Trusts & Estates 8/20/07 2:00 PM

Introduction

• What is Trusts and Estates: Property management and transfer (management and distribution

of private wealth) – wills, trusts, intestate statutes, transfer devices like deeds, contracts, life

insurance, gifts, joint tenancies, concurrent ownership).

• Topical outline: detailed treatment of all topics in class

• Project: Realistic context to apply. Distributed around October 8th. No exam.

• No casebook or required textbook. There are a batch of illustrative cases and statutes – read

for class – and, in class, will supplement. We’ll get a will, a trust, etc. too. There will also be

a little required reading on his webpage; case and statute citations will be in outline and on

webpage. There is a coursepack in bookstore if you’d rather do it that way. Outside

resources (if desired) – Little Red Book (preface book) – at library.

Course Organization: Post-mortem & intervivos

• Post-mortem: Estates, wills, intestacy, estate administration

• POST-MORTEM: Estates

o Estate Administration

o Intestacy statutes, public policy

o Wills, will contests

Wills: how to make them, break them, what they do, what they don’t do. A will is a statement of intent –

how I want my stuff divvied up when I die – it establishes a scheme of post mortuary distribution among

beneficiaries. Wills as management vehicles – and transfer vehicles.

• In a will, you can nominate a guardian for your minor children if you and spouse die (but

court doesn’t need to do that since the ultimate decision is what is in the best interest of the

minor child).

• Wills can manage property on behalf of beneficiaries for a period of time (this is a trust).

Nowadays, most trusts are intervivos but trusts can be in a will (testamentary trusts).

• Wills can revoke older wills.

• Will forms and formalities: Jurisdictional variations.

o Writing

o Witnesses to witness the person who is doing the will’s (testator) signature.

Witnesses must sign too (authenticating act).

• Will amendments: “codicils” – needs formal requirements. Formal requirements required to

revoke wills too.

• 2 Limitations of testamentary intent imposed by public policy – spouse and children. Can

you leave your property in your will to whoever you please? Generally yes, but spouse can

challenge if you leave him nothing. Statutes are designed to protect surviving spouses against

disinheritance. Origin of these statutes is dower – inchoate right that could not be defeated by

intervivos deed or testamentary devise to protect spouse against disinheritance, to prevent

spouse from becoming ward of the state. Statutes provide that if the surviving spouse is left

nothing or what amounts to nothing, the spouse is allowed to elect a share of the estate

defined by statute (right of election or forced-share or will-waiver statutes). This statute

places a limitation on testamentary power – you can’t do everything in your will that you

could do when you’re alive. What about the children – do you need to leave them anything?

No (you can omit the rugrats); however, there are statutes that prevent against inadvertently

omitting the children.

• Intestacy: What happens if you die without a will? Intestate statutes address this – divvy up

the decedent’s property (different variations).

• Intervivos: Trusts, powers of appointment, agency

ESTATE ADMINISTRATION

Hypothetical: Suppose you have an individual who dies domiciled in Boston survived by a spouse and

some adult kids and grandkids. During this individual’s lifetime and marriage, he acquired property

interests – he has an interest in a variety of assets (typical):

• Blackacre which he owned with his spouse (tenants by the entirety). One of the

distinguishing characteristics for T/E is that by death of one, the other gets title since

concurrent tenancy with survivorship.

• There is a portfolio of marketable securities – stocks, bonds, notes, mutual funds all

registered in name of decedent, whether in certificate form or in brokerage account.

• There are also deposit accounts, like Tremont St. Bank & Trust.

• There are term certificates and certificates of deposit (CDs), registered in name of decedent

(these are cash stashes pending for a future need).

• There is also a checking account, registered in the name of the decedent and the surviving

spouse (JTROS – joint tenant right of survivorship – joint account). This account includes

their earned and unearned income to pay monthly stuff like utilities, credit cards, mortgages).

• There are some life insurance policies – policies such that upon decedent’s death, insurance

company pays decedent’s beneficiary – now this is surviving spouse, secondary beneficiaries

are children in equal shares (tenants in common).

• Also, he has tangible personal property: household contents, cars, boats. Some of the

tangibles were brought to the marriage but many were acquired during the marriage. Some

was acquired by gift or inheritance during the marriage – so clear who it belongs to.

• Retirement benefits: during the decedent’s lifetime, s/he was a major executive and now has

retirement benefits like pension benefits. Upon retirement, these pension benefits were to be

paid to the decedent for the rest of his life; upon death, these pension benefits were to go to

surviving spouse – joint and survivor; contract. The client retired early, before the pension

benefits became payable. So the client left his job and set out a family corporation; each

family member has some shares in this family corporation and it’s worth a lot. The attorney

who set up the corporation advised them to have a shareholder’s agreement, which provided

for a cash out in the event of some event such as retirement, disability, death of a shareholder

(goes to estate). But it would hurt the business to cash-out so the cash-out is funded by life

insurance.

• Our client was also the beneficiary of the trust set up by rich Aunt Harriet. The terms of her

trust are: The trustee of her trust, who is Tremont St. Bank, has the discretion to pay so much

of the income and so much of the principal to our client during his/her lifetime as the trustee

deems advisable. It is a discretionary payment trust, which our client has for life (life estate).

On his/her death, our client was given a power of appointment. A power of appointment is a

designation. Harriet could say where the money was to go upon the decedent’s death – but

she didn’t – she gave our client the power to determine where the money was to go. But

Harriet said it had to stay in the family – our client could only appoint to his children,

grandchildren, or great-grandchildren (his issue). If our client didn’t exercise the power, then

a default – “then to his issue then living.” 10) There is also some off-island real estate

(property located outside of MA) – cottage in ME and condo in FL – and this property is all

titled in our client’s name. There is some management accounts.

Step one of estate administration – Categorize: First, look at all the property interests and how they are

held.

• Divide them into one of two categories:

o Estate Assets aka Probate Property: those assets that will pass to someone else

automatically by virtue of the form of ownership and

! The ones that will pass automatically (probate property) include Blackacre

(law), the JTROS accounts (law), the life insurance (K), pension benefits (K),

and the trust.

o Non-estate Assets aka Non-Probate Property: all assets that will not automatically go

to someone else. See operation of law, contract, trust, power of appointment.

! Everything else will not automatically pass (non-probate property) – all of

these assets are all individually titled to the decedent.

• Probate assets are subject to the estate administration since they need something to move title.

The non-probate property is not subject to estate administration.

Terminology: However, the term “probate” is limited to the probate process. The process by which the

court accepts the decedent’s will as the will and appoints the person to manage – this is the first

formal step in estate administration. After the court does this, probate is over and estate

administration commences. Better to call them “estate assets” and “non-estate assets.”

Now, we concentrate on estate assets – these will pass to beneficiaries pursuant to the decedent’s will or

else to the applicable intestate statute. Before these assets can pass, all of the decedent’s liabilities have to

be satisfied – creditors come first, before beneficiaries. So a liquidation process occurs – assets are

liquidated to pay the decedent’s creditors and to pay expenses of estate administration (attorney’s fees,

accountant, investment advisor, appraisers) and taxes. Then, whatever is leftover is paid to the

beneficiaries however their beneficial interest – will or intestate statute – is determined. Who does the

liquidation and payment? Answer: the decedent’s personal representative.

The first formal step in estate administration is the appointment of the decedent’s personal

representative. This appointment is made by the court who has jurisdiction over estate

administration (it may be court of limited or general jurisdiction – in MA, it’s probate and family court).

There are many designations of personal representatives – Executor of the will, Administrator of the

Estate, etc. When we see a designation, look it up!

Who’s entitled to be appointed? This depends on whether there is a will.

• If there is a will, the testator probably designated a personal representative (ex: attorney).

This is not binding on the court but it shows the testator’s intent. Good reasons not to go with

who the decedent chose would include: incompetency, lack the ability, conflict of interest,

nominee has bad attitude towards one of the beneficiaries. Bottom line: what is in the best

interest of the estate and beneficiaries.

• What if testator dies without a will? This is governed by statute. Statutes usually list by

preference – most jurisdictions are similar. In MA, surviving spouse, but if no surviving

spouse, then next of kin. Kindred is a blood relative. Next of kin are those members related

by blood, most closely related. If there is no spouse or next of kin then it goes to creditors so

they can get paid. Extensive judicial discretion.

Process of Appointment and Admission:

This is the probate process – the procedure whereby the court accepts the decedent’s will as “the will.”

The court appoints the nominated executor. The objectives: give judicial effect to the will and give

someone authority to manage the assets.

• Need court’s approval to confer property interests. Future transaction v. present transaction.

• Nominate someone to serve is personal representative – only get authority after court enters

the decree.

• Objective: Probate process gives will full force and effect and allows someone to manage the

assets to pass the title. Jurisdictions vary – sometimes formal, sometimes informal.

Estate Administration 8/20/07 2:00 PM

Assignment: Intestacy succession cases and statutes until Balch v. Stone

• VA (in outline), MA, and Uniform Probate Code – compare and contrast them, who is

preferred, how do they operate, who shares with whom, what are their shares

• Doctrine of Representation: Someone steps up into the shoes of their parent and takes the

share that their parent would have taken had their parent survived (boot-strapping). In

intestacy and trust. Can compute in different ways: Maud, Balch, and UPC.

• On website

ESTATE ADMINISTRATION

Hypothetical estate and property interests.

First step is to classify all the assets into categories: Assets that will pass to someone else (probate

property aka estate assets) and all those that won’t (non-probate aka non-estate assets). To ascertain

what assets will be under estate administration – what will personal representative be responsible for.

First formal step is the Probate Process: process by which the court accepts the decedent’s will as

being the will (admission to probate) and the appointment of the personal representative (in hypo, the

executor).

• Goals and objectives: to give the will legal force and effect and to confer authority on

that personal representative to manage those assets.

o All jurisdictions have this but how they get there differs.

! Many jurisdictions are formal interparty proceedings; others are informal.

• Until the court enters its decrees, the will is only a piece of paper and confers no authority.

Before formal interparty proceeding – these points

1. Title – how does title flow from the decedent to whoever is entitled to receive them?

• Distinguish between personal (personalty) and real property (realty)

o Personal property is any property that is not real – tangible and intangible

o Real property is treated differently.

• Title to Personal Property – how does title pass?

o Title of personalty passes to the personal representative (here, executor) when the

personal representative is appointed (in the course of an interparty proceeding. This

takes time due to requirements of notification – all parties need to be duly notified –

this takes about 4-6 weeks).

o Vested title: title to personal property vests at the time the personal representative is

appointed. This means that the personal representative can transfer that title – sell,

liquidate, convert to cash, or can distribute the personal property to the

beneficiaries.

o Where is that title between when the testator dies and personal representative is

appointed? It’s suspended; nobody has it. Legal consequences: when it’s

suspended, nobody can touch it since nobody has authority. Anybody who

undertakes to touch that property – “executor in their own wrong” – usually, this

causes strict liability to attach (bad).

! But what if the property requires management during that time? All

jurisdictions provide for temporary authority – if an asset requires

management, the court can grant temporary authority to a “special

administer,” and they can be appointed within hours of the decedent’s death.

o After the personal representative gets authority, what about the property that comes

into existence during that time between death and appointment like the dividends

that are being earned on the equities, the stocks, and the interest? Here, use a legal

fiction – at such time the personal representative is appointed, it is said that his title

relates back to the death (“Relation-back doctrine” – it is as though personal

representative was appointed on the day of death so as to pick up title to the assets

that have accrued in the meantime.)

• Title to Real Property: Title does not pass to the personal representative; it passes to the

person getting the beneficial interest. This happens at the moment of death – passes

directly to the beneficiary (who this is depends on whether there is a will – if there is a will,

then goes to devisee; if there is no will, then goes to the heirs at law which are the

beneficiaries under the intestate statute). They get a vested title.

o This can create a problem. Creditors are supposed to get paid first but here the title

passes directly to the beneficiary – but what if the personal property assets are

insufficient to satisfy the liabilities? This issue is addressed by statute. The statutes

provide that in the event that personal property is insufficient, the personal property

is given a period of time to defease that title and bring it back into the estate to

liquidate in order to satisfy creditors. This is usually 1 year. So what’s the nature

of the beneficiary’s title during that time such that it can be defeased? Answer: It’s

vested subject to divestment by personal representative if it’s necessary to pay D+E

(debts and expenses). So the beneficiary cannot give clear title – there is a cloud on

the title for the benefit of creditors – during that one year; after this period of time

elapses, then title indefeasibly vests in those beneficiaries and they may give clear

title.

o What if the personal representative never needs to reach in and apply the real estate

– what if he can pay all claims out of personal property? This means that the

personal representative is a legal stranger to that property unless he needs to reach

it for D+E – no rights to rents and profits and no responsibility to maintain the real

property. The biddees have the rights and responsibilities. So usually real property

is not subject to estate administration since personal representative is a legal

stranger unless and until he needs to reach it.

2. Why estate administration – why are we doing this and what’s it’s function? Answer: title – to

pass title to all of those estate assets who don’t have the built-in assets (contract, operation of law)

that the non-estate assets have. Title goes to beneficiaries or creditors and gives them authority.

Formal Interparty Proceeding – using MA as example

The process is commenced by the filing of the will together with a petition in the probate court. The

nominated executor – surviving spouse in hypo – will file the will with the petition. The petition will

request the court to allow the will and appoint the executor. This is filed in the probate court – the

probate court of the state and county of the decedent’s domicile. There is a probate court in every

county that has jurisdiction within the county; in the hypothetical, it’s in Suffolk.

• Domicile is important to estate administration: you can have many residences (here:

Boston, ME, FL). Domicile is your principal place of residence; where you intend to be

your principal place of residence; where you intend to return to. This is where the

decedent’s estate will be principally administered and principally taxed. Make this

determination before you file. How do you establish decedent’s intended domicile? In a

perfect world, the decedent can tell you. In the absence of this, look at the various

residences and look to see the contacts that the decedent had. Contacts like: where did he

spend the majority of his time, where did they vote, what address do they use on their 1040,

where are there assets principally sited, where is the safety deposit box, where are bank

accounts, etc. In the hypothetical, domicile is in Suffolk County, Boston, MA – here it will

administered and taxed. With regard to the property in ME and FL, how will the property

be administered: All states provide for this in the form of an “Ancillary Administration.”

You have 3 ongoing estate administrations happening at the same time (MA, FL, and ME);

FL and ME are considered “ancillary to the primary [administration].” FL and ME are

worried about their creditors in their jurisdictions will be satisfied. Begin those

administrations like this: Once the surviving spouse has been appointed here, she will take

the will and go to the other jurisdictions and ask the courts to recognize the appointment

and allowance of the wills and for them to enter their own decrees, accepting the wills there

and appointing personal representatives there (they are to satisfy creditors there).

• Once liabilities have been satisfied:

o FL property can be distributed there, pursuant to that administration. Or the

property there can be brought to MA to the extent it can be (personal property) and

distributed here.

o If there was no will, apply the applicable intestate statute. Who’s intestate

statute governs?

• Back to the MA administration: Court issues a citation, which, in MA, is formal notice of

the pendency of the proceeding. It tells everyone interested that this individual is dead and

that will has been presented and that there is a request that the will be allowed and nominee

appointed. This formal notice needs to be served on all interested parties – all interested

parties must be duly notified. They must be notified for a few reasons:

o Before the court can enter it’s decree, the court must have jurisdiction over all the

interested parties.

o The purpose of this notice is to give the interested parties an opportunity to object

to will. Grounds for objection include 1) that the will was not properly executed, 2)

the testator was not of sound mind, 3) the will was procured by fraud or some

provision in it was procured by fraud, 4) someone exerted undue influence on

testator, 5) testator made a mistake. The interested parties can also object to the

appointment of the nominee. Reasons for this objection may include 1) personal

representative’s capacity or 2) personal representative’s capacity has the capacity

but not the ability since the assets are too sophisticated, 3) there is a conflict of

interest, 4) personal representative has a bad attitude towards 1 or more

beneficiaries.

o Who is interested? These people must be duly notified by some legally acceptable

manner. In most jurisdictions, including MA, you don’t need a constable to give in-

hand service; mailing is sufficient. But how are we going to find the creditors – we

don’t know who they are. This is the purpose of publication. We publish this

formal notice and mail to everyone we know.

! Creditors: The creditors don’t care about the will since they will get paid

either way; they are, however, worried about the personal representative who

is supposed to pay them.

! Heirs: The rights of the people named in the intestate statute are about to get

cut off (if the heirs are not the people named in the will or proportions might

be different).

! Beneficiaries named in the will who may or may not be the same as people

named in the will. They are worried about the personal representative.

! Attorney General as the watchdog of charities if charitable bequest.

o By when must these people object? In MA, they must object by a “date certain.”

This is known as the “return day” – on this day, it returns to the court to be

actionable for decrees. This time is about 4-6 weeks.

o Suppose there are objections to the will or appointment (rare): If there are

objections, the court has to hold a hearing on those objections to establish, as a

matter of fact, whether that is in fact the will, whether it was duly executed, whether

there was undue influence or fraud, whether this is the right person to do the job.

This is a bench trial. The objections could be to the entire will or to one provision.

The court makes a decision as to the issues, decrees are entered on the return day.

It’s rare, however, that someone contests a will. What’s likely to happen is that, on

the return day, the day will pass, no objections will have been entered, and the court

enters its decrees of allowance and appointment. Before the court can do this, 3

issues need to be addressed:

! Someone has to certify to the court that all interested parties have been duly

notified such that the court has jurisdiction over them. The

nominee/petitioner will do this. In MA, we call this the return of service.

! The personal representative has to provide a bond. A bond is a court

instrument that binds the personal representative to the court. Through the

bond, the court enforces all the duties and obligations of the personal

representative. It’s a promise to the court that he’ll do his best to do his duty

the estate and if he mucks it up and causes economic loss, he’s the deep

pocket and will make it hold. This causes the personal representative to

render himself liable to the extent of the estate assets. The purpose of the

bond is to protect all interested parties from the maladministration of the

personal representative. Beneficiaries and creditors could be injured –

subcategories are debts and administrations. In many jurisdictions, bonds

can be dispensed with if the testator says so (MA does not allow this – all

fiduciaries have to be bonded). There may also be a requirement that the

personal representative furnish sureties on the bond. Sureties are

individuals or corporate entities that stand behind and guaranty the

performance of the personal representative – they are guarantors. The

sureties are also making promises and bound to the court – the surety

promises that if the personal representative screws up and causes economic

harm, and their pocket is not deep enough to make those injured whole, then

the surety promises that they will have deep enough pockets and the court

will know this. In most jurisdictions, if the testator says that the nominee

does not need to provide a surety, the court does not need to appoint one –

court has discretion to provide for it or not.

! What is the petitioner saying to the court? It’s the last will and testament,

allow it! Court says, prove it. So the nominee will have to prove to the

court’s satisfaction that it is, in fact, the will, and that it was duly executed.

Duly executed means it was done properly and complies with all

requirements, it’s good. This is the function of the witnesses – witness

testifies as to what he saw. This is the will, I was there, it complies with the

statutory requirements.

" Sometimes this can be dispensed with:

• If you can get all the interested persons (people who could be

adversely affected – the heirs) to say, we don’t care, then why

should the court care.

• Supply an “affidavit of self-proving will.” Testator and all

the witnesses swear before a notary public that everything is

just and so (OK) and notary notarizes – this packages and

preserves their testimony.

• So: We have a return day, jurisdiction, bond with or without surety, has proven the will or

dispensed with the necessity # now court can enter its decrees:

o Allow the will to allow it to have full legal force and effect

o Appoint the nominated executor so he has the authority to manage the assets.

o Now, probate is over! Now we commence the actual administration of the estate.

If this individual died intestate, the probate procedure would be the same but-for the absence of the

will.

Once appointed, the first duty of personal representative is to collect all of those assets that will be

subject to estate administration (assets that don’t pass to someone else). He has an obligation to collect

them and reduce them to possession and control, in anticipation of payment of debts, expenses, taxes,

and distribution to beneficiaries. As part of this duty to collect the assets, there is a duty to prepare

and file an “inventory.” An inventory is a detailed listing of all of those assets that will be under-

administration – describe with particularity so it is clear to all interested what is in the estate, and the

assets have to be valued as of date of death (appraisal has to occur). Sometimes, a professional

appraiser might need to be retained- like for real property. The purpose of the inventory is a reporting

function. It puts all persons in interest and the court on notice as to what’s in the estate. It also

establishes the responsibility of the personal representative and the limits of the personal

representative’s liability. The personal representative also has a duty to preserve and protect these

assets for the people who will get them – creditors and beneficiaries – so the personal representative

can expend such sums and incur such liabilities as are necessary to protect these assets.

• Issues of preservation and protection are usually routine; ones that are not routine include

great antiques located in a house in a bad neighborhood – hired a housesitter until all the

tangible property could be duly appraised, stored properly, and house sold. This particular

case provided that personal representative was not a legal stranger – so personal

representative was supposed to sell the house and convert it to cash and to hold it in trust

for the avaricious little bastards (testatrix provided this).

• Another case – decedent owned a restaurant and he maintained it really well, it was open 18

hours/day, so with the advice and consent of the probate court, they hired a restaurant

manager, who hired a security firm to sit and watch.

• Another case – personal representative has to review the portfolio of marketable securities.

The decedent may have known what he was doing but it is not the personal representative

to maintain risky things so he got investment counsel and can get rid of risk to preserve the

assets.

• The standard of conduct is a prudent person.

Next, personal representative has to pay debts and expenses. Debts of the decedent are the liabilities

that s/he incurred inter vivos. Expenses are liabilities incurred by personal representative in the

course of administration (post mortem). The personal representative, as a fiduciary, has the right to

seek professional advice for stuff beyond their abilities – appraisers, attorneys, business advisors, etc.

The relationship between these appraisers, etc. and the decedent is a fiduciary agency relationship.

• If there are sufficient assets to pay D+E, then personal representative needs to liquidate

assets to satisfy D+E.

• But what if there are more liabilities than assets to cover? If this is the case, the estate is

said to be insolvent aka bankrupt. This causes estate administration problems since not all

creditors are paid 100¢ on the dollar. In all jurisdictions, an insolvent estate is governed by

local law (usually statutory – MA GL 198). These statutes set up an order of priorities:

several categories of preferred creditors, and then other creditors.

o In MA: 1) Expenses of administration – if lawyers don’t get paid, it won’t happen,

2) funeral expenses and expenses of last illness – if they don’t get paid, they won’t

plan it, 3) then debts entitled to preference under the laws of the US, 4) taxes (IRS),

5) Commonwealth of MA on account of public assistance (Medicaid), then measly

items, then general creditors. Personal representative liquidates everything and

reduces it to cash and pays for everything until tier where runs out of money and

then those people take cents on the dollar. The general rule is that only estate assets

are liable – all of the non-estate assets are not usually available to satisfy D+E (ex:

T/E, JTROS, contract, trust, etc.). Exceptions to the general rule: 1) to the IRS and

local department of revenue on account of estate taxes.

! Estate tax: There is a federal estate tax and MA has an estate tax. These are

transfer taxes (as opposed to income taxes). Taxes based on passing

property at death. The federal estate tax is based on a concept that is broader

than probate – it’s not how the asset is held but rather the degree of control

that the decedent had over the property during his lifetime. As a

consequence, many non-probate assets are subject to these estate taxes

though they are not under estate administration. With respect to non-probate

property, IRS and MA comes higher because jurisdictions have tax

apportionment statutes – so they get the non-probate property.

! State St. Bank v. Riser & State St. Bank v. Kissel: Assets subject to an inter

vivos trust and subject to a power of appointment were made available to

creditors.

What’s the priority of assets to be taken to satisfy creditors? This depends on whether the case is

testate or intestate. You have a will and the will gives certain property to certain named individuals.

The will sets up beneficial interests. Now, the creditors have to get paid since they come first and the

personal representative will have to liquidate assets. The beneficiaries will say, take her’s, not mine.

Personal representative has to resolve this and someone’s gift might get eliminated. The testator can

say how it works – here is the order if assets have to be liquidated – but this rarely happens. In the

absence of testator’s statement, this matter is governed by local law, usually statutory. It will set up a

priority among assets.

Intestacy 8/20/07 2:00 PM

Assignment: Read Intestate succession (statutes and cases) until Step Children

Doctrine of Right of Representation:

• Curtailment of doctrine of right of representation: Does the statute cut-off the right of

representation – some do, some don’t. There are jurisdictional variations as to where and

how it cuts off.

• Draper and Martineau

o Draper: If these facts had been brought in MA, and MA statute was sought to be

applied, would the result be the same? If different, how and why different?

o Martineau: Suppose he also left property in NH and MA. Would there be a

different result with respect to the property in MA versus in NH?

Escheat: How far do these intestate statutes go in conferring property on beneficiaries? What happens

when they stop? When they stop, the property escheats to the state. Jurisdictional differences –

compare Uniform Probate Code versus MA – where and how it cuts off, and public policy

considerations

Special categories, Surviving Spouse, and Special Situations

• Once you unbutton the statute, and see how it constructs, apply that statute to the facts of

survivorship – those persons who survive the intestate and figure out who takes what. Will

the operation of the statute be modified? How? By special categories of relationship

(status) and issues of behavior/conduct of the parties (intestate during his lifetime and heirs,

either before decedent died or after).

• Variations on the kinship theme: adoption, non-marital children, half-bloods

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ESTATE ADMINISTRATION

Payment of Debts and Expenses: So what assets are going to be available to pay debts and expenses?

The general rule is that only estate assets aka probate assets are available to pay D + E. The non-

estate assets/non-probate property is generally unavailable because it is not under administration, not

passing through the estate – this includes survivorship accounts, Blackacre, property passing pursuant

to contract like life insurance, and pensions. But, occasionally, there are exceptions to this.

Exceptions:

• To the IRS and MA for estate taxes: because estate taxes are levied against non-estate

assets in addition to estate assets

• State Street Bank & Trust Co. v. Reiser and State Street Trust Co., Trustee v. Kissel cases:

In MA, some non-estate assets were taken to pay off creditors.

Among the estate assets, is there a priority of liquidation as to satisfy creditors’ rights? Yes, there is,

but it depends whether decedent died with or without a will.

• Testate: Will provides for beneficial interest – this property goes to X, other property to Y.

Which assets first? Beneficiaries will say, take their’s, not mine. Personal representative

has to resolve this. Testator can say, in the will, here is the order of liquidation to satisfy

D and E, but this is rare. In the absence of testator’s stated intent, this matter is

governed by local law (probably statutory; if not, cases). There is a little jurisdictional

variation, but only a little. MA order is a good illustration. But first we need to know about

gifts in a will.

o There are 3 kinds of gifts that you find in wills: Specific gifts, General gifts,

and Residuary Gifts.

! Specific gifts: A specific gift is a gift of a specific piece of property (real

or personal) to a named individual. Ex: Blackacre to my brother Don. In

general, these gifts can only be satisfied by the delivery of the specific

property to the specific person.

! General gifts: A general gift is a gift that can be satisfied out of the

general assets of the estate – all of those assets not specifically given to

somebody. The most typical general gift is a pecuniary legacy – $50,000 to

kid Clyde. It can be satisfied by the delivery of property worth $50,000 –

such as a check worth $50,000, marketable securities worth $50,000, or

tangible personal property like a rug or painting.

! Residuary gifts: Everything else not otherwise given to anyone. Wills

have a residuary clause: “All rest residue and remainder of my estate,

however comprised, I give, devise, bequeath, and appoint, to my children in

equal shares.”

o What does personal representative do? First, cash goes. If this is insufficient, then

all personal property (tangible and intangible) not specifically given will be

liquidated. If this is insufficient, then all real property not specifically devised.

Here, there is a preference for realty to personalty in the liquidation process. Here

is where the personal representative will have to go in and defease – he has the duty

to liquidated this. If this is still insufficient, then the personal representative

liquidates anything else – all remaining assets – which are specific gifts.

Liquidate it all – don’t favor any one beneficiary.

• Intestate: Take the cash first, personalty second, and realty third.

How does the personal representative defease the title (ie, liquidate the property)? When personal

representative makes the determination that he has to liquidate the property, he presents a petition to

the probate court and that petition alleges that there is insufficient personal property to satisfy D

+E and asks court to issue a license to authorize the sale. Court considers this, and if appropriate,

issues the license. Now, personal representative can reach in – has authority – to liquidate the realty.

He gives a fiduciary deed to the purchaser, who acquires good, clear marketable title. Impact on

devisee is that title is defeased.

Personal proceeds: Until personal representative asked for a license, he was a legal stranger. Now,

cash proceeds are under estate administration and are used to pay D + E. To the extent, however,

that the cash is not needed to pay D + E, you give it to the people who would have gotten it but for

the necessity.

Taxes: Personal representative does have the responsibility to prepare certain tax returns and to

file them and to pay the taxes reported on those returns. There are two different kinds of returns:

income tax returns and transfer tax returns.

• Income tax returns: Personal representative has a duty to prepare and file the decedent’s

final income tax return (1040 on federal level; form 1 in MA). Tax year is January 1st

through date of death. In addition, the estate, as the estate, may become an income tax

entity provided that it is earning taxable income above the de minimus amount. So

personal representative might have to file fiduciary tax returns on behalf of the estate, so

long as the estate is open – on federal level this is 1041, in MA this is form 2.

• Transfer tax returns: On the federal level, there is federal estate tax and generation-

skipping tax. This is an asset-based tax, not an income based tax – based upon the

privilege of passing assets at death. This concept is broader than probate – what matters is

the degree of control – so includes some non-probate assets. “Includable” for estate

administration is narrower than “includable” for estate taxes. Personal representative

is responsible to collect the tax that is attributable to those non-probate taxes. So there

may be times when personal representative has a duty to non-estate taxes (if estate is

of sufficient size to pay federal estate tax; some states, including MA, also have transfer

estate taxes). There are 2 forms at the state level:

o Sometimes, it’s based on the federal model of estate tax.

o In other jurisdictions, it’s called an inheritance tax or sponge tax – if the state also

has a transfer tax, personal representative is also responsible for preparing and filing

this.

Timing Issue: Between months 6-12 after decedent’s death

• When may the personal representative pay D + E and when may personal representative not

pay D + E? All jurisdictions have statutes of limitation, which bar creditors from

bringing claims against the estate after a lapse of period of time. The period of time

generally parallels the time when the real estate becomes indefeasibly vested in the

beneficiary, the time after which the personal representative can’t sell it anymore to pay D

+ E. This is usually about 1 year from date of death; personal representative cannot pay

creditors after this time.

• There are also statutes designed to protect creditors – these statutes provide that personal

representative cannot pay D + E until the lapse of a period of time to give creditors a

reasonable period of time to find out that decedent is dead and that they have a claim

and to give personal representative time to sort it out so he knows what his assets and

liabilities are. This is usually about 6 months. If personal representative pays before he is

authorized he runs the risk that a creditor with a good claim can present a claim in

timely fashion and bankrupt the estate. If personal representative cannot pay in the

statutory order and can’t recover it from the creditor’s, then personal representative will

have to pay out of pocket.

o Personal representative can incur personal liability for mispayment and creditors

can have their claim barred. These SOLs take priority over the SOLs running. Ex:

Individual has a K claim, claim against someone and still has 3 years on K SOL, the

person against which claim would be made (debt dies), creditor doesn’t have 3 years

left, ahs to bring claim within a year, or else he’s out.

Payment of Beneficial Interests: Eventually, all creditors’ claims will be paid or assets will be set

aside to pay them. When this happens, personal representative will turn his attention to the next item –

payment of the beneficial interest, whether by will or intestate statute.

• Testate distribution: When there is a will, do what testator says. But it’s rare for testator

to specify how and when assets should be distributed. In the absence of testator intent

– this matter is governed by local law, and there is little variation: 1) Specifics first,

then 2) then Generals, then everybody else. This is usually routine. Sometimes,

however, this is not routine, and personal representative might need to resolve competition.

o Suppose there are not enough assets to go around. Testator gave away more than he

had; after the payment of D + E there are not enough remaining assets to satisfy the

will. This process is called abatement – someone’s gift is going to have to abate

in favor of someone else since personal representative needed assets to satisfy D

+ E. How can personal representative resolve this? Testator can say this in the

will – in the even there is not enough to go around, do this – but this does not

happen often. Consequently, who’s gift is going to abate is governed by local law

– there is some jurisdictional variation. The general way it works is:

! This situation can arise when 1) the market declines so there is not the value

that there was when the will was made or 2) when inter vivos expenses were

more expensive than anticipated and the will was not adjusted or 3) post-

mortem expenses were greater than anticipated.

! If testator does not say, then usually the reverse of payment: Residuary

folks get what’s left over so if there is not anything left, they get nothing.

Then, general legacies abate; they abate on a pro-rata basis. Then, specifics.

Problems of change with respect to property and beneficiaries: I execute a will today, it confers

property on individuals.

• Property: Some of the property that I had when I executed the will I do not have anymore.

Also, property that I didn’t have, I now have.

• Beneficiaries: Beneficiaries who were alive when I executed have died and new ones have

been born.

• Personal representative has to deal with this.

• This can happen during two different time frames: intervivos period (between execution of

will and death – this can be long) and postmortem period (between death and distribution –

this is probably not so long, but at least 1 year since creditors).

• Examples:

o In will: “I’ll leave the clock to Clyde.” But, during my life, Claire whined, and I

gave the clock to her. Now, Clyde gets nothing.

o In will: Left Clyde $50,000. During lifetime, gave Clyde a check for $25,000.

Now, does the $25,000 get subtracted or not.

o Suppose Clyde predeceases me – what happens to the $50,000 – does it go to the

estate, does someone else (like his kids) get it as representative, or does it lapse. Or

suppose Clyde survives me but doesn’t survive to get the gift (dies in that year). Or

suppose that set up a class gift – for 4 nieces – but then one dies before they get it,

when does membership close.

o These problems don’t happen with intestacy – heirs at law get whatever is left over

at D + E and to get it, you have to survive. But there are some special problems (to

be dealt with later).

All the estate assets are paid out, then the estate is closed. There is, however, one remaining matter –

the issue of accounting.

Accounting: There may be an ongoing duty on part of personal representative to prepare and file an

account – a running transactional record of all financial records during the course of estate

administration. The starting point is the inventory – list of assets under administration – and

afterwards, picks up all receipts (all dividends, rents) and disbursements (everything paid out like

debts, expenses, taxes, beneficial interests to legatees and heirs, and all capital changes, purchase of

treasury bills).

• Timing of accounting? There is a periodic requirement of an account: typically, every year

but sometimes, it’s every three years, and sometimes, like in MA, personal representative

doesn’t have to file an account until the estate is closing. The function of the account is

informational. Personal representative is putting all interested parties on notice as to all

financial transactions occurring within the estate – interested parties include

beneficiaries, creditors, and the court. Why is this information being provided? So that

those interested can protect themselves against the maladministration by the personal

representative. There is a duty to provide information – how much information? All

that’s necessary so that those interested can protect themselves. If there has been a

maladministration and someone has been economically injured, the accounting is the record

that they use to complain to the court and to request compensation. Ex: Personal

representative sold PDQ shares – but he waited way too long and now I’m hurt – make

personal representative pay the difference. Or personal representative paid far too much for

attorney’s fees, more than warranted. If court finds that personal represent messed up

intentionally or negligently, the court can make him pay and if he can’t, that’s what

sureties are for. Once the court accepts that account, it insulates personal

representative from liability (it releases him) – and when the last account is approved,

there are no more assets and the estate is concluded.

When the last asset is paid out, and the court allows the final account, is the personal representative

discharged from office? In most jurisdictions, he is not – the allowance of the account relieves him

from liability but they are still in office in the event that an assets pops up later. Once you are

appointed there are 3 ways out – resignation, removal, or death.

INTESTATE SUCCESSION

Background: When someone dies without a will, estate assets are distributed according to the

applicable intestate statute (aka Statute of Descent and Distribution). But the use of the intestate

statute is a little more broad than this – it is used in other circumstances. Ex: If someone’s will is only

partially effective – ex: only effective as to some of the decedent’s property. It was duly executed, can

be admitted to probate, but does not operate as to all assets. The residuary clause might fail –

suppose the only residuary beneficiary predeceases and the testator did not say what was going to

happen or suppose he disclaims it (rejects the gift). You have a will that can operate on some property

– specifics and general – but not on the residuaries. This is partial intestacy – the default is the

intestate statute. Another example: Testator can specifically adopt the intestate statute as his scheme

of distribution like Judge Hastings in the Catherwood case.

The distribution of property intestate is universally statutory but there is jurisdictional variation

because the statutes reflect policy decisions.

Representative Statutes – Illustrative Construction – pay attention to policy considerations, where they

diverge and why. Memorize it for IL since they show up on the bar!

• Issues:

o Which intestate statute controls? This is a basic conflict of laws problem. Most

jurisdictions follow that decedent’s domicile’s statute applies to all real property

located within the jurisdiction and for all personal property, whether inside or

outside the jurisdiction; but the in situs jurisdiction applies for real property

outside the domicile.

o How do you compute “kindred” and why is it important?

! Definitions:

" Consanguinity relationships: Consanguine = blood relatives, all

persons related by blood. Sometimes, used synonymously with

kindred.

• Lineals: All of those who are related in the direct lineal line,

descending and ascending. Lineal decedents (far left-hand

column beneath decedent – children, grandchildren) and

lineal ancestors (all those in ascending line – top of each

column, moving left to right).

o Child: limited term. Lineal decedent of the first

degree only.

o Issue: multi-generational term. Lineal decedents of

whatever degree, however remote. Issue is often used

to mean anyone below the decedent.

! Is it possible to die with issue, none of whom

are your children? Yes, if all children pre-

decease you, but you have grandkids.

• Collaterals: Everybody else is a collateral. All of those who

are related to the decedent outside of the lineal line – but

related to decedent through someone in the ascending lineal

line. Ex: siblings (2nd column from left; related to you from

your parents; your nieces and nephews are also related to you

by your parents; your aunts and uncles are related to you

through your grandparents; your first-cousins are likewise

related to you through your grandparents)

" Affinity relationships: All persons related to you by law (marriage,

in-laws).

o How do you determine kinship? Statutes refer to degree of relationship. Degree is a

measure of distance – higher degree is further distance. Those degrees are reflected

on the chart by those upper numerals. Ex: lineal decedents – children are 1,

grandchildren are 2, etc. How do you compute?

! There used to be 3 ways to do this: civil law, common law, and canon law

method. But, in the last 12-13 years, all jurisdictions have adopted civil law

method (save possibly 1).

! Civil law computation:

" Lineals are easy – children, grandchildren, great-grandchildren are 1,

2, 3.

" Collaterals are computed by counting up until you find the

common ancestor and come down until you find who you are

looking for. Ex: for nieces, count up lineal line until grandparents

(1), and then down (2) until nieces - collateral kindred of the 3rd

degree. For aunts – count up to grandparents (2), and then down to

aunts and uncles (1) – so they are collateral kindred of the 3rd degree.

" Approaches

• Typical statutory approach is to establish a priority of

takers, successing classes taking in turn. First to issues,

then parents, then siblings, then issue of parents. But,

eventually it stops and says “next of kin.” MA uses civil law

method; so does TN in Draper case.

• Another common approach is to prefer up to a point and then

stop. It doesn’t say to “next of kin.” Uniform Probate Code

is an example of this. Where you have a computation of

kindred, this might be further modified by other distribution

methods, like per capita or per stirpes (right of

representation)

VA Code Ann. (in handout): Establishes base pattern, but most jurisdictions don’t go this far.

1. Lineal decedents come first. No limitation is placed on lineal decedents (look for a limitation)

2. If no lineal decedents, then to surviving spouse.

3. If there is no spouse, then look to parents (1st degree of lineal ancestors).

4. If there are no parents, come down the collateral line – brothers and sisters, nieces and nephews.

5. If no collaterals under the parents, then go up to grandparents – 2nd degree of collateral line.

6. If none, then up to great-grandparents.

If you don’t find anybody related by blood, then it goes to the in-laws (affinity relationship) and plots

the same course until you can find someone to give the property to.

The one person who’s position varies is the surviving spouse – it depends on how important the

spousal relationship vis-a-vis blood relatives according to public policy.

• There are different preferences for real property versus personal property for the surviving

spouse: Surviving spouse is not preferred with respect to real property; surviving

spouse shares with lineals for personal property (but only gets 1/3). Don’t forget the

dower estate.

• MA: The surviving spouse’s share is cut-out first and foremost. This is typical of

modern statutory drafting. Also, while in the VA statute, the surviving spouse’s share was

1/3 – flat – but in MA, it’s a flexible share. Flexibility is determined by who else survives

together with the surviving spouse.

o 3 factual situations for flexible share – all estates fall into one of them, and

depending on who survives, spouse can get from ! to 1 whole of the estate.

! Where there are no issue, but there are other kindred: Kindred is multi-

general – it covers all people related by blood. Is there a limitation on the

kindred? Here, there is not.

! There are issue surviving (lineal decedents): The issue share. Spouse takes

half, and the issue splits the other half.

! There are neither issue nor kindred: Spouse takes all!

• Versus VA: Shift in importance of the spousal relationship. Spousal relationship is more

important here, in some circumstances, than the blood relative situation – this is common

among modern statutes.

• Comparing MA to VA, at what point does the spouse take it all and with whom does that

spouse share? Section 2-3 dispose of the balance of the estate among lineals and other

kindred, either after the spouse’s share is determined or if there is no spouse.

• When you look at 2 and 3, does it not appear that 2 merely references 3 and that the scheme

of distribution of real and personal property is the same (unlike VA) – and if this is the

case, why bother?

Uniform Probate Code (UPC):

Intestacy Succession 8/20/07 2:00 PM

Surviving Spouse and Special Situations: Once you’ve unbuttoned a statute and know how it’s

applied, will it be modified by special issues of statutes or the conduct of the parties?

• Surviving Spouse: Principal provision is his/her share under the intestate statute (MA CH

190). But, depending on jurisdiction, there may be other provisions like dower, homestead

exemption and allowance, community property – these may complement or replace the

statute. See if complements or replaces.

o In this course, we will not be reviewing the statute for community property since

there are 8 community property jurisdictions and they diverge so we skip that.

• Special Situations/conduct of the parties: Conduct of the intestate while s/he was alive and

the heirs, either before the intestate died or thereafter.

• Look until Special Situations: Assignment.

• Take facts in Maud v. Cavenwood and apply UPC 1990 – will result be the same or

different; if different, why or how different?

--

INTESTATE SUCCESSION

Representative Statutes – Illustrative Construction

We had begun to unbutton these intestate statutes. We looked at VA statute, which is an older style of

drafting. It set up a base pattern of preference that you encounter in most jurisdictions – up and down,

and out and out and out.

We began considering MA statute – here, the surviving spouse’s share is carved out first and foremost

and the share is flexible, not static. The flexibility depends on facts of survivorship – who else

survives together with surviving spouse – from ! to all the estate. This represents a public policy

shift from importance of lineal line to importance of spousal relationship.

Section 2 and 3 sets up a distribution among the lineal descendants and other kindred. Either after

we’ve determined the spouses’ share or in the event there is no spouse, it will divide up the estate.

• It appears that section 2 merely references section 3 and that the distribution is identical –

and, if this is the case, then why bother? They are different. In intestate administration, the

personalty gets liquidated before the realty. In section 2, it says that it will distributed after

the payment of debts; in 3, it says, subject to debts. Title to real property in intestacy

does not pass to personal representative; it passes directly to the heirs-at-law; but it

passes to them subject to liabilities and will be liquidated only if the personal property

is insufficient. Personal representative gets title to the personal property and then

liquidates as necessary, and, if that’s not enough, personal representative can reach in and

liquidate real property. Also, it says “subject to other chapters and sections.” When you

represent a client who will be an heir-at-law, and you see “subject to other chapters and

sections,” this means CH 188 – homestead, dower, and allowance – this is all for the benefit

of the spouse and, in the case of allowance, the children. So whoever is taking subject to

these sections may be taking subject to others’ rights and other people might get more.

Look for dichotomy between real and personal property and whether statutes are “subject

to.”

How does the real and personal property get distributed as among the lineal decedents and the kindred?

We start off with 3 (1).

• Children come first, in equal shares, and to the issue of any deceased child by right of

representation. If there is no surviving child, then to other lineal decedents. If they are in

the same degree of kindred, they share equally; otherwise, by right of representation.

o Important terms: degree, kindred, right of representation.

o This statute seeks to make distribution among lineals- either when same degree of

kindred or if differing degrees.

o One possible interpretation: [See PDQ handout]. Suppose that we have an

individual – PDQ – who dies unmarried, intestate, and survived by 4 kids, A, B, C,

and D. On the basis of that statutory language, how is that net probate property

going to be distributed? They share equally, per the statute. This is an example

of a per capita distribution – by the head.

o But suppose some among PDQ’s children have kids of their own – grandchildren.

A has 2, B has 1, C has 3, and D has none. [4 kids, 6 grandkids]. Will addition of 6

grandkids change the distribution or will it be a " a piece among the children?

Children come first; more remote don’t step up unless there is a pre-decease.

So the distribution remains the same – " a piece. But suppose 1 among PDQ’s

kids, C, predeceases him? Now, C’s share goes to his children – this is an

illustration of by right of representation, aka by stirpes (by the stock), aka

“bootstrapping.” C’s kids step into C’s shoes and take C’s shares as if he survived

– they each got 1/12. If A predeceased, little As would get 1/8; if B predeceased,

then would get ". More kids # you get less; doesn’t support/encourage

proliferation. Also, you have to survive to take – this does not go to C’s estate, but

rather goes to his kids or grandkids. The heirs-at-law are determined when the

intestate dies. There can’t be a living ancestor between you and the intestate;

so long as A survives, the 2 little As do not take anything; A must die for them to

step up.

o Suppose D, who had no kids, predeceases. Then, A, B, and C, get more – fraction is

shifted from " to 1/3 and will trickle down accordingly. Suppose, that all 4 of

PDQ’s kids predecease, leaving 6 grandkids surviving. Then, if all of the same

degree, they share equally – per capita – 1/6th

a piece. (Some statutes call for

right of representation. If this was the case, A’s kids get 1/6, B’s kid gets 1/3, and

C’s kids get 1/9).

o Suppose that 1 among the grandkids has kids of his own – C1 has 2 kids – great-

grandkids of intestate. 6 grandchildren, and 2 great-grandchildren – does this alter

the 1/6th a piece? No, for the same reason – you only step if C-1 predeceases. But if

C-1 dies with his parents and aunts and uncles, now we have takers of unequal

degree – 2nd and 3rd degree. C-1 would have been entitled to 1/6 and the bottom

grandkids get 1/12th a piece – bootstrapping.

o Would Catherwood court agree or not, and if not, why not?

Catherwood: [see chart]. Those persons who survived have lines beneath them. This case involved a

trust, not an estate, set up by Clinton Hastings and it was do go on until his youngest child, Ella, died.

Upon death of Ella, trust was to terminate and the then-corpus was to be divided up pursuant to the CA

intestate statute. Hastings has adopted the scheme of the intestate statute as his scheme of distribution.

So we need to determine who are the heirs-at-law as of the last child. Court reasoned that out of

Hasting’s 7 children, there were 4 children then deceased with issue then-surviving: Clara, Flora,

Chuck, and Robert Paul. They divided it per-capita as among them – 4 shares – and thereafter, it

trickled down. Clara has ", which was divided by Lousie and Joseph – each 1/8. Flora’s " went to

Jan, Chuck’s " went to Ethel as his only surviving, and Robert Paul’s share went to Harry’s and

Elizabeth Parker. Cut into 4ths and down it trickled.

Applying this CA theory to PDQ, what would be the share as to R2D2 and C3PO? They get the share

of C-1. A, B, C, and D are dead. There are 5 grandkids, C-1 having pre-deceased, and 2 great-

grandkids. A, B, and C get 1/3 each. C-1, C-2, and C-3 get 1/9th each, and his kids share that, getting

1/18. [The way we did it before, his kids got 1/12, not 1/18].

Suppose the CA court misinterpreted and Prof’s approach is correct – what would be the result in

Catherwood? Do per-capita split at grandchildren’s level. There were 4 grandchildren alive, and 2

died with surviving issue so do it 6 and then their share descendants, so Joseph and Jan wanted 1/6

each. Everyone takes an equal share – per capita. But CA statute says that when there are unequal

degree, to apply right of representation. This is how the math worked out- this is an accident – it

really is by right of representation – if Chuck had 2 kids, they’d split it and if Jan had a couple of kids,

they’d split it.

Difference between Sandoe approach and CA approach? Sandoe’s approach does not care about

the children, since they are all dead. He begins his first per-capita cut when there are living

takers. CA makes the split at the children’s level even though nobody is alive there. Where do

you make the first per-capita cut if there is nobody alive at the 1st generation (children’s level) –

at that level, or at the first generation where there are living takers?

Suppose all 9 of Hasting’s grandkids had survived – statute calls for all to get equal degree, 1/9.

Suppose Azalea dies seconds before Ella, then unequal degree and Jan takes his mother’s share, so Jan

gets ". The difference is a matter of legislative intent. If legislature is not crystal-clear, court needs to

decide.

After this case was decided, the CA legislature repealed Maud and provided that if there will be such a

distribution, it will be pursuant to the 1969 of the Uniform Probate Code (UPC) and that testators in a

will can select from 3 different kinds of distribution – Maud, UPC 1969, or current UPC (1990).

Suppose the facts in Catherwood were brought in a UPC 1990 jurisdiction – what would be the result?

UPC 2-106 doesn’t use by right of representation anymore; it’s been abolished. It goes for a per-

capita distribution at every generational level; framers thought this was more fair. Not all

jurisdictions have adopted the entire UPC but some jurisdictions adopted some provisions.

Suppose the facts in Catherwood were brought in MA, and MA statute is sought to applied (MGL 3.1)

– would the result be the same or different, and if different, how different? The statutory language of

3.1 does not help.

• Balch: First cut is starts with people who are alive (Sandoe model is MA model,

different from CA). 3.1 divides property among lineal decedents, either when they are

same degree of kinship or when they are by different degrees – this is issue of per capita

and right of representation. But if wipe out entire 1st generation, where do you make

your first cut? Depends on the jurisdiction.

• MA pattern: If no lineal decedents, go up to parents (1st degree of lineal ancestors) and split

it or give it all to the survivor. If there are no parents, then come down to siblings and their

issue (3.5, which is virtually identical to 3.1, just applied to parents instead of lineals –

divide property among the issue of parents, whether they are all of the same degree or of

different degrees). Now – 3.6 – if no lineals, no parents, no siblings or issue of siblings -

then to next of kin in equal degree. So preference is delineated up to a point.

“Next of Kin:”

• MA: Section 4 says to use civil law method.

• This also brings up the issue of curtailment of the doctrine of representation – the

cutting off of doctrine of representation/per stripes. Draper and Martineau show different

approaches.

Draper:

• Suppose the facts in Draper occurred in MA, and it is the MA statute that you seek to apply

to determine who is going to take, what is the result? Is it the same as in TN, and if

different, then how and why different?

• Draper facts: The intestate was survived by a couple of uncles as well as some 1st cousins

and 1st cousins once-removed. The kids and grandkids predeceased the uncles. Uncles

were of 3rd degree. 1st cousins and 1st cousins once-removed were of 4th and 5th degree –

the question was whether the 1st cousins and 1

st cousins once-removed bootstrap up or

do the 2 uncles take to the exclusion of all of the uncles?

• Court stopped at the uncles – the uncles took and then right of representation was cut off.

TN statute says that there is no representation among collaterals after brothers’ and

sisters’ children (nieces and nephews).

• Does right of representation exist, and if so, does it get cut-off and, if so, where?

• Applying MA statute (use .3 thru semicolon in .6): Statute does not say whether can boot-

strap. TN is clear – there is no bootstrapping beyond … but MA does not say that. This

statute calls for “by right of representation” in sections 1 and 5, but then disappears from

statutory language – it is not in section 6. This is a good illustration of a statute where it is

conspicuous by its absence – it’s provided for in 2 different subsections (for the lineals

and for collaterals under parents); someone brought a case under this. In MA, it is cut-off

after brothers’ and sisters’ issue. So, in MA, the uncles take to the exclusion of the

cousins.

In NH, one section provides until the issue of grandparents – if they are all the same degree. There is

no right of representation beyond the degree of brothers’ and sisters’ grandchildren. Do you interpret

this literally, to mean grandnieces and grand nephews or do you interpret that to mean 4th degree

collaterals. Probate court interpreted this as a general interpretation at the 4th

degree and NH

agreed.

Martineau: No spouse, no issue, no parents, no issue of parents, no grandparents, but intestate did

leave issue of grandparents – on paternal side, there was an uncle (3rd degree) and cousins (4th degree)

and on maternal side there were first cousins (4th degree) and first cousins once removed (5th degree).

On paternal side, uncle shared with first cousins – 4th degree was permitted to bootstrap. But on

maternal side, first cousins took to the exclusion of first cousins once-removed because bootstrapping

ended after 4th degree.

Suppose Martineau had real property in MA. NH governs realty there and all personalty but MA

statute applies to real property in MA. In MA, uncle is out beyond the right of representation, takes to

the exclusion of rest of the family.

1. Will right of representation be cut-off or does it carry–out throughout all the collateral line? If

there is a curtailment, where will it be?

Language after the “semi-colon” – tie-breaker language. We’ve gone down the lineal and collateral

line. “But if there are 2 or more collateral kindred in equal degree, claiming through different

ancestors, …” # find those who are to the nearest degree, and tie-break in favor of the person

who is a nearer ancestor. Ex: Suppose an individual dies survived by a great uncle and a couple of

first cousins. The first cousins are in the mid column and the great uncle to the right – all to the 4th

degree. Here, the first cousins take due to tie-breaker language since they claim through

grandparents, not great-grandparents like the great uncle. Ex: Suppose an individual dies

survived by a great uncle and a 1st cousin twice removed (under grandparents) # great uncle takes

because it’s a lesser degree (4th

degree versus first cousins once removed are 6th

degree – no need

to use tie-breaker statute). The basic pattern of VA is go down a collateral line and then up – in this

scheme, first cousins once removed would take first – opposite; but under civil method, great uncle

takes since “next of kin.”

Suppose an individual dies survived by an aunt and a great-grandmother (both are 3rd degree), who

takes? “But if there are 2 or more collaterals” – great-grandmother is a lineal, not a collateral. Tie-

breaker language only applies when 2 or more collaterals – does not apply to collaterals – so they

share!! They are of the nearest degree, the 3rd degree.

Suppose an individual dies leaving an uncle and a nephew – who takes? Here, the nephew takes since

he is an issue of the siblings. Only get out to 6 if exhausted everyone under the parents.

Doctrine of Escheat: Suppose you go down through all the collateral level and don’t find anyone,

then go to 7. If nobody is related by blood (kindred) – usually there is no limitation – then the

estate escheats to the state/commonwealth.

• Versus VA statute: If you didn’t find anyone by blood, use affinity relationships

(someone by marriage), and only then does it escheat to the state. (Rare to find affinity

relationship except to spouse).

• Look at UPC – how does it address these issues? May want to use it on the project!

o Look at public policy favoring the spousal relationship in the UPC – at what point

does the spouse take it all? Under certain circumstances in the UPC, the surviving

spouse can take the entire estate even if there are lineal decedents – this is public

policy shift in favor of spousal relationships.

o Look at how the shares set up after the spouse (it will be familiar). Where does it

escheat to the state? Distinction between escheat statute in VA, MA, and UPC.

We’ve looked at several statutes. VA is representative of an older style of legislative drafting; MA is

representative of a newer style of legislative drafting – especially about spouse’s share. Comparing

shows different approaches to different public policy concerns such as representation. Results can be

significant. These statutes are constantly changing. MA has been trying to move it towards UPC.

Current VA statute is UPC. Don’t memorize the statute except your own (for the bar) but know how

the statutes are constructed; know what questions to ask and consequences of the answers. There is a

Sandoe short list of issues to look for:

1. Start with surviving spouse. Look for his/her share. Ask yourself, a) where does it fall in

the statute and b) with whom does the surviving spouse share and c) at what point will the

surviving spouse take it all and d) is it a flat or fluctuating share (VA v. MA and UPC) and, if

fluctuating, what facts affect the flux?

2. Once we’ve determined spouse’s share, how far will the statute go in spelling out its

preferences. After this, what happens? Will there be a computation, and how will the

computation occur – will statute say next of kin – and, if so, compute next of kin by civil law

method.

3. Does the statute use next of kin at all? Is there a computation after the preferences run

out?

4. Doctrine of right of representation is in most statutes, except the UPC – how far does this

concept go? Do we bootstrap the whole way or do we cut it off, and if we cut it off, where and

how do we do it? Does it say so specifically or not (like MA)? How do we compute right of

representation? How do we compute per stripes, particularly after we wipe out the first

generation. Is right of representation used at all?

How far out will collateral kindred inherit – at what point will property escheat to the state?

8/20/07 2:00 PM

Read rest of Intestacy – includes renunciation, disclaimer, and conduct as conduct that can modify

intestate statute. Read Coomes case with care. CH 191A statutory modification of CL approach (how

it modifies Coomes). Mahoney sets forth CL law with respect to misconduct and introduces the

constructive trust – an equitable remedy to prevent unjust enrichment where someone wrongfully

acquires title to property. UPC section demonstrates a statutory approach to misconduct.

==

MA Intestate Statute: In section 3.1 and 3.5, we saw language that sought to divide property among

beneficiary when they were all of the same degree of kinship and when they were of differing degrees.

We considered per capita and per stirpital distributions (by right of representation) – we considered 3

interpretations of by right of representation. Some statutes have abandoned “by right of

representation” in favor of per capita, even when differing degrees – per capita at every generational

level. One example is the 1990 UPC approach – a different approach; drafters think it is a more fair

way of dividing property.

UPC 1990 – does not use by right of representation: Suppose that the facts in Cavenwood were

brought in a UPC 1990 jurisdiction – what result, who would take, if different then how and why

different from CA or MA? The survivors we have to consider are 4 grandkids: Louise Ethel, Harry,

and Elizabeth Parker and 2 great-grandkids: Joseph and Jan. What does UPC 1990 say and what is

theory of justification?

• At what generation do you make your first cut? Make first per capita cut at grandkids. 4

grandkids are alive and 2 great-grandkids – so divide into 6 (1 each for Lousie, Ethel,

Harry, and Elizabeth Parker and 1 each for Charles and Azalea). This disposes of 4/6s, so

we have 2/6s left over – come down to next level and do per capita. Their share is also 1/6.

This is same result as obtained in MA, but this is an accident due to facts of survivorship.

• Changing the Cavenwood facts: Suppose that Azalea had 5 kids: Jan, Janet, Jean, Jane,

and Jake. Charles has 1 kid. Now apply UPC 1990 – what is the result? Cut it into 6ths –

dispose of 4 at grandchildren level and take remaining 2/6 and come down. Divide 2/6 by 6

kids – do per capita – this is what UPC 1990 requires. So the great-grandkids get 1/18th a

piece – divide by 6 even though of different parents.

o If used MA approach (by right of representation): Cut into 6 pieces. Azalea’s share

will descend to her children and her kids divide 1/6 (they step up). 1/6 divided by 5

is 1/30. Joseph would get Charles’ entire 1/6 share.

Will the application of that statute be modified by issues of status or conduct?

Special Categories of Intestate Succession: Variations on the kinship theme

• Who is and who is not kindred?

• Consider Adoption, Non-marital Children, half bloods, posthumous participation, and step

children.

• Once you determine who takes what, will that share be augmented or diminished by fact

that adoption, non-marital, etc.

• See UPC and CH 190.

Adoption:

Adopted children used to be discriminated against in intestate children – not treated equally as

biological kids. This is gone; now they are treated equally as biological children. These statutes

typically provide that an adopted child loses the right to inherit from the biological family and

acquires the right to inherit from the adopting family. But there may be some variations to look for

so see the statute. The child may retain the right to inherit from its biological family and acquire

the right to inherit from the adopting family.

Non-marital children aka children born out of wedlock aka illegitimate children aka the little bastards:

They were seriously discriminated against; they could only inherit limitedly from the mother’s

family (her lineals only, not her collaterals) and not at all from the father, unless the father

acknowledged the child during his lifetime and married the mother. Statutes have recently modified

this on equal protection grounds so now non-marital children inherit broadly and are protected –

now they inherit from the mother and her family (lineals and collaterals) and can inherit from

the father if the father acknowledges the child during his lifetime (he does not have to marry the

mother) and can inherit if the child can prove paternity (this can be proven post-mortem). CH

190 §5, 6, and 7 illustrates non-marital children’s rights, post-mortem: non-marital child can file a

claim against the estate of the purported father as a creditor during the short SOL of 1 year and

then can commence a paternity action. If they successfully prove paternity, then the child will

inherit as a legitimate child.

Half Bloods:

A half blood is someone who has 1 parent in common and 1 not. Ex: Suppose that my first spouse

and I produce Clyde and Chloe and then they divorce and I marry Claire and they have Cliff. What is

the relationship between Cliff to Clyde and Chloe – this is half-sibling since 1 parent in common

and 1 not. Half Bloods were discriminated against in most intestate statutes – this is largely gone

but not completely (MA doesn’t but the ones that do are mostly in the south).

Posthumous Participation:

Suppose the conception of Cliff kills me. Cliff is born months after my death. Heirs-at-law are

determined upon the decedent’s death, and Cliff was not alive then. This is the posthumous child

rule (relation-back doctrine) – it is as though he was alive when I died so he is permitted to take

as an heir. See Rule against Perpetuities – the posthumous child rule pops up then to see if the

interest vests in time. [The RAP is straightforward as long as you know the right questions to ask and

get the answers.]

Step Children:

Suppose Claire and I do marry. The relationship between the kids of her 1st marriage and me – he’s

their stepfather – just like she’s a stepmother to my children. You don’t see steps in an intestate statute

since they are an affinity relationship – not a blood relationship! Nowadays, it is rare to see affinity

relationships in an intestate statute. Her kids would not inherit from me under an intestate

statute. But suppose you wanted to – then you could adopt them (but they dad might get mad or

if they are older children) or you could write a will.

• Suppose, in my will, I left a bequest to all my children in equal shares – this is not enough

since a child is blood by the normal and usual definition. The same would be true if said

“issue” or “heirs at law” or “next of kin” – these kids are outside the normal and usual

definition. So, you could name them – I will leave my estate to 4 children, A, B, C, and D

– the problem with naming specific children is if they died before the testator or if

don’t mention a posthumous child (omitted child might take a share). It’s better to

use class designations in wills and trusts – allows flexibility – increases and decreases –

until you’ve closed the class and membership is ascertained. What you can do is

redefine the class in your will or trust (expand the normal and usual definition) – “for

purposes of this will, the term child shall include not only my children, but Claire’s

children.” You can redefine any term that has a legal meaning – issue, etc. You can also

diminish a class – leave the avaricious little bastard out – “for purposes of this will, the term

‘child’ shall not include X.” [See class designations in trusts – beneficiaries in the private

express intervivos trust].

Steps do not have status under an intestate statute – so give them status or affirmatively put

them in a donative transaction (will, trust).

The Surviving Spouse: Other statutory provisions for the spouse and their impact – dower, homestead

exemption, allowance, community property

The primary provision for spouses is their share under the intestate statute (MA CH 190 §1) but

depending on the jurisdiction, you may have other provisions for the surviving spouse such as dower,

homestead exemption, allowance, and community property. Many jurisdictions do not have these but

some do. Where these statutes exist – you need to know their impact on the spouse’s share and

on the intestate share – will a person’s share get augmented or diminished or will it replace it?

1) Does it exist and 2) Does it complement or 3) Does it replace it?

Dower:

• At common law (CL), a surviving spouse received a life estate, a terminable interest in 1/3

of the decedent’s individually titled real property. This is an inchoate interest; it could not

be defeated intervivos or post-mortem – intervivos by a deed or post-mortem by a devise.

If the property owner wanted to transfer during marriage, the spouse had to join in

that deed. Dower protects the spouse against disinheritance.

• Many jurisdictions have abolished dower since it diminished in its effectiveness so they

replaced it with something else. Other jurisdictions kept it but substituted a statutory form,

which provides for an affirmative election – to get the estate of dower, the surviving

spouse has to affirmatively elect it in a timely fashion (use it or lose it statute). How

long? Usually shorter than the creditor statute; usually 6 months. There are also some

variations in statutory forms. In one variation, look at nature of the estate itself. In many

jurisdictions, it continues to be a life estate, a terminable interest, like the CL. In other

jurisdictions, the estate is a fee interest, an outright interest – where there is a fee, it does

not terminate at death, so that interest is devisable and decedent at death so it can be

conveyed intervivos and creditors can reach it. Another variation is the size – at CL it was

1/3 but statutes have fractions that are more and less than 1/3. Another variation is to what

property it applies – at CL, it was real property only, but in some jurisdictions, it applies to

personalty too. CL dower does not exist anymore – it’s either gone or in statutory form.

The inchoate nature is gone, too – dower can be defeated, spouses no longer have to join,

owner can convey it away during marriage and the spouse has no rights.

• MA has a statutory form – CH 189. It does require a timely election. By the way, dower

applies to men and women. The spouse has to affirmatively elect dower within 6 months or

the right lapses. The estate is a life estate. The share is 1/3 (like CL). If they do not elect

during the 6 months, the right lapses. The consequence of this is that the title of the

property during the first 6 months is clouded – not clear, good title. This is a life estate, so

it’s a terminable interest. It really is an election – by electing dower, the spouse

relinquishes his/her right to inherit under CH 190. What’s the difference? Under CH

190, you get a fee – an outright interest from ! to an entire estate, depending on facts. But

under CH 189, all they have is a life estate, a terminable interest that terminates at death.

So why would anyone elect to take dower and only get a life estate when they could take

the whole thing under CH 190?

o Under dower statute in MA, spouse comes before creditors; but under CH 189,

creditors can attack and (1/2 of nothing is nothing).

o Tax reason: The basis of the federal estate tax was based on the control that

the decedent had over the property at the time of death; but dower does not go

through the estate. So the holder of dower does not have sufficient control over

the property to cause it to be includable in their estate. So if spouse only wanted the

use during her lifetime without having it for estate purposes, she might have lucked

out. See little red book.

Community Property:

It is a form of ownership that has its origins in French civil law (developing at same time as English

CL) – find it where French had control in colonial times – 8 sunbelt states – LA, TX, NM, AZ, CA,

WA, ID, NV; all others are CL jurisdictions. There is a fundamental difference between community

property and CL concept. Unlike CL institution, civil law recognized the partnership quality of

marriage – each spouse gets a present vested interest in 1/2 of all property acquired by individual

effort during marriage. It doesn’t matter who earns it. CL allows for individually titled property; in

community property states, its characterized by joint ownership and it doesn’t matter who earns it.

You might encounter this in an estate plan of a couple who moved to or from a community property

jurisdiction. Among community property jurisdictions, there are differences. Problem is one of asset

tracing. Suppose you have a couple that marry in a community property jurisdiction like CA. That

couple brings property to the marriage, and that remains their individual property. During the course

of their marriage, they receive gifts and inheritances and these retain their character as individually-

owned property. But, to the extent that their earnings while living in CA acquired property, this

becomes part of community property – house, etc. Then, they move to MA. They sell the CA house

and purchase a house in MA. They liquidate some of the marketable securities and purchase some new

ones – these retain the character of community property. This impacts who gets what in an intestate

statute because a portion is already owned by the surviving spouse.

Homestead, Exemption and Allowance Statutes:

These statutes are designed to protect certain property from the reach of creditors, for the benefit

of spouse and children. They are not available in all jurisdictions (MA does); where they are

available, they are usually of limited amounts, and therefore of limited utility and value. The design is

to protect – not to shift major assets around. MA statute does not provide for much. Also, look for

impact of the statutes where they exist? They often complement the intestate’s share – spouse gets

these in addition to the intestate’s share. In MA, they complement dower (replaces intestacy). This

might serve to diminish someone else’s share.

Special Situations in Intestate Succession: Conduct of the intestate while he was alive, conduct of

the heirs either before or after the intestate died

Clarification: The term “advance” or “advancement” is technically limited to intestacy. [There is a

similar concept on the testate side, and we’ll see this on section on change – “ademption by

satisfaction”.]

During my lifetime, I transfer some property to my 2 kids, Clyde and Chloe. I gave Clyde a check for

$50,000 and transfer some of my PDQ shares worth $75,000 to Chloe – these are intervivos transfers.

I then die, intestate, survived by Clyde and Chloe as heirs at law. What was the nature of the

transaction during my lifetime, and what’s the consequence? I made a transfer to my kids intervivos –

what was that? A gift or an advancement against their intestate share or a loan (with expectation that

would be repaid)? If it’s a loan, does that impact on estate administration? Yes, because my estate is

their creditor and my personal representative is supposed to collect my assets (or will limit what they

get out). An advancement will also impact on my estate. What determines what it was? Intent!

• If I intended it to be an advance, it’s an advance. An advance is defined as property

given by an intestate decedent during his lifetime (intervivos) to one or more of his

heirs presumptive who ripened into heirs at law (property considered to be part of the

probate estate in determining distributive shares of the heirs; property that the value

of which has to be deducted from the share of the transferees). At the time I made

those transfers to Clyde and Chloe, they were not heirs at law since heirs at law are

determined at death. We have a term for Clyde and Chloe at that time – heirs

presumptive – those persons who would have been my heirs had I checked out then;

they are not necessarily heirs since they have to survive. Here, they did ripen into heirs at

law.

o In the particular statutes, there are variations. One variation is to who does the

statute apply? In some jurisdictions, it’s limited to children only; in others, it

extends down the lineal line or extends to more remote kindred. Another variation

is that there are variations on the presumption attached to the transaction – what is

that transaction presumed to be? Is it a gift/advance/loan? The presumption in

most jurisdictions is an unrestricted, unconditional gift. Another variation is

how to rebut that presumption – what evidence is admissible on that question of

intent? In some jurisdictions, oral testimony is admissible; in many jurisdictions,

only written testimony is admissible. There are also variations about how we

equalize.

o MA statute: Presumption is that the transfer is an unrestricted, unconditional

gift (not an advancement). This presumption can only be rebutted in 3 limited

ways:

! the transferor labels it as an advance in the instrument (write “advance” in

memo line of check that wrote to Clyde);

! the transferor labels it as an advance in an instrument of transfer (ex; the

transmittal letter that accompany those shares of PDQ)

! the transferee labels it as an advance in a writing delivered to the administer

of the estate. All the ways to rebut require a writing.

o In MA, the statute is limited to lineal descendants (children, grandchildren, etc.) so

it applies to more remote issue. In MA, we compute people of differing degrees by

right of representation (reverse bootstrap) – rather than giving down the line, give

them now instead of then. Compute in MA by [see PDQ handout] – assume D

doesn’t exist:

! Suppose PDQ dies intestate, survived by A, B, and C and their progeny and

$21,000 to be distributed as among these beneficiaries after D + E. Divide

$21,000 equally among 3 - $7,000/pieces. Suppose that intervivos, PDQ

transferred $6,000 to A, $3,000 to B, and nothing to C and that, at the time

of transfer, it was labeled as an advance. Personal representation has to run

a calculation: Add the $9,000 to the $21,000 # $30,000 (“grossing up the

estate”). So it’s as if distributing $10,000 – credit A with the $6,000 so he

gets $4,000; credit B with the $3,000 so he gets $7,000; and C gets $10,000

– we reallocated the $21,000 among A, B, and C in order to equalize the

amounts that they would receive intervivos and post-mortem. This is

what an advancement statute does.

! Suppose someone got too much intervivos: Suppose that A received

$18,000 intervivos and all other facts are the same – B gets $3,000 and C

gets nothing and we only have $21,000 of net probate. Gross up so it’s

$39,000 or $13,000 but A got too many. Can we make A pay it back?

Statutes recognize that this is unlikely. Rather, A and the $15,000 are

taken out of the calculation. So it is as though going to distribute

$24,000 between B and C - $12,000 (they lose $1,000/person). We credit

B with the $3000 he got so he gets $9,000 and C gets $12,000. If A

predeceases then A2 will take $2000 a piece, provided statutes goes down to

grandchildren.

! What value controls? Cash is cash, but in the case of marketable securities,

where the value fluctuates over time, we can assign different values to shares

of PDQ that gave to Chloe. Options: 1) date of intestate’s death of 2)

date of transfer. What is the more fair thing to do? Can you say, for

purposes of this advance, these shares are worth $5/share? No, you can’t

have a difference (ex: difference between the stated value and real fair

market value is a gift) since, for purposes of estate tax, those shares are

worth whatever the law requires. This only impacts Clyde and Chloe so

can’t you say what they are worth for reasons of division. You can do

this in an advancement statute – intent controls. But it’s unlikely that you

would do this with an advancement statute – just appreciate that it could

happen with an intestate or advancement statute. If I do make advances,

the advancement statute kicks in to equalize intervivos and post-mortem

transfers. But, theoretically, you can change this by stating a different

value – overstate or understate (only $5/share is an advance; everything

else is a gift).

Assignment of Expectancy: Hypo: Suppose this family configuration – Clyde, Chloe, and me. Clyde

has some bad habits – he can’t manage money and is always overextended and always coming to me

for short-term loans to bail him out and I always do, despite the fact that he never repays. One day, I

say that I won’t loan him. So he borrows $50,000 from his commercial lending bank; he comes to me

to bail him out and the bank is threatening with legal action, and I refuse. So he tries to cut a deal with

the bank – “if you forbear, I will give you everything from his estate.” They put it in writing. I do die.

Post-mortem, it is discovered that his interest in my estate is $500,000 – way more than $50,000. Can

the bank enforce the deal and take the $500,000?

8/20/07 2:00 PM

Next time: limitations on testamentary power (read all cases and statutes up to Rosenberg case).

Public policies designed to protect spouse and children against intentional and unintentional

disinheritance

Dower and curtesy: CL; designed to protect spouses, as long as wealth base is personal property; with

rising importance of personal property, many states abolished this and replaced it with Elective Share

System.

Elective Share System c. 191, s15, s 17 – However, you can beat these statutes easily (Swiss cheese) –

by moving the property outside of operation of statute.

• Fair, Newman, Kirwin, Sullivan – judicial response to these inadequate Right of Election

statutes. Courts told the legislature to tighten up the statutes … many did with Augmented

Estate Statutes – which expand the scope of the estate statutes – ex: Uniform Probate

provision (201-208) – compare to MA statute.

==

Special Situations – Conduct.

Once you figure out how a statute works, will the operation of the statute be modified by the

conduct of the party – the intestate while s/he was alive or heirs, before or after death. We

looked at Advancement, and how the statute equalizes across death.

Assignment: Kid Clyde tries to assign his interest in my estate in the Bank. The deal is that the Bank

forbears on the $50,000 and I will give you everything from my estate. I die, and his interest in my

estate is $500,000. (See 9/5 hypo). Is the deal enforceable?

• Why is this case in materials on intestacy? It illustrates an attempt by an heir-

presumptive to alter the pattern of the intestate statute during the life of the ancestor

by assigning his/her intestate interest to someone else. Is that assignment enforceable?

At the outset, what is the nature of that heir’s interest in their parents’ assets, while

their parents are still alive?

o Contingent Interest: You get it on the contingency that 1) you survive and 2)

the parents don’t execute a will leaving you out.

o Hypothetical: Suppose Sandoe were to execute a deed, where he transfers

Blackacre to Clyde and he reserves the right to live in Blackacre for the rest of his

life or to the rent and he delivers the deed. The nature of your interest today is

present vested possessory; Clyde has a future interest (vested) – it’s not

contingent – and it vests when I die. If Clyde dies before me, it will go to Clyde’s

estate # estate administration.

o Hypothetical: Today Sandoe executes a deed and transfers Blackacre to Clyde: “To

Clyde if he survives Sandoe, and if he doesn’t then to Chloe, and Sandoe reserves a

life estate. Sandoe delivers the deed. Sandoe has a present vested. Clyde and

Chloe have contingent future interests – contingent on Clyde surviving. It vests

in interest and in possession at my death. It’s possible that it will never vest – if

they both predecease Sandoe. In that case, it goes back to Sandoe since they did not

satisfy the contingency; this is a reversionary interest. I have a legal life estate;

Clyde and Chloe have legal remainders. [You can do the same thing with a trust].

o Today, Sandoe create an intervivos trust with Tremont St. Bank and Trust

(they are the trustee). Terms: “To me for life, and on my death, corpus to

Clyde.” Sandoe executes a deed to Blackacre and delivers it to the trust

company, such that they are now holding Blackacre in trust, to me for life, and

on his death, they will transfer it to Clyde. [classic trust]

! Sandoe has a present interest, it’s vested in possession. Clyde has a

future interest that is vested – he has a vested interest in the remainder.

It might never vest in possession if he predeceases me, and upon his death,

the bank will convey it to his estate.

! Can Sandoe make his interest contingent # yes – upon my death, to Clyde if

he survives Sandoe, then to Chloe. Now they have contingent interests. If

they both predecease me, then it returns to me. Resulting Trust – how I get

my revision. My interest in this trust is an Equitable Life Estate; Clyde and

Chloe have an Equitable Remainder (since a Trust is an equitable

relationship, unlike a Deed which is a legal relationship).

What do both of those transactions have in common? You’re assigning property to someone else right

now when I delivered the deeds (Present Transaction). In that present transaction, I created a present

interest and a future interest.

Today, I execute a will and, in my will, I devise Blackacre to Clyde. What does Clyde have, today?

Nothing – need the court decree and I have to die. Distinguishable from above examples which are

present transaction. Rather, these are Expectant Interests (Expectancy) – and these do not rise to level

of property or future interests.

Sandoe doesn’t have a will; Clyde is my heir presumptive. Blackacre will be part of my estate. Today,

until Sandoe dies, Clyde has an Expectancy Interest. Ripens into property interest at death. The deed

and the trust are both present transactions – there was delivery, the passing of an interest – this is

distinguishable from the will and intestate statute.

Can you transfer an expectant interest? The principle issue in this case is whether or not it is capable

of assignment, and is the assignment enforceable? At law, it is not transferable; however, in

equity, the agreement is enforceable under certain circumstances.

• How about these circumstances? Some courts won’t enforce this, based on public policy.

But others will. Equity: Is this fair? A court in equity is making this decision. What

would be fair? You can quantify risk – they took a chance and could have wound up with

nothing, but it’s not fair that the bank get everything either.

• What if Sandoe found out about Clyde and the Bank’s deal, and ends up leaving his entire

estate to Chloe? Chloe told the truth – this is not fraud, undue influence, don’t need to

leave Clyde zilch. Can the Bank sue my estate (since I’m dead)? Yes, but they will lose

since there is no privity of K between me and the bank. What about the bank suing her?

No, she didn’t do anything wrong and there was no privity of K there. So … this entire

arrangement can be defeated. While, at law, this transfer doesn’t work; at equity,

however, it’s enforceable if it was fairly entered into, supported by adequate

consideration, and if it would be fair and equitable, and if I don’t defeat it?

o Higher standard with a business deal with bank, probably lower standard with

family transaction.

o Uniform finding of consideration.

o Issues not to be missed: Assignment of an expectancy has to be distinguished

from an assignment of vested interest (if not in possession). If Clyde had made

the assignment after Sandoe died, there would not be any issue re: adequacy of

property because it’s already vested. Sandoe doesn’t have to consent to the aboce

transaction by Clyde and the bank, and, he can defeat it. Can Sandoe defeat this,

short of omitting Clyde from inheriting? Yes.

! Rather than leaving everything to Chloe outright, Sandoe could leave

Clyde’s share in trust and give him a life estate and add protective

provisions that would keep Bank at bay – these are called trust protective

devices. The bank’s interest can be defeated by will or trust. It could

also be defeated if I gave a gift. Another option – in order for the bank to

take, Clyde has to get it – what if he predeceases me? If Chloe were the only

heir at law, that’s great. Or if Clyde Jr. remains, Clyde’s share would go

directly to Clyde Jr – and the bank has no action against these third parties

(not my estate, not Chloe, not heirs of law of debtor Clyde – because no

privity of K).

• Hypothetical: Suppose there was no issue of consideration (suppose consideration were

equivalent). Sandoe died never having learned of the deal, survived by Clyde and Chloe.

Before his administrator could pay Clyde, Clyde dies intestate, survived by his sister Chloe,

and his spouse Prudence (as his heirs at law). Here, creditors would get paid first if that

agreement was enforceable. Clyde’s creditors come before his beneficiaries – this is how

estate administration works.

• Suppose Clyde wins the lottery, and is worth bajillions. He doesn’t have to work, and

wants to retire in France. Before he heads off, he plays off the bank and dumps wife

Prudence. He stops off at Chloe’s, and says that whatever Clyde is supposed to get from

dad, Chloe – you can keep it, it’s all yours (no consideration). In France, he marries

Monique. Sandoe dies intestate, but before his administrator can make a payout, Clyde

dies. He is survived by Monique (spouse) and Chloe. Chloe says, it’s all mine since Clyde

gave it all to me. Monique says, au contraire, I’m his spouse so I take too! Chloe can

prove that Clyde did this. However, there was no consideration – and there needs to

consideration!

Assume:

1. We are in a jurisdiction that has no statutory modification of CL.

2. We are beginning with a testate case first, and then will move back into intestacy.

Suppose Sandoe executes a will, where I leave Blackacre to Clyde and an equivalent amount of cash

and securities to Chloe, and the reside to my spouse, Patience. Thereafter, Sandoe dies, and his will is

admitted to probate. Clyde and Chloe file instruments on the docket – they reject it (thanks, but no

thanks) – is this an effective disclaimer? Suppose Sandoe adds that each of them had a motive for

doing this? Clyde’s motive is that he still has those bad habits and the bank is his judgment creditor,

and if he accepts Blackacre, the bank will scoop in and seize it, and it won’t be in the family. Chloe’s

motive is that she doesn’t need it – she makes millions – and wants her mother to have it. Her counsel

said that if she takes it and gives it to mom, it will be taxed, and she doesn’t want taxes to be paid.

Will Clyde’s judgment-creditor be defeated? Will the IRS’ interest in a taxable transaction be

defeated? Will my intent be defeated? Intent is very important.

Coomes: Testamentary disclaimers are valid. The nature of the transaction between me and my

children in my will is a donative transaction (gift) – 1) intent, 2) delivery, 3) acceptance – but you

can’t make them accept. A donee does not need to take it; it’s their right. When did the interest in

Blackacre vest to Clyde? Immediately. Title to realty passes to the beneficiary immediately, and it is

vested. If it’s vested, how can he reject it? It’s a vesting, and it happens immediately, but it is a

tentative vesting (tentative upon his acceptance).

• Suppose Ada Coomes had a will, where she devised 1/12th interest to Lola Miller, and Lola

disclaimed. Could she have disclaimed and would this have defeated her creditor? Yes,

because it’s a will, and, yes, it would defeat her creditor. How does the creditor get

defeated? The way creditors’ rights work in IA is true in many jurisdictions: When Lola’s

creditor got a judgment against her and filed that judgment at the registry, this was all she

had to do (it was perfected). The minute Ada dies, title to 1/12th

passes immediately to

Lola. By virtue of that judgment claim being at the registry of deeds, a lien attaches

right away. How do we get rid of the lien? We’ve said that title vests tentatively, and that

the devisee can reject it. Lola can’t reject it the minute she gets it. It’s as though she

never got it – Relation Back Doctrine – her rejection relates back to date of death and

it was as though title never passed (this is a unique feature of Disclaimer) – you’re

treated as though you never got title. What happens to title of that property when the

devisee and legatee reject?

o Go back to example with Clyde, Chloe, and Patience. Clyde and Chloe disclaim.

Blackacre, cash, and securities goes to Patience. She’s the residuary – so she gets

what’s leftover. Suppose Patience decides to disclaim? Since will has no other

provision, use intestate statute – use of intestate statute is more broad.

! Apply MA intestate statute here: Spouse & Children. ! will be divided

between Clyde and Chloe and ! to Patience. Can Patience disclaim the

share she’ll get back under the intestate statute?

" Lola Miller was not able to disclaim in Coomes since she

property passes under intestate statute (unlike will – donative

transfer # intent, delivery, acceptance) by operation of law,

acceptance is not required, you get it no matter or what.

" Suppose Ada Coomes’ estate has been insolvent? She had borrowed

heavily to finance the farming operations, and the value of the land

had been diminishing. When she died, the value of the land

couldn’t cover debts. What will happen to Lola’s creditor? She

gets nothing, because Coomes’ creditors get paid first. Personal

representative will have to defease title to real property. Title to that

real property will vest immediately to all the heirs. Lola’s creditors’

lien attaches at that moment; this is a vested interest subject to

divestment for the benefit of debts and expenses and Ada’s

personal representative would have to go to court to get a license

to sell to pay off Ada’s creditors. So Lola’s creditors only get

what Lola will get under the intestate statute; if that title is

defeased pursuant to a license approved by a court, it goes back

to date of death and it’s as though Lola never got it.

" Suppose there had been no creditor in the Coomes case and suppose

real property came down to the heirs at law and Lola disclaimed?

Could she? No, she could not disclaim not at CL, since she got

that title. What would be the real effect of the transaction? The

movement of title from the kids to the father is really a gratuitous

assignment. Distinguish between disclaimer (you’re treated as

though you never had title) and assignment (title did pass to you

and you transferred it to someone else; can be gratuitous or for

consideration).

• At CL, an heir cannot disclaim because title claims by

operation of law; but a donee may disclaim a gift, whether

intervivos or testamentary since acceptance is a key

element. If someone effectively disclaims a testamentary

gift, the law construing wills and intestacy controls. The

specific gift will go into the residuary. If a general legatee

disclaims, goes to residuary. If a residuary legatee

disclaims, goes to other residuaries. If only residuary

legatee disclaims, follow intestate statute.

" You cannot disclaim in favor of someone because this requires

control, and is more like an assignment. It’s as though you never

got that title. But once you take title (you didn’t disclaim), can

you assign it? Yes, you can assign it then. Once you take title, it is

vulnerable to creditors or to a spouse in a divorce. It is also subject

to a transfer tax.

o Suppose my companion Clair and I have a JTROS deposit account at the bank, and I

die – can she disclaim? This feels like an operation of law. Or suppose I have a life

insurance policy, name her as beneficiary – can she disclaim? Some courts

reasoned that JTROS was more like operation of law # cannot be disclaimed.

Others reasoned the opposite. Some said that life insurance looks like gift, but other

courts said it didn’t. As a consequence, many jurisdictions passed statutes to figure

out what happens if there is a disclaimer. MA has a statute – 191a.

o MA disclaimer statute overrides CL - affects wills, intestate. It also addresses other

issues: If Lola had been in MA, and there was 191A, she’d be able to disclaim. But

what if her motive was to do in a creditor? Nope! Many jurisdictions have

disclaimer statutes which deal with disclaiming property. There is also a

disclaimer on the federal level for tax purposes – 2518 of the Code deals with

disclaimer for taxes. In many respect, federal and state statutes are the same; but

they may diverge re: timing – when do you have to disclaim? Imagine a situation

when someone timely disclaims (valid disclaimer) but it was not in time for federal

tax purposes.

Why is this material on disclaimers in here? Why would someone disclaim an interest?

• To avoid creditors. It may be overridden by statutes or local caselaw.

• Taxes: To reduce or eliminate taxes

o Transfer taxes. Marital deduction: If the person who would benefit by a

disclaimer is the surviving spouse, the property passing to the spouse qualifies for

that deduction that would not otherwise qualify.

o Income taxes: Suppose my mom, in her will, leaves me stuff. I have more than I

ever need now. But if I accept this, it will increase me into a higher bracket for

estate tax purposes and I’m going to use income generated for that for my grandkids

for their education. What if I were to duck and let it pass to my kids – allows you to

reduce estate taxes and they can use income generated for grandkids for their

education. A well-drafted trust/estate plan will provide for disclaimer.

• Altruism: The recipients would rather the person benefiting from the disclaimer

8/20/07 2:00 PM

Read Testamentary Powers through Glomset case. Today – intentional disinheritance by spouses,

including statutory and judicial protections. Next time – can those protections be contracted away

(Rosenberg) and pre-nuptial agreements. Then, we’ll look at unintentional disinheritance of spouses –

what is the impact of theses statutes on the will (it’s important). Then, we’ll look at unintentional

disinheritance of children, other relatives, and the omitted child statute (in all states, if you intend to

omit one, then you can). MA statute is typical and not flexible; UPC is more flexible. Then we’ll look

at Glomset case: once there has been an omission of a child, how do you establish whether the testator

intentionally or unintentionally omitted the child (disturbing).

==

Intestacy – Special Situations: Whether Conduct can modify the conduct of the statute.

Misconduct:

• Mahoney: Decedent is killed by spouse. Decedent dies intestate, survived by parents,

spouse from hell, and no issue. Statute would confer to spouse under normal circumstances

… but here, can you profit from your crime? This is also applicable to wills, etc. In some

jurisdictions, the CL rule is applied – killer forfeits the interest. Many jurisdictions

have drafted statutes on point, saying that killer forfeits on the interest. But, in the

absence of a statute right on point of homicide, courts have been reluctant to imply a

forfeiture (either from intestate or will statute). Why? Will and intestate statutes are

property statutes designed to confer property on individuals – either by law or decedent’s

wishes. There are 3 lines of decisions taken by courts in jurisdictions where there is no

statute:

o Legal title passes to the killer, regardless of the crime. The theory and support is

that intestate distribution is purely statutory, and such a denial, imposes a further

criminal sanction that is not provided by statute. Critics say that it is wrong to profit

from your crime.

o Legal title will not pass to the killer. The theory and support is the equitable

principle that you ought not to be able to profit from your crime. Critics say that

this is unwarranted judicial intrusion into a legislative matter; let the legislature deal

with this. It also is criticized for doing damage to property statute.

o Constructive trust: Legal title passes to the killer, pursuant to the statute, pursuant

to the will, but there title is arrested in the hands of a wrong-doer by a court in

equity. The court in equity decrees that the wrongdoer is a constructed trustee for

the benefit of whoever ought to get that property.

! Constructive trusts are not formulated where the killer did not or could not

(lack of mental capacity) to form the intent; but where there is intent, the

constructive trust doctrine applies. This is not penalizing the wrong-doer;

rather, it’s imposed to prevent a profit, since you shouldn’t profit from your

wrongdoing.

Pope v. Garrett: Constructive trust. Someone wrongfully interferes with the execution of a will, and

someone dies intestate. We’ll consider the elements of a constructive trust, how it works mechanically

to move property out of the hands of the wrongdoer.

Here, constructive trust is a remedial device applied by courts in equity for restitution. It uses trust

theory to accomplish the result – moving title. We’ll see this applied where someone has been

wrongfully deprived of property – by fraud, duress, undue influence, abuse of confidential relationship

– where someone wrongfully gains. It’s a flexible device. Here, it neatly resolves the theoretical tug

between the wrong and property statute. We let the property statute work, and then we deal with it.

Marital misconduct may bar the operation of an intestate statute, if its provided for by statute.

This might happen where the status of marriage remains (no divorce), and in ordinarily circumstances,

the statute would operate. Ex: Where 1 spouse leaves another. But courts are reluctant to bar the

operation of the intestate statute right on point; there is in some jurisdictions. This is because courts

would be doing a post-mortem divorce action.

Before WILLS… Limitations on Testamentary Power: Property transfers by operation of

decedent’s express intent (will is expressed intent). The intestate statute can reflect the intent, like

Judge Hastings in Cavenwood, or if someone understands how the statute operates and adopts it. But

usually the intestate statute is not what testator had in mind. It’s always by operation of law #

consequences can be significant. Ex: Can’t disclaim unless 191A; could have creditor consequences

if can’t disclaim, could have tax consequences.

It’s important to distinguish between how title passes: by law (intestate statute) or by operation

of decedent’s intent (will).

Limitations on Testamentary Power: You cannot leave your property to whoever you please; the right

to dispose of property by will is not an absolute right, unrestrained by the courts and

legislatures. Testamentary power is derived by statute, and it can be regulated by the courts or

legislature. Testamentary power has been granted broadly, and curtailed in relatively few ways.

Here’s how it’s been curtailed:

• provisions meant to protect spouse and children against testator’s unfairness and their

concurrent rights, whether intentional or unintentional.

• Another curtailment is the requirements of a will – you must comply with statutory

formalities: in writing, properly signed, properly witnessed.

• Another is restraints on alienation – you may have a property interest, but you can’t dispose

of it, because of the restraint placed upon it.

Ironman: illustrates, in general, limitations on testamentary power by public policy. Conclusion:

testators can be unfair, and this doesn’t make the will invalid; but there are limits imposed by

public policy, for the benefit of certain family members.

Surviving Spouse:

Intentional disinheritance by decedent spouse: Back when we did intestacy, we considered provisions

designed to protect surviving spouse when there is no will – ex: the share that s/he gets under the

intestate statute (statutory heirship). We also considered dower, homestead exemption, allowance,

and community property. Now, we’ll see that some of these provisions may be available on the testate

side too. What statutory and judicial protections are available to the spouse when the decedent-spouse

makes a will does not include anything/inadequate amount for surviving spouse. The intestate statute

does not apply, since there is a will, unless there is partial intestacy. There may be no dower rights

if dower has been abolished by statutes (it has been abolished in many jurisdictions). There may also

be the homestead exemption or allowance statutes – but they are of limited utility, if they exist at all.

What you do have, in the common law states (not community property states), the CL concept of

dower and curtesy form the historical basis for the statutory protections that have been accorded to the

surviving spouse. Dower and curtesy used to be adequate when the wealth-base was real

property since the spouse had an inchoate interest in the property, and it couldn’t be defeated

intervivos (by a deed) or post-mortem (by a devise) – it was a good protection. But with the

increased importance of personal property – securities and deposits – the effectiveness of dower

diminished so the legislatures made other protective devices, like homestead exemption and allowance,

dower by statute and where it also applies to personal property. The primary remedy has been the

Elective Share that is given to the surviving spouse – defined by statute, in lieu of provisions in the

will. These are known as Right of Election statutes aka Forced Share statutes aka Will Waiver

statutes. In community property states, a few states the Uniform Marital Property Act (variation on

community property); these protections are fine, but the effectiveness of these traditional protections

are beginning to diminish since they are designed to protect the traditional family. The basis of

protection is status – you are protected due to your status relationship: spouse/child. This doesn’t

help for partners, significant others, or non-marital children – new statutes are just starting to be

drafted. We’ll consider what current statutes do, don’t do, what to expect/what not to expect, so we

can consider alternative means.

Elective Share System: The spouse is permitted to elect a share of the decedent spouse’s estate, as

defined by the statute. These statutes are typically elective statutes, and the election is a true

election. The election is to take the share as defined by the statute, and you relinquish what you

got, if anything, from the will. Ex: In a will, surviving spouse gets Crimson Hall. According to

statute, spouse could get more than value of Crimson Hall # spouse elects to get statutory amount and

doesn’t get Crimson Hall. The election must be elected within a specific period of time (timely

election) – approximately 6 months – use it or lose it (like dower). (This is keyed to creditor statutes,

to encourage expeditious administration of estates). 6 months because personal representatives need to

know who’s claims take precedence. The share in most jurisdictions is a percentage/fraction or it is a

dollar amount plus a fraction ($50,000 + "). This fraction may be variable by who survives along with

the surviving spouse or it may be a fixed share. The fraction may parallel the intestate statute, but it is

usually smaller since the purpose of this statute is to protect, not to enhance the estate of the

surviving spouse (MA is an example). Sometimes, the surviving spouse gets the share outright, in

fee – so it can be disposed of thereafter (they can do as they wish with it afterwards); other times,

a portion is outright, and another portion is a life estate (terminable interest; gives surviving spouse

an income interest for life). Some jurisdictions have an election trust – ex: Suppose you have a

jurisdiction where the surviving spouse gets 1/3rd outright; if decedent gives surviving spouse less,

surviving spouse can elect. But if there is an election trust, this can be defeated. If decedent spouse

takes 1/3rd and puts in a trust for the benefit of spouse, the survivor has income interest and doesn’t

won it outright (terminable interest, just get use of 1/3 for their lives, don’t get property itself) #

decedent spouse can choose where it goes after surviving spouse (benefit to decedent spouse).

Qualified terminable interest property (QTIP) tax! Another benefit is that the property does not

belong to the surviving spouse, surviving spouse cannot dispose of it intervivos or post-mortem; it

cannot be reached by surviving spouse’s creditors – either intervivos or post-mortem – because its

blocked; it’s also blocked by future spouses. Conclusion: 3 forms: outright, portion is outright and

portion is in life estate, the entire share is placed in a trust and they only get the use of it.

• Policy criticism: Inflexible as to amount – the surviving spouse gets the same amount

whether she’s been married for 4 days or 40 years (windfall for someone married a short

time) – doesn’t take into account the partnership quality of marriage or the economic

differences of marriages of different durations. Should these shares be more flexible based

upon the length of the marriage? UPC thinks so – sliding scale.

• Against which assets are these statutes measured (1/4 or 1/3rd of what?)? These are

measured against probate property only; they are not measured against non-probate

property since that property is outside of the estate. Since there are many ways to avoid

property from passing through the estate – Joint tenancies, trusts, life insurances =

testamentary substitutes (substitute for the will). These testamentary substitutes may be

adverse to the surviving spouse or other family members.

o Ex: There is a husband and wife. One spouse will do an estate plan. This spouse

sets up an intervivos trust for the benefit of the other trust and names him/her

beneficiary for life insurance and sets up joint deposit and brokerage accounts and

makes home T/E and does intervivos gift-giving and makes him beneficiary of

retirement benefits. Believing that the surviving spouse is well-cared for by

testamentary substitutes, testator leaves estate to kids of first marriage. Intent of

statute is not being fulfilled.

o Suppose that husband sets up non-probate estate left to kids and probate estate is left

to spouse, which used to be adequate, but now is not sufficient due to expenses and

lowering of market value. Now, on death of decedent spouse, surviving spouse only

gets paltry amount since what’s leftover is all non-probate.

o Conclusion: most election statutes are not flexible. But they are certain.

This problem has been addressed by Augmented Estate Statutes (from 1940s) – they intend to expand

what spouse gets from probate property to also include non-probate property. The majority of

augmented estate statutes don’t cover the basis, however. These culminate in UPC. The UPC

addresses most of the shortcomings of a typical Right of Election statute, but it’s difficult to apply

mechanically.

MA statute is an example of a typical statute.

• It’s a timely elective statute – you have to elect by 6 months, or you lose the right.

[Time from may be from date of death or the date the court entered its decrees and personal

representative is appointed; tax statutes run from date of death and estate statutes run from

date of court).

• It is a true election – if you elect, you elect to take the share as defined by the statute and

forfeit what was given to you.

• In MA, the share kinda looks like the intestate statute – flexible (depends on who else

survives along with surviving spouse). Sets up 3 factual situations: (a) there are issue

surviving, (b) there are no issue but there are other kindred, and (c) no issue and no kindred.

• The spouse may not get it all outright – spouse may get a portion outright and a life estate

in the rest. It gets worse: under certain circumstances, all spouse may get outright is

$25,000.

o If issue survive: spouse gets 1/3rd of the realty and the personalty. [Under intestate

statute, surviving spouse would have gotten 50% (they split 50-50). It’s less than

intestate statute because these are designed to protect]. If that 1/3rd exceeds

$25,000, spouse will get $25,000 outright and the balance is held in the form of a

terminable interest (s/he just gets the use for the rest of her life). The 1/3rd is of the

probate property only (save the Sullivan case). No limitation on issue, like in

intestate statute.

o There are no lineal decedents (issue) but there are other kindred: Kindred includes

all blood kindred, however remote, in MA; here, there is no limitations (like in

intestate statute). Suppose against which spouse can elect is $300,000 # spouse

takes $25,000 off the top and then gets a life estate and ! the balance.

o No issue, no kindred: Spouse takes the first $25,000 off the top plus the balance

outright.

o The rest – the part that doesn’t go to the spouse – goes to wherever the decedent

spouse said that it should go in the will (and when the 2nd spouse dies, it goes back

again). How is this amount taken out for benefit of the spouse? Same situation like

for creditors # by virtue of this statute, the surviving spouse is a quasi-creditor, and

comes ahead of beneficiaries. Commercial creditors comes before the spouse’s

elective share (other jurisdictions do it differently) and then come the beneficiaries.

Suppose you have an estate and the spouse has been omitted (nothing) and there is a

191 s.15 type statute. Spouse elects against the will, attorney drafts Right of

Election request and files it on the docket. Attorney found out that spouse has died

on his way up the court’s stairs. Was that election timely filed? Takers care! SJC

held that it was not timely filed – it goes to nature of statute itself: design is to

protect, not to enhance his/her estate. (Other jurisdictions took opposite view). If

it’s going to get cut off, it’s usually the death of the surviving spouse – on theory

that it is a personal right, and it dies with the spouse.

o Suppose you have a couple, and husband wants to leave wife and he goes to

attorney and leaves it to his lover and then brings it home and waives it in her face –

is her knowledge of impending disinheritance relevant? Knowledge is absolutely

irrelevant – the right is personal and an absolute right.

o Suppose that upon finding out that the will was made that way, the spouse has a

stroke and is incompetence # is the right lost? She’ll get a guardian (to manage the

assets of incompetent spouse) and guardian will have a fiduciary duty – the right is

not lost by incompetence.

o Can the right to elect be lost?

! By failing to file in a timely fashion, by accepting what’s given to you in

a will, by terminating status by divorce (divorce terminates status unless

there is an agreement between the 2 of them that survives the divorce).

! Suppose they had this kind of agreement but survivor gets nothing form the

will? Ex-spouse can sue on K theory as a creditor.

! Nisi decree (unofficially divorced – cooling off period). A court will issue a

provisional decree – you are not really divorced during this period, and if

one spouse dies, the other can elect against the estate; you are not divorced

until the final decree is entered.

! It might also be lost by marital misconduct, if the statute provides for it (MA

has one – if one spouse has deserted the other, and spouses are living apart

for justifiable cause but can’t get divorced) # then, they can’t elect.

MA 191 s. 15 & UPC: MA statute is representative of a majority of statutes, but it has problems,

which UPC tries to address. Only about 20 jurisdictions adopted UPC.

• George and Martha Bickerson Hypothetical: You have a couple in a long-term marriage.

They hate each other, and probably should have gotten divorced years ago, but didn’t

because they like to bicker. George decides he wants a new estate plan, and doesn’t want to

leave Martha anything. In a jurisdiction with a 191 s. 15 situation. Attorney says that if

you leave other people something and Martha nothing, attorney can quantify how much

Martha will get. Instead, we’ll move assets around.

o Change beneficiary on all life insurance from Martha to kids.

o Shift beneficiary on retirement plans from Martha to kids.

o Set up joint arrangements with your kids (JTROS, brokerage accounts)

o Start a gift-giving pattern to your children, their spouses, and their kids – give as

much as you can without tax implications

o With whatever is leftover, place in a trust. George will be trustee. We’ll put the rest

of your assets in that trust; for the rest of your life, all of the income earned off the

assets will be paid to you. In addition, principal of trust is paid as George deems

appropriate; on death, the corpus of the trust (principal) goes to kids, if they can

manage it. If he becomes incompetent, there was a replacement trustee (bank

corporate fiduciary), will have discretion to use income to take care of H and W for

rest of their rights. On his death, the trust terminated and property went to kids, in

equal shares. We’ll give you power to revoke or amend this trust.

• Martha finds this trust after George dies and thinks “I’ve been screwed and this is fraud on

her marital rights since the legislature passed a statute to protect them and he’s intentionally

set out to defeat them by moving the property outside of probate.” There are no assets

against which she can elect since they are all contained in testamentary substitutes – she’s

been screwed. Is motive relevant? Does it matter what he intended (that he intended to

defeat her marital rights)? What is the nature of one spouse’s interest in the individually-

titled property of the other spouse while they are married? When you get married, you get

an expectancy interest. We don’t have inchoate interests anymore – you don’t have to join

in the deed, spouse is free to do as he pleases with that asset. With the election statute:

spouse can convey away, gratuitously, without adequate consideration? Your rights does

become a property interest only at death, but only if there is property against which that

statute can operate. Why at death only and why only if there is property against which it

can operate? Because the design is protection against intentional disinheritance. Suppose

Martha predeceased George … her estate wouldn’t have any interest in George’s property.

• Can these protections be contracted away? Yes – see Rosenberg.

• The Legislature provides these protections – can they intentionally be defeated? Does

motive matter? The statutes have lots of holes (only applies to probate assets so all

testamentary substitutes are beyond the reach of statutes) and can be beat. Courts struggled

to find relief.

8/20/07 2:00 PM

Next time: MGL and UPC statutes, formal requirements for execution of a will. Read all cases and

statutes up through choice of law statutes.

• In general, a will has to be in writing, signed by testator, before some number of witnesses

who also sign the will.

• Differences: number of witnesses, when the will must be signed by testator and witnesses.

Alternate Will forms

• Holographic will: will entirely in handwriting of testator, signed by testator, no witnesses

• Oral will: oral statement made to some number of witnesses

• He’ll post something on TWEN re: alternate will forms.

We’ll go through an actual will – another memorandum on TWEN. Read that for next Monday.

==

Statutory provisions designed to protect the surviving spouse against disinheritance. There is some

variation, especially re: elective share – especially re: the size and composition of the share, and the

assets to be included, and the transactions that are covered. Differences are due to public policy.

• MA 191 s. 15-type: This is typical of most statutes. But it has problems – see George and

Martha example. If you leave property in the will and don’t include Martha # Martha will

get. But, he moved the assets to other positions. Does motive make a difference? Can

these protections be intentionally defeated by moving the property? With respect to right of

election, dower, intestacy # death creates property interest.

Motive is relevant in some jurisdictions.

• Fraud Test from Thayer v. Thayer: Court said that if that transfer is made with the

intent of defeating that spouse’s protection, then we’ll void it and bring the property

back into the estate for purpose of the elective share. What does this do to title in the

hand’s of a purchaser? You should worry because if there was improper motive, it might

come back in. If you buy title during one spouse of a marriage, you want the other spouse

to join in that deed (to give away his/her marital rights under the statute) # this is like

inchoate interest from CL dower. But most jurisdictions had abolished dower by statute

and this looks like dower. This also requires courts to determine the transferor’s intent and

the transferor is now dead. So most jurisdictions rejected this test but it does still exist in

New England.

• 1937 Judge Layman suggests “Illusory Transfer test aka the Control test”; Looks at

situation as it existed before and after the transaction, the degree of control of the transferor.

If all that’s happened is that the property has been moved one step to the left, but transferor

still has same control, then this is just a change in form, not substance and form shouldn’t

be elevated above substance. Layman said that the test should be whether the

transferor, in good faith, divested himself of control. If not, we’ll bring it back.

(Newman v. Door). Most jurisdictions did not follow this.

• Majority: “The Presence test:” MA was the national model (Curwin v. Donahe). Asks,

is the property present or not? Is it situated where the statute will operate on it? Is it in the

probate estate? If so, then in; if not, then out. We don’t care if it’s gone. So, under this

test, the statutes are easy to beat.

• Sullivan (MA SJC): SJC overruled Curwin, due to changes – spouses got a lot more rights

in divorce – equitable property division was adopted so it’s better to divorce than to stick it

out. Limited factual situation in which this case was decided. In addition to probate, the

courts will now include the assets of any intervivos trust, created by the decedent trust

during marriage, over which that spouse retains certain control – right of revocation

or general power of appointment. [Power to revoke a trust and general power to

revoke an asset].

o Sullivan test can be easily beat # sign trust before marriage

As these courts were struggling to figure out judicial relief, they told legislatures to clean up their act

and to devise a statute that can’t be so easily beaten. Some legislatures responded with Augmented

Estate Statutes. These Augmented Estate Statutes expand the base of property against which these

statutes apply and the transactions against which they apply – from mere probate to include many

testamentary substitutes, such as insurance, trusts, survivorship accounts.

UPC: Highly technical and all-inclusive/protective.

Can these statutory protections be contracted away by spouses?

• Rosenberg: 2 intended beloveds entered into pre-nuptial (antenuptial) agreements to

purport to establish property rights in each other’s property in the event of death or divorce.

What’s being relinquished/contracted away? When you have a prenup, you better have a

list of all that is being relinquished. These are the property rights given away:

o The elective share is being relinquished.

o Dower, Homestead Election/Allowance, Intestate Share is being relinquished

• You get married # you have an expectancy that you might get it if your spouse

predeceases.

Will the courts enforce these rights which don’t vest until death?

• Rosenberg case – here, court says that each case will be decided on its own facts.

o Scott factors:

! Was the agreement fairly entered into?

! Was consideration fairly equivalent?

" Consideration issue in Scott: As a result of the agreement, wife only

got $5000, when she could have gotten at least $25,000 and a life

estate in the balance, if she had the right to elect. He would have

gotten nothing. Parody is of some, but not primary, importance #

should not be determinative of the agreement. Courts shouldn’t

over-regulate it.

! Is it fair to enforce it?

o Compare Scott to Rosenberg – is it fair, is it equitable?

• What are the contractual expectations? What’s mine is mine, and what’s yours is yours.

• Court’s role is to be a guardian – see that these agreements are fairly entered into,

understandably entered into, and free from fraud and overreaching.

Suppose you have a prenup – what’s mine is mine and your’s is your’s – notwithstanding this

agreement, can you still leave something to your spouse? Of course – all agreement says is “I don’t

have to, I don’t need to, and if I don’t, you can’t go after me.” You can do it in a will, trust,

testamentary substitute, etc.

Rosenberg court on disclosure as between the parties: There is an affirmative duty to disclose assets

because the parties stand in a confidential relationship to each other. Confidential relationships are

relationships of trust and confidence between two people, such that you’ll let down your guard (not a

commercial marketplace) – where one person is used to relying on the other’s judgment that they’ll do

the right thing, not screw them over, they let their guard down.

• Where do you find confidential relationships? In all of the fiduciary relationships – like

in a trust, where trustee owes beneficiaries that he’ll act in their best interest. In an agency

relationship, agent has fiduciary duty to act for benefit of principal. In guardianship –

guardian owes fiduciary duty to act for benefit of the ward. Fiduciary cannot act out of

self-interest or profit from these transactions.

• Also (outside of the fiduciary relationship):

o Family/Parent-child relationship.

o When any two people have that kind of relationship (look out for my best interest,

let down your guard) # relationship of confidence.

• Since the two people in Rosenberg had relationship of confidence, there was a duty to

disclose.

Suppose you have a couple who are going to get married. Each has been married before, each has

considerable property of his/her own and prior children. They want a pre-nup, they retain counsel,

asset lists are prepared and exchanged # they enter into agreement and relinquish all the protective

rights. They then marry and remain married until the H dies. Following H’s death, notwithstanding

that agreement, W files for election on grounds of fraud – not full and fair disclosure. H’s kids from 1st

marriage says that there was full and fair disclosure. It’s disclosed that something was omitted from

H’s assets – H had been beneficiary of trust from Great Aunt Harriet – he got income for life, and on

his trust, it went to his issue, then-living, per stirpes. W argues fraud.

• Argue both sides:

o All H had in the trust was a terminable interest. At his death, it would not go to his

estate, not be subject to Elective Share.

o If that income had become part of the probate estate, then it would become

electable. You’d want to know this.

• How did she not know about this until he died? She signed the tax returns (1040s) and

looked them over. But those returns were different then. The trust was fully invested in

tax-free municipal bounds, so it wasn’t reported on the 1040. Now, you report tax-free

income.

• When you prepare the asset list, you put EVERYTHING in there; don’t OMIT

ANYTHING. If you don’t report it, it might give someone a leg up to bring the claim that

they didn’t know and aren’t bound by that agreement even though it’s property that would

not be subject to the elective share.

• Two people are getting married and they want you to do a pre-nup for them. They need 2

lawyers!! Recommend 2 attorneys.

Unintentional spousal disinheritance – Inadvertent omission. Examples

1. Unmarried individual, never has been married. He executes a will leaving everything to family

members. He gets married, and never changes the will, and dies with a will having left everything

to family. No ill motive, unintentional.

2. A married individual. He has a will, leaves everything to the spouse. Then, that marriage

terminates (death or divorce) and individual marries spouse #2 and never changes the will and dies

with a will leaving everything to spouse #1.

Three statutory responses:

a. Spouse gets intestate share, like omitted child statutes.

b. Spouse gets a right of election, like 191 s. 15, without regard to whether it was intentional or

unintentional (this will probably be smaller than intestate share)

c. Statute provides that act of marriage revokes all prior wills.

3 ways to revoke a will:

a. A subsequent will can revoke a previous will

b. You perform a physical act – rip – to revoke it

c. The doctrine of changed circumstance, which revokes a will as a matter of law. This is a life-

altering event in the life of a testator. The event is deemed to be of such significance that the

testator wouldn’t want that will anymore. This usually revolves around martial status – marriage or

divorce. In 12 or so jurisdictions, marriage revokes all previously made wills, including MA. In

all but a handful, divorce revokes – it treats the ex as pre-deceasing (gifts and/or nominations to be

personal representatives or guardians).

Very different results: In A and B, they take a share out (an intestate share or elective share) – you take

the assets as you would for creditors, because they have elevated status. The rest goes wherever the

will says it goes. C – the entire will is revoked, so you are intestate, unless you go out and execute that

or another will.

Protection of Children:

At CL, children had no protective rights as spouses (like dower and courtesy); the little rugrats could

be omitted by impunity. The only protections that have been afforded children are statutory. These

statutes are designed to remedy unintentional/inadvertant omission only – these are called Omitted

Child Statutes (or Pretermitted Child Statutes). Therefore, you can still intentionally omit children.

Some of these statutes extend beyond the “child” to future generations if the statute provides for it. In

these statutes, if it appears that a child has been unintentionally omitted, that child will get a share of

the decedent’s estate – usually, this is an intestate share, which is more than a surviving spouse would

get under an elective share system for the spouse. UPC provides an example, a modern approach –

thoughtful and flexible – but it has not been widely adopted. MA statute 191 s. 20 has been more

widely adopted- more strict, less thoughtful, les flexible.

• MA statute: If testator omits to provide for any child or the issue of any deceased child,

whether before or after testator’s death, that child or issue will take intestate share, unless

testator provided for that child intervivos (life insurance, joint tenancies, trusts) or unless it

appears that the omission was intentional, and not occasioned by accident or mistake.

o To who does this statute apply? It’s not limited to children; but rather to issue of

deceased children (can go down a generation or two). They bootstrap by right of

representation. Compare with UPC.

o Really omitted issue statute.

o It does not matter when the child is born – it can be born before or after the will is

executed. It can be born before or after testator dies. Many statutes limit this to

children born after the will is executed on the theory that testator knew about it

when he made the will and that this decision was affirmative. MA doesn’t care. Ex:

An individual could conceive a child, die without knowing about it, and the child is

omitted. The child is in. Ex: the grandchild of a deceased child that the

testator/decedent didn’t know about it. Good drafting can circumvent this – use

specific language of omission (Article 3rd in will example: “I hereby intend to

omit any child…whenever born.”).

o Basis of protection is status – status-based relationship to decedent. You are a child

or issue. Includes adopted kids, but not step-kids (since this is affinity). Non-

maritals are not in unless can plead and prove post-mortem.

o What’s meant by accident or mistake? It does not mean mistake in the

inducement. It doesn’t mean as mistake on part of testator to facts which caused

him to intentionally omit the child (if child is omitted based on information, that’s

too bad).

o MA case: Testator wanted to give Blackare to one of his children. He said to the

kid, here’s Blackacre, and thinks he executed a deed. He leaves everything else to

other people. Kid is out!

o MA case: Testator left his entire estate to his DIL and her kids since his son had

deserted them. He thought his son was dead, hadn’t heard from them for 40 years.

After dad died, the son came out – this was an intentional omission.

• UPC: See how UPC deals with mistake as to whether child is alive or dead.

• Case: testor left entire estate to spouse and heirs. Here, “heirs” is a word of limitation so

spouse took it all. Kids said that mom was supposed to get life estate and we are supposed

to get a remainder. This was a mistake so kids could take.

• Mechanical impact of an election by an omitted child: Statute differ; contrast UPC w/ MA.

o Suppose that I were to leave my entire estate to my spouse, Patience, to the

exclusion of my only then-living child, Chloe. Subsequently, along comes Clyde.

He pleads and proves unintentional omission.

! In MA, his share is the intestate share. Spouse gets ! and kids split the rest

# here, he’ll get " of the estate. Chloe will get nothing.

! UPC addresses this differently. He’ll get nothing under the UPC – theory:

at the time I executed the will, I had Chloe but notwithstanding, left

everything to Patience. This is not likely to change if I have other kids.

Since I didn’t give anything to Chloe, I shouldn’t give Clyde.

• Suppose that I execute a different will – " to Chloe and everything else to Patience. Along

comes Clyde, and he pleads and proves unintentional omission.

o His share under MA statute will be intestate share – ". Here, he takes it away from

the residuary – Patience.

o Under UPC, he takes it away from Chloe. They’ll share the " # 1/8th a piece.

Since at the time that decedent executed the will, he left " to child and rest to wife;

shouldn’t the amount to wife remain the same and the kids share that ".

• Suppose that Patient divorces Sandoe and Chloe (only child) predeceases Sandoe. Sandoe

decides to live everything to Suffolk. Then, I take up with companion Claire. She turns out

to be fertile pentagenarian, who gives birth to Clint but Sandoe doesn’t know. Clint pleads

and proves unintentional omission.

o MA statute: Clint is the only one with status since Claire wasn’t married to Sandoe.

Clint gets everything – only heir-at-law. Is Sandoe’s will revoked? No, the will is

still there to nominate Kindregan as my personal representative. All the election

does is take out a share.

Glomset: Intent with respect to omission. Question: How do you establish testator intent when there

has been omission and there is no express language? Here, testator had a daughter that was not

mentioned – was it intentional, and must this be determined from within the 4 corners of the will or

may extrinsic evidence be admitted re: intent?

• When testator has a will, and its not entirely clear re: intent, court will have to construe

intent from admissible evidence so that it can carry-out testator intent. Court looks at the

intrinsic context (within the will – if language is not clear, look at other parts of will)

and the extrinsic context. 2 types of extrinsic context: indirect and direct.

o Indirect is what did testator know and when did he know it, what were

circumstances surrounding execution of will # draw inferences.

o Direct: actual statements made by testator.

• Will the courts allow extrinsic if intrinsic is not enough? Courts get nervous/worried about

perjured testimony – some only allow intrinsic, but some do allow extrinsic evidence.

• Prior courts held that if there is no uncertainty on the face of will, then no extrinsic

evidence. Here, there was no uncertainty since he omitted her and failed to say why # so

no extrinsic evidence allowed. If you omit, and fail to give a reason why, the court may

construe this as unintentional and not allow evidence to the contrary. This is a narrow

interpretation.

o Dissent: In MA-type statute, the omission raises a presumption that it was

unintentional, but the presumption can be rebutted by the introduction of extrinsic

evidence (oral testimony). This is difficult and troublesome since it skews the

objective of statute, which is to protect.

o Drafting:

! Can use a class designation: I hereby intent to omit to provide for any child

! Or specifically exclude the child by name.

• Be careful about omitting the child- Problems:

o Positive: want to omit the child in the will and let him know why: I’m leaving you

out because you did X!

o Negative: Ex: Suppose I wanted to omit Clyde and the will had a provision saying,

“I do not want Clyde to be a beneficiary of my estate.” The default is that you only

made a negative will; you didn’t say who will get it # intestate statute. You cannot

override the MA intestate statute since that is property passing by operation of law

so Clyde will take.

o Suppose I were to say, “I want my estate to pass to all those who would take under

MA intestacy statute, save that little bastard Clyde.” You can do this since you’re

adopting, not overriding the statute.

Suppose you have an elderly individual (widowed or divorced), who executes a will leaving everything

to his caregiver, to the exclusion of the children, and includes omitted issue language – everything to

my caregiver, and I intent to omit my children. Post-mortem, kids say that dad would never have

omitted us. Is the language in the will effective? Suppose they learn that the attorney who drafted the

will was a cousin of the care-giver # inferences fraud, undue influence, elderly person’s lack

competency. If will procured by these problems, then will may not operate. Suppose that children had

not paid any attention to the parents and the caregiver gave the elderly man a good quality of life –

shouldn’t caregiver be beneficiary # duke out at probate.

Wills 8/20/07 2:00 PM

Will functions – what they do, what they don’t do. Read Model Will on TWEN and remaining statutes

in Will execution. We’ll begin a discussion on Revocation. Also, look at alternate forms on TWEN

and reading on reserve.

WILLS

Different Will Forms: There are a number of will forms that are utilized.

• The basic form is the attested will aka ordinary attested will – used in every jurisdiction

except PR, which uses the civil law form. The attested will is in writing, signed by

testator, before some number of witnesses who themselves sign.

• There are a number of variations available in some jurisdictions that are used as alternative

forms.

o Holographic Will: In ! of the jurisdictions, but not MA. It is a will that is

entirely in the handwriting of testator and signed by him/her; no witnesses.

(That’s it – no witnesses).

o Oral Will: In " of the jurisdictions, but not MA. An oral statement made by

testator to some number of witnesses. It’s limited to personal property only,

not realty. It’s sometimes known as the nuncupative will.

o The Soldiers and Sailors Will aka the Maritime Will: A will allowed by custom

(customary will). It’s oral, and made under limited sets of circumstances.

Many jurisdictions recognize this customary will, including MA.

o The Civil Law Will: The primary will in PR and an alternate in LA. It is a

witnessed will, but with 5-7 witnesses. Ordinary attested will only require as

many as 3; most jurisdictions only require 2 – but Civil law will requires a bunch.

o The Statutory Form Will: A preprinted will, which you can download or

acquire from a legal stationary. You accept all the terms that are in there.

o Wills executed pursuant to a uniform act, The Uniform Statutory Wills act: Many

jurisdictions recognize these, including MA. You adopt standard provisions of

the Uniform Act into your will.

o In practice, these alternate forms are rarely used.

Formalities required to execute that will (attested will):

• There is variation around the country. Some jurisdictions are very strict, as to the extent of

the formal requirements (how many there are) as well as to the judicial interpretation of

those statutes (the strict meaning of the statute is applied); MA is one of these with

extensive requirements and courts apply them strictly. Other jurisdictions don’t require

as extensive statutory formalities like UPC. Courts in some jurisdictions extend themselves

to find compliance. The trend is toward relaxing the statutory requirements. MA did this a

few years ago, when we dropped number of witness requirement from 3-2 and substantial

requirement (Rainey case).

• Requirements:

1. Will be in writing, handwritten, mechanically-produced, or electronically-produced

2. Testator signed that will, personally or by a proxy. Proxy is an agent – someone who signs in place

of testator. Variation on where testator must sign – whether at the end of the will or not – and

what constitutes the end of the will.

3. There be some number of witnesses. Some jurisdictions require 3, but most (incl. MA) require 2.

4. That the witnesses be present at the time testator signs that will or, performs an act of

acknowledgement. Variation: Do witnesses have to be there all together?

5. Testator publishes that will. Testator has to say to witnesses, “That is my will.” Witnesses have to

know nature of underlying document that they’re witnesses.

6. Witnesses sign and attest # perform an act of authentication. (Variation as to whether they all

have to sign together).

Variations and Problems:

The signature of testator. Testator or proxy has to sign: Formal signature is valid, but it’s not required.

• Any visible impression, mark, cross, thumbprint, or heart made on the will, by testator,

with the intent that the mark be his signature, satisfies the requirement. We want to show

that the testator intends to be bound by the will.

• What if the testator is too physically weak to sign? He can be assisted by a proxy or by a

physically-assisted signature. A proxy is an individual who actually signs his name for

him; testator does not participate. A physical-assist is when someone takes testator’s hand

in theirs and guides it along. The statutory requirements for these two vary. A proxy

signature usually requires an affirmative request – sign my will for me. A physically-

assisted signature usually only requires acquiescence. Recommendation: Incorporate

the requirement into the attestation clause in the will. An attestation clause is a

statement of fact as to what factually happened when the testator and witnesses executed

the instrument.

• Location – where testator’s signature is: There is a division of authority as to requirement

of location. A few jurisdictions require that the signature be at the end; most do not

require this. Among those that don’t require that the signature be at the end – have the

following requirement: if the signature appears elsewhere in the will, you have to prove

that testator wanted to use that signature to bind himself to the provision of the will.

Extrinsic evidence – from outside the will – is allowed as to this question. Direct

extrinsic: oral statements made by testator. Indirect extrinsic: evidence of

surrounding circumstances. Why require the signature at the end? The obvious reason is

to prevent fraudulent additions – additions made after the will. Also, it eliminates the need

for proving the signature. In jurisdictions that do require signature at the end, there is a

presumption that everything that appears after the signature was added later (except

attestation clause, witness’ signatures, and self-proving will affidavit). What happens if this

presumption is not rebutted? Then all those provisions will be rejected as unduly executed

additions, additions which were not witnessed, so they’ll be rejected. If the presumption is

rebutted, then the entire will can fail since the signature wasn’t at the end, as the statute

requires. In order to save the will from failure, argue that everything else after the signature

should be thrown out and save the will; but there is a division of authority as to what can be

ignored. What has been ignored? Provisions for compensation of executor, on account of

their being entitled to compensation bonds (probably required anyways), and provisions for

burial. What has not been ignored? Gifts.

• What constitutes the end – Stenson: Some jurisdictions held that the physical end is what

was intended by the legislature. Stenson holds – prevailing view – that the logical end is

constitutes the end. Testator folded a piece of paper in half, wrote on the front, then

opened it up and wrote on page three, and then on page two, and then signed it. This was in

the middle of the will. The question was whether she signed the will at the end? If she

didn’t sign it by the end, then the will fails. In a logical end jurisdiction, intent controls –

theory is that will is a declaration of intent. When intent has been fully expressed # sign.

Will should be read in such order as testator intended. Stenson’s will went on in order until

she signed it.

Witnesses: How many and what are there qualifications?

• Some jurisdictions require 3, but most require 2. All jurisdictions say that if you execute

the will with less than the required number, then the will fails. Qualification of witnesses

can be problematic with regard to 2 things: a) competency and b) beneficial interest.

o The witness has to be competent. Test: They have to be able to know and

understand what they saw and be able to relate that/testify to that.

o Beneficial interest problem envisions that the witness also happens to be a legatee or

devisee. Ex: Suppose an individual executes a will and has 3 witnesses, P, D, Q.

But Q also happens to be a beneficiary – provision for Q for $50,000. At CL, if

witness had a beneficial interest in that will, it rendered the witness incompetent and

subsequent release of interest (disclaimer) would not matter (if incompetent when

the will was executed, then incompetent thereafter and if this resulted in less than

required amount of witnesses # fail). The problem is that the witness is not

disinterested. George the II statute provided that the beneficial interest of that

witness was voided – theory is that it’s better to have 1 person to lose his beneficial

interest than to have the whole will fail – so witness became competent by losing

beneficial interest. Q’s share would go to residuary; if he was the only residuary,

then look at intestate statute since partial intestacy. Most US will statutes are

based on the George the II statute with a few exceptions: 1) the extra witness

exception (the supernumerary) and the 2) heir at law exception.

! Extra Witness Exception Example: Suppose will only required 2 witnesses

but he had 3. Do we need Q then? No – P and D will do. But what if at

time at will execution, 3 were required, but then reduced to 2 witnesses and

Q is in for a $50,000 request. The governing statute is the one requiring 3

witnesses.

! The heir-at-law exception envisions that the witness with a beneficial

interest in the will also happens to be an heir-at-law and would inherit under

the intestate statute if the will does not stand. Here, Q gets to keep what he

would get under intestate statute and only loses what is above and beyond

that. If under intestate statute he were to get more, he gets to keep more.

• Nominated executors as witnesses: Sandoe nominates Kindregan to be executor; can he be

a witness? Is the executor going to have a pecuniary interest? Yes. So would an attorney –

when you draft a will for a client, you hope that when he dies, the executor will retain you

as counsel. Attorney will have a pecuniary interest too. Should economic interest in estate

prevent you from serving as a witness? Is economic interest of executor/attorney

different from economic interest of Q? Yes – executor/attorney have to work/earn the

money – it’s compensation – as contrasted with a beneficial interest. So executor can be a

witness. As an attorney, you have a fiduciary duty to your client (agent relationship) – the

duty is to do your best to see to it that the will will be admitted to probate and properly

administered. This does not prevent you from being a witness. Do you want to be a

witness to your client’s will? If the will is contested, then the attorney will be called to

testify so avoid this and don’t be the notary public. Can a creditor serve as a witness? He’d

get paid anyways. Competency and beneficial interest are the 2 major disqualifications of

witnesses – but there may be others due to legislator’s piecemeal legislation.

Facts to which witnesses attest (bear witness):

• Testator authentication: Testator is going to sign his/her will. The fact that a testator signs

is evidence that they were there and intend to be bound by it. In a holographic will, this is

all you have. But all attested will statutes require some additional evidence that the

will is authentic # requirement for witnesses. The act of signing the will in front of

witnesses is universally accepted as sufficient; acknowledgement is also OK in some

jurisdictions. Acknowledgement is an alternate act; testator may acknowledge his

signature to witnesses, when they didn’t observe the signature. Testator signs the will out

of presence of witnesses, calls them in and acknowledges the signature to be his, witnesses

don’t see the signature. Some jurisdictions allow packaging acknowledgement or seriatum

acknowledgement.

o 3 elements of will execution; Testator signs, which authenticates that will (I stand

bound); Witnesses attest (bear witness); Witnesses sign, certifying that they bore

witness to testator’s signing.

• Testator capacity

o Categorical capacity: Age – testator has to be 18. You are categorically incapable

of executing a will under 18.

o Mental capacity: Testator must be of sound mind. [We’ll define the standard for

this later in grounds for contest]

o Freedom from undo influence

• What if all the witnesses predecease testator and are beyond testifying? Nope. All

jurisdictions address the issue where all witnesses predecease. They typically provide that

the will proponent (executor) is going to go out and find someone who can testify as to the

authenticity of the witness’ signature – like an officer at a bank where there was an account

– and maybe to the authenticity of testator’s signature. The will was duly executed #

valid.

• What if a witness does not form an opinion of soundness of mind or can’t remember (as in

Collins) will not invalidate the will. But their testimony is admissible in a will contest and

it will carry weight. This testimony is opinion testimony, which is usually reserved for

expert witnesses. Witnesses can testify as to categorical capacity, mental capacity, and

freedom from undo influence.

• How do you guard against that problem? By using a self-proving will affidavit.

Presence Problems:

• Testator may be required to sign in the presence of the witnesses.

• Proxy may be required to sign in the presence of testator.

• Witnesses may be required in the presence of testator.

• Witnesses may be required to sign in each other’s presence. Pages may be required to be

present (Beals). Look at 191 s.1 and see how many times presence pops up. Look at

attestation clause in Lydia’s will.

DeMaris: How differently the courts have treated presence – from literal and strict to substantial

compliance. DeMaris represents as liberal of an interpretation as you will find. Witnesses don’t

have to be in the same room, or line of vision where they can see, but they have to be close

enough so that he can be conscious of them via other senses (Mental Apprehension or Conscious

Presence test for people who are visually-impaired). Some courts, however, are very conservative

re: presence – they have to be able to see the witness move the pen on paper. Preferred practice:

Testator and witnesses are all around table and observing each other signing.

Sequence of signing: Testator signs first, and then witnesses is the preferred practice. Some

jurisdictions require this since witnesses are witnessing this. But most says that there is no sequence

and any order is OK.

What about witness-to-witness requests:

Witnesses intending to witness: Utilizing a notary public as a witness when they didn’t sign as a

witness is OK by some courts since s/he saw what happened even though the notary has not signed.

By virtue of notary’s signature, s/he is intending to give the will legal consequence.

Signature by the witnesses: The requirements are the same as for testator – sign at the end, etc.

UPC authorizes holographic will.

Non-requirements: Important technical features that you want to have

• Self-proving will affidavit: Authorized in MA and UPC. It permits a will to be

probated without testimony at the time of probated. This allows the will to become

self-proving and no testimony re: proper execution and authenticity provided that you

comply with the requirements:

o Testator and the witnesses are going to swear to an official (usually notary public

or justice of the peace). They swear like in the model will. The form will vary

among jurisdictions, but only slightly. When can testator and the witnesses swear

before a notary?

! At the time the will is executed – preferred

! Can happen later – until you lose one of the players

o It packages the testimony and preserves the testimony for the time of probate.

o The only benefit is that it allows the will to come in without testimony at the time of

probate (a routine admission) – this will can still be revoked or amended or

contested.

• Attestation clause: This is a statement of all the facts that happened at the moment the

will was executed. Will statutes don’t require these but they are extremely desirable

because, if done properly, they can aid the will proponent since they ought to recite the

number of pages and the requirements of the will statute. Look at 191 s. 1 and Sandoe’s

attestation clause. This recitation in the will raises a presumption that you did what you

said you did – this shifts the burden to the contestant to prove that you didn’t do it.

• Rainey distinguishes between self-proving affidavits and the attestation clause and re:

substantial compliance doctrine (excuses harmless error): Jurisdictions are beginning to

move in this direction but it’s far from widespread adoption.

Not required:

• Date: Most statutes do not require that the will be dated, but it’s preferred to date the will.

You need to know why it’s executed for many reasons –

o what if testator executed more than 1 will

o if testator has executed multiple codicils (amendments), you need to know the order

of those to see how they impact one another

o and you need to compare the execution process with the statute that was in place at

the time you executed to make sure that you dotted/crossed all your I’s/T’s.

• Seals are not required

• Delivery is not required because it’s not a present transaction (like a deed would be

present); it is a future transaction that creates no present interest.

How do you execute a will?

• How not to execute a will (Beal):

o Beal

! Judicial integration: The process of determining what writing is going to be

probated as physical parts of an attested will when you have multiple pages.

This will also include codicils (amendments). In Beals, Beal died survived

by a spouse and 3 children. He left a will (1954), together with a codicil

(1958), both of which were prepared by an attorney. He also left an

instrument (14 pages) purported to be a will in 1959 executed in NY with his

friends, in the middle of drunken party. By a letter dated the same day,

Beals mailed a couple pages back to his secretary in WI, and asks her to

make corrections, and she does, and sends them back. After he died, all the

original pages and the two corrected pages were found # was this will

properly executed? If so, which of those 14 out of 16 pages will constitute

the will? The original or amended ones? If the court rejected the 1959 will

in its entirely, then we’ll have to drop back to 1954 will and see if that was

properly executed. There is no requirement that those pages be physically

fastened together. But there is a general requirement that those pages be

present and that testator intend to be bound by those pages –

testamentary intent. Is it necessary that the witnesses see and observe all

of those pages at the time the will is being executed? No – they are

witnessing the signature, not the pages. What happens when they can testify

that all the pages were there? Court has to draw inferences. Here, its’ clear

that the court could have made 2 inferences: 1) that he wrote the will earlier

in the day and put it together with other tow pages in an envelope and tossed

in a mailbox and 2) wrote a letter later in the day and mailed in later in the

day, pages weren’t there, will not properly executed? Preferred practice:

Staple those pages together and number them and have testator initial each

page with the same pen. Staple the pages and leave them stapled. The

attestation clause should recite the number of pages and the statutory

requirements for execution so that you are reciting, point for point, what the

statute requires. No erasures, strike-outs, typos, interlineations, etc. – it must

be a perfect instrument. Call the witness’ attention to the strike-outs so that

they remember it. Also, have everyone initial those changes. Use the

witnesses – however many the statute requires – because they can testify,

which can aid the will proponent.

! Even if only 2 witnesses required, use 3 – and none of the witnesses should

have a pecuniary interest.

! Beals court rejected the 2 pages since couldn’t prove that they were there.

But if they were present and had been witnessed by the witness, then OK.

! Make a number of copies, but have them unsigned by testator – only 1

signed original and the others as duplicates. This is so other people – like

executor – can have copies and this proves what was in the will at the time it

was executed. It can also be used to prove the contents of the will if the will

was lost. Why only have 1 signed copy (see revocation of will).

" Conformed copy: You type in the names of testator and witnesses on

signature line.

" Xerox copy

! Consistent, formal procedure: Be formal in the execution. You want them

to remember – ask a series of questions.

" Is this your will?

" Have you read it? [you want them to say yes]

" Is it as you wish?

" Do you wish to sign it?

" Would you like these persons to act as your witnesses? They

should look and observe.

" Read attestation clause.

8/20/07 2:00 PM

Read all statutes and cases in Revocation

3 ways to revoke a will

• by subsequent will

• testator performs a physical act to a will with intent to revoke it – rip

• Doctrine of Changed Circumstance: a life-altering event has occurred in life of testator

such that the testator wouldn’t want that will anymore (usually revolves around marital

status – marriage/divorce)

Types of revocations

• To revoke a will in its entirety

• Partial revocation – what’s the impact of partial revocation on the rest of the will

==

What to conclude from Beals? There is really great importance attached to a consistent, formal

procedure for execution, one that covers all the bases in your jurisdiction. Why? Because the way

you execute a will may impact on its validity.

• What’s your professional duty to your client? Do your absolute best to make sure that the

will stands. Execution is a big one, but there are other issues too.

Once you’ve executed a will on behalf of the client, where do they put that executed will? You have

options:

• Safe deposit box: safe, secure. But many clients don’t have them since don’t need them.

This should be 1st recommendation.

o Client deposits it, dies, personal representative wants to withdraw it. However,

decedent was the only person with access to the deposit box – where is personal

representative’s authority? In the safe deposit box, where only decedent could get

into. But you can usually explain that you only want to take will out and register it

that day at Probate, check ID. If they don’t, get temporary authority from the court

– in form of special administration (temporary appointment).

• Give it to the nominated executor: the person who’s going to be charged with carrying out

terms of will, particularly if the executor is a corporate fiduciary (like Tremont St. Bank)

since it has continuity. Individuals might not be there – might die, move, etc.

• To the trustee of a companion trust, a pour-over trust, especially where the trustee is a

corporate fiduciary since continuity issue.

• Deposit it the registry (probate court): one-time fee. The will is sealed (not public record)

and will only be released to testator, during his/her lifetime, or to personal representative,

post-mortem. Only after death, when submitted to probate, does it become part of public

record. Probably 2nd recommendation.

• With the attorney who drafted it. This way, when personal representative comes to pick it

up, attorney can have a chat with personal representative. Sandoe’s problems with this:

o Law firm continuity – even large firms have merged or closed-up

o Big responsibility for attorney

What are the practical effects of those requirements for execution and of the execution process itself?

Whatever the formalities of a particular jurisdiction, however extensive they may be, there is this

general rule: Unless you execute the will in compliance with all of those formalities required by

the statute, that will will completely fail unless you have a “substantial compliance” judiciary

(like Raines) or unless the court is given power to dispense with requirements (like UPC);

otherwise, will die intestate unless a previously executed will can be admitted to probate. The

will may have to be effective in other jurisdictions as well, like in hypo with property in MA, ME, or

FL, as well as the client who moves around a lot. Problem: the will may have been validly executed at

the time it was executed, but it may not be effective in another jurisdiction because of this general rule:

the validity of a will, as it relates to personal property, is determined by the law of the decedent’s

domicile at the time of death (not at the time it was made). Similarly, the validity of a will, as it relates

to real property, is determined by the law of the situs jurisdiction, where the realty is located, at the

time of death (not at the time it was made). Fortunately, many jurisdiction have a choice of law

statute, like the MA statute; the choice of law statute provides that if the will was validly executed at

the time it was execute, in the place it was executed, then it is acceptable, even though it does not

comply with our law now, or our law ever (at the time and in the place doctrine). Consequence?

Hypothetical: Suppose a person executes a holographic will in a jurisdiction that recognizes

holographic wills, moves to MA, does not change will. Holographic will is entirely in hand of testator

and signed by him (that’s it – no witnesses). MA does not recognize holographic wills. If made in

MA, MA would not take that will; but because the person executed a holographic will where it was

allowed at the time, MA will take it. UPC-jurisdictions go further: in addition to the place of

execution, a UPC-type jurisdiction will accept it if it’s valid in accordance with the decedent’s

domicile at the time of execution, or domicile at the time of death. Sandoe’s caveat: In spite of the

trend to deformalize the statutes, in spite of these choice of law statutes, in spite of the fact that some

jurisdictions like NJ will accept substantial compliance, and in spite that some jurisdictions allow

courts to dispense with statutory requirements, if you are drafting on behalf of a client who has

property in multiple jurisdictions, you better learn the law for all those jurisdictions and make sure that

you comply with each of them. Another admonition: In spite of requirements wherever you practice,

you ought to expand them to cover all of these bases. MA statutes is one of the most stringent ones

– but consider using 3 witnesses.

These formalities also serve another function – they categorize transactions that are effective, and

transactions that are not effective. This concept impacts wills and testamentary substitutes (deeds,

Ks, trusts, joint tenancies, etc.) This issue arises in context of an estate administration. Testator

executed some inter vivos transactions of testamentary substitutes during his life time – are they valid

or invalid? Beneficiaries (residuary legatees if will or heirs at law in intestate) and maybe creditors

want to see them fail. Court will have to determine whether valid or not. Question is whether those

inter vivos transactions in reality a testamentary transaction? If so, then need to comply with

the law of wills. Or were they valid inter vivos transaction – if so, then will need to comply with

law of that kind of inter vivos transaction. Courts look at if the transferor (decedent) wanted the

transferee to acquire an immediate interest in that property or not? If not (no interest passes

until death), then this is a future transaction – a testamentary transaction – so will need to comply

with the law of wills, and it probably does not since will requirements are much more stringent

than with testamentary substitutes. So this probably will go to residuary or intestate statute.

But if transferor intended an immediate interest in that property, then this is a present

transaction; in order to be effective, it will need to comply with the law of deeds/trusts/gifts, etc.

and will be measured against those requirements. Default will be residuary of will or intestate

statutes.

MODEL WILL (testamentary instrument): This is a simple will; complexity comes when 1) there

is multiple contingent gifts and 2) a trust contained within a will (testamentary trust). We’ll look at

essential elements and desirable, but not essential, elements

Introductory Clause: “I, Lydia.” Sometimes this is known as the exortium clause. It’s designed to:

• Identify testator: “I, Lydia.” But occasionally you see client with aliases – Jr. or III, with

middle name vs. middle initial. Use aka for aliases. Ultimately, when court enters the

decree, it needs all of the “also known as”

• Identify testator’s domicile: This is where the estate will be primarily/principally

administered and taxed. There may be ongoing ancillary administrations in other

jurisdictions, with taxes in other jurisdictions. Domicile is a matter or intent. it establishes

domicile at the point when this will was executed – important re: choice of law statutes

since can measure against those.

• Revocation of prior wills: This is an express revocation.

Articles I and II: The only dispositive (dispose of property) provisions of this entire will. More

specific gifts = more dispositive clauses. Followed-up by residuary clauses.

Article I: Tangible personal property: Property you can touch like household furniture, furnishings,

brick and brack, clothing, jewelry, cars, boats. Typically, this property does not produce income.

Everything is left per stripes to a class designation (no specific people are named). The property is left

to them outright – not in trust. Tangible personal property is not income-producing. Consider that

trustees have a CL duty to make trust property productive of income (used for benefit of beneficiaries)

intangibles are wasting assets (can decline in value). Trustees have a duty not to allow trust property

to decline in value. Exception: Where the person is creating a trust for minor children so they have a

place to live, that home needs to be furnished # this is where tangible personal property can be placed

in trust for benefit of minor children.

Article I, Paragraph two: Personal representative should resolve conflicting claims among

beneficiaries with respect to tangibles.

Article I, Paragraph three: Doctrine of incorporation by reference. [see later]

Article II: Disposes of everything else – intangible personal property like marketable securities,

stocks, bonds, notes, mutual funds, deposit accounts, interest in a business venture. This is typically

income-producing (dividends, profits) property. This stuff will be paid over to the trustee of Lydia’s

family trust; assumption is that she’s executing this trust simultaneously with the will. The money

made will be for the issue. In Clymer, that intervivos trust can be the receptacle of money coming

from other sources- like life insurance (life insurance trust arrangement). Also, in Clymer, all of

Professor’s pension benefits will be paid over to the trustee – 3rd source of property coming into this

trust (residuary under will, life insurance, retirement benefits, 4th source of property: she’ll execute a

power of appointment over a trust created for her by her late husband. This makes the assumption that

Lydia’s husband, who predeceased her, gave her a trust with a life estate, and upon her death, gave her

power to appoint where that trust property will go (Powers). Lydia’s husband, when he set up this

trust, could have said where the property was to go when she died (ex: to her issue); but instead of

making that decision, he gave her the power to say where it could go. This is what she’s doing here –

disposing of the trust.

This scheme for articles I and II – tangible personal property in 1st, then intangible – is like Clymer v.

Mayo case. Assumption is that this testator executed an inter vivos trust simultaneously with the

execution of this will. The residuary of this will – article II – will pour all of the intangible personal

property into the inter vivos trust (it has independent legal significance from the will but they are used

together). The purposes of that inter vivos trust is to manage the property on behalf of Lydia’s

children and grandchildren – which is one of the purposes of trusts. Property will pour out of her

probate estate to go to that trust.

There is an alternative to the Clymer arrangement – will and trust standing side-by-side – each with

independent legal significance but working together to establish a scheme of post-mortem property

distribution. The alternative is a testamentary trust – the trust is part and parcel of the will (in the

will). In contrast with inter vivos trust, which is a free-standing piece.

Article III: Omitted child provision.

• This addresses all of the issues in the MA statute, MGL 191 s. 20. Provides for Issue – not

just children – since MA statute goes down to Issue (MA statute is really omitted issue, not

omitted child).

• Note the language when it says “when born.” Here, it doesn’t matter if born before or

after the will is executed or before or after death: many statutes limit after-born so this

covers that base.

• This language is also generic – omitting by class (class of children, class of issue) –

nobody is individually named here but you could also specifically name someone to be

omitted. Say that for purposes of this instrument, he shouldn’t be considered by

child/issue/heir-at-law/that he predeceased me, etc. You could also do it specifically and

use class designations.

• You didn’t really need this provision in the will since the property is going into her

companion trust and will be for the benefit of children, issue. If, however, I named my kids

in the will – Clyde and Chloe – and then along came Clint – then Clint could probably

claim. And even if you don’t name them by name, you might want this anyways to take

care of the person who comes in post-mortem and claims to be the long-lost bastard child

and wants to claim a share (hoping you’ll buy them off) – and language like this will take

care of that bastard.

• 2nd Admonition: Omitted Issue Provision should be included in every instrument as

your own default.

Article IV: Powers clause. Grants powers to the fiduciaries who will be working in this will. Many

powers are granted to personal representatives by statutes – ex: the power to sell personal property

(because needs it to liquidate, to pay debts and expenses). But other powers are rarely in the statute –

such as the power to sell real property. If there were a testamentary trust in Lydia’s will (there’s not),

then many powers are given to the trustee as a matter of law – these are called the Implied General

Powers.

Testators will frequently augment the power conferred by statute or operation of law. Why? What

happens if Personal Representative, for example, needs to take an action to properly administer an

estate and they don’t get that power. Example: Personal representative needs to sell real estate to pay

debts and expenses and statute doesn’t confer it, neither does will – personal representative will have

to go to court and that costs time and money – will come out of pockets of residuary legatees. So

testators will frequently grant extensive powers to executors or trustees to do all that’s necessary to

carry out their intent. How Sandoe says to draft clauses: Put in every conceivable power!! In

general, you should put in EVERYTHING as boilerplate and then chop down what you don’t need.

It’s better to draft big and draft down.

Article V: Tax clause. This is an important, desirable function, but not required. It provides who will

bear the burden of the taxes of that estate – the transfer and estate classes.

• Here, all estate taxes – probate and non-probate assets – are to be paid as expenses of

administration. The bases for this federal estate tax – based on control that decedent had

over the property, not the form of ownership (probate vs. non-probate). Many testamentary

substitutes are includable for federal tax purposes. Here, burden of all taxes will fall out on

the residuary beneficiaries since will be paying as part of expenses of administration.

• Almost all jurisdictions have Tax Apportionment Statutes – apportion tax burden on

various assets that are subject to the tax. Each asset bears the burden of its proportionate

share of tax, regardless of whether it passes under or around the will. This is a default. MA

has an apportionment statues – MGL 65 s. 5. But this is a default and testator can draft

around – place burden of taxes on whomever he wants. Suppose that Lydia has life

insurance, payable to a named beneficiary, her mom. She didn’t want that property to be

diminished by taxes in her estate. She can set it up so that it passes to mother, free of tax,

because other beneficiaries will bear the burden.

• Personal representative is given the authority to defer the payment of estate taxes. This

could be an issue if the estate is illiquid (lots of assets are not readily liquidated but

includable for determining the type of tax). This will make sure that assets are not

liquidated at a loss. Federal law provides for this but it’s better to include in the will.

Article VI: Disclaimer. It authorizes a beneficiary to disclaim and says where it has to go – good to

include. She did not have to include disclaimer – you don’t need to be given this right, you have it as a

matter of law. But this provision says what to do in the event that there is a disclaimer – it can be

whatever testator wants it to be. Here, it will pass to issue, then living, and if not, then to the heirs.

Could the disclaiming person say where they wanted it to go – disclaiming in favor of __ – but nope,

because this is like assignment (creditor consequences). Without a disclaimer clause it will go to

residuary, and if residuary refuses, then follow intestacy.

Articles VII and VIII: Definition provisions – they define terms.

• Words can mean different things to different people, particularly when used in different

contexts. Ambiguity can arise as to testator intent, and then we’d need to construe what

testator meant when he said … if we can construe it from extrinsic evidence that’s

admissible. This takes time, money, etc. Testator can define the term as it is normally used

– “the term child means my blood children.” But testator can expand definitions – like

step-children – or make it smaller – to omit the avaricious bastard Clyde.

• At what point in time do we apply the definition of “child” or “issue”? When does the class

of children close? Death (this is the rule of convenience – and also true for heir-at-

law/intestate). It could also be at the time of distribution. Suppose Clyde, Chloe, and Clint

were all alive when I died, but that Clint died before distribution – so Clint doesn’t get any.

Another possibility – but probably not – is at the time when I executed the will. Class

designation allows flexibility – admit new members, drop out people who die. Say when

you want it to be – date of death. (Trusts: Distribution Dates and Class Closures)

Article IX: Personal representative. Nominates executor and temporary executor. Always

subject to court appointment. Mom is nominated. A well-drafted will ought to provide for

succession; you can provide for multiple people, in sequence, to serve as successor – because of

predeceasing, don’t want to serve, might not survive/be able to complete the administration. So,

provide for succession, It also authorizes an individual to designate a successor, in the even that you

run out of successors so you don’t have petition the court. It also authorizes a temporary executor. In

the ordinary course of estate administration, it takes weeks to get stuff together, but you might have an

asset that needs immediate attention (fishmonger). MA provides for a temporary executor, as an

alternative for special administration – it has certain advantages. It also provides for exemption from

bonds, if the law allows. Bonds are court instruments that binds the personal representative to the

court and it is through the bond that the court enforces the duty of the personal representative. Some

jurisdictions allow dispensing with bonds if the law allows. In MA, everyone gets bonded. This will

also provides for exemption from sureties – a person or corporation who stands behind personal

representative and guarantees them. In almost all jurisdictions, sureties can be dispensed with if

testator says so (not binding but an important statement of intent).

Liability limited to personal acts and omissions, not the actions of co-fiduciaries/co-executor. (See

trusts).

An executor is defined to include “administrator with the will annexed.” Personal representative is

the generic term – executor or administrator are usual terms. “Administrator with the will annexed” is

applied in a certain factual situation. Suppose that there is a nomination for a personal representative,

and that there are 1+ alternates, and suppose we run out of nominations but there are still assets which

must be administered. We need to find someone to finish the administration of the estate but this

person was not named in the will, so is a legal stranger to the decedent # this is administrator

C.T.A. (cum testatmento anexo) = administrator with the will annexed. This extends all the benefits of

an executor to someone that the testator did not know.

There is a provision here which dispenses with necessity of GAL for beneficiaries that are unborn and

unascertained – someone with a future contingent interest that had not been born but has a protectable

interest. Ex: Suppose Lydia’s trust, where all this property is going, sets up a trust for one of her kids,

(Income to the kid; remainder to his children then living). This class will close – kids will be

ascertained – at his death. But, today, we need to render an account – but we don’t know who those

beneficiaries are. Who protects those interests – a GAL. A GAL is appointed to represent the interests

of these minors and unborn children. This is time-consuming and expensive – this expense can be

obviated, if the law allows, if you say that GAL is not required.

8/20/07 2:00 PM

Next time: Revocation, Amendments, Interrelating testamentary and inter-vivos transactions, read all

statutes and cases; he’ll consider revival# someone has a will, they revoke it, and for whatever reason,

they want it back again # 3 mechanical measures, a couple of doctrines # doctrine of revival and

conditional revocation (Timberlake and Carter)

Sandoe will put a memo on TWEN page to complement class presentation

Interrelating testamentary and intervivos transactions: Doctrines that represent a significant relaxation

of these rigorous provisions of will statutes:

• Provisions of will be in writing, signed by testator before witnesses who sign

• Incorporation by reference, non-testamentary acts, and (Clymer) pour-over trust

o What do these doctrines do and what is their impact on wills? In Clymer, focus on 2

issues:

! The impact of divorce on wills as well as on the pour-over trust (intervivos

companion trust)

! Amendment: The will is pouring assets over into the trust. The executor of

the will will ultimately distribute property from the estate into intervivos

trust for purposes of estate management. Can you amend this trust after the

execution of the will, without going through all the statutory formalities

required for wills? Trusts don’t need to be executed with the same degree of

formality; they can be oral. But if you amend the trust, then you’re

effectively amending the will.

o Doctrine of equitable election? Wills are designed to dispose of probate/estate

assets; might a will be utilized to dispose of non-estate assets? Yes, under certain

circumstances.

o Contracts to make a will: Persons entering into a K to make a particular will with

particular provisions. You can do this. What is the relationship between such a K

and the will?

==

Model Will:

Article 10: Guardianship provision. This is not required, but highly desirable. Mom is nominated to

be guardian of both the person and property of minor children. This is a useful function of a will. But

this nomination is subject to court confirmation – the court has to confirm the nomination in the form

of a decree of appointment. The nomination is not binding on the court, because the bottom line is

what is in the best interest of the kids – but it is an important statement of intent. It’s likely that this

person will be appointed, unless someone objects and has a good reason why not.

Biological parents and adoptive parents are the natural guardians of a child’s person – but nobody is

the natural guardian of a child’s property until they are appointed by the court of competent

jurisdiction (here: the probate court). It’s common to combine functions of guardian of person and

guardian of property but it’s also common to separate them. Ex: Mom might be appointed guardian of

the child’s person since she’s warm and fuzzy and will take good care of them; but she may not be a

money-manager, so someone else may be appointed guardian of the property, such as a brother.

• Why have a guardian here? Since, the trust will manage property on behalf of her children

and other issue, during their minority and thereafter. But if trust does this, then why do we

need a guardian? Because that may not be the only property coming to them. For testator’s

purposes, all the property will go into trust, but what if they are beneficiaries of someone

else’s will during their minority?

• Authority to designate a successor. As in all fiduciaries – executors, trustees, guardians –

you must take into consideration that they might not be around to do/finish the job. So you

need some kind of succession. Here, brother is authorized to nominate someone to do that.

Testamonium clause: “In witness thereof, I, Lydia…” – functions:

• This dates the will

• How many pages are in this will

• Where that will is executed – this should be included to establish a place of execution, so

you have a statute, against which to compare, to determine if it was properly executed. If

you have a choice of law problem, it can be very important. Here, this is absent – but its in

the self-proving affidavit (which, if done at same time, says where it was executed).

• She signs it.

• Immediately below her signature is the “attestation clause.” It’s not required, but it is very

important since its recitation can significantly aid the will-proponent in establishing that

will. It should set forth the facts of execution – it ought to recite the requirements of

the wills act: signed, sealed, published, declared, in the presence of us, in her request,

etc. Shifts burden to contestant.

Self-proving will affidavit: Not required, but highly desirable since it packages testimony and

preserves it for the probate process and allows that will to be admitted without any testimony at

the time of probate. Here, it’s drafted to comply with MA statute. Elements:

• Testator and all witnesses swear as to facts of execution and opinion in front of notary

public.

For alternate forms, look at memorandum and reading on reserve.

REVOCATION

There are 3 acceptable ways of revoking a will.

1. Revocation by a subsequent instrument, which either expressly revokes (like Lydia’s statement) or

impliedly revokes (Wolf case)

2. Physical revocation: Testator performs a recognized physical act with intent to revoke. This act is

either performed to the writing (“I revoke” on the face of it) or to the paper on which the writing

appears (rip).

3. Doctrine of Changed Circumstance: Life-altering event that will cause wills to be revoked by

aberration of law. Almost always revolves around marital status – marriage/divorce.

McGill: Revocation by a subsequent instrument. This is recognized by statute in every jurisdiction.

Testator wrote: Please destroy the will I made in favor of Hart. Signed – Ms. McGill. Issue: Did she

revoke her will? Court here said that her words indicated an intent to destroy the will with regard to

Hart, but not that the will be revoked, either at once, or in any way apart from the contemplated

destruction by O’Kennedy. She intended that O’Kennedy destroyed it, she clearly didn’t want the will

– isn’t splitting hairs to say that it’s not revocable because she didn’t say “I revoke.” Thought: In light

of the strictness of statutes in establishing a will, should any less be required to revoke one? Statutes

with respect to execution are very specific, unqualified, formal, intended for literal compliance – so too

are statutes re: revocation to prevent a mistake. To successfully revoke, you must specifically

comply with the statute, fulfill all requirements literally. Policy balance: Rather have you die with

a will that you didn’t want than a will that …

Suppose that McGill had just finished reading Sandoe on Wills and wrote the note more explicitly – “I

hereby revoke the will I made in favor of Thomas Hart. Signed – Ms. McGill.” Then she showed 2

people the note, and sent them packing to O’Kennedy’s office. Is this sufficient since she said “I

revoke”? This clearly states her intent, but is this enough? You need to prove a will by at least 2

witnesses – just her signing the note won’t cut it. All jurisdictions permit revocation by a

subsequent instrument, but all or almost all require some formality. Just the signing of the note

alone is probably insufficient.

Suppose she duly executed the note. “I hereby revoke the will I made in favor of Thomas Hart,”

signed in front of required number of witnesses, they sign, they go to deliver it to O’Kennedy.

Most likely, this is sufficient. But there is a jurisdictional variation: Not all statutes provide for some

other writing. All jurisdictions provide that a will can be revoked by a subsequent will, but not all

jurisdictions add “or some other writing in addition to a will” – meaning that only a will could be an

acceptable way to revoke, so a note wouldn’t cut it. Find out what qualifies – will only or other

note. On the basis of that language, would McGill’s note serve as revocation?

Wolf: Implied revocation. Testator executes a couple of will. In will 1, he devises a parcel of real

estate to a named devisee. In will 2, he leaves all of his effects to his brothers and sisters. Issue:

What’s impact of will 2 on will 1? Can these two wills be read together and read consistently or will

the 2nd one serve to revoke the first one by revocation?

• Suppose Wolf’s second will said “I give and devise all of my effects to my brothers and

sisters.” When I hear “devise,” this means “real property” but this probably isn’t the case to

a non-lawyer. “Affects” probably conjures personal property, but, in his mind, it may have

included realty. If he intended real estate, then will 2 would have revoked will 1 by

revocation. Here, there is no express language of revocation – no “I revoke.” What to do:

Construe the language to determine whether there is an inconsistency – this is called

implied revocation. Implied revocation is problematic.

• Suppose I duly execute will 1. It has these provisions in it: I leave $10,000 to kid Clyde,

100 shares of ventures, inc. to daughter Chloe, and leave Blackacre to companion Claire. I

nominate Chloe to be my executor. Subsequently, I duly execute will 2, and it has no

express language of revocation in it. 2nd will: $5,000 to kid Clyde (lesser amount), 200

shares of ventures to Chloe (greater), and Whiteacre to former spouse, Patience. After

death, both wills are found. After D & E, net probate estate consists of $50,000 cash, 300

shares of ventures, Blackare, Whiteacre, and Crimson Hall. How will these assets be

distributed. Focus on individual beneficiaries.

o Possibilities: (a) Substitute will 2 for will 1 or (b) Cumulative: combining the two

wills. You should say, “I intend the provisions of will 2 to be instead of will 1”

or “I intend these provisions to be in addition to.” But if don’t say, is there a

presumption? Yes- presumption favors accumulation, but it’s a rebutable

presumption.

o Nothing is inconsistent re: Whiteacre and Blackare.

o So these wills can be read together. What about Crimson Hall and $35,000. It will

go intestate since no residuary clause nor any specific clause specifying what’s to

happen to Crimson Hall or $35,000. This is why you should have a residuary

clause – assets shift!

• Let’s add a residuary; $5000 to Clyde, 200 shares to Chloe, and residuary: all rest and

residuary of my estate to former spouse, Patience. They could be read together, but

Blackare might pose a problem. Couldn’t residuary in will 2 be read to dispose of anything

not otherwise disposed of and Claire gets Blackare. Yes, but some statutes, like UPC, say

otherwise. Patience will argue that she gets residue, and that includes Blackare. So

you should say it so it does not go either way.

• Until now, they’ve been partial revocations by implication. Suppose will 2 has these

provisions: I leave all of my cash, shares of ventures, and all of real property to my nieces

and nephews in equal shares. Can these two wills be read together or does the 2nd one

completely revoke the 1st one. No way to read them together with regard to gifts – but

what about non-dispositive positions – the administrative positions. In will 1,

nominated Chloe and this doesn’t change.

All jurisdictions permit revocation in whole or in part by a subsequent will or codicil which has

inconsistent provisions – no express clause is required. This is why we call it “implied

revocation.” You have to look at the language of the 2 wills to determine whether there is an

inconsistency – can they stand together, or does the later one revoke part or all of the earlier

one? It becomes a matter of construing testator intent – construction. Constructional preferences:

1. The last valid will is going to be effective in any event

2. Wills stand together to the extent possible. Sometimes, presumptions help you with that, like

presumption of accumulation. But when there is an inconsistency, the provisions of the later one will

prevail. But is there an inconsistency is the question. Courts have varying approaches – some are

mechanical, some try to inquire into intent via admissible evidence. Which is the last will becomes

very important.

• Today, I execute a will – “I execute this will, as in for, my last will and testament.” Is this

good? I said it was and it is my last will – until I make a later one and say it again, and then

that’s the last one, and so on. How do you establish which is the last one? Dates – they tell

you priority, order when there is more than one. If they are not dated, court will have to

determine the order from admissible evidence, and this takes time and money.

• So – practically – leave nothing to implication. If going to revoke, say that you are

revoking expressly. If it’s going to be an addition, say that too.

Physical Revocation

McGill: Why is it that O’Kennedy did not revoke per the instructions sent over by McGill. Since he

was in the hospital. Suppose he’d been there when the note arrived, and did what she told him to do –

took out will from safe and ripped it and threw it out in trash. Would she have been good then? No,

because it has to be in her presence. Could she have revoked the will by herself out of the presence of

witnesses? Yes, she can revoke the will all by herself, with no attesting witnesses – but while this is

allowed, it can be problematic. Revocation by physical act is permitted in all jurisdiction and

Thompson case shows one act. In Thompson, testator had a will and codicil and she wanted to revoke

it so she wrote on blue cover, “this will is null and void.” Intent was proven. But was the act

sufficient? A blue-backer is a protective covering, used by attorneys to encapsulate the will and is

attached to the will. What tends to be inscribed on the cover? Name, address, phone number of

drafting attorney. But the blue-backing is not considered a physical part of the will – its just a

protective cover. The court held that the intent was there but that the act was not sufficient – it

must affect the writing or the paper itself. Elements are required for physical revocation: Intent

coupled with the simultaneous, physical act (some jurisdictional variation on the physical act –

cutting, burning, obliterating, destroying, etc.)

Suppose that I’m cleaning my desk, and I realize that I just ripped up an envelope with my will, and

then I die. Has my will been revoked as a matter of law? No, since no intent. Presumption: When

that will is found, torn in half, beneath my body? That I tore it up with intent – but I didn’t. Here is

where the danger lies – if witnesses had been there, they could testify as to lack of intent.

Same desk, same spring cleaning, and I open the will, I’m going to call my attorney. I rip. I call and

she’s on vacation. I scotch tape the will together. Here, it was revoked since intent coupled with the

act. The scotch-tape is not enough.

Suppose in Thompson, VA allows holographic wills. It also provides for holographic revocations.

Holographs require that it’s written and signed by testator and here, she didn’t write the note since

someone else did. She just signed. But suppose she did write it – would it work then? Yes, as a

holograph. But it doesn’t make sense to have a lesser form revoking a more formal form (attested

will) – this could be an issue # depends on jurisdiction.

Suppose my house burns down, with me and will inside. Has it been revoked? What if I intentionally

set the fire, with intent to burn the will – then yes. Otherwise, probably not revoked since no intent.

Accidental destruction. Attorney has a Xerox copy – can she have the Xeroxed copy admitted to

probate? No; the only will that can be admitted to probate is the original will signed by testator.

• Does that mean practically, that a lost will is revoked? No. That Xeroxed copy can be

used – can be introduced of proof of the contents of will in a proceeding to establish a lost

will.

• Suppose, against my advice, the attorney did not retain a copy. Could the contents be

proven orally by the attorney? Yes, if her testimony was clear, convincing, and free from

doubt. Depends how much is boilerplate – in Lydia, 90% is boilerplate so she says that she

used form A, with those standard provisions, and use her notes re: dispositive and

administrative provisions.

• What’s actually being admitted to probate? Nothing. The will was duly executed, not

revoked, but we just don’t have a physical will itself. We’ll prove the contents, either by

Xerox or oral testimony. But, before we can do this, we need to:

o Prove that the will existed – attorney can do that

o Prove that it was duly executed – attorney can do that

o Account for its lost

! Suppose we can’t account for its absence? Presumption is that I destroyed it,

with intent to revoke. Strength of presumption depends on degree of control

I had on it, and access that other’s who would benefit had to it. But this

presumption can be overcome via oral statements. Or my age – like Beal –

who keeps checks among NY Times on floor.

! Suppose in the first interstate case, daughter comes over to find dad dead.

She rips the will in half and places it around dad and calls EMT. When

EMT arrives, she says, look what daddy did to his will before he died. He

didn’t revoke. And he could have revoked without witnesses. Presumption

is that he did revoke it – this is why physical revocation can be problematic.

Suppose I execute 2 originals since I want one and I want my attorney to have one (this is bad). My

will leaves everything to Claire. Then she decides to trade up. I rip up the will. Is my will revoked? I

destroyed it with intent, but since I didn’t tell anyone about it. Attorney can say, I have another

original, I can have this one admitted to probate? Nobody knew, so this can happen.

Same scenario but only 1 copy and it’s with attorney. Attorney is away for the month. So I rip up my

Xeroxed copy. This does not constitute revocation, does not extend to original. The act has to be

performed to the original document itself.

Revocation by operation of law: Statutes.

• All but a handful provide for divorce, absent testator’s intent to the contrary (this may be

part of divorce agreement).

• A handful of jurisdictions say that marriage revokes a will, unless the will is specifically

made in contemplation of marriage. Couple are about to get married, want to execute

wills before marriage and honeymoon. The marriage would revoke the will, unless they

execute the will in contemplation of marriage (but this usually needs to be expressly stated

in will itself).

Partial vs. Complete Revocation

• By marriage: Revokes entire will.

• By divorce: May be partial or complete revocation – depends on facts. These statutes

treat the ex-spouse as if s/he predeceased testator. Issue: If the ex was it, the only

beneficiary, and the only person nominated in a fiduciary capacity, then this constitutes a

complete revocation; but if there were other beneficiaries, then it’s only revoked re: the ex.

What decree? The final divorce decree (not the provisional decree).

What if the divorced spouses re-marry each other? When they divorced, it was as they pre-deceased,

and if they remarry, it was as if they were re-born and all provisions come back.

Pour-over trust: (Clymer). Divorce revokes provisions for ex in the will, but do we extend that to

the pour-over trust and the provisions in their for the ex-spouse? Clymer says, yes, under

certain circumstances. What are those circumstances when pour-over trust will go down too?

It’s a doctrine of presumed intent. But shouldn’t this be a rebuttable presumption. This is what Riley

said. She said that only presumption, she had evidence its what she wanted. NJ refused – it’s the

intent of all testators that it’s irrebuttable.

• Suppose after they divorced, they got back together but didn’t remarry. Most likely, he

wouldn’t have wanted that will to be revoked. So its dangerous to say revocation by

operation at law and dangerous to say that everyone wants this.

• When you get married/divorced, focus is on that – not on the will (unlike physical

revocation, etc.).

Partial revocation:

Partial revocation of a single instrument:

• Does the statute authorize it? Not all statutes do.

• If the statute does authorize partial revocation, by the technique used – physical,

subsequent, changed, has the revocation happened, and if so, so what? What’s the impact

of the partial revocation on the rest of the will? Bigelow focuses on revocation by a

physical act. It has its problems.

o Suppose you have a testator, Donald, who is unmarried. Donald duly executes a

will, with a couple of dispositive provisions. Article I: Donald leaves Blackacre to

Huey and Duey, in equal shares, as T/C. Article 2: Residue to companion Daisy.

Donald then changes his mind. He takes a pen and obliterates the names “Huey”

and “Duey” so not it reads, Blackacre to my nephews, as T/C – there were 3

nephews (Louis).

o Suppose Donald executes a will. Article I: He leaves $30,000 to be divided among

Huey, Duey, and Louis, in equal shares. Article II: residue to Daisy. Donald has a

change in mind, obliterates a “0” so now it’s $3000 to H, D, and L.

o In both of these cases, has there been a partial revocation? If so, what’s its impact

on the will?

8/20/07 2:00 PM

Read all cases and statutes in section on change. Changes: with respect with property and

beneficiaries; ex: Property you owned when you executed your will may not be owned by you when

you die; new beneficiaries may be born.

Key time frames:

• Intervivos period: time between execution of will and decedent’s death (can be years)

• From death to the time executor delivers property to beneficiaries (probably a couple of

years).

How does executor respond to changes?

• Can you provide for it? “Blackacre to Claire. But in the event that I don’t own, then…”

This is contingency planning.

• But if testator doesn’t provide in his will, then use rules of construction.

See memorandum on TWEN for reading in Little Red Book.

We concluded our consideration of Complete Revocation and started Partial Revocation.

Partial Revocation of a Single Instrument: There are 3 issues to consider:

• Does the statute authorize partial revocation by the technique used – physical, subsequent

instrument, changed circumstance? If so, has a partial revocation in fact occurred? If it

has, so what? What’s the impact on the will itself?

Bigelow considers partial revocation by a physical act.

• Example 1: Suppose that we have a testator who duly executes this will: “Blackacre to my

nephews, Huey and Duey, as tenants in common, equal shares; residue to my companion

Daisy. Subsequently, testator changes mind, obliterates names “Huey and Duey” so it reads

“to my nephews, as tenants in common. Donald has 3 nephews: H, D, and Louis. Has

there been a physical revocation in part – and what’s the impact on the rest of the will?

• Example 2: Donald leaves $30,000 to be divided equally among 3 nephews, H, D, and L,

and residue to Daisy. Has a change of mind and obliterates a “0” so it’s now $3000 to be

divided among nephews in equal shares. Has there been a physical revocation in part – and

what’s the impact on the rest of the will?

• Where physical revocation in part is permitted by statute, it will be allowed if the effect is

to revoke, as in example 2, since there Donald is reducing the legacy from $30,000 to

$3000. Is striking the name a revocation? It looks like a revocation until you apply to

extrinsic facts # here, it’s not a revocation but rather an additional devise. To add an

additional devisee you need to have witnesses – must duly execute an amendment (codicil)

or redo the will, with all the necessary witnesses. Adding is not revoking – can’t add a 0 to

$30,000 so $300,000 either.

• What’s the impact of Donald striking a $0 # $27,000 goes to residue, thereby increasing

Daisy’s share. Is there a distinction between the residue on the one hand and specific and

general gifts on the other? Yes: specific gifts and general gifts are fixed – Blackacre to

Claire, $30,000 to kid Clyde; but the residuary is not fixed since it’s in constant flux.

Suppose H, D, L all predecease – then their gifts will go to residuary unless otherwise

provided. Residuary is prospective in character – constantly in flux until paid out – so

it’s OK that residuary amount changes.

• Not all statutes authorize partial revocation by a physical act – look for this. Look for

language “a will or any clause/part can be” revoked – without this, courts won’t

recognize an attempted partial revocation by physical act.

• Look at 3 statutes: NY, MA, UPC with this in mind – by a strict reading of the statute, can

you or can you not partially revoke by physical act.

• What happens if testator tries to partially revoke by no statute – what will court do? If

words that were stricken can be read, then they will be admitted to probate – attempt will be

ignored. But what if they can’t be read since totally obliterated? Then court has to accept

the partial revocation since it won’t reject the entire will. This is difference between

canceling (still readable) and obliterating (can’t read).

Partial Revocation by subsequent instrument: Chamberlain:

Suppose I duly execute this will: “$50,000 each to Clyde and Chloe; residue to Claire.” Subsequently,

I duly execute a codicil, where I leave Clyde and Chloe $25,000 a piece and that the composition of

my assets looks like: A time that will executed, estate was worth $250,000; estate doubles by time of

codicil to $500,000; by the time I die, doubles again so it’s worth $1 million (this is Wolf case revisited

in partial revocation – 2 bequests to same people in different instruments). Presumption favors

accumulation absence express language to the contrary. But it’s a rebutable presumption. Here,

it wouldn’t be reasonable to mean cumulation if assets shrinking; but if assets were growing, it

would be reasonable. You should say one way or another – because otherwise you’re stuck with

presumption and they’ll fight about it. Say that these gifts are to be “in lieu of” – this would be

substitute – not cumulation. Suppose when Claire and I go to estate planning attorney, say that I want

less to kids and more to Claire but this never went in writing. Post-mortem, can Claire bring this up to

rebut the presumption? Absent a provision in the will, testator’s statements are a good show of

intent – but are not directly admissible since you can’t orally amend a will. This statement would

be excluded as a direct statement; but it might be admissible indirectly to show my knowledge of the

surrounding circumstances. Wills are executed with certain facts and circumstances; if my assets were

diminishing, would it be reasonable to believe that testator intended accumulation?

What if all this happens in a single instrument? Suppose I have a will with many dispositive

provisions in it, followed by a residuary clause. Suppose in article I, I leave Claire $50,000 and in

article II, I leave her some marketable securities (PDQ shares). Result? Is it cumulative or

substitutional? The residuary legatees will bring this up, arguing that substitutional; Claire argues that

cumulative. The presumption is that where the property is of a different nature – cash vs. securities,

the presumption favors cumulation; but where the gifts are of a similar nature – cash, cash –

then the presumption is that it was a mistake so it was substitional. You could draft, in article 20,

“I leave this in addition,” but this is messy. Rather, it’s preferable to bunch the gifts around the

donee – one article with all the gifts I want to give her: Crimson Hall, cash, and PDQ shares.

What if you give the same piece of property away twice? Suppose I execute a will. Article I says “I

devise the real property, known as 190 Tremont St., to Clyde; Article II says, “I leave the property

described in deed, registered, etc.” This is the same property – misdescribed – given away twice.

So: check your deed. Courts go every which way about this – some give it to the second person on

theory of implied revocation, others give it to the first one on grounds that 2nd one is a mistake, others

give it to both as T/C, others give a life estate to the first and a remainder to the second, others run it

out through residuary or intestate statute.

Can you revoke a will in part by changed circumstance? Yes – this is divorce. To the extent that the

will has provisions other than the ex-spouse. This is partial revocation by doctrine of changed

circumstance.

-

Revival: What happens if testator wants his will back? Suppose testator completely revoked by an

acceptable method – and then he wants that will back again? There are 3 mechanical measures for

doing revival and some doctrines.

Mechanical measures:

• You completely re-execute that will again. Hit “print again” and completely redo it.

• Testator re-executes that revoked will a 2nd time. This is marriage.

• Testator executes an amendment, a codicil that serves to revive and republish that revoked

will.

All 3 of these have a complete execution with witnesses and 9 yards – testator’s signature, witnesses.

Two Doctrines: Doctrine of Revival and Doctrine of Conditional Revocation.

Revival by a Codicil:

• Codicils primary function is to amend: A codicil is, in effect, an amendment to the will.

As an amendment to the will, it has to be executed with all the same formalities – signed,

properly witnessed, etc. Codicils amend wills any way testator wants: increase a gift to

beneficiaries, add a legatee or devisee like Louis, change around the fiduciaries, take

testator out, change guardians, change testamentary trustees, revoke provisions completely

or partially (reduce). It’s better to revoke via a completely new will or via an amendment.

• Codicils can also be used to revive a will: Suppose Donald executes a will while

unmarried, leaving his entire estate to his nephews, in equal shares. Donald and Daisy

marry in MA. Following the marriage, Donald duly executes a codicil, which provides, “I

hereby provide, republish, and reaffirm the will executed by me on such date in its entirety.

Signed, Donald.” The will before their marriage was good, was revoked by marriage, and

revived by the codicil. But what about Daisy? She’s not in the will. She can elect. Donald

could add her in a codicil.

• Codicils can also “amend and revive together:” Following the marriage, Donald duly

executes a codicil: Article I: I leave half my estate to my spouse, Daisy. Article II:

except as provided in this amendment, I revive the old will; so, he

amended and revived will at the same time; he has cut the legacies to

nephews in half.

• Relationship between a will and codicil: A codicil amends – there is a dependence. The

codicil depends on the will. If the will is revoked, the codicil will go down too. What if

you have a will and codicil and testator rips up codicil? Will does not go down too. The

revocation is of the amendments.

Beale (revisited): He executed the will during a party. When Beale took his buddies in the other

room, one of the 3 witnesses passed out on the bed and nobody else noticed # so it was executed with

only 2 witnesses. He notices this when on plane to London. He goes to embassy and executes a

codicil with requisite number of witnesses. Is this OK? Some jurisdictions say OK, others don’t since

that will was never a valid instrument. Preferred practice: Do it all over again!

Suppose that it could be proven that Beale made changes on the London flight. This is an unwitnessed

amendment. He goes to embassy and asks for codicil to be drafted: “I hereby republish the will

executed by me in NY, June 21, 1959, as amendment (republish as amended by pencil changes). This

is OK since he had the witnesses witness after those changes were made.

Doctrines apply to different situations: one or other may be applicable, or neither.

• Doctrine of Revival: Suppose I have a duly executed will, wherein I leave my entire estate

to my companion, Claire, and nominate her as my executrix. I specifically omit to provide

for my children, Clyde and Chloe (omitted issue language) since I’ve adequately taken care

of them during lifetime – trusts, life insurance, gifts. This is fine until Claire decides to sail

away with another guy. I execute a new will wherein I leave everything to Suffolk Law and

nominate Kindregan as executor. I omit to provide for my kids for same reason. This will

revokes the first will. This exists until Claire comes back. I rip up the Suffolk will. This is

the situation that exists when I die. What’s the issue? Did the revocation language in will 2

revoke will 1 or no? If no, the Claire will stands and nothing for Clyde and Chloe. If yes,

then intestate and Clyde and Chloe take. You want to know: when does the revocation

that is contemplated in will 2 become effective? Options are: right away, upon

execution of the Suffolk will or at death.

• Suppose between the time that I execute the Claire will and the Suffolk will, Claire and I

marry in MA and she still sails away. When does the revocation by changed circumstance

take place? At the time of the marriage (not death).

• Suppose that when execute the Suffolk will, I tear up and flush the Claire will. When does

revocation by a physical act take place? At the time of the physical act (not death).

• What’s the status of will one? The question is when does the revocation happen: at

time of act or death?

• Original example – revoke by subsequent instrument: Take out revocation instrument in

will 2. This would be implied revocation – revocation by subsequent inconsistent

provisions.

o CL approach: Focus is on ambulatory nature of wills – the execution of a will

has no immediate operative effect; it doesn’t become effective until you die and

it’s admitted to probate. So when you execute a revoking will, it has no

immediate operative effect nor independent significance. If the Suffolk will

(revoking will) is itself revoked, it never revoked the 1st will.

o Ecclesiastical courts: Revocation happened immediately upon revocation of 2nd

will. But when I revoke the revoking will (the Suffolk will), the question is whether

you wanted to revive the Claire will? If so, you get it back. Evidence is freely

admissible on intent to revive.

o American courts have followed different approaches – CL, ecclesiastical, some

distinguish between express and implied revocation. As a consequence,

jurisdictions have sometimes passed statutes providing: No revival (must

completely redo the will); others, like UPC, say, “No revival unless it was intended

(and you can intend to revive.”

Testator duly executes will 1 (Claire); testator duly executes will 2 (revoking will – express or

implied). Then, testator rips revoking will with intent. By CL view, there was never a revocation,

since it couldn’t take effect until death. By ecclesiastical view, there was revocation as soon as

executed the Suffolk will; but when revoked Suffolk will, the question becomes whether you intended

a revival. Look at intent.

Doctrine of Conditional Revocation aka Doctrine of Mistaken Revocation

This doctrine effectively ignores an otherwise-valid revocation on presumed grounds that it was

a mistake. Testator would never have revoked that will had he known that a subsequently planned

will would be ineffective. Elements: Will 1 is duly executed. Then, will 1 is duly revoked – ripped

with intent. Will 2 is contemplated, but never effective. Intent: Revocation of will 1 is so closely

related to the making of will 2 that it’s dependent upon it’s valid execution, which does not happen.

Example: My will leaves everything to Claire and names her as executor. Claire then tells testator, it’s

not right that you’re not leaving anything to your kids. I rip, call attorney and say that I need a new

will with $50,000 each to C and C, PDQ, and Crimson Hall; everything else to Claire. Attorney says it

will be ready the next day but I die beforehand – here, courts will ignore the otherwise-valid

revocation of first will and give the will effect on the grounds that first will is what testator would

have preferred; he’d rather have that will than die intestate.

But this is not applicable in all situations – presumed intent – if wouldn’t have wanted it back, then

won’t. I left everything to Claire, she sails away, rip, call attorney and want to leave everything for C

& C and to leave it in a trust until age 30. Attorney says she’ll have it for next day, but I die that night.

Would I want the first will back? No – I’d rather intestacy. Doctrine is not applicable.

Elements: Will #1 is duly execute, Will #2 is duly revoked, contemplating Will #2 – wouldn’t have

revoked without knowing that doing a will #2.

Inter-relating: Testamentary and intervivos transactions:

Beale: One issue was judicial integration – process of determining what writing is going to be

admitted to probate as physical parts of an attested will, when had multiple pages. This extends to

codicils – if the codicil is properly executed. All the pages of that will had to be physically present.

The will cannot go through without rigid formal requirements.

Move away from rigid requirements by integrating intervivos transactions in with the will itself.

• Incorporation by Reference. Bryan: This doctrine contemplates having an unwitnessed

writing be considered as part of the will. This writing doesn’t have to be present when

writing executed. If successful, then the writing will be considered as part of the will for

purpose of construction. Doctrine is recognized in most jurisdictions, but not without

restrictions. Lack of restrictions would invite fraud and undermine policy. So courts

developed a number of requirements to maintain control:

o Identification. Will has to refer to the writing with a reasonable degree of certainty

such that you can identify it. If it’s challenged, then you’ll be able to prove that that

is the writing the is referenced in the will.

o Time of Execution. The writing must predate the will, it must exist at the time the

will is executed. Some jurisdictions go further and say that the will has to say that

the writing was then existing at the time that will was executed. So testator can’t

amend without safeguards of formal execution procedures. If writing could be done

at any time, then testator could amend without witnesses and this would be bad.

o Intent. This requirement has 2 parts: Not only does there have to be a reference,

but there has to be clear intent to incorporate with language like, “In my will, I

provide, I hereby intend to incorporate the memorandum by reference executed by

me on 9/30/07.”

• What kind of writing can be incorporated by reference? Doesn’t matter – formal, informal.

It can be a dispositive instrument, like someone else’s will or K – with independent

significance of it’s own. Or, it can be a statute, like Judge Hastings. Ex: memorandum of

tangible personal property. Client wants to give away every last piece of tangible personal

property that’s in the house – this is problematic: it can get lost in translation, it’s

expensive to have a lawyer/paralegal draft this, list will change. So have client prepare the

memorandum and incorporate it by reference into the will. If changes – have them change

it – and make a codicil to give it full legal force and effect.

o There is an alternative to doctrine of incorporation by reference: Article I,

paragraph 3 of Lydia’s will; contemplates that testator can prepare this memo at

any time, and are asking people who are getting tangible personal property to

comply with it. It’s not binding since can do this at any time, there is no

requirement of pre-dating. So, only use this where you trust the people to do it –

moral obligation only (no legal obligation).

o Bryan’s appeal: When apply, it fails.

• Non-testamentary acts aka Acts of Independent Significance: This doctrine contemplates

having the identity of a beneficiary be determined by an intervivos act of testator that

happens after the will is actually executed or the identity of property – property identified

by an intervivos act of testator that happens after that will is executed. 3 examples:

o In my will, “I leave my automobile, such automobile as I own at time of my death,

to kid Clyde.” My purchase of that automobile after will is executed.

o “To Claire, such cases of scotch as I own at my death.” Acts of consumption and

purchase after I execute that will will determine what Claire gets.

o “$50,000 each to each of my employees at time of my death.” Acts of hiring and

firing determine.

o All of these acts share the following in common: There is a reason for them,

separate and apart from testamentary purpose. The purpose of those acts is not to

affect succession – buy car to drive, buy scotch to drink, employees to work for me

– There’s a reason for them, separate and apart from testamentary purpose; purpose

of act isn’t to effect succession.

o But some acts won’t do – like one in Hastings where the only purpose of the

memorandum is to affect succession.

o Close calls: I have 3 safe deposit boxes, in different boxes, filled with cash and

securities. The contents of 1 each goes to Clyde, Chloe, etc. You can change

disposition by changing around safe deposit box. Courts construe differently –

depends on how important formality is. Admonition: If you use an act of

independent significance, for it to past muster, make sure that there is a reason

for doing it.

• Pour-over cases and Clymer: Ability to amend a trust and impact of divorce. The will,

used in conjunction, with an intervivos trust, in a pour-over arrangement is one of the most-

commonly used estate planning devices. Typically, the intervivos trust contain the major

administrative and dispositive provisions – and into that trust flow assets from a variety of

sources for the purpose of a unified scheme. Clymer and example documents show this.

“Professor Mayo executes a revocable, amendable, unfunded intervivos trust.”

Simultaneously, she executes a will to dispose of all of her tangible personal property (non-

income-producing) to husband. The residuary clause pours over everything else to the

intervivos trust. There are no assets in the trust at the time of its creation; there won’t be

any assets in the trust until she dies – and then they’ll pour in from different sources – from

will. It will also be life insurance trust arrangement – Gordon. This trust is also

beneficiary of BU retirement benefits. Nothing in trust now; waits for her to die. MA was

one of first jurisdictions to recognize pour-over trusts. Pinion: They made trusts, and put

property in there right away (current assets) to manage that property until their death. H

and W duly executed wills to pour over other (not in trust) assets for when they die. The

issue was whether or not the trust into which the assets were going to flow from the will,

could be properly amended after the execution of the will, without going through all the

witnessing requirements (trusts have less formalities than wills). Typically, only trust-

maker and trustee sign the trust. In Pinion, H and W want to amend the will and trust so

they made codicils and amendments – but trustee didn’t accept until sometime thereafter –

so trust was amended without statutory formalities # problem. That will is pouring

property for management and distribution into the trust. Will is proper. Then amend the

trust # you ought to have the witnesses; since you don’t, it ought to fail. Pinion court

allowed it since “an act of independent significance – that trust had significance

independent of the will.” The same cannot be said of a Clymer arrangement since nothing

will come into the trust until death – no current reason for it; the trust just complements the

will # they work together for a post-mortem distribution of property.

• MA Uniform Testamentary to Trust Act: The will has to reference the trust, the trust has to

be executed prior or simultaneously to the will, then statute will give you ability to amend.

Divorce – what’s the impact on the trust? In MA, divorce treats the ex-spouse as pre-deceasing for

purposes of the will. Do we extend this to a companion trust? Clymer court did this – but look at

limited factual scenario – that trust has no independent significance. They are designed to work

together. Had this been a Pinion situation, where there were assets in the trust, would the court have

extended revocation by divorce to trust? No, that trust had a reason. Either way, those assets would be

divided as part of equitable property division.

What if spouses re-marry each other? In case of will, it’s reborn. In trust, it’s reborn too.

8/20/07 2:00 PM

Next time (Tuesday): Will Contests and Remedies – all cases and statutes. Focus on grounds for

contest – upon what ground can someone contest a will – screw ups, rogues, rascals, and remedies.

What’s the impact of a will contest on a will – does the entire will go down, and if so, what’s the

consequence. Or does only certain provisions – what’s the impact on the rest of the will.

Wednesday: Background on Trusts (no assignment for Wednesday).

==

Interrelationship between Testamentary and Intervivos Transactions:

Doctrine of Equitable Election: When you think of a will, what property do you think of it operating

on? Probate property/estate assets – not non-estate assets, unless one of the testamentary substitutes

fails, so it reverts (ex: gift that fails because of lack of proper delivery). Can wills dispose

(intentionally) of non-estate assets.?

Suppose Claire and I were married. We owned Blackacre tenants by the entirety. Could I leave my

interest in Blackacre, in my will, to Clyde and Chloe (kids of first marriage)? No – the tenancy does

not permit it # T/E has right of survivorship. Upon death of one spouse, title vests entirely and

exclusively with the surviving spouse – by operation of law.

Suppose I own some life insurance policies and have designated Claire as primary beneficiary. In my

will, can I leave the proceeds of those policies to Clyde and Chloe? The relationship between me and

insurance company is a contract and I can’t unilaterally change that. To change that, I’ll have to

submit a change of beneficiary form, requesting that it change from Claire to kids, and insurance

company has to accept that.

Suppose in my will, duly executed, I leave everything to Claire provided that you transfer Black Hall

to Clyde and Chloe and provided you transfer the proceeds of the life insurance policies to Clyde and

Chloe. If you don’t, then I’m leaving everything to Clyde and Chloe in my will. What’s the nature of

this gift? Conditional gift. Is there anything wrong with making a gift contingent or conditional? No,

so long as I don’t violate a rule of law or violate public policy. Suppose post-mortem, Claire brings

that will to you. Claire can elect against the will if she doesn’t want to deal with this – see which way

she winds up better. This is the doctrine of equitable election. I’m putting her to an election – if she

wants to take under the will, she’s got to give under the will (got to give to get).

Practical ramifications of Doctrine of Equitable Election:

• She can take this deal or leave it and elect against the will.

• Impact: Practically, I’m making her dispose of non-probate property in the will.

Schecht:

Contracts to make or to refrain from making a will: Focus is on a contract that is separate and apart

from the will (it’s independent – not interdependent – of the will). The K may have consequences.

You may have a will that’s in compliance or a will that’s not in compliance or no will at all. The

question is, what’s the consequence of all this?

Can you enter into such a K to make or refrain from making a will? Yes, provided that the terms are

certain and that there is consideration for the agreement. Kinds of consideration include:

• services to be rendered – ex: Claire agrees to care/support me in return for Blackacre

• conveyance of property

• marriage

• similar will (mutual wills).

How are these agreements breached? Failure to execute the agreed upon will, and testator dies

intestate, or leaving a will that doesn’t do what was agreed upon.

Suppose you have a will that’s not in compliance or no will at all? We probate the contract (admit K

to probate). Claire wants to probate that K if I don’t leave Crimson Hall to her since they’re not

married and she has no status and Clyde and Chloe won’t honor that agreement. She probably can not

probate that K, since it was not executed as a will – it will probably lack the formalities, lack requisite

number of witnesses, etc. Even if executed with all those formalities then the K still couldn’t be

admitted to probate for lack of testamentary intent since the agreement is contemplating a future

testamentary action – the K itself isn’t the will so it lacks testamentary intent.

• Suppose I left a will, with Crimson Hall to Clyde and Chloe; can Claire use the K to defeat

the admission of that will to probate? No, because the will is the will and the K is the K.

They are separate, independent legal documents, with independent legal significance. A

will, if validly executed, should be admitted to probate – it conforms with the law – even

though it violates the agreement. A will, if duly revoked, should be denied probate – since

complied with law of revocation – even though it violates the agreement.

• What’s the remedy? It’s not against the will, but rather against my estate for breach of K.

The will stands or fails based on law.

• Administrative problem: Most probate courts (courts of estate administration) don’t have

jurisdiction over Ks. So Claire would need to be an action in a court that had jurisdiction –

sue estate (executor) for breach – in superior court. If her K rights prevail, and she gets a

judgment, she goes to the probate court and claims as a judgment creditor. So, practically,

she needs to file a claim in my estate within that 1st year, and then commence in other court,

and then get it enforced back in probate court. At law, a promisee had basic remedies:

o Sue for breach and recover the value of the property

o Sue in quantum meruit and recover the value of the services.

What if Claire wanted Crimson Hall, and not the value of Crimson Hall? Can she get equitable

relief like specific performance? Courts are reluctant to grant specific performance – since law

allows me to revoke the will during my lifetime. Instead, courts grant a form of equitable relief

by ordering a successor in interest to convey. So, if I conveyed it in my will to Clyde and

Chloe, court lets that title pass so property statute works, and then court would order Clyde and

Chloe to transfer title to Claire so she gets it.

Mutual Wills and the Joint Will: These are frequently executed pursuant to an agreement to make it

and not revoke it.

• Mutual will: “I leave everything to you, and you to me, and if you don’t survive, then to

the kids.” Each person has their own, separate will.

• Joint will: 2 people execute the same will – 1 will for both of them. This is a bad

approach. When one dies, will is admitted to probate. When second one dies, will is

already there. What if second person wants to make a revision?

CHANGE

I execute a will today. It provides for gifts to named individuals, or individuals described by class. It

would be nice if this will would be executed just as I wrote it, when I die. But sometimes there are

changes with respect to property – the property named in the will doesn’t exist anymore, new property

has been required and with respect to beneficiaries – may have died or (if described by class) new ones

can be born. This can happen intervivos – between when I execute the will and die – and postmortem

– between my death and when property is given to beneficiaries. Focus on timing!

Contingent drafting: Planning for the possibility of this occurring. If I don’t plan, use Rules of

Construction and presumptions. These rules/presumptions depend on timing and the type of legacy

that it is.

Estate Administration: 3 kinds of testamentary gifts: specific, general, residuary

• Specific gift: gift of a specific piece of property (real or personal) to a named individual.

Ex: Crimson Hall to Claire. Grandfather clock to Clyde. 1000 shares of PDQ stock to

Chloe. They can only be satisfied by the delivery of the specific property to the specific

person.

• General gift: Gift that can be satisfied out of general assets of the estate – assets that

haven’t been specifically given to someone. Ex: A pecuniary legacy to kid Clyde – this

can be satisfied via cutting him a check, delivering to him marketable securities or tangible

personal property like paintings/rugs worth $50,000.

• Residuary: All other assets in the estate, not otherwise disposed of in the will.

• Typically, there are some specific gifts, some general gifts, followed up by the residuary.

Change in Property during the Intervivos period:

Ademption: 2 kinds: ademption by extinction and ademption by satisfaction.

Ademption by Extinction: Suppose in my death, I no longer own Crimson Hall – I sold it and bought

Shamrock Towers. I gave the clock to Claire since she whined. I liquidated the PDQ shares and

purchased a new boat. Impact? Property specifically named in the will no longer exists. What should

personal representative do? If I specified in the will, then do that. But if I didn’t specifically say, then

what does personal representative do? Does the gift fail, or does personal representative have to buy

the old property again, or buy similar property, or give them the value?

• Intentional ademption: Transfer intervivos for consideration

• Unintentional: the property is lost, stolen, destroyed

• The question is what you intended at the time – for it to be ademed, for personal rep to get a

similar piece of property or pay the value.

• The vast majority of courts disregard my intent at the time of the gift/sale and apply Lord

Thorlough’s rule (McGee) – the Identity Doctrine. The doctrine asks 2 questions:

o Was the gift specific and

o Was the property present? If the property is gone, then the gift is extinguished,

regardless of my intent at the time of conversion of the property. Harsh result- C, C,

and C lose. I should have provided for it in the will. Most jurisdictions apply the

Identity Doctrine.

• But there are constructional preferences which can bail out C, C, and C.

o Form v. substance approach: If the absence of property is due to change of form

only, then no ademption.

! Some jurisdictions have made this less harsh, like UPC.

Ademption by satisfaction: Suppose, in my will, I leave Clyde and chloe $25,000. Subsequent to

making the will, I make intervivos transfers - $10,000 to Clyde and $50,000 worth of PDQ shares to

Chloe. Do they get intervivos transfers and testamentary transfers – do they get to double up? Or,

were those intervivos transfers in partial or complete satisfaction of their gifts under the will? This is

testate version of Advance. What could have been the nature of the intervivos transaction – same as it

was then: an outright transfer, gratuitous transfer, loan with expectation that they repay, or a transfer

that was in partial or complete satisfaction of the gifts that I made under the will. Intent controls – if I

intended it to be an outright, grautuios transfer # no strings attached # no impact on will; but if I

intended it to be in partial or complete satisfaction then it will impact the will. I should say! What if I

don’t say – there are 3 presumptions:

• If the relationship between the transferor and transferee is parent/child, the presumption

favors ademption.

• If the gift in the will for a specific purpose, and it’s accomplished intervivos, then there is

an ademption. If I leave money for my grandkids to buy boat, but then go buy them boats

themselves, then there is ademption.

• But suppose the property given intervivos is of a different character than the property in the

will (in will, it was cash; intervivos was securities) – since gift of different character, then

no ademption.

• Presumptions are rebutable. Courts usually admit extrinsic evidence to determine whether

an ademption was desired. The exception is when a statute provides otherwise – like UPC

and MA statute (exact same approach as advancement - a writing is required. Writing in

will (will provides for it – recommendation to look at this with clients – some kids needier

and need it now) – (1) maybe incorporate advancement statute by reference. (2) Or it can

happen at the time of the intervivos transfer – intervivos transfer can label it as an

ademption. (3) Or if transferee acknowledges it to the executor in writing – Chloe sends

letter to Kindregan, acknowledging that the intervivos transfer was intended to be in

complete satisfaction of the will. Do it in writing – when will is executed or at time of

intervivos transaction.

Retainer aka Set-off: A variation on Advancement and Ademption. Where ademption and

advancement address an intervivos transfer to heirs and legatees, retainer addresses debt.

Suppose, in my will, I leave kid Clyde $25,000. At time of my death, he owes me $10,000 – and I had

a note for this. Issue: Does he get $25,000 and I forgive the debt or does the debt need to be paid off

(personal representative will have to deduct $10,000 from $25,000 and only give him $15,000 and

maybe deduct interest)? Intent determines. I should say in the will. But, if I don’t, there are

presumptions – but they go both ways among the jurisdictions. Residuaries will bring this up # time

# money. So draft for this when executing the will: are there debtor/creditor relationships and how

do you want to handle this! MA rule: We sever the gift from the loan – they are treated separately so

the gift is the gift and loan is a debt so the personal representative has to set off the $10,000 and only

give him $15,000.

Suppose I owed Clyde $10,000. No he’s my creditor. Options: He gets $25,000 and claims as a

creditor against the estate for $10,000 or (b) the gift under the will was in satisfaction of the loan so he

only gets the $25,000. Whoever will benefit from caring will say. Draft for this! In absence of

statement of intent # presumptions go both ways; jurisdictional variation. MA rule: They separate –

the gift is the gift and the loan is the loan. He gets $25,000 and gets to claim as a creditor for the

$10,000. This presumption is rebutable # time # money # so draft.

Related problem: Suppose I nominate Chloe as my executrix. In the will there is a gift to her of

$25,000. Issues: (a) Does she have to serve as executrix to get the $25,000? (b) Is the gift to be in

lieu of compensation for her- is the $25,000 to be her compensation for serving as executor?

Intent controls. Who care’s # who benefits from caring. Provide for this! Ex: $25,000 to

Chloe, whether she serves or not, and this is not intended to be in lieu of compensation.

Presumptions: MA: She has to serve to get it, but it’s not in lieu of compensation. MA has a “Fair

and Reasonable standard” that governs compensation of fiduciaries – whatever compensation is fair

and reasonable given the facts and circumstances of the estate. So, in MA, she’d get $25,000 and fair

and reasonable compensation. Family members often waive compensation.

Exoneration contemplates that debt is exonerated, burden borne by residuary folks, passes to

beneficiaries free of debt

Suppose, in my will, I devise Crimson Hall to Claire, but at the time of my death, there is a note and

mortgage to Cambridge Bank. In my will, I leave my car to kid Clyde, but at time of death, there is a

note and mortgage to Cambridge Bank. Here, I’m giving a specific piece of property to a named

individual that has a debt attached to it. Issue: Who pays the debt?

Back to administration: In estate administration, residuary folks bear the burden of debts and expenses

(unless testator says otherwise). CL rule is that residuary folk bear the burden, but in other

jurisdictions, they say, shouldn’t the individual be responsible – take the property subject to the debt?

Testator should say what’s to happen since intent governs. If no statement of intent, then follow

presumptions # they go both ways – sometimes residuary beneficiaries will be charged. In other

jurisdictions, like MA, take property subject to note and mortgage.

Ashkenazy: [if you don’t have a statute]

Doctrine of Charge: Variation on Exoneration. Charge is the burden that is imposed on a particular

piece of property to satisfy an obligation. CL rule: Burden of debt is on residuary. But testator can

provide to the contrary, by specifically providing that a particular piece of property will be responsible.

Ex: Crimson Hall to Claire, and I direct Blackacre to be sold and the proceeds used to pay the debt off

for Crimson – can be on specific property or on class of property (marketable securities).

Charge and Tax: Who will bear the burden of the estate transfer taxes? Federal transfer tax is broad.

MA has apportionment statute- apportions burden of the tax obligation. Non-probate property can be

tagged – this burden is a default but testator can elect otherwise (certain property or certain legatees

have to pay this off).

Increases in the value of property: This can happen during intervivos and post-mortem time.

• Intervivos increases of value of property: Suppose in my will, I devise Crimson Hall to

Claire, which at the time consisted of a 3-decker property in Cambridge and vacant lot.

However, between time of executing the will and my death, I erected a 2nd 3-decker on

what was vacant property and the market-value on original Crimson Hall significantly

increased. Does Claire get original Crimson, at it’s then-value, or all the increases?

Suppose I leave 1000 shares of PDQ Corp. stock to Chloe. But between time that I

executed the will and death, shares split so now 3000 and Corp. declared stock dividend so

even more shares. What does Chloe get – 1000 shares or the increases? With respect to

some property, there is little consistency among the jurisdictions? One of these is stock

dividends and stock splits. Many jurisdictions don’t allow dividends but allow splits.

Others do not make distinctions. Most other property – like real property – is less of an

issue. Other issues: Bonds, notes, deposit accounts. There is so much consistency # local

law. You can provide for it in the will: “The property together will any increases in value.”

• Post-mortem increases of value of property: Result depends on the nature of the gift itself,

unless testator says otherwise. With regard to specific gift of real property, post-mortem

increases of value almost always inure to benefit of beneficiary – in the case of stocks, that

includes stock dividends, splits, etc. They are not entitled to interest per say – just to

increases in value. With regard to general gifts - $50,000 to Clyde – pecuniary gifts do pay

interest if they are not paid within a certain period of time (within the course of estate

administration # when creditors are gone). So this usually corresponds with general

creditor statute. MA: Legacy not paid, interest accrues at the rate established by statute,

unless testator says otherwise.

• Residuary gifts: These don’t usually carry interest since it’s everything that is left after all

of the other that have priorities have been paid as well as D & E. This is why residuary

gifts are considered prospective in character – always in flux until the last day, when the

last penny gets distributed.

Abatement – decreases in value: Issue: What happens when testator gives away more than he has?

Assets can diminish in value intervivos, market can decline, or there are greater intervivos expenses

than anticipated (medical, nursing home, post-mortem claims with greater priority, D & E, taxes, some

fool – spouse, omitted child – can file an election). What if more legacies than property to satisfy

them? So who’s gift gives way? Testator can say who’s gift abates first (but can’t determine order of

creditors). We don’t have this problem in intestacy – whoever is surviving gets whatever is left after

all claims that take priority (residuary). This happens if many specific gifts, general gifts, but not

much residuary # once run out of residuary, then what to do? You may have a statute. See Potter.

Absent a statute, the cases set up the priority. Different approaches:

• Realty favored over personalty in liquidation process: take cash, then personal property not

specifically given, then realty not specifically devised. MA prefers realty over personalty;

other jurisdictions don’t specify.

• Apart from this, there is little jurisdictional difference. The order is: If there is partial

intestacy (residuary clause fails), we’ll take the property passing under the intestate statute

first. If there is no partial intestacy, then we’ll take the residuary first, followed by the

general gifts, then specific gifts.

• But testator can say otherwise.

Lapse: What happens when a beneficiary predeceases testator? Ex: $25,000 to kid Clyde, in my will.

But at the time of my death, Clyde has predeceased me. What will happen to the $25,000. There are 3

possible approaches:

1. Lapse: The gift fails – it lapses. This is CL rule.

2. That gift is paid to someone else in a representative capacity. Someone steps up into shoes of pre-

deceasing beneficiary. This is a statutory modification of the CL. (This is boot-strapping).

3. Testator can provide what’s to happen (Sandoe’s recommendation).

Besides pre-deceasing # lapse, there is disclaimer since treated as pre-deceasing. A third way to

cause lapse is if beneficiary doesn’t satisfy a conditional gift.

What can testator do:

• Gift in the alternative (most common; Sandoe’s recommendation): “To Clyde if he

survives me, and, if not, to Chloe.”

• Gift can be paid to Clyde in any event (dead or alive) # to Clyde’s estate. This is rare

since you usually prefer to pay live bodies (prevents property from going to surviving

spouses or creditors).

• Class gifts: Testator can close classes at a different time. They close at date of testator’s

death, but testator can also have it otherwise: close at date of distribution (more likely) or

date of will execution.

If testator does not provide, where do lapsed gifts go?

• CL: In the case of a specific or general gift, it falls into the residuary. In one of several

residuary beneficiaries predecease or disclaim, it goes to other members of residuary class.

If only residuary legatee predeceases or disclaims, it goes to intestacy.

• Statute: CL has been modified in some jurisdictions to varying degrees in the form of an

“Anti Lapse Statute.” This is the testate version of intestacy. Someone steps up into the

shoes of the predeceasing beneficiary and takes – this is a bootstrap. Beyond step-uping,

there is jurisdictional variation as to who is covered by that statute – this is oftentimes

limited to lineal descendants (kids, grandkids); there is jurisdictional variation as to whether

extends beyond children or whether it extends to other kindred, more remote collateral, or

surviving spouse. Anti-Lapse statutes may be fine, but oftentimes, they are not fine for the

client (clients don’t want the boot-strapping) so you can override the Anti-Lapse statutes

(statute is just a default).

Missed class – JoAnn’s Notes 8/20/07 2:00 PM

Will Contests

Focus on: what grounds are deemed to be sufficient to set aside a will, in whole, or in part. Focus on:

• Lack of testamentary capacity

• Lack of testamentary intent

• Undue influence

Testamentary capacity:

(1) Categorical # age limitation; all jurisdictions impose one, almost all at 18

(2) Mental # most legislatures steer clear from an attempt to define standards of testamentary

capacity, most statues provide that testator be, “of sound mind”; standards are left to judicial

development.

Gilmer case: addresses issue of degrees of competency and the degree required to execute a will. In

that case, Rosa petitioned for the appointment of a committee for her sister, Mary. Court found that

Mary’s deterioration didn’t require a guardian for her person, but did require a committee to manage

her property; attorneys were appointed to do this. Same day, Mary executes a will, leaving everything

to Rosa. After Mary dies, her heirs contest the will, say Mary was incompetent. Theory? Capacity

required to manage your property was the same as testamentary capacity. This isn’t SO…said

Supreme Court of Appeals, a lesser degree of capacity is permitted to execute a will than to execute a

contract or perform other property management tasks.

What is the required standard of testamentary capacity?

• Have to know what a will is and what it does

• Have to know: What’s the nature of your property?

• Have to know: Who do you want to leave it to?

The fact that she had a committee wasn’t conclusive as to her capacity.

As mental capacity diminishes, so doesn’t a person’s ability to perform certain tasks. At what point in

the loss of capacity, should the law remove the person’s ability to make decisions and act on those

decisions for themselves, and substitute someone else’s judgment? (substituted judgment theory)

Courts and statues distinguish among 2 or more levels of capacity, you see terms like:

• Mental weakness

• Mentally deficient

• Mental illness

In most jurisdictions, the law provides for at least 2 types of guardians

• Guardian over person & property, charged with care and custody of the person & property

• Guardian of property only, charged with care of property only, not of the person

In MA:

• Conservator: manages property interests, given custody of property only, ward continues to

make decisions regarding his/her own care

• Guardian: when ward cannot make informed decisions with respect to their own care, and

will be a danger to themselves or someone else, the court will appoint a guardian who has

custody of property and person (like a parent has care and custody over a minor child’s

person and property)

In Gilmer, Mary got to the point of needing a conservator, not a guardian.

Testamentary capacity MUST exist at the time the will is executed because an absence of capacity

destroys intent to execute that will and be bound by the terms of that will.

What about an individual who executes will when he/she is incompetent, but subsequently regains

capacity, is this ok? NO, didn’t have requisite intent at the time he/she executed the will. How do you

fix this? Completely re-execute the will.

What about a person who zones in and zones out, can these people execute wills? Yes, if you catch

them when they have the capacity to execute the will.

What do you do with a “zoner” or someone who has marginal capacity? You, as their attorney, need to

make a determination as to whether they have sufficient capacity; at a minimum, have a physician

examine them and give you an opinion letter; may consider going further (especially if there is

potential to have a will contest) so you may want to find a physician who is skilled in diagnosis of

mental capacity (ex. Psychiatrist); then go one step further, you need to write the CYT (cover your tail)

memo and put it in the file, write contemporaneous letter that as their attorney, you think that at the

time, the client did have mental capacity, per your observations of person and medical expert’s opinion

What else do you do? You want witnesses to form an opinion, to see and observe will execution; ask

your client questions in front of the witnesses so they can form opinions as to mental capacity

Testamentary intent

Lister case: Testator properly executes a codicil, in that it complied with all technical formalities

required for execution. It lacked testamentary intent because testator never intended the codicil to see

the light of day.

Can a properly executed testamentary instrument ( a will or codicil, proper on its face) be impeached

by oral testimony which will indicate that there was no testamentary intent? Yes, in this case. What’s

the concern? We’re worrying about perjury. What’s the presumption? The will was executed with

intent to be bound.

Conflicting policy: a will that is perfectly executed on its face vs. absence of intent

Split among jurisdictions as to admissibility of extrinsic evidence; some courts follow Lister and allow

it, others won’t, where the will was properly executed and testator knew of contents.

Eaton case: considers conditional wills as variation on intent

Hypo: Sandoe duly executes a will and it has a provision that says if he doesn’t come back from his

cruise, this is how I want my estate to be distributed, “X, Y, Z”. Sandoe survives the cruise, and then

dies. (Don’t put something like this in a will, Sandoe says, even if your client wants this). Is

Sandoe’s will effective? This was a conditional will. Is there anything wrong with having a

conditional will? No, as long as condition doesn’t violate rule of law or public policy. Here, you need

to distinguish between a REAL condition and a mere STATEMENT of INDUCEMENT, which is a

reason why you’re executing a will. If all it is is a mere statement of inducement, it’s NOT a

condition, and the will ought to go in, regardless. How do you know which it is? Only if you know

what intent was. If intent is imperfectly expressed, what happens? A will construction, have to

ascertain what Sandoe’s intent really was, using admissible evidence.

• Where do you find these statements? In holographic wills.

• Level of intent? I intend to be bound by the terms of this will, has to be sufficient mental

capacity to form the intent.

Undue influence: most cases focus on coercive aspect of undue influence (Haynes case)

Testator’s free will is being overborne, they’re doing something they don’t want to do.

In recent years, a new line of cases that de-emphasizes coercive aspect of undue influence and focuses

on unfairness, more akin to fraud than to coercion (Swinson case)

2 approaches to undue influences: (majority of jurisdictions go w/ #1)

• Haynes line of cases: court sets out traditional elements as a sufficient ground:

Mental, moral, or physical influence that it is so great, that it destroys testator’s free will, and replaces

that free will with someone else’s; testator really doesn’t want to do this, but he or she must do this, or

all hell will break loose; benefit is secured for person exerting influence, directly (they personally

benefit) or indirectly (benefit to someone or something to which they are interested)

• Swinson line of cases: emphasizes unfairness; factors to determine whether undue influence

is present# Unnatural or unjust nature of that plan; decedent ignores those that you would

expect them to consider and benefits someone else instead. Classic example? Giving

everything to the caregiver. Court’s objection: the influencer has, by his/her conduct,

gotten so close in that they gained unfair advantage over natural beneficiaries.

Hard to prove coercion, that’s why some jurisdictions go w/Swinson line of cases

Key element in Haynes line of cases is disruption of free will, but as Haynes points out, it doesn’t

require physical coercion, can be ANY kind: mental, psychological, so long as it overbears testator’s

free will. Influences can also be very heavy and direct, but not all will rise to level of undue influence.

As long as final decision is testator’s will has not been overborne.

Key element on Swinson line of cases is unfairness, it’s the result in light of the relationship between

the parties. The result is just plain wrong, may not be able to establish a level of coercion, because

coercion cases are hard to prove. This is result-oriented.

Undue influence has to have an impact on the will and a benefit has to be incurred, directly or

indirectly (in every jurisdiction); undue influence has to be present at the moment the will was

executed.

Suppose at the time, testator doesn’t want to do it, then later on, likes the idea. Testator says, “At the

time, I didn’t want to do this, but now I change my mind and I like the idea”. Is this ok? NO, there

wasn’t any intent. Testator can either execute a codicil (Sandoe suggests NOT to do this) or

completely re-execute the will. Now what is your concern, as the attorney? Need to use witnesses,

CYT letter#there was an issue, but now it has been fixed.

Can undue influence affect revocation of a will? Yes.

Hypo: Sandoe has a will, leaves everything to Claire. Children go to Sandoe and tell him to revoke the

will. Sandoe doesn’t want to do it, but rips up the will. Has he revoked the will, as a matter of law?

NO, the physical act occurred, but there was no INTENT.

Does the “undue influencer” have to be present at the time the will is executed? Can the undue

influence itself be present, even though the person doing the undue influencing isn’t there? YES, so

the person doesn’t have to be present.

What’s the remedy for undue influence? If a provision is the result of undue influence, at that

provision can be taken out, then that’s the appropriate remedy, if will can stand without it.

Hypo: a devise or bequest to person exerting undue influence, ex. Blackacre or $100,000 to influencer,

residue goes to children in equal shares; can you yank out what went to influencer? Yes, goes to

residuary. If residuary folks are undue influencers, then the estate goes through intestate statue.

If entire will is subject to undue influence, you can deny the will probate in its entirety. What’s

default? Intestacy or previously executed will.

You, as an attorney, may run into this situation: A corporate client comes to you and says that their

parents need a will, they’re physically infirm and need a will. Do you make house calls? You go over

there. Who is your client???? You owe loyalties to the corporate client’s parents,

Evidence of undue influence is usually circumstantial because perpetration is usually covert. Most of

these undue influence cases are sustained by raising a presumption which shifts burden onto

proponent.

Presumption: jurisdictions differ as to how to raise presumptions, re: elements necessary

Haynes line of cases:

• Has to be a confidential relationship between the dependent party and the person exerting

the influence. Where do you find these relationships? In ALL fiduciary relationships,

outside of fiduciary relationships: within the family, where one person is accustomed to

relying on judgment of the other; can find it anywhere where one party lets their guard

down and relies on the other party

• Person exerting influence actively participates in the will, example: they hire the attorney,

sit in on conference when executing will

• An alteration in the plan: there is a plan in place, and as a result of undue influence, the

undue influencer moves in and gets a benefit

• Court will look at how vulnerable the dependent party is

Differ as to quantum of proof necessary to rebut presumption. Here, it’s clear and convincing, but

there may be a different standard, so look for this. (In most cases, use clear and convincing standard

re: trusts and estates cases)

Jurisdictions differ as to how to render a transaction viable, even though there has been undue

influence. How? Sever the relationship between influencer and dependent party and assert

independent advice between undue influencer and dependent party, doesn’t have to be legal advice,

can be anyone who is independent. Motive is irrelevant…doesn’t matter why that influence is being

brought to bear.

Fraud

Case# Daughter tells Dad that mom left everything to her son, then Dad executes a will leaving $1 to

son. Son says that Dad would never had done that, but for daughter’s comments. This is fraud in the

inducement.

Court: this probably wasn’t intended to deceive, this was probably hyperbole, and, the relationship

between dad and son was such that dad may have done this anyway, without daughter’s comments.

Fraud in the inducement has to be distinguished from undue influence#

• Fraud acts to deceive the testator, with respect to the true state of the facts, while allowing

testator to act freely.

• In undue influence, free will is overborne.

What remedies available for fraud?

• Constructive trust: on property in hands of the wrongdoer for the benefit of the person who

was wronged; impress a constructive trust on those who didn’t do anything wrong, for

benefit of person who was wronged# re: other heirs, they will profit, too

Mahoney case: when someone wrongfully obtains title to property, ex. Fraud, some unconscionable

manner, a court in equity, will impress a constructive trust

A constructive trust is an equitable remedy that utilizes trust theory to accomplish the result, it’s not

within statute of wills, nor within intestate statute, nor is it an exception to them. It’s imposed so that a

statute isn’t used to perpetrate or protect a fraud. Allows property statutes to work. Theory? Property

can’t pass as a matter of law, re: wills law, why? not duly executed, so testator is intestate. Intestate

statute says that property passes by statute#let the wrongdoers get the title, let the statute operate.

Then, court in equity arrests the title, uses constructive trust to take title away from the wrongdoer and

give it to the person who was wronged.

Procedure#Court will declare the wrongdoer to be a ‘trustee’, which severs title to the property, which

is an essential element of trust, the split of titles. There will then be a legal title and an equitable title.

The wrongdoers will be left with legal title, no beneficial interest. Confers beneficial title on person

who was wronged. The, there is an order, makes trustee transfer legal title to the person who was

wronged.

What happens when title is conferred? Titles merge#doctrine of merger (equitable and legal titles)

Consequence? Will couldn’t convey, so intestate statute does, so title is severed. This confers

equitable title to person who was wronged, when legal title is conferred on this person, the titles

merged. Constructive trust moves title from wrongdoer to wronged party, using trust theory.

This is used when someone acquires title in an unconscionable manner.

What about people who didn’t do anything wrong, but benefited, due to intestate statute??

Split of authority.

• Majority: constructive trust ought to be impressed; why? they’ll still profit by someone

else’s wrong, it’s unjust enrichment.

• Minority: don’t impress constructive trust

Hypo: A couple, husband and wife have reciprocal wills, but one member of couple is confined to bed,

with a debilitating disease. Husband cheats on wife, wife gets angry, wants her will. Husband goes to

desk, takes will out, replaces it with blank pages. She rips it up, then dies. Is the will revoked??? NO,

no physical act, there was intent. This was the result of fraud. She thought she was ripping up her will.

Constructive trust? Yes, this is a classic use of constructive trust.

Is this with respect to all property that passes to husband under the will? Under intestate statute, he

would have gotten something anyway. A constructive trust can extend to revocation.

What remedies available for fraud?

• Lewis case suggests remedy at law#court says may be a tort cause of action

• May also be probate remedies: when a will or part of a will has been induced by fraud, the

will or part of the will could be denied probate, and that may be an adequate remedy (but it

may not be) why? because the probate remedy may not be all that flexible, under the

circumstances, why?

Consider: if you’re going to refuse to probate the entire will, it’ll only benefit the wronged party if they

are an heir at law, or a beneficiary of prior executed will that can be admitted to probate, in that case,

may have to share with someone else, and this may not be an appropriate remedy (same for refusing to

probate part of a will)

Monetary damages from legal remedy may not cut it, example: when person wanted Crimson Hall

Mistake: two kinds: Mistake in the inducement and Mistake in fact

• Mistake in the inducement

Hypo: Suppose Sandoe owns PDQ Corp., which is a closely held business. Sandoe duly executes a

will, leaves majority of estate to Claire and only token bequests to Clyde and Chloe. Why? wants to be

sure that there are adequate assets to help Claire after he dies. Will was executed as a result of

accountant error. Recent financials of Corp. substantially understated value, so there are more than

adequate assets to take care of Claire. Post mortem, Clyde and Chloe say that dad made a mistake, had

he known the true value of the Corp., we would have gotten more in the will. (like Gifford v. Dyer)

Testator has been induced to make a will, or a provision, based on a misconception of extrinsic facts.

This inducement is unintentional, this isn’t fraud, this isn’t undue influence, it’s an honest mistake.

Available remedies? Very rare, courts usually deny relief. Gifford court suggested that if error

appeared on face of the will, and if testator provided for an alternative disposition, then, the court

might grant relief.

Why deny relief? Courts don’t want to get into it; what’s the effect of the mistake? What would have

been alternate disposition? How much would Sandoe have left Clyde and Chloe? That’s speculative.

• Mistake of fact

Hypo: Sandoe wants a provision in his will for Claire. He has a will that leaves everyting to Clyde

and Chloe. He tells attorney: Claire should have Crimson Hall, $50,000, PDQ shares and his boat.

Attorney wrote up the will and didn’t put provisions in there. Sandoe dies, Claire says, I was supposed

to get X,Y,Z, and attorney says that he inadvertently omitted these provisions. Remedy for Claire?

This is a mistake of omission

Hypo: Suppose there were such provisions and Claire decided to find another man, she sails away with

them. Sandoe tells attorney to take out what Claire was to get. Attorney says he’ll do it, Sandoe signs,

the provisions are still in there. Sandoe dies. Clyde and Chloe said that he didn’t mean for that to

happen. Remedy for residuary legatees?

This is a mistake of inclusion

Remedies?

• None, with respect to mistake of omission. Why? the wills act says that the will has to be

in writing, court cannot rewrite the will. Constructive trust? Nobody did anything wrong.

• May be a remedy, with respect to mistake of inclusion. If an entire provision has been

included, like provisions for Claire, court may take provision out, based on mistake, if

whole provision can come out. What was in the provision goes into residuary. Where,

however, a word, clause or phrase has been included, taking that out may change meaning

of what’s left, so courts will be disinclined to take it out.

Hypo: Testator signs the wrong will, like the Snyde case. Did Synde intend to be bound by the will

that he executed? No, he didn’t. He signed the wrong document. Technically, he lacked intent. He

made a mistake. Are you going to enforce technical letter of law, or excuse the mistake? This court

granted relief, most courts won’t. Why? absence of intent. Minority view: looked at facts, reciprocal

nature of will, no opportunity for fraud.

*check the will BEFORE testator leaves the office to ensure that he/she signed proper will*

Ambiguity

3 kinds:

• Patent

• Latent

• Cases of straight identity

Hypo: An alum of a few decades ago executes will, gift to Sandoe of Suffolk. What if President

Sargeant said that alum meant Sargeant of Suffolk?

Missed class – JoAnn’s notes 8/20/07 2:00 PM

Next time: required elements of trust

Intent (Spicer case! intent to sever titles and impose binding obligations on trustee) case will be used

to show relationships between express trust and resulting trust, and between trusts and estates (wills,

intestacy, estate administration). Intent couldn’t be found in this case because the language was too

vague.

Suppose that in her will, she had this provision, “I leave my entire estate to my sister”, “in trust”, to

be administered by her, “as a trustee”. (Instead of what she actually said) What’s the result?

Will contests…continued

Ambiguity (Gibb case)

3 kinds of ambiguity: Patent, Latent, Issue of Straight Identity

• Patent

• Latent

• Issue of straight identity

Suppose you have an alum of a few decades ago, w/ a provision in his will, to Sandoe of Suffolk.

President Sargeant comes forward and says, the alum meant Sargeant of Suffolk, and I can prove, with

oral testimony, that that is what the alum meant. Are you going to admit extrinsic evidence on Q of

testator’s intent in that will? If you are, what kind of extrinsic evidence? Direct? Indirect?

Gibbs# extrinsic evidence, generally, is inadmissible, to determine intent, unless there is latent

ambiguity: where the language in the will is absolutely clear on its face, until you apply that language

to the extrinsic facts, and when you do, you find that it is susceptible of more than one meaning.

Hypo: Language in that alums will was, “I leave a bequest to my Trusts and Estates professor at

Suffolk.” Clear, until you learn that Sandoe had him and flunked him, then had to take it again, with

Sargeant, when he passed. (No latent ambiguity in original hypo, there’s no one else)

Why allow extrinsic evidence? Most courts won’t.

Words, phrases, clauses can mean different things to different people, particularly when they are read

in different contexts, ambiguities can arise, consequence? Will has to be construed, and the objective

of the will construction is to discover what that alum meant, when he used, “my trusts and estates

professor”, if you can determine that from admissible evidence.

2 contexts:

• Intrinsic: within the will itself, language of the will, provisions of the will

• Extrinsic: evidence from outside

• Direct: what did testator say to his attorney?

• Indirect: surrounding circumstances, example: Sargeant gave him an ‘A’ and Sandoe

flunked him

If intrinsic context fails to reveal intent, will extrinsic evidence be allowed in, if so, what kind?

Patent ambiguity#ambiguous on the face of the will, don’t allow extrinsic evidence

Example: in a will is a provision that says, “I devise Crimson Hall to_____”; also, a provision that

says, “I bequeath to Claire_____” what happened? Sandoe executed the will, didn’t see there were

blank spaces. Crimson Hall will fall into residue.

Straight Identity# language is clear, unlike Gibbs, majority won’t allow extrinsic evidence

Latent ambiguity is between straight identity and patent. Extrinsic evidence is admissible w/latent, but

there are disagreements as to the kind. Look to LOCAL LAW.

TRUSTS, POWERS OF APPOINTMENT AND AGENCY

Emphasis on trusts:

• Trust is typically the cornerstone of most clients’ estate plans, the major instrument of

estate plan; other instruments are constructed around it, including the will, power of

attorney, JTROS accounts, contracts, life insurance

• Of these relationships, the trust is the most complex, (more than powers and agency); it’s

the most useful among these relationships, in the context of family asset management and

transfer; powers and agency is a lot more straightforward, especially when studied in

context of trust

Questions re: Trusts:

• What IS a trust?

• What are its essential elements?

• How do you create/modify/terminate a trust?

• What are trust functions? What can and can’t they do?

• What are their limitations?

• How can you augment trusts with powers of appointment to overcome limitations?

• What are the rights, duties and responsibilities, liabilities and immunities of the parties?

• What are the rights of 3rd

parties? (no direct connection to the trust) ex. Spouse, creditor,

taxing authorities

• Compare and contrast these 3 fiduciary relationships (trust, agency, power of appointment),

compare and contrast to other fiduciary relationships, like: estates, guardianships, etc.; also

compare and contrast to some non-fiduciary relationships, ex. Bailments, debtor/creditor

relationships

Primary context is very limited# management and transfer of private wealth within the family (he

won’t go over the business context)

What is a trust?

“Private Express Trust”: Restatement definition# it is a fiduciary relationship with respect to property,

subjecting the person by whom title is held to equitable duties to deal with that property for the benefit

of another person and which arises out of intent.

The trust is a relationship, it’s not an entity. It is a relationship that is fiduciary in character, it’s a

relationship with respect to property. It doesn’t involve mere personal duties, the duties relate to

property. It involves existence of ‘equitable’ duties, creature of equity, not of law. Equitable duties

are imposed on holder of title to property to deal with property for benefit of someone else. Arises

because the person who created it intended to do so.

What is a fiduciary relationship? A “duty to act” on the part of the fiduciary for the benefit of the

other party or parties to that relationship, as to all matters within the scope of the relationship.

What does the duty to act entail? You have to act, do it yourself, and not to delegate to anyone else.

You’re the one who was picked, so you have to do it. You must act for the benefit of the other party,

and you must not personally profit at their expense. This is a duty of undivided personal loyalty,

owed by fiduciary to the other party. These duties are characteristic of ALL fiduciary relationships,

but are most intensely found in the trust relationship.

Where do you encounter these fiduciary relationships and duties? Trusts, Estates, Guardian

relationship, Partner relationships (as among the partners), Conservator and ward relationship

Classification of trusts

Trusts fall into 2 basic categories: Express & Implied

• Express means it was created by intent of the person creating it; so if no intent, then no trust

Private express trust (aka ‘family trust’): typically created to benefit an individual, or a limited

number of beneficiaries that are typically family members (don’t have to be). Example: Suppose that

today, Sandoe transfers cash and securities to T Co. bank, in trust, for benefit of daughter Chloe and

children. Terms: the income produced by cash and securities is to be paid to Chloe for the rest of her

life, upon her death, the trust will terminate and the cash and securities will be paid to her children, in

equal shares. This trust has a present interest#Chloe has life estate, her children have a future

interest#remainder.

Charitable express trust (aka ‘public trust’): created to accomplish one or more charitable

purposes. Example: Sandoe transfers cash and securities to T Co. bank, in trust, income is to be used

to provide scholarships to needy Suffolk law students. Those to be benefited are not known yet. This

inures to public benefit.

Business trust (aka “trust for business purposes”): created to accomplish a business purpose.

Example: PDQ corporation wants its pension benefits managed on behalf of employees, they fund a

trust to provide for retirement benefits to employees upon retirement. The pension plan is managed by

a trustee.

There are also hybrid trusts, to accomplish multiple objectives, both public and private

Example: Transfer cash and securities, in trust, and income to be paid to companion Claire for rest of

her life, on her death, the income will then provide for scholarships for needy Suffolk Law students.

(This is called a charitable remainder trust because the remainder interest inures to charitable benefit)

Implied # don’t arise out of express intent, they are created by the courts, created to remediate a

situation, sometimes called ‘remedial trusts’ or ‘trusts created by operation of law’

Constructive trust is an implied trust: it’s an equitable remedy where somebody wrongfully acquires

title to property, by fraud, duress, undue influence, etc. A court in equity will impose constructive trust

on property in hands of wrongdoer to prevent unjust enrichment. Uses trust theory to accomplish this

result.

Resulting trust: court decrees a person to be a resulting trustee, why? it’s implicit in the transaction,

common application? Spicer case# failure of private express trust, resulting trust arises to return title

to person who created it

Example: Terms of trust#Trust is made up of cash and securities, at Tremont Street Co. bank, the

income produced by cash and securities is to be paid to Chloe for the rest of her life, upon her death,

the trust will terminate and the cash and securities will be paid to her children, in equal shares. On

Chloe’s death, she has no children. What happens to trust property? Court will declare Tremont Street

Co. as trustee, they’re a resulting trustee, will order that Tremont Street convey property to Sandoe, as

person who created trust to begin with. Likely that Sandoe will be dead, where does it go? Goes to his

estate. All resulting trust theory is, is a remediation of the trust.

What kind of interest does Sandoe have, as a result? A reversionary interest.

From now on, unless he says otherwise, we’re talking about private express trusts

Characteristics: Go back to elements of gifts and legal principles, why? closely related to trusts

Gifts are donative transfers, transfer of property without consideration, so are most private express

trusts. Three elements to gift: intent, delivery, acceptance.

Two types of gifts:

• inter-vivos # irrevocable, unconditional, present transfer

• cause of mortis gift#conditional upon death, if it doesn’t happen, it’s revocable

How are trusts like gifts? Trust involves present, gratuitous, transfer of title of property to a

donee. Unlike a gift, a trust constitutes the severance of legal title from equitable title to the

property being transferred (this is an essential characteristic of private express trust, a distinguishing

element) you don’t sever titles, you don’t have a trust. How does this happen? How is trust created and

title severed?

3 configurations:

a. When a trust is created, legal title is transferred to one person, the trustee, and equitable or

beneficial title, is transferred to another person, the beneficiary.

o Example: Suppose A transfers shares of PDQ stock and Blackacre to B, in trust, for

the benefit of C. Title to property is severed, so trustee holds legal title and

beneficiary holds beneficial title, same w/Blackacre and PDQ shares. Can have

multiple trustees and beneficiaries, can have an institution serving as trustee.

! Terminology: B, in this example, the person holding legal title, is the

TRUSTEE. C, the person for whom that legal title is held, is the

BENEFICIARY. A, in this example, the person who created it, w/his or

her intent to sever titles, goes by a variety of designations: Settlor, donor,

creator, trustor. Sandoe uses the term settlor to distinguish between donor

of gift and grantor of deed. Blackacre and PDQ shares go by a variety of

terms: “the property”, the trust property, subject matter of the trust,

corpus, principle. Interest in the dividends generated by securities, rents

generated by Blackacre# called trust income. Principle and income are

distinguishable, there is an important difference.

b. The settlor retains legal title and only transfers the beneficial title.

o Example: A declares himself to be trustee of Blackacre and PDQ shares for the

benefit of C. A only transfers out equitable title to C and retains legal title. A is

both settlor and trustee#this is a declaration of trust. Before declaration, A owned

property free of trust, had fee simple, could do whatever he wants with it. Once he

made that declaration of trust, he changed his relationship to the property and can no

longer deal w/it as though it’s his. How changed? Now A owes equitable duties to

properly administer the trust. C acquires a beneficial interest and also the right of

enforcement, right to enforce this as against the trustee, A.

c. The settlor may retain the beneficial interest and only transfer legal title out.

o Example: A transfers shares and Blackacre to B to hold in trust, for A’s benefit. A

is the settlor and beneficiary, has retained equitable title.

What is the conclusion from all 3 examples? Settlor may be trustee or beneficiary, or can be both,

or nothing. Even though settlor can be a beneficiary, or trustee or both, neither the settlor nor

anyone else can have sole equitable and legal title at the same time. When that happens, there is

MERGER of TITLES (when sole equitable and sole legal are in the same person) this destroys an

essential element of trust, which is severance of titles, doesn’t matter if it happens intentionally or

unintentionally. Trust is OVER.

“A” can be trustee for benefit of A and B, A and B can be trustee for A and B. A cannot be trustee for

benefit of A. As long as you have two on either side of equation, you’re ok.

When is a private express trust created? Depends on when it’s effective. Options? Either during

lifetime of settlor, or at his/her death.

• If created during lifetime, it’s an inter-vivos trust, it’s delivered immediately. This is trust

in Clymer case.

• Testamentary trust is one created at death.

How created depends on instrument of creation.

• Testamentary trust is created in a will, it’s contained within the will and owes its life to that

will. If that will goes down, is revoked, the testamentary trust will go w/it.

• Inter-vivos trust? That’s free-standing, it has independent legal significance, stands apart

from will, such that if will fails, trust doesn’t necessarily fair.

Two types: declaration and conveyance#settlor conveys legal title to trustee

Sub-category: revocability

A private express trust can be irrevocable or revocable. If settlor reserves right to revoke, it is

revocable, as Professor Mayo did in Clymer case. If settlor gives power of revocation to someone else,

it’s revocable. If no power of revocation is granted or reserved, it cannot be revoked.

Trust purpose: why create a trust? What motives?

Hypo: Client has a family, spouse, some # of adult children and minor grandchildren. During client’s

lifetime, he has acquired a variety of assets, held in variety of forms: Blackacre (client and spouse

hold T by E), Marketable securities held in name of client, Deposit accounts either held in name of

client or JTROS w/spouse, Life insurance, Tangible personal property, Interest in closely held

business, Retirement benefits, Interest in trust created by Great Aunt Harriett.

How will he dispose of assets?

a. One option is to dispose of them by will, contract or operation of law. Blackacre and JTROS

accounts can pass by operation of law. Client can arrange for survivorship benefits for retirement

plan, name spouse and/or children as beneficiaries of life insurance contracts, then execute a will

that disposes of everything else.

b. Another option: put some or all interests in trusts, to be managed for benefit of spouse and

children, for a variety of motives, and to accomplish a variety of purposes. For example, client

could place all income producing assets (besides Blackacre) in a trust w/T Street Co. bank as

trustee to pay income produced by assets to some family members for a period of time, then

distribute corpus in the future.

Typical trust patterns:

• All income paid to surviving spouse for rest of her life, and upon death, corpus to children

in equal shares. Downside? Children have to wait until death of surviving spouse to have

benefit.

• Spray trust: where trustee has discretion to spray income among class of beneficiaries.

Give income to both spouse and children during spouse’s lifetime, then corpus to children.

• What if children aren’t ready to handle this? Continue trust on after death of spouse, until

children are ready, or for rest of their lives, then corpus to grandchildren. How long can we

do this? What will end the trust? When rule against perpetuities runs.

• What if client has to pay attention to manage closely held business? Maybe client wants to

set up inter-vivos trust to manage property and pay income to client for rest of his/her life,

income from stocks.

Why set up a trust?

• Provide expert management of trust assets, to relieve spouse and children of burden of

managing extensive portfolio of property

• Preservation and conservation of assets.

• Avoiding probate: private express trust can avoid cost and delays of estate administration,

there are many ways to get property around probate, including the trust

• Issue of competency# some member of the family may not have capacity to manage assets

• Client wants spouse to have benefit of income of assets, but not assets themselves, assets go

to children and grandchildren, usually find this in 2nd or 3rd marriage situation, how do this?

Can do a legal life estate

Example of legal life estate# devise Blackhall to Claire for life, remainder to Clyde and Chloe, she

gets to live there for the rest of her life; this isn’t flexible, what happens when she starts to age and

taking care of the property is too much for her and she needs to sell it and move into another place?

For her to do this, what has to happen? Children have to join, what if they don’t want it sold? She

can’t make them do it. If he gives Blackhall to Claire outright and says that she has to give it to Clyde

and Chloe on death, then it’s only a moral obligation.

An equitable life estate# cash and securities in trust, Claire for life, remainder to Clyde and Chloe,

this is MUCH more flexible. It ensures that Clyde and Chloe will get what he wants, when Claire

needs to move somewhere else, Tremont Street Bank and trust can do this and don’t need Clyde and

Chloe’s permission b/c Tremont street has legal title, they can transfer legal title to Blackhall and with

proceeds, purchase a new place for Claire. Is Tremont Street responsible to Clyde and Chloe? Yes, as

long as this is a good investment re: fiduciary duties.

Distribution examples:

• Staged principle distribution arrangement# trust for child, income to them, then at a

certain age, they get a distribution of principle. Example, age 25, child gets 1/3 of corpus,

then ! balance at 30 and the rest at age 35. Theory? If they get 1st distribution and blow

all the $, then hopefully they’ll be more conservative next time around, etc. This all

depends on what client thinks is age appropriate.

• Longer distributions over longer periods of time#right to request principle, ex. 5% of

corpus every year for 20 years

• Trustee has discretion to determine what’s appropriate distribution

• Make children and surviving spouse co-trustees

• Example of two classes of trustees, can be professional (bank, etc.) or family members

Don’t distribute until child is very old

Private Express Trusts, 8/20/07 2:00 PM

Reading for next time: Required elements of private express trust # Property as it is a required

element: Brainard, Gordon, and revisit Clymer, Pinion.

• Brainard: Rigid CL rule with respect to necessity of trust property. Property is essential

not only to creation of trust, but to its continued existence as well. Property must exist

when trust is created – timing

• Gordon and Clymer relax this rule – fallback. Consider how far back it goes, culminated in

Clymer, which doesn’t require trust property due to statute, focus on statute. Also, look at

trust funding – how you get property into a trust, how to fund a trust? Settler transfers

property to a trustees, intervivos. Settlers declares himself a s trustee. Or, in death, devise

property to a trustee. Also, look at life insurance as a trust funding vehicle (Gordon) –

focus on life insurance policy in the trust – 2 entities brought together. In Clymer, look at

pour-over mechanism # will into pre-existing trust. We’ll distinguish Pinion and Clymer.

=

Motive: Why do we create private express trusts? We discussed: provide expert management,

preservation and conservation of assets (since some people can’t manage money), giving someone

the use of the property (without giving them the property itself), probate avoidance (cost and delay

of estate administration). Other ones (these are overrated): tax motive, Medicaid motive.

• Tax motive: Reduction or elimination of transfer taxes and reduction of income taxes so

there is more disposable property and more disposable income remaining w/in a family

unit. Overrated since a lot of property can past tax-free nowadays.

• Medicaid motive: Qualifying the client for Medicaid, while conserving assets for family

members against Medicaid recovery. Difficult to do today since many loopholes are

closed.

Conclusion: Trusts can be utilized to accomplish a myriad of goals/objectives for clients. It’s highly

flexible. In the hands of a skilled craftsperson, there is little that can’t be accomplished – particularly

when private express trust is joined with power of appointment (limited by very little).

Required and non-required elements (more detail below):

a. Capacity to transfer: The settlor must have sufficient mental capacity to perform the legal act

of transfer.

b. Delivery to the trustee: There’s usually a requirement that the actually trust property be

delivered to the trustee, or, at least, an instrument of title, such as a deed. One notable exception

to this.

c. There must be intent to create the trust: Intent to sever titles – equitable from legal – and to

impose binding, enforceable duties on that trustee (Spicer).

• The duties imposed must be active duties (not passive duties) (Bellows).

• If the trust is intervivos, the intent must be to presently sever titles – now, today – not at

some time in the future (Brainard).

d. Property: There must be property. This property must exist when there is the intent to sever

titles to it. Any kind of property – very few limitations – can be held in trust: real and personal

(tangible, intangible).

e. There must be a beneficiary.

• When? Beneficiary must be ascertained at the time the trust is created, when titles are

severed, or ascertainable within a specific period of time (within the period of the rule

against perpetuities). In 99% of the time, it’s ascertained at the time the trust is created.

• Why? There has to be someone for who legal title is held.

• There has to be someone to enforce the trust against the trustee – to see to it that trustee

doesn’t take the property and personally benefit. This is the right of the beneficiary.

• They acquire beneficial title.

• Settlor cannot enforce this – we need beneficiary because:

o Settlor may part with all interest and control (irrevocable; they have no further

powers)

o Settlor might be dead

f. There has to be a definite purpose and that purpose must be a legal purpose. Why? Because

there has to be a reason why that trustee is holding that title, a reason for the trust. There also has

to be a measure against which to measure trustee performance/conduct. Measure conduct

against duties.

g. There must be terms of the trust. Terms define the trust purpose and sum up the elements:

who are the beneficiaries, what is the nature and extent of the beneficiaries’ beneficial interest, who

has the present interest, who has the future interest.

• Ex: Suppose today Sandoe transfers Crimson Hall to Tremont Bank, in trust. Terms (who,

what, why, when, where): To Claire for life, remainder to Clyde and Chloe, as Tenants in

Common. Claire has present interest, Clyde and Chloe have remainder. Assets held in

trust: Crimson Hall. Why? To produce income for Claire. How long are the assets held in

trust? Terminates death of Claire. Who holds those assets? Tremont St. Where are the

assets to be managed? Cambridge.

• Terms are usually set forth in a writing. This writing is known as a variety of terms:

“trust instrument,” “trust agreement,” “trust deed,” “declaration of trust,” “will, which

creates testamentary trust.” They are usually set forth in writing – but do they need to be?

• Writing requirement: CL does not require trusts to be in writing. This means a trust can

be created orally or by conduct (Brainard). A requirement of a writing is imposed

externally, by a statute – like statute of frauds – that requires trusts of land to be in

writing, or statute of wills, which requires wills to be in writing. (But preferred practice is

to put it in writing; it can be a problem to not have it in writing).

h. Trustee: Trustee’s function is to manage – manager. He collects together all of the assets subject

to the trust and thereafter manages them to accomplish all of the purposes of that trust – all the

reasons why the settlor set that trust up. For Sandoe, it was to provide income to Claire for life,

and upon her life, to turn over a piece of property to Clyde and Chloe. But a trustee stands on a

different plane than these other elements (to be considered later).

Capacity: Settlor must have sufficient mental capacity to perform that legal act of transfer. As

we considered in estates (contest), courts in statutes around the USA distinguish between 2 or more

levels of capacity. Terms: mentally deficient, mentally ill. The question that the courts address is, at

what point in the loss of capacity ought the court remove an individual’s legal ability to make certain

judgments and act on them, and to replace their’s with someone else’s (a guardian’s).

• MA: When a person reaches that point when they can no longer care for their property,

then a conservator is appointed to manage their property affairs, and is given custody over

the property. But the ward can still make judgments with respect to themselves and their

own care. When they can no longer do this, then the court will appoint a guardian, who

will have custody of the property and the person of the ward.

• Issue: What degree of competency is required of the settlor? Distinguish between the

intervivos trust and the testamentary trust. For an intervivos trust, the same degree of

capacity is required as required to manage assets. So if can’t manage assets, then don’t

have sufficient capacity to create an intervivos trusts. Generally, this is a higher degree of

capacity than required to execute a will (Gilmer) – so while an individual can’t create an

intervivos trust, you can still execute a will and create a testamentary trust (dual layer).

Delivery to the Trustee: Generally, there must be delivery of the actual trust property, or, at

least, an instrument of title.

• Suppose that A transfers Blackacre and securities to B, in trust, for the benefit of C. What

are the delivery requirements? With respect to Blackacre, A will execute a deed: From A

individually, “to B as trustee, for the benefit of C.” Deed will be delivered and recorded.

With respect to the securities, if they are in certificate form, then the certificate will actually

be delivered to the trustee, B, who will reregister it “to B as trustee, for benefit of C.” If the

PDQ shares were held in an account form (brokerage account, for example), this will be

transferred to a new account, out of A, to an account for “B for the benefit of C.” For cash,

a check will be given, which will be deposited into an account “for B, for benefit of C.”

• 3 Distinctions:

o Intervivos trusts vs. testamentary trusts:

! In an intervivos trust, legal title is transferred from the settlor to the trustee

directly. But in a testamentary trust, legal title passes through the estate.

How title passes in an estate? Depends in personalty or realty. If personalty,

goes to personal representative when personal representative is appointed (in

MA, this can take 30-40 days); meanwhile, that tile is suspended. But when

executor is appointed, they get that title, it’s vested, and it relates back to

date of death. So personal representative actually transfers that title to the

trustee after all prior obligations have been satisfied (after creditor statutes

have run – about 1 year). This title is vested, but subject to debts and

expenses. Sometimes the executor and trustee are the same person or entity

– so personal representative is just changing hats, functioning in a different

fiduciary capacity. But for realty, it doesn’t go to personal representative.

Rather, realty passes instantly to devisee, which could be a testamentary

devisee, like Tremont Bank. It’s vested, subject to divestment for D & E.

Here, fiduciary is the beneficiary.

o Distinguish between declarations in trust and transfers in trust:

! Declaration: I declare myself to be trustee of cash and securities for benefit

of Clyde and Chloe. “I declare” – take off owner’s hat and put on trustee’s

hat and change relationship with respect to the property. After declaration,

you no longer own the property; only hung onto legal title – assumed duties

for benefit of Clyde and Chloe.

! One exception to the delivery requirement: I don’t have to formally

deliver to myself – since I owned it, and I declare myself to be trustee of it.

Most jurisdictions don’t require a re-registration. (Preferred practice is to re-

register; with name of myself as a trustee # so creditors can’t grab it.)

o Equitable title and legal title

! There is no formal delivery of equitable title. There is formal delivery

of legal title (except in case of declaration). Equitable title is merely

conferred on the beneficiary, when the trust is created – no formal transfer;

however, beneficiary gets all rights of enforcement against trustee.

Intent

A private express trust arises out of the express intent of the settlor. One writer said, “an express trust

exists only when a settlor appropriately manifests an intent to create that trust.” This intent is to sever

titles, and to impose enforceable duties on the trustee.

• Depending on the jurisdiction, some set of words may be necessary because statutes or

cases require it. But usually, no particular set of words is required.

• Restatement: Except as otherwise-provided by statute, manifestation of intent to create

may be made by words, written or oral, or by conduct (Brainard- how conduct can give

rise to intent). No particular form or words is necessary to manifest this intent. If,

however, a statute requires a particular method of manifesting the intent, like statute of

frauds or statute of wills, then you have to comply – but this is because of the statute.

• It is possible to create a trust without actually using the word “trust; but it’s better to use the

word expressly/explicitly so that there’s not question that you intent to create a trust.

a. Sometimes the absence of the word “Trust” or the choice of words may cast doubt as to intent. Did

the transferor intend the transferee to be a trustee or the outright owner? Ex: I convey Crimson

Hall to Clyde. I say, “it is my wish that he use the income produced by the Crimson Hall units to

fund my grandkids’ education.” Or “to my sister, to be disposed as already agreed upon between

us.” This language that raises ambiguities is called precatory language. Precatory language:

wish, request, hope, desire – as opposed to “it is my direction that you shall.” When precatory

language is used, intent becomes a matter of construction. Construe with intrinsic and extrinsic

evidence. This was an issue in Spicer, where testatrix died, leaving a sister and a husband Meade,

who was her sole heir-at-law. Her will provided that her entire estate was to go to her sister, to be

disposed upon as already agreed upon between us. Lower court: Sister got a fee simple in all the

estate assets. Issue on appeal: Was a trust created by that language, and if so, what happens to the

property. Or was no trust created so Ann should take as a legatee (fee simple? Court held that if a

trust was intended by the testatrix, then a trust was created. Determine this by looking at the

language, and read it in light of surrounding circumstances (extrinsic evidence). Intent is intent to

sever title and to impose binding obligations on trustee to deal with the property. Precatory

language directed at a fiduciary will prima facie give you that intent; but precatory words directed

at a legatee will not impose an obligation unless there is intent to do that. So all you have, if no

legal obligation, is a moral obligation, and this is insufficient to support a private express trust.

Need intent to impose binding legal obligation. Did the court miss it? Sister Ann was the

executor of the will; shouldn’t this give you prima facie intent?! It was directed at Ann, she was

the executor, and they said prectory language directed towards an executor. But, here, the two

titles weren’t separated – and this would be intent to sever the titles. She was executor, trustee, and

maybe beneficiary. Ann was addressed “my sister;” not “my sister, the executor” or “my sister, the

trustee.” Had she used a fiduciary designation, that would have been one thing, but she didn’t. So

nothing prima facie and court couldn’t find in precatory language, in light of surrounding evidence,

an intent to sever titles and impose legal obligation.

Also, use Spicer case to open up connections: express trust and implied trust, and relationship between

private express trust and …

Hypo: Suppose, testatrix said “I leave my entire estate to Ann, in trust, to be administered by her as a

trustee, as we’ve agreed upon.” Does this cure major deficiency? Do we have intent to create a trust?

Yes, we have intent to sever equitable from legal and to impose binding obligation upon Ann as a

trustee. Court had said, if there is intent to create a trust, there is a trust. Here, title has been

severed – Ann only got legal title because that’s all a trustee gets. But who’s the beneficiary?! It’s

Ann! Ann is getting legal title; we are missing a beneficiary and we need to have a beneficiary to

have someone enforce this (the person for who title is held). Why is the property being held in trust –

what’s the purpose? You need a purpose to measure performance, you need to have duties, standard

against to measure performance. Spicer: Since missing these 2 essential elements of a trust –

beneficiary and purpose – this trust fails! So what do you do with the trust property? How about

we give it to Ann? This would be nice, but it’s not what testatrix said – she didn’t say “to Ann, as

beneficiary,” but rather “to Ann, in trust.” What if it was a corporate fiduciary – you going to give it to

them? Nope! With Ann, it’s tougher because she probably was one of the beneficiaries. The other

beneficiary might be – you could guess – husband Meade (drooling), and after he died, what’s left-over

to go to Ann.

Suppose this hit the fan before Ann died, and she could testify as to the terms of the trust. Do we have

a beneficiary? A purpose? Yes, yes! Are we good? What about statute of wills – underlying

document is a holographic will. So…she could testify, but that evidence would be inadmissible

because it needs to be in writing. So the trust wouldn’t work, even if she could tell us.

As a consequence, the trust is going to have to fail. This property can’t go to Ann, even though she

could said she was a beneficiary. This is where the resulting trust theory comes in – a trust was

intended, a trust was created, but it fails. A court in equity declares her (trustee of failed private

express trust) to be resulting trustee # Ann gets legal title. Who is the beneficiary of a resulting trust

(always!)? The beneficiary of a resulting trust is ALWAYS the settlor of the private express trust.

Here, this is the decedent, Lilah – she has equitable title. Lilah is replaced by personal representative

in her estate – this would have been sister Ann, but she’s now dead, so it’s Ann’s replacement. There

is an order to transfer legal title back to the estate # merger. All the resulting trust theory did was to

move titles back to the settlor – it’s an equitable principle that recognizes settlor’s right to property.

Hiles: No trust will fail for want of the trustee.

If a trust was intended, a trust was created. Legal title goes to trustee.

But it has to fail since 2 key elements are missing, and can’t be proved by admissible evidence.

Settlor didn’t tell us what to do…what do we do? (If there was a provision, it would have been

equitable).

Resulting Trust theory: Court in equity makes the trust a resulting trust. Now we are in implied

trust status # beneficial title is back in Lilah’s estate. The resulting trust trustee is ordered to

transfer title back, then merger, then it’s over.

• What are the duties of a resulting trust trustee? There are no express duties since this

trust is created by the court. With respect to the property, the trustee better protect it –

duty is to preserve and protect that property – hold it subject to order. Order will come

from a court or from personal representative. Duty is to bring that title back. Title

comes back… it merges… it’s back in estate… will would cause the same result … so

use the intestate statute, and property passes to Meade, who was her sole heir at law.

His rights, as an heir at law, vested upon Lilah’s death. But by the time this happens, he’s

dead, so it will go to his estate # to a will if he had one or to intestate statute if he didn’t.

He had a will! So it goes to his beneficiaries under the will, subject to debts and expenses.

Meade’s beneficiaries’ interest vests when he (Meade) died. Why the fight? Since

personal representative didn’t know who to pay.

Lilah’s will couldn’t work since it disposed of all property to Ann in one lump sum. But it could have

worked. Suppose, Lilah’s will said $100,000 to Ann, in trust, to be administered by her as a trustee, as

we have agreed. Residuary clause to Ann, outright. What happens when $100,000 trust fails?

Default to residuary clause. It passes to Ann as a beneficiary, pursuant to residuary clause. We only

had to use intestate statute since trust is missing elements/violating RAP.

Shortcut version; Sometimes, you’ll see that court will transfer the property not to Lilah’s estate, but

rather to Meade. It doesn’t need to go to Lilah’s estate since her creditors have already been taken care

of. But can’t send directly to Meade’s beneficiaries since it needs to first go through debts and

expenses.

Intent: Active Duties: The settler’s intent has to be active duties, not passive duties (Bellows).

Testatrix’s will: share to be held in trust with beneficiary’s mother to be trustee, trust didn’t give

powers or duties to trustee, trust had no discernable purpose # it was a passive trust (aka naked

trust). Here, beneficiary is going to get the property outright, free of trust. What are the duties of a

passive trust trustee? There were no terms, no active duties. But she still has a duty to take care of

the property – preserve and protect that property for the benefit of the beneficiary. Then, like a

resulting trust trustee, hold it subject to order (of court or beneficiary). Duties imposed must be

active, not passive.

• Why not use a resulting trust theory (give it back to settlor)? We know who the beneficiary

is (unlike Spicer), we just don’t know the purpose.

Property: Trust property is an essential element. It’s essential not only to the creation, but to the

c..

• Why must we have trust property? Because trusts are property-based relationships.

Severance of title is necessary for a trust. But it can be thin.

• What kind of property interest? One writer said, “any transferable interest, present or

future, vested or contingent, legal or equitable, in any object of ownership, tangible or

intangible may be held in trust.” Most obvious are from examples: income-producing

property like stocks and the dividends they produce, bonds and notes and the interest that

they produce, cash and the interest that it produces, real estate and the rents that real estate

produces, and businesses and the profits that businesses can produce. Some of these may

appreciate in value. The classic arrangement is that all income to present interest

beneficiary and corpus (principle) goes to future interest beneficiary. This is provided that

the property is presently owned by the settlor and that it can be transferred (unless you have

a public policy concern, and that’s rare).

• There is also others that can be placed in trust, but they’re rare: intellectual property

interests (patents, trademarks), etc. See the restatement, in interest.

• Interest subject to divestment: What is an interest subject to divestment? It’s an interest

subject to a condition subsequent – upon the happening of an event, that interest will

terminate. An interest subject to divestment can be held in trust; just because it’s

subject to a condition subsequent doesn’t meant it can’t be held in trust. Classic

example: life insurance. Sandoe can buy a policy of life insurance on his life, name

Claire as beneficiary. Here interest is subject to divestment. Here interest can be held in

trust. She, for example, could declare herself to the trustee of trust for the benefit of kids,

those proceeds can be used to benefit her kids.

8/20/07 2:00 PM

Read Liberman and Hiles.

• Liberman: focus on Trust Purpose (motivation for creating a trust). Most trust purposes are

defensive – protect/preserve assets from creditors and avaricious little bastards – but they

may be offensive like Lieberman – to influence the future behavior of a beneficiary.

There’s also the issue of illegal conditions attached to a trust: what are the consequences

of attaching an illegal position, what happens to the trust property.

• Hiles focuses on necessity of the trustee, the manager of the trust property. This case stands

for the maxim that no trust will fail for want of a trustee – if he fails/dies, the trust will

go through to make sure that settlor’s intent is carried out. So trustee stands on

different footing – because if lose beneficiary, then lose the trust. TWEN has model trust –

read it and we’ll go over it. Bring the kinship chart so we can revisit family relationship

when we consider the beneficiary of the private express trust.

==

Property as a Required Element of a Private Express Trust: Property is not only essential to the

creation of the trust but to its continued existence. Why? Because a trust is a property-based

relationship. It’s specifically the severance of title to property – equitable from legal – that’s

absolutely essential. Most any kind of trust property – real, personal, tangible, intangible. Most

obvious kinds: cash, marketable securities, real estate, family business. How definite must that

property be in order to support a private express stuff? Pretty damn definite. Restatement said that

trusts can be created only in objects of ownership that are ascertained and definite at the time that

trust is created. But property can be too indefinite – this is problematic. 3 Examples of indefinite:

• Suppose an artist declares herself to be trustee of her next painting. At the time of

declaration, it’s a plain canvas # too indefinite since we don’t know what it will be.

• The day trader who declares himself trustee of the portfolio on 12/31/07 at close of business

# too indefinite.

• Or the property owner who declares himself to be trustee of “some portion of Blackacre.”

What’s some portion? Too indefinite.

Property must be definite at the time the trust is created.

Suppose Sandoe executes a will today, with these provisions: Crimson Hall to Chloe, and equivalent

amount of cash to Clyde, and all rest, residue, and remainder to Tremont St. Bank in trust. Terms: To

Claire for life, remainder to Clyde and Chloe. Crimson Hall to Chloe; cash to Clyde. All rest, residue,

and remainder to Tremont St. Bank. Is this sufficiently definite property? This was a testamentary

trust; assets don’t need to be ascertained until 1) I die, and 2) that will is admitted to probate.

What happens to those assets intervivos does not matter since it’s a testamentary trust. How did

we characterize the residuary of a will? It shifts during course of estate administration # it’s

prospective in its character, shifts from moment of death until distributed. When will Claire’s share

be absolutely determined? Not until all of the claims that take priority go first – at least a year since

creditor statutes, give cash to Clyde. So are these assets sufficiently definite to support a private

express trust? Yes. They let it go because Sandoe’s assets and liabilities are largely determined

based on facts that exist when he dies – we know what assets Sandoe has, that it will produce

dividends and rents, and we know composition of debts and expenses. We don’t know it down to the

penny but it is close enough so trusts of the residuary do work. In the case of a testamentary trust,

what happens intervivos does not matter.

Suppose 3 years ago, Sandoe creates a trust for the benefit of Claire and the kids. I fund that trust with

a bunch of .com stocks, which at the time I funded it, looked good, but then started to look bad (value

of shares declined). What is the duty of his trustee with respect to those .bomb stocks? The duty is to

get rid of the bombing securities and reinvest in good, prudent investments.

• The value of securities may decline

• The ability of a trustee to sell trust assets and to reinvest

Trusts are created for a variety of purposes. Trustee has a duty to replace bad securities with securities

that are better # this is not indefinite since the replacement securities are definite.

When must there be trust property? Brainard: In 1927, taxpayer declared himself to be trustee of his

stock-trading profits for the following year, 1928. This is a tax case that will use property principles in

its resolution. Taxpayer is trying to shift income away from him, who’s in a high tax bracket, to other

family members, who are in lower tax brackets, to increase the overall expendable income within the

family unit – this is a tax motivation for creating trust. What are the 3 most important things in real

estate: location, location, location. In a tax case? Timing, timing, timing. He had timing problem.

Issue: Was a trust created? If so, when was it created? At what point did the trading profits become

subject to it, and was this sufficient to shift the income from taxpayer to other lower-bracketed family

members. Trust property is absolutely essential to the creation of a trust # Restatement: an interest

which has not come into existence cannot be held in trust. Was there a property interest in

existence in 1927, when he made the declaration? Nope, he had no present property interest, he hadn’t

made a profit, there was no subject matter of the trust. He could have made a binding agreement to

create that trust if/when there was a profit. He did say he was going to do it – but consideration is

missing. So this is, at best, a gratuitous promise, unsupported by consideration. When did the profits

come into existence and when did the trust attach? If the trust attached immediately, then ok but if not

– if there is intervening time, then it’s taxed to taxpayer individually. Restatement: The intent to

create a trust must be present at the time the trust is created. But can’t make a trust without

property. So he has to do it again. He’ll have to redeclare in 1928, when he has a profit. He did

redeclare – he expressed this by conduct (Restatement says “by conduct” is ok). He conducted

himself as a trustee, by crediting the profits to the trust # he’s essentially saying that he declares

himself trustee. Was it possible for him to do what he wanted the way that he did it. Every time he

makes a profit, he says “I’m trustee” # does this work? He’ll only know he made a profit when

broker told him # time lapse. This cannot work since there is an instant of time between his

earning the profit and the declaration # so it’s properly taxed to him and not the trust. You

need intent with respect to the property itself coupled with the property simultaneously, at the

same time – this is the rigid CL rule. This case raises an important distinction: between the

creation of an intervivos trust and the formation of a K, it’s important because the requirements of

the 2 are different. Taxpayer in Brainard was not creating a trust since he wasn’t making a present

transfer of an asset or declaring himself trustee of an existing asset – and intervivos trust requires a

present transaction (now); this is unlike a testamentary trust. What taxpayer was doing here was

more in the order of a K – he was promising to create that trust at some point on the future. But it was

a gratuitous promise, no consideration. He did not create a trust nor created a K to create a trust in the

future. We don’t need consideration when it’s a gift but a promise to do something in the future

does require consideration.

• To make this work: Should’ve declared yourself trustee of the securities or the cash to

buy the securities # then a trust would be created immediately & could be properly taxed.

Suppose Sandoe’s mom executes a will, wherein she leaves me significant assets outright. Sandoe

does not need the assets and he’d rather she put them in a trust for the benefit of his kids. Sandoe’s

mom refuses. Sandoe explains this to his kids. Today, Sandoe declares himself to be trustee of all

these assets for the kids benefit # after grandmother’s death, I’ll split it into two shares, and each child

will get until, trust terminates at age 40 and then they get the corpus. At her death, Sandoe says that he

doesn’t want to do it, he needs the money. The kids are upset and find an attorney – can they make

him do it? [see later]

Trust Property – how definite; trust funding devices

TRUST FUNDING: What is it? Getting property into the trust. Most typically, I make a transfer,

“me to Tremont St. of cash and securities”; I declare myself trustee of cash and securities; or, in my

will, I devise my property to Tremont St. in trust. These are most typical but there are others. Here

are other examples: life insurance trusts and pour-overs.

Life insurance trusts: A life insurance trust is a trust where insurance is paid to a beneficiary,

who stands in a fiduciary capacity. Trusts are fiduciary relationships; they are enforceable in equity

– they create equitable rights and duties. Life insurance is a contractual relationship that creates legal

rights and duties. Here is an arrangement that combines the two: trust & contract. A life insurance

trust is a trust where the initial property is a policy of life insurance issued on someone – usually the

settlor’s life. The initial property is the physical policy itself, or at least expectation of the death

benefit when the insured dies. Eventually, the trust will be the death benefit, cash proceeds of policy.

The insured creates a trust (usually settlor) and physically delivers the policy to the trustee, pursuant to

a trust agreement. The agreement provides that the trustee will physically hold those policies until the

settlor/insured dies. Then, the trustee will use his best effort to collect the death benefit, the cash.

Thereafter, we’ll apply those proceeds in accordance with the terms of the trust to accomplish the

purposes of that trust. Here, it’s simply a device to provide property, a funding device. To accomplish

this, the settlor must first designate the trustee as the primary beneficiary on that policy (as a trustee,

not individually) so that the insurance company will pay that death benefit to the trustee pursuant to the

K. This is the minimum.

This brings up Brainard – CL of trusts. In some jurisdictions, the mere expectation of receipt is

considered to be enough of a property interest. There, no physical delivery of the policy is necessary.

This relaxes the CL rule in Brainard. Where this is not so, the trustee will need to hold the physical

policies (there will have to be delivery) or some other property that is deemed to be sufficient. These

trusts don’t operate until the settlor dies. So one resolution is to deliver a minimal amount of property

– whatever is deemed sufficient – this is called token funding. In MA, $10 works but there is

jurisdictional variation. But where mere expectation of receipt is sufficient, no delivery and no token

funding is necessary. So this is a contractual relationship and a trust relationship – 2 tiers of

relationship among 3 parties # contractual relationship – settlor of trust and insurance company

entered into a K. Terms of K: In consideration of the payment of periodic premiums by the insurer to

the insurance company, the company will pay the death benefit to the named beneficiary, who is the

trustee of the trust. The beneficiary will be an individual or corporate entity, as they are trustees. Then

you have the trust agreement: Settlor and trustee entered into a trust agreement, which provides that

the trustee will either hold the physical policy themselves or the expectation of procieeds or token

funding until the death of the settlor/insured, at which time the trustee will use best efforts to collect

death benefit. When the death benefit has been collected, we’ll apply that is property to accomplish

the objectives. The term “beneficiary” crops up twice: beneficiary of the K (the trustee – individual or

corporate entity) and beneficiaries of the trust (Claire, etc.) # they are Separate Beneficiaries!!

As with all trusts, this trust can be revocable (if settlor reserves right to revoke) or irrevocable

(continue on its terms until it terminates). This is one of the distinguishing characteristics of trusts. If

this trust is declared “revocable,” the settlor/insured can terminate the entire relationship at any

time. How? Most obvious is to revoke the trust, so property returns to him – this works for the trust;

but what about K rights? What K rights does the owner of that K have?

Package of ownership rights includes:

• Change the beneficiary from one person to another

• Stop paying the premiums # policy will lapse

• Assign it, gratuitously or for consideration: Give it away or sell it

• Cash it in (get cash value)

What rights does the beneficiary have in this situation? You want to get paid.

• Your right is to be paid the death benefit so long as the insurance policy remains in full

force and effect and so long the beneficiary hasn’t been changed from you to someone else.

• Can your rights as a beneficiary be divested? An interest subject to a condition subsequent

can be held in trust. An interest that can terminate upon the happening of an event can still

be held in trust. So… yes, your rights can be divested in any one of the above ways. When

you’re analyzing a life insurance trust, appreciate that you’re dealing with 2 separate

legal documents ! analyze each of the duties, rights separately. One is legal and one is

equitable.

Suppose that the trust is said to be IRrevocable – I do not reserve the right to revoke. So cannot revoke

the trust. But you still have ownership rights over the K. So to make this truly irrevocable, you

have to assign ownership in that insurance policy to the trustee so the trustee has all the

ownership rights (but subject to equitable obligations of the trust).

• Who’s responsible for the premiums?

• There is another distinction: a funded insurance trust and an unfunded insurance trust.

o Funded: Sufficient property will be transferred to the trustee.

o Unfunded: No property is transferred to the trustee; settlor continues to pay the

premiums

There is unfunded revocable and funded irrevocable.

• In unfunded revocable, settlor usually hangs on to the policy, settlor pays premiums,

property, expectation. Settlor reserves right to revoke. [UR is more common because FI are

usually reserved for more wealthy individuals because there is a tax motivation. Objective

is to get the proceeds of the life insurance out of the estate. The cost to do this is the

relinquishing of control.]

• In funded irrevocable, trust is declared irrevocable and policy/ownership is transferred and

sufficient additional property to pay those premiums is transferred.

Life insurance is a common asset of people’s estate. In larger estates, you don’t see life insurance

often except in irrevocable life insurance trust or where liquidity is a problem – such as family

business. Might have life insurance in these cases for debts and taxes.

Gordon: Whether or not this device was more testamentary than intervivos and ought to fail for that

reason. This brings us back to the hypo – mom leaving assets to me. Can Sandoe’s kids make him

perform, was that an enforceable trust upon my declaration? This goes to the nature of Sandoe’s

property interest at the time – when his mom was alive, Sandoe only had an expectancy interest #

this is not sufficient to create a private express trust. So he didn’t make a trust! The only other way

they’ll get him on this is consideration for the promise, which was absent # no consideration, no

property

It was ok in Gordon. There, they talk about expectancy of receipt. It works there; why? In a life

insurance policy, the trustee acquires a legal right to be paid provided that the policy is still in

full force and effect. The right of payment passed to them presently (more than expectant interest –

it’s a legal right) # this is deemed enough and is distinguished from a mere expectancy. This right of

receipt is a property right and it’s enough in some jurisdictions. Where it’s not true, you must

physically deliver the policies or a token fund.

Clymer and Pinion revisited…

The will used in a pour-over arrangement is widely used in estate planning. The property flows from

the will to a trust in Clymer. Usually, it’s the intervivos pour-over trust that contains the major

ministerial (administrative) and gifting provisions of a client’s estate plans. Into that trust flow assets

from a variety of sources for a unified scheme of management and distribution.

In Clymer, Prof. Mayo created presently a revocable, amendable, unfunded intervivos trust. At the

same time, she executed her will, which left all of her tangibles to her husband and her residuary clause

pour-over the rest to her freestanding trust. The trust provisions are common. The trust called for 2

trusts: A trust (marital deduction trust) and B trust (family trust). The design was a tax design to take

full advantage of what was then the marital deduction. At the time she executed her estate plan, ! of a

decedent spouse’s estate could pass tax-free; this is function of A trust. Rest of estate was subject to

tax, and went to B/family trust. Since then, Congress changed it # all property passing to a surviving

trust is tax-free. The terms of the 2 trusts were different.

• In the A trust, the surviving spouse got all income for life. On his death, he was given a

general power of appointment. Powers of appointments are delegations – he decides what

happens to the property when he dies. One of its distinguishing characteristics: Prof

Mayo’s husband can appoint the property to anyone but himself (because its in will). He

could get into the corpus the principal of that trust – trustee had discretion to do invade

principal and pay spouse during lifetime, and spouse could ask for distributions of

principal.

• In the B trust, he had a very limited interest. After the payment of certain gifts, all he got

was an income interest for life. On his death, that trust continued on for the benefit of

nieces and nephews until they reached 30, until that trust terminated, and the corpus was

given to BU. Why did he have such a limited interest? Tax interest. He only had a life

estate so it doesn’t get taxed under his estate.

A/B trust arrangement illustrate a few points:

• Utilizing multiple trusts within the umbrella of a parent trust to accomplish tax

motives – transfer taxes.

• Hybrid trust (the B trust) that accomplishes private and public purposes. Spouse,

nieces, nephews are private – private express trust. But when the youngest niece/nephew

turns 30, it turns to a charitable trust.

This was also a life insurance trust # all of her life insurance policies were payable. It was also the

beneficiary of her retirement Ks at BU. So when she died, property would come into trust from

residuary from will, life insurance benefits, retirement benefits # this provides a uniform scheme of

property management and distribution.

Another potential source of funding- Powers

Suppose that Professor Mayo’s parents created a trust for her during their lifetime (they didn’t but

imagine that they did). Terms: “Income to Claire for life, and upon her death, she’s given a power of

appointment over those assets (general power of appointment).” So Mayo has a life a life estate and a

power of appointment. She can appoint her power to anyone but her. When she dies, she’ll exercise

the power of appointment in favor of her trust such that her family’s trustee will pay all assets over to

trustee of her two trusts.

When we considered Clymer in estates, the issue was could you amend Lydia’s trust after you execute

the will and after you execute a codicil without going through all the requirements of amending a will?

The argument was that if you amend your trust, you’re really altering the will, and you can’t do this

without going through all the formal requirements of will statute. (Intervivos trusts don’t have these

requirements.) But the court held that this was OK, provided that you comply with the Uniform

Testamentary Addition to Trust Act (203(3)(b)), which extended the benefit of Pinion to a trust. In

Pinion, they let it go since the intervivos trust was funded, had significance intervivos. But Clymer

trust does not have significant intervivos.

The necessity of trust property to support a private express trust: Must have property at the time you

create the trust. Goes back to Brainard – you need sufficient property to support the trust, property has

to be in existence at the time you create the trust.

Suppose in Clymer that were was no insurance, no retirement benefits. What’s left to fund the trust?

The will in the pour-over arrangement. At CL, is this sufficient? It’s an expectancy # so, under CL,

this will not cut it. It works in Clymer because the statute says so (provided you comply with 2033b) –

the will must reference the trust, the trust has to be executed prior to simultaneously with. The

consequence is that you don’t need property when you create the tax – it’s a statutory override of CL

rule – mere expectation is enough because statute says so (203(3)(b)).

8/20/07 2:00 PM

Read the Trust, focusing on Article 20: Paragraphs 6-12 – issues with respect to trustees

Required Elements:

The beneficiary is an essential element of a private express trust. How come? There has to be

someone for whom legal title is held, someone who holds legal title, and someone to enforce the trust

against the trustee so the trustee does not personally profit from his management of assets.

Consequences of not having a beneficiary – Spicer # the trust fails. But there it happened at the get-

go. What if it happened later? Suppose I set up a trust today for Chloe: “income to Chloe for life, and

on her death, property to her children in equal shares.” What if, upon the death of Chloe, she has no

kids? Yes, I should have seen this coming (provided for a “gift-over”) – if I don’t, the trust will fail,

and it will return to me (trust back – dead-or-alive; reversionary interest).

Whether or not a beneficiary has been designated with sufficient definiteness is a problem.

• Specifically naming beneficiaries is usually not a problem (to my kids, Clyde and Chloe).

• But trusts often involve the creation of future interests: beneficiaries will often be

designated by class. Ex: “my children/issue.” What may seem sufficient to settlor might

not be. Ex: Suppose, today, I create a trust with Tremont St. Bank for the benefit of my

nieces and nephews. I transfer cash and marketable securities to the bank. Terms: “All net

income will be paid to my nieces and nephews in equal shares until the eldest reaches the

age of 25, at which time, trust terminates and corpus paid to my nieces and nephews then-

living in equal shares.” Net income is income net of trust expenses (attorney’s fees,

accountant’s fees). Is this sufficiently definite? What nieces and nephews, when nieces

and nephews, the number can increase and decrease. Suppose they all die before the 1st one

hits 25. You better draft for this – or else, no beneficiaries to whom to pay (resulting trust

theory). Today, we don’t know when that trust will terminate. Is this class sufficiently

definite?

Restatement of Trusts provides that members of a definite class of persons can be beneficiaries of

a trust. A class is definite if the identity of all of the individuals comprising its membership are

ascertainable. If members of a class are not ascertainable, it’s too indefinite # trust could fail. The

Restatement continues, a class is not indefinite because it consists of a changing/shifting group,

provided that the identity of the members is ascertainable. A shifting group is OK because at any

given moment at time, that class is fixed if you know who’s in it (ie, membership is ascertained).

Trusts typically pay their beneficiaries on a quarterly basis – we know who’s alive this quarter, and

who can take.

In the nieces/nephews hypothetical, do we know who’s in the class? Reconsider family relationships -

Lineals/Collaterals Handout:

• Consanguinity v. affinity:

o Consanguine: blood relationships; Affinity: related by marriage

• Lineals v. collaterals:

o Lineals: all those in the direct lineal line descending (kids, grandkids) and

ascending (parents and grandparents)

o Collaterals: outside of that lineal line, but are related to the descendent through the

lineal line.

• Descendent will be creating testamentary trust; Settlor will be creating intervivos trust.

• Remembers, degrees of relationships. All jurisdictions compute kindred using the civil law

method of computation. Jurisdictions incorporate these relationships in their intestate

statutes (like MA ch. 190 s. 3), when they define heirs of law and sometimes next-of-kin.

Consequently, classes are definite if subject to a statutory definition (like MA intestate

statute) – they have a precise legal meaning, and that renders them sufficiently

definite. Benefit of a class is flexibility – shifting, increases, decreases.

Sometimes class designations are not always flexible. Suppose, Claire and Sandoe marry. Sandoe

wants to benefit the kids of her first marriage – can he use the designation “child” if he wants to benefit

her issue? Nope, because they don’t fit since they are an affinity relationship so not within

normal/usual definition, which is limited to my blood kindred. Sandoe can redefine it, expand the

class to include issue of Claire and my issue. He could also diminish the class – exclude someone.

Another problem: How do class members take? Equally or otherwise? See PDQ family chart.

Assume PDQ is settlor of the trust. How do you divide income and principle among multiple takers

(beneficiaries) when they are all of the same degree of kinship to the settlor and when they are not?

Here, kids, grandkids, and great-grandkids. Can divide per capita (by the head – everyone gets an

equal share) or per stirpes (aka by the stock aka by right of representation). Suppose that PDQ creates

a testamentary trust, at his death, in his will. He dies survived by 4 kids, 6 grandkids, and 2 great-

grandkids and creates a trust for their benefit in his will:

• “Income to my children, in equal shares, until the youngest reaches the age of 50, at which

time, trust terminates. Corpus to my children then-living in equal living, in equal shares.”

Does this work? But what if C dies before the youngest (“D”) reaches the age of 50? I

used the term “children” to describe the class – and it’s a term of single-generational use;

it’s not a multi-generational term. So A, B, and D would get all the income. PDQ wouldn’t

have wanted this (C’s share to not go down the line).

• What if we use the term “issue” instead? This allows it to extend down, to next generation.

So if C dies, goes to C-1, C-2, and C-3. When trust terminates, C’s share of the principle

would likewise go to them. Issue can also extend beyond grandkids, so if C-1 predeceased,

it would go to C3P0 and R2D2. So when youngest reaches 50, then goes to issue, then

living, per stirpes.

• What about the term “family”? Is this sufficiently definite? There is no legal definition of

the term “family.” Its absolutely clear to settlor; but who does trustee apply it to? Will

result in a construction action – see if admissible evidence shows what “family” means.

What about the term “friends” or “relatives”? Also too indefinite.

How to address this: You can create your own class so long as the language is very explicit since it’s

susceptible to only one interpretation (otherwise – you’ll get a construction action).

Can you give a trustee the discretion to determine who are the beneficiaries as among a class of

beneficiaries? Yes, you can do this a couple of ways.

• Give the trustee the discretion to alter the proportions among members of a class. For

example, can allow trustee to vary the proportion between the niece and nephew. Every

quarter can give more or less, depending upon need.

• You can also give trustee discretion to exclude/omit in favor of other members of the class.

You can do this with language.

o Income to be paid to and among my nieces and nephews, in such proportions, as my

trustee, in his discretion determines – all beneficiaries have to get something, but it

doesn’t have to be equal.

o Add grandnieces and grandnephews: “Income to be paid to any one or more of my

nieces and nephews and grandnieces and grandnephews, in such amounts and in

such proportions as my trustee in his discretion deems appropriate. In any given

pay period, trustee can decide. What’s the benefit of this? Flexibility. It allows the

trustee to respond to needs of all of my siblings, children, and grandkids. Trustee is

like surrogate parent – taking resources and using as needed. The downside? It’s a

lot of discretion, potential for abuse. Can it be remedied? Yes, but it comes down

to the operative word – who do you trust, pick a trustee who you trust. However,

the class has to be ascertained (it was here).

When may/must those beneficiaries be ascertained? The standard is “ascertained at the time the trust

is created” or “ascertainable within the period of the Rule against Perpetuities (RAP).” Almost always,

and for our purposes, it’s ascertained.

There has to be a trust purpose – a reason why the property is being held. It has to be certain/definite.

No active duties # no trust because no ascertainable standards against which to measure

conduct. We’ve considered the consequences of not having a purpose – Spicer and Bellows.

There is a corollary to that: suppose you do have a purpose/reason and suppose it’s accomplished by

the trustee? The trust is then over # what happens to the property? Suppose I set up an education

trust for the benefit of my nieces and nephews to get them all through college. I want my trustee to use

all the income and principle so that when all nieces and nephews graduate, there won’t be any left.

What happens if money is left? Trust terminates # resulting trust theory. If the purpose is

accomplished, then the trust terminates. If a foresaw it, and made provisions, that would be OK (ex:

scholarship for Suffolk).

The duties must be legal – no trust can be created to impose illegal duties upon a trustee or to

accomplish illegal purposes. Illegal purposes is usually clear – like a trust to induce money laundering

or other criminal behavior. But, with respect to others, it may be less clear – ultimate question: would

it be to the public detriment to enforce this? Depends on facts and circumstances.

Liberman: Illegal conditions. The gift here is conditional – “to kid, provided that” – a condition

calculated to induce future behavior (to do or refrain from doing something). Here a trust is used as a

strategic vehicle, offensively, to encourage future behavior. Is there a problem in imposing a condition

on a gift? “To you, kid, provided that you don’t marry the heretic.” Did these provisions impose such

a restraint on marriage as to be void on public policy grounds? The court sets forth principles:

• A condition made to induce marriage is not against public policy

• A condition calculated to induce marriage in a manner desired by settlor is not against

public policy.

• But a condition calculated to induce a person to live in adultery or celibacy is against public

policy # illegal condition.

Suppose the condition was “You’ll succeed provided that you don’t marry a Catholic.” Or “you’ll

succeed provided that you marry someone of our faith.” If the court upheld this kind of provision, this

would be a restriction against freedom of religion # void on constitutional grounds (Gordon v.

Gordon in MA). Here, the restriction had nothing to do with religious belief; it only had to do with the

background of the individual so it didn’t affect freedom of religion. Suppose, Harry converted to

Anglicanism and that the provision was “that you return to our Temple and practice our faith” – this

would be problematic. Suppose, testator had been a member of the People’s Temple – “Harry, you’ll

succeed provided that you marry someone from our People’s Temple.” That someone marry

someone of a particular religion/faith has been upheld since there are many to choose from. But

when the class gets so small – People’s Temple – the question is one of reasonableness # is this a

restraint on marriage?

Was dad trying to generally restrain Harry from marrying? Nope. Was he trying to force Harry to

practice the faith? Nope. The problem is the way he did what he did – the intent, as expressed in his

will, was to prevent any marriage that was not approved by the very people who could profit from

withholding the granting of permission. They were given no direction, no criteria against which to

measure the granting/withholding of permission. The lack of limit was the problem. If you’re going to

draft one of these things, you have to know where that line is – there is jurisdictional variance.

The other issue presented here is what is the effect of an invalid condition on the rest of the trust.

What if there is an unreasonable condition, that goes against public policy – what’s the impact on the

trust? The trust doesn’t have to fail if you can sever that provision without destroying the ultimate

purpose of that trust. Courts do this – they ignore the condition. Suppose, Sandoe sets up a trust for

Clyde. “Income to Clyde, provided that you never support your kids, and, if you do, income to Chloe

until you stop.” This is illegal since he has a legal obligation to support his kids – he’ll get the interest

even if he supports his kids. 3 other variations:

a. In my will I create a testamentary trust for kid Clyde: “Income to Clyde, provided on my death,

you’re divorced from that creature who I detest. If you’re not, income to Chloe until you come to

your senses.” You get divorced.

b. Clyde and that creature, Cassandra, are living apart. I like this, so I set up a trust: “Income to

Clyde, provided that you stay separate and never resume marital relationship and if you do, income

to Chloe until you separate again.”

c. In my will, I leave substantial estate to Clyde outright provided that he’s not then-married to

Cassandra, the shopaholic. If you are married, then the corpous is going to be held in trust, until

your marriage to her terminates (death, divorce – Cassandra’s death, then you get it; your death,

then Chloe gets it).

Trusts of this nature have been attacked by beneficiaries on the ground that they are illegal on grounds

of public policy since they are designed to encourage divorce. Whether courts will sustain that

argument depends on the primary motivation. If the primary motivation is to disrupt the family,

then the court will probably find it against public policy because of the motivations it sets up #

illegal. Where, however, the principle motive is to provide support, preserve assets (to be sure

that assets are not gobbled up), then the court may enforce. This is the position of the 2nd

restatement of trust and some of 3rd restatement of property. However, 3rd restatement of property

provides that kids should be able to live their lives free of these kind of conditions and encourages

courts to not enforce them.

OFFICE OF THE TRUSTEE:

What is the trustee? The manager of the trust property, who’s charged with carrying out the terms of

the trust, to give effect to settlor intent. There are 2 requirements of office (who can be a trustee):

• Capacity

• Acceptance of the office

But not all should be a trustee! See fiduciary relationships.

The trustee must have legal mental capacity. The standard is the same as to take, hold, administer

property for yourself (ability to manage property for yourself) – this is higher than testamentary

capacity. A minor can take and hold property, but can’t administer – need a guardian or conservator

for that. A private corporation, like a Tremont St. Bank, can have capacity if they are authorized by

statute and by their charter. Usually, the trustee is an individual or individuals or a corporate entity or

some combination. There are others who can be a trustee like an unincorporated partnership.

Acceptance of the office: This considers issue of nomination and appointment. In general, you don’t

become a trustee unwillingly or unknowingly. Service as a trustee is a voluntary matter and you

need to affirmatively accept the office of trustee. There a 4 specific exceptions. Accept by words

(written, oral), or conduct (like Brainard), but usually in a written document.

Distinguish between testamentary trust and intervivos trust (transfer or declaration).

Becoming trustee of Testamentary trust: There is jurisdictional variance, so we’ll use MA – formal

proceeding (similar to estate administration). Once that will is allowed and executor appointed, the

court enters its decrees. We have a valid will and someone with authority to manage estate assets.

Then, the nominated trustee files a petition in probate trust that he be appointed as trustee of the

testamentary trust, which is part-and-parcel of the will itself. If that will fails for any reason, so will

the trust (unlike intervivos trust, which has independent legal significance). No need to appoint a

trustee until you know how much prior claims will take. The corpus of that trust depends on liabilities.

When petition goes in, court issues formal citation that will describe the pendency of the proceeding:

that court approved him as trustee – purpose is to put all interested parties on notice so court has

jurisdiction over them when it enters its decree and to allow interested parties an opportunity to object.

Who’s interested? Beneficiaries, who could be adversely affected by the maladministration of the

trustee. Beneficiaries might not even be born – so a GAL is appointed to represent unascertained

contingent interests. Grounds for objection include: capacity, ability, assets may be too sophisticated,

COI, or bad attitude towards a beneficiary. Trustee has vast discretionary powers – beneficiaries may

be concerned. The nominee is an important statement of intent – it’s likely that they’ll be appointed.

If someone objects, there will be a hearing and they’ll use him or someone else (hopefully trust would

have provided for that). If no one is mentioned, court uses its discretion.

Trustee has to provide a bond, just like executor. In many jurisdictions, trustees can serve without

if the settlor/executor says that they don’t need to provide a bond (MA requires all fiduciaries to be

bonded). They may, in addition, have to provide sureties, unless settlor says no (but court has

discretion).

Commencing: getting the assets under possession and control and changing the title over. In a

testamentary trust, personal property comes through the executor and then is delivered to the trustee

and real property goes straight through subject to debts and expenses. All the assets are duly

reregistered in the trustee’s name.

Intervivos trust – free-standing, independent trust. More straightforward since it’s not subject to court

supervision in the ordinary course. Rather, it’s a private deal, between settlor and trustee.

• Transfer trust: The settlor will sign the trust, as will the trustee. This creates the trust.

Upon signing, the trustee accepts the office. Ex: Sandoe’s model trust – settlor and trustee

signed “in acceptance of the office” (affirmative acceptance). Checks are deposited into a

new account, etc.

• Declaration of trust: Sandoe declares himself trustee of securities, cash, Crimson Hall. The

settlor is the settlor and the trustee (he retained legal title) so only settlor signs, but in both

capacities (as settlor and as acceptance of office of trustee). At this moment in time, they

can change their position, they’ve accepted duties, conferred rights onto the beneficiaries of

that trust. This is one exception to delivery requirement – but this is the preferred practice.

So there is formal acceptance of the office … so the office can be rejected. You cannot be forced to

serve; it’s voluntarily with 4 exceptions:

a. the constructive trust: an individual is appointed as trustee, whether they want to or not. This is

because court is remediating a wrong in order to prevent unjust enrichment.

b. resulting trust: an individual is appointed as trustee, whether they want to or not. Trustee of failed

private express trust is converted to a resulting trust (remedial: to move property title back to

settlor).

c. Once trustee has accepted office, they cannot unilaterally turn around and alter that – must go

through formal office. They remain trustee until they go through a formal process.

d. When a trustee dies, his executor becomes the de facto trustee of that trust. Sandoe is trustee of

benefit of Clyde and Chloe. Sandoe dies before it can be fully administered. Kindregan is

executor so he becomes de facto trustee until there is a replacement.

8/20/07 2:00 PM

Next time: no case assignment; today, we’ll consider the office of the trustee!recommended resource

reading: memorandum on TWEN page put up today or 10/25; also recommended reading w/respect to

statute of frauds, statute of wills and parol evidence rule; consider: trustee powers, go back into model

trust and look at Article 15, lists powers a settlor can give to trustee

Trustee must have sufficient mental capacity to manage property and must affirmatively accept the

office, with exceptions. Key question: Is trustee necessary to the creation and the contingent

existence of a private express trust? Yes and no. The rule here is a bit more relaxed, so you don’t

lose the trustee during the administration of the trust, before all of the trust purposes have been

accomplished.

• Once appointed, that trustee can die, resign from office, be removed from office, lose

capacity (even before the trust commences).

o For example, in a testamentary trust, the nominated trustee does not want to accept

the office. It was a great idea then, but not anymore and decline the office.

o The court may not appoint the trustee since they didn’t think he was fit. (Similar

grounds to executor of a will).

o What if testamentary trust doesn’t provide for a trustee.

Consequence of not having a trustee at the outset or losing him:

• Hiles: No trust will fail for want of a trustee. If there is not one at the outset because he

declines, we’ll get someone. If we lose one in the middle of administration, we’ll get a new

one. We don’t want to frustrate settlor’s intent – his purpose must be accomplished.

• Exception to this rule: Where the settlor ties the accomplishment of the objective to one

trustee and one trustee only, it’s that trustee and nobody else, if you lose that trustee,

then the trust fails.

o Ex: In my will, I leave my entire residuary estate to Kindregan in trust, to be

distributed by him to such charities as he shall personally select. $ he’s the only

one who can do this. He and Sandoe have an understanding. Suppose he dies

before he can completely distribute those funds? The trust will fail.

• Conclusion: While a trustee is necessary to manage, a trust won’t fail if you lose him in the

middle of administration or if you don’t have one at the outset.

LOSING A TRUSTEE: Resignation, Death, Removal

Resignation: Once a trustee has accepted the office, the trustee can’t subsequently reverse that

decision unilaterally. Their act of acceptance is irrevocable, at least as far as a singular action on

their part is concerned. To be relieved of their duties, they must formally resign, and the

resignation must be appropriately accepted in an appropriate fashion. A trustee can resign in one

of three ways:

• With the permission of the court that has jurisdiction (MA: Probate court)

• In accordance with the terms of the trust, if there are such terms (there should be)

• With consent of all of the beneficiaries, provided that they have capacity to consent.

It would be a breach of trust for a trustee to turn over trust assets to another trustee without doing one

of those three and he’d be personally responsible for what would happen since he wasn’t officially

relieved of duty – you can’t just walk.

When he does properly resign, and that resignation is accepted, this relieves him of duty prospectively

(from that point forward), but not from liability for what he did while in office. To be relieved

from that, trustee must render an accounting and that accounting has to be appropriately accepted.

• Permission of the court: The court has discretion to accept a trustee’s resignation and allow

a trustee to resign. They are routinely accepted since it’s in nobody’s interest to have

someone who doesn’t want to serve serving. So it’s allowed generally, unless it would be

detrimental to the trust.

o Exception: Involuntary service rule. Suppose a sole testamentary trustee wanted to

resign. How long will it take to appoint a replacement (with notification and

jurisdiction requirements)? Probably a few weeks. Meanwhile, who manages the

store? This would be unduly detrimental, so the trustee may require that the trustee

stay in office until someone else can be appointed – a matter of timing, continuity of

management because the assets need this.

• Terms of the trust. A trust instrument can and should provide for resignation – that a trustee

can resign and how that’s to happen. Sandoe’s trust article 20, item 10 has this. What are

the typical requirements of resignation in a trust?

o Written notice be delivered from resigning trustee to settlor, co-trustees if there are

any, and beneficiaries (or any combination that the settlor wants). The writing is

required to fix the time of resignation for purposes of liability. Suppose the market

crashes, valuations are dropping, beneficiaries are concerned, call the trustee, trustee

says he’s resigned, didn’t you get my e-mail? The writing and delivery

requirements eliminate these problems.

• Consent of the beneficiaries. A beneficiary can consent to a trustee resignation provided

that they have capacity to manage and transfer property, which is a higher level of capacity

than testamentary capacity. What about minors, a class of beneficiaries not yet closed,

unborn people, etc. – these are Unborned, unascertained beneficiaries and they have a

protectible interest. GAL can be appointed to represent their interests. But you’re probably

going to not get a GAL, so you’re probably not going to be able to get all the beneficiaries,

which is why the terms of the trust ought to provide for it. If it’s not in the trust, you need

to petition the court # time, money out beneficiary’s pocket.

• Resignation cuts off prospective liability but not liability as to what trustee did while in

office. To do that, there must be an accounting. However a trustee resigns, the resigning

trustee has a duty to account. An accounting is a duty – a CL and statutory duty imposed

on all trustees to provide information to all interested parties (beneficiaries). Specifically,

it’s a financial report for all transactions that are entered into by that trustee during the

period of that accounting. For example, there will be a report of all receipts that are coming

in, the dividends being earned on the stocks, the interest earned on the notes, cash, rents on

the real property, profits earned on the business being held in trust, etc. It’s also a report of

all disbursements going out – payment for expenses of administration, trustee’s fees,

attorney’s fees, accountant’s fees, investment advisory fees, taxes, distributions to

beneficiaries. Also includes all sale transactions, gains, losses. The accounting has 3

functions:

o A reporting function to those beneficiaries – to provide the beneficiaries with such

information as they need to evaluate the performance of the trustee, to see that the

trustee is properly administering that trust so they can protect themselves against

maladministration.

o Redress function. This account is the record upon which injured beneficiaries can

seek judicial redress for maladministration when they have been economically

harmed. Ex: PDQ stock is dropping dramatically, it’s prudent to sell and cut losses,

but trustee doesn’t sell, and receives far less than he should have. Beneficiaries can

complain to a court that trustee was imprudent for not selling, and ask courts for a

difference (“surcharging the trustee out of pocket”). Another example: If trustee is

charging excessive fees for managing the trust.

o Relief from liability. This is the most important function to the trustee. Once that

trust account is accepted in an acceptable fashion, we call this allowance of

accounts. Once it’s been allowed in an acceptable fashion, then the trustee is

released from liability from all matters covered on the account, that cover the period

covered by the account.

o How long are accounts rendered? On a regular periodic basis, about once a year.

But here, it’s filed to release the trustee from liability – their final account.

Death: Death of the trustee terminates the office, with respect to the deceased trustee. Distinction

between death of a co-trustee (2 or more when one dies) or when sole trustee dies. There are issues

that are common to both, but they are treated differently. Issues:

• What’s the impact on the trust?

• Does there have to be a replacement?

• How long will it take to replace that trustee?

• What happens until such time when the trustee can be replaced (interim):

Co-trustees: Kindregan and Claire and trustees of Sandoe’s trust for benefit of kids Clyde and Chloe.

Claire dies.

• Impact on the trust? No immediate impact on the trust since there is a surviving co-trustee.

• How about a replacement? Depends on settlor intent. If it didn’t matter to Sandoe, no need

for replacement; if he intended for there to be at least 2 trustees, she must be replaced, and

how long will that take? Depends on if trust is testamentary or inter vivos..

• How long

o if testamentary trust, then this will take a while on account of the notice

requirements

o If intervivos, just find successor trustee and have him file an acceptance. So it

won’t take long.

• Interim: Kindregan can continue to manage the trust until Claire’s replacement comes on

board. It comes with the nature of the title – they have legal title. As between themselves,

they have “joint title,” which has survivorship. So he can manage as sole trustee until her

replacement accepts, then the title is joint again as between Kindregan and her replacement.

Sole trustee: Claire is the sole trustee, she dies # immediate problem: we have no trustee! We need

one ASAP. Claire’s personal representative (executor/administrator) is immediately the de facto

trustee of Sandoe’s trust until such time as their can be an appointment of Claire’s successor. If

Kindregan was executor of her will, he becomes de facto trustee of Sandoe’s trust. He doesn’t

necessarily succeed; he’s just de facto. This – was an exception.

Personal representative of a deceased trustee becomes de facto trustee whether they want to or not.

The duties are the same as a resulting trust trustee or passive trustee – preserve and protect the assets

until we get a legal replacement. After the real replacement accepts, the de facto trustee has to do an

accounting and to turn the assets over to the duly accepting successor trustee. The account is (1) for

deceased fiduciary for what he did before he died, and (2) releases de facto trustee for what they did

while they were de facto trustee.

Trustee Removal: Trustees can be removed in one of two ways.

• By a court for cause. Courts may remove trustees if their continuing to act will be

detrimental to the beneficiaries, matter is one for exercise reasonable discretion of the

courts. Quincy Trust v. Taylor, 317 Mass 195 is an estate case that applies equally to all

fiduciaries.

• By the person who’s authorized to remove a trustee, whomever the settlor gives that

authority.

• Typical grounds for removal:

o Breach of trust such as self-dealing: taking those trust assets and investing them in a

personal business venture and personally profiting.

o Neglect of duty: trustee is not paying attention, such that trustee isn’t making

distribution to beneficiaries in a timely fashion or trustee files tax returns late

o An irreconcilable Conflict of interest: The trustee is personally engaged in a

business that is in direct conflict with a business being managed by him as trustee.

o Unfitness to serve such as loss of capacity or lack of ability (assets are too

sophisticated for this person to manage).

o Abuse of discretion: ex, playing favorites among beneficiaries

o Failure to cooperate with co-trustees when it interferes among the trust.

! CL: trustees have to act unanimously unless settlor says otherwise.

The terms of the trust may give someone the power of removal (whoever settlor wants: himself, confer

on others – co-trustees, beneficiaries, a third party, or both).

Example in Model Trust Article 20, paragraphs 8-9: Powers of Removal. Paragraphs 8-9. One deals

with a power to remove and replace a corporate trustee (like Tremont St. Bank). It’s probably a good

idea to provide for the removal of a corporate trustee, and provide for their replacement since they

might not continue to be a good idea for trustee (ex: bank mergers). The benefit of giving this power

of removal is to remove and replace with another like-kind corporate trustee. Beneficiaries cannot

remove a trustee by virtue of their status; they can only remove a trustee if the terms of the trust

provide as such or by petition to a court for cause.

• Terms of the trust providing: This will probably not be in the trust since it will probably go

to the purpose of the trust, which is to protect the assets for the benefit of the beneficiaries

who can’t manage it. If settlor gave beneficiaries that kind of power, it could contravene

the purposes of the trust. Ex: Suppose Kindregan is trustee of trust for benefit of Clyde

and Chloe. He’s got discretion to make payments to them. But suppose he’s not since he

feels they’ll squander it. If Sandoe gives them power, then they’ll get rid of him and

replace it with someone who is not like-kind.

Appointment of a Replacement

When we lose a trustee, and you have a trust with no trustees or less than the required amount of

trustees, you need a replacement. This happens in 3 ways:

• The terms of the trust can – and ought to – provide for succession (article 20). You ought

to see that the trustee doesn’t want to serve or dies, resigns, etc.

o Testamentary trust: court has to confirm this (takes time – in the mean time, we

need someone else to fill in).

o Intervivos trust: trustee just has to accept (quick)

• The settlor can give someone the authority to appoint a replacement. Likely candidates

include beneficiaries, but given the objectives of the trust, this might not be a good idea.

Other options: resigning trustee or the client’s attorney. Absent all of this, the fall-back is

an application to the court having jurisdiction (time).

• Application to the court that has jurisdiction for replacement.

See supplemental reading from Scott on Trusts on resources section of TWEN.

Conclusion: A trustee is a required element – you have to have a manager. But the requireemtn

doesn’t stand on same level as others: property, purpose, beneficiary. Loss of trustee doesn’t mean

trust failure.

There’s another element often thought-of as required, but it’s not: Consideration.

• An intervivos trust does not require consideration. It’s just a gratutitious transfer, presently.

• But a promise to create a trust some time in the future – future transaction – does require

consieartion.

There’s another element often thought-of as required, but it’s not generally: Writing. The preferred

practice is to have it be in writing. But it’s often not in writing since it’s “all in the family.” Ex: I

transfer Crimson Hall to Clyde, telling him that I’m transferring it to you outright since I’m too cheap

to get an attorney but you’re to use it for your kid’s education. In most jurisdictions, this can work

unless Clyde goes south.

What happens when there is a formal, written transfer of legal title to real/personal property but the

trust is an oral trust. Ex: Suppose, today, Sandoe transfers Crimson Hall and shares of PDQ stock to

Kindregan by deed absolute. He and Sandoe have an oral understanding: he’ll hold Crimson Hall and

shares of stock for Sandoe or for Clyde and Chloe. At registry, all you see is “Sandoe to Kindregan;”

there is no reference to our oral understanding; PDQ shares are the same – in Kindregan’s name

individually.

Statute of Frauds, Statute of Wills, Parole Evidence Rule.

Nothing in the CL of trusts requires that it be in writing but the vast majority of jurisdictions have a

statute of frauds requiring that a trust of land be either created by a writing or proven by a writing.

Most jurisdictions recognize oral trusts were the trust is intervivos and the property is personal. But,

where the trust is a testamentary trust – created within someone’s will – the statute of wills requires

that it must be in writing, regardless of the type of property. Consequently, the principle issue may

become an evidentiary question: What proof is going to be allowed to establish that oral trust and to

enforce it? The impact of the Parole Evidence Rule: The issue is to what extent extrinsic evidence is

admissible with respect to my intent to create or not create a trust in that transaction with Kindregan.

Under Parole Evidence Rule, if my manifestation of intent is fully integrated in the writing – if that

writing is adopted by me as the full intent – then, in absence of fraud, duress, undue influence, abuse of

relationship, then extrinsic evidence is inadmissible to vary or contradict the writing. However, if the

writing is ambiguous, the meaning uncertain, then evidence of surrounding circumstances is admissible

to interpret and resolve the ambiguity. Under Parole Evidence Rule, if the writing clearly says that

Kindregan is to hold it as trustee, then trustee it is – no extrinsic evidence allowed.

There will be times when oral evidence is inadmissible, but not to parol evidence, but rather to statute

of frauds. Ex: Evidence of an oral trust is inadmissible due to failure to observe and comply with the

statute of frauds.

Statute of Frauds: There are 2 types of SOF type statutes: “Manifest and Prove” and “Creation.”

1. Statutes construed to require that a trust of land be manifest and proven by a signed writing. This

is an evidentiary issue. “Manifest and prove jurisdictions” or “manifest and prove statutes.”

• A writing is required; however, it’s not required to create that trust, but only to prove that

the trust exists – to render the trust enforceable by the beneficiaries.

• What kind of writing? Any kind of writing – formal or informal is OK provided that it is

signed by the right person, at the right time, and sets forth 3 important pieces: property,

purpose, beneficiary.

o What property is being held in trust? Crimson Hall.

o What purpose is it being held in trust for? To produce income for Clyde and Chloe.

o Who are beneficiaries: Clyde and Chloe.

• Intent with which it’s signed is absolutely irrelevant since English SOF didn’t’ require a

writing to create a trust, but rather to prove it existed for purposes of enforcement.

• Informal writings:

o In a letter, to Clyde and Chloe, I explain this trust for their benefit.

o Memorandum

• Formal writing that isn’t the trust itself: my will (for example, in omitted child provision)

When and by whom this writing is executed is complex. (For more, see Scott and Restatement).

Distinction between declaration of trust and transfer of trust.

• Declaration: I declare myself to be trustee of Crimson Hall for the benefit of Clyde and

Chloe. Since I’m settlor and trustee, I’m the only person who can do this. I can do this at

any time before I transfer/sell/give away Crimson Hall. Once I transferred it, I can no

longer execute that writing.

• Transfer in trust: I transfer Crimson Hall to Kindregan upon an oral trust to Clyde and

Chloe. Here, both Kindregan and I can sign that writing. I can only do it up until I make

that transfer to him. He can do it an any time, until he transfers it away.

• In manifest and prove jurisdiction, purpose is to prove it’s existence; not to create it.

Consequences of not complying? Trustee can’t perform the trust. In a creation jurisdiction,

an oral trust with respect to land is void, in a manifest-and-prove jurisdiction its voidable by

the trustee, or anyone claiming through the trustee:

o Anybody to who he transfers it intervivos, whether or not for consideration, whether

or not he knew about it.

o Anybody who takes it post-mortem from him, by will or intestate stature.

o Creditor can avoid it.

o Trustee in bankruptcy can avoid it.

Conclusion: the trustee of a trust that doesn’t comply with the SOF has three options:

o They can perform it – do what they said they were going to do and nobody will

complain.

o He can execute the required writing, while he holds it as trustee. Now, this trust is

enforceable since we have the writing to prove it.

o He can set up the SOF and refuse to perform it and neither I nor my kids can make

him do it.

• In a creation jurisdiction, no writing no trust. In a manifest-and-prove, you have it but it’s

not enforceable.

Suppose Kindregan acts as a trustee. He says it was a good idea, but I don’t want to do it anymore. I

say, convey it back to me. He says, nope, you can’t make me. Does he get to keep Crimson Hall?

You can’t make him do the trust due to SOF but keeping Crimson Hall would constitute unjust

enrichment. A potential remedy is Constructive Trust – declare him to be a trustee for my benefit so I

get it back. You’d like to think this is available everywhere, but it’s not. It requires more than a mere

breach of oral agreement to cut it; other equities must be present.

2. Statutes construed to require that a trust be created by a signed writing. A writing is required to

create it, not just prove it. “Creation jurisdictions” or “creations statutes”

• Writing is a required element – as much as property, purpose, beneficiary.

Oral trusts

Implied trusts

8/20/07 2:00 PM

Next time: Broadway, Ware, and Shelley cases: focus on the immunity of the beneficiary’s beneficial

interest from the reach of creditors, spouses, and children; protective devices that settlers will include

in private express trusts to protect property and beneficial interests, including spendthrift provision.

• Broadway: spendthrift provision

• Shelley: Public policy exceptions to viability of spendthrift provisions: device wherein a

trustee has the discretion to pay among a class of beneficiaries used as a protective device;

ex: A trustee has discretion to pay any one or more of a class consisting of nieces and

nephews and grand-nieces and –nephews as trustee deems advisable. Focus on difference

between spendthrift provision and discretionary spray.

Look at Article 4th of Model trust: see how beneficial interest set up, present? Future? Who

comprises the class? Consider the discretion given to trustee in making distributions of income and

principle to beneficiaries.

Another fiduciary relationship – Agency: Agents as they assist the trustee in the administration of a

trust. See memorandum on TWEN – reserve reading # get to it when you can.

Suite 240: Pick up project when receive e-mail.

==

We are considering the impact of the Statute of Frauds on an Oral trust. We have creation statutes and

manifest-and-prove statutes.

• In a creation statute, a writing is required to create the trust. It is as much of a required

element as the others that we’ve considered: property, beneficiary, purpose, and writing.

• In manifest-and-prove, a writing is required not to create the trust, but rather, to prove its

existence for the purpose of rendering the trust enforceable. If you have a writing,

properly and correctly signed, etc. and sets forth property, purpose, beneficiary, that trust is

enforceable. In the absence of such a writing, you have a trust, but its not enforceable; it’s

not void, but it is voidable – the trustee can avoid it and so can anyone claiming through the

trustee. Who can avoid includes:

o Anyone to whom that trustee conveys intervivos, whether or not for consideration,

whether or not they knew about it

o Anyone who receives that property by will or intestate statute

o Attaching or judgment creditors

o Trustee in Bankruptcy can also avoid

A trustee of an oral trust has 3 options:

• Performance: do what he said he’ll do.

• Trustee can execute the writing, at the right time. Consequence: that trust is now

enforceable.

• Set up statue of frauds and nobody can make him do it – SOF is bar to enforcement.

Suppose a trustee uses the statute of frauds as a bar, and then says, I won’t convey the real estate back.

Does the settlor or beneficiaries have any remedy in that situation? Well, constructive trust comes to

mind since that trustee is unjustly enriching himself at the expense of the beneficiaries and the settlor.

In this country, a constructive trust is not universally available – it requires more than a breach of

oral agreement – there need to be other equities.

What doctrine would take an oral trust transfer out of the statute of frauds and make it enforceable?

Part performance. But the application of this doctrine in this context is really complex – might dot

“I’s” and cross “t’s”. Summary: Should you need a part performance to bail you, the restatement in

Scott sets it up nicely. Basically, the beneficiaries enter into possession of real property with the

consent of the trustee. 3 Examples:

• Possession: Clyde and Chloe move into a couple of units in Crimson Hall.

• Valuable improvements: Beneficiaries make valuable improvements to that piece of

property.

• Detrimental Reliance: Clyde and Chloe radically change their position in reliance upon

understanding that the trust is to their benefit.

• Commonality: All three examples have the beneficiaries performing. It’s a common

misconception that it’s the trustee that has to perform. The trustee can start to perform the

trust and then stop.

CONVERSION – realty to personalty and personalty to realty: during the course of trust

administration, the trustee converts the property from realty to personalty or vice versa – what’s the

consequence? Statute of frauds only applies to realty; it doesn’t apply to personalty unless a

statute specifically says so (very few do). So an intervivos oral trust with respect to personalty is

fine – you have a trust and its enforceable; SOF doesn’t bar enforcement.

1. Suppose today I orally declare myself to be trustee of some cash and marketable securities

(personalty) for the benefit of Clyde and Chloe. I go into performance. When the market turns,

and the marketable securities aren’t looking hot, I liquidate that portfolio, and purchase Crimson

Hall on account that the real estate market is making an improvement (conversion). Consequence

of SOF in that transaction? For so long as the property was personalty, it was enforceable,

SOF wasn’t a bar. As realty, is it? Restatement says SOF is not a bar (accepted in most

jurisdictions) since that trust was enforceable from the get-go since subject matter was

personalty and mere conversion won’t make that trust unenforceable.

2. Suppose the reverse # problematic: I orally declare myself to be trustee of Crimson Hall for the

benefit of my children. When the real estate market turned, I liquidated it and purchased a

portfolio of marketable securities (conversion to personalty). Consequence of SOF? I can

perform the trust, but SOF can be bar to performance, the trust is voidable. When you

convert it – sell Crimson Hall and purchase the marketable securities. It wasn’t enforceable when

Crimson Hall, but, as personalty is it? Restatement says that since not enforceable from the

get-go since SOF was a bar, now mere conversion to personalty is not enough. Something

else has to happen: Execute a writing while property was Crimson Hall; now, as personalty,

don’t have to execute a writing (not required) – now, can do an oral declaration.

3. Instead of my orally declaring, what if I transfer Crimson Hall to Kindregan and the same thing

happens. The transfer, instead of a declaration, won’t matter. Result: mere conversion alone

doesn’t cut it.

4. Suppose that I again orally declare myself to be trustee. I change the terms of the trust a bit: I, as

settlor, agree that I’ll hold Crimson Hall for the benefit of (FBO) my kids until such time that the

securities market improves, at which time I agree to liquidate the real property, and use the

cash proceeds to purchase PDQ shares. I’ll pay the interest and dividends to my kids. I do this.

When the securities market improves, I do like I said I’ll do. So long as Crimson was Crimson,

they couldn’t make me do anything – not enforceable since SOF; but then I do what I said I’d

do, market shifts, I get out of Crimson Hall and buy securities # is it now enforceable? It

might be enforceable in absence of declaration since I promised and there is consideration. This

is usually set up in 2 separate undertakings: 1) I declare myself to be trustee today- present

creation of a trust and 2) promise that at such time as the security market improves, I

promise to do something in the future. Consideration required to make it enforceable. After the

conversion, that can be enforceable in three ways: (1) Execute a writing; (2) Orally

redeclare; (3) It may be enforceable if there is was consideration in that transaction.

5. I transfer Crimson to Kindregan under same undertakings. He agrees to hold it in trust and pay

rents to Clyde and Chloe until market improves, then promises he’ll sell it to Crimson Hall

and purchase marketable securities. Kindregan does this. Once he converts, it’s enforceable

since there is consideration in that transaction – the transfer of the real property. So a

redeclaration, in writing or orally, is not necessary. But he has to convert it! Until he does, my

kids can’t make him sell.

INTERESTS AND RELATIONSHIPS

Interests that each of the major players (settlor, trustee, beneficiary) has in the private express trusts

and what that means to the administration of that trust, internally and externally. They each have

internal (to each other, relationship to the trust property itself) and external relationships

(relationships to 3rd

parties – persons who have no direct connection to the trust but who may have

an interest based upon the trust’s existence like 1) creditors of the settlor, trustee, or beneficiary, and

2) spouses and children & 3) the federal, state, and local governments like taxing authorities and

regulators like SEC).

The relationship between the trustee and the beneficiary – the most important relationship # fiduciary

5 important aspects of the trust: the rights, powers, duties, liabilities, immunities of the parties.

Focus on the exact nature that these players have in that trust.

Trustee – the officer or institution who manages the trust assets to carry out the intent of the settlor, to

accomplish all of the objectives of the settlor in that trust. Trustee Duties:

a. He gains possession and control of all the trust assets, he gets them under management

b. He preserves and protects (preservation and conservation) of trust assets

c. Make trust property products of income – stocks, bonds, notes, business, etc.

d. Pay that income to the income beneficiaries or pay out principle to the beneficiaries if the trustee

has authority to do this

e. Upon termination, pay the principle to whoever is entitled to that thrust (future interest

beneficiaries, the remaindermen).

Trustee has to have all the powers necessary – powers flow from duties. (Powers now, duties later).

In administering a trust, in managing trust property, issues and questions come up – can the trustee do

thus and such? The trust holds Crimson Hall – can the trustee lease/sell it? The trustee holds shares of

PDQ shares – can the trustee vote those shares in the annual meeting of shareholders? Can the trustee

retain counsel – legal, tax, investment? Can the trustee negotiate a settlement? Can the trustee borrow

on behalf of the trust? Can he pledge trust assets to secure the loan?

Question: Does the trustee have the authority? He gets authority from 2 sources: 1) the terms of

the trust and 2) from the extensive body of law that surrounds trusts (statutes, caselaw,

commentaries, treatises, restatements).

These powers may be discretionary or mandatory. Ex: A trustee may be given the discretion to

invade principle on behalf of an income beneficiary in the event that income is insufficient to

accomplish purposes. Like in Clymer A trust – can do principle invasions on behalf of Prof. Mayo’s

husband. The powers can also be mandated – no discretion # like if an income beneficiary is given

the right to ask for distributions of principle and if the income beneficiary asks for it, trustee has to do

it. Also in Clymer A – Professor Mayo’s husband had right to ask. Also, in Sandoe’s article 4 of

private express trust.

Sandoe’s Article 15 – Power’s Clause. If a trust is silent regarding a power, then the power must

be derived as a matter of law…trustee must have all powers necessary to protect trust property

and carry out terms of the trust. There are general powers implied as a matter of law – “Implied

General Powers.” Without them, it would be difficult or impossible to carry out the trust. All trustees

have these implied general powers unless the settlor restricts (for example, if it contravenes the

purpose of the trust settlor might restrict). Distinguish between express powers and implied powers.

Conclusion; if a trustee isn’t given a power – expressly or impliedly – but the trustee needs that power,

what will trustee have to do? Go to court and ask that the court grant that power – bring petition

to that court. Implied General Powers:

a. Suppose today I create an intervivos trust and I transfer some property to Kindregan in trust.

Terms: to Clyde, Chloe, grandkids. Property: Crimson Hall and shares of PDQ stocks and a

couple of deposit accounts that I maintain at Tremont St. Bank. This trust is in writing. Kindregan

is the manager, in charge of managing the assets. But how much training in managing assets is he

trained to do? He better know whether those PDQ shares are good, proper, good, prudent

investments since he has an obligation to make them productive of income. He can’t delegate

these managerial duties; he must do it himself. He may or may not be qualified. Is the trustee

obliged to pay taxes on that trust property? Yes, and those taxes are very complicated – fiduciary

income taxes. Who fills out those returns, and does the tax compliance? Suppose both of the

deposit accounts were JTROS accounts with Claire and that she takes the position that those

accounts were survivorship accounts and that she made contributions to those accounts. What’s his

duty if he makes that claim? Resist this, Claire has to prove it. Suppose that a tenant in Crimson

Hall fails to pay rent, what’s Kindregan’s duty in relation to tenant? Evict him. But this is not easy

in MA and he’d not a LL/T expert. Suppose a tenant in Crimson Hall slips and falls and brings an

action. What’s his duty? Defend it. He’s not equipped to do this. Suppose Cambridge hugely

taxes Crimson Hall – out of whack. He has to defend it. What powers do all of these situations

pertain to?

• Power to contract and incur obligations on behalf of the trust

o Services necessary to carry out the administration of the trust that he can’t

reasonably be expected to do himself – he can retain legal counsel, accountant,

investment advisor, etc. This is a principle-agent relationship. (see reading)

• Power to bring (on behalf of) and defend (defend against) actions

o The duty to collect, preserve, & protect carries the power to bring and defend

actions.

o Can employ legal counsel that is specifically trained to do this, and pay reasonable

expenses that are associated with those actions.

o Suppose once that tenant is evicted, its not worth chasing him for the rent. What’s

the trustee’s duty? Collect the claim – reduce those assets to possession and control.

Or if defending slip-and-fall will cost way more than paying out the slip-and-fall.

But his duty is to defend. Suppose Claire’s claim is dubious as well but the amounts

on deposit aren’t worth litigating – paying her will be cheaper than litigating.

Another power: power to arbitrate, compromise, and abandon claims. Goes

with duty of not dissipating trust assets. Strike a balance between

defending/bringing actions and not dissipating trust assets. Trustee should figure

out what’s the best economic decision for the trust.

What if beneficiaries don’t want to compromise? In this situation, what happens to trustee? In the

event that beneficiaries think this wasn’t appropriate for trustee to do, they have this record of what the

trustee did. Trustee has options:

• Trustee can get all the beneficiaries to agree to compromise; if they do, they’ll be

estopped from asserting breach of trust

• Proactive: May ask court to grant authority even though it’s inherent. This can be

cheaper than litigating.

Once tenant is evicted, does trustee have authority to rent the unit in Crimson Hall? Trust instrument

was silent on the matter. What if crime increases and property value decreases and there are rumblings

about rent control (will cause drop in property’s value)? Trustee may decide to leave town. Suppose

PDQ’s annual report shoes decline in earnings. What power does this pertain to? Power to lease and

the power to buy and sell, both of which flow from duty to make property productive and to

invest prudently.

• Power to lease – unless to do so is contrary to the terms of the trust, or contrary to the

purposes of the trust. Ex: Suppose Sandoe put Crimson Hall in trust so children could have

a place to live...this would relieve trustee of obligation to make units productive of income.

Leasings contrary to purposes of trust.

• Power to buy and sell

Suppose you have a client who places the family home, Blackacre, in trust for benefit of children so

that there is a place for them to live during their minority. Here, a sale of the real property would be

contrary to the purposes.

• Suppose trustee does sell – can he sell for credits? Can he take back notes? It depends if

this would be a prudent investment.

• What about trustee buying the property personally or selling it to the trustee’s kids? This is

self-dealing – not good – but may be ok if for consideration.

Suppose PDQ was, after all, a good investment. But several important issues are going to be voted on

at the annual shareholder’s meeting. Trustee gets all the rights of a shareholder, including voting

on corporate matters.

These implied powers may be in the statute – it may go further – but even if not in statute, trustee still

has them. Settlor often grants all these powers in a trust, but he doesn’t have to expressly grant

these powers – trustee still has them (unless restricted). See article 15.

Augmenting the General Powers:

A trust instrument should confer all powers necessary, and all powers which might become necessary.

But to exercise these powers without authority would be a technical breach (unless the statute

authorizes or they are implied, the trustee has to get court permission # time, money from

beneficiaries).

The Powers may include

a. To make discretionary payments:

• A trust in its most simple form: All net income to the present income beneficiaries; all

principle to the future interest beneficiaries. All net income to my children in equal shares,

principle to their issue, then living, per stirpes. Suppose one of my kids is mentally

disabled or a minor. Trustee will have to pay the disabled one or minor – Kindregan can’t

do this? Need to get guardian appointed to receive the income payments for the trust – this

is expensive. Thereafter, the guardian is subject to court supervision: accountings,

inventory, reporting requirements. An alternative would be to give the trustee the

discretion to apply the trust income for the benefit of the beneficiaries, and not pay it

directly to them – ex: “to pay to or apply for the benefit of my children in equal

shares” – this allows the trustee to take the income and pay it around the beneficiary –

medical expenses to the hospital, educational expenses to the school, beneficiary never gets

payment.

• Related problem: When the trust terminates. Suppose I set up the trust for Clyde. To Clyde

for life; then to his issue, then living, per stirpes. What if one of the issue is a minor?

Resolution? Give the trustee the discretion to extend the terms of the trust, beyond

Clyde’s death, and maybe longer.

• All net income to my kids in equal shares; remainder to their issue then-living. There’s a

CL duty that the trustee must be impartial among beneficiaries – as between present and

future-interest beneficiaries and within those class. Present interest are entitled to the

income; future interest are entitled to the interest. What if the income is insufficient or far

too much? Resolution: allow the trustee to be partial as between the classes – give him

discretionary invasion power like in Clymer or power to add income to principle to the

extent that is not needed.

• Within a class there is the same issue. Suppose some beneficiaries have greater needs than

others. So…let the trustee be partial. We saw this in a couple of ways: alter the proportion

among the present interest beneficiaries or allow trustee to exclude. Allows trustee to

respond to needs, be flexible.

External standards, criteria to use – maintenance, support, education, health. Trustee, in his exercise of

discretion, will be guided by these external criteria. Or settlor can give trustee sole and uncontrolled

discretion!

b. To determine what’s principle, and what’s income; To determine who gets an account

c. The power to lease beyond the term of the trust

d. To borrow on behalf of the trust and to pledge assets to secure the loan

e. Power to terminate the trust early

f. Power to deviate from normal investment powers.

8/20/07 2:00 PM

Next time: Focus on interest that settlor has in a trust, and the retention, by the settlor, of beneficial

interests and powers, and what this means to the administration of the trust, generally, and in relation

to creditors and special creditors. Did the settlor retain so much power that the trust ought to be

disregarded (consider generally and re: creditors)?

• Farkas: General rule

• Sullivan: public policy exception

• Murphey and Reiser: deal with creditors’ rights # cross-reference State Street v. Kissel

==

INTERESTS AND RELATIONSHIPS continued:

The interest that the major players have in a trust, and the relationships, internally (to each other and to

the trust property) and externally (3rd parties – not directly connected to the trust but who may have an

interest based upon the existence of the trust or an interest that 1 or more of the major players has).

Trustee General Powers – Implied General Powers – all trustees have them incident to the office of

trustee unless the settlor says “no.”

a. To make discretionary payments – see 10/29

b. To determine what’s principle, and what’s income; To determine who gets an account

Variety of powers that a settlor routinely includes in a trust (but to exercise these powers without

authority would be a breach at CL). We considered discretionary applications and discretionary

payments of principal (discretionary invasion) and income (discretion given to trustee to vary the

proportion among the class and the exclusionary discretion). Discretion may be based on criteria like

health, maintenance, etc. or discretionary can be unlimited. What is income and what is principal

and who cares? The present interest and future interest beneficiaries care very much since present

interest beneficiaries want all the income and the future interest beneficiaries want all the property

when the trust terminates. So the trustee has to employ accepted practices of fiduciary accounting

to determine what is principal and what is income – or comply with the statute (uniform act that

says what is and what isn’t). Ex: Cash dividends, interest earned on debt securities, bonds, notes,

deposit accounts, rents, stock dividends, stock splits, stock spin-offs, additional shares received by

trustee. Companion issue: the payment of fees (trustee’s, attorney’s, accountant’s, etc.) and expenses.

Are these paid out of income or principal? It’s usually clear what’s income and principal but

sometimes it’s not clear due to new investment vehicles that are ahead of accepted accounting

principals and statutes. What does a trustee do? Trustee has to go to court to get discretion # time,

money, someone’s pocket. So it’s a good idea to give the trustee a power to reasonably allocate

receipts to principal or income.

The rendering of accounts, powers there: Why must a trustee account? It releases him from

liability when that account is accepted. It also serves as a report to the beneficiaries so they have

enough information to protect themselves – or, if not, they can seek judicial relief. There is a CL duty

to account to the beneficiaries (all of them – income beneficiaries and future interest beneficiaries

aka remainderman). Who is accounting to future contingent interests include? It includes

beneficiaries who are yet unborn and unascertained. Ex: Sandoe’s trust to Clyde – “Income to

Clyde for life, remainder to his issue, then living, per stirpes.” The class that includes his issue closes

when he dies so there is the potential for additions to that class between now and when he dies. Who

represents the unborn, unascertained beneficiaries? A GAL, appointed by the court to represent the

interests of the future interest beneficiaries yet unborn and unascertained. This is time-consuming for

trustee and expensive so settlers accordingly put provisions in the trust to dispense only to those

beneficiaries who are “in being.” But this leaves unborn/unascertained and they have an interest so

some jurisdictions won’t allow this kind of provision due to public policy reasons.

c. The power to lease beyond the term of the trust

One of the implied general powers is that the trustee has a right to lease real property. Ex: Suppose I

establish a trust today and put Crimson Hall in it. Terms: All net rents to Clyde until he reaches 35, at

which time trust terminates and Crimson Hall will be distributed to Clyde, outright and free of trust.

Suppose someone offers to lease Crimson Hall at an over-market rate of rent # example, McDonalds.

They want a lease that extends beyond Clyde’s 35th birthday – can the trustee do this? It may make

absolute economic sense since McDonald may pay above rate. But trustee would be liable to Clyde

since at 35, he’s supposed to get Crimson Hall unencumbered. Suppose instead that condos became

the rage and it would do well to make Crimson Hall from apartments to condos – a condo conversion

would make great economic sense but trustee doesn’t have cash to finance it. Can trustee borrow

cash on behalf of the trust? At CL, you can’t do this.

d. To borrow on behalf of the trust and to pledge assets to secure the loan

Companion power would be power to pledge trust assets to secure the loan. Suppose Kindregan, as

trustee, has available funds. Can he lend to himself as trustee to finance the conversion? Of if trust

just has short-term cash flow problem – can he lend to himself to take care of this? What’s he doing?

He’s transacting for his own account – he’s on both sides of the account. The issue is self-dealing

– will he profit at the expense of the trust? Trustee is supposed to owe beneficiaries an undivided duty

of loyalty, which includes buying and selling, borrowing and lending, and retaining himself as

attorney. He’s walking a fine line but it may not rise to the level of self-dealing. (We’ll return when

we do duties of fiduciary relationship).

Can settlor grant the power to lend and pledge assets? Yes, because under certain circumstances this

might make sense – for example, if trustee is commercial banking institution.

e. Power to terminate the trust early – Trust Termination

Settlors will ordinarily fix the duration of the trust, a time within which the purposes will be

accomplished, then, the trust will terminate.

• My trust will terminate at such time as when my youngest child reaches the age of 25.

• Trust terminates upon the death of the survivor among my children, when my last child

dies.

• Trust terminates 20 years from the date of the creation.

In the first two, you don’t know precisely when the trust will terminate. My youngest child might not

continue to be my youngest, we don’t know when the last child will die. In the 3rd situation, you know

precisely when the trust will terminate. Most trusts terminate routinely, when the term expires. But

times change, and so do circumstances. Situations can some up that settlor didn’t foresee…it might

not make sense to continue on with the trust (ex: if not enough assets are in the trust and its expensive

to manage – bad economic sense). At CL, there is no inherent power to terminate until the

purposes set forth by settlor is accomplished. It would be a breach to terminate.

If settlor was alive, he could join and agree and it could be done. But if he’s dead, he can’t, and courts

are reluctant to allow a trust to terminate in advance without settlor saying so…so this is a very good

power to include.

f. Power to deviate from normal investment powers.

At CL, trustee has a duty to make all assets productive of income – this duty means to invest

prudently, to balance the production of income with the safety of the principal being invested.

The trustee cannot invest speculatively or invest entirely in debt securities that have no chance of

appreciating in value. Trustee has duty to manage investments personally – he can’t turn over the

management to an investment advisor. This duty also means to earmark investments as belonging to

the trust – investments must be registered in the name of the trustee. They can’t be co-mingled with

the trustee’s personal assets or other trust assets. Is a family business a prudent investment? Maybe,

maybe not. Is investing in a mutual funds a delegation of investment decisions to fund managers?

Is placing marketable securities in nominee name a violation of earmarking rule? Yes. But

sometimes it makes practical sense to be able to do all of this, so it’s a good idea to grant power to

allow trustee to do these things, under appropriate circumstances. (We’ll revisit).

TRUSTEE LIABILITY

Is a trustee subject to liability on account of his actions? Yes. To whom? To the beneficiaries, the

settlor, the other internal parties as well as 3rd parties.

• To the beneficiaries in equity for negligent and intentional breaches of trust

o Negligent: allowing investments to devalue

o Intentional: self-dealing. Trustee takes trust assets and invests them in a personal

business so he profits.

• To the settlor:

o If the settlor conveys everything away and retains nothing # then not.

o But to extent that settlor retains a beneficial interest or power, there may be liability

• Third parties – no direct connection.

o Trustee as the manager. He enters into agreement for services rendered. Suppose

trustee Kindregan enters into agreement for legal/accounting advise or enters into

contract for sale of Crimson Hall so can buy Shamrock Towers. Who’s the

aggrieved 3rd party going to sue? The settlor, beneficiaries, or the trustee (and, if so,

personally or as trustee)? Who’s liable on the K? CL rule: When a trustee enters

into a K with a 3rd

party, he does so personally, and any action brought by the

3rd

party on the K, is brought against him personally and recovery is against

him personally, not against the beneficiaries or trust property. If trustee has to

pay, he does so out of pocket, personally. If trustee acted properly, he can be

reimbursed by trust assets; if not, it’s out of pocket. But this liability can be altered.

! The contract can provide for it. Kindregan can say that he’s entering in the

capacity as trustee, and not individually/personally.

! Settlor can also provide that the trustee is to enter into all Ks as trustee, and

not individually (settlor intent controls).

! This liability can be altered by statutes.

! Other party to the K has to know of the fiduciary relationship.

! Once this is altered, 3rd party can recover against trust assts. Beneficiaries

will object to this, if trustee improperly entered into the K.

Forms of liability:

• Tort: Besides in K, a trustee could also be liable if a tenant in Crimson Hall took a fall

since the carpets weren’t maintained. Kindregan is liable to the 3rd party for intentional and

negligent torts, committed in the administration of the trust, to the same extent as if

Crimson Hall belonged to him personally. Kindregan can’t always be on the premises, so

he hires an agent, a property manager, to see to it that this doesn’t happen. Suppose the

agent fails to properly maintain…trustee is still liable (trustee is liable for his agent’s

mistake). If he wasn’t negligent in choosing the agent, then trustee will recover since

principal-agent relationship. Tort liability can be insured against.

• Consumer protection: Suppose PDQ is a consume business and one of the employees

misrepresents a product…trustee is liable under consumer protection statutes.

• Governments/Taxes: What about governments – federal, state, and local – can trustee be

liable for obligations imposed by them? Yes. Trust is a tax entity. Trustee has to file state

and federal fiduciary income tax (1041). Trustee signs that return, as the officer/manager

and is liable. If he doesn’t file tax returns or file them in a timely fashion, he is personally

criminally and civilly liable. Same with real property taxes.

• SEC/EPA: Suppose PDQ is a closed corporation and he takes it public # he’s liable to

SEC and EPA.

Conclusion: trustee may be liable to 3rd parties since liability follows title. Trustee has legal title, so to

the whole world, he’s the owner and is the responsible party even though he can’t personally profit, not

for his benefit.

• K: Contract creditors

• Tort: Negligent and intentional torts

• Misrepresentation of consumer statutes

Beneficiaries # interest in trust, what it means re: administration of trust

Title: what kind of title does the beneficiary have? Equitable title, beneficial title (as opposed to

legal title).

Interest: What interest does the beneficiary have? “A beneficiary has only what the settlor gives

him or her, and nothing more.” Why? Settlor intent controls. You don’t have the right to expand

that into something more.

• Types of interest: present interests, future interests

o Present interests: “All net income to Clyde.”

! Mandatory interest and discretionary interest with respect to principal and

income – “mandatory income to all my children in equal shares” vs. trustee’s

discretion to alter the proportion, even to the extend of exclusion. Discretion

to invade principal and beneficiary has right to ask for corpus. Discretion

may be subject to ascertainable standard – health, maintenance, support – or

unlimited discretion.

! There are varying degrees of present interest vestedness:

" Indefeasibly: Ex: “Income to Clyde for life.”

" Vested subject to open: Ex: “Income to my children for their lives.”

Includes Clyde and Chloe, but then, at 50, Claire has Clint so class

opens.

" Vested subject to defeasments: Ex: “To Clyde for life, but if I marry

Claire, then income to her for life.”

o Future interests: “Corpus to his issue, then living, per stirpes.”

! Varying degrees of vestedness and contingent future interests

" Vested indeafisibly: “To Claire for life, remainder to Clyde.” His FI

is vested but he may never possess it since he could predecease

Claire. If he did, then on death of Claire, interest goes to his estate

since his FI was vested indefisibly, he gets it dead or alive.

" Vested subject to open: “To Claire for life, remainder to my

children.” Now, this includes Clyde and Chloe but could include

Clint.

" Vested subject to divestment: “To Claire for life, remainder to my

children, but if …”

" Contingent Future Interests: “To Claire for life, remainder to my

issue then-living, per stirpes.” Contingent upon being alive.

Are these interests more than expectancies? Yes, because I created them presently. So these interests

may be transferable. Issue of alienability of the beneficiaries’ beneficial interest and what that means

to the administration of the trust.

• Can a beneficiary voluntarily convey the interest away? (Voluntary alienation of

beneficial interest)

• Can a beneficiary’s creditors reach this beneficial interest in satisfaction of claims against

beneficiary. ( Involuntary alienation of beneficial interest)

What are the consequences of voluntary/involuntary alienation of beneficial interest. One of the

motivations of making a trust is defense – protection of property and beneficiary. Why would the

settlor set up a trust if the beneficiary could convey it away or if creditors could reach it. Yes, the

beneficiaries can alienate the beneficial interest like any other legal interest (transfer it away intervivos,

for consideration, post-mortem) unless the settlor says so. Creditors can also reach the beneficiaries’

interest - just like legal interest – unless settlor restricts them.

How a settlor can protect – Protective Devices:

• Forfeiture provision

o Typically provides that, in the event that the beneficiary tries to transfer their

interest, or creditors try to reach it, the interest shifts away from them, forfeit

interest.

o Ex: mandatory income to Clyde for life, but if he tries to transfer it or one of his

creditors tries to reach it, then to Chloe for life.

• Discretionary payment provision

o Discretionary spray – trustee has discretion to exclude members of a class. “Income

to any one or more of Clyde and Clyde’s issue as the trustee in his sole and

uncontrolled discretion shall determine.” This is a flexible provision – trustee can

take income and put it where it’s needed. But it is also one protective advice –

trustee can not pay Clyde when he has a creditor out there. Unless the until the

trustee pays beneficiary, there is no attachable interest…trustee has to exercise

discretion first.

o Where the trustee has discretion to pay among members of a class, it’s said that the

interest of all the members that class are indivisble.

• (Hybrid) Conversion provision

o It starts off as a forfeiture provision – “all net income to Clyde but if he ever tries to

alienate it or if a creditor ever tries to reach it” then (instead of shifting like

forfeiture) it shifts into a discretionary spray (Clyde is part of discretionary class).

Advantage: protects property and Clyde!

• Support provision

o Settlor sets up a trust for the support of a beneficiary, with language that sounds

like, “the income may be paid to or applied for the benefit of Clyde for life, for his

maintenance and support.” He can’t alienate this since it’s for his personal benefit-

not for anyone else’s. Creditors can’t attach it since it’s not for their benefit.

o What about trustee? Application language # beneficiary never has to get an

income payment or distribution, it can be paid directly to 3rd party (school, rent,

mortgage, medical expense) – goes around beneficiary.

• Spinthrift provision (Broadway Bank case)

o No creditor can reach it and he cannot transfer it.

Most well-drafted instruments include one of these devises – Sandoe often uses spinthrift (article 18)

and discretionary spray (article 4). He also uses the forfeiture provision, but sparingly – only when

client really wants it # usually in form of conversion.

Broadway Bank: Rule with respects to Spinthrifts. In all of these protective cases, the terms of the

trust are absolutely critical to the application of the protections, so when analyzing a trust, look

carefully at provisions. Adams, the D, was beneficiary of a trust – trust provided for mandatory

income to him for his life, thereafter, to the benefit of his spouse and remainder to his kids. It

contained a typical spinthrift provision, prohibiting voluntary and involuntary alienation. Tested the

issue of whether a settlor could secure the income for the benefit of an income beneficiary from

the reach of creditors and could prevent its transfer, using a spinthirft provision. Also, tested

whether a court could order trustee to pay income to creditor, in violation of settlor intent. No

prohibition against alienation can be attached to a fee. Whether or not that prohibition can be placed

on an equitable life estate is the subject of conflicting opinion. Also, the owner of a fee interest can

convey any interest which he pleases – the entire interest or something else. So a settlor of a trust

who owns the property before the creation of the trust has the absolute right to convey the property

subject to conditions and limitations as he pleases, as long as it doesn’t violate a rule of law or public

policy. All the settlor gave here was the right to receive income – this doesn’t include the right to

alienate property. So, the beneficiary cannot expand that into more than what was given – nor can

the creditors. Court held that if it was the intent of the settlor to give that life tenant a qualified

and limited interest- income only – then he didn’t have the right to alienate it and creditors

didn’t have right to reach it. Most jurisdictions accept this; a few don’t based on public policy

considerations for creditors. Because beneficiary can hold himself out as having income and so

creditor will grant credit but creditor won’t know that creditor won’t have right to that income.

Among the jurisdictions that do, they say, creditor beware – creditor has obligation to see if the

person who they are going to extend the credit to has income which from which they can take. [Right

to Confidentiality – beneficiaries of a trust have a right that information be kept in confidence and not

disclosed so trustee has a duty not to disclose. A beneficiary wants to borrow, wants credit extended,

may ask trustee to disclose, other beneficiaries may say nope, it’s confidential # consequence, there

may be no loan].

Ware: Major public policy exception to spinthrift provision. Settlor sets up a trust which is declared

irrevocable. Trustee has absolute discretion as to distribution of principal and income and there is a

spinthrift provision attached. Beneficiary runs up a debt and creditor wants to attach. Here, settlor

creates the trust # in this case, it doesn’t matter that there is a spinthift, support, etc. provision

and creditor can reach whatever the trustee has the discretion to give. Public policy: You can’t

set up a trust for your benefit and hide behind it, it’s against public policy.

• If trustee only had discretion at to income and not principle, creditor cannot reach it.

Shelley: 2nd public policy exception.

8/20/07 2:00 PM

See posted memoranda on TWEN, no cases to read.

==

Last time we were considering the beneficiary, and the nature of the beneficiary’s beneficial interest,

and what that means to the administration of a trust. We considered the kinds of interests – present,

future, vested, contingent, discretionary, mandatory – that a beneficiary might have. These are

property interests and, as such, they are subject to transfer voluntarily or involuntarily (unless the

settlor restricts). Unless restricted by the beneficiary, creditors can attach.

Why would a settlor want to set up a trust, the purpose of which is to protect property and the

beneficiary, if that property can be attached by a creditor? Answer – they don’t, so settlers use a

variety of protective devices, which we considered:

• Forfeiture interest

• Discretionary spray: trustee is given discretion to pay or not pay a beneficiary

• Hybrid: mandatory right to receive income is forfeited # converts into discretionary right.

• Support trust: property is not actually paid to the beneficiary (just around)

• Spinthrifts: disabling restraint; beneficiary may have an interest but is disabled from

transferring it and creditors are disabled from attaching

Broadway: General rule – spinthrifts are acceptable.

Shelley: 2 exceptions to the general rules. Before we said that the facts and the terms of the trust are

critical to whether the trust is reachable or immune. So examine the terms of the trust! Here, Shelley

was entitled to a mandatory distribution of income – no less often than quarterly, for life. Upon his

reaching 30, the trustee has discretionary invasion powers – the trustees could invade principle and

pay out that principle to Shelley, up to and including the entire principle of the trust. Trustees could

invade principal on behalf of Shelly and his kids on the event that they determined that there was an

emergency. Notice that there is a discretionary power that is determined by an ascertainable

standard – “emergency.” Following Shelley’s death, goes on until youngest kid reaches 21, and then

per stirpes. Settlor added spinthrift provisions – prohibited the voluntarily and involuntarily interest.

Shelley married the D, they had kids, they divorced which provided for child support but no alimony.

Shelley remarried P, has 2 more kids, she divorces him, here the decree provides for child support and

alimony. Issue: What can they reach in that trust and what’s the theory/support? Consider analyzing

the interests separately – income, principle, who’s going after it – because the theories may be

different.

• Ability of the kids to reach the income: The terms of that trust placed absolutely no

condition on Shelley’s right to receive income – that was mandatory distribution. So he has

a realizable interest – creditors can reach that unless prevented by the terms of the

spinthrift provision. The validity of spinthrift provisions generally had been established in

this jurisdiction, but here the question is whether those provisions would be effective in

barring the kids from child support and the spouses from alimony. They make a

Broadway Bank argument – prior to the creation of the trust, settlor owns a fee interest in

the property and can alienate it as he or she would like, subject to limitations as he pleases

since they are owner (as long as doesn’t violate law or public policy). This is one policy

limitation: it is not right to allow a beneficiary of a trust to enjoy the benefits of that

trust and not support his/her kids; the obligation of child support is a fundamental

duty, too fundamental to allow beneficiary to get away with this. The court overrides the

spinthrift provision and allows the kids to reach.

• Ability of the spouses to reach the income: Court recognized that marital duties are more

qualified than parental duties. The adjustment of economic interest in a divorce depend on

a number of factors, support is one of them. Many jurisdictions distinguish between kids

and spouse/ex-spouse when considering their public policy of overriding the spinthrift

provision and the intent of the settlor and override in terms of kids but not with respect to

the ex-spouse. But this court allowed the spouses in (majority), holding it was wrong to

allow the beneficiary to enjoy the beneficiary and not live up to obligations imposed by a

court’s decree.

• Conclusion; 2 general exceptions to spinthrift provisions, imposed by public policy.

• This is with respect to the income; but what about the principle:

o Ability of the spouses to reach the principle: Shelley does not have a mandatory

right to the principle; rather, principle distributions are within the trustee’s

discretion so Shelley does not have a realizable interest unless and until the trustee

exercises the discretion and gives him a distribution of principle. Until then, he

doesn’t have an interest. So spouses could not reach the corpus.

o Ability of the children to reach the principle: The children were direct beneficiaries

of the trust – from the trustee’s discretionary power (for emergency). So children

don’t have to claim derivatively, through Shelley, as they did for income; rather,

they can directly appeal to the trustee for a distribution of principle and the trustee

will have to exercise his discretion. But trustee didn’t think starvation was an

emergency – court disagreed and told trustee to rethink that and to exercise

discretion in accordance with the external standard so the kids can reach principle.

! Many jurisdictions follow this view – that it is not right to allow beneficiary

to sit there and enjoy trust benefits and not support kids or ex-spouses,

regardless of who creates that trust.

" The policy with respect to kids is nearly universal, but MA is not one

of them. Sandoe thinks this will be changed.

The policy with respect to ex-spouses is not as universal; marital duties are more qualified than

parental duties.

This is a good case since income was a mandatory payment (no trustee discretion; Shelley has a

realizable interest unless spinthrift provision bars due to public policy) versus the discretionary

spray, where the trustee has the discretion to make payments (Shelley does not have an interest, unless

and until that discretion is exercised). Once the discretion is exercised, then creditor can attach.

• How to get around this?

o Use support provision and pay around him. This is why most good trusts use a

combination of these provisions to insulate.

This case is also good on the issue of court review of the trustee’s exercise of discretion, where there is

an ascertainable standard (like emergency, health, maintenance, support, education, medical). There

are many cases about what constitutes these standards. If trustee abuses this, beneficiary can appeal to

court, and ask court for help. But where the discretion is absolute, then it will be very rare for the

court to override that since the court isn’t going to replace its view with that of the trustee, unless

the trustee is acting out of ill-motive. So while sole and uncontrolled discretion is great on flexibility

and protection, there is the potential that it can be abused so be careful who you select as trustee.

Conclusion: Beneficiary enjoys a qualified immunity from the reach of creditors. Draw a distinction

between a trust created by a settlor who is not a beneficiary (Broadway, Shelley) and a trust

where the settlor is also a beneficiary (Ware). In the case where the settlor is not a beneficiary, then

these protective devices – spinthrift, discretion, support – are good with respect to general creditors.

Where the creditor is specialized – child for child support, ex-spouse for alimony – then these

protective devices are broken down – depends on jurisdiction but with respect to kids, its almost

universal. Where the settlor is also a beneficiary (Ware), these protective provisions won’t work since

its against public policy.

Beneficiaries’ Rights Against a Trustee: Enforce all the duties. We’ll consider next time. The

beneficiaries’ package of rights correspond duties.

Beneficiaries’ Rights Against a Settlor: It’s a gift, so there is only one right against the settlor – they

don’t have to accept the gift. What is this rejection? This is a disclaimer. 3 elements of a gift – intent,

delivery, acceptance – so don’t accept # reject. Consequence of rejecting: with respect to wills, it’s

as though pre-deceased, property goes to residuary, residuary to other residuary, if only residuary

legatee disclaims go to intestate statute. Trust beneficiaries can similarly disclaim, treats them as

pre-deceased.

• Ex: Suppose Sandoe sets up a trust today with Tremont St. Terms: “Income to Claire for

life, and on her death, income to Clyde and Chloe for life.” (These are successive life

estates). On death of last child, remainder to their issue per stirpes.” Suppose Claire

disclaims, what happens? Clyde and Chloe succeed to that income interest right away; it

accelerates the next interest.

Beneficiaries’ Powers with respect to the Trust: Depends on settlor’s intent, whether he gave them

powers. We’ve seen powers – power to remove and replace a corporate trustee, a power to ask for

principal distributions (Clymer A), and we’ll see more, such as the power to terminate a trust ahead of

time and the power of appointment. Extent of powers depends on the purpose of the trust – if trying to

protect then not; but if the only reason for setting up the trust is managerial, then its ok to give them

powers. Most trusts don’t have extent of powers since it would contravene the power. Ex: power

to remove a trustee. Kindregan is trustee with discretion, Clyde and Chloe want money but Kindregan,

in his discretion, says no. If they could replace, this would contravene purpose of the trust.

Beneficiaries’ liabilities with respect to trust management:

• Beneficiaries generally do not have liabilities. Liabilities generally follow title and the

trustee has legal title to the outside world, not the beneficiaries. Not liable in K, tort, or to

government for failing to comply with laws.

• How about the internal liability? Beneficiaries to other beneficiaries or to the trustee(s).

Suppose Sandoe creates a trust today with Crimson Hall. Terms: “Net income to Clyde for

life, and the right to live there, remainder to his issue.” Does Clyde have

duties/responsibilities to his issue? Remember property – I execute a life estate, remainder

to issue. There is a duty to not commit waste there (not to allow property to devalue and

not expose other beneficiaries to liabilities)…and so it is here as well. But trustee is

ultimately responsible to the remainderman since that’s his duty.

Title

• What Title does a Settlor have before s/he creates the trust? He has a fee – so absolute title

– so absolutely alienable. So settlor can convey whatever interest s/he pleases – the entire

or less…if less, subject to conditions/limitations as s/he pleases as long as doesn’t violate

public policy.

• What Title does Settlor have after s/he creates the trust? Maybe legal, maybe equitable,

maybe both. How to declare the title. In the case of an intervivos trust, declare; in the case

of a testamentary trust, by will.

What rights, powers, and interest may a settlor have? Unless they specifically reserve a power or

retain a beneficial interest, very little since “what is gone is gone.” If that trust is declared to be

irrevocable, and settlor didn’t retain any beneficial interest, it’s gone since it’s a gift. But they do have

something – what do they have? Think resulting trust. They have a reversionary interest. Is it vested

or contingent? It’s vested. It feels contingent, but it’s not; its vested. Why vested? They have a

vested reversionary interest. What can a settlor retain? A lot! Focus on the kinds of beneficial

interests that a settlor can retain, as well as the kinds of powers that a settlor can retain, and what doest

that mean to the administration of a trust, and what are the consequences, and who cares? We’ve

already seen that settlor can retain a life estate. Can they retain less than a life estate, like a term of

years? Yes. They can also maintain mandatory and discretionary rights to income or principle –

mandatory (income has to be paid to them quarterly for life/term of years) or principle (like Clymer A)

and discretionary (up to trustee to pay them). They can also be a trustee or co-trustee, with all the

discretionary powers that a trustee can have. They can retain power to remove/replace trustees, power

to change beneficiaries, power to otherwise alter/amend the trust. So settlor can have dual capacity

– as trustee, beneficiary, all 3. So when considering trustee, draw a distinction between a trust

where settlor is just settlor and a trust where settlor is also a beneficiary or also a trustee or both,

and who, consequently will have rights and powers in those capacities.

Suppose a settlor retains nothing, trust is irrevocable, can settlor enforce that trust as against the

trustee? Suppose Sandoe sets up a trust for Crimson Hall with net rents to Clyde and Chloe until

Chloe reaches 35, at which time trust terminates, then corpus to them or their estates.” It’s irrevocable,

Sandoe’s retained no powers. Clyde and Chloe go to Kindregan and want to terminate, and if you

don’t, we’ll make your life miserable. Kindregan says you’re already a pain in the butt, but he can’t

terminate early – that would be a breach of trust since Sandoe’s intent. But Clyde and Chloe can

consent to a breach. If they consent, they can’t sue him for breach – they are estopped since they

agreed. Clyde and Chloe are the only beneficiaries; if they don’t make it, it goes to their estates;

nobody in their estates will object. Can he do it? Yes, he’s protected as to them, but not as to Sandoe.

Can Sandoe enforce? The general rule is gone is gone, that was a gift, Sandoe can’t enforce. Before

creation of the trust, Sandoe had a fee, he completely conveyed it away, so he cannot enforce. Of late,

however, some academics propose enforcement – that settlor ought to have a right of expectation, that

trustee will carry out the terms of the trust, even though settlor retained no property rights.

Who cares if control is retained? Spouses, creditors, IRS on account of retained control means control

for purposes of taxation, residuary takers in a will or heirs-at-law under intestate statute, trustee. Why

should these people care? Argument will be made that settlor retained so much control that we ought

to disregard this trust due to tax/creditor/special creditor purposes. There is a property issue – has

there been so much retained control that this really isn’t an intervivos trust, but rather a

testamentary instrument (which ought to comply with law of wills with respect to execution and

it probably doesn’t so it will fail).

Settlors set up trust and retain varying degrees of control:

• Reduce the probate estate against which the surviving spouse can elect? This is Sullivan.

• Defeat creditors’ rights – Murphy

• To avoid the delays and expenses of estate administration. Trust is a testamentary subject –

passing around probate, not subject to administration.

• Flexibility of settlor with increased age, decreased capacity

An intervivos trust is a private deal as between the settlor and the trustee. It’s not a matter of public

record, unlike the testamentary trust, so not everyone gets to know what’s going on in there. Ex:

Clymer Trust – nobody knows. But if testamentary trust, then there are inventories filed, accounts,

matter of public record.

Question of attack by heirs: If all of this is happening in a will, then decedent not around; but if

intervivos, then settlor is around.

Farkas: General rule with respect to control. (Other cases carve out public policy exceptions). Here,

the heirs are the Ps who are attacking (bottom of default chain); they want these intervivos trusts to fail

so they get money! Their theory is that this is not a really an intervivos transaction…this is really a

testamentary transaction, and, as such, should reply with law of wills with respect to execution? Court

here looked at:

• Did an interest pass presently from Farkas to Williams? If not, then this is a testamentary

transactions. Intervivos transactions require a present transaction – by delivery

(declaration). Wills don’t require present transactions – they are future transactions.

o What kind of intervivos trust did Farkas do? A declaration of trust.

! Ex: I declare myself to be trustee of cash and securities, FBO Clyde and

Chloe. When I make that declaration, I’ve changed my relationship to the

property – beforehand, I’ve got the fee; afterwards, that property is not my

own since the change of relationship.

! Farkas bound himself to pass title to Williams unless he revoked; but to

revoke, he had to notify the company in accordance with the terms of that

trust. What Farkas has relinquished, Williams has acquired – the right to

receive the property upon Farkas’ death, unless Farkas revoked that trust.

But to revoke it, he had to do it properly; anything else would be a breach.

o William’s interest in the trust is a contingent remainder. This is enough of a

beneficial interest.

• How about retention of control – did Farkas retain too much control in this situation?

Catalogue what Farkas had: right to receive income, he’s the sole trustee, right to change

beneficiaries, right to retain the proceeds of the sale of redemption, right to revoke. Settlor

can retain a right to revoke – gone does not have to be gone. He can reserve a life estate.

Can he reserve both a life estate and a power to revoke? Yes. What can he do with respect

to that power of revocation vis-a-vis that remainder interest? He can destroy William’s

interest. He can be the sole trustee, so long as we don’t have a merger problem. You can’t

be sole trustee and sole beneficiary but that’s not the case here – he’s sole trustee and but

there are 2 beneficiaries, so no merger problem. But his retaining the power to sell and

redeem caused the court a bit of an issue? But he could do this anyways, since he retained

the ultimate power – the power to revoke. The power to revoke carries with it all lesser

powers. He didn’t retain too much power. His power to deal with that property is less than

an absolute owner’s.

• Suppose Farkas does not conduct himself appropriately as trustee – that he has a short-term

cash flow problem and uses trust property – this would be a breach of trust! Court can issue

declaratory relief for this, restraining orders against Farkas. But since Farkas retained a

power of revocation, he can destroy William’s interest, so Williams is done! So Farkas

really does own the property.

• What if Farkas died before Williams returned from court, before revocation – does he have

equitable rights? The right to sue Farkas’ estate for breach since trust was not properly

revoked and Farkas breached the hell out of it. When the only reason this is set up is to

pass property from one to another, there is no public policy issue.

Sullivan: Protecting spouses from intentional disinheritance. Comes from CL dower # elective share

system. But this is measured against probate property only, so it can be defeated, like Martha and

George Bickerson example. Fraud test and illusory transfer test. Most all jurisdictions follow Kerwin,

which is the presence test – property will only be subject to the statute if it’s present. Some

jurisdictions have tried to address this legislatively, but not MA. So we got Sullivan, which subjects

the intervivos trust, where there are such controls, on policy grounds. Powers and interest retained in

Sullivan: he reserved a life estate, , sole trustee, right to revoke. Is this more or less than what Farkas

held onto? Nope. Sullivan affirms Farkas, but then overrides it on factually-specific policy grounds –

that the trust be created during marriage and that the settlor reserve the power to revoke it.

Conclusions: Where the policy is simply one of passing property around probate, there is no sufficient

public policy to knock it down; but where policy is one of spousal protection, there is jurisdictional

variance (usually easy to beat these things).

Creditor cases present similar issues. We’ve seen it. It’s important to us, because we have to consider

the immunity of property from the reach of creditors – settlor’s, beneficiary’s, trustee’s. and in the case

of powers of appointments, the donor and donee of a power. It’s made more complicated because

there are several legal relationships at work, in differing factual contexts, with seemingly conflicting

legal theories. (Cross-reference Kissel).

• Facts are critical

• Focus on these issues:

o Who creates the trust, who’s the settlor, who creates the power of appointment

(who’s the donor)

o Who’s the beneficiary of the trust and is the beneficial interest granted or reserved

(is settlor also a beneficiary)?

o Who is the donee of the power? Who has power of appointment? Is it granted or

reserved?

o Who’s the creditor after – what’s the consequence of control?

8/20/07 2:00 PM

Pernod: Generally accepted rule w/respect to trust termination. Circumstances under which the

settlor, alone, may terminate an irrevocable trust and where settlor, with other beneficiaries, may

terminate a trust.

Boyden: trustee’s power to terminate a trust

Charitable Trust

• Focus on Cy Pres – Doctrine that courts use to save a charitable trust from failure.

o Jackson and Evans cases – skim to see where court will and won’t apply Cy Pres

Implied Trusts and Resulting Trusts

• Failure of Private Express Trust

• Purchase Money resulting trust (see Little Red Book)

==

We’ve been considering the interests that the major players have in the private express trust – trustee,

beneficiary, settlor, and some of the relationships between and among them.

Relationship between trustee and beneficiary (fiduciary)

• Trust: A fiduciary relationship with respect to property that imposes duties on the trustee to

deal with that property for the benefit of the beneficiary. It arises out of intent. It is a duty

based on relationships, based on property. It imposes duties on trustee and confers rights

on the beneficiaries.

Fundamental duties:

1. Carry out settlor intent

What’s the most important element of private express trust? Settlor’s intent.

Find settlor’s intent in the terms of the trust. What if the beneficiaries don’t like it or would rather

something else or rather there be a principal distribution at 25 instead of 35? Tough! Wishes of the

beneficiaries to the contrary are subordinated to the settlor intent, unless the settlor violates public

policy (Lieberman, Shelley, Ware cases).

Broadway Bank case and spinthrift provision: What if the beneficiary there had tried to voluntarily

assign his beneficial interest to the bank to satisfy a debt? Could he do that? No.

Suppose Sandoe’s kids as beneficiaries want to remove Kindregan and replace trustee with someone

else? No, they can’t remove him without cause. Should he voluntarily resign? No, because Sandoe as

settlor trusted him to do that job. What if all Sandoe’s kids wanted to terminate the trust ahead of time

and Sandoe didn’t give them that power? He can’t do it, it would be a breach. His duty is to do what

Sandoe asked him to do and to resist the efforts of the beneficiaries to subvert that. Conclusion:

Trustee is not an agent of the beneficiaries, he’s not under the control of the beneficiaries.

Contrast with an agency relationship, where the agent is under the control. But trustee is not under

the control of the beneficiaries.

2. Trustee has to do the job personally

Suppose trustee delegates his discretionary decision-making to someone else, and that someone else

screws up. What’s the consequence? Trustee is liable for the actions of his agent. There is,

however, a distinction to be made – the distinction between discretionary functions and purely

ministerial functions on the other. Purely ministerial functions can be delegated but

discretionary ones cannot be. What’s the difference?

• Purely ministerial tasks include collecting the income, collecting the rents, dividends,

interest, keeping books and records of the trust, keeping custody of securities, buying and

selling securities, sending distribution checks to the beneficiaries, paying expenses of

administration (attorney, accountants, investment advisors). This is frequently delegated

among co-trustees.

o Suppose Kindregan and Tremont St. Bank were co-trustees of Sandoe’s trust for his

kids and grandkids. Co-trustee is usually professional or corporate duty and purely

ministerial tasks are often delegated there. Even if Kindregan was sole trustee, and

maintaining all that exceeded his capacity, he might return Tremont St. as a

corporate agent and ask them to do purely ministerial functions.

• Discretionary: How the income and the principal are going to be distributed in carrying out

Snadoe’s intent, which expenses to incur, which securities to buy and sell, which attorney,

which investment advisor, coordination of trust administration, and the supervision of those

agents.

• Trustee wouldn’t be liable for agent’s mistakes unless he was negligent in hiring them.

Agent is responsible to principal. Trustee has the right to seek professional advice, right to

get advice from attorney/investment advisor – in fact, he has a duty to do this in the

efficient and competent administration of that trust, to the extent he can’t do it himself. But

he’s ultimately responsible to the beneficiaries.

• Sandoe believed that Kindregan would carry out his intent in a competent fashion. There

duty of competence and a duty to act reasonably. He’s not a professional corporate? What

standard of behavior is he measured against? The standard of ordinary care and skill, that

he would excerise with respect to his own property. But as an amateur, he’d be expected to

retain professional advice – attorney, etc. But if the trustee is a professional, like corporate

trustee with resources, expertise, etc. then it will be held to a higher standard since there is

the expectation that they will employ their professional skills.

• Duty of Loyalty (most fundamental duty): I trusted him to act solely for the benefit of

Sandoe’s kids and grandkids, not to take advantage or personally profit. The standard is

uncompromising, unbending, unquestioned, undivided loyalty owed by the trustee to the

beneficiary, no exception. This doesn’t have to be written/said in the trust since it’s the

very essence of the fiduciary relationship between the trustee and beneficiary.

Consequence: trustee cannot receive direct or indirect economic benefit, he can’t

personally profit from the transaction.

o How could he profit? Many ways – buying and selling (he buys some trust property

for himself or sells to himself), investing trust property in a business venture in

which he has an interest, borrowing and lending (borrowing from the trust

personally at less than a market rate of interest or lending to the trust personally at

an excessive rate of interest), providing services to the trust (retaining himself as

attorney to perform legal services of the trust at an excessive fee) – in short, any

transaction where he is on both sides and acting for himself. If he does realize a

profit, this is considered self-dealing, and an act of self-dealing is considered a

constructive fraud on the trust and beneficiaries. The consequence of that is that the

transaction can be set aside by the beneficiaries and there is no SOL for that. As a

result, trustee is responsible to beneficiaries for all profits and all loses. Trustee is

in a no-win situation; he’s a guarantor for every transaction and held to strict

liability. Suppose Kindregan uncharacteristically takes $100,000 out of Sandoe’s

kids and invests in a .bomb business. It bombs. He takes out $100,000 money and

invests in amazing.com and he does well # $200,000. He took out $200,000 and

put in $200,000 – but he is still $100,000 shy since he’s liable for $100,000 that he

lost and for money that he made. He cannot put himself in a conflict situation, he

can’t permit his personal interests to conflict with his obligations as trustees, to

those beneficiaries. Example: PDQ corp. is a retail business, sells widgets, he

cannot own an interest in a competing business that sells widgets. He can’t inherit a

competing interest. If there is a conflict, get rid of it or resign. There are a couple

of exceptions:

! Compensation: He is entitled to reasonable compensation. This is a right.

How it’s determined depends – 2 varying views (TWEN). In some

jurisdictions, it’s determined by statute; in other jurisdictions including MA,

it’s the fair and reasonable standard.

! Reasonable expenses: Trustee is entitled to incur reasonable expenses, such

as professional services (attorney, accountant, investment advisor). Can the

settlor override the duty of loyalty to allow trustee to enter transactions and

profit? Yes, because settlor intent controls. But there are limitations.

Settlor can’t say, you don’t have to be loyal. You might allow trustee to

enter into profits here: Suppose Kindregan and Sandoe were 50-50 partners

and Sandoe wants him to be trustee of the 50% interest in the business for

my kids. There, it’s reasonable for him to enter into transactions for profit

but he still owes kids duty of loyalty. Can the beneficiaries consent to a

transaction that results in trustee profiting? Yes they can consent to what

would be a breach of trust, provided that they are of age, capacity, and they

do it with full knowledge of the transaction. If they did this, they’d be

estopped from later suing on this. But all the beneficiaries have to consent;

and unborn and unascertained cannot consent. Can court allow trustee to

enter into a transaction for profit? Yes, court can allow this, but scrutinizes.

! What if trustee doesn’t carry out Settlor’s trust as settlor wants? In the

absence of a retained beneficial interest or retained powers, probably not.

Who will enforce it if the settlor is dead? The beneficiaries – they have to

enforce the trust as against the trustee. How will they know if trustee is

operating correctly? Only if they have the information. So the trustee has a

duty to provide information to the beneficiaries, all the information

necessary to evaluate whether the trustee is perofmraing properly and to seek

protection in the event that he isn’t. The information is provided via

periodic accountings. There are 3 functions of accounting – rents,

disbursements, payment of expenses of administration, taxes, trustee’s fees,

distributions to beneficiaries:

" Informational – provide necessary information so beneficiaries can

protect themselves

" Redress – the accounts are a record upon which beneficiaries can

appeal to court to redress the maladministration and force the trustee

to return their economic loss to the trust

" Release from liability

! How do beneficiaries obtain redress and how does a trustee get released

from liability? This process is known as Allowance of accounts. How this

happens depends if this is a testamentary trust or an intervivos trust.

" Testamentary trust: Under supervision of the court having

jurisdiction (MA: probate court). There is some jurisdictional

variance. Here’s how it works in MA: similar to the adminsitrator’s

or executor’s account allowance. Turstee will present the account to

the court and aks the court to enter a decree of allowance. A formal

notice issues (in MA, a citation). It is a notice of the pendency of

that proceeding. It says that the trustee has presented his/her

account, asks for it to be allowed, if you have an objection, you must

file before return day. This citation gets jurisdiction over all

interested parties and gives them notice. This formal notice has to be

served on all interested parties – all the beneficiaries, including the

future contingent beneficiaries (unborn and unascertained) – and all

have to be represented. A GAL represents the future beneficiaries,

who is appointed to present the interest of the unborn unascertained.

This is expensive, time-consuming so settlor’s sometimes obviate the

need for the GAL if public policy permits. In MA, can do this. What

can they object to? Maladministration (anything trustee did to hurt

their economic interest like charged excessive fees, sat on their hands

while the market tanked. If this happens, then beneficiaries and

trustee try to work it out; if they can’t, then it goes to court to see if

maladministration. If the court does find that trustee

maladminstered, court orders trustee to restored the value of the

maladministration (surcharging). Eventually, the account is

allowed. Usually, there are no objections. That decree cuts off

personal reprsentative’s liability for that accounting period, that’s

how beneficiary gets redress and trustee becomes exempt from

liability.

" Intervivos: However the settlor says, and usually trust instrument

provides for account allowance. It typically allows for this:

interested parties are given accountings and given a reasonable

period of time within which to object. If they don’t accept, account

is deemed accepted. If there is an objection, trustee and beneficiaries

try to work it out; if they can’t, beneficiary has right of redress.

Intervivos trusts are not under jurisidiction of the trusts but an

aggrieved beneficiary can ask the court to take jurisdiction for the

limited purpose of adjudicating the object. Thereafter, it’s the same

as in testamentary trust – court holds hearing, eventually decree is

entered.

Ministerial tasks: frequently delegated; examples include collecting the income, rents, dividends,

interest; keeping books and records of the trust; keeping custody of securities; buying and selling

securities; sending distribution checks to the beneficiaries; paying expenses of administration.

Suppose Kindregan and Tremont Street as co-trustees of trust for benefit of Sandoe’s children and

grandchildren; purely ministerial duties are usually delegated to professional or corporate trustee.

Even if Kindregan was sole trustee, he might retain a Tremont Street in its capacity as a corporate

agent and ask them to perform purely ministerial functions.

Discretionary tasks: How the income and principle are distributed in carrying out intent; which

expenses to incur; which securities to buy and sell; which agents to employ; coordination of trust

administration; supervision of agents.

Trustee not liable for agent’s mistakes unless he was negligent in hiring them, agents are

responsible to principal.

Trustee has the right to seek professional advice.

WHO is ultimately responsible to the beneficiaries? The trustee.

3. Competence in administration of trust

What if trustee is not professional or corporate? What standard of conduct/behavior shall the trustee be

measured against? Standard of ordinary care and skill that he would exercise with respect to his

own property; duty to act reasonably; expected to retain professional advice as is necessary. If,

however, a trustee is a professional or corporate, and has all resources of a corporate trustee, and all of

the experience and expertise of a corporate trustee, that trustee will be held to a higher standard. Why?

Expectation that they are going to employ their professional skills

Duty of loyalty: the most fundamental duty; do not personally profit. The standard is:

uncompromising; unbending; unquestioned and undivided loyalty owed by the trustee to the

beneficiary, no exception. This doesn’t have to be written into the trust, it is the essence of the

fiduciary relationship between the trustee and beneficiary. Trustee cannot receive direct or indirect

economic benefit, no personal profit from a transaction.

How could he profit?

• Buying and selling, buys some trust property for himself or for someone else, like his

children, or sells personal property to himself, as trustee

• Investing trust property in the business venture in which he has an interest

• Borrowing and lending; borrowing from the trust, personally, at less than a market rate of

interest, or lending to the trust, personally, at an excessive rate of interest

• Providing services to the trust; retains himself as attorney to perform legal services for the

trust, such as allowance of an account

If he does realize a profit, that is characterized as self-dealing; and an act of self-dealing is considered

to be constructive fraud on trust and beneficiaries. Consequence? Transaction can be set aside by

the beneficiaries and there is NO statute of limitations on this; as a result, trustee is responsible to

beneficiaries for all profits and all losses (a guarantor of every transaction that he enters into;

strict liability)

Hypo: Professor Kindregan takes $100,000 of trust for Sandoe’s children and invests it in his own

venture, and he loses the whole $100,000. He takes out another $100,000 and invests it in another one

of his ventures, and he doubles his $, replaces the money. He’s back where he started…is this ok??

NO, he still has to make up $100,000…he has to account for money he took and the money that he

made. He cannot permit his personal interests to conflict with his obligations as trustee, to those

beneficiaries. Example: PDQ corporation is a retail business, sells widgets, he cannot own an interest

in a competing business; he cannot inherit a competing business.

If there is a conflict at the outset, you cannot accept the office of trustee, unless you get rid of it. If a

conflict comes up while you are trustee, get rid of it, or resign.

Exceptions:

1. Compensation: trustee is entitled to reasonable compensation (this is a right of trustee) how

compensation is determined is topic of memo on TWEN page; among jurisdictions, two differing

views

• Compensation determined by statute

• Fair and reasonable standard (MA is such a jurisdiction) : what is a fair and reasonable

compensation under all facts and all circumstances of that trust; purpose? Assets?

2. Entitled to incur reasonable expenses in administration of trust. Example: professional

services (attorney, accountant, etc.)

Can the settlor override that duty of loyalty and authorize trustee to enter into transactions with the

trust and profit? YES. Why? Settlor intent controls; but there are limitations, settlor cannot say, “You

don’t have to be loyal.” Where might you allow a trustee to do this? Example: Professor Kindregan

and Sandoe are 50/50 partners in a venture, Sandoe wants him to be trustee of ! interest for benefit of

children, wants him to manage business for both Sandoe’s children and Kindregan himself; still owes

duty of loyalty to children.

Can beneficiaries approve of trustee entering to transactions where trustee profits? Yes, provided they

are of age, capacity and have full knowledge of the transaction (can consent to what would be a breach

of trust) can they later sue trustee for breach? They would be estopped because they consented to it.

Practical problem inherent in this? Only protects trustee if ALL beneficiaries consent…future interest

beneficiaries cannot consent (haven’t been born). Can a court allow a trustee to enter into such

transaction for profit? Yes, but court will heavily scrutinize this request.

What if trustee doesn’t carry out his duties? Can Settlor enforce the trust? In the absence of a retained

beneficial interest, probably not. Who will enforce the trust? Beneficiaries. How will beneficiaries

know whether or not the trustee is performing in a proper fiduciary manner? Only if they have

information, can they enforce the trust.

Trustee duty: provide information to beneficiaries: how much? All the information necessary to

evaluate whether trustee is performing properly, and to seek protection in the event trustee isn’t

performing properly…this info is provided in periodic accountings

3 functions of accountings:

• Informational: provide necessary info so beneficiaries can protect themselves

• Redress: accounts are a record upon which beneficiaries can appeal to a court having

jurisdiction to redress the maladministration and force trustee to return to trust their

economic loss

• Release from liability

What info provided? All receipts, dividends, interests, rents, disbursements: payment of trust

administration; taxes, trustees fees; distributions to beneficiaries. If a beneficiary thinks that trustee

has improperly performed his/her duties, as reflected in account, they can object to it. How does a

beneficiary obtain redress? How is trustee released from liability?

Allowance of accounts: how it happens depends on whether there is a testamentary or inter-vivos trust

1. Testamentary trust is under supervision of court w/supervision (MA Probate Court)

Process is similar to account allowance in estate administration. Trustee will present the account to the

court and ask the court to enter a decree of allowance. A formal notice issues, in MA, a citation, a

notice of the pendency of that proceeding, what it says is that the trustee has presented his account and

has asked that it be allowed, if you have objection, have to file it within a certain period of time.

Citation has two functions: get jurisdiction over all interested parties; gives notice. Formal notice must

be served on all interested parties#all beneficiaries, including future contingent beneficiaries (unborn,

unascertained, yet have a protectable interest). GAL represents interest of unascertained and unborn

beneficiaries. This is expensive and time-consuming, settlors will sometimes say that this isn’t

required, so a G.A.L. doesn’t have to be appointed, if public policy permits, the beneficiaries will go

unrepresented. MA allows this…some jurisdictions say this is against public policy. What can

beneficiaries object to? Maladministration: what trustee did that harmed their economic interest;

example: paid excessive attorneys fees, charged excessive fees for themselves, sat on their hands while

the market tanked. Trustee and objecting beneficiaries then try to come to an agreement. If they

cannot, the matter will proceed to a hearing before the court, it will be determined whether there was

maladministration. If court finds maladministration, court will order trustee to restore to the trust the

value of the maladministration, this is called surcharging. Eventually, the account will be allowed (in

most cases, it is a routine allowance, there are rarely objections). Court will enter a decree of

allowance, and that decree cuts off personal representative’s liability for all matters properly reported

in that account, that’s how beneficiaries get redress and trustee becomes exempt from liability.

2. Inter-vivos trust: how does it work? However the settlor says it works

Usually trust instrument will provide for account allowance. Typically, it provides that interested

parties are given accountings and given a reasonable time to object, if they don’t object, the account is

deemed to be allowed. If there is an objection, then trustee and beneficiaries will informally try to

work it out. If they can’t, beneficiary has right of redress… How does this happen? Not under

jurisdiction of courts, private deal as between settlor and beneficiary; but an aggrieved beneficiary can

petition the court to take jurisdiction for limited purpose of adjudicating the objection…after that,

procedure is the same as testamentary allowances

We just did the general duties of a trustee. There are also specific duties:

Duty of impartiality: From the duty of loyalty comes the duty of impartiality – to treat all interests

equally – the present interest versus the future interests. Ex: Income only to my kids, corpus only

to my grandkids. Trustee has CL duty to treat all interests equally and all interests within a class

equally. Ex: mandatory net income to all of my kids in equal shares. There is a CL duty to treat all

interests equally, unless settlor authorizes trustee to be partial (by authorizing trustee to invade

principal or to take unutilized income and add it to principle, exercise discretionary distribution

within a class and to alter proportions as among beneficiaries, discretion to exclude).

Duty to segregate income from principle and to account for each separately: There is a

companion duty that accompanies duty of impartiality: duty to segregate income from principle and to

account for each separately. We discussed in trustee powers. What is principle and what is income?

It’s usually clear. What expenses are paid from principle and what expenses are paid out of income?

Beneficiaries care whether a particular receipt or expenses will be credited/paid to/from income or

principle since it will augment/decrease their beneficial interest. With that duty of impartiality, a

trustee cannot shift beneficial interests unless he’s specifically authorized to do it. A trustee

couldn’t share the beneficial interest directly, but he could do it indirectly, by improperly paying

expenses from income or principle. There is a CL duty to employ standard practices of accounting

or adopting statute (many jurisdictions follow Uniform Act. Ex: Receipts to income would be

dividends, rents, interest, receipts to principle would be stock splits, PDQ splits 3-for-1, spin-offs:

PDQ spins off XYZ Corp., receipts attributable to principle. Ex of expenses: income taxes, to

principal, capital gain taxes. Trustee has a duty to apportion expenses as between principle and

income. Ex: trustee’s fees; he serves all beneficiaries (present and future) so it’s appropriate to for

him to take his fees from principle and income. Similarly, professional fees – accountant, etc. You

see three principle accounts: receipt, disbursements, balance on hand. Three income accounts:

receipts, disbursements, balance on hand. There is also a seventh schedule – changes in

investments aka capital changes: example, trustee sells PDQ and replaces it with shares of IBM,

there’s an exchange of value, that can be reflected in this account.

Duty of confidentiality: From duty of loyalty there flows the duty of confidentiality. Can Kindregan

discuss Sandoe’s trust with faculty, tell faculty about Sandoe’s avaricious little bastards? No, his duty

of loyalty is solely for the benefit of the beneficiaries. This means that 3rd parties are provided with

only such information as will further the interest of the trust or comply with the law. He has a duty of

confidence to all the beneficiaries of that trust – this duty of confidence extends to everyone in his

employ (attorney, accountant, etc,).

• This can be tricky to apply because there might be a conflict between that right to

confidentiality and the right to information. Suppose Clyde has a drug problem and

wants to clean up and check in. He lacks personal resources to cover this so he asks for a

principle distribution. Kindregan reviews the terms of the trust, sees whether he has

discretion. He finds he does, and pays detox unit directly. He later files his accounts.

Remainderman – Chloe’s kids – want to know what was the principle distribution to Clyde

for? They have a right but so does Clyde have a right to confidentiality. Kindregan would

say that Clyde received a principle distribution for “medical purposes.” If Chloe’s kids

want to know the nature of the medical purposes, Kindregan should say that “medical

purposes” and not tell. If Chloe’s kids object, court would probably uphold.

• Can settlor override the duty to provide information? Can he provide that the trustee

need not account? Intent controls. But beneficiaries have a right to protect themselves,

so there might be a limit to that.

• Farkas: Farkas set up trust for benefit of Williams and retained extensive control over it

(he retained right to revoke). An interest did pass. Suppose that Farkas provides that he

doesn’t have to provide accountings to Williams and Williams doesn’t feel good about this

and he wants to the interests to be protected and so asks court to override this provision in

the trust and enforce. Court might uphold settlor intent, even though it’s overriding a CL

duty. But suppose that trust was declared irrevocable and the only beneficial interest

retained was the right to income and suppose that Farkas starts to screw around and borrow

against it and allows it to devalue, William worries, Williams goes to court to ask it to

override the provision that he doesn’t get accountings since his interest is being destroyed

# here, settlor has parted with the remainder interest since irrevocable so court may

override it.

• External information issues: Trustee has to report to government. He’s obliged to render

all such financial reports to taxing authorities, IRS, banking regulators, SEC filings, etc.

Control, protect, and preserve trust assets: Trustee has the duty to take control of all trust assets

and to do the necessary to preserve and protect trust assets. What does this duty to take control mean?

To take physical possession of all trust assets and to maintain actions as necessary to recover trust

assets. Ex: Suppose the insurance company that insured the life of settlor refused to pay the death

benefit? Trustee is obligated to maintain an action against insurance company.

Also, trustee has a duty to bring actions against prior fiduciaries for breaches of trust. Ex: Suppose

in Sandoe’s old age, Clyde was appointed guardian and had possession and control of Sandoe’s assets.

Clyde thinks that compensation ought to include Sandoe’s Porsche. Post-mortem, Chloe is appointed

executor and discovers that Sandoe’s assets are worth less due to Clyde raiding her account. What is

her duty as executor of Sandoe’s will? To file an action. But she doesn’t since they are brother/sister.

Ultimately, there is a pour-over trust like Clymer and Kindregan becomes trustee and he has duty to

bring action ‘against Clyde and Chloe. What if he sits on his hands? What remedies have the

beneficiaries of that intervivos trust? Remove him and find someone who will maintain those actions.

Duty to ear-mark trust property: registering all trust assets in the name of the trustee and not

individually so that everyone knows that those trusts are held in fiduciary capacity. There is a duty to

reregister all securities in the name of trustee, whether if held in certificate form or in account.

Deposit accounts have to be properly registered. With respect to funds, there is a duty that all such

funds be in the name of the trust, and not in the name of the trustee individually, and not co-

mingled. Co-mingling amounts to conversion and gives rise to strict-liability. Trustee becomes

guarantor of deposit institution and if institution goes under, it’s trustee’s problem due to co-

mingling rule. Also, real property – Crimson Hall has to be in name of trustee, as trustee.

• Exceptions to CL ear-marking rule (memo on TWEN).

Duty to preserve and protect trust assets and to do the necessary: Once the trustee has possession

and control, he has a duty to preserve and protect all the trust assets and to do the necessary. To

protect Crimson Hall against liability and casualty by insuring it, duty to protect marketable

securities against deteriorations in value, duty to pursue and resist claims. Trustee has duty to

enforce the trust, to pursue all claims, duty to evict tenant and pursue for rent, duty to defend the

trust and to resist all claims that are inappropriate including the suit by the professional slip-and-fall

tenant, tax assessment for excessive fees. But trustee also has power to compromise.

Make trust property productive of income: Trustee has duty to make trust property productive of

income. What’s the trustee’s standard of conduct? In most jurisdictions, this is the Prudent Man

Investment Rule (Prudent Person rule). This rule had its genesis in MA, in 1830 – Harvard College

v. Amory (26 Mass. 446). This is a balancing concept – the present interest (income beneficiaries)

and future interest (who will get corpus). Trustee is advised to invest prudently and to generate a

reasonable income for income beneficiaries…don’t invest speculatively. Income only to income

beneficiaries, corpus only to others. Each investment will be viewed in isolation, look to see whether

its good, wise, and prudent, if not, trustee may be liable as imprudent investor. Over the years, this

language has been interpreted conservatively and liberally; MA was on the liberal side so they might

find an investment to be prudent where it might not be considered prudent in another jurisdiction. In

recent years, there is a new theory: Modern Portfolio theory – which emphasizes total return (not

just income). Total return is income + capital appreciation. New rule: Prudent investor rule and

it’s been adopted by 3rd Restatement of trust and codified by Uniform Act and adopted by MA as

standard against which trustees (but not other fiduciaries like executors) will be measured.

Investments are not based upon individual investments, but rather the entire portfolio. So a portfolio

may contain ventures that are imprudent, according to prudent man investment rule, but, looking at the

whole portfolio, investment as a whole may be OK.

Can the settlor override all of this and authorize risky investments? Yes, intent controls. These rules

of conduct are default rules, so a settlor may provide for a different measure of conduct, which will

control.

What are the rights of the beneficiaries?

Beneficiaries have an equitable interest in the property so they have equitable rights with respect to

that property. They correspond with the duties imposed on the trustee. In general, beneficiaries have

the right to expect that the trustee will carry out the terms of the trust personally, promptly,

efficiently, prudently, impartially, and confidentially and that the trustee will be loyal. In short, a

that trustee will act in proper fiduciary matter and will give such information necessary for beneficiary

to evaluate performance so beneficiary can protect himself. Trustee is liable to beneficiary for

negligent and intentional breaches of duty and of trust (negligent - sits on it, intentional - self dealing).

What if trustee fails to be loyal? What are beneficiaries’ remedies:

a. Removal from office

b. Ordinary damages

c. Accounting for profits

d. Asset tracing and recovery

e. Constructive trust

f. Injunctive relief

g. Specific Performance

These all have something in common – equitable, which goes to the nature of the underlying

relationship. Design of all these remedies is restorative – to restore beneficiary to possession before

maladministration.

8/20/07 2:00 PM

Reading for next Monday: Constructive Trust as an equitable remedy (one of the implied trusts). We

considered it when looked at private express trust with respect to land. Suppose that Sandoe

transferred Blackacre to Kindregan by deed absolute. All you see at registry: Sandoe to Kindregan.

But we have an oral agreement – he’ll hold Blackacre upon a trust for Sandoe (the settlor) or a 3rd party

(Sandoe’s kids). We are in a section 7 “manifest and prove” jurisdiction – there is no writing to

evidence this agreement between them.

We have a trust, it’s just not enforceable.

As trustee he has three options:

• Perform: do what he said he’ll do. In a manifest-and-prove-jurisdiction, the purpose of

writing is to prove existence of trust, not to create one (trust is there, just not enforceable)

• Can execute a writing: property, purpose, beneficiary, signed Kindregan. This will render

it enforceable.

• Set up statute of frauds and refuse to enforce and neither Sandoe nor Sandoe’s kids can

make him do it.

Does Kindregan get to keep Blackacre (unjust enrichment) – or is there a constructive trust equitable

remedy available? It is not universally available, has to be more than a mere breach of an oral

agreement, has to be in conjunction with other inequities.

Under what circumstances can you get a constructive trust and for whose benefit?

• Masino case

• Horsley case

• Difference between cases is the identity of the beneficiary of the constructive trust, who

creates the trust, who’s the beneficiary? Under which circumstances will you get

constructive trust – look for difference.

• Difference between Masino and Horsley, which are intervivos, and the Strype case, which

is a testamentary trust: what impact is that difference?

• Contrast with purchase money resulting trust

Powers of Appointment

• DC. v. Lloyd: Release of a power as an alternate (ultimate?) form of exercise

• Talbot: general power

• Daniel: special power

• Talbot and Daniel: What happens if a power of appointment is misexercised or not

exercised at all? That property has to go someplace. Daniel is a special power; Talbot is .

===

Trustee Duties: all of the general and specific duties that a trustee owes

Rights and Remedies of a beneficiary: The beneficiaries’ rights correspond with the duties that the

trustee owes. As a consequence, trustee is accountable to the beneficiaries and the trustee is liable to

them for negligent (sits on hands) and intentional (self-dealing) breaches of trust. What if a

trustee does maladminister? What are the beneficiaries’ remedies?

• Removal: throw him out. Court has power to do this.

• Ordinary damages: trustee sits on it while a marketable security deteriorates in value. A

prudent trustee would have sold PDQ corp. at $50, but sat on it, and didn’t liquidate until it

reached $40…that trustee ought to be liable for the difference between what prudent trustee

should have done and what he did ($10/share)– this is surcharging – ordinary damages.

• Accounting for profits: trustee takes $100,000 out of trust and invests in personal

business venture and losses it all. He takes $100,000 out and invests in personal venture,

does well, doubles the money. $200,000 out and $200,000 in… is this OK? No, he’s

accountable for all losses ($100,000) and all profits ($100,000). Trustee will be forced to

disgorge the other $100,000 – will need to account for it for beneficiaries due to duty of

loyalty. All profits go to benefit of trust and beneficiaries.

• Asset tracing and recovery: Suppose Milking takes assets out of trust and invests in a

.bomb business venture. He takes all assets out and loses them…is the trust over? Trust

property is essential to the creation and continued existence of the trust since there needs to

be a split of title so does lack of assets make trust over? Nope. Beneficiaries have an

equitable claim against trustee for breach. Suppose Milking declares personal bankruptcy

and trustee in bankruptcy has assets and creditors are lining up. Do the beneficiaries of that

trust have any priority claim vis-à-vis his other creditors? No, not on these facts. Just line

up like everyone else. But suppose this occurred: Before ventures bond, one of its bonds

made an interest payment and Milking invested it in amazing.com and it did very well, but

not well enough to prevent bankruptcy. So those shares are not in bankruptcy. If

beneficiaries could hire good accountant who could follow paper trail, there they would

have a priority claim since those shares of amazing are directly attributable to the trust from

wrongful defunding into investments into hands of trustee in bankruptcy. They have

priority since goes back to theory that trustee may not profit from his own wrong and all

profits from trust assets inure to the benefit of the trust due to equitable duty.

• Constructive Trust: we’ll discuss later

• Injunctive relief: Suppose the beneficiaries of the trust get wind that Milking is removing

trust assets and investing in his own business venture before everything goes south…some

has been removed but some since remains. Removing him will be remedy, but until that

can happen, maybe injunctive relief would be appropriate – enjoin him from further

removal of trust assets until matter can be sorted out.

• Specific performance: Ordering the trustee to specifically perform according to the terms

of the trust. CL duty of impartiality – that trustee owes to all of beneficiaries – between the

classes (present interest, future interest) and within the class (all income beneficiaries

treated the same) unless the trustee is given discretion to be partial (we saw this – between

classes, the discretion to invade principal or add income to principal) or discretion to alter

proportions or to exclude. This discretion to exercise can be limited by an ascertainable

standard – Shelley – maintenance, support, education. Or it can be unlimited – sole – like in

Boyden. What if the trustee abuses that discretion? Beneficiaries can ask a court in equity

to intervene and to order that trustee to perform in accordance with the standard. Where

there are standards, there are a myriad of cases that define this standard so standard of

conduct is clear and if trustee fails to conform, court can intervene and order trustee to

perform in accordance with standard. But where standard is absolutely unlimited – sole and

uncontrolled discretion – it will be one rare day in hell that a court will intervene since it’s

not about what court would have done, it’s what trustee did. If there is no ill motive, court

won’t change. Can the settlor limit liability? Yes, in the terms of the trust… unless it

violates public policy. Some jurisdictions will not allow a limitation of liability based on

public policy…other jurisdiction will make this like ordinary negligence. You can’t say,

trustee you don’t have to be liable. What if settlor says you don’t have to account? This

may be effective, depends on public policy and circumstances. Farkas – all that control

was retained so court wouldn’t intervene since settlor can can the entire thing but if that

trust was irrevocable and that the settlor only had right to income and said no accounting,

then court would override since beneficiary needs the protection. Settlor can limit liability

in the terms of the trust, intent controls – how far courts will let that go depends on facts

and public policy. Can beneficiaries consent to a breach? Yes, since it’s their interest. If

they do consent to a breach, they’ll be estopped from turning around and asserting a breach

of trust since they agreed to it. But what’s required to get their consent – they need to be of

age, capacity, and have to have full knowledge of that transaction (informed consent).

Problem is unborn, unascertained (future contingent beneficiaries) – this consent is only as

good as who you get it from. Can a settlor confer additional rights on beneficiaries beyond

the CL rights, beyond the statutory rights? Yes. We’ve seen them, such as the power to

remove without cause, the power to replace trustees with whoever they wish, the power to

terminate the trust, can be given powers of appointment. But what’s the likelihood of that

happening? This depends on the objectives of the trust? If the purpose of the trust is to

protect the property, protect the beneficiary, then it’s not likely they will be given extensive

powers since this would controvert the purpose of the trust. If the only purpose of that trust

is mere management, then maybe you will have those powers/rights. Since most trusts are

designed for defense, then you aren’t going to see many powers.

Most of these remedies are equitable, which flow from the nature of the relationship – it’s an equitable

relationship. The objective of all these remedies is to restore the beneficiary to position before the

economic harm that was created by that trustee. The remedies are not exclusive, they are often used in

conjunction with each other, as many of these remedies as are necessary. For example, removal might

be the appropriate remedy, but until removal can be ordered by court, the assets may need to be

protected, found, recovered. Think broadly about remedies, use as needed.

Beneficiaries may have rights as against 3rd

parties on account of the actions of the trustee:

Suppose Kindregan breaches Sandoe’s trust for benefit of Sandoe’s kids by conveying trust assets to

his kids for less than adequate consideration. He sells the marketable securities for less than adequate

or no consideration. Or transfers Crimson Hall to them in breach of trust (Sandoe’s kids were

supposed to live there). Sandoe’s kids (SK) might have action against Kindregan’s kids (KK). Trustee

has legal title to trust assets, but is holding them subject to the rights of the beneficiaries. So too does

anyone who receives that legal title from the trustee, in breach of trust, with knowledge. It doesn’t

matter that they paid for it. Here, KK would hold those marketable securities or Crimson Hall as

trustee for SK, the beneficiaries, and SK has rights against KK and can use constructive trust to get

property away from them.

1 Exception: A BFP for value, without knowledge, actual or constructive:

If a BFP buys securities for value, with no knowledge, they acquire property, free of trust…but the

proceeds in hands of trustee remain subject to trust… so if 3rd party purchased these, they get good

title. What does this do to a purchase of a trustee? They’ll want to know whether trustee has authority

or is breaching. They’ll want to see trust instrument, they’ll want attorney to do this, this will take

time, and potential for profit on sale might go down. This is why we use nominee name for trust

purchase so that marketable securities can be sold quickly.

Termination:

Ordinarily, the terms of the trust fix the duration of the trust, and that trust won’t terminate until that

time. 3 classic examples

• Trust terminates when my youngest child reaches the age of 25.

• Trust terminates upon the death of the survivor of my children.

• Trust terminates 20 years upon the date of the creation.

With the first 2, you can’t be absolutely sure when trust will terminate… but eventually it will happen

and trust will terminate.

In addition, a settlor will also provide a power to terminate so that the trust can terminate ahead of

time, prior to the time set. How can this happen? Several ways:

• Settlor can reserve power to terminate (revoke)

• Settlor can grant power of termination to someone else (beneficiaries, trustees, even a 3rd

party without a connection or any combination of that)

• A reserved power to terminate dies with the settlor and what may have been a

revocable trust may become irrevocable unless someone else has been given that

power.

Suppose the settlor fails to reserve a power, and the trust doesn’t say whether it’s revocable or

irrevocable…which is it? Presumption goes both ways, depends on jurisdiction. Time was that the

presumption inmost jurisdictions was irrevocability since it goes to the nature of the transaction – it’s a

gift, gone is gone. But because irrevocable trusts are harsh, cast in stone, many jurisdictions have

reversed that…now, most jurisdictions presume revocable unless settlor says its irrevocable. Settlor

should affirmatively state whether irrevocable or revocable, because if you don’t, someone will

challenge it # construction action, time, money.

How do trusts usually terminate? Either at the time state or pursuant to a power. In situations where it

terminates on the termination date or pursuant to a power, termination is routine, pursuant to terms of

trust. But what happens if parties seek to terminate trust in advance and there is power granted or

reserved? This is topic in Pernod – the general rule with respect to termination. Under what

circumstances can an irrevocable trust be terminated by the settlor alone or by the settlor together with

the beneficiaries?

• By the settlor alone – only upon a showing of fraud, duress, undue influence, mistake. All

these equitable grounds for reformation/rescission.

• By the settlor in conjunction with the beneficiaries: Only if everyone – settlor and all

beneficiaries – is ascertained, of age, of capacity, and everyone consents. Could this

happen in Pernod? A GAL was appointed to represent the unborn, unascertained

beneficiaries (her descendants). When would that class close? At the end of 2 life estates –

that class was not going to close until after the death of the daughter so there were unborn,

unascertained beneficiaries so you couldn’t get them all so she couldn’t do it. So she had to

do it alone and sustain burden of proof: clear and convincing (best guess for burden

re: trusts). She couldn’t sustain the burden. This is the general rule by settlor alone or

settlor in conjunction, must get them all.

Boyden: Trustee’s power to terminate a trust. We’ve discussed power to invade principal. Can

trustee, in the exercise of his power to invade principal, terminate the trust? Terms of the trust are

classic family distribution pattern., provided for income to spouse for life and trustee was given

discretion to invade principal on behalf of spouse and kids. Upon death of spouse, that trust goes on

until youngest child reaches age of 25 and trustee is given discretionary income interest powers, as

among children and issue of deceased children (grandkids and great-grandkids) ascertainable standard:

maintenance, education, support. When youngest child reaches 25, trust terminates and corpus is

divided into as many shares as there are children then-living and children-then-deceased who have left

issue-then-surviving and there will be distribution of principals (this is per stripital distribution).

Ultimate default: heirs at law. It was spinthrifted. Context: this was a petition for instructions – a

request of declaratory relief in equity. We saw this in Spicer too. A GAL was appointed to

represented unborn, unascertained beneficiaries. Trustee didn’t know what to do – if he took one

course of action, one group of beneficiaries would sue, and if another, then another group would sue.

Trustee is not required to take a chance – he can file a petition for equitable relief to be told what he

can and can’t do. All interested parties are put on notice so everyone is before the court. Trustee’s

question: was that discretionary invasion language broad enough so that the trustee could invade

principal from time to time, and pay it all out, thereby terminated the trust? Settlors will often limit the

exercise of discretion by external standards, a particular set of circumstances in envisioned … for

example, emergency (Shelley), education, maintenance, support. Or trustee can be given uncontrolled

discretion – this seemed to be the discretion in Boyden.: “In his discretion deem advisable” – this

implies extensive, unfettered discretion. Is this really absolute and unlimited? No. Even so broad a

discretion as this has to be exercised with reasonableness and prudence, taking into account all the

facts and circumstances. If there is reasonableness and prudence, OK; otherwise, it’s a breach. Court

held that trustee had broad discretion, could terminate the trust. The word “portion” was deemed to

be insignificant; this is not always so – sometimes court read it as portion and won’t let trustee

terminate. Drafting advice: If you want trustee to have that kind of power, say so, expressly, give

them the power…or not –but say so! Otherwise, you have construction action # time, money.

Charitable Trusts:

Most of the principles and general rules with regard to private express trust apply to charitable trusts

too. Here are distinguishing characteristics and cy pres:

• The fundamental distinguishing characteristic relates to the identity of the beneficiaries.

Private Express Trusts (PET) inure to the benefit of private, specific persons or by class.

Charitable trusts don’t.; they inure to benefit of the public. This distinction impacts the

validity of the trust. In the case of a PET, beneficiaries must be very definite – ascertained

or ascertainable – so they can enforce it. But in a public trust, the beneficiaries cannot be

too definite, since it’s for all of us; rather, they have to be indefinite. How indefinite? If a

class gets too small, then it won’t be for the public benefit. You need to know,

jurisdictionally, how small a class has supported a public trust. This impacts on

enforcement. In PET, beneficiaries enforce it. In charitable trust, a public official enforces

it, usually attorney general (attorney general has public charities division in MA).

Charitable trusts also vary with regard to duration. PET cannot go on forever – rule against

perpetuities. This is not the case with charitable trusts, they may exist in perpetuity.

Charitable trusts also differ with regard to purpose. In PET, purpose is to benefit private

persons; in charitable trusts, the community. It’s impossible to enumerate all the purposes

that have been held charitable, but certain purposes have been held to be charitable

(restatement): relief of poverty, advancement of education, advancement of religion,

promotion of health, municipal purposes. But there is no fixed standard for determining

what is charitable – restatement said “a purpose is deemed charitable if accomplishment of

such social interest to community as to justify having properly devoted to that purpose, in

perpetuity. See jurisdiction. How definite must that purpose be? With PET, must be

definite, because must need ascertainable standard against which to measure trustee

performance. Charitable trusts are not held to this standard – purpose can be without a

standard. Charitable trusts have been sustained where settlor left property to charity,

provided there was a willing, ready, and able trustee to do it. Trusts may be private, public,

and mixed, so long as the interests are separated. Ex: trust for companion Claire. Terms:

To Claire for life, remainder to provide tuition for needy law students (Charitable remainder

trusts; interests were segregated - present interest to Claire and upon her death, converts to

charitable trust to provide tuition for needy students). In Clymer B trust, remainder went to

BU.

• Cy Pres:

o Courts use this doctrine to save charitable trust from failure. Principle: Where

property is given in trust for a particular purpose, and it becomes impossible to carry

out that purpose for whatever reason, the trust may not have to fail. Why? Because

the courts may direct that the property be applied to a purpose nearly like that which

was designated by settlor. Theory and support? Although that settlor intended this

particular purpose, he nonetheless had a general intent lying beyond it – to devote

property to charity – so presumably, settlor would rather see that property applied to

similar purpose as opposed to failing, because if the trust fails, it goes back to the

settlor in the form of a resulting trust if settlor is alive or to successors in interest.

Cy Pres is not universally applied. If that purpose is particular and exclusive, and

there is no general intent, then Cy Pres is inapplicable.

o Settlor’s intent can be difficult to analyze and it may be hard to determine an

alternative disposition. So all court can do is guess what settlor would have like.

So, draft for it!

• How can a charitable purpose fail?

o Funds are insufficient

o Purpose may already be accomplished

o Purpose may become impossible to accomplish – reason does not exist anymore

o Property is given to a charity that ceased to exist

o Property is given to a charity that never existed since it was misdescribed

o Where the purpose fails, and purpose deemed non-essential, courts apply it to a like

purpose. In Phillips, they applied it. Conversely, in Evans, this purpose couldn’t

have been more specific if he tried, no general charitable intent # not applied.

o How frequently do the courts apply the doctrine? Depends on when purpose

becomes impossible. Distinguish between: Does it fail immediately or after lapse

of some time? If immediate failure, then courts struggle. If they can find

alternative, they do that; if not, trust fails and goes back to settlor. If it fails years

and years later, then doctrine is almost always applied. If a trust goes down after

100 years, it might be impossible to find successors in interest.

We’re done with PET and charitable trust – express trusts.

IMPLIED TRUSTS

Resulting Trusts:

There are 3 situations where presumption of resulting trust arises:

• Where the PET fails, for whatever reason. Like Spicer, where it happened at the outset.

But it can fail years later.

• Property proves excessive for the purpose and no provision for it. Ex: Sandoe’s education

trust for nieces and nephews.

• Purchase money resulting trust. Suppose Claire owns Crimson Hall. Sandoe wants to buy

it, but doesn’t want to take title. He asks Kindregan to take title in his name. At registry

says: Claire to Kindregan (grantor to grantee) and may even provide that he furnished the

consideration (formality) but really Sandoe did. Tripartite relationship: grantor (Claire),

grantee (Kindregan), payor (Sandoe). To raise the presumption, all payor has to do is show

that he furnished that consideration orally (even though its real property). Oral evidence is

admissible to prove that payment was made by someone other than the grantee, the

admission of this evidence is not precluded by the SOF or the Parol Evidence rule.

• There is often a companion section 8 which exempts resulting and constructive trusts from

application of section 7. Some text writers say that this is an exception to parol evidence

rule; Sandoe does not believe that it is an exception, but just that it interprets/clarifies the

deed to rebut the presumption, but it doesn’t change the passage of title. It doesn’t matter

how Sandoe gets money to Claire – directly or through Kindregan or he can hold property

that belongs to Sandoe. Textbook writers say that this is a resulting trust so SOF doesn’t

apply. Presumption of purchase money resulting trust arises out of mere payment alone.

Contrast that will application of statute of frauds and constructive trust. The presumption,

once raised, can be rebutted by showing that settlor intended something else: like a gift, a

loan, or repay an existing loan. If one of these other relationships was intended, the title is

his. When would this happen? Suppose Sandoe’s kids find the paper trial of the transaction

and they see that it’s a purchase money resulting trust and Kidnregan said that this wasn’t

the intent, it was something else. SOF doesn’t apply, which can be a benefit.

8/20/07 2:00 PM

Kissel (will be used to pull together all creditor cases), Ware, Murphy, Riser

Why are creditors allowed in or not allowed in?

Also, Rule Against Perpetuities. Method of analysis and apply to Cook.

Resulting Trust, Cont.

Presumption of Resulting Trust arises in 3 situations:

• Failure of Private Express Trust, like Spicer. Upon the death of Sandoe’s daughter,

without issue.

• Where trust corpus proves excessive for the purpose, and settlor doesn’t provide what’s

supposed to happen with the over-funding like education example.

• Purchase money resulting trust. Ex: Claire owns Crimson Hall, Sandoe wants to buy it

but doesn’t want to take title in his own name so he arranges to have it in Kindregan’s

name. Sandoe furnishes consideration. Registry says Claire to Kindregan, it may even say

that Kindregan furnished consideration but he didn’t. Tripartite: grantor, payor, grantee.

To raise the presumption, Sandoe only has to show that he furnished the consideration. He

can do this orally, despite the fact that subject matter is land – not barred by Statute of

Frauds or Parol Evidence Rule.

Duties of a Resulting Trust Trustee:

Back in Spicer: to hold subject to order; to convey when ordered to convey by the beneficiary or by

the court. In the case of Spicer, personal representative of the settlor. In the case of the purchase

money resulting trust, Sandoe would order that Kindregan convey to him. In the meantime, what are

the duties? Merely to preserve and to protect; no express duties in a resulting trust since arises by

implication, by law.

Could the beneficiary of a resulting trust convey his beneficial title? Why not? The only thing that

would prevent is inalienability of property and here there are no terms. Suppose Sandoe were to die

while trust sits, then the beneficial interest passes by will, if he has one, or to heirs in law subject to

debts and expenses. It’s transferable by Sandoe, intervivos and post-mortem. Can creditors reach

beneficial interest in resulting trust while it’s sitting there? What’s to stop them? This is why it’s in

Kindregan’s name. If they find it, they can reach it, since nothing to block them, no protective devices

since trust arises out of operation of law.

How do resulting trusts terminate? How does any trust terminate? Merger! Merge your titles and the

resulting trust is over. At such time as Kindregan conveys his legal title of Crimson Hall to Sandoe,

title is merged. When trustee of resulting trust conveys to beneficiary of resulting trust is the usual

way that resulting trusts terminate. Another way: Suppose during Sandoe’s lifetime, he conveys

beneficial interest to Clyde and Chloe and he directs Kindregan to convey legal title to them…this

merges title and terminates resulting trust.

Constructive trusts (in context of private express trust with respect to land)

Suppose that Sandoe conveys Blackacre to Kindregan by deed absolute. At registry all you see is a

deed from Sandoe to Kindregan. We do, however, have an oral agreement: Kindregan will hold

Blackacre in trust for Clyde and Chloe. We are in a §7-manifest-and-prove jurisdiction with respect to

Statute of Frauds – writing needed to enforce (not to create, but to enforce). There is no such writing

between Sandoe and Kindregan. Kindregan has 3 options:

• He can perform, do what he said he’ll do

• He can execute the appropriate writing at the appropriate time – property, purpose,

beneficiary

• Set up statute of frauds and refuse to perform it and neither Sandoe nor his kids can make

him do it.

Does he get to keep Kindregan or do we have a remedy? A constructive trust is a remedy, but only

under certain circumstances.

Masino: Mom purchases Blackacre and has title placed in name of her daughter pursuant to

understanding that daughter would hold Blackacre for benefit of her kids (grandkids). Post-mortem,

the daughter repudiates and her kids sue. The trial court thought that a resulting trust was being

pleaded here and ruled that resulting trusts had been abolished in the jurisdiction (true in that

jurisdiction, not in MA). The statute notwithstanding, this was not a purchase money resulting trust

(PMRT). A purchase money resulting trust arises because the payor furnishes the consideration. A

PMRT arises for the payor’s benefit and this wasn’t the case here. It was the grandkids who wanted

the trust raised for his benefit. On appeal, the court of appeals held that what was really being pleaded

was a constructive trust. Constructive trusts don’t arise out of money payment alone…constructive

trusts generally arise out of payment in conjunction with other inequities. Function of constructive

trust is to prevent unjust enrichment, where someone is wrongfully holding title, in unjust enrichment

for themselves, and SOF is a bar, courts may impose a constructive trust to prevent unjust enrichment.

Constructive trust is an equitable remedy, uses trust theory to accomplish the result, a trust created by

courts to remediate a wrong. Constructive trusts move title, just the way a resulting trust moves

title…out of the hands of the wrongdoer and places the entire interest in the hands of those who were

wronged. In Masino, a court in equity would decree that the daughter was constructive trustee, this

would remove her beneficial title and leaves her with bare legal title, beneficial title goes to those who

were wronged, here the grandkids. Title has been split by decree of court. Second part of decree is an

order to transfer, daughter has to transfer legal title to her children. This causes merger, and the trust is

over.

We saw this in the Pope case, where someone was fraudulently preventing from executing a will, and

in Mahoney.

So where can you get a constructive trust? Only if the person wronged can plead some other equity:

• Equitable grounds for reformation or rescission: Fraud, duress, undo influence, mistake

o Fraud: If at the time of the transfer to the daughter, the daughter had no intent to

perform it, she’s guilty of fraud, not just a mere breach of an oral promise. Result:

you’ll get constructive trust.

o Undo influence: If at time of transfer, daughter unduly influenced her mother; this

is not a mere breach, you’ll get constructive trust

• Abuse of a confidential relationship

o If at the time of transfer, daughter stood in a confidential relationship with her

mother, this situation will give rise to constructive trust. This is despite a lack of

fraud/undo influence/wrongful procurement. It’s far easier to find a confidential

relationship than to prove fraud/undo influence. Where do you find confidential

relationships?

o We considered them in Rosenberg – confidential relationships are found in all the

fiduciary relationships (trustee/beneficiary, guardian/ward, attorney/client,

executor/beneficiary) and in the family or elsewhere, where 2 family

members/friends have a relationship of trust and confidence such that one party lets

down his guard (not in commercial marketplace). Also between Sandoe and

Kidnregan. In Masino, mom was relying on confidential relationship, so you get

constructive trust.

• A transfer in contemplation of death intended as a testamentary substitute

o On Sandoe’s deathbed, he conveys Blackacre to nephew by deed absolute. He

promises Sandoe that at such time all of his siblings reach 21, he will convey

Blackacre from himself to all siblings and himself as Tenants in common. Nephew

repudiates…can siblings get constructive trust? Yes.

Wasn’t there a confidential relationship in the Horsley case? The daughter who conveyed to the

mother. Then why the result – why didn’t she get a constructive trust? Sandoe thinks it was bad

lawyering – they focused on the wrong relationship. They should have focused on relationship

between transferring daughter to her mom instead of other relationship, and then claimed transfer in

abuse. There should have been a constructive trust here, but they plead the wrong thing.

Factual difference: the identity of the beneficiaries. In Masino, beneficiary was a 3rd party –

grandkids. In Horsley, beneficiary was the settlor – held back for the benefit of the settlor. This is a

critical difference, because it goes to where you can get a constructive trust. In either situation, you

can get a constructive trust if you can plead and prove inequities – with regard to 1st 2 –

fraud/duress/confidential, you get it either way, both are in common; 3rd isn’t. With regard to third, not

so. In Masino, if you plead and prove transfer and contemplation, you get constructive trust. In

Horsley, you only get constructive trust if transfer was intended as security for a debt. Ex: Sandoe

owes Kindregan and debt and Kindregan feels insecure since no security. Kindregan says, “Transfer

Crimson Hall as security for debt and when you pay it off, I’ll re-convey.” This wasn’t in writing (no

mortgage). If after debt is paid off, he repudiates, Sandoe can get a constructive trust on debt situation

(even if there wasn’t a confidential relationship).

Original hypo where Sandoe transferred Blackacre to Kindregan on oral trust: can he keep Blackacre

in unjust enrichment. Yes, unless Sandoe can plead and prove one of those other 3 inequities. There is

a purpose behind the SOF – to prevent oral proof of an oral trust, to enforce it. So you need to have

more than mere oral breach.

Weren’t they going to give a constructive trust in Louis, even though none of those equities were

pleaded? Yes. Why? This is a devise; not an intervivos transfer like other 2 cases. They didn’t please

fraud or confidential relationship or transfer in contemplation of death…none of them. Courts are

more willing to give constructive trust in devise than in intervivos situation. Where there is a devise in

reliance, you get constructive trust.

Powers of Appointment

Powers of appointment are delegations. Rather than create a future interest, a settlor will delegate the

creation of a future interest to someone else by creating a power of appointment and giving it to

someone else. Suppose Sandoe creates a trust today for Clyde, funded with marketable securities.

“Income to Clyde for life, on his death, __________.” We used to say things like “to his issue, per

stirpes;” but we could also give him power of appointment to appoint that property as among his issue

then living, as he deems appropriate. What’s the benefit of that? Flexibility. If Sandoe makes

decision today, it’s in stone; power allows him to make that decision based upon facts/circumstances as

exist 40 years later. Clymer A trust was an example of this. An exercise of this power was in Lydia’s

will and in project.

The background reading was designed to acquaint us with nature and purpose of powers. From this

reading, we should have drawn distinctions:

• Between general powers and special powers

• Within special powers, the distinction between exclusive and non-exclusive powers

• Powers that are presently exercisable and testamentary powers

In the first Restatement, distinctions among 4 major powers:

• General power presently exercisable

• General testamentary power

• Special power, presently exercisable

• Special testamentary power

• Some hybrids exist within these, but they didn’t used to be used. Emerging tax law

changed this…so we get second restatement.

General Power Presently Exercisable

Suppose A transfers cash and securities to Trust Company (TICO), in trust, terms: to “B” for life,

remainder to such person or persons as B shall appoint. Characteristics: It can be exercised at any

time, in favor of anybody, including the donee (B). As a result, it is the practical equivalent of

ownership. Why? Because the donee, B, has the power to appoint the property to himself and can do

so at any time. B can convey as freely as though he owned it. But he doesn’t own it, he just has

capacity to acquire ownership! Focus on distinction between ownership and a power. Also affects

title – how does title pass? Suppose B exercises this power and appoints to his kids, P, D, and Q.

They acquire appointed property by virtue of the exercise, who is the source of the title? A, the donor;

B is merely a conduit by which property passes from A to P, D, and Q.

General Testamentary Power

Ex: To B for life, remainder to such person or persons as B shall by will appoint. It is likewise the

equivalent of ownership, but with one important limitation: the donor has provided that donee can’t

exercise that power until he dies, and then only in his will. Consequence? He can appoint anyone he

wants except himself. This has creditor consequences – think about when looking at Kissel.

Special powers in general

Special powers are fundamentally different, since they are not ownership in any sense. A special

power is a power to dispose of the donor’s property among a limited group of people, that specifically

excludes the donee. This power is really fiduciary in nature. The donee has a duty to appoint within

the class and not to appoint to anyone outside that class (“non-objects”). Due to the fiduciary duty,

donee cannot derive any profit, directly or indirectly, from this exercise. So his ability to transmit is

considerably limited.

Special Power Presently Exercisable

To B for life, remainder to such of the children of B as B shall appoint. The class limitation is children

only. But it could be any class, provided that class is clearly defined such as issue, nieces and

nephews. We saw this with private express trust, where we define beneficiaries by class. Here, we are

limiting the appointees by class. We are not limited to one class. When the donor creates a special

power, he can utilize 2 or 2+ classes – ex: remainder to such of these issue and B’s nieces and

nephews as B shall appoint. This power can be made to be exclusive – can give donee power to

exclude members of that class. Ex: to any one more of B’s issue as B shall appoint. You can make

that power non-exclusive too – everyone in the class has to get something but not equal – “to such of

B’s issue, in such proportions as B shall appoint.” Like trustee’s discretion.

Special Testamentary Power

Impose all of fiduciary obligations of special power presently exercisable plus an addition: you can

only appoint at death, and only in your will. Ex: To B for life, remainder to such of B’s issue as B

shall, by will, appoint. There can be a power to exclude or alter proportions.

Conclusions re: Powers:

The donor can substantially restrict the exercise of a power by the donee; this is entirely consistent

with property rights – so long as don’t violate a rule of law or public policy. Donor of the power was

the owner of the property before he created the power. It is the settlor of the trust who creates –

standing in 2 capacities.

Powers are really defined by the extent of discretion given by donor to donee. Recall that scope of the

power and scope can be basically reduced to 3 questions:

• When may/must the donee appoint? Remainder to such persons as such B appoint by will

or by deed or will?

o Suppose instrument is silent on the “when.” Doesn’t say deed or will. “Remainder

to such person or persons as B shall appoint” – most jurisdictions interpret this as no

time limitation (donor must specifically provide for limitation).

• To whom may/must the donee appoint? Anybody or limited by class?

• How/by what method may the donee appoint?

What property interest can a donor create when he creates that power? B is the power holder (donee).

Must the donee appoint the property to the appointees outright or may the donee exercise that power

by continuing the present trust on. For example, may B continue A’s trust on, for the benefit of his

issue for some period of time? Could B create a new trust and appoint the assets to his trust? May B

in the exercise of that power create further powers? The answer to all these questions is yes, B can do

all of these things or any combo thereof…unless A affirmatively restricts him.

In Clymer there was an A and B trust:

• In A trust, Mayo’s husband had a life estate, and on death, he was given a general

testamentary power of appointment and during lifetime, he had right to ask for principal,

trustee had discretion to invade principle and pay to Mayo’s husband.

• In B trust, all he had was an income interest for life and then, on death, the trust continued

on for nieces and nephews for education until youngest was 30, then to BU and Clark.

• 3 sources of Trust funding. Nothing was to go into the trust until he died, then pours in

(this is classic).

o Pour-over: coming out of will

o Life Insurance trust (Gordon)

o Retirement contracts from BU made payable to trustee

o Suppose during Mayo’s lifetime her parents created a trust for her benefit (this

didn’t happen). Parents fund it. Terms: Income to her for life, and on her death,

remainder to person or persons as she shall, by will, appoint. She has a life estate

coupled with a general testamentary power. What are her options when she dies?

She can appoint to anyone she wants except herself. Can appoint to husband, BU,

etc. Another option would be to continue her parents’ trust on, by providing

husband with life estate. A third option: appoint assets of her parents’ trust into her

B trust: “To her husband for life, then nieces and nephews, then Clark and BU.”

Another option: To appoint to A trust, which gave her husband a life estate coupled

with a general testamentary power. In the later 2 situations, you get a 4th source of

funding for her trust. In A trust, she’s creating power on a power. Here is where

powers can get really creative. How long can this go on? Until Rule against

Perpetuities halts it.

o Conclusion: Unless restricted by the donor, the donee has a full array of options

when it comes to appointing. You can appoint the property outright or create legal

and equitable interests, present and future interests with language like: “To B for

life, remainder to such of B’s issue as B shall appoint.” Benefit is flexibility.

Special powers of appointment can have significant problems:

• Suppose Mayo’s parents gave her a special, exclusive, testamentary power (not a general

power): “To Professor Mayo for life, remainder to any one or more of her nieces or

nephews as she shall, by will, appoint.” She can’t appoint these assets to her husband,

Clark, BU, her A trust. Nieces and nephews are beneficiaries of B trust, but they are not the

only beneficiaries, so B trust doesn’t work (only if they had been the sole beneficiaries

would this have worked). What’s the consequence if she does this? It’s an invalid exercise

of the power, since she appointed outside of that class – she has a duty to appoint within.

Suppose her attorney did it – suppose he utilized a residuary clause. In a residuary clause,

she said all rest, residue, and remainder of my estate, including any property over which I

have a power…. – this would be an invalid exercise of the power, attorney should know

better, make attorney look (reference the power, reference the trust).

• But suppose attorney is stupid and appoints outside the class (Kmart lawyer) or fails to

reference it or suppose Professor Mayo doesn’t exercise that power (dies intestate), what

then? This is why we have default clauses. Ex: remainder to any one or more of her

nieces and nephews as she shall by will appoint, and in default thereof, to her nieces and

nephews in equal shares. Provide a default so that the property will go someplace,

provide for a reference.

• Suppose there is no default and there is a screw-up: Ex: Mayo exercises power and she

blows it…her parents don’t include a default provision (Talbot case). In Talbot, we have a

classic failed private express trust. It was a good trust to begin with, gave her present

interest. Problem is with future interest because she doesn’t appoint it or she does appoint

it but blows it. There is no gift-over default provision. What happens? Resulting trust.

Resulting trusts arise for the settlor, here, her parents. But under some set of circumstances,

it might not go back to parents, but rather to Professor Mayo, if she exerts too much control.

If you have a power and it’s general and it’s misexersied or not exercised, and there is no

defalt, you’ll get a resulting trust and it’ll go to donor. This is doctrine of capture # when

donee exercises to much control

• What if the power had been a special power like Daniel? Her parents set up a trust giving

her a life estate. To Prof. Mayo for life, remainder to any one or more of nieces and

nephews as she shall by will appoint (special, exclusive, testamentary). They don't provide

for default and she doesn't exersie it. (With general power, get resulting trust; with special

power, different resutl - we want nieces and nephews to have it. Where the power is to

appoint a specific class, rather than setting up a resutling trsut, the courts are going to imply

a gift to that class and give it to that class, in equal shares. Always provide for a gift-over

and default.

What if donor says to donee, you can't appoint to your creditors? This is Kissel.

8/20/07 2:00 PM

Powers of Appointment

Powers are delegations. Rather than create himself, settlor delegates via power. Powers are defined by

the extent of discretion given to the donee – it can be broad (anytime, any place, anybody) or

significantly limited. But you can’t violate public policy or a rule of law.

Suppose the donor tells the donee he or she cannot appoint to creditors.

Kissel & creditor cases: These creditor cases pervade the entire law of property transfer. They are

important in this course because we have to consider the immunity of property from the reach of

creditors (settlor, trustee, beneficiary, donor & donee of powers of appointment). This is further

complicated by the several legal relationships at work. In differing factual contexts and with the

application of what seems like conflicting legal theory. So facts are very important: facts of trust

being set up, powers being set up. Focus on these facts in particular:

• Who creates the trust (who’s the settlor)?

• Who creates the power (who’s the donor)?

• Who’s the beneficiary of the trust?

• Who has the power (who’s the donee?)

• Is the beneficial interest granted or reserved (to the settlor)?

• Is that power granted or reserved to the settlor?

• Who’s the creditor after? What’s the consequence of control?

Murphy & Ware (then Kissel, then Riser):

Murphy: Flint and his wife owned Blackacre T/E. Together, they transferred Blackacre to a trustee in

trust. Terms: they reserved to themselves successive life estates. To them for life, upon death of

survivor, trust to the daughters. They reserved the normal and usual powers – to alter, amend, and

revoke – and then spinthrift it. Why did they do this? CIT Corp was a judgment creditor of Flint’s

individually and Mrs. Flint was scheduled to die; if they didn’t do anything, upon her death, CIT Corp

would come in and scoop Blackacre. Why not during her lifetime? Because in this jurisdiction (and in

others, including MA), property owned T/E was not subject to debts of either spouse individually. But

when she dies, then the title would vest entirely and exclusively in Flint, so CIT would be able to come

in and scoop. Consequence of T/E not beign subject to debt of either spouse: spouses could jointly

alienate their interests without infringing on creditors’ rights so the claims of all creditors would be

extinguished by that joint alienation. They could convey away the entire interest or something less,

like a remainder interest subject to a power of revocation. This is what they did. Was a valid trust

created when they made that conveyance to the trustee? Did the daughters acquire a beneficial interest

then? Yes, they got a future contingent interest – contingent upon their survival and contingent upon

the fact that neither one of their parents exercised the right to revoke. What did the Flints retain? Life

estate, successively, and the power to revoke. What’s the consequence of them having reserved the

power to revoke vis-à-vis their remainder interest? They can destroy the remainder interest by

exercising their revocation, but this doesn’t render the trust invalid. When can CIT get and when?

While Flints are alive, CIT cannot get anything because Flint and wife’s interest are indivisible due to

life estates. When Mrs. Flint dies, CIT can get because spinthrift does not bar (Ware). Can CIT reach

the remainder that was conveyed to the daughters subject to revocation, can CIT force them to revoke?

No, CIT cannot because he conveyed the interest away and the power of revocation is a personal right;

it does not rise to the level of ownership. How about after Mr. Flint dies, can CIT get in? No, because

the right to revoke dies with him. However, if during his life, Mr. Flint revoked, then CIT could reach,

but Flint wouldn’t be so stupid. This the CL rule, but it’s been modified by statute in some

jurisdictions. In some jurisdictions there are creditor enabling statutes; allows creditors in to reach

the interest – policy protection for creditors. In some jurisdictions, creditors are allowed to force a

Flint to exercise his power of revocation at which time they can reach; in other jurisdictions, they can

simply attach that remainder interest (does rise to level of ownership).

Kissel: Grandma creates a trust for grandson. She gives him a life estate with a general testamentary

power of appointment. Then, she spinthrifts the life estate and provides that he cannot exercise that

power in favor of creditors. Could she spinthrift that life estate for his benefit? Yes, that’s Broadway

Bank. Could she spinthrift the general power? Was that limitation that was imposed by her on that

power of appointment a valid limitation? Court considers the nature of general powers (important). A

general testamentary power is, by definition, general. There is only one limitation on it – it can only be

exrcised at death, and only in the will; otherwise, donee can appoint to anyone (estate, creditors,

creditors of their estate, etc. but themselves. Grandma didn’t care who he appointed to, as long as not

creditors. Court thought that this power was general so any attempt to limit it was ineffective and

property subject to this power is considered subject to his estate and subject to creditors’ claims (its

that he exercised it). Why? Because it’s tantamount to ownership. This seems like an unusual result –

here, court is overriding intent of donor and maybe donee. Donor’s intent is disregarded because

creditors will be allowed to take; donee’s intent may be disregarded if he appoints to someone else

besides a creditor. Assets subject to a general power are going to be available to satisfy a donee’s

debts. Theory and support? When the donee of a general power exercises that power by will he

exercises dominion and control over the assets that is tantamount to ownership, deemed to be the

equivalent of ownership. In a will, a testator cannot eliminate creditors; neither can the donee of

an exercised general power do that! This theory analogizes individually owned property with

devised property.

What does this do to the CL distinction between ownership and a power? Title comes from the donor

and goes to the appointees. Does the donee own that property? No, he’s merely the conduit. This

theory does do damage to that, but is recognized and is carried not further than is necessary to prevent

creditors’ rights; it’s a creditor issue. Doctrine of capture. Suppose a donee of general power dies

with personal assets worth $100,000 and debts worth $300,000 – he’s insovlent to some extent but has

property – donee’s personal assets go first, then the creditor can go for appointed assets but only to that

amount (only carried so far as necessary). The same rule applies to general powers.

Suppose in Kissel that grandma gave grandson a special power – he could only appoint to his

nieces…could creditors reach? No, creditors couldn’t reach because as a matter of CL, the donee of a

special power is not the owner and can never be because he can’t appoint to himself. Donee stands in

fiduciary relationship to the property and to the power and cannot derive personal benefit from it

(donee is analogized to a trustee since personal creditors cannot reach them likewise).

Suppose the donee doesn’t exercise that power? Suppose donee of general power chooses not to

exercise of appointment…can creditors reach? No, unless there is an authorizing statute. Donee of

unexercised power does not own that property because of CL distinction between ownership and a

power. The distinction has been broken down where there is a voluntary exercise but not where there

hasn’t been – due to assertion of dominion and control – you don’t touch it, you don’t own it.

What if donor of power and donee of power are the same? What if the donor of general power

reserves it to himself/herself? Suppose: Today, Sandoe creates a trust, Tremont St. Bank. He funds it.

Terms: Sandoe reserves to himself a life estate coupled with a general testamentary power of

appointment. In default of its exercise, to Clyde and Chloe. For good measure, Sandoe spinthrifts it.

What can creditors reach? Everything because Sandoe has retained all the incidents of ownership.

They can get at life estate, remainder (whether or not Sandoe exercises that power).

How do you reconcile Riser on the basis of Kissel and Murphy? In Riser, court equated a power to

revoke with a power of appointment. Court thought that there was not practical difference between the

two but Riser has not been widely followed so when only power to revoke is reserved, Murphy rule

will probably still apply, but we are going in direction of Riser.

Summary:

• In where the settlor of the trust is also the beneficiary of the trust, intervivos creditors can

get at whatever that trustee has discretion to give (spinthrift provision won’t bar, doesn’t

matter if support trust).

• In Murphy, where intervivos trust, and settlor and beneficiary are one and the same, and

settlor reserves power of revocation, intervivos creditors can likewise get at anything after

Mrs. Flint dies, but they can’t get remainder interest conveyed away to the daughters, even

though subject to revoke because this doesn’t rise to level of ownership (unless statute or

unless he revokes himself stupidly)

• Where settlor-donor is different from donee, creditor cannot get at intervivos interest

(Broadway). But if settlor-donor reserves a general power, this is different because it does

rise to level of ownership.

Rule Against Perpetuities (there was background reading)

Practically, we won’t encounter RAP often – we are just being trained to spot the problem.

In the context of Trusts, RAP only applies to future contingent interests; it does not apply to vested

interests, whether or not vested in possession. Example: Suppose Sandoe creates a trust with Tremont

St. He funds it. Terms: To Claire for life. Remainder to Clyde and Chloe. RAP doesn’t apply to

kids’ interests because it’s vested; possession and enjoyment are postponed until death of Claire. Kids

may never possess the trust assets since they might predecease Claire. On Claire’s death, property

goes to their estates, since they had a vested interest; doesn’t matter that not vested in possession. But

if the terms were “to Claire for life, remainder to Clyde and Chloe if they are then living,” then this is

future contingent interest and RAP applies.

What does RAP do? It places a limitation on the time between the creation of a future contingent

interest and the time it vests in interest.

Time Frame: 3 components

• Lives in being aka measuring lives: persons who are alive when that future contingent

interest is created. Their lives will measure the running of that period so called measuring

lives.

• 21 years

• Periods of gestation in so far as they actually happened: Posthumous child rule; if a child

has been conceived and is subsequently born alive, that child’s birth will relate back to a

moment in time.

How is it applied? The future contingent interest must vest no later than 21 years after the death of the

survivor of the lives in being (who were alive when trust was created).

• How do you find the measuring lives? Trusts are typically created for successive

generations: to me, my kids, grandkids – typically, they are holders of a previous estate.

Like in Cook.

• From what point in time do you measure? Depends on the instrument that created the

future contingent interest, whether a will, deed, or a trust. If a trust, is it revocable or

irrevocable?

o If it’s a will, it’s testator’s death.

o If it’s a deed, it’s date of delivery.

o If intervivos irrevocable trust, it’s the date of delivery to trustee.

o If intervivos revocable trust (Cook), it’s the date of the settlor’s death.

o Find measuring lives, and when last one dies, 21 years starts to run.

Time of Compliance – at what point of time do you determine whether future contingent interest is in

compliance of rule? Determine compliance on the date of creation (date of death of creditor or when

irrevocably deliver instrument of transfer). Validity is measured from that point in time; looks

prospectively (forward).

What is the required degree of certainty that the interest will vest with period of the rule? Absolute

certainty is required. Probability, however great, won’t cut it. If there is any chance, even remotest of

possibility that it won’t, interest is void. Beyond that, it’s not good enough that the interest did vest in

time; it’s that it might not have.

When there is an interest that violates the rule, what interests are voided? Usually only the interest that

violates the rule; those that are OK are allowed to proceed. Ex: Suppose Sandoe sets up a trust.

Terms: To my kids for life, then grandkids for life, then great-grandchildren then living in equal

shares. Probably, the two life estates will vest in time. The remainder to great-grandchildren is

probably not OK. Court will probably allow the first two interests to proceed. After last of grandkids

dies, court will declare the remainder interest to be void for violating RAP. Consequence? We have a

failed private express trust # so we get a resulting trust. Corpus goes back to settlor’s estate on

resulting trust theory.

This is CL; still present in many jurisdictions. But there have been a number of legislative and judicial

modifications to temper the rigidity of that rule. But all of these modifications are based on the CL, so

need to understand CL.

Statutory and Judicial modifications to the CL rule:

• Wait and See Doctrine: An interest does violate since you can’t say absolutely that it will

vest in time…but it might. Under this doctrine, court waits and see; if it vests, we’ll let it

go. At CL, they wouldn’t let it go if there was this possibility.

• Alternate Time Frame: An alternate time frame to CL time. MA is one of these. Here,

an interest can either vest at CL time or within 90 years from creation of future contingent

interest (you get two shots at it).

• Courts are given Power of Reforming: If an interest would violate the rule, trustee could

come to court and ask court to reform the trust, and terminate it at an earlier time so it

wouldn’t violate the rule. (Similar to Cy Pres). MA has a provision for this.

• Trust instrument itself can internally reform: allows trustee to cut time frame down and

make distributions earlier. Like in Article V of Sandoe’s trust. Include this in your trust!

How to analyze a RAP problem:

Analyze the entire trust – analyze the facts of that trust. Then, analyze the Rule. Then apply the Rule

to the facts and see if it works. If it does, I’m good; if not, do I have a bail-out?

• Analyze the entire trust: Identify every beneficial interest in there as present or future. If

future, see if vested or contingent. Analyze each interest separately. Find out when the

interest vests in interest (not necessarily in possession). If vested, no RAP problem. If

contingent, continue inquiry further to see if complies.

• Look at RAP. Find anchor point- date that future contingent interest was created

(someone’s date of death or date of delivery). Then, find measuring lives. When last one

dies, 21-year period runs, and when done, must have vested.

• If it turns out that a future contingent interests doesn’t vest, is there a bail-out? Hopefully,

have an internal reform; maybe some other. If not, then interest goes back to settlor on

resulting trust theory, then wherever default (residuary, intestate statute).

Cook: OJ creates an intervivos revocable trust. Terms: To his wife for life. Upon her death, into as

many shares as there are children then living. Each kid will get a share. Upon death of each child, to

that child’s issue. But if under 21, then kept for grandkids in trust until then.

Are those interests vested or contingent?

• Spouse has to survive to get life estate – future contingent interest

• Kids have to survive to get life estate – future contingent interest

• Grandkids have to survive to get life estate - future contingent interest

So when do they vest in interest?

• Spouse: death of OJ

• Kids: No later than death of Mrs. OJ. Could happen earlier if Mrs. OJ predeceases OJ.

• Grandkids: [language was a bit unclear – 2 options]

o Vests upon the death of their parent, one of OJ’s kids. If not 21, possession and

enjoyment is postponed until 21 but vests in interest

o It doesn’t vest until they become 21.

Find measuring point. This is intervivos revocable trust so measure from death of OJ. Why measure

from this point? From that point forward, trust becomes irrevocable. For purposes of simplicity,

assume that when OJ dies, he is survived by Mrs. OJ and 3 kids, A, B, and C. Those are the measuring

lives since they were alive when the future contingent interest was created. When the last one dies, 21

year period starts to run. When it runs, that interest better vest.

When will their interests vest:

• Spouse (Mrs. OJ)’s interest will vest in time.

• A, B, C – measuring lives, so OK

• Grandkids: If we consider that their interests vest on death of problem, then no problem

(when A dies, his kids’ interests vest). But then there is that 21 – suppose it doesn’t vest

until each grandkid reaches 21, will it vest in time? Yes, since trust to 21!

Screw it up:

After-born child: Suppose that OJ’s trust is an intervivos irrevocable trust. He creates it, funds it.

Consequence? Changes our anchorpoint from OJ’s death to date that OJ creates the trust. This would

be time from which to find measuring lives. Suppose same facts – at date that he creates the itnervivos

irrevocable trust, Mrs. OJ is alive and A, B, C. When last one dies, 21 year period starts to run and

interest better vest. Suppose after he creates that trust, Mr. and Mrs. OJ get pregnant with child D

(after-born). D is born after creation of that intervivos irrevocable trust, after creation of future

contingent interest. Consequence? Can D be a measuring life? No because he wasn’t alive when

future contingent interest was created. Mr. and Mrs. OJ, A, B, and C all die in a massacre – all

measuring lives die. Consequence? 21 year period starts to run and all future contingent interests have

to vest. Effect on D? D gets it all! His life estate starts since he’s a child of OJ and OJ didn’t

differentiate when he said “to my children” so any children of OJ qualify for his life estate. D’s life

estate vests in time. But what about D’s kids. To D for life, remainder to his kids then living? This

won’t absolutely positively vest, so this violates RAP because of after-born child problem.