property to herself of her estate (if you give her special
power it does not qualify – but that is the point)

(3) estate trust (rarely used)

But what if spouse has children by a former marriage and spouse does not want that
spouse to favor her own children or perhaps a new spouse – congress introduced the
QTIP trust to solve this problem

(4) QTIP trust

o all trust income must be paid to the spouse at least annually for life
o during the spouses lifetime, no other person can be a permissible beneficiary
of the trust
o an election must be made (by the donor spouse, if a lifetime transfer, by the
deceased spouses executor, if a testamentary transfer)

The QTIP is attractive to many clients because the spouse need not be given any power or
control over the trust

The statute allows partial QTIP elections, trusts can be “split” to take advantage of QTIP
rules – thus is there is a gift to wife and son, a partial election can be made to divide the
trust and allow the wife’s share to qualify for the marital deduction

Remember: any property that gets a marital deduction, will be included in the surviving
spouse’s gross estate

NOTE: if individual does not state in will where (e.g. the residuary estate) the taxes
should be paid from – it is pro-rata – the taxes are paid from each general and specific
gift in proportion to the percentage of the whole estate

the nondedcutible terminable interest rule: to qualify for the marital deduction the
interest passing to the surviving spouse must be such that it is subject to taxation in the
spouses estate (to the extent not consumed or disposed of by spouse during his lifetime)

Powers of appointment

Power of appointment: something given to beneficiary in a trust where they have some
power over the trust – is delegated authority

General power of appointment: a power which is exercisable in favor of the

decedent, his estate, his creditors, or creditors of his estate

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 Special power of appointment a power not exercisable in favor of donee, his
estate, his creditors, or the creditors of his estate

Note: a power may be created in anyone – but most are created in beneficiaries

For estate tax purposes, there is a big difference between the general and special powers:

The holder of a general power is treated as owner of the property

When do you cross the line into general (from specific) – it depends on who the
beneficiary can exercise the power in favor of: if the beneficiary can designate the trust
interest to one of the following parties the power is general:

Himself
Estate
Creditors
Estates
Creditors

Otherwise its is a special power

But there are a couple of exceptions:

(1) if she can dip into the trust for HEMS, it is still OK (still a special power)

Health
Education
Maintenance
Support

(2) she can also get the larger of 5% or $5,000 of the principle every year w/o it
turning into a general power

Note: if trust pays beneficiary income – the beneficiary must include the income in his
federal taxes as income

What if H gives W a life estate in Blackacre? (H  W for life, then to kids)

How is it taxed?

o when she dies it is not included in her estate, so it is not taxed when she dies
o so LE is a by-pass gift

What if there is a survival clause in the will? OK (for tax purposes) as long as he survives
her and clause is less than 6 months

Community Property Issues

In a community property system the husband and wife own the earnings and acquisitions
from earnings of both spouses during marriage in undivided equal shares

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In a community property state the manner in which title to property is taken is not
controlling. The time of the acquisition and the source of funds (or credit) used in the
assets acquisition determine whether the assets belongs to the community or is the
separate property of one of the spouses

Separate property includes property acquired before marriage and during the marriage by
gift or inheritance (and in TX the recovery for personal injuries)

Property acquired after marriage is presumptively community

What happens if the couple moves or has multi-state holdings:

(1) the law of situs controls problems related to land

(2) the law of the marital domicile at the time personal property is acquired
controls the characterization of the property
(3) the law of the marital domicile at the death of one spouse controls the
survivors marital rights

Special rule for moving from a Separate property state to a Community property state:

If W does not work and husband earned all his cash in separate property state, W
could get screwed when he dies

CA Quasi-community property: property owned by H or W acquired while

domiciled elsewhere, which would have been treated as community property had
the couple been domiciled in the in the community property state when the
property was acquired – upon his death ½ will go to other spouse

TX quasi community property is only relevant in divorce – in TX she just has the
right to reimbursement or increase in value – If in TX he buys an insurance
policy before marriage and then marriage pays premiums there is no clear answer
but there are two possible scenarios

1. look at increase in cash surrender value – If cash

surrender value goes from $2000 to $10000, then
$8000 is community property
2. prorata approach – but has been rejected before in
texas

In Estate of Cavenaugh, H, while married to W, bought a life insurance policy

payable to his estate. She died in ‘83, he dies in ‘86. His estate excluded from his
gross estate ½ of the term life insurance death paid to the estate – under the IRS
regulation life insurance proceeds payable to the estate are excluded to the extent
they belong to decedents spouse under state community property law. The IRS
argues that the community dissolved at her death and that even if it did not he can
only exclude ½ of the cash surrender value. The court holds that Only one half of
proceeds of annual renewable term life insurance policy were includable in
insured spouse's gross estate for federal estate tax purposes, even though policy
was renewed following death of noninsured spouse, given that estate of
noninsured spouse retained one-half interest in policy proceeds under Texas

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 community property law; community purchased unrestricted right to renew
policy, policy became uncontestable after two years, and annual dividends
increased as policy was renewed for extended terms.

In Texas, if life insurance is bought with community funds it is community property.

(similar analysis would apply to IRAs, retirement funds acquired during marriage)

If H and W buy policy with W as beneficiary at H’s death – ½ is included in H’s

estate as she already owned the other ½

If same policy at D is beneficiary at H’s death – ½ is included in H’s estate, other

½ is gift from W

The inception of title rule applies in determining whether a life insurance policy is
separate or community property --- first premium payment determines ownership

Where life policies naming his estate as beneficiary were issued to husband before
marriage, proceeds of policies belonged entirely to husband's estate with right of
reimbursement to the community based on amount of premiums paid from community
funds during marriage. McCurdy v.McCurdy

The above case rejected the “proration” approach adopted in CA and WA, under which a
life insurance policy is classified as part separate property and part community property

Future Interests

Future interests: the person who holds one of them is not entitled to present possession or
enjoyment of the property but may or will become entitled to possessions in the future

Types:

In the transferor (grantor)

 reversion (follows LE, FT, cont. remainder)

 possibility of reverter (follows fee simple determinable)
 Right or entry/termination (follows condition subsequent)

In the transferee (grantee)

 vested remainder
 contingent remainder
 executory interest

Reversion: is a retained interest that always arises by operation of law anytime

the transferor has conveyed a lessor estate than the transferor had (once he gives
away 100% there is no reveriosn)

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 Remainder: a future interest in a transferee that will become possessory, if at all ,
upon the expiration of all prior interests simultaneously created. They are either
vets or contigent:

Vested: (1) is given to a presently ascertainable person

(2) is not subject to a condition precendent

Contingent: (1) is not given to a presently ascertainable person or

(2) is subject to a condition precendnet

A vested remainder subject to divestment is a remainder given to an ascertained

person with a proviso that the remainder will be divested if a condition
subsequent happens (the key is to look at where the comma is – for example if
“to A for life, then to B, but if …” this is vested remainder subject to divestment

Executory interest: may divest another transferee if a specified event happens:

o Shifting: the interest will shift from one transferee to another (cuts off
another transferee
o Springing: the property will spring out from the transferor to the transferee
(cut off transferors interest)

Rules of construction

Law prefers vested interests

Under common law, a vested remainder accelerates into possession whenever and
however the preceding estate ends

But, what about contingent remainder – they do not accelerate because the remaindermen
are not entitled to possession until they are all ascertained and any condition precedent
has occurred

But what if a life estate is disclaimed? do remaindermen have to wait until that person
dies? many states say no and have adopted disclaimer statutes under which the disclaimer
is treated as having predeceased the testator

In re Estate of Gilbert, testator’s will made son the beneficiary of a discretionary

trust. The son, for religious reasons, sought to disclaim the trust. The executor
argued that the sons renunciation should be declared invalid. First, he states that
permitting the renunciation would violate the testator's intention to provide for
Lester. Second, the executor argues that Lester possesses no current property
interest and therefore has nothing to renounce. The executor maintains that the
sons renunciation is premature and may be made only if, and at such time as, the
trustees exercise their discretion to distribute income or principal to him. The
court holds that Decedent's intention to make a transfer is not controlling when
the beneficiary, who is competent to make an effective renunciation, refuses to
accept the transfer. Moreover, a beneficiary need not wait for the trustee to
distribute income or principal before effectively renouncing a discretionary
interest in a trust. Therefore, a beneficiary's renounced interest in the

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 discretionary trust created in his father's will is accelerated and has the same
effect as though the renouncing beneficiary predeceased his father since the will
does not "otherwise provide".

In the above case the testator intended to take care of his kids and his
grandchildren (even the ones that had not yet been born) But since the ruling
treats the disclaiming son as predeceasing the testator you have to see if the son
has any kids at the testators death (here he did not) so what this does is cut off the
contingent remainder in the sons unborn children

Note: under federal tax law, a disclaimer is treated as a gift by disclaimant to the persons
who take as a result of the disclaimer, unless the disclaimer occurs within 9 months after
the interest is created or 9 months after the donee reaches 21, whichever is later.

Generation Skipping Transfer tax: if testator sets up a trust that pays daughter income
for life and then to grandkids – the trust is not includable in daughters gross estate but at
her death, because the gift skips a generation there will be a Gstax (Congress intent was
to tax @ each generation) even if she disclaims there will still be a GSTax

Rule Against Perpetuities

No interest is good unless it must vest, if at all, not later than 21 years after some life in
being at the creation of the interest

Purpose: (1) to keep property marketable and available for productive development in
accordance with market demands (2) limit dead hand control

RAP only applies to contingent future interests created in transferrees

Relevant lives: persons who can effect vesting of the contingent interest – may include:

 preceding life tenant

 beneficiary
 ancestor of beneficiary
 any person who can effect a condition precedent attached to the gift
 any person who can affect size of class

The crucial inquiry is when will the interest vest

Three step process:

1. determine what interests were created

2. Apply the rule

3. apply the states reform statute

RAP only applies to (1) contingent remainders (2) executory interests (3) vested
remainder subject to open

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 Remember the saving provision – name interest to last until 21 years after death of 12
newborns

When there is a RAP violation – you must take pen and strike out the invalid language
until grant makes sense

EXCEPTION to RAP – Charity to Charity gifts over from one charity to another – but
does not include gifts over from charity to person or gift over from person to charity

Additional problems p. 796-797

When live sin being are ascertained: the lives must be in being when the perpetuities
period starts to run – this occurs when the instrument take effect:

If interest is created by will – validating lives must be in being at testators death

If by deed or irrevocable trust – validating lives must be in being when deed or

trust takes effect

Revocable trust – the lives must be in being when the power to revokes
terminates (until power terminates the property is not tied up)

NOTE: Grant to “issue” – means survival, grant to children means no survival , is read as “to
children and their heirs”

Some situations that might invoke application of the rule

Fertile Octogenarian: a presumption of fertility – if T gives fund in trust to “A (age 90)

for life, then for A’s children for their lives, then to A’s issue then living: -- Even though
she is 90, law presumes she is still fertile, thus the secondary remainder may include an
afterborn child of A, and the remainder to A’s issue might vest on the death of this
afterborn child, which is too remote. The remainder to A’s issue is void.

see note 5 p 798 (see problems p. 8000 #3)

The Unborn Widow: In Dickerson, the trust provided that “This Trust shall continue
until the death of both my sons and my son Martin's widow and until the youngest child
of either son has reached the age of twenty-five years.” One of the sons argued that the
trust is invalid under RAP. Held: the trust is void because there is a possibility that the
estate will not vest within a period measured by a life or lives in being at the testatrix's
death, plus 21 years. A bare possibility is enough. "The interest must vest within the time
allowed by the rule. If there is any possibility that the contingent event may happen
beyond the limits of the rule, the transaction is void."

Grant was “to M for life, then to M’s widow for life, then to M’s bodily issue”

The terms of this trust present an instance of the "unborn widow," a pitfall that is familiar
to every student of the rule against perpetuities. This trust is not to terminate until the
deaths of Cecil, Martin, and Martin's widow, but the identity of Martin's widow cannot be
known until his death. Martin might marry an 18-year-old woman twenty years after his
mother's death, have additional children by her, and then die. Cecil also might die.

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 Martin's young widow, however, might live for another 40 or 50 years, after which the
interests would finally vest. But since Cecil and Martin would have been the last
measuring lives in being at the death of the testatrix, the trust property would not vest
until many years past the maximum time allowed by the rule. The rule was formulated to
prevent just such a possibility uncertainty about the title to real or personal property for
an unreasonably long time in the future.

Way to avoid the problem: don’t say “widow”, name the person

Alternate contingencies: if testator makes gifts of alternate contingencies, one of which

offends the RAP, and the other which does not – the gifts are judged separately. The
invalid gift fails and valid gift take if the event happens.

Slothful Executor: a will may be probated for many years after death of testator – thus if
property is devised “to T’s issue living upon distribution of T’s estate” the gift may be
held void

Class Gifts: All or Nothing Rule: a class gift cannot be partially valid and partially void.
It must be valid for all embers of the class or it is valid for none. If the interest of nay
member can vest too remotely, the entire class gift is bad (however, some class gifts may
be saved by operation of rule of convenience -- see p778)

Class closes as soon as one member can demand distribution

“To A for life, then to A’s kids, but to be paid to them when they reach 25” – RAP
problem? NO – vested remainder with postponed payment

See problem p. 813

CHARITABLE TRUSTS

In general, a charitable trust is exempt from the rule against perpetuities and may endure
forever.

If his testators intent as expressed was charitable, the trust should be accorded efficacy
and sustained.
But on the other hand, if the testator's intent as expressed is merely benevolent, though
the disposition of his property be meritorious and evince traits of generosity, the trust
must nevertheless be declared invalid because it violates the rule against perpetuities.

'Charitable purposes include:

'(a) the relief of poverty;
'(b) the advancement of education;
'(c) the advancement of religion;
'(d) the promotion of health;
'(e) governmental or municipal purposes; and
'(f) other purposes the accomplishment of which is beneficial to the community.'

In Shenadoah Valley, old miser left a trustee with provision to pay money to
school kids The testator had directed that the payments to be made to the school

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 children at Easter and Christmas should be used in furtherance of their attainment
of an education. Next of kin filed suit and challenged the validity of the trust. The
sole question presented is: does the will create a valid charitable trust? The court
says the language was ineffectual to create educational trust. The trustee had
power over the funds, which would just go to the kids. . The testator's purpose
and intent were, we think, to bestow upon the children gifts that would bring to
them happiness on the two holidays, but that falls short of an educational trust.
(this is the so-called candy trust)

Problem could have been avoided by putting the educational purpose is the hands
of the trustee

To be classified as charitable, a trust that is for the benefit of a class of persons and not
for the benefit of the community at large must be for the relief of poverty or the
advancement of education.(e.g. trust to benefit sick or needy employees is charitable, but
trust for general benefit of employees is not charitable)

Doctrine of Cy Pres: rule of construction, by which intention of party is carried as near

as may be, when it would be impossible or illegal to give it literal effect – look at the
intent – allows judge to have discretion to reform the instrument

In In re Neher, testator left money to city to build hospital but city already had
hospital and needed admin building. Court allows it. Court said general intent
was to benefit the community

In Buck case, trust was for the benefit of the needy in one county with San
Francisco Foundation (5 counties) as trsutee. The trust assets unexpectedly
expanded to 300 mil. Trustee wanted to drop geographical restriction. Court said
no.

Savings Clauses

RAP can work harsh results – and is difficult to grasp

30 of the 50 states have enacted reform statutes

Types:

 ABOLISH RULE
 abolish application to trust
 USRAP – spin-off of wait and see approach – grant is not tested for 90 years
 wait and see- don’t test validity until facts are clear – at end of relevant lives
 lawyers can draft RAP savings clause – make trust terminate 21 years after all lives
in being
 TX uses Cy Pres – allows judge to reform instrument to give effect of testators intent
(within limits of the rule)

Note: in TX if an interest fails because of RAP—see anti-lapse statute – interest will pass
intestate

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