Basics

The Mechanics of Success:

 To go through probate is to have an estate administered in a probate court & property
that passes under a decedent’s will or by intestacy is said to be probate property.
 Inter Vivos Trust: Property put in an inter vivos trust during the decedent’s life passes in
accordance with the terms of the trust, avoiding probate administration. Because the
trustee holds the legal title to the trust property, there is no need to change title by
probate administration upon the death of the settlor.
 Pay-on-Death (POD) and Transfer-on-Death (TOD) Contracts : Many banks, brokerages,
mutual funds, and pension allow for POD or TOD beneficiary designation under which
the account custodian can distribute property at death to named beneficiary by filing a
death certificate with the custodian.
 Joint Tenancy: The decedent’s interest vanishes at death and survivor owns the whole
property free of interest by filing death certificate with the local registrar of deeds.
 Need for the probate administration arises if a decedent did not arrange his affairs
during life so that all of his property passes by nonprobate transfer and his family
cannot or will not divide property in private.

Terminology
 Testate If a decedent dies with a will
 Intestate If a decedent dies without a will
 Partial Intestacy If a decedent dies will a will for some assets and not others
 Testator/Testatrix The person that creates the will
 Personal Representative A fiduciary who collects and inventories the property of the
decedent; manages and protects the property during the administration of the estates,
processes the claims of creditors and files federal and state tax returns, and distributes
the property to those entitled. Oversees the administration of the estate.
 Probate Court/Surrogate’s Court/Orphan’s Court the court with jurisdiction over the
administration of trusts and estates
 Will/Testament/Law Will & Testament Can be known by any of these names
 Devise property passing through a will to a devisee
 Devisee the person that receives property through a will
 Heirs those that inherit if decedent died intestate
 Settlor/Trustor/Grantor the person that creates a trust
 Trustee the person on entity that manages trust property
 Beneficiary the person or entity that is entitled to the beneficial interest in trust
property

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Opening an Estate
 Generally:
o 1) Filing a will of record
o 2) Summary administration for small estates
 Usually only an affidavit needs to be filed with the probate court
 Informal Probate vs Formal Probate
o Informal Probate:
 1) Application of appointment and/or testacy filed
 2) PR appointed through Certificate of Appointment, fiduciary letters;
some PR’s must be bonded
 3) Notice to creditors
 4) Notice to heirs and devisees – To close off anyone who would have
inherited if there were no will from coming back and suing.
o Formal Probate:
 1) Petition for appointment and/or testacy filed
 2) Must follow the rules of civil procedure.

Closing the Estate

 PR may need to sell real and/or personal property
 PR required to file tax returns from the decedent, and if applicable, an estate tax return
and an income tax return for the estate
 PR must handle all creditors claims by either allowing or disallowing the claims
 PR must distribute the estates assets in accordance with the terms of the will or
according to the intestacy statutes if decedent died without a will
 Once administration is complete, an application or petition to close the estate must be
filed and accepted by the court
 The court will then discharge the PR.

Creditors and Nonclaim Statutes

 Creditors of an estate must file any claims against the estate within the time frame set
by state, however, this does not apply to mortgages and other secured loans
o In addition to running a notice in the newspaper, PR may elect to directly notify
known creditors
 In SC, the time frame is the earlier of one year from decedent’s date of death or 8
months from the first publication of the creditor’s notice
o Example: decedent died on 1/15/16, PR appointed on 2/15/16 and first
creditor’s notice ran on 2/20/2016. Creditors claims must be filed by 10/20/16.
o Example: decedent died on 1/15/16, PR not appointed until 2/15/17, creditors
claim period expire don 1/15/17 so no need to publish notice.

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 Freedom of Disposition

General Rule: allows an owner of property to control the disposition of the property after death
You can disinherit anyone other than your spouse
 **there is NO right to inherit you can disinherit your children
o Freedom of disposition TRUMPS an heir’s expectation to inherit
 Court do not have the power to deviate from a person’s will

Five Limitations to General Rule:

 1) Surviving spouse’s share
 2) Creditors
 3) State and federal taxes (if applicable)
 4) Cant’s be unconstitutional
 5) Can’t violate public policy
o Example: When you say something like – “This house is never to be sold” –
remember this is an unreasonable restraint on alienation because it prevents the
devisee from selling real property.

Incentive Trusts based on theory that inherited wealth makes an heir less productive
 There are 3 types of incentive trusts:
o 1) Those that encourage education
o 2) Those that provide moral incentives
 Requiring a putative devisee to marry within a particular faith is a
reasonable restriction that does not violate public policy or the
Fourteenth Amendment of the United States Constitution
o 3) Those that encourage the beneficiary to have a productive career

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 Professional Responsibilities

Attorney Client Relationship:

 Common Law The attorney-client relationship is between the attorney and the
testator/testatrix
o Privity the attorney owes a duty only to the client he has the contract with
 Modern Trend Attorneys may be liable to third party beneficiaries due to reasonably
foreseeable harm

Duties of the Estate Planning Attorney

 1) Be competent – A lawyer shall provide competent representation to a client.
Competent representation requires the legal knowledge, skill, thoroughness, and
preparation reasonably necessary for the representation
 2) Maintain client confidentiality
o General Rule: attorney may not reveal any information relating to the
representation of the client unless the client gives informed consent
 **this continues after death
o Exceptions:
 1) attorney can break this confidentiality if in furtherance of what the
client would have intended to resolve a claim
 2) a lawyer may disclose a client’s confidential information where the
lawyer’s services have been used to commit a fraudulent act and the
disclosure is needed to rectify the consequences of that act
 3) Identify your client
 4) Identify any conflicts of interest
 5) Make sure you ask the right questions
 **Two areas that estate planning attorneys run into trouble:
o 1) breaching the duty of competence to a client’s intended beneficiaries and
o 2) joint/multiple representation

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 Intestacy

Primary objective to carry out the probable intent of the typical intestate decedent
 Favors a decedent’s spouse, then descendants, then parents, and then collateral and
more remote kindred

Representation:
 What happens to the share of a child that predeceases a parent?
o If that child left descendant, those descendants take the share of the deceased
child
o The descendant of the deceased child “represents” the dead person and divide
that share
 Jurisdictions differ in the methods of representation
o 1) English Per Stirpes (NOT TESTED)
 Each line of descent is treated equally
 Property is divided into a share for each living and deceased child who
has a descendant living
 Vertical equality, however, there may be unequal shares horizontally
o 2) Modern Per Stirpes/ Per capita with representation
 The estate is divided equally at the 1st generation where there is a living
person
 Vertical equality and horizontal equality at the closet living generation
 Used in just under half of the states, including South Carolina
o 3) Per Capita at Each Generation
 The initial division occurs at the first generation where there is a living
descendant, the remaining shares, if any, are combined and divided
equally at the next level
 Horizontal equality but no vertical equality  “Equally near,
equally dear”

Ancestors, Collaterals, and Others

 Collateral, kindred persons who are related to the decedent by blood but are not
descendants or ancestors
 Laughing heirs distant relatives who didn’t really know the decedent and didn’t grieve
for him/her but still inherit
 Stepchildren some states allow them to inherit if there are no other takers (and
California extends it to some in-laws)

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UPC z– When Does the Surviving Spouse inherit everything  Two instances:
 1)The decedent has no surviving descendants and no surviving parents OR
 2) The decedent’s surviving descendants are also descendants of the surviving spouse
and there are no other descendants of the surviving spouse who survive the decedent.

UPC §2-102(2-4) – Three instances where Surviving Spouse Gets Less than 100%
 1) The decedent has no surviving issue, but she is survived by at least one parent – the
surviving spouse will get the first $300,000 plus ¾ of the remains (the remaining ¼ will
go to the decedent’s parents 50/50)
 2) The decedent’s surviving children are also children of the spouse but the spouse also
has 1 or more surviving descendant who are not descendants of the decedent – spouse
gets first $225,000 plus ½ of the remainder. (The remaining will go to the decedent’s
descendant by representation)
 3) The decedent has surviving descendant who are not descendant of the surviving
spouse – surviving spouse gets $150,000 plus ½ of the remainder. (remainder will go to
decedent’s descendant s by representation).

Share of the Spouse in SC (SCPC 62-2-102)—The intestate share of the surviving spouse is:
 1) if there is not surviving issue of the decedent, the entire intestate estate
 2) If there are surviving issue, one half of the intestate estate

What if There is No Surviving Spouse

 To the decedent’s descendant by representation;
 If no descendant, then to decedent’s parents and their descendants (decedent’s
siblings);
 If no parents, then to grandparents and their descendants (decedent’s aunts, uncles,
cousins);
 If no one in parent or grandparent line, then to step-children.
 If no one in grandparent line or step-children, then escheats to the state.

Simultaneous Death/Survivorship Rule:

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  Common law: required an heir/devisee to merely survive the decedent, even if only for
a few moments
 UPC §2-104 – Survivorship Rule: No heir may inherit under the intestacy scheme unless
she survives the decedent by 120 hours (5 days)
o An heir/ devisee who fails to survive by 120 hours is deemed to have predeceased
the decedent
o Claimant must establish survivorship by 120 hours by clear and convincing evidence

Choice of law:
 Disposition of decedent’s personal property governed by state where decedent was
domiciled at death
 Disposition of decedent’s real property governed by state where property is located

Intestacy—Transfers to Children

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Adoptions:
 Rule: Third-party adoption severs the parent-child relationship and neither the natural
parent nor the child may inherit through or from one another
o Three exceptions;
 1) If a relative or step-parent adopts a child, the child may still inherit
through and from both the natural parents and the step-parent; however the
non-involved parent who has had their parental rights terminated cannot
inherit from the child
 2) In step-parent adoption, the natural parent married to the step parent
AND the step parent can inherit from the child
 3) A child can inherit from and through its natural parents if it was adopted
after the death of the natural parents(s)
 Rule: If an adult is adopted for the purpose of inheriting under a pre-existing
testamentary instrument, that person will not be considered an heir IF doing so conflicts
with the intention of the testator
 Under UPC the adult is considered a child for inheritance but not for class gifts from 3 rd
parties unless adopted before 18 or act as parent before 18 or step parent
 Equitable adoption: An agreement to adopt between adoptive parents and natural
parents is inferred if adoptive parents take the child into their home and raise him/her
as their own child

Posthumously born children

 Courts: a rebuttable presumption that the normal period of gestation is 280 days
 Uniform Parentage Act: a rebuttable presumption that the normal period of gestation is
300 days

Children Born out of wedlock

 Common law: children born out of wedlock are not allowed to inherit
 Modern: nonmarital child may adopt from the child’s mother

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 Advancements

Common Law: a lifetime gift from a parent to a child was presumed to be an advancement of
that child’s intestate share
 **Child has burden of proving that the transfer should not count against inheritance
 **If a child predeceases the parent, the amount of the advancement is deducted from
the share that the deceased child(ren) take through representation

Modern Law: Party must plead and prove that the parent intended the gift to be an
advancement, otherwise it will be considered a lifetime gift
 **NO presumption
 ** If a child predeceases the parent the advancement is NOT considered against the
child’s descendants

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 Bars to Succession

1) Slayer Rule: If an heir is held responsible for the wrongful killing of the decedent, equity
imposes a constructive trust requiring the killer to hold the assets in trust for the decedent’s
next of kin
 In the absence of a conviction the court, upon the petition of an interest person,
must determine whether, under the preponderance of evidence standard, the individual
would be found criminally accountable for the killing of the decedent.
 Constructive Trust A trust imposed by a court on equitable grounds against one who
has obtained property by wrongdoing, thereby preventing the wrongful holder from
being unjustly enriched.

2) Unworthy Heirs three types:

 1) A spouse that abandoned the decedent
 2) Parents that don’t support children
 3) Relative that take advantage of or abuse a vulnerable person
o **Most states don’t take into account situation like this and the “unworthy heir”
inherits

3) Disclaimer
 Common law: disclaimers were prohibited intestate heir could not prevent property
from transferring to him/her
 Modern: Under the UPC the disclaimant is treated as having predeceased the decedent

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 Wills

The Four Functions of a Will

 1) Evidentiary Function – provides the court with evidence of testamentary intent.
Indented it to be a will and not notes or drafts.
 2) Channeling/ Uniform Function – uniformity in testamentary documents helps to
show that the document is, indeed, a will; aids in administration of the estate
 3) Cautionary/Ritual Function – impresses on the T the importance of the document.
Signing Ceremony.
 4) Protective Function – keeps inauthentic wills from being admitted to probate;
protects the freedom of disposition
 Best practices are to follow the wills act exactly

Requirements of a will
 1) A writing
 2) signed by the Testator (an individual 18 or more years of age who is of sound mind)
or by someone at the Testator’s direction and in his/her conscience presence
o Presence defined:
 1) Line of sight T must be capable of seeing the witnesses in the act of
signing but she does not have to actually watch the witnesses sign.
 2) Conscious Presence the T is aware that the witnesses are signing
through sight, hearing, or general consciousness of event
 UPC doesn’t require that the witness sign in the presence of the T
o **Order of signing
 Traditionally, the T must sign first and then the witnesses
 Also, it is best to have T sign at the end of document
 3) that is Attested by two witnesses
 4) OR notarized

**Rule regarding Assent: A will that the decedent did not review and give final assent to cannot
be admitted to probate

Requirements of a Holographic Will

 1) A writing
 2) Signed by the Testator (an individual 18 or more years of age who is of sound mind)
or by someone at the Testator’s direction and in his/her conscience presence; AND
o Signed can be ANYWHERE BUT best practice is at the end
 3) Material portions of the will are in the Testator’s handwriting

Generations of Holographic Wills

 First Generation – the will had to be entirely handwritten, signed, and dated entirely in
the T’s handwriting to be valid. Very much a strict compliance standard.

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  Second Generation – the signature and material provisions of the will need to be in the
T’s handwriting
 Third Generation – the signature and material portions of the will need to be in the T’s
handwriting as a result of courts not looking at the preprinted wills forms.
Interested Witnesses & Purging Statutes
 Common Law: a gift is given to the interest witness, it will be voided or purged.
o The purging statute allowed the will to be probated but the interest witness would
not take his or her devise
 However, if there are enough disinterested witnesses, then the interested
witness is “supernumerary” and will take his/her full devise
 UPC: Allows interested parties to serve as witnesses
 SCPC: interested parties may not take more than their share under intestacy statutes

Complying With The Rules Governing Wills:

 Strict Compliance: To be valid and enforceable, a will otherwise validly executed must
strictly comply with the requirement of the Wills Act of 1947 that the testator sign the
will and the will may not be revised by the court to make it compliant with the Wills Act
of 1947
 Curative Doctrines:
o 1) Substantial Compliance: (For Minor Errors only)of The court may deem a
defectively executed will as being in accord with statutory formalities if there is
clear and convincing evidence that the purposes of those formalities were
served.
 Langbein’s Test:
 1) does the noncomplying document express the decedent’s
testamentary intent and
 2) does it sufficiently approximate Wills Act formality?
o 2) Harmless Error: The court may excuse noncompliance if there is clear and
convincing evidence that the decedent intended the document to be his will.
 Is there clear and convincing evidence that the decedent intended the
document or writing to constitute:
 1) The decedent’s will,
 2) A partial or complete revocation of the will,
 3) An addition to or an alteration of the will, or
 4) A partial or complete revival of his [or her] formerly revoked
will or of a formerly revoked portion of the will.
 Lack of a signature is going to be the hardest to excuse
 Examples:
 In re Groffman – the will was witnessed at the home of a friend
and the witnesses didn’t sign in the presence of one another
 Stevens v. Carsdorph – T signed the will in the bank lobby and
then the witnesses signed at separate teller stations

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  In re Pavlinko’s Estate – Husband and wife mistakenly executed
each other’s will
 In re Will of Ferree – T’s will was notarized but not witnessed

Codicils
 Defined: a document made after a will that adds to, subtracts from, or changes the will
in part
 Requirements for a valid Codicil: 1) a writing 2) signed by the Testator or at the
Testator’s direction 3) that is Attested by two witnesses; 4) OR notarized
 Impact of a Codicil: republishes the will as of the date of the codicil
 Example from case: A letter that conveys a decedent’s testamentary intent to make a
specific bequest is enforceable as a holographic codicil to the decedent’ formal will
 Burden: proponent by clear and convincing evidence
In re Probate of Will and Codicil of Macool
 Handwritten notes were not signed by testator
 Notes were evidence she was meeting with attorney, but not clear she wanted them to
be her final will and testament
 Testator didn’t have opportunity to view attorney’s draft to approve
 Probate was rightfully denied
In re Kuralt
 Ruled handwritten, signed letter was a testamentary instrument/ holographic will

Two instances where we can integrate documents into the will

 1) Incorporation by Reference – UPC §2-510 (1990)
o 1) The document is/was in existence at the time of the execution of the will (or at
the time of the executed of the codicil which republishes the will)
o 2) The will manifests an intent to incorporate the document
o 3) The document identifies by clear and satisfactory proof as the paper referred to
in the will
 2) UPC §2-513. Separate Writing Identifying Devise of Certain Types of Tangible
Personal Property.
o A will may refer to a written statement or list to dispose of items of tangible personal
property without a title not otherwise specifically disposed of by the will, other than
money.
o To be admissible under this section as evidence of the intended disposition, the
writing must be signed by the testator and must describe the items and the devisees
with reasonable certainty.
 **The memorandum can be created after the will and does not need to be in
existence when the will is executed.
 ** The memo may be altered by the testator after its preparation

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  **Only applies to tangible personal property without a title so a car, for
example, cannot be left through a written memorandum
 *Cannot dispose of cash through the memorandum
 ** No limit to the value of tangible personal property

Acts of Independent Significance (UPC §2-512

 The doctrine allows a will to dispose of property by reference to a fact or event that
occurs outside of the will, the fact or event can either control who takes or how must
s/he takes
o **The act must have a lifetime motivation/ significance beyond the will . Significance
to the acts apart from dispositions made in the will.
o Look to slides on Feb 9-gabe

Contracts Relating to Wills

 You can enter into a contract to make will or a contract not to revoke a will
o Contract law, not the law of wills, applies to these situations
 The will is still probated but the damaged party may be entitled to a remedy for the
breach of contract  1) damages, 2) a constructive trust, or 3) specific performance.
Contracts Concerning Succession – UPC §2-514 (1990)
A contract to make a will or devise, or not to revoke a will or devise, or to die intestate… may be
established only by
 Provisions of a will stating material provisions of the contract,
 An express reference in a will to a contract and extrinsic evidence proving the terms of
the contract, or
 A writing signed by the decedent evidencing the contract. The execution of a join will or
mutual wills does not create a presumption of a contract not to revoke the will or wills.

Litigation and Will Contracts

 Usually arise when married couples have executed 1) a joint will or 2) mirror image wills
 An aside on joint wills – they are usually troublesome and give rise to litigation
 Litigation arises if there is a question as to whether the parties intended the wills to be
subject to a contract for the survivor not to change his/her will after the death of the
first spouse

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 Revocation of a Will

Rule of Revocation: Testator must, in writing, declare an intention to revoke the will AND
obliterate or deface the text of the will
 If a T revokes his/her will under a mistaken assumption of law or fact revocation is
ineffective if the T would not have revoked his/her will but for the mistaken belief
 Doctrine of Dependent Relative Revocationif a testator revokes all or part of her will
intending the revocation to be effective only if a subsequent will or codicil can be validly
substituted, and the subsequent will or codicil is actually not valid, then the revocation
fails to the extent that the condition on which it was based was not met
§2-507
 A will is revoked:
o A subsequent will expressly or by inconsistency
o If the testator performs a revocatory act on the will with the intent and purpose
of revoking the will such as burning, tearing, canceling, obliterating, or
destroying the will or any part of it.
o If a subsequent will does not make a total disposition of an estate, it is the
assumption the will supplements the previous will, unless it contradicts or states
otherwise.
o UPC allows partial revocation by physical act (striking through)
 Minority of states do not allow and the stricken through portion still
stands
 Example problem:
o T executes a will devising to four ppl:
 A, B, C, D
 C
 Not sure who/when C was stricken through
 If state allows partial revocation, it will stand
 If state doesn’t allow partial revocation, it will not stand
 If the will was holographic, would depend on the facts, but if testator was
in possession of the will, and in a state that allows partial revocation, it
will stand

 Revocation of a codicil does not revoke the will

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  Revocation of a will revokes all codicils unless there is evidence the testator intended
the codicil to stand alone
 Curative doctrines can be applied
o Proper remedy? Upc doesn’t say a constructive trust can be used if a testator
accidently destroy a copy instead of the original, but maybe harmless error
would allow it……????

Lost wills: If the will is/was in the testator’s possession, there is a rebuttable presumption that
the will was destroyed with the intent to revoke it
 *If the will is in the possession of someone other than the testator the will is entitled
to probate unless there is proof that the T revoked the will
 **Burden of proof to overcome Clear and convincing evidence; some courts only
require preponderance of the evidence
Dependent Relative Revocation
o Will One
o Second Will -> revoked will #1, but a mistake of fact or law
o Would not have destroyed will one but for the mistaken belief which led to the writing
of the second will
o The doctrine presumes the testator would prefer the older will to be probated instead
of dying intestate or having the new will admitted to probate

Revocations by Operation of Law three types

 1) Divorce divorce revokes all testamentary bequests to a former spouse
 2) Revocation by Marriage Premarital will remains valid BUT omitted spouse is
entitled to an intestate share UNLESS:
 1) The omission in the will was intentional (then spouse may elect to take
elective share) OR
2) Spouse is provided for by will substitute
 3) Revocation by Birth of Children a child born after a will is executed a share in the
parent’s estate

Revival of a Will

Revival of Revoked Wills – Under the UPC

 If will 2 (the revoking instrument) wholly revokes will 1 the revocation of will 2 by a
revocatory act does not revive will 1 UNLESS
o **the proponent of will 1 shows that the decedent intended the revocation of will 2
to revive will 1
 If will 2 only revoked will 1 in part the revocation of will 2 by a revocatory act does
revive the rest of will 1, UNLESS
o **the party arguing against revival shows that the decedent did not intend the
revocation of will 2 to revive those parts of 1 revoked by 2

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  If will 2 is revoked by a later willwill 3 does not revive will 1 UNLESS
o **the text of will 3 indicates such a result is what the testator intended.

Capacity and Contests

Mental Capacity R3
 The testator must be capable of knowing and understanding in a general way:
o 1) The nature and extent of his or her property,
o 2) The natural objects of his or her bounty, and
o 3) The disposition that he or she is making of that property AND
o 4) Capable of relating these elements to one another and forming an orderly desire
regarding the disposition of the property.
 The rule regarding behavior: A few isolated acts of abnormal behavior cannot
satisfactorily rebut an inference of testamentary capacity
 The rule regarding one’s ability to care for himself One can be able to understand
the proceeding of writing their own will without being able to care for themselves or
manage their finances

Contestants of a will have the burden of establishing:

 1) Lack of testamentary intent or capacity (Ex: Insane delusion)
 2) Undue influence,
 3) Duress,
 4) Fraud,
 5) Mistake or revocation (above)
 **Tortious interference with an Expectancy (CoA in tort)
o This is not a will contest but it is another chance to prove undue influence,
duress, and/or fraud after the close of probate.
o Elements:
 1) The existence of an expectancy
 2) Intentional interference with the expectancy through tortious conduct
 3) Causation
 4) Damages

1. Insane Delusion Doctrine

 Delusion false idea about reality
 Insane delusion a delusion to which T adheres to against all evidence to the contrary

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 o **Majority rule if there is any evidence to support the testator’s delusion, the
delusion is not insane
o *Mistakes A mistake is not the same thing as a delusion
o *Isolated Acts A few isolated acts of abnormal behavior cannot satisfactorily
rebut an inference of testamentary capacity
o **Effect of Insane Delusion Where a testator’s distribution of her estate is the
product of insane delusions, the will must be set aside
 Test for Insane Delusion:
o 1) the T adheres to the delusion against all evidence to the contrary and
o 2) There is a causal connection between the insane delusion and the creation of the
will AND
o 3) The insane delusion materially affects the disposition in the will

2. Undue Influence
 Rule A donative transfer is invalid due to undue influence if:
o 1) the influence exerted over the donor overcame the donor’s free will and
o 2)the undue influence caused the donor to make a donative transfer that the
donor would not otherwise have made
 Presumption Rebuttable presumption that there was NO undue influence
o Contestant must show through clear and convincing evidence :
 1) Confidential relationship and
 Ex: Trusting, Fiduciary, Reliant, and or/dominant-subservient
relationship
 2) Suspicious circumstances
 Ex: unnatural disposition, lack of independent advice, the will was
produced in secrecy or haste, sudden change in donor’s attitude,
wrongdoer helped in the drafting of the will, is the disposition of
the will one which a reasonable person would make, whether the
relationship with others changed as the result of the relationship
with the wrongdoer.
 The burden then shifts to the proponent must overcome the presumption with clear
and convincing evidence

Proponent -> will is valid + death certificate

Contestant —> Claim undue influence if they can show the above and below

The burden then shifts to Proponent

Was there a rebuttable presumption
CLAIM BELOW BUT NO PRESUMPTION
Elements of Undue Influence:
 1) The donor was susceptible to undue influence,
 2) The alleged wrongdoer had an opportunity OR motive to exert undue influence,

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  3) The alleged wrongdoer had the disposition to exert undue influence, and
 4) There was a result appearing to be the effect of undue influence

Gifts to Lawyers & Undue Influence

 Presumption undue influence is presumed if the lawyer who drafted the will receives
a gift from the same will and they are not a family member
o Rebutted this presumption can be rebutted through clear and convincing
evidence
 Rule 1.8 lawyer can’t solicit a gift…unless lawyer is related to the client

Warning signs
 Be on high alert if a person
o Disinherit a descendent
o Lover or caretaker gets a gift
o Blended families
 Strategies
o Third party witnesses
o Have client write a letter outside the will explaining the scheme
o Family meeting
o Physicians statements if capacity is an issue
o No contest clause, must leave something
o Do a trust instead of a will. An inter vivos or lifetime trust is harder to set aside a
trust than a will
- Ante-probative will
o Mediation and arbitration. Can mediation and arbitration. Cant enter a
mediation or arbitration agreement without your knowledge.

3. Duress
 Elements of Duress:
o 1) Improper threat
 Duress: Threat of loss of life, limb or imprisonment
 Economic Duress: 1) Threat of breach in bad faith, 2) Threat of civil action
in bad faith, 3) Threat of criminal prosecution in bad faith, 4) Threat of
tort in bad faith (damage your property)
o 2) Inducement casual relationship If it wasn’t but for the threat, I wouldn’t
have agreed
 Subjective Test whether the target of the threat was induced
o 3) Lack of reasonable alternative
 *If Testator is prevented from revoking current Will due to fraud, duress, or undue
influence property devised under that will to the wrongful beneficiary is held in
constructive trust for the intended beneficiaries of the unexecuted will

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3. Fraud

Fraud in the Execution: Occurs when the wrongdoer intentionally misrepresents the character
or the content of the document signed by the T and the document that is signed does not carry
out the T’s wishes
 Effect is invalidated is void (check this)

Fraud in the Inducement – A misrepresentation causes the T to execute or revoke a will, to

refrain from executing or revoking a will, or to include certain provisions in the wrongdoer’s
favor (see
 Effect will is voidable (check this)
 See example of both undue influence and fraud on the block quote on 323

Elements of Fraud:
1. A representation A statement that can be proven true or false.
a. The mindset of the speaker can be proven true or false
i. Ex: I told you something that I don’t believe, but I told you I believed it.
Puffing can be fraud if you don’t believe it
2. That is false the representation must be false (untrue)
3. That is material something that is important (more than nominal)
a. Either must be true:
i. 1) that a reasonable person would have found the representation
important OR
ii. 2) The speaker knew that this specific target would have found the
representation important
4. That caries scienter must be true either:
a. 1) The speaker knew it was false (subjective scienter) OR
i. Speaker actually knew the representation was a lie
b. 2) The Speaker acted with reckless disregard for the true (objective)
i. Reckless a wide departure from the standard of care Ex; driving 50
mph over the speed limit in a school zone
5. Objective reliance a reasonable person would have relied on the representation
6. Subjective reliance the specific target actually relied on the representation

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 7. Intent to induce reliance when the speaker made the representation, the goal was to
induce you into the transaction

Tortious interference with an expectancy

 Intentional interference with an expected inheritance or gift is a void cause of action
o But not in probate court
 Must be brought as a tort claim
 Plaintiff must prove the interference involved tortious conduct, which includes undue
influence, duress, or fraud
 Moved out of probate law and into tort law and the tort cannot be invoked if the
challenge is based on mental capacity
 Not a will contest but it is another chance to prove undue influence, duress, and/or fraud
after the close of probate
 Damaged party is allowed to bring tortious interference claim if he slept on his rights in
probate court
Tortious interference
 Requirements
o The existence of an expectancy
o Intentional interference with the expectancy through tortious conduct
o Causation
o Damages
 The purpose is to protect T’s freedom of disposition, not the beneficiary’s inheritance
Advantage to bringing tort claim instead of probate claim
 Longer statute of limitations
 Punitive damages
 Jury v. bench trial
 Interested witnesses are allowed to testify

CONSTRUCTION-- The Process of Determining the Meaning of the Will

Traditional Rules of Construction:

 Four Corner Rule courts must only consider the 4 corners of the document
o No reformation Courts may not reform a will to correct a mistake term
 Plain Meaning Rule the plain meaning of a word within a Will cannot be overcome by
evidence that the T intended another meaning of the word UNLESS the language is
ambiguous and susceptible to different meanings

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 o Ambiguity Exception Extrinsic evidence may be admitted to resolve
ambiguities
 Reasoning for Traditional Rules:
o 1) Worst Evidence Rule
o 2) Strict Compliance with the Wills Act

Commons issues where the court must use construction principals:

 1) Ambiguities
 2) Mistake
 3) Lapse

1. Ambiguities:
 1) Patent The ambiguity is “obvious on its face”
 2) Latent The ambiguity isn’t immediately evident but when the will is probated it
turns out that there is
o Ex: 1) Equivocation, 2) Two or more person or things fit the description in the will
exactly, 3) Courts deciding cases involving equivocation were the first to allow
extrinsic evidence to resolve the ambiguity, 4) Allowing extrinsic evidence helped
the courts determine the meaning of the term in the will without adding terms to
the will, which is not allowed, 5) Personal Usage, 6) The testator leaves a bequest to
someone using a nickname or pet name, 7) The name in the will may actually belong
to another person, 8) Extrinsic evidence helps courts determine which person the
testator actually meant, 9) No Exact Fit, 10) The description the will doesn’t fit any
person or thing, 11)Extrinsic evidence is necessary, once again, to clear up the
ambiguity
 Extrinsic Evidence and Ambiguities:
o Common Law: extrinsic evidence was not admissible even if the devise failed
due to the ambiguity and the property passed by intestacy
o Modern Trend: extrinsic evidence is admissible if the language the language is
ambiguous and susceptible to different meanings
o South Carolina: follows modern trend
 Standard: preponderance of the evidence

Ad Hoc Relief
Courts find a way around the Plain Meaning and No Reformation Rules
The court treats mistakes as if the mistakes were ambiguities.
Open reformation without saying its reformation.

2. Mistakes:
 Courts have applied three principals when faced with mistakes in a will :
 1) General Rule (Common Law): courts may not reform a will to correct a mistake

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  2) Falsa demonstration non nocet (Exception)  Where a will describes property
or a beneficiary by several characteristics, and nothing or no one matching all of
those characteristics exists then the less essential characteristics of the
description may be disregarded as long as the remaining characteristics match an
existing person or property
o Ex: T devises property located at “317 Harrison Avenue” to son; however, T
owns property at “304 Harrison Avenue” court removes the 317 language
and the rest of the description matches property the decedent owned
 3) Rules of construction and intention; Reformation of will (UPC §2-805)
o Rule: the court may reform the terms of the will, even if unambiguous, to
conform the terms to the testator’s intention if it is proved by clear and
convincing evidence that the testator’s intent AND the terms of the will were
affected by a mistake of fact or law, whether in expression or inducement.
Reform vs malpractice
Better to prevent a loss than to compensate
Reformation by a court is a better remedy than malpractice bc
Some cases are not an attorney’s error
The lawyer might be judgment proof – no assets which to attach a judgement to.
Damages are not adequate for a devise of a family heirloom or property
Malpractice does not prevent or correct the unjust enrichment of the mistaken devisee
or the unintended intestate heirs

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3 Death of a Beneficiary
Lapse Devisee fails to survive the Testator
 Common Law: it is a condition of the gift that the devisee survive the T unless the T
specifies otherwise in the will
o So the devisee’s share would pass through intestacy
 Modern Trend: Most states have enacted anti-lapse statutes to substitute another
beneficiary if a testamentary gift fails due to the death of a devisee
o Antilapse statutes typically only apply to blood relatives

Types of Gifts
 Specific gift: an item owned by T that is left specifically to a devisee
 Demonstrative gift: mix bw specific and general – Monatary gift from the proceeds of an
item. Sale of a house.
 General gift: gift of general monetary value that can be satisfied by using any item that
fits the description of the gift
 Residuary gift: a gift that gives away the rest of T’s property that has not been otherwise
devised
o Any gift that fails will fall into the residuary
o If residuary devise lapses, heirs of the testator take by intestacy. If only a share
lapses, no residue of a residue rule
 Class gift: surviving members of the class divide the gift
 Void devise: if the devisee is already dead or otherwise an ineligible taker, the devise is
void and the common law rules of lapse apply.

 When a bequest cannot be made, then the will takes, in order from the residuary then
general, then demonstrative
Types of gifts
 Specific gift
o An item owned by T at the time of the signing of the will that is left specifically to
a devisee
 General gift
o A gift of general monetary value that can be satisfied by using any item that fits
the description of the gift
 Demonstrative gift
o Mix between specific and general
 Residuary gift
o A gift that gives away the rest of T’s property that has not been otherwise devised
Common law of lapse
 Specific or general devise
o Devise falls into the residue
 Residuary devise
o If residuary devise lapses, heirs of T take by intestacy
o If only a share lapses, no residue of a residue rule A and B Get residue. A dies,
A’s half of residue passes through intestacy. B receives half residuary

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  Class gift
o Surviving members of the class divide the gift
 Void devise
o If devisee is already dead or otherwise an ineligible taker, the devise is void and
the common law rules of lapse apply
No residue of a residue rule
 T devises entire estate
o Half to A, half to B
o B dies before T (or is a dog)
o T dies. What happens to B’s share?
 Common law
o A receives ½ of T’s estate with the other half passing by intestacy to T’s heirs

**READ pg. 351 to 360 VERY IMPORTANT CHANGES EVERYTHING!!

Cannot leave gifts to pets, has to be left as a pet trust to care for pet
Antilapse and presumed intent:
Common law: B’s share lapses and passes by intestacy

Current UPC Antilapse; Deceased Devisee; Class Gifts

If a devisee fails to survive the testator get from slide

Class gift: a restatement

A class gift is presumed if the gift is identified t
There is not a class gift if the beneficiaries are fixed
The presumption can be rebutted if the language or circumstances can establish the testator
intended the beneficiaries take as a class
Add Slides from above.
Ademption by extinction
 Applies only to gifts of specific property
 Traditional law
o If the item is not found in the estate at the time of death, the gift fails, and the
devisee does not take or get a substitute item
In re estate of Anton
 Where a specific devise is removed from an estate by the act of an attorney-in-fact that
was not known or assented to by T, the devise is not adeemed (canceled) to the extent
that identifiable proceeds remain in the possession of the estate
Ademption?
 Occurs when property gifted in a will is not in the estate’s possession at the time of T’s
death
o Occurs when property has been sold, destroyed, or given away before T’s death
 Specifically devised real estate sold by guardian after T became incompetent
o No ademption

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  T died in a car accident that destroyed the car devised to T’s brother. Brother requested
the insurance proceeds in lieu of the vehicle
o Request granted
 Modified intent theory
o Identity rule will not be applied when the specifically devised property is removed
from T’s estate by an act that is involuntary to T
Ademption theories
 Identity
o If a specifically devised item is no longer owned by T at death, the gift fails
 Intent
o If a specifically devised item is no longer in T’s estate, the beneficiary may
nonetheless be entitled to the replacement item or the cash value of the original
item if he can show that taking the replacement item is what T would have wanted

Ademption by Satisfaction
- Ademption by satisfaction is similar to intastate
- Only a statisfaction if is expressely made so in the will

**add slides**

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 Trusts
Roles within a trust:
 1) Trust Agreement/Trust/Declaration of Trust/Deed of Trust: A written instrument
that creates a trust
 2) Settlor/Grantor/Trustor the person who creates the trust
 3) Trustee holds legal title to trust property, manages the property for the benefit of
the beneficiaries
o **The fiduciary appointed by the settlor
 4) Beneficiary holds equitable title to trust property

Mechanics of a Trust:
 1) Bifurcation of ownership:
o Trustee holds legal title
o Beneficiary holds equitable title
 2) Duties
o Trustee loyalty, prudence, to act impartially, not to commingle trust assets,
and the duty to inform and account
 ** trustee may be liable to beneficiaries for breach of one or more of
these duties
 3) Life Estates v. Trusts
o Refresher from Property – Life Estate Tenant
 one is the life tenant; other is the remainderman/men
 life tenant enjoys the use of the property during their lifetime
 Typically, cannot sell property without the consent of the remaindermen
 Cannot mortgage or encumber the property without the consent of
remaindermen
 Cannot create waste which may prevent the life tenant from harvesting
timber, oil, etc. from real estate
 Creditors of both the life tenant and remaindermen attach to the property
o Trust Beneficiary
 Trustees generally have the authority to sell property
 Trustees generally have the authority to mortgage or encumber property
 Trustees generally have the authority to make decisions regarding the use of
property
 Creditors of settlor/trustee may attach to trust property but creditors of
third-party beneficiaries cannot
o 4) Four functions of Trusteeship
 Custodial: taking custody of the trust property and properly safeguarding it
 Administrative: accounting and recordkeeping as well as making tax and
other required filings
 Investment: reviewing the trust assets and making and implementing a
prudent investment program
 Distribution: making distribution of income or principal to the benficiaries

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Beneficiaries- Vested and Contingent
 Income Beneficiaries
 Principal Beneficiaries
 Contingent Beneficiaries

Why Create Trusts?

 1) To avoid probate
 2) To maintain control of assets, even after death (dead hand control, freedom of
disposition)
 3) To postpone decisions about investment and the distribution of assets
 4) Trusts are private agreements (probate assets are public record)
 5) Protection for spouses/children in blended families
 6) To protect beneficiaries from themselves
 7) To protect the trust assets from the beneficiary’s creditor

Types of Trusts
 1) Inter Vivos – created during the settlor’s lifetime
 2) Testamentary Trusts – created through wills
 3) Trust may be revocable or irrevocable
 4) NoncharitableTrusts
 5) Charitable Trusts
 6) Pet Trusts
 7) Oral Trusts
 8) Written Trusts
How it works
 Trust agreement creates a new legal entity
 Trust agreement settlor establishes a number of rights and responsibilities for persons
named in the trust
 3 distinct roles in a trust: settlor, trustee, and beneficiary
 Types of beneficiaries:
o Lifetime beneficiary: recipients of distributions of trust income and principal
o contingent/remainder beneficiary: recipients of distributions of trust assets after
the death of the lifetime beneficiary

Case 1 – Revocable Trust

 Purpose of trust – nonprobate transfer of assets
 Typically becomes irrevocable upon settlor’s death
 Settlor – O  Trustee – O
 Lifetime Beneficiary – O
 Remainder Beneficiaries – O’s descendants

Case 2 – Trust for Incompetent Person

 Purpose of trust – property management and support of A

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  Settlor – O  Trustee – X
 Lifetime Beneficiary – A
 Remainder Beneficiaries – A’s descendants, if any, but if A dies without descendants
then to B

Case 3 – Discretionary Trust

 Purpose of trust – property management and support of A
 Settlor – O  Trustee – X
 Lifetime Beneficiary – A at X’s discretion (or to A and her descendants)
 Remainder Beneficiaries – A’s descendants

Case 4 – Testamentary Marital Trusts

 Purpose of trust: avoiding estate taxes, support of W, protect children’s inheritance
 Settlor – H
 Trustee – X
 Income Beneficiary –W
 Remainder/Principal Beneficiaries – H’s descendants

Case 5 – Trust for Minor

 Note – gift tax exclusion increased to $17,000 in 2022. Giving away annual gift tax to a
trust for the benefit of A. Every year O can make a tax-free gift.
 Purpose of trust – avoiding estate taxes and support of A
 Settlor – O  Trustee – ?
 Beneficiary – A until she reaches 21
 Remainder Beneficiary – A
Case 6 –
Settlor -O
Trustee – X
Income Beneficiary A
See SLide
Creating a Trust

Elemental Requirements of a Trust:

 1) Intent by the settlor to create a trust;
o *Language must clearly indicate that the T intended to create a trust
 Cannot use precatory language “I wish” or “I hope” or “recommend”
will NOT suffice
 2) the trust has a definite beneficiary or is (**UTC):
 (A) a charitable trust;
 (B) a trust for the care of an animal, as provided in Section 408; or
o Requirements: The person receiving the gift for the benefit of the
animal must: 1) accepts the gift AND 2) agree to carry out the

30
 wishes of the testator AND 3) the will properly limits the period of
time in which the bequest is to be carried out
a. Honorary trust a trust binding on the conscious of the
trustee because there is no beneficiary capable of
enforcing the trust
 (C) a trust for a noncharitable purpose, as provided in Section 409;
o **Beneficiary beneficiaries don’t have to be ascertainable when the trust is
created but must be identifiable when the trust becomes effective
 *Duty of Trustee the trustee must have someone (the beneficiary) to
owe a fiduciary duty to
o **An Indefinite class is valid under UTC
 3) Specific property, the res, to be held in trust; AND
o *Common law a trust cannot exist without owning some type of property
o **Any interest that is transferable will suffice;
 HOWEVER future interests can NOT be devised via a trust (but a
schedule attached to the trust will suffice for personal property)
 4) If the trust is testamentary OR is to hold land, then the trust must be in writing (to
satisfy the Wills Act OR Statute of Frauds)

UTC § 401. METHODS OF CREATING TRUST.

 A) A trust may be created by:
o 1) transfer of property to another person as trustee during the settlor’s lifetime
or by will or other disposition taking effect upon the settlor’s death;
o 2) declaration by the owner of property that the owner holds identifiable
property as trustee; or
o (3) exercise of a power of appointment in favor of a trustee.
UTC § 402. RQMT for Creation
 A) a trust is created only if:
o 1) the settlor has capacity to create a trust;
o 2) the settlor indicates an intentiion to create a trust;
o 3) the trust has a difinite benficiary or is;
 A) a charitable trust;
 B) a trust for the care of an animal, as provided in Section 408; or
 C) a trust for a noncharitable purpose, as provided in section 409;
o 4) the trustee has duties to perform; and
o 5) the same person is not the sole trustee and sole beneficiary.
 B) a beneficiary is definite if the benficiary can be ascertained now or in the future,
subject to…….
Trustees in General:
 1) A trustee can be an individual or corporation
o A) A trustee can be an interested party
o B) A trust will not fail for lack of a trustee if there’s a vacancy, the court with
jurisdiction may appoint a successor trustee

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  2) A Trustee MUST have duties If no duties, trust will fail
 3) A person is NOT required to accept the position of trustee; HOWEVER, A person can
accept the position of trustee through actions OR words
o Common law if the person accepts the appointment, he is not permitted to
resign unless:
 1) the beneficiaries consent to his resignation OR
 2) court orders the trustee to resign
o UTC trustee is permitted to resign upon providing 30 days’ notice to interested
parties

Resulting Trust (Equitable Remedy Arising in two situations):

 1) An express trust fails or makes an incomplete disposition of property
 2) Person (A) pays the purchase price for a property HOWEVER the title to the property
is in the name of Person (B) it is implied that person (B) is holding the property for the
benefit of person (A)
Beneficiary
A trust is created only if
The trust has a definite beificiary or
Is a charitable trust
A trust for the care of an animal
A trust for a noncharitable purpose
Must have one or more ascertainable beneficiaries
Don’t have to be ascertainable when the trust is created but must be identifiable
when the trust becomes effective……..
Class gifts ok, but can’t just say my friends bc not ascertainable (unless trustee
has power of appointment)

Power of Appointment:
 A power of appointment grants authority to designate the recipients of property held
in an estate or trust, it may also be the reservation of the power to appoint.
 Two situations:
o 1) Power of Appointment retained by the Testator of Trust
 Purpose Testator reserves power of appointment to change the
beneficiaries of a trust
 Example “I have the limited testamentary power to appoint the remaining
principal (but not income) of the trust to or for the benefit of any person or
entity, subject to the limitations below.”
o 2) Power of Appointment given to Trust Beneficiary
 Purpose enables the power holder to direct where the beneficiary’s share
of the estate or trust goes at the death of the beneficiary.
 Example I leave the residue of my estate in trust for the benefit of my
daughter, Mary, during her life and the remainder as Mary shall appoint by
will to any one or more of her children.

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Trust for indefinite class UTC
A power in a trustee to select a benficiary from an indefinite class is valid if the power is
not exercised w/in a rsnble time the pwr fails and the property subjct to the pwr passes
to the ppl….

Honorary Trusts
The recipient is under no legal obligation to carry out the settlor’s wishes
However, if the recipient doesn’t do what the settlor doesn’t, the property revers to the settlor
or to the settlor’s successors.
Honorary trusts cannot violate the Rule Against Perpetuities.

Most states and utc recognize pet trusts

Trust may be created to provide for the care of an animal alive during the settlor’s
lifetime. Trust terminates upon the death of the animal or last surviving animal.
A trust authorized by this section may be enforced by a person appointed in the terms
of the trust or, if no person is so appointed, by a person appointed by the court. A person
having an interest in the welfare of the animal may request the court to appoint a person to
enforce the trust or to remove a person appointed
Property of a trust authorized by this section may be applied only to its intended use,
except to the extent the court determines that the value of the trust property exceeds the
amount required for the intended use. Except as otherwise provided in the terms of the trust,
property not rqd for the intended use must be distributed to the settlor, if then living otherwise
to the settlor’s successors in interest.

UTC Charitable trusts

A charitable trust may be created for the relief of poverty, the advancement of
education or religion, the promotion of health, govt or municipal purposes, or other purposes
the achvmt of wich is benficial to the community
If the terms of a charitable trust do not indicate a particular charitable purpose…….

UTC Noncharitable trust w/o ascertainable beneficiary

A trust may be created for a noncharitable purpose w/o a definitely ascertainable
beneficiary, may not be enforced for more than 21 years
Authorized by this section may be enforced by a person appointed in the terms, if no
person may be appointed by court.
May be reduced if amount is ridiculously high.
(to take care of grave, property, etc)

Oral Trust
Clear and convincing evidence standard

Need writing to satisfy sof for land

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*****don’t need to know secret trusts*******

Fiduciary duties of trustees

Trad’l law: trustees given limited pwr on purpose to keep trustee in check
Evolved from holding real estate to hold diverse assets, powers needed to broaden
Modern law: trustees have broad powers, but must use these powers in concert w/ their
fiduciary duties

Duty of loyalty, good faith, fair dealing, care

UTC Specific powers of trustee

Acquire and sell property, borrow money, enter into a lease, manage stocks, prosecute and
defend claims, make loans to others w/ trust assets, sign and deliver contracts

Powers are numerous and not all listed here

State statute can differ; so if trust is moved from state to state and isn’t detailed in trust doc,
powers may change

Can be limited or specified in the trust doc

Third parties dealing with trustees

Third parties can rely on trustees statement they are the trustee and have authority

Trustees and litigation

Most claims against trustees
Trustee lacked the power to act
Trustee had the power to act, but the act was a breach of the trustee’s duty

Trust law favors the settlor’s freedom of disposition over the beneficiary’s wishes; affects a
beneficiary’s ability to petition a court to remove a trustee or modify or terminate a trust later
in the semester.

Rule Against Perpetutities (not tested)

 The common-law rule prohibiting a grant of an estate unless the interest must vest, if at
all, no later than 21 years after the death of some person alive when the instrument was
created.
 The person being used as a measuring life must be alive when the future interest is
created. A future interest is deemed to be created when a trust creating the interest
becomes irrevocable, either:
o 1) At the moment of its creation, if it is an irrevocable trust, or
o 2) When a revocable trust becomes irrevocable, usually at the grantor’s death.

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 **Doesn’t apply to charitable trusts

35
Discretionary Trust

 Boilerplate discretionary language sometimes used and should not be taken literally all
the time
 Trustee discretion
o Utc: exercise has to be in good faith and in accordance with the terms and
purposes of the trust and the interests of the beneficiaries.
 Exculpatory clause
o Typically included with boilerplate language
o Utc: relieves trustee of liability for breach of trust
 Is unenforceable if committed in bad faith or with reckless indifference
 Inserted as a result of an abuse by the trustee of a fiduciary or
confidential relationship to the settlor
 Unless trustee proves term is fair and its existence were
adequately communicated to the settlor.
 Unilateral Mandatory arbitration not allowed. Can only be voluntary by beneficiaries.

Investment Function

 Legal list: gov’t issued lists of investments for trustees; trustee wasn’t liable for bad
investments if it was on the list; typically favored low-risk ventures with low return
 Prudent man rule: trustee must manage assets the way a prudent person would manage
their own assets; favored gov’t bonds and disfavored stocks; hindsight bias often
affected judicial review of trustee actions
 Prudent investor rule: Uniform Prudent Investor Act on pg 624
o May be modified by the terms of the trust
o Trustee should consider the purpose, terms, distribution rtqmts, and other
circumstances of the trust
o Investments will be evaluated as a portfolio and not in isolation
o If trustee has special skills, has a duty to use those skills
o Must diversify the trust’s investments
o Must evaluate trusts’s assets, and re eavaluate in a rsnble time
 Modern portfolio theory
o Market risk: common to all securities, depends on market conditions, politics,
and interest rates; cannot be eliminated by diversification
o Industry risk: specific to a particular industry; can be reduced by diversification
(oil example)
o Firm risk: factors that impact an individual fir; can be reduced by diversification
(exxon example)
o Risk mgmt is an impt factor
 Prudent Investor Rule: UPIA
o Default rule; can be changed by the provisions of the trust

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  Trustee is not liable to a beneficiary to the extent the trustee acted in
rsnble reliance on the provisions of the trust.
o Duty of care
o Diversification

Damages

 To make beneficiaries whole

 Capital loss plus interest
o Calculating interest can be done many ways yielding diff results
 Total return measure: comparing actual performance with hypothetical diversified
portfolio
 Get expert testimony

Benefit of the Beneficiaries

 Must be for the benefit of its beneficiaries

 Cannot be altered by the trust

Trust forbids investment in corporate stocks: trustee showed restriction kept trust from
making income. Court allowed trustee to deviate from the trust to achieve the purpose of
the trust to benefit the beneficiaries.

Revocable by Trustee Trusts

 Cannot sue the trustee for revoking trust note 6

 Note 7: beneficiary gives consent not to sue: will be enforced unless consent was
induced by improper conduct or beneficiary did not know of their rights
Custodial and administrative functions
 Duty to collect and protect trust property
o Trustee must collect and protect property without unnecessary delay
 Duty to earmark trust property
o Trustee must designate property as trust property rather than the trustee’s own
o A trustee may be strictly liable for breach of trust if the trustee comingles funds
even if he does not use the trust assets for his own purpose
o A trust should have its own bank account
o Title of land should be in name of trustee as a trustee
 Duty not to mingle trust funds with the trustee’s own
o Trustee must not commingle trust funds with his own, even if trustee does not
use the trust funds for his own purpose
 Duty to keep adequate records of administration
o Trustee must document important decisions and actions and the reason for those
decisions and actions

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 o Allows the beneficiaries the ability to review what the trustee has done with trust
assets
o Protects the trustee from hindsight bias
 Duty to bring and defend claims
o Trustee must take reasonable steps to enforce and defend claims relating to the
trust
Custodial function of trustee
 UTC 809 – control and protection of trust property
o A trustee shall take reasonable steps to take control of and protect the trust
property
 UTC 812 – collecting trust property
o A trustee shall take reasonable steps to compel a former trustee or other person to
deliver trust property to the trustee, and to redress a breach of trust known to the

Duty to Earmark property

 If you comingle funds and no damage occurs no remedy; old rule this was a breach
 Separate accounts
 List of assets
 trustee to have committed by a former trustee
 EX: Withot an earmark the Trustee could argue that good investments belong to the
trustee and poor investments belong to the trust
UTC 810 – recordkeeping and identification of trust property
 Adequate Records of the administration of the trust: A trustee shall keep adequate records
of the administration of the trust
 Duty not to Co-mingle: A trustee shall keep trust property separate from the trustee’s own
property
 Except as otherwise provided, a trustee shall cause the trust property to be designated so
that the interest of the trust, to the extent feasible, appears in records maintained by a
party other than a trustee or beneficiary
 If the trustee maintains records clearly indicating the respective interests, a trustee may
invest as a whole the property of two or more separate trusts

Duty to maintain adequate records(810(a))

 Rqmt trustee be disciplined

 Allows beneficiaries the ability to review what the trustee has done w/ trust assets
 Protects trustee from hindsight bias
 Professional trustees held to a higher standard.
 All necessary filings(tax returns, business filings, etc)

Enforcement and defense of Claims

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UTC 811 – enforcement and defense of claims
 A trustee shall take reasonable steps to enforce claims of the trust and to defend claims
against the trust
o A prudent trustee will consider the likelihood of recovery and the cost of a suit to
enforce
o Beneficiaries may bring actions against third parties and an action against the
trustee for not bringing the suit against the third party if the trustee improperly
refused or neglected to bring the claim.(a rare instance where beneficiaries will
have a right to act on behalf of the trust) If it is a sound decision, then the trustee
will not be held liable.

Trustee selection

 Individual trustee: usually a friend or relative, loyal, moral obligation, will act as trustee,
typically knows the settlor well and knows the settlor’s wishes and values, will typically
charge less than professional
 Corporate trustee: bank or trust company, is experienced in the investment, custodial,
and administrative functions

Trustee duty delegation

 Tradition law: not allowed

 The uniform prudent investor act requires the trustee to use care, skill, and caution
when selecting and delegating to an agent.
 UTC mirrors the UPIA but expands it to all functions of trusteeship
o Exercise reasonable care, skill, and caution in
 Selecting an agent
 Establishing the scope and terms of the delegation
 Periodically reviewing the agent’s actions
o The agent owes a duty to the trust to exercise reasonable care to comply w/ the
terms of the delegation.
o A trustee who complies with a is not liable to the beneficiaries or to the trust for
the decisions or actions of the agent.
o Agent submits to the jurisdiction of the state by accepting delegation of the
powers or duties from the trustee.
 The trustee should adjust compensation for delegating to third parties.

Division of Administration

 Co-trustees-each have a fiduciary duty to the beneficiaries and remains under a

continuing duty to take reasonable steps to prevent a breach of trust by the co-trustee
 Power of appointment: non fiduciary: person holding power of appointment
 Directed trusts:

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 o Trust director/trust protector/trust advisor: third party power holder who is not
a trustee and doesn’t hold legal title to trust property. Is a trust director liable for
their advisement.
o What are the duties liablities
o The trustee is subject to direction by a non-trustee.
o UTC: powers to direct
 While a trust is revocable, the trustee may follow a direction of the
settlor that is contrary to the terms of the trust.
 If the terms of a trust confer upon a person other than the settlor of a
revocable trust power to direct certain actions of the trustee, the trustee
shall act in accordance with an exercise of the power unless the
attempted exercise is manifestly contrary to the terms of the trust or the
trustee knows the attempted exercise would constitute a serious breach
of a fiduciary duty that the person holding the power owes to the
beneficiaries of the trust
 The terms of a trust may confer upon a trustee or other person a power
to direct the modification or termination of the trust
 A person, other than a beneficiary, who holds the power to direct is
presumptively a fiduciary who is required to act in good faith with regard
to the purposes of the trust and the interest of the beneficiaries.
o Not all states adopted the UTC; instead:
 Either trustee is not held liable for following orders from a trust director;
or
 Trustee is not held liable unless doing so is willful misconduct and then
trustee and trust director will be held liable.
o Uniform Directed Trust Act
 Trust director is a fiduciary
 Directed trustee shall take rsnble action to comply w/ a trust
director’s exercise or nonexercise of a power of direction or
further power, and the trustee is not liable for the action.
 Trust director: same fiduciary duty and liability in the exercise or
nonexercise of the power as a sole trustee in a like position

Eaxapmles of directed trusts

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  Pg 669
 Committee is good at balancing out desicions


 Investment decisions to Y
 Trustees are not exempt from making obviously bad decions at the investment directors
investment recommendations(pg 670)


 Modifying the trusts terms but what if they want to change beneficiaries? An irrevocable
trust is set up, but over time things can grow stale, or property or people may change,
settlor cannot be modified by the settlor (can be modified by judicial proceedings) and
can have a trust protector to help modify the terms of the trust. Situs means state where
the trust is located. Third party trust protectors.
 Trust protector is not a fiduciary.

Duty of Impartiality

 UTC: two or more beneficiaries, trustee shall act impartially in investing, managing, and
distributing the trust property, giving due regard to the beneficiaries’ respective
interests

41
  Trustee must balance the interests of all the beneficiaries as set out in the trust
instrument
 Conflicts may arise bw the interests of income/lifetime beneficiaries and
principal/remainder beneficiaries and conflicts can also arise with concurrent
beneficiaries
 Imparitality is not the same thing as equality-the trust may permit or rqre the trustee to
favor the interests of one beneficiary over another
 Impartiality rqrs the trustee to give due regard to the respective interests of the
beneficiaries, keeping in mind the settlor’s intent and the purposes of the trust

Income v principal beneficiaries

 Income benies prefer investments that produce immediate returns and principal benies
prefer investments that grow principal. Creates an inherit conflict bw the desires of the
two types of benies.
o Income: cash dividends, rent, interest, profits from businesses, royalties
o Principal: stock splits and dividends, increase in value of land, insurance
proceeds on property, and corporate distributions from mergers
 UPandI Act trustee is allowed to adjust investments to provide for the income benie
while still providing for the principal benies (be aware of this rule, but do not need to
memorize)
UTC 808 – powers to direct
 While a trust is revocable, the trustee may a follow a direction of the settlor that is
contrary to the terms of the trust
 If the terms of a trust confer upon a person other than the settlor of a revocable trust
power to direct certain actions of the trustee, the trustee shall act in accordance with an
exercise of the power unless the attempted exercise is manifestly contrary to the terms of
the trust or the trustee knows the attempted exercise would constitute a serious breach of
a fiduciary duty that the person holding the power owes to the beneficiaries of the trust
 The terms of a trust may confer upon a trustee or other person a power to direct the
modification or termination of the trust
 A person, other than a beneficiary, who holds a power to direct is presumptively a
fiduciary who, as such, is required to act in good faith with regard to the purposes of the
trust and the interests of the beneficiaries
o The holder of a power to direct is liable for any loss that results from breach of a
fiduciary duty
o This is by a state by state basis.
Uniform directed trust act
 Enacted in 16 states
 Directed trustee
o A directed trustee shall take reasonable action to comply with a trust director’s
exercise or non-exercise of a power of direction or further power, and the trustee
is not liable for the action.
 Trust director

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 o Has same fiduciary duty and liability in the exercise and non-exercise of the
power as a sole trustee in a like position
Trust directors – two approaches(States are split)
 One
o Relieves a directed trustee from liability from complying with the trust director
o Suit for breach must be brought against the trust director
o Duty follows power(Follows Uniform Directed Trust Act)
 Two
o The directed trustee is not liable for complying with the trust director’s
instructions unless doing so would result in willful misconduct on the part of the
trustee
o A suit for breach may be brought against both
o The trustee must always be accountable to the beneficiaries

Duty of Impartiality

 When making decisions regarding beneficiaries.

 UTC: two or more beneficiaries, trustee shall act impartially in investing, managing, and
distributing the trust property, giving due regard to the beneficiaries’ respective
interests
 Trustee must balance the interests of all the beneficiaries as set out in the trust
instrument
 Conflicts may arise bw the interests of income/lifetime beneficiaries and
principal/remainder beneficiaries and conflicts can also arise with concurrent
beneficiaries
 Imparitality is not the same thing as equality-the trust may permit or rqre the trustee to
favor the interests of one beneficiary over another
 Impartiality rqrs the trustee to give due regard to the respective interests of the
beneficiaries, keeping in mind the settlor’s intent and the purposes of the trust

Howard Vs. Howard

- H – Settlor
- W + S co-trustees
- Spouses support comfort, companionship ,enjoyment and desires. The cpurt finds for
the W because the trust states that the W is preferred over the remaindermen
- W – Lifetime beneficiary of income + Principle in a discretionary
- S – Contingent beneficiaries remaining trust upon W’s death.

In the altenrative

- T- SETTLOR
- X- TRUSTEE
- A- LIFETIME BENE
o MANDATORY INCOME DISTRIBUTION

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 - Remainder bene.
o Remaining Principle after the death of A
- Remainder vs Lifetime beneficiate vs remaindermen.
Duty of impartiality
 UPC 803
o If a trust has two or more beneficiaries, the trustee shall act impartially in
investing, managing, and distributing the trust property, giving due regard to the
beneficiaries’ respective interests
 Conflicts can arise between the interest of income/lifetime beneficiaries and
principal/remainder beneficiaries and conflicts can also arise with concurrent
beneficiaries
 Impartiality is not the same thing as equality
 Impartiality requires the trustee to give due regard to the respective interests of the
beneficiaries, keeping in mind the settlor’s intent and the purposes of the trust
Income v. principal beneficiaries
 Income beneficiaries prefer investments that produce immediate returns
 Principal beneficiaries prefer investments that grow principal
 Uniform principal and income act
o Income
 Cash dividends, rent, interest, cash dividends, profits from businesses, and
royalties
o Principal
 Stock splits and dividends, increase in value of land, insurance proceeds
on the property, and corporate distributions from mergers
Uniform principal and income act
 Gives the trustee the power to adjust
o Permits trustees to make allocations between income and principal as necessary to
provide the income beneficiary with an appropriate level of income
 Important if traditional trust income producing assets (above) move out of favor with the
market
o In response to market movements, shifting trust assets to more growth oriented
assets in order to improve the total investment return of the trust, the income
beneficiary would suffer
 Purpose of power to adjust is to allow the trustee to provide for all the needs of both the
income and remainder beneficiaries, as well to encourage an overall return for the trust
o Trustees are able to exercise discretion to establish an overall target level
investment return for the trust
o The trustee can allocate principal to income for purposes of increasing the payout
to the income beneficiary and vice versa.

Income v principal beneficiaries

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  Income benies prefer investments that produce immediate returns and principal benies
prefer investments that grow principal. Creates an inherit conflict bw the desires of the
two types of benies.
o Income: cash dividends, rent, interest, profits from businesses, royalties
o Principal: stock splits and dividends, increase in value of land, insurance
proceeds on property, and corporate distributions from mergers
 UPandI Act trustee is allowed to adjust investments to provide for the income benie
while still providing for the principal benies (be aware of this rule, but do not need to
memorize)

Non-probate transfers
Will substitutes
 By their nature, will substitutes and nonprobate transfers are at odds with the protective,
ritualistic, evidentiary, and uniform functions of the wills act
 Examples
o Contracts (annuities, life insurance)
o Jointly owned property
o Life estates
o Pay on death / transfer on death designation on accounts
o Designated beneficiaries
o Lifetime gifts
o Revocable trusts and pour over wills
Revocable trusts, the “non-probate will”
 The most flexible of the will substitutes and most similar to a will
 The majority view is that an inter vivos trust is revocable unless it is declared to be
irrevocable
 Similarities to wills
o They are not asset specific
o They may be funded with some or all of settlor’s assets
o They can be amended or revoked so long as the settlor has capacity to do so
o The contingent beneficiaries have no rights in the trust property until the death of
the settlor
Farkas v. Williams
 A trust is not an attempted testamentary disposition if the trust beneficiary who receives
the assets of the trust after the settlor’s death also receives a present interest in the trust
during the settlor’s lifetime and the extent of the settlor’s control over the trust is not
consistent with absolute ownership.
UTC 603 – settlor’s powers; powers of withdrawal
 While a trust is revocable, rights of the beneficiaries are subject to the control of, and the
duties of the trustee are owed exclusively to the settlor
 During the period the power may be exercised, the holder of a power of withdrawal has
the rights of a settlor of a revocable trust under this section to the extent of the property
subject to the power
Settlor-trustees and revocable trusts

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  Fulp – an action by the settlor-trustee is not a trustee breach but is instead an implied
revocation/amendment of the trust
 A settlor-trustee cannot be compelled by a contingent beneficiary to provide accountings
or to provide information about the trust
 The same way a devisee named in a will has no rights until the testator dies, a contingent
beneficiary of a revocable trust has no rights while the rust is revocable by the settlor

UTC 602 – revocation or amendment of revocable trust

 Unless the terms of a trust expressly provided that the trust is irrevocable, the settlor may
revoke or amend the trust
 The settlor may revoke or amend a revocable trust
o By substantial compliance with a method provided in the terms of the trust; or
o If the terms of the trust do not provide a method or the method provided in the
terms is not expressly made exclusive, by:
 A later will or codicil that expressly refers to the trust or specifically
devises property that would otherwise have passed according to the terms
of the trust; or
 Any other method manifesting clear and convincing evidence of the
settlor’s intent
 Upon revocation of a revocable trust, the trustee shall deliver the trust property as the
settlor directs
Patterson v. Patterson
 Settlor reserved the right to amend, modify or revoke the trust in whole or in part
 But trust instrument also contained a clause stating that the “interests of the beneficiaries
are presently vested interests subject to divestment which shall continue until this trust is
revoked or terminated other than by death
Application of subsidiary law of wills
 Although a will substitute need not be executed in compliance with the statutory
formalities required for a will, such an arrangement is, to the extent appropriate, subject
to substantive restrictions on testation and to rules of construction and other rules
applicable to testamentary dispositions
State street bank and trust v. reiser
 Where a settlor of a trust retains the power to amend and revoke the trust or power to
control the principal and income during his lifetime, his creditors may reach the assets of
the trust after his death to the extent that the assets of his estate are insufficient to pay his
debts.
Creditors and revocable trusts
 Traditional law
o A creditor of the settlor has no recourse against property in the settlor’s revocable
trust unless the settlor was also a beneficiary of the trust
 UTC 505(a)(3)
o Whether or not the terms of a trust contain a spendthrift provision, the following
rule applies
 After the death of a settlor, and subject to the settlor’s right to direct the
source from which liabilities will be paid, the property of a trust that was

46
 revocable at the settlor’s death is subject to claims of the settlor’s
creditors, costs of administration of the settlor’s estate, the expenses of the
settlor’s funeral and disposal of remains, and [statutory allowances] to a
surviving spouse and children to the extent the settlor’s probate estate is
inadequate to satisfy those claims, costs, expenses and allowances

UPC 6-102 allows creditors to reach Nonprobate assets such as joint ban

Unitrust

 The trustee distributes a fixed percentage of the fair market value of the principal of the
trust to the current benie. This permits the trust assets to be invested by using total
return investment concepts since there is no rqmt to generate income per se. The
trustee can liquidate capital assets as needed to supplement actual income earned from
dividend and interest to fund the unitrust payments. The goal of this approach is that
the trust’s remaining assets then should grow at a rsnble value for the remainder benie.

Duty to inform and report

 UTC: trustee has to keep benies rsnbly informed about the administration of the trust
and material facts necessary for them to protect their interest. Trustee shall promptly
respond to a benie’s rqst for info.
o A trustee:
 Upon rqst of benie shall promptly furnis a copy of the trust instrument
 Shall notify the benies of the trust’s existence
o Shall send to the distrubutees and to other qualified or nonqualified benies who
rqst it, at lease annually a rport of the trust
 Trust can modify these terms except:
o Duty of trusee to act in good faith and in accordance with the terms and
purposes of the trust and the intersts of the benies
o Duty to notify qualified benies of an irrevocable trust who have attained 25 years
of age of the existence of th etrust
o The duty to respond to the rqst of a qualified benie of an irrevocable trust for
trustee’s reports and other info reasonably related to the administration of a
trust
Trustees
Trustees- the good and bad
 Good
o Custody, administration, investment and distribution of trust assets are done by
the trustee according to the instructions left by the settlor
o Allows flexibility in investments
 The trustee typically has the authority to decide how to invest the trust’s
assets
o May also allow flexibility in making distributions

47
  Bad
o Trustee may mismanage or misappropriate trust assets
Trustee powers
 Under traditional law, trustees were given limited powers on purpose to keep the trustee
in check
 Lawyers got around common law restrictions by listing the powers in the trust
 Under modern law, trustees have broad powers but must use these powers in concert with
their fiduciary duties
What is a fiduciary
 A fiduciary is a person having a duty, created by his or her undertaking, to act primarily
for another’s benefit in matter connected to such undertaking
 A fiduciary is obligated to act with the best interests of those he is serving
o Highest duty owed and involves the duties of good faith, loyalty, prudence and
impartiality

Fiduciary Duty of Trustee

Back in the day, trustees had limited powers, in modern times we have expanded the trustees
power but fiduciary duties are a check of the trustees powers. Trustees can mismanage the
beneficiaries assets.

FIDUCIARY OS A PERSON HAVING A DUTY, created by his or her undertaking top act
primarily for another's benefit. It is th highest duty under the law and involves the duties of good
faith, loyalty, prudence, and impartiality. Punctilio.

Analysis: Power vs. Duties

Does the trustee have the power(Same as an unmarried competent individual has their assets)
And do they keep within their duties
Irrevocable trusts are the exception to the rule.
UTC 815 – general powers of trustee
 A trustee, without authorization by the court, may exercise
o Powers conferred by the terms of the trust; and
o Except as limited by the terms of the trust
 All powers over the trust property which an unmarried competent owner
has over individually owned property
 Any other powers appropriate to achieve the proper investment,
management, and distribution of the trust property; and
 Any other powers conferred by this code
 The exercise of a power is subject to the fiduciary duties prescribed by this article
UTC 816 – specific powers of trustee
 Examples of powers given to trustee
o Acquire and sell property

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 o Borrow money
o Enter into a lease
o Manage stocks
o Make loans to others with trust assts
o Sign and deliver contracts
 More powers than these but are numerous
 If you don’t want your trustee to have these powers you may want to restrict it in the trust
instrument.

Third parties dealing with trustees
 Most states have statutes that indemnify third parties who transact business with trustees
in good faith
o There is no obligation under the law for third parties to inquire whether or not the
trustee has the authority to enter into the transaction
 Certification of trust – UTC 1013
o Sworn statement by the trustee that the trustee has the authority to act on behalf of
the trust. Can prove to 3rd party that the trustee has the authority to act.
Trustees and litigation
 Beneficiaries have standing to sue the trustee
 Most claims against trustees arise out of
o The trustee lacked the power to act as he did; or
o The trustee had the power to act but the act was a violation of the trustee’s
duties
 American trust law favors the settlor’s freedom of disposition over the beneficiary’s
wishes.
UTC 802 – duty of loyalty
 (A) A trustee shall administer the trust solely in the interests of the beneficiaries.
 (B) Subject to the rights of persons dealing with or assisting the trustee, a sale,
encumbrance, or other transaction involving the investment or management of trust
property entered into by the trustee for the trustee’s own personal account or which is
otherwise affected by a conflict between the trustee’s fiduciary and personal interests is
voidable by a beneficiary affected by the transaction unless:
o The transaction was authorized by the terms of the trust
o The transaction was approved by the court
o The beneficiary did not commence a judicial proceeding within the time allowed
by section 1005.
o The beneficiary consented to the trustee’s conduct, ratified the transaction, or
released the trustee in compliance with section 1009; or
o The transaction involves a contract entered into or claim acquired by the trustee
before the person became or contemplated becoming trustee.
 A sale, encumbrance, or other transaction involving the investment or management of
trust property is presumed to be affected by a conflict between personal and fiduciary
interests if it is entered into by the trustee with
o The trustee’s spouse
o The trustee’s descendants, siblings, parents, or their spouses

49
 o An agent or attorney of the trustee; or
o A corporation or other person or enterprise in which the trustee, or a person that
owns a significant interest in the trust, has an interest that might affect the
trustee’s best judgement
Hartman v. Hartle
 Just as an executor of an estate is not permitted to purchase property from himself
without leave of the court, his wife also cannot purchase property from him without leave
of the court.
In re Gleeson’s Will
 A trustee who engages in self-dealing breaches his fiduciary duty regardless of whether
he was acting in good faith and the trust suffered no injury as a result.
 Policy: Self-dealing is not allowed, but he could use one of the four exceptions, informed
consent, or court order.
No further Inquiry Rule.
 If a transaction undertaken by the trustee involves a conflict between the trustee’s
fiduciary capacity and personal interests, fair dealing and good faith will not save the
trustee from liability
 The court will inquire whether there was self-dealing and if the answer is yes, the court
will not ask any other questions and will find the trustee violated the duty of loyalty
 Defenses to trustee self-dealing
o The settlor authorized the self-dealing in the trust instrument
o The beneficiaries consented after full disclosure
o The trustee received court approval in advance
 Remedies
o Disgorgement: Compensatory damages and/or disgorging the trustee of any
profits realized
o If it is a breach with no self-dealing, then compensatory damages are in order
 Exceptions
o Corporate trustees, trustee compensation
 Mayor Tecklenberg was removed as a conservator for breaching this rule.
The mandatory core of fiduciary obligation
 A trustee may be authorized by the terms of the trust, expressly or by implication, to
engage in transactions that would otherwise be prohibited by the rules of undivided
loyalty
 However, no matter how broad the provisions of a trust may be in conferring power to
engage in self-dealing or other transactions involving a conflict of fiduciary and personal
interests, a trustee violates the duty of loyalty to the beneficiaries by acting in bad faith
or unfairly
 Structural Conflict
o When a Tigertail Corp shares to trust but trustee is CEO. The trust is created by
the settlor with this in mind.
In re Rothko
 If a will’s executor sells estate property for inadequate value due to a conflict of interest,
the sale is void, and the executor is liable for the property’s appreciated value at the time
of trial

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 o Even if it were a consensual structural conflict, they still would have to have act
in gffd.
o You cannot be passive as a trustee.
 Appreciation damages
o When a trustee has engaged in improper self-dealing, the beneficiaries can
 Set the sale aside and recover either the property itself, if available, or
 Its value at the time of the court order, regardless of whether or not the
trustee was authorized to sell the property to others and regardless of
whether or not the sale price was fair market value
o Punitive damages are not available
o Damages are meant to make the trust whole
Co-trustees
 UTC allows a majority of trustees to act, and each has a duty to take reasonable steps to
prevent a breach by a co-trustee
o May not be liable for the wrongful act but will be liable for failure to report the
act.
o What is in the best interest of the trustee, no legal advice can be a safe harbor.
UTC 804 – duty of prudence
 A trustee shall administer the trust as a prudent person would, by considering the
purposes, terms, distributional requirements, and other circumstances of the trust
o In satisfying this standard, the trustee shall exercise reasonable care, skill, and
caution
 This standard of care pertains to all functions of trusteeship
o Distribution
o Investment, and
o Custody and administration

Types of distributions
 Mandatory
o The trustee shall pay
o The trustee must make specific distributions and failure to do so would be a
breach of trust
 Discretionary
o The trustee gets to decide when, to whom, and/or in what amounts
 Spray
 The trustee must distribute all income but gets to choose to which
beneficiaries and in what amounts
 Sprinkle
 The trustee may accumulate income and add it to the principal or
may distribute it to the beneficiaries
 Support trusts
 The trustee has the discretion to distribute trust assets for the
beneficiary’s support and maintenance. Keeps the beneficiary into
the style of living to which they have become accustomed.

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  A trustee’s exercise of discretion must somehow be policed
o Enter the duty of prudence as applied to the distribution function
 Can have mandatory and discretionary in the same trust and mandatory income vs
discretionary principle.
Marsman v. Nasca
 A trustee directed by the trust to use his discretion in determining the amount of trust
principle to distribute for the support of the beneficiary must inquire into the needs of the
beneficiary in order to exercise his discretion with the sound judgment required of a
fiduciary.
 Lessons
o Comfortable support and maintenance is usually understood to mean the standard
of living to which the beneficiary had been accustomed
o The sole and uncontrolled discretion language does not save trustees
 Even with such language, the trustee’s actions are still subject to judicial
scrutiny
 The trustee must act in good faith and in accord with the purposes of the
trust.
 Exculpatory Clause: We want people to serve as trustee, we have clauses that say so long
as you don’t do something negligent or a willful breach of a fiduciary duty. Drafting the
instrument and including an exculpatory clause protecting the drafter is a conflict. It
would require proof that the beneficiaries were aware of it.
 Mandatory distributions of income and discretionary distribution of principle.
Comfortable maintenance does not mean that Cappy should have had to mortgage his
house.
 Trustee has a duty to check in with the beneficiary. The beneficiary had to come to see
trustee for me and is somewhat shamed.
 The trustee represents several members of the family. The family is asking him to the
deed. He withheld information to Cappy in regard to the disposition of the family home
to Sara instead of Cappy’s new wife.
 Held in equitable trust in rthe money that should have been distributed
Sole, absolute, or uncontrolled discretion
 Language of extended discretion is often included in the boilerplate language in
professionally drafted trusts. However, such provisions should not be taken lightly
 No matter how much discretion the settlor vests in the trustee, if there is a trust, there is a
fiduciary relationship, and the trustee’s actions are therefore subject to judicial review
Trustee discretion
 Even sole and uncontrolled discretion is not really sole and uncontrolled discretion
 Notwithstanding any language in the trust the trustee must do what is in the beneficiary’s
best interests
 Judge hand
o If it appears that the trustee has utterly disregarded the interests of the beneficiary,
the court will intervene
 Indeed, were that not true, the power would not be held in trust at all
 The language would be no more than a precautionary admonition

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  McDonald – the exercise of the trustee’s judgment in making discretionary distributios
should be evaluated in light of the availability of other resources , including the …
parental duty of support.

UTC 814(a)
 Notwithstanding the breadth of discretion granted to a trustee in the terms of the trust,
including the use of such terms as “absolute, sole or uncontrolled,” the trustee shall
exercise a discretionary power in good faith and in accordance with the terms and
purposes of the trust and the interests of the beneficiaries
UTC 1008 – exculpatory clauses
 A provision of a trust instrument relieving a trustee of liability for breach of trust is
unenforceable to the extent that it
o Relieves the trustee of liability for breach of trust committed in bad fair or with
reckless indifference to the purposes of the trust or the interests of the
beneficiaries; or
o Was inserted as the result of an abuse by the trustee of a fiduciary or confidential
relationship to the settlor
 An exculpatory term drafted or caused to be drafted by the trustee is invalid as an abuse
of a fiduciary or confidential relationship unless the trustee proves that the exculpatory
term is fair under the circumstances and that its existence and contents were adequately
communicated to the settlor
Mandatory arbitration
 The court cannot unilaterally strip trust beneficiaries of their right to a court proceeding
o Participation in arbitration must be voluntary
 The argument for mandatory arbitration
o A beneficiary’s rights are secondary to the settlor’s right to freedom of disposition
 A trust is a conditional gift
 The court enforced mandatory arbitration reasoning that the beneficiaries were trying to
enforce the provisions of the trust, including the arbitration clause
Investment function
 Legal lists
o Government issues lists of investments for trustees
o The trustee was not liable for bad investments so long as the investment was on
the list
o The lists typically favored low-risk ventures like government bonds and
mortgages which in turn usually had low return
 Prudent man rule
o A trustee must manage trust assets the way a prudent person would manage their
own assets
o Also favored government bonds and disfavored stocks
o Hindsight bias often affected judicial review of trustee actions
 Prudent investor rule
o May be modified by the terms of the trust
o Trustee should consider the purpose, terms, distribution requirements, and other
circumstances of the trust

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 o Investments will be evaluated as a portfolio and not in isolation
o If a trustee has special skills, he has a duty to use those skills
o Trustee must diversify the trust’s investments
o Trustee must evaluate the trust’s assets within a reasonable time after being name
trustee

Modern portfolio theory

After the South Sea Bubble, legal lists were created by the government. If a trustee used the
legal list, they could not be liable for making poor investments.
Prudent man Rule
- Favoreds govt bonds and certain stocks.
o Only looked at investments singularly. One bad investment could be grounds for
liability.
Prudent investor rule.
Reform of the prudent man rule was replaced by the portfolio theory. Diversification of
various risks.

 Market risk (Stock Market)

o Common to all securities and depends on market conditions, politics, and interest
rates
 Cannot be eliminated by diversification
 Industry risk
o Specific to a particular industry
 Can be reduced by diversification
 Firm risk
o Factors that impact an individual firm
 Can be reduced by diversification
 Risk management is an important factor in prudent investment
 Trustees have a duty to diversity trust assets unless there are special circumstances.
 Investments will be considered as a whole portfolio, not in isolation
Uniform prudent investor act (1994)
Default rule and can be eliminated through he terms of the trust. Keep in mind that a trustee is
still liable for fiduciary duty
 Prudent investor rule
o The prudent investor rule, a default rule, may be expanded, restricted, eliminated,
or otherwise altered by the provisions of a trust
 A trustee is not liable to a beneficiary to the extent that the trustee acted in
reasonable reliance on the provisions of the trust
 Standard of care; portfolio strategy; risk and return objectives
o A trustee shall invest and manage trust assets as a prudent investor would, by
considering the purposes, terms, distribution requirements, and other
circumstances of the trust
 In satisfying this standard, the trustee shall exercise reasonable care, skill,
and caution

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 o A trustee’s investment and management decisions respecting individual assets
must be evaluated not in isolation, but in the context of the trust portfolio as a
whole and as a part of an overall investment strategy having risk and return
objectives reasonably suited to the trust
o A trustee who has special skills or expertise, or is named as trustee in reliance
upon the trustee’s representation that the trustee has special skills or expertise, has
a duty to use those special skills or expertise
 Diversification
o A trustee shall diversify the investments of the trust unless the trustee reasonably
determines that, because of special circumstances, the purposes of the trust are
better served without diversifying
 Duties at the inception of trusteeship
o Within a reasonable time after accepting a trusteeship or receiving trust assets, a
trustee shall review the trust assets and make and implement decisions concerning
the retention and disposition of assets, to bring the trust portfolio into compliance
with the purposes, terms, distribution requirements, and other circumstances of
the trust, and with the requirements of this act
 Note: Could be a breach of fiduciary duty not to consult a financial advisor.
Exceptions to diversification
 Trust was created to preserve property such as the family farm or a vacation home
 Diversification would create a tax consequence or a loss in profits (Hold on to shares
because the market is doing poorly, sellingthe sgares at the time
 Trust holds a family business
Time to diversify
- Nature of the property
- Time necessary to evaluate
A common rule of thumb is that a concentration in a single security over 5% should be
explained.
If you hold yourself out to have knowledge of skills and investing
Notice should be sent on the notes of each security

Damages
 The goal is to make trust whole
 Capital loss plus interest
 Total return measure
o Comparing the actual performance with the performance of a hypothetical
diversified portfolio
 Calculating damages will often involve expert testimony

Power, authorization, and direction

 There is a difference between a trustee’s power and a trustee’s duty
o Just because a trustee is authorized to do something does not mean he should
 The trustee cannot just be passive, the trustee must take an active role in carrying out his
duties

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  If a settlor specifically directs a trustee to retain a certain asset, a trustee must do so
o However, a trustee must petition a court for permission to sell the asset if
following the direction of the settlor will cause substantial harm to the
beneficiaries or the trust itself
UTC 1009 – beneficiary’s consent, release or ratification
 A trustee is not liable to a beneficiary for breach of trust if the beneficiary consented to
the conduct constituting the breach, released the trustee from liability for the breach, or
ratified the transaction constituting the breach, unless
o The consent, release, or ratification of the beneficiary was induced by improper
conduct; or
o At the time of the consent, release, or ratification, the beneficiary did not know
the beneficiary’s rights or of the material facts relating to the breach
Custodial and administrative functions
 Duty to collect and protect trust property
o Trustee must collect and protect property without unnecessary delay
 Duty to earmark trust property
o Trustee must designate property as trust property rather than the trustee’s own
o A trustee may be strictly liable for breach of trust if the trustee comingles funds
even if he does not use the trust assets for his own purpose
o A trust should have its own bank account
o Title of land should be in name of trustee as a trustee
 Duty not to mingle trust funds with the trustee’s own
o Trustee must not commingle trust funds with his own, even if trustee does not
use the trust funds for his own purpose
 Duty to keep adequate records of administration
o Trustee must document important decisions and actions and the reason for those
decisions and actions
o Allows the beneficiaries the ability to review what the trustee has done with trust
assets
o Protects the trustee from hindsight bias
 Duty to bring and defend claims
o Trustee must take reasonable steps to enforce and defend claims relating to the
trust
Custodial function of trustee
 UTC 809 – control and protection of trust property
o A trustee shall take reasonable steps to take control of and protect the trust
property
 UTC 812 – collecting trust property
o A trustee shall take reasonable steps to compel a former trustee or other person to
deliver trust property to the trustee, and to redress a breach of trust known to the
trustee to have committed by a former trustee
UTC 810 – recordkeeping and identification of trust property
 A trustee shall keep adequate records of the administration of the trust
 A trustee shall keep trust property separate from the trustee’s own property

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  Except as otherwise provided, a trustee shall cause the trust property to be designated so
that the interest of the trust, to the extent feasible, appears in records maintained by a
party other than a trustee or beneficiary
 If the trustee maintains records clearly indicating the respective interests, a trustee may
invest as a whole the property of two or more separate trusts

UTC 811 – enforcement and defense of claims

 A trustee shall take reasonable steps to enforce claims of the trust and to defend claims
against the trust
o A prudent trustee will consider the likelihood of recovery and the cost of a suit to
enforce
o Beneficiaries may bring actions against third parties and an action against the
trustee for not bringing the suit against the third party if the trustee improperly
refused or neglected to bring the claim
Trustee selection
 Individual trustee
o Usually friend or relative who, due to loyalty or moral obligation, will act as
trustee
o Typically knows the settlor well and knows the settlor’s wishes and values
 Corporate trustee
o Bank or trust company that is experienced in the investment, custodial and
administrative functions
Delegation by trustee
 Adopted by Uniform Prudent Investor Act
o Requires the trustee to use care, skill and caution when selecting and delegating to
an agent
UTC 807 – delegation by trustee
 A trustee may delegate duties and powers… the trustee shall exercise reasonable care,
skill and caution in
o Selecting an agent
o Establishing the scope and terms of the delegation; and
o Periodically reviewing the agent’s actions
 In performing a delegated function, an agent owes a duty to the trust of exercise
reasonable care to comply with the terms of the delegation
 A trustee who complies with subsection a is not liable to the beneficiaries or to the trust
for the decisions or actions of the agent
 By accepting a delegation of powers or duties from the trustee of a trust that is subject to
the law of this state, an agent submits to the jurisdiction of the courts of this state
Directed trusts
 Trustee is subject to direction by a non-trustee

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UTC 808 – powers to direct
 While a trust is revocable, the trustee may a follow a direction of the settlor that is
contrary to the terms of the trust
 If the terms of a trust confer upon a person other than the settlor of a revocable trust
power to direct certain actions of the trustee, the trustee shall act in accordance with an
exercise of the power unless the attempted exercise is manifestly contrary to the terms of
the trust or the trustee knows the attempted exercise would constitute a serious breach of
a fiduciary duty that the person holding the power owes to the beneficiaries of the trust
 The terms of a trust may confer upon a trustee or other person a power to direct the
modification or termination of the trust
 A person, other than a beneficiary, who holds a power to direct is presumptively a
fiduciary who, as such, is required to act in good faith with regard to the purposes of the
trust and the interests of the beneficiaries
o The holder of a power to direct is liable for any loss that results from breach of a
fiduciary duty

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Trust directors – two approaches
 One
o Relieves a directed trustee from liability from complying with the trust director
o Suit for breach must be brought against the trust director
o Duty follows power
 Two
o Directed trustee is not liable for complying with the trust director’s instructions
unless doing so would result in willful misconduct on the part of the trustee
o Suit for breach may be brought against both
o Trustee must always be accountable to the beneficiaries
Uniform directed trust act
 Enacted in 13 states
 Directed trustee
o A directed trustee shall take reasonable action to comply with a trust director’s
exercise or non-exercise of a power of direction or further power, and the trustee
is not liable for the action
 Trust director
o Has same fiduciary duty and liability in the exercise and non-exercise of the
power as a sole trustee in a like position
Duty of impartiality
 UPC 803
o If a trust has two or more beneficiaries, the trustee shall act impartially in
investing, managing, and distributing the trust property, giving due regard to the
beneficiaries’ respective interests
 Conflicts can arise between the interest of income/lifetime beneficiaries and
principal/remainder beneficiaries and conflicts can also arise with concurrent
beneficiaries
 Impartiality is not the same thing as equality
 Impartiality requires the trustee to give due regard to the respective interests of the
beneficiaries, keeping in mind the settlor’s intent and the purposes of the trust
 Trust may require the trustee to favor one beneficiary over another.
Income v. principal beneficiaries
 Income beneficiaries prefer investments that produce immediate returns
 Principal beneficiaries prefer investments that grow principal
 Uniform principal and income act
o Income
 Cash dividends, rent, interest, interest from accounts profits from
businesses, and royalties
o Principal
 Stock splits and dividends, increase in value of land, insurance proceeds
paid out on the property, and corporate distributions from mergers
Uniform principal and income act
 Gives the trustee the power to adjust
o Permits trustees to make allocations between income and principal as necessary to
provide the income beneficiary with an appropriate level of income

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  Important if traditional trust income-producing assets (above) move out of favor with the
market
o In response to market movements, shifting trust assets to more growth-oriented
assets in order to improve the total investment return of the trust, the income
beneficiary would suffer
 Purpose of power to adjust is to allow the trustee to provide for all the needs of both the
income and remainder beneficiaries, as well to encourage an overall return for the trust
o Trustees are able to exercise discretion to establish an overall target level
investment return for the trust.
 If the income is inadequate to meet the needs of the beneficiary the trustee
can adjust the investment scheme to meet the needs of the required
income.
o The trustee can allocate principal to income for purposes of increasing the payout
to the income beneficiary and vice versa.
Unitrust
 800k principle + 200k income = 1Mil. Untrust has a fixed 5%. Income beneficiary gets
50K. But Principle has increased to 950k
 Trustee distributes a fixed percentage of the fair market value of the principal of the trust
to the current beneficiary.
 Permits the trust assets to be invested by using total return investment concepts since
there is no requirement to generate income per se
 Trustee can liquidate capital assets as needed to supplement actual income earned from
dividend and interest to fund the payments
 Goal of approach is the trust’s remaining assets then should grow at a reasonable value
for the remainder beneficiary
Affirmative Disclosure
Allard v. Pacific National Bank
- Nonroutine transactions are a red flag
- See page 691 Block quote for guidance as to what is a non routine transactions
UTC 813 – duty to inform and report
 A trustee shall keep the qualified beneficiaries of the trust reasonably informed about the
administration of the trust and of the material facts necessary for them to protect their
interest… a trustee shall promptly respond to a beneficiary’s request for information
 A trustee
o Upon request of a beneficiary, shall promptly furnish a copy of the trust
instrument
o Shall notify the qualified beneficiaries of the trust’s existence
 A trustee shall send to the distributes, and to other qualified or non-qualified beneficiaries
who request it, at least annually a report of the trust
 A beneficiary may waive the right to a report or other information required to be
furnished

UTC 105(b) – default and mandatory rules

 The terms of a trust prevail over any provision of this code except

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 o The duty of a trustee to act in good faith and in accordance with the terms and
purposes of the trust and the interests of the beneficiaries
o The duty to notify qualified beneficiaries of an irrevocable trust who have attained
25 years of age of the existence of the trust
o The duty to respond to the request of a qualified beneficiary of an irrevocable
trust for trustee’s reports and other information reasonably related to the
administration of the trust
 Most have enacted 8 and 9
o The power of the court to take such action and exercise such jurisdiction as may
be necessary in the interests of justice
Wilson v Wilson
- Even though D doesn’t have an ongoing duty to inform, he does have a fiduciary duty to
provide information when asked. They must be given enough information to determine
whether there has been a breach.
o An alternative is to give to have a third-party trust protector look at the trust
instrument.
California has legislated that heirs to a settlor can request a copy of the trust.
In other states, it would be a good practice to have an affirmative disclosure to heirs
to prevent future law suits.
Judicial/formal accountings
 Steps for a judicial/formal accounting
o Trustee prepares accounting
o Trustee files accounting with probate court and serves the accounting on all
interested parties
o Parties have a time period to contest the accounting.
o Beneficiary must then file an objection, if any, with the probate court within the
time period set by statute
 If the beneficiaries do not timely object, the beneficiaries are later barred from bringing
an action against the trustee
 A drawback to judicial accountings is potentially subjecting the trust to the jurisdiction of
the probate court .
National academy of sciences v. Cambridge Trust
 A beneficiary is not liable for failure to timely challenge an account where the trustee
commits constructive fraud by representing as fact something of which it lacked
knowledge and made no reasonable efforts to determine the accuracy.
 Contingent beneficiaries deserve an accounting because they have a future interest.
 Trustees should safeguard themselves through annual proof of the condition.
UTC 1007 – event affecting administration or distribution
 If the happening of an event, including marriage, divorce, the performance of educational
requirements, or death, affects the administration or distribution of a trust, a trustee who
has exercised reasonable care to ascertain the happening of the event is not liable for a
loss resulting from the trustee’s lack of knowledge.
UTC 813(c) – duty to inform and report
 A trustee shall send to the distributes or permissible distributes of trust income or
principal and to other qualified or non-qualified beneficiaries who request it, at least

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 annually and at the termination of the trust, a report of the trust property, liabilities,
receipts and disbursements, including the source and amount of the trustee’s
compensation, a listing of the trust assets and, if feasible, their respective market values
o Upon a vacancy in a trusteeship, unless a co-trustee remains in office, a report
must be sent to the qualified beneficiaries by the former trustee
o A personal representative, conservator, or guardian may send the qualified
beneficiaries a report on behalf of deceased or incapacitated trustee
- Informal accountings
o More acceptable than they used to be
o Saves the Trust money because a formal accounting is expensive and time
consuming.
o Beneficiaries need to know if there is a breach to review the accounting but also
protects the trustee in that they have a record of keeping the beneficiaries aware .
o Income beneficiaries cannot bind principle beneficiaries.
o Informal accounting: one beneficiary cannot bind another beneficiary to an
informal accounting.
o What if the lifetime bene has a power of appointment, they may exercise it in
favor of another future beneficiary.
 Not a good enough argument to let C have the information. The Lifetime
may not use the power of appointment.
o UDTA would authorize a beneficiary to authorize an accounting but hat
authorizing beneficiary is subject to a fiduciary duty to the remaining
beneficiaries
- Consent or release of liability.
-
Alienation
 Conveyance or transfer of property to another person/entity
 Although the property is generally deemed to be alienable, it may be subject to restraints
on alienation
Pure discretionary trust
 Trustee is given discretion over when, to whom, and in what amount distributions will be
made
 Traditional law
o The beneficiary does not have a property interest that he can transfer or that a
creditor can attach a claim to
o The creditor of a beneficiary has not right to the beneficiary’s interest in the trust
o A creditor cannot compel the trustee to make a distribution, even by court order
o Beneficiary cannot assign his beneficial interest to a creditor
 A discretionary beneficiary may be entitled to a court order directing the trustee to make
a distribution if it has been unreasonably withheld
 Creditor remedy
o Creditor may be entitled to an order requiring any distributions the trustee chooses
to make be paid to the creditor before being paid to the beneficiary
UTC 501 – rights of beneficiary’s creditor or assignee

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  To the extent a beneficiary’s interest is not subject to a spendthrift provision, the court
may authorize a creditor or assignee to reach the beneficiary’s interest by attachment of
present or future distributions to or for the benefit of the beneficiary
 The court may limit the award to such reliefs as is appropriate under the circumstances
(to keep the beneficiary clothed and housed, but the remainder goes to the creditor)
 Game of chicken.

Support trust
 Are for the health, education, maintenance, and support of the beneficiary.
 Traditional law
o Beneficiary could not alienate his interest in the trust
o Creditor of the beneficiary could not get the beneficiary’s interest unless the
creditor was a child, spouse, or a supplier of necessities
 Child or Spouse or Former Spouse: beneficiary has a duty to report
 Supplier of Necessities (doctor, groceries) is consistent with settlors intent
to provide support.
 Discretionary trust
UTC 504 – discretionary trusts
 A creditor of a beneficiary may not compel a distribution that is subject to the trustee’s
discretion, even if
o The discretion is expressed in the form of a standard of distribution; or
o The trustee has abused the discretion
 To the extent a trustee has not complied with a standard of distribution or has abused a
discretion
o A distribution may be ordered by the court to satisfy a judgment or court order for
support or maintenance of the beneficiary’s child, spouse, or former spouse; and
o The court shall direct the trustee to pay to the child, spouse, or former spouse such
amount as is equitable under the circumstances
- Restatement breaks with prior law and trust code they also apply third parties may attach
to the beneficiaries trust.
Protective trusts(in England)
 Mandatory distributions to beneficiary’s creditors seek to attach a claim to the
beneficiary’s interest, the trust immediately switches to a discretionary distibution.
 Used when jurisdiction does not recognize spendthrift trusts
Spendthrift trust
 Not only is a beneficiary barred from voluntarily alienating his interest in the trust, but
creditors also cannot attach a judgement to distributions
o Even mandatory distributions
o Creditors cannot attach a judgement to distributions.
 No exception for involuntary creditors
 Exception for support obligation to children and spouses
 Bankruptcy code excludes a beneficial interest in a trust that is not alienable
 Cases
o Nichols v. Eaton

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  Why a parent, or one who loves another, and wishes to use his own
property in security to object of his affection, should not be permitted to
do so, is not readily perceived
o Broadway National Bank v. Adams
 The rule of public policy which subjects a debtor’s property to the
payment of his debts, does not subject property of a donor to the debts of
his beneficiary, and does not give the creditor a right to complain that, in
exercise of his absolute right of disposition, the donor has not seen fit to
give the property to the creditor but has left it out of his reach
UTC 502 – spendthrift provision
 A spendthrift provision is valid only if it restrains both voluntary and involuntary transfer
of a beneficiary’s interest
 A term of a trust providing that the interest of a beneficiary is held subject to a spendthrift
trust, or words of similar import, is sufficient to restrain both voluntary and involuntary
transfer of the beneficiary’s interest
 A beneficiary may not transfer an interest in a trust in violation of a valid spendthrift
provision and except as otherwise provided in this article, a creditor or assignee of the
beneficiary may not reach the interest or a distribution by the trustee before its receipt by
the beneficiary

UTC 503 – exceptions to spendthrift provision (protects against voluntary and involuntary
alienation)
 A spendthrift provision is unenforceable against
o A beneficiary’s child, spouse, or former spouse who has a judgement or court
order against he beneficiary for support or maintenance
o A judgement creditor who has provided services for the protection of a
beneficiary’s interest in the trust; and
o A claim of this State or US to the extent a law so provides
 A claimant against which a spendthrift provision cannot be enforced may obtain from a
court an order attaching present or future distributions to or for the benefit of the
beneficiary
o The court may limit the award to such relief as is appropriate under the
circumstances
If you fall within the exception, you can attach a judgement to distributions.
Tort victims’ exception
 UTC does not recognize an exception for tort victims
o Neither do states except for Georgia
o Restatement does make an exception for willful, fraudulent, pattern of behavior
Spouses and children exception
 There is an exception if there is judgment or court order.
Other exceptions and limitations
 Claimants that provide services necessary to protect a beneficiary’s interest in a
trust(lawyers always get paid)
 Those that provide essential items such as medical care and food
 Settlor did not likely wish to shield a trustee from their breach of trust.

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  The Feds will always get paid.
Federal law regarding spendthrift trusts
 State laws allowing protections for trusts are not abrogated by federal law
 Estate and trust matters are left up to the states
 Excludes from a debtors bankruptcy estate any trust that is not alienable under state law
 NY has a station in life rule that allows creditors to reach the income that is above the
lifestyle they have become accustomed (class consideration)
UTC 505 – creditor’s claims against settlor
 Whether or not the terms of a trust contain a spendthrift provision, the following applies
o During the lifetime of the settlor, the property of a revocable trust is subject to
claims of the settlor’s creditors
o With respect to an irrevocable trust, a creditor or assignee of the settlor may reach
the maximum amount that be distributed to or for the settlor’s benefit
 If a trust has more than one settlor, the amount the creditor or assignee of a
particular settlor may reach may not exceed the settlor’s interest in the
portion of the trust attributable to that settlor’s contribution
o After the death of a settlor, and subject to the settlor’s right to direct the source
from which liabilities will be paid, the property of a trust that was revocable at the
settlor’s death is subject to claims of the settlor’s creditors, costs of administration
of the settlor’s estate, the expenses of the settlor’s funeral and disposal of remains,
and statutory allowances to a surviving spouse and children to the extent the
settlor’s probate estate is inadequate to satisfy those claims, costs, expenses and
allowances
Asset Protection Trusts (APT)
 Up until now we have talked about 3rd party trust.
 Self-settled trusts
o A trust in which the settlor is also the primary beneficiary of the trust
 Offshore jurisdictions allow these to avoid creditors and increase business
 US courts will hold settlors in contempt of court for not returning trust assets to US
jurisdiction.
 Domestic APT began to bloom in other states starting in Alaska. There are about 20
states that allow.
o Wives and children are an exception as well as tort victims in some states
o These will bar attached by third party creditors.
o Bankruptcy Court: Recognizes the state law. There is a clawback provision that
allows the recovery of assets put into a trust within 10 years with the intention to
hinder delay or defraud a creditor.
Permissible APT
 Medicaid asset protection trusts
o A discretionary trust established by the will of a spouse for the benefit for the
surviving spouse is not considered a resource
 Self-settled and third party special/supplemental needs trusts
 Both types of trusts must be carefully drafted to comply with state and federal law to
avoid being considered a resource for public benefits

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 Trusts – Modification and Termination
Modification and termination
 Two circumstances in which a trust may be modified without the settlor’s consent
o By consent of all beneficiaries if modification/termination is not contrary to a
material purpose of the trust; or
o There are changed circumstances not anticipated by the settlor that would defeat
or substantially impair the purpose of the trust
 If the settlor and the beneficiaries agree, an irrevocable trust may be modified or
terminated
 If a material purpose of the trust has not yet been accomplished, no modification or
termination will be allowed
 Courts will not allow modification that would violate the intent of the settlor
 Not allowed if is
o Spendthrift trust (It is a material purpose)
o The beneficiary will not receive distributions until a certain age
o Discretionary trust
o Support trust
o A material purpose of the settlor remains unaccomplished

Claflin Doctrine
 States the trust cannot be modified or terminated, even if all beneficiaries agree, if to do
so would be contrary to a material purpose of the settlor
- In Re Estate of Brown
o Assurance of a life-long income of beneficiaries is a material purpose and could
not terminate the trust.
o Termination before the beneficiary’s death would defeat the material purpose of
the Settlor
Scott Treatise
 Early termination ordinarily does not defeat a material trust purpose
 But if the settlor intended to protect the life beneficiary against his own mismanagement,
termination before the life beneficiary’s death would defeat a material trust purpose
 Whether this, or any other material purpose, was among the settlor’s purposes in creating
the trust is, of course, a question of interpretation of the trust instrument, in light of all the
circumstances
UTC 411 – modification or termination of a noncharitable irrevocable trust by
consent(almost all irrevocable trusts that are not charitable)
 A noncharitable irrevocable trust may be modified or terminated upon consent of the
settlor and all beneficiaries, even if the modification or termination is inconsistent with a
material purpose of the trust
 A noncharitable irrevocable trust may be terminated upon consent of all the beneficiaries
if the court concludes that continuation of the trust is not necessary to achieve any
material purpose
 If not all of the beneficiary’s consent to a proposed modification or termination of the
trust under subsection b, the modification or termination may be approved by the court if
the court is satisfied that

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 o If all the beneficiaries had consented, the trust could have been modified or
terminated; and
o The interests of a beneficiary who does not consent will be adequately protected
Equitable deviation doctrine
 Allows for modification for a change in circumstances not anticipated by the settlor
 Allows courts to permit a trustee to deviate from the administrative terms of the
trust if
o 1)Compliance would substantially impair the accomplishment of a purpose
of the trust.
o 2) In light of circumstances not anticipated by the settlor
 The doctrine does not recognize deviations from the dispositive functions of a trustee
 Deviation must be necessary to accomplish a purpose of the trust
 The mere advantage to the beneficiaries is not enough to prevail
 The administrative term of the trusts is where it started: Pullitzer case where the stock of
the newspaper was made alienable due to shifting market circumstances.
 Trust of Stutchell: Edna and #2 = Lifetime bene; Edna”s children are contingent
beneficiaries. One of the children is disabled. Edna wants to have the trust provision
modified. The Settlor was trying to help support the family and did not know that john
would be disabled. Settlor would likely set up a supplemental needs trust. The court
denies the modification because it was not administrative but was dispositive.
 Why do we treat administrative vs Dispositive differently? Now courts are open up to
using equitable deviation not only for administration but also to dispositive terms.

Administrative term
UTC 412 – modification or termination because of unanticipated circumstances or inability
to administer trust effectively
 The court may modify the administrative or dispositive terms of a trust or terminate the
trust if, because of circumstances not anticipated by the settlor, modification or
termination will further the purposes of the trust.
o To the extent practicable, the modification must be made in accordance with the
settlor’s probable intention.
 The court may modify the administrative terms of a trust if continuation of the trust on its
existing terms would be impracticable or wasteful or impair the trust’s administration.
 Upon termination of a trust under this section, the trustee shall distribute the trust
property in a manner consistent with the purposes of the trust.
In re Riddell
 A trust may be modified to create a special needs trust if the settlors were unaware of the
special needs of the beneficiary when creating the trust and the modification will further
the purpose of the trust.
 Two-prong test:
o The court may modify an administrative or distributive provision of a trust, or a
direct or permit the trustee to deviate from an administrative or distributive
provision if
 Because of circumstances not anticipated by the settlor
 The modification or deviation will further the purpose of the trust

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  Practice note: you can combine or divide a trust. This could also be written into the will
to authorize the trustee to do this sort of thing.
 If a term of the trust harms the beneficiaries
UTC 417 – combination and division of trusts
 After notice to the qualified beneficiaries, a trustee may combine two or more trusts into
a single trust or divide a trust into two or more separate trusts, if the results does not
impair the rights of any beneficiary or adversely affect the achievement of the purposes
of the trust
 - Judicial approval of these types of actions is not necessary so long as the trustee does
not breach any of their duties.
UTC 414 – modification or termination of the uneconomic trust
 After notice to the qualified beneficiaries, the trustee of a trust consisting of trust property
having a total value less than 50k may terminate the trust if the trustee concluded that the
value of the trust property is insufficient to justify the cost of administration
 The court may modify or terminate a trust or remove the trustee and appoint a different
trustee if it determines that the value of the trust property is insufficient to justify the cost
of administration
 Upon termination of a trust under this section, the trustee shall distribute the trust
property in a manner consistent with the purposes of the trust
 This section does not apply to an easement for conservation or preservation
Decanting
 Used for irrevocable trusts that have become stale with age, leaving behind the bad parts
of the old irrevocable trusts. Decanting is a form of discretion of a discretionary trust. If
no Discretion is held by the trustee, then no decanting can take place.
 It is a non-judicial process, but usually, beneficiaries must be notified. Most states require
this notification. Certain types of beneficiaries definitely vested but also contingent.
 The act of distributing trust assets from an old trust to a new trust with more favorable
terms
 The legal process through which a trustee appoints or distributes trust property in further
trust for the benefit of one or more beneficiaries
 Phipps v. Palm Beach
o If a trustee has discretionary power to distribute property to a beneficiary outright,
the trustee may also distribute trust property to a beneficiary in further trust.
 Does not require court involvement and is only subject to judicial review if one of the
beneficiaries petitions a court for trustee breach.
 SC has decanting statutes. You must give the beneficiaries a copy of the new trust and 90
days.
Pooled trusts
 Most often used by individuals seeking to qualify for public benefits
 Contain the assets or several individuals who do not have enough assets to warrant the
expense and time to be administered separately
 Trustee keeps a sub-account for each individual’s share of trust assets

UTC 103(13)

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  Qualified beneficiary means a beneficiary who, on the date of the beneficiary’s
qualification, is determined:
o Is a distribute or permissible distribution of trust income or principal
o Would be a distributee or permissible distribute of trust income or principal if the
interests of the distributees described above terminated on that date without
causing the trust to terminate; or
o Would be a distributee or permissible distributee of trust income or principal if
the trust terminated on that date
 Trust is for Benefit of a for A’s life(Income and Principle. B and C are entitled to all trust
assets upon A’s death. Then to Charity if A+ B +C all die(remote contingent beneficiary)
o A is a qualified beneficiary
o B + C would be distributed.
o Charity is not because B and C are alive and their interests are too remote.
Removal of trustee
 The court may remove a trustee if
o The trustee has committed a serious breach of trust
o Lack of cooperation among cotrustees substantially impairs the administration of
the trust
o Because of unfitness, unwillingness, or persistent failure to the trustee to
administer the trust effectively, the court determines that removal of the trustee
best serves the interests of the beneficiary
o There has been a substantial change of circumstances or removal is requested by
all of the qualified beneficiaries, the court finds that removal of the trustee best
serves the interests of all of the beneficiaries and is not inconsistent with a
material purpose of the trust, and a suitable cotrustee or successor trustee is
available
Minors
 UTC 303(6)
o A parent may represent and bind the parent’s minor or unborn child if a
conservator or guardian for the child has not been appointed.
 UTC 304
o Unless otherwise represented, a minor, incapacitated, or unborn individual, or a
person whose identity or location is unknown and not reasonably ascertainable,
may be represented by and bound by another having a substantially identical
interest with respect to the particular question or dispute, but only to the extent
there is no conflict of interest between the representative and the person
represented
UTC 305 – appointment of representative
 If the court determines that an interest is not represented under this article, or that the
otherwise available representation might be inadequate, the court may appoint a
representative to receive notice, give consent, and otherwise represent, bind, and act on
behalf of a minor, incapacitated, or unborn individual, or a person whose identity or
location is unknown
o A representative may be appointed to represent several persons or interests

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  A representative may act on behalf of the individual represented with respect to any
matter arising under this code, whether or not a judicial proceeding concerning the trust is
pending
 In making decisions, a representative may consider general benefit accruing to the living
members of the individual’s family

Nonprobate transfers
Will substitutes
 By their nature, will substitutes and nonprobate transfers are at odds with the protective,
ritualistic, evidentiary, and uniform functions of the wills act
 Examples
o Contracts (annuities, life insurance)
o Jointly owned property
o Life estates
o Pay on death (POD) cash accounts/transfer on death(TOD) designation on
accounts. Investment accounts, accounts will be moved to the name of the
beneficiary.
o Designated beneficiaries
o Lifetime gifts
o Revocable trusts and pour-over wills
o Although they are at odds with the will’s act, they are not held to the same
standards.
o Overtime rules of construction are applied to these non-probate transfers.
Revocable trusts, the “non-probate will.”
 The most flexible of the will substitutes and most similar to a will
 The majority view is that an inter vivos trust is revocable unless it is declared to be
irrevocable
o A best practice is to put a quick statement in beginning that declares it is
revocable/irrevocable.
 Similarities to wills
o They are not asset specific
o They may be funded with some or all of settlor’s assets
o They can be amended or revoked so long as the settlor has capacity to do so
o The contingent beneficiaries have no rights in the trust property until the death of
the settlor
 There no rights of a contingent beneficiary until the settlor’s death.
Create a pour-over will for any assets outside the trust that goes back into the trust.
Farkas v. Williams
 A trust is not an attempted testamentary disposition if the trust beneficiary who receives
the assets of the trust after the settlor’s death also receives a present interest in the trust
during the settlor’s lifetime and the extent of the settlor’s control over the trust is not
consistent with absolute ownership.
 Williams had a contingent equitable interest in the property. If willimas attempted to sue
Farkas he could revoke the trust.

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UTC 603 – settlor’s powers; powers of withdrawal
 While a trust is revocable, the rights of the beneficiaries are subject to the control of, and
the duties of the trustee are owed exclusively to the settlor.
 During the period the power may be exercised, the holder of a power of withdrawal has
the rights of a settlor of a revocable trust under this section to the extent of the property
subject to the power.
Settlor-trustees and revocable trusts
 Fulp – an action by the settlor-trustee is not a trustee breach but is instead an implied
revocation/amendment of the trust.
o Ruth creates a trust with kids as beneficiaries. She moves farm to trust. Decides to
sell the farm. Harold, her son, offers the farm at half fair market value to buy the
farm. Ruth agrees to sell. Nancy said you’ve violated the duty of prudence, duty
of loyalty and self dealing, a violation of fiduciary duty.
 A settlor-trustee cannot be compelled by a contingent beneficiary to provide accountings
or to provide information about the trust
 The same way a devisee named in a will has no rights until the testator dies, a contingent
beneficiary of a revocable trust has no rights while the rust is revocable by the settlor
 There must be a contingent beneficiary even though the settlor could withdraw them.

UTC 602 – revocation or amendment of a revocable trust

 Unless the terms of a trust expressly provided that the trust is irrevocable, the settlor may
revoke or amend the trust
 The settlor may revoke or amend a revocable trust
o By substantial compliance with a method provided in the terms of the trust; or
o If the terms of the trust do not provide a method or the method provided in the
terms is not expressly made exclusive, by:
 A later will or codicil that expressly refers to the trust or specifically
devises property that would otherwise have passed according to the terms
of the trust; or
 Any other method manifesting clear and convincing evidence of the
settlor’s intent

 Upon revocation of a revocable trust, the trustee shall deliver the trust property as the
settlor directs
 A nonsettlor beneficiary has no rights until the trust becomes irrevocable.
Patterson v. Patterson
 Settlor reserved the right to amend, modify or revoke the trust in whole or in part
 But trust instrument also contained a clause stating that the “interests of the beneficiaries
are presently vested interests subject to divestment which shall continue until this trust is
revoked or terminated other than by death.
Application of subsidiary law of wills
 R3-Although a will substitute need not be executed in compliance with the statutory
formalities required for a will, such an arrangement is, to the extent appropriate, subject
to substantive restrictions on testation and to rules of construction and other rules
applicable to testamentary dispositions.

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  We’re still going to apply some of the revocation and anti-lapse principles to trusts.
State street bank and Trust v. Reiser
 Where a settlor of a trust retains the power to amend and revoke the trust or power to
control the principal and income during his lifetime, his creditors may reach the assets of
the trust after his death to the extent that the assets of his estate are insufficient to pay his
debts.
o T could have had creditors reach the assets in the trust during his lifetime. If we’re
allowing lifetime creditors to reach the trust assets, why not allow creditors after
death to reach the property
Creditors and revocable trusts
 Traditional law
o A creditor of the settlor has no recourse against property in the settlor’s revocable
trust unless the settlor was also a beneficiary of the trust
 UTC 505(a)(3)
o Whether or not the terms of a trust contain a spendthrift provision, the following
rule applies.
 After the death of a settlor, and subject to the settlor’s right to direct the
source from which liabilities will be paid, the property of a trust that was
revocable at the settlor’s death is subject to claims of the settlor’s
creditors, costs of administration of the settlor’s estate, the expenses of the
settlor’s funeral and disposal of remains, and [statutory allowances] to a
surviving spouse and children to the extent the settlor’s probate estate is
inadequate to satisfy those claims, costs, expenses, and allowances
 UPC 6-102 allows creditors to reach Nonprobate assets such as joint bank accounts and
inter vivos trusts
 Clymer v. Mayo
o She puts the property in trust. As a lifetime beneficiary, James may be entitled to
income and discretionary life insurance policy. This is used for ja,es benefit but
does not have power of distribution over funds. They divorce
o The revocation on divorce statute is extended. Divorce is generally acrimonious.
See §2-804 added trusts as a revocation as a matter of law. SEE PAGE 246
o Deeds, wills, trusts, pension plans,
 Ademption of wills is treated similarly to trusts (the UTC does not address this)
 UPC 2-207 Extends antilapse to trusts. SC has done this by statiute.
 The law states that one only has to have the same capacity as having a will.
 Harder to revoke a trust than a will because I am either the trustee or am the settlor and
am still alive.
 3 years creditors can come forward.
o I can file probate
o Open probate with the will of record or directly notice the
creditors.
o Hold on to final tax returns and a prudent reserve to pay off
creditors.
Revocable trusts in contemporary practice

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Pour-over wills and revocable trusts
 How does the pour over will comply with the wills act?
o Incorporation by reference
 A will may incorporate by reference a document in existence at the time
the will was executed but not amendments to the document/trust may be
made after the will is executed
o Acts of independent significance
 A will may dispose of property by referring to some act or event that has
significance apart from disposing of probate assets
 The trust must have some property in it prior to T’s death in order for acts
of independent significance to apply
 Uniform testamentary additional to trust act (UTATA)
o Required the trust instrument to be executed or at the same time as the pour over
will
UPC 2-511 – uniform testamentary additions to trusts act
 A will may validly devise property to the trustee of a trust established or to be established
o During the testator’s lifetime by T, by T and some other person, or by some other
person, including a funded or unfunded life insurance trust, although the settlor
has reserved any or all rights of ownership of the insurance contracts, or
o At T’s death by T’s devise to the trustee, if the trust is identified in T’s will and its
terms are set forth in a written instrument, other than a will, executed before,
concurrently with, or after the execution of T’s will or in another individual’s will
if that other individual has predeceased T, regardless of the existence, size, or
character of the corpus of the trust
 The devise is not invalid because the trust is amendable or revocable, or
because the trust was amended after the execution of the will or T’s death
 Unless T’s will provides otherwise, property devised to a trust described above is not
held under a testamentary trust of T, but it becomes a part of the trust to which it is
devised, and must be administered and disposed of in accordance with the provisions of
the governing instrument setting forth the terms of the trust, including any amendments
thereto made before or after T’s death
 Unless T’s will provides otherwise, a revocation or termination of the trust before T’s
death causes the devise to lapse

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Revocable trusts
 Revocable trusts facilitate property management by a fiduciary, assist in planning or
incapacity, provide continuity in management, and are an alternative to conservatorships.
 Revocable trusts do not have any federal income, gift, or estate tax benefits. Other than
the income during the settlor's life is taxed to the settlor individually
 It is more difficult to contest a revocable trust than a will
 Revocable trusts are useful in jurisdictions where probate is cumbersome and/or
expensive.
 With a testamentary trust, there may be an ongoing duty to report to the probate court.
 Trust agreements are private vs. wills/probate estates, which are public records.

Revocable trusts in contemporary practice

 Deathtime considerations
o Privacy and more difficult to set aside than will
o Continuity in property management
o Avoid ancillary probate
o More leeway than a will in the choice of law
o May be able to avoid forced sharing in certain states
o Not subject to ongoing court supervision
o Uncertainty about subsidiary law of wills
o Probate nonclaim statute may not be applicable
 Lifetime considerations
o Facilitate property management by fiduciary
o Planning for incapacity
o Keeping title clear
o No federal income, gift, or estate tax benefits
Life insurance
 Parties: Owner of the policy, party to be insured, beneficiary
 Used to compensate for the death of wage earner
 Amount insured depends on age, wealth, and family circumstances
 UPC 2-804
o Most states do not apply the revocation on divorce rule to life insurance contract
 Term
o A contract that obligates the insurance company to pay the named beneficiary if
the insured dies within the policy’s term
o Less expensive than whole life insurance
o No saving feature or cash surrender value
 Whole life
o A contract that obligates the insurance company to pay the named beneficiary
when the insured dies.
o The policy eventually becomes paid up/endowed, after which no further
premiums are owed.
o Typically has a cash surrender value if the insured opts to cash the policy in
before death.

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  Key Man insurance is against a business partner. Generally, you must have some kind of
interest in the person you are insuring.
 Universal/variable life are available.
Cook v. equitable life assurance society
 An insured party may only change the beneficiary of a life insurance policy in the manner
set out in the policy, and a designation of an alternate beneficiary by will is ineffective.
 Every life insurance beneficiary is a Contingent beneficiary. Under universal modern
probate code, revocation upon divorce would have applied
Superwill
 Allows T to make provisions in his will that govern the beneficiaries of nonprobate assets
as well as probate assets
o Excludes life insurance
 Allows T on his deathbed to make a quick change to all his assets without having to
contact each company individually
 Previously designated beneficiaries of non-probate assets may be overridden by the
provisions naming beneficiaries in the will if the will expressly disposes of all or some of
the nonprobate assets of the decedent.

Pension and Retirement Plans

 Traditionally defined benefit plans were used to provide income to retired workers and
their spouses.
 The modern trend is to use retirement plans to grow wealth through the tax advantages
and investment powers of defined contribution plans and individual retirement accounts
 Defined Benefit plans
o Employee retirement plans where the employee gets a pension check for life or
for the joint and several life of the employee and the employee’s spouse
o At the death of the survivor, there is no interest to pass on to the children.
 Defined Contribution plans
o Employee, employer, or both make contributions to an account for the benefit of
the employee, the employee makes the investment decisions for the account and
after retirement, the employee controls the timing of the distributions.
o Ex. 401k
 Individual retirement accounts (IRA)
o Similar to the contribution plan
o Governed by a contract between the account holder and the custodial institution
o At the death of the account holder, further distributions can be delayed which
extends the tax-deferred.
o At 72, the holder of the account is forced to take distributions. Maybe devised, not
a spouse, a beneficiary has to withdraw the balance within ten years after the
death of the account holder.
 Roth IRA – taxed before it goes into the account. Not taxed again later.
Nunnenman v. Estate of Grubbs
 If a life insurance policy specifies the manner in which a change in beneficiary must be
made, the change must be made in that manner and most courts rule that an attempt to
change a beneficiary outside of the specified manner is void.

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 o Mom argues that, in Arkansas, a change of beneficiary in the will changes the
beneficiary so long as the will specifies
Egelhoff
 ERISA preemption of a state statute applies when the state statute affects the
administration of an ERISA-governed plan in a way that interferes with the objectives of
the ERISA statute. Federal law trumps state law.
Payable on Death and Transfer on Death Contracts
 Payable on death
o An arrangement between a bank or credit union and a client that designates
beneficiaries to receive the client’s account
o The immediate transfer of assets is triggered by the death of the client
 Payable on death is also referred to as a Totten Trust
 Transfer on death
o Lets beneficiaries receive assets at the time of the person’s death without going
through probate
o Allows the account holder or security owner to specify the percentage of assets
each designated beneficiary receives
o Registration
 Named beneficiaries have no access to or control over person’s assets as
long as the person is alive
UPC 6-101 – Nonprobate transfers on Death
 A provision for a nonprobate transfer on death in an
o Insurance policy, contract of employment, bond, mortgage, promissory note,
certificated or uncertificated security, account agreement, custodial agreement,
deposit agreement, compensation plan, pension plan, individual retirement plan,
employee benefit plan, trust, conveyance, deed of gift, marital property agreement
or other written instrument of similar nature
 Is non-testamentary
Varela- A Cautionary Tale of Joint Tenancy
 Where a joint bank account is created with funds belonging to one person, a gift of the
funds to the other person is presumed, and the presumption may only be rebutted by clear
and convincing evidence.\
o She could have been designated as an authorized user. This was a brokerage
account and not a checking account. If you are an authorized user the account dies
with the account holder(s).
o Some courts will provide a presumption of a donative gift and require
o Under UPC, Joint accounts are held in the percentage of net contributions of each
bank account, but the right of survivorship will still hold.
o UPC imposes a requirement of survivorship on TOD and POD.

Nonprobate transfers of real property

 Transferring real property outside of probate requires some sort of public record to keep
the title to the property clear.
 Revocable trusts can be used to transfer real property outside of probate

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 o A deed transferring the property to the trustee is recorded with the register of
deeds
 Life estates transfer real property outside of probate
o A deed is recorded reserving a life estate and leaving the remainder of interests to
others
 Joint tenancy with rights of survivorship and joint tenancy with an indestructible right of
survivorship passes real property outside of probate
o A deed indicating the joint ownership is recorded with the register of deeds
 Transfer at death deed reserves ownership in the property during life and leaves a
designated grantee at death
o Recorded with the register of deeds

Planning for Incapacity

Conservatorship is a court appointed fiduciary to someone who has the incapacity or
disability to manage their funds.
- Requires a summons or petition
- Has to be proof to the court that the person is incapacitated
- Court restricts what the conservator can do.
- In SC financial plans are filed. Anything that is not an ordinary expense, court must
approve.
- Expensive.
Conservatorships for non-elderly
 Grands for appointing a conservator
o Mental illness, physical illness/disability, chronic use of drugs, chronic
intoxication, confinement, detention by a foreign power, disappearance
 The test is whether the person has property that will be wasted if it is not managed
properly.
UPC 5-514 – who has priority to serve as conservator
 A fiduciary appointed by another jurisdiction
 A person nominated by individual
 An agent under a durable power of attorney
 Spouse
 Adult Child
 Parent
 Adult with whom the respondent has resided for more than 6 months
Alternatives to conservatorships
 Revocable trusts
 Financial/durable power of attorney
o Can act to transact business on your behalf.
o Springing power of attorney does not take effect until a physician claims the
principal is incapacitated.
o The agent is also a fiduciary. Durable means it survives my incapacity.
 Representative payee for social security benefits
o Custodian to receive payments from SS

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  Joint accounts
Durable Power of Attorney
 Allows principal to name an agent to handle financial affairs
 It may be springing or immediate. Springing only takes effect when the principle is
deemed incapacitated by a doctor.
 The agent is a fiduciary
o Acts in the principal’s best interests

Agent’s power to create, modify, or revoke a trust

 UTC 602(e)
o A settlor’s powers with respect to revocation, amendment, or distribution of trust
property may be exercised by an agent under a power of attorney only to the
extent expressly authorized by the terms of the trust or the power.
 If you want your agent to modify your trust, the durable power of atty
needs to say so
 UPC 5B-201 – authority that requires a specific grant; grant of general authority
o An agent under a POA may do the following on behalf of the principal or with the
principal’s property only if the POA expressly grants the agent the authority end
exercise of the authority is not otherwise prohibited by another agreement or
instrument to which the authority or property is subject
 Create, amend, revoke, or terminate an inter vivos trust
 Make a gift
 Cerate or change rights of survivorship
 Create or change a beneficiary designation
 Delegate authority granted under the POA
 In re Estate of Kurrelmeyer
o The Surviving Wife moves her life estate into a trust so that her rights to the
property have been expanded.
o A fiduciary duty of loyalty is required in every branch of law.
o
Uniform Health Care Decision Act
 Priority to make health care decisions
o Spouse, unless legally separated
o Adult Child
o Parent
o Adult sibling
o If there are 2 or more individuals in a class, then the majority rules.
 Substantial judgment standard
o What the patient has chosen or would have chosen in the situation
Types of health care advance directives
 Instructional directives
o Documents that specify how the individual wants to be treated at the end of life
 Proxy directives
o The principal designates an agent to make healthcare decisions for the principal.

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  Hybrid directives
o Appoints an agent to make health care decisions and leaves instructions for end-
of-life treatment.
South Carolina healthcare agent authorization
 Full authority to make decisions for the principal’s health care but must follow desires
stated in the document or otherwise expressed by P
 Access to P’s medical records and information
o Including the right to disclose to third parties
 Contract on behalf of P for placement in health care/nursing care facility or for health-
related services
 Hire and fire medical, social service, and other support personnel
 To have the same visitation rights as immediate family members
Anatomical Gifts
 Uniform Anatomical Gift Act
o Allows an individual to give his body to a hospital for research
o Can also gift individual gift of body parts.
 Must opt-in in America. In other countries, opt-out is the standard.
 Only the donor’s signature is required to indicate donation.

Limits on Freedom of Disposition

Protections for spouses
 In separate property states, a spouse is entitled to an elective/forced share if the spouse is
disinherited.
o At death, 1/3 of property, contrast at divorce, where it is half.
o
 Community property states consider all income earned and property acquired during
marriage to belong equally to each spouse.
o 50/50 split.
 Partnership theory
o The surviving spouse contributed to the deceased spouse’s acquisition of wealth.
 Support Theory
o Agree to support each other and the surviving spouse should continue to be
supported.
 Issues with elective share
o Does not factor in the length of the marriage, other assets available to surviving
spouse, or the origin of the deceased spouse’s assets
Marital property systems
 Partnership theory
o Elective share justified because surviving spouse contributed to decedent’s wealth
o Surviving spouse should be entitled to ½ of decedent’s property acquired during
marriage
 Support obligation

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 o The older view that marriage entails a support obligation
o Support theory implies
 Smaller percentage applied to all of the decedent’s property
 A minimum amount
 Accounting for other resources available for support of survivor
Protection of the surviving spouse
 Separate property states
o All property and earnings are owned separately during the marriage unless the
spouse agrees to joint ownership.
o The deceased spouse may pass all the property in his name through his estate.
 Community property states
o Spouses have separate ownership rights in property brought into the marriage but
own all earnings and property acquired during the marriage in equal shares.
o The deceased spouse may only pass ½ half of the community property through his
estate.
o Partnership theory
o Cannot disinherit surviving spouse

Unmarried cohabitating partners

 Partners that aren’t married are not entitled to
o Social security of a deceased partner

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 o Pensions
o Federal estate tax marital deduction
o Elective share
Does a surviving spouse have to accept the life estate
 Does the surviving spouse have to accept the life estate in lieu of a fee simple distribution
of the estate
 If it is a life estate, one-third of the value of the life estate should be deducted from the
elected share.
 If a spouse declines the life estate, one half-life estate is deducted
 UPC spouses are not charged for the percentage of the life estate.
 If you pass awa
o Support theory
 Yes,
o Partnership theory
 No
 Spouse has control over certain value of assets
Deceased or incompetent surviving spouse
 Allowed to sue for elective share
o Minority
 Yes
o Majority
 Maybe, weighing the detriment to the deceased spouse’s estate plan, what
the incompetent spouse would have wanted and the economic need of the
surviving spouse
 The need for support ends at death.
o UPC 2-212
 Custodial trust for the surviving spouse, remainder to heirs/devisees of the
deceased spouse.

Non-Probate Property in the elective share

- Expanded to other types of probate transfers
-
Sullivan
 For purposes of determining an omitted spouse’s share under G.L. c. 191, §15, where the
decedent spouse created an inter vivos trust during the marriage and only the decedent

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 spouse had the general power of appointment under the trust, the trust assets shall be
treated as part of the probate estate.
 Illusory transfer test: transfer of the to a trust may be disregarded if the transfer to the
trust but continued to retain control over the asset, the trust is valid but is considered on
the probate estate.
 Present donative transfer is whether a gift was made but the transferor retained control.
 Intent to defraud test
 Suppose H sets up in a state that does not recognize the trust as probate property. Courts
will look to the state where the couple was domicilied. UPC governs the right of the
descendant to take the elective share.
o Disregard the choice of law provision
Ordinary creditors cannot force the surviving spouse= to take the elective share, Medicaid
and IRS can force a spouse to take the elective share.
Deleware says any assets that are subject to the estate tax are considered in probate in
terms of the elective share.
Estate of Myers
 Pay-on-death assets are not included in a surviving spouse’s elective share.
The elective share
 The elective share is 50 percent of the marital property portion of the augmented estate.
 An augmented estate is probate and non- probate property.
Waiver of the elective share(Prenuptial and anti Nuptial)
 Can be done by agreement before or after marriage
 The agreement may be set aside for fraud or failure to disclose relevant information.
 UPMA
o Requires a waiver with a full informed consent of the waiver. They would require
separate attorneys.
o Automatically validates postnuptial agreements.
o If the agreement was involuntary or a result of duress or undue influence.
o Both parties must have independent counsel.
o Adequate financial disclosures.
o If one spouse is represented, but another spouse does not have the means to afford
one, then the initiating spouse may want to fund attorney’s fees for the pecuniarily
challenged spouse.
UPC 2-213 See the slide from 4/13
SCPC 62-2-204 – waiver of the elective share
 Voluntary waiver of surviving spouse’s right to the elective share, homestead allowance,
and exempt property; property settlement in anticipation of divorce
o The rights of surviving spouse to an elective share, homestead allowance, and
exempt property, or any of them, may be waived, wholly or partially, before or
after marriage, by a written contract, agreement, or waiver voluntarily signed by
the waiving party after fair and reasonable disclosures to the waiving party of the
other party’s property and financial obligations have been given in writing.
o Unless it provides to the contrary, a waiver of all rights in the property or estate of
a present or prospective spouse or a complete property settlement entered into
after or in anticipation of separation or divorce is a waiver of all rights to the

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 elective share, homestead allowance, and exempt property by each spouse in the
property of the other and a disclaimer by each of all benefits which would
otherwise pass to him from the other by intestate succession or by virtue of the
provisions of a will executed before the waiver or property settlement
Reece v. Elliot
 An antenuptial agreement will be enforced even where a party failed to disclose the value
of a substantial asset as long as the contesting party was not misled and had an
opportunity to discover the value of the asset.
Community property
 All income and assets acquired during the marriage are owned equally by both spouses
unless both agree to separate ownership.
o No inheritance, or lifetime gift are community property but if those assets are
intermingled with the community property, it becomes community property
 When a spouse dies, he only has a testamentary power over his half
 No elective share because the surviving spouse owns the other half
 Property acquired before marriage and property acquired by gift or inheritance during the
marriage will remain the separate property of the spouse that brought it into the marriage
or received it
 Couples can enter into agreements that control the character of their property
(Community, separate and property held as joint tenants

Tax Advantages of community property
 The entire value of all community property receives a step up in basis for determining
capital gains after the death of the first spouse.
Disposition of community property
 Creditors
o Managerial system
 The creditor has recourse against all community property subject to the
debtor spouse’s control.
o Community debt system
 The creditor’s claim is characterized as separate or community, and the
creditor’s recourse follows accordingly.
 A spouse may sell community property to a third party for fair market value because both
spouses will share in the proceeds equally.
 A spouse may not gift community property without the permission of the other spouse.

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If H is alive, wife can get back the entire gift, if H is dead, than half is passed through H’s
estate.
Reasonable Gifts
-
Item Theory
 The spouses own equal shares in each item of community property
Aggregate Theory
 Allows disposition of one asset if the other spouse receives ½ of the total community
property
Moving from a separate property state to a community property state or vice versa
 Real property
o The state where the land is located will control it.
 The state may elect to use the marital domicile to determine whether the
property is separate or community.
 Personal property
o The law of the marital domicile, when the property was acquired, will control
 Survivor’s rights
o The law of the marital domicile at death will control
 Quasi-community property
o Property owned by the spouse and acquired while domiciled elsewhere that could
have been characterized as community property had it been acquired while the
couple was domiciled in a community property state.
o The wife cannot dispose of the assets before her death or devise the property.
 Uniform disposition of community property rights at death act
o Provides that community property brought into a separate property state remains
community property for purposes of testamentary disposition.
Social security
 Spouses are entitled to their own earned benefits or ½ of the spouse’s
o Whichever is greater
 If a deceased spouse’s benefits were greater than the survivor’s, the survivor can elect to
receive the deceased spouse’s benefit in lieu of their own.
 Workers do not have the right to transfer the benefits to anyone else or to deny the spouse
the right to the benefit.

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 o Benefits may be available to a disabled dependent and children under the age of
18.
 A divorced spouse may be entitled to benefits if the marriage lasted more than ten years.

Pensions and retirement

 The employee retirement income security act
o The division of marital property in a divorce is generally governed by state law
o However, when a party in a divorce participates in an employer sponsored
pension plan, the division of the individual’s retirement benefit must comply with
federal law
o ERISA was enacted in order to protect worker’s pensions and ensure that retirees
had sufficient income, after retirement, throughout their lives
o One important aspect was to also ensure that an individual’s retirement benefit
could not be assigned or otherwise alienated.
o ERISA and the internal revenue code anti-assignment and alienation provisions
are strict
 Only a few exceptions are recognized
 One exception is the Qualified Domestic Relations Order (QUADRA):
 A judgment, order or decree that recognizes a spouse, former
spouse, child or other dependent’s interest in an individual’s
retirement benefit
 Requires that the spouse of an employee have survivorship rights to ensure a stream of
income
 A premarital agreement cannot waive rights created under ERISA.
UPC 2-402 – Homestead allowance
 A decedent’s surviving spouse is entitled to a homestead allowance of $22,500
o The first 22.5k will be protected from that creditor. The creditor can only go after
77.5K.
 If there is no surviving spouse, each minor child and each dependent child of the
decedent is entitled to a homestead allowance amounting to $22,500 divided by the
number of minor and dependent children.
 The homestead allowance is exempt from and has priority over all claims against the
estate.
 Homestead allowance is in addition to any share passing to the surviving spouse or minor
or dependent child by the will of the decedent unless otherwise provided, by intestate
succession, or by way of elective share.
Other allowances
 UPC (2-403) Personal property set aside
o The right of the surviving spouse and sometimes minor children to receive
tangible personal property up to a certain dollar amount, even if there are
creditors’ claims filed against the estate
o UPC set aside 15k, and exempt items include household furniture, automobiles,
furnishings, appliances, and personal effects.
 Family allowance
o Support payments for the surviving spouse and minor or dependent children

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 o Allowance may be limited for a fixed period
o UPC does not set a dollar amount and instead calls for a reasonable allowance in
money out of the estate for their maintenance during the period of administration,
which allowance may not continue for longer than one year

Omission
Intentional omission of a child
 Allowed in 49 states (in Louisianna).
o Louisiana (Under 23 or disabled cannot disinherit.)
 Can only disinherit a child under 23 if they are unworthy.
 May invite a will contest
o Leave a small amount to no contest ($5000 or no inheritance at all)
Unintentional omission – premarital will that do not get updated.
 Most states allow omitted spouses to seek an intestate share in the deceased spouse’s
estate but subsequent marriage does not wholly revoke the will
o This is not to be confused with the elective/forced share for an intentionally
disinherited spouse
o The law is based on the idea that most spouses would want the surviving spouse
to inherit
o This is a default rule that is overcome by evidence that T deliberately omitted the
surviving spouse.
o Not anm omitted spouse if there is the language that the T intentionally omitted
the spouse.
 UPC 2-301
o Partially revokes the will as to the spouse but the remainder would go back into
the will and would not go to the remaining intestate
o Unless it goes to the child. The spouse would not get anything.
 The wife can sue for the elective share if the will is left to the child.
o 2-301(a)(3), the spouse left for the spouse outside of the will.
o A codicil republishes the will.

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  Section 2-301. [Entitlement of Spouse; Premarital Will.]
o (a) If a testator’s surviving spouse married the testator after the testator executed a
will, the surviving spouse is entitled to receive, as an intestate share, no less than
the value of the share of the estate the spouse would have received if the testator
had died intestate as to that portion of the testator’s estate, if any, that neither is
devised to a child of the testator who is born before the testator married the
surviving spouse and who is not a child of the surviving spouse nor is devised to a
descendant of such a child or passes under section 2-603 or 2-604 to such a child
or to a descendant of such a child, unless:
 (1) it appears from the will that the will was made in contemplation of the
testator’s marriage to the surviving spouse;
 (2) the will expresses the intention that it is to be effective notwithstanding
any subsequent marriage; or
 (3) the testator provided for the spouse by transfer outside the will and any
intent that the transfer be in lieu of a testamentary provision is shown by
the testator’s statements or is reasonably inferred from the amount of the
transfer or other evidence.

In re Estate of Prestie
 If a person marries after making a will and the spouse survives the maker, the will is
revoked as to the spouse unless:
o Provision has been made for the spouse by marriage contract; or
o The spouse is provided for in the will or in such a way mentioned therein as to
show an intention not to make such provision.
 And no other evidence to rebut the presumption shall be received
o We could have avoided this if a codicil were executed on that same day.
Pretermitted/omitted children
 These statutes prevent the unintentional disinheritance of children
 Most pretermitted heir statutes apply only to children born after the execution of the will
 UPC 2-302
o This applies to children born or adopted after the execution of the will
o The share the omitted child is entitled to depend on whether T had any living
children when the will was executed
UPC 2-302(a)
 If T had no living children when he executed the will, an omitted after-born or after-
adopted child receives the same share in the estate equal in value to that which the child
would have received had T died intestate unless the will devised all or substantially all of
the estates to the other parent of the omitted child and the other parent survives T and is
entitled to take under the will
 If T had one or more children living when he executed the will, and the will devised
property or an interest in property to one or more then living children, an omitted after-
born/adopted child is entitled to share in T’s estate as follows
o It is limited to devises made to T’s then living children under the will
o In satisfying a share provided by this paragraph, devises to T’s children who were
living when the will was executed abate ratably

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UPC 2-302(b)
 (a) does not apply if
o It appears from the will that the omission was intentional; or
o T provided for the omitted or afterborn/adopted child by transfer outside the will,
and the intent that the transfer be in lieu of a testamentary provision is shown by
T’s statements or is reasonably inferred from the amount of the transfer or other
evidence

Pretermitted?
 In re Gilmore
o A child born before the execution of a will was not pretermitted even if T had no
knowledge of the child’s existence.
 Estate of Maher
o A nonmarital child born before the execution of the will and not legitimized until
after the will was executed as not pretermitted.
 UPC
o Protects only children born or adopted after the execution of the will
In re Estate of Jackson
 When any T omits to provide in his will for any of his children, or for the issue of any
deceased child unless it appears that such omission was intentional, such child/issue must
have the same share in the estate of T, as if he died intestate, and succeeds thereto as
provide in the preceding section.
 Spusal Rights. Spouses can get to revocable trusts. Benjamin argues that this should
transfer to him as a pretermitted child. The court refuses because children do not have a
statutory right to the child’s share. Pretermitted statutes refer only to wills and not
revocable trusts or other nonprobate transfers.

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89
 Taxes
Estate Taxes
- The estate tax is from the fed to fund wars. Fed stamps were required for many estate-
oriented documents
- Death tax and estate tax for the civil war
- Again, in the Spanish American war, a legacy tax was enacted.
- Again, in WWI in 1916
- After WWII the tax was never repeallead.
Gift tax
 Gifts
o Any transfer to an individual, either directly or indirectly, where full
consideration is not received in return
 What can be excluded from gifts
o Gifts that are not more than the annual exclusion for the calendar year
 17k for 2023
 If I give $18k, I must claim $1K. The IRS will not tax on this but will
reduce from exemption amount. Spouses can join in gifts to add the 17k
together to 34k etc.
o Tuition or medical expenses you pay for someone. Money has to be paid directly
to the medical or educational institution. Cannot pay child directly.
o Gifts to your spouse. Unlimited.
o Gifts to a political organization. Unlimited.
o Exemption for minors, trusts for minors are treated as an incomplete gift until he
becomes of age, if the donee dies before 21 years then to the minor's estate. 17k to
the minors trust per year and no tax.
 Safe harbor rule for transfers made in the ordinary course of business
 Gifting is a way to reduce wealth to avoid taxes.
Complete v incomplete gifts
 A transfer for less than adequate and full consideration is not subject to gift taxation until
it is a complete gift.
o Meaning that the donor has relinquished all domination and control over the
property
 Since transfers to revocable trusts are still subject to the domination and control of the
settlor, for tax purposes, the gift of assets to the trust is an incomplete gift.
o The income earned by the trust is still taxed to the settlor’s SSN, and the property
in the trust will be considered part of the settlor’s estate at death.
 The transfer of assets to a revocable trust becomes complete when the trust becomes
irrevocable, thereafter, the trust may apply for an employer identification number.
 There is no gift tax on transfers to an irrevocable trust so long as the settlor retains some
control over the beneficial interests in the trust assets, such as a testamentary power of
appointment.
o The gift remains incomplete until the settlor’s death

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Defeating domination and control
 For tax purposes, a donor does not have domination and control over property if, even
though he retains a power to shift beneficial interests, the power is subject to the consent
of a person who has substantial adverse interest in the disposition of the property or some
income therefrom
Is a disclaimer a gift
 Property is disclaimed if a donee, heir, or devisee declines to take property left to him
 Does the IRS consider a disclaimer a gift to whoever gets the disclaimed property?
o No, so long as
 The disclaimer is in writing, irrevocable, and unqualified, and it is made
either within nine months after the interest is created or within nine
months after the disclaimant reaches 21, whichever is later
 The disclaimant has not accepted an interest in the disclaimed property or
any of its benefits; and
 As a result of the disclaimer, the property passes without any direction on
the part of the disclaimant and passes either to the decedent’s spouse or to
someone other than the disclaimant
Joint tenancy
 When does the gift tax apply?
o With bank accounts and most brokerage accounts, A will not have made a
reportable gift if he simply adds B’s name as a joint owner
 Reportable gift transfers occur only if B starts to draw funds from those
accounts for personal use
o With other assets, including a business or even a personal residence, if A makes B
a joint owner, a gift of one half of the value of the property will be deemed to
have occurred immediately, and a gift return will probably have to be filed for the
year the joint tenancy was created

Tax basis
 Basis is the value of an asset used for computing gain or loss when the asset is sold
 Typically, when a done receives a gift, the done takes the gift at the donor’s tax basis
o If A buys a house for 100k and then gifts it to B 20 years later, B’s tax basis is
100k
 If B later sells the house for 400k, he will owe capital gains on the 300k
profit over the tax basis
 When a done receives a gift as a result of the death of the donor, the basis of the donee is
the date of death value
o If A buys a house for 100k and leaves the house to B in his will and the house is
worth 400k at A’s death, B’s tax basis is 400k
 If B sells the house for 400k, he will not owe any capital gains
 Called a stepped-up basis or a step up in basis
 Spouses share 150k house basis, it passes to w. Half is 75k, half is 550K
 250k per married person exclusion is an owner.\
 To child, put it in trust, transferred with the date of death value as the
basis.
Who pays the taxes on testamentary gifts

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  Usually the responsibility of the donor to pay any taxes owed on a gift, but if the donor
does not pay then the donee will be liable
 If an estate tax is owed, the PR has personal liability for payment of estate taxes but can
be reimbursed from the estate
o For life insurance proceeds and transfers of property over the decedent had a
general power of appointment, the PR is entitled to reimbursement from the
beneficiary of the policy
 If instead an estate is not administered and an estate tax is owed, the person in possession
of the property is liable for the tax
 The Uniform Estate Tax Apportionment Act
o Estate taxes must be paid by each heir/devisee on a pro rate basis unless T
provides otherwise in the will
Other permissible transfers
 Unlimited gifts between spouses
 Tuition payments made while the donee is a dependent and a minor
 Tuition payments even if the donee is not a dependent or a minor so long as the payments
are made directly to the school
 Medical expenses so long as the donee is a dependent and a minor
 Medical expenses even if the donee is not a dependent or a minor so long as the payments
are made directly to the health care provider
Present and future interest
 The gift tax exclusion applies only to present interests and not to future interests
 There is an exemption for minors
 Crummey power
o Giving the donee a power of withdrawal over the property meant to qualify for the
annual exclusion
Process of an IRS appeal
 Written protest
 Attempt to resolve with local IRS office
 Forwarded to tax court for appeal
 Further appeal is to the federal appellate court
Estate of Cristofani v. commissioner
 When a trust instrument gives a minor beneficiary the right to demand immediate
possession of trust income or corpus, that power qualifies as a present interest under §
2503(b)

Federal estate tax

 Gross taxable estate as defined by the IRC includes
o Decedent’s probate estate
o Lifetime gratuitous transfers over which the decedent retained a possessory
interest or control of beneficial enjoyment (i.e., POD transfer)

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 o Property over which the decedent retained the power to alter, amend, terminate, or
revoke the transfer (revocable trust)
o Property over which the decedent held a general power of appointment
o If a person drops a string vs. held onto the string.
 Deductions allowed to be taken from the gross estate
o Debts of the estate
o State death taxes
o Transfers to the decedent’s spouse
o Transfers to charity

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Problema from taxes
If the insurance is paid to the decedent's estate, incident of ownership(holder can change the
beneficiary at anytime). So no incidents of ownership

Different taxes, different kinds of estates

 Estate tax
o Tax paid out of estate assets before a final distribution to the
heirs/devisees/beneficiaries
 It is not owed by the heirs/devisees/beneficiaries individually
 Inheritance tax
o Tax paid by the heir/devisee/beneficiary based on the amount of assets received
from the decedent and the degree of kinship from the decedent

Picking a side is important.

Include four functions of the will

The worst evidence rule is important.

Substantial compliance-although is narrowly applied- but courts may overlook minor

execution.

Interested witnesses

Conservatorships

Can be put in place for advanced age, mental, physical disability, chronic drug use or
intoxication, confinement or disappearance

Priority to serve:

A conservator appointed by another jurisdiction

A person nominated by the incapacitated

Agent under a poa

Spouse

Adult child

Parent

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Adult whom the incapacitated has resided for more than 6 months

Drawbacks:

Expensive fees

Unless emergency, can take months

Powers of conservator may be limited by the court

Annual accounting required

Records semi-private

Alternatives to conservatorships

Revocable trusts

Financial/durable poa

Representative payee for social security benefits

Joint accounts

POA

Principal names agent to handle financial affairs

May be springing (if principal incapacity to be effective) or immediately effective

Agent is a fiduciary which means she should act in the principal’s best interests and not in
his/her own best interests

Important POA be drafted in accordance with state law

Typically contains broad authority to manage finances so agent must be chosen w/ care

Everyone, especially a sole owner/account holder, needs a POA

Some actions, such as gifting powers, require specific permission from the P

UPC requires specific grant of these powers

Create, amend, revoke, or terminate an inter vivos trust

Make a gift

Create or change rights of survivorship

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Create or change a beneficiary designation

Delegate authority granted under the poa

Health care decisions

Advance directives all an individual to make health care decisions known if the individual is
unconscious and incapicitated

Healthcare poa allow an individual to nominate an agent

Directive may also give the agent the power to enforce the principal’s advance directives

Uniform Health care decisions act

Priority:

1. spouse, unless legally separated

2. adult child

3. parent

4. adult sibling

Substantial judgment standard – what the patient has chosen or would have chosen in the
situation

Instructional directives- docs that specify how the individual wants to be treated at the end of
life

Proxy- principal designates agent to make health care decisions for the principal

Hybrid- appoints an agent tot make health care decisions and also leave agent to make
decisions

Health care agent authorized to:

make decisions for principal’s health care but must follow the principal’s desires stated in the
doc or otherwise expressed by the principal

To have access to the principal’s medical records and info, including the right to disclose the
contents to third parties

To contract on behalf of the principal for placement in a health care…….Finish on slide

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Assessment Review

1) Correct answer was D, the property did not pass-through intestacy because she was
treated as predeceased because she died within 120 hrs. of T’s death.
2) Spray trust – the trustee must distribute all income but gets to choose which
beneficiaries and in what accounts.
3) A 3rd party may destroy a will upon the T’s instruction in their presence
4) B) no, Rosie is administering the trust as a prudent person would
5) Separate writing that disposes of tangible personal property is allowed if referenced and
signed.
6) Will was a product of undue influence
a. SUSCEPTIBLE TO UNDUE INFLUENCE
b. WRONGDOER HAD THE DISPOSITION TO EXERT UNDUE INFLUENCE
c. THERE WAS A RESULT APPEARING TO BE THE EFFECT OF UNDUE INFLUENCE
7) Ademption of property.
8) No particular language is necessary to form a trust.
9) Revocation: inconsistency will revoke an old will
10) Antilapse: Words of survivorship are not sufficient to eliminate the antilapse statute.

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