684085036
Printed: 7/13/2017
WILLS OUTLINE
I.
Intestacy
A. Choice of Law
1. Personal Property - location of the domicile
a) “domicile” is physical presence in the state with intention to remain
permanently
b) can only have one domicile at a time
2. Real Property - location of the land
B. Surviving Spouse - CA Probate Code §6401
1. Community property or quasi community property:
a) surviving spouse gets 100% of community property unless decedent
has willed away his 1/2.
b) ex: husband wills 1/2 of community property house to Demi, other half
passes intestate to wife. Demi and wife own house as tenants in
common.
2. Separate Property
a) wife gets 100% of the separate property if there are no survivors in the
“inner circle”
(1) “inner circle” is children, parents, siblings, nieces and nephews.
(a) half-bloods are treated as whole bloods
(2) first look for children, then look for parents, then look for siblings,
then look for nieces/nephews.
b) wife gets 1/2 of the separate property if:
(1) decedent leaves only one child or the issue of one child;
(a) grandchildren take per stirpes, and do not compete with living
children.
(2) there are no surviving children, but there are parents or siblings
surviving
(a) parents take half per capita
(b) if no parents, siblings take half per capita
(c) if no siblings, nieces and nephews take per stirpes
c) wife gets 1/3 of the separate property if:
(1) there is more than one surviving child
(a) surviving children take 2/3 between them
(2) there is at least one child, but the issue of one or more deceased
children
(a) first surviving generation takes per capita, remaining
generations take per stirpes (i.e. grandchildren split their
parent’s share)
(3) no surviving child, but the grandchildren from two or more
deceased children
Roger W. Martin
1
684085036
C.
D.
E.
F.
Printed: 7/13/2017
(a) first surviving generation takes per capita, remaining
generations take per stirpes
No surviving spouse - CA Probate Code §6402
1. If there are children, entire estate to the children.
2. If there are no children, entire estate to parents
3. If there are no parents, entire estate to siblings/nieces/nephews, per capita
at the first surviving generation, per stirpes thereafter.
4. If there are no siblings/nieces/nephews, then entire estate to
grandparents/aunts/uncles, per capita at the first generation, per stirpes
thereafter.
5. If there are no grandparents/aunts/uncles, then to stepchildren and their
issue, per capita at the first generation, per stirpes thereafter.
6. If there are no stepchildren, then entire estate to the “next of kin” who has
the closest common ancestor. (Modified Civil Law Method)
a) start with decedent, count up generations through the parents,
grandparents, etc., until you reach a common ancestor. Closest
common ancestor wins.
7. If there are no next of kin, then to the in-laws, per capita at the first
generation, per stirpes thereafter.
8. If there are no in-laws, then the property escheats to the state.
Posthumous Heirs - CA Probate Code §6407
1. Relatives of the decedent conceived before the decedent’s death, but born
after his death are treated as if they were already born at the time of
decedent’s death and therefore take their intestate share.
2. Rebuttable presumption that child born 300 days after decedent’s death
was not conceived prior to his death.
Simultaneous Death - CA Probate Code §220
1. If testators die from the same cause and the order of death can not be
determined they are said to have died simultaneously.
a) Probate both estates as if each had outlived the other.
b) keeps property in the bloodline and avoids double taxation issues.
2. For life insurance, presumption is that the beneficiary died first.
3. For community property, each gets one half of the estate.
4. For joint tenants, each gets one half of the estate.
Adoption
1. Adopted child is treated the same as a natural child for purposes of
intestate succession from the adoptive parents.
2. However, adoption cuts off inheritance from and through the natural
parents.
a) adopted child can not inherit from the relatives of the natural parents.
3. Virtual Adoption
a) all of the elements and performance associated with an adoption,
except for the lack of a formal certificate
Roger W. Martin
2
684085036
Printed: 7/13/2017
b) treated as a legal adoption for purposes of intestate succession.
G. Illegitimate Children
1. Treated the same as a child born during wedlock for purposes of intestate
succession and family allowance in CA.
2. Paternity adjudication or acknowledgment by the father is required.
H. Artificial Insemination
1. Husband of the woman is treated as the natural father for intestate
succession as long as it was part of a medically supervised program with
consent of the husband.
I. Murder of the Decedent
1. Joint Tenants - if one joint tenant murders the other, the murderer retains
his 1/2 interest as tenant in common with the decedent’s heirs, but does not
get the whole property because the right of survivorship is destroyed.
2. Killer is disqualified if the killing was felonious (without legal justification)
and intentional
a) probate court has the power to make its own determination of intent
and legality regardless of what happens (i.e. acquittal or plea bargain)
in criminal court.
II. Transactions Prior to Inheritance Rights
A. Advancements - apply only to intestate shares (not wills).
1. An inter-vivos gift from the decedent, prior to his intestate death, with the
intent that the gift serve as a portion of the recipient’s intestate share.
2. It is NOT an advancement if it is NOT in writing:
a) signed by the decedent prior to the gift, or
b) signed by the recipient (acknowledged) at any time.
3. Value of the gift is determined at the time of the gift.
4. If the person receiving the advance predeceases the donor, then the
advancement is NOT taken into account when determining the intestate
share of the recipient’s issue.
B. Hotchpot
1. The recipient of an advancement has the option to put the advancement
back into the intestate estate, and then take her intestate share.
a) ex: D dies with an estate of $26,000 and three children A, B, and C.
Prior to his death, D gave an advancement of $4,000 to C. C may put
the $4,000 back into the estate “hotchpot” and then get her intestate
share of $10,000 instead. ($26,000+$4,000 =$30,000)/3.
2. Other heirs can not force you into a hotchpot.
C. Expectancy
1. NOT a property right, only a hope or wish.
2. An assignment of an expectancy can be easily defeated if the testator
changes their will.
Roger W. Martin
3
684085036
Printed: 7/13/2017
3.
Assignment of an expectancy is NOT binding on the assignor’s issue if the
assignor predeceases the testator - the assignee only gets the inheritance if
the assignor actually inherits something.
D. Release
1. Heir contracts with decedent prior to death to release any claim he may
have on the estate for money right now.
a) if decedent relies on the release as full satisfaction and advancement,
then the heir does not take by will or by intestacy.
2. Release IS binding on the releasor’s issue because it cuts off the inheritance
at the source.
3. Release is not effective on an expectancy until the expectancy vests.
III. Family Protection
A. Community Property - provides no protection for separate property.
1. Ex: Wealthy Widow remarries to H. Neither spouse works, so all is Wealthy
Widow’s separate property. WW can leave all of her separate property to
someone else besides H, and H gets nothing.
B. Forced Share or Election
1. In CA, must expressly (in the will) force your spouse to elect between their
community property right (by intestacy) and an alternate disposition in the
will.
a) ex: H owns Blackacre as separate property, and Redacre as community
property. His will might provide that he leaves Blackacre to his wife,
but only if she renounces her community property interest in Redacre
so that it can be left to the son.
2. If the election is NOT express, then the spouse will be able to take under the
will and exercise her community property rights.
a) ex: H has three ranches, R1-R3 that are all community property. H
wills R1 to wife, R2 to son, and R3 to daughter. Wife can elect against
the will, and take all of R1 by intestacy (it falls out of the will), and half
of R2 and R3 (because H can only will away his 1/2 interest).
C. Protection against Disinheritance
1. Protection of Issue
a) Obligation to support a minor child ends at death, so ex-husband can
leave his entire estate to his mother, cutting off the child support that
he was paying.
(1) In CA, the state can sue the estate for child support.
b) Children who are disinherited by a will still take their intestate share (if
any).
(1) ex: D executes a will giving all to his children A and B, but
disinheriting his third child C. If A has no children, and dies
before D, then A’s share falls out of the will and passes intestate on
D’s death. Thus, B will get 3/4 (1/2 from will + 1/4 from half of
A’s share) and C will get 1/4 (other half of A’s share).
Roger W. Martin
4
684085036
Printed: 7/13/2017
D. Pretermission
1. Pretermitted child
a) A child born after the execution of a will, but not included in the will, is
presumed to have been inadvertently omitted and therefore takes his
intestate share unless:
(1) it appears from the face of the will that the omission was
intentional (i.e. disinheriting a class of future children)
(2) if one or more siblings is living at the time of the execution of the
will, and the will leaves substantially all of the estate to the omitted
child’s parent.
(3) there is a transfer outside of the will in lieu of a testamentary gift,
such as a trust, life insurance, or joint tenancy with the child.
b) pretermitted child’s intestate share comes out of any intestate property,
and if that is not enough, then out of the legatee’s shares on a pro rate
basis (abatement).
c) if the child is born before the execution of the will, he is not
pretermitted, unless he was omitted because of a mistaken belief by the
testator that the child was dead.
d) only applies to CHILDREN not grandchildren - grandchildren are not
protected by pretermission statute
2. Pretermitted Spouse
a) A spouse married after the execution of the will, but not included in the
will, is presumed to have been inadvertently omitted and therefore
takes ALL of the community property and her intestate share up to a
1/2 forced share of the separate property unless:
(1) it appears from the face of the will that the omission was
intentional
(2) there is a transfer outside of the will in lieu of a testamentary gift,
such as a trust, life insurance, or joint tenancy
(3) there is a valid, written waiver by the wife of her interest in the
estate (i.e. satisfaction).
3. Examples of Pretermission:
a) H, while he is single, makes out a will: “All to my brother A.” He then
marries W and has a child C. H then takes out a life insurance policy
in favor of W. At his death, H’s estate consists of $50,000 separate
property, $25,000 community property. The estate will be distributed
as follows:
(1) W is not pretermitted because of the insurance policy, so she takes
only $12,500 which is the 1/2 of the community property that H
could not will to A.
(2) C is pretermitted so he takes his intestate share of 1/2 of the
separate property, or $25,000
Roger W. Martin
5
684085036
Printed: 7/13/2017
(3) A gets the 1/2 of the community property that H could will away
to him ($12,500) plus the remaining 1/2 of the separate property
not owed to C ($25,000).
b) H and W1 marry and W1 gets pregnant. H is not aware of the
pregnancy and divorces W to marry W2, changing his will to leave
everything to W2. W1 then gives birth to H’s first child C1. H and
W2 then have a second child, C2. H then dies. H’s estate will be
divided as follows:
(1) W2 gets all of the community property.
(2) C1 is pretermitted and so takes his 1/3 intestate share
(3) C2 is NOT pretermitted because substantially all of H’s estate was
left to his mother.
E. Fear of Hell Statutes
1. Not recognized in CA. Dealt with under the undue influence doctrine.
2. Presumption that if you gave your estate to charity within six months of
your death that the church exerted undue influence on you.
IV. Execution of Wills
A. Requirements of a Will under the Statute of Wills
1. Must be in writing
a) any reasonably permanent writing will do (i.e. lipstick on a wall)
2. Must be signed by the testator.
a) must be the complete act intended as the signature (if testator dies
before completing the signature, the will is invalid because we can’t tell
whether he stopped because he was dead, or because he changed his
mind)
b) Initials, Nicknames, First Name Only, are all OK as long as they are the
complete act intended.
c) signature by proxy is OK is done at the request of and in the presence
of the testator.
d) CA does not require the will be signed at the very end, but some
jurisdictions do (logical end or physical end).
3. Must be authenticated or signed in the presence of two or more witnesses.
a) testator does not need to sign in the presence of the witnesses if he
acknowledges his signature to them
b) witnesses must understand that this is the testator’s will or else their
signature is invalid - “publication” of will by testator by act or by word
c) “in the presence of” means either:
(1) in the line of sight - see the pen touch the paper; or
(2) within the conscious presence and awareness - close in proximity
and time, and a continuous ceremony.
d) witnesses may sign before the testator as long as there is one
continuous ceremony with very little time between witnessing and
execution by the testator.
Roger W. Martin
6
684085036
Printed: 7/13/2017
B. Requirements of a Witness
1. Must be competent at the time of the signing (not a problem if they later
become insane).
2. Witness can not have a pecuniary interest in the will
a) the spouse of a legatee in the will is an interested witness, unless the
inheritance is treated as separate property by the wife (as in CA) problem in non-community property states where there is a forced
share.
b) an executor is not an interested witness even though she will receive a
statutory fee.
c) a child is not normally an interested witness merely because her parent
is a legatee under the will.
3. Purging Statutes
a) if an interested witness signs the will, then she is presumed to have
exerted undue influence on the testator, unless she is a supernumerary
witness (i.e. a third witness where only two were required)
b) if the presumption of undue influence is not rebutted, then the
interested witness takes no more than their intestate share, and any
bequest in excess of the intestate share is “purged” to the residuary
clause if any, or passes by intestacy.
C. Testamentary Intent - need unequivocal present testamentary intent
1. Sham Wills - A joke will is not valid because it lacks the requisite intent
2. Drafts of wills are not valid.
3. Signing the wrong will is invalid.
a) but where a husband and wife executed reciprocal wills at the same
time and mistakenly signed each other’s wills, the court allowed both
wills for equitable reasons.
4. Condition vs. Motive
a) a will that expressly requires the existence of a certain condition to be
valid is only valid if the condition comes to pass.
(1) ex: Upon leaving for Mt. Everest, the climber says that “if I die on
Mt. Everest, all to my friend Joe.” - valid only if climber dies on Mt.
Everest.
b) however, a will that merely expresses a motive for making a will is
valid regardless of whether the testator dies as a result of the thing that
motivated him to make the will in the first place.
(1) ex: Upon leaving for Mt. Everest, the climber says that “I am afraid
that I might die on the mountain, and so I am making out this will all to my wife.” - valid even if climber survives Mt. Everest and
later dies in a car accident.
D. Holographic Wills
1. Informal Will Requirements
a) all material provisions must be in the testator’s handwriting.
Roger W. Martin
7
684085036
Printed: 7/13/2017
(1) In CA, the use of pre-printed forms is allowed as long as there are
handwritten parts, even though it means that not all of the material
provisions are in the testator’s handwriting.
(2) Handwriting does not include videotapes or audiotapes, or other
electronic media.
(3) other printed matter on the holograph is treated as surplusage
b) must be “signed” by the testator
(1) writing and signing by proxy is unlikely to be acceptable due to
potential for fraud.
(2) Signature can come anywhere, not just at the end
(a) ex: “I Glen, give everything to Demi” - “Glen” is sufficient
signature if in his own handwriting.
2. No date is required, but a signed, dated formally executed will is presumed
to control over an unsigned holograph.
3. Testator must be competent at the time the holograph was written.
E. Oral Wills
1. no longer recognized in CA
2. only used for servicemen in wartime in contemplation of death, when death
occurs within 24 hours.
3. one of the two required witnesses must have been requested by the
decedent.
F. Integration
1. Will must have some physical connection or internal sense of connection to
prevent additional pages from being slipped in, as well as to ensure that all
pages are present.
a) ex: stapled, numbered, initialed pages with sentences that continue
from the end of one page to the start of the other.
G. Codicils
1. Normally used to modify, revoke, or republish an existing will, whether or
not the existing will was valid.
a) ex: Valid will gives car to A, ring to B, and blackacre to C. A valid
codicil then gives the car to D, and the ring to E. Result is that D gets
the car by the codicil, E gets the ring by the codicil, and C gets blackacre
by the original will which was reaffirmed to the extend that it was not
amended by the codicil.
2. Must be executed with the same formalities as any other will (formal or
holograph)
3. A codicil that republishes a will brings that will current up to the date of
the codicil a) might turn a pretermitted heir into a disinherited heir
b) treated as if you read your entire will, and those things that were not
changed were reaffirmed.
Roger W. Martin
8
684085036
Printed: 7/13/2017
c)
ex: Valid will says “all the stock I now own to my son.” The testator at
that time has 5,000 shares. Later, Testator acquires more stock, and
executes a codicil which does not amend this provision. Son is entitled
to all shares owned at the time of the codicil.
H. Incorporation by Reference
1. Document must be in existence at the time of the execution of the will or
codicil which incorporates the document by reference.
a) ex: can not incorporate a document dated 2/15/97 into a will dated
2/14/97, unless there was a typo and you can prove to the court that
the document was already in existence.
b) however, if the writing did not exist at the time of the execution of the
original will, but did exist at the time of execution of a valid codicil,
then it corrects the defective incorporation.
2. Must be sufficient identification to identify the document incorporated with
reasonable certainty.
3. Must express present intent to incorporate (not just mention it in passing)
in the will - words of futurity (I will make a separate memo) are insufficient
but may be cured by a later codicil.
4. Holograph may include printed matter by reference.
I. Facts of Independent Significance
1. A will may dispose of property in accordance with documents or events
that are outside the will if the document or event has an independent
significance apart from the testamentary distribution.
a) ex: I give $1,000 to each of my brothers-in-law - valid even though they
might change if the testator remarries, because remarriage has an
independent significance apart from distributing property upon his
death.
b) ex: I give to X all of the items that are in my safe deposit box - valid
even though the contents might change because the safe deposit box
has other independent significance apart from giving away property
(probably).
2. If there is no independent significance, then the bequest fails for lack of
compliance with the formalities of the statute of wills (i.e. witnessing,
signing, etc.)
a) ex: I give $1,000 to each person on a list that I will place in my top
drawer - invalid because the list has no other independent significance
apart from distributing property on the testator’s death. - no
incorporation by reference because of words of futurity.
b) ex: I give my estate according to the lists inside my safety deposit box not a fact of independent significance - maybe incorporation by
reference if the list already existed.
c) ex: I give all my property in accordance with my wife’s will - if wife has
a will, then it is incorporation by reference, if wife does not have a will,
Roger W. Martin
9
684085036
Printed: 7/13/2017
then once she does, it is a fact of independent significance because the
wife’s will has a purpose apart from distributing the husband’s
property.
V. Interpretation of Will Provisions
A. Admissibility Extrinsic Evidence
1. Patent Ambiguity - ambiguity that is on the face of the will itself
a) NO extrinsic evidence allowed to interpret the ambiguity because it
was not needed to discover the ambiguity
b) give words their plain and simple meaning
c) ex: “I have one brother, Al. All to my brother Rob”. Ambiguity is on the
face of the will. No extrinsic evidence will be allowed to show that the
testator meant to give the estate to someone else because the bequest is
not susceptible to two meanings. Court will probably delete the word
“Rob”.
2. Latent Ambiguity - ambiguity that is disclosed by extrinsic evidence
a) extrinsic evidence IS allowed to interpret the ambiguity because it was
used to discover the ambiguity
b) ex: “all to my friend, R. H. Simpson”. R.H. Simpson exists, but the
friend is named H.R. Simpson. Extrinsic evidence revealed the
existence of ambiguity, so it is used to determine that H.R. Simpson
was testator’s friend.
3. California Rule - extrinsic evidence is always admissible but it can not be
used to give meaning to a word if it is not reasonably susceptible to such
meaning.
B. Mistakes that induce Testator to dispose of property differently
1. Mistake must be on the face of the will (showing Testator’s mistaken belief)
a) ex: “because my first son died in the war...” is mistake on the face of the
will if the first son is still alive and returns home. (note that in any
event the son would be pretermitted).
2. Alternate disposition must be on the face of the will (what Testator would
have done but for the mistaken belief)
a) ex: “Since my son is dead, I give his share of blackacre to my daughter.”
- alternate disposition is to give the living son a share of blackacre.
b) Counter-ex: On his death bed, Nurse tells T that his wife has died, and
convinces T to leave everything to Nurse. Wife is really still alive.
Although there is no mistake or alternate disposition on the face of the
will, this would be dealt with under the theory of active fraud.
C. Revocation
1. Methods of revocation
a) by operation of law:
(1) ex: pretermission, forced shares, election of community property
rights, etc.
Roger W. Martin
10
684085036
2.
Printed: 7/13/2017
(2) dissolution or annulment of marriage revokes gift to your spouse in
CA unless otherwise provided in the will (legal separation is not
sufficient) - remarriage reinstates the bequest if it still exists.
b) by physical act by testator with intent to revoke
(1) ex: burning, tearing, obliterating, lost original - but this only raises
the presumption of revocation, may still prove that someone else
did it or that intent was not present.
(2) physical act and intent must occur at the same time - i.e. can tear up
will by accident, and then later say “well, that’s OK, I don’t like
that will anymore anyway.”
(3) a simple statement such as “I hereby revoke all previous wills and
codicils” is sufficient and recommended.
(4) a proxy can destroy a will in the testator’s presence and with the
testator’s direction
(a) counter-ex: can’t tell lawyer over the phone to tear up the
original - not in the “presence” of testator - lawyer could be
defrauding testator by ripping up blank piece of paper.
(5) difficult to prove intent of a dead person
(6) writing intended to revoke an existing will must touch the words of
the will, not on the back or in the margins - unless it is all in the
handwriting of the testator and also signed, in which case it may be
a valid holograph which revokes the will.
Partial Revocation
a) Testator may cross out a single bequest, and that bequest then goes to
the residuary clause, if any, or falls out of the will to intestacy.
(1) ex: T lines out the words “$100,000 to Demi” - The bequest is
revoked.
b) Testator may NOT change a bequest by lining it out and then replacing
it UNLESS the interlineation is also in testator’s handwriting and
signed (valid holograph)
(1) ex: Will says “$100,000 to Demi”. T lines out Demi, and writes in
“Pat” - valid revocation of gift to Demi because there was a
physical act coupled with intent to revoke, but NOT a valid
substitution of “Pat” unless it was holographically signed.
c) Partial Decreasing Revocation (1) ex: Will says “$100,000 to Demi”. T crosses out last “0” making it
$10,000. Valid partial decreasing revocation because of a physical
act with intent to revoke.
(2) counter-ex: may NOT write in an extra zero.
(3) counter-ex: may NOT cross out entire $100,000 and then put
$10,000 unless it was holographically signed because this would
operate as a revocation of the entire bequest.
d) Dependent Relative Revocation
Roger W. Martin
11
684085036
Printed: 7/13/2017
(1) If a attempt to INCREASE the bequest to a legatee is declared
invalid due to lack of compliance with the statute of wills (i.e.
crossed out $100 and put $1,000), then the previous gift is revived
on the theory that you would not have crossed out the existing gift
but for your belief that the new gift would be valid (if you were
willing to give them $1,000, then you are clearly willing to let them
still have the $100).
(2) does not apply to decreasing gifts.
(3) ex: Will says “blackacre to A for life then to B”. This is an invalid
unsigned attempt to increase A’s estate to a fee simple. But it is
also a valid partial decreasing revocation of eliminating B’s interest
altogether. Might argue DRR for A, with remainder to pass by
residuary clause, if any.
D. Revival of revoked will
1. A valid subsequent instrument may revive a previously revoked will
merely by incorporating it by reference or stating that it is revived.
2. If the subsequent instrument is not valid, then the revival of the previously
revoked will depends on the testator’s intent by other evidence.
a) ex: Valid Will #1 was revoked by Valid Will #2. Then Testator
destroys Will #2 with intent to revoke, and writes an invalid unsigned
holograph that says: “This is a codicil to my first will, I give my car to
A.” - The codicil was insufficient to revive Will #1 on its own, but it
may serve as some evidence of intent to revive. Also may argue
dependent relative revocation - but for the belief that the codicil would
be valid, the Will #2 would not have been revoked.
VI. Will Contracts
A. Contracts to make a will are enforceable under a contract theory.
1. ex: T contracts with N to be his nurse in T’s declining years in return for T
leaving N a portion of his estate. If T then breaches and leaves his estate
all to X, N may have an action for damages in quantum meruit, or even
express contract.
2. ex: Husband wills all of his property to his wife in reliance on an agreement
with the wife that upon her death, she will leave his share of the
community property to a daughter from a former marriage. If the wife
breaches the contract, then as a third party beneficiary, the daughter may
bring a contract action against the wife.
B. Joint Will
1. two or more people execute one instrument intended to serve as the will of
either or both.
2. assumption is that there is a contract involved
C. Mutual Will
1. two or more people (husband and wife) execute separate but related wills.
Roger W. Martin
12
684085036
Printed: 7/13/2017
2.
assumption that there is a contract involved unless carefully negated by
specific language
VII. Constructional Problems in Estate Distribution
A. Payments for expenses of administration, funeral, family allowance, judgments,
liens, etc. must come off the top of the estate. If there is not enough residue of
the estate to pay, then individual bequests must be abated.
B. Specific Bequests - a bequest of a particular piece of property
1. ex: “my school ring to A”, or “100 shares of my XYZ corp. stock.” (stock
exists in the estate).
a) if stock splits after the will is executed, then the specific bequest
becomes 200 shares for 2 for 1 split, 300 for 3 for 1, etc., maintaining
percentage ownership in corporation.
2. specific bequests are adeemed by extinction if the asset is sold, destroyed or
otherwise disposed of prior to testator’s death.
a) ex: T wills blackacre to A, and the residuary to B. If T then sells
Blackacre and buys whiteacre, B takes all because the specific bequest
of Blackacre was adeemed by extinction.
b) counter-ex: if T wills his 1957 Chevy to A, but the Chevy is totaled in an
auto wreck before T dies, then A gets the proceeds of the insurance
C. General Bequests - a bequest payable from the general assets of the estate.
1. ex: “$1,000 to A” or “100 shares of XYZ corp. stock to A” - executor must go
out and purchase 100 shares of XYZ out of the general assets if the estate
has none. (note absence of the word “my”)
2. general bequests do not adeem.
D. Demonstrative Bequests - a bequest payable from a specific source
1. ex: “$1,000 from the Swiss Account to A”, or “$500 from the proceeds of the
sale of my car” - if there is not enough money in the source, the executor
must make up the difference out of the general assets of the estate - if there
is money left over, it goes to the residuary or intestate.
2. demonstrative bequests do not adeem.
E. Abatement
1. When there is not enough money to satisfy the estate’s obligations, the
bequests abate in the following order:
a) any bequests identified by the testator as ones that should be abated
first. (testator’s intent)
b) any intestate property
c) any residual property
d) all other property on a pro-rata basis, except that specific bequests are
last to abate.
F. Exoneration
1. will may provide that a bequest of a piece of property is to be made free
and clear of any liens - executor must pay off the mortgage before
transferring title to the legatee.
Roger W. Martin
13
684085036
Printed: 7/13/2017
VIII. Satisfaction - do not confuse with advancement
A. A testator may give an inter-vivos gift to one of the legatees in the will as partial
or full satisfaction of the testamentary gift.
B. Requirements of satisfaction
1. the intent of the testator must be in WRITING at the time of the gift; or
2. the recipient acknowledges in WRITING, at any time, that the gift is in
satisfaction of his testamentary rights
C. The gift is valued as of the time it is given.
IX. Class Gifts
A. A gift of an aggregate amount to an uncertain group of people at the time the
gift is made.
1. ex: “$10,000 to my nephews”
2. counter-ex: “$10,000 to my nephews Huey, Dewey and Louie” is NOT a
class gift because in names certain persons.
B. Class takes title as tenants in common
C. Determination of members of the class - rule of convenience
1. class closes at the time of the testator’s death as long as the class has at least
one member.
a) ex: T wills “$10,000 to my nephews.” Even if T has siblings that survive
him (who could have more sons), the class closes at T’s death for
convenience of settling the estate.
X. Lapse
A. If the legatee predeceases the testator, the gift lapses (passes intestate) unless:
1. the gift was made to one of testator’s “kindred”; AND
2. the “kindred” has left issue who can step up to take deceased legatee’s
share per stirpes.
B. Kindred is defined as blood relatives
C. For Residuary clauses:
1. majority rule: if a residuary legatee predeceases the testator, his share falls
out of the residuary into intestacy.
2. CA rule - minority rule - residuary clause has a “dragnet” effect, and any
remaining residuary legatees split the deceased legatee’s share.
D. For class gifts
1. majority rule: if a member of the class predeceases the testator, and he is
kindred to the testator, and he has issue, then the issue steps up to take per
stirpes, otherwise his share passes to the residue or by intestacy
2. CA minority rule: if a member of the class predeceases the testator, and he
is kindred to the testator, and he has issue, then the issue steps up to take
per stirpes, otherwise his share is split up among the remaining members of
the class.
XI. Probate of Wills
A. Anyone with a financial interest in the estate can offer the will for probate
Roger W. Martin
14
684085036
Printed: 7/13/2017
B. If a valid later will is found after the first will is probated, then the legatees may
have to disgorge the property, but a good faith BFP is protected
C. Types of Probate
1. Informal - $5,000 or less
a) no notice required to be given to other beneficiaries.
b) other beneficiaries can attack the will later
2. Formal - larger estates
a) notice required
b) all parties are represented so a contest can not be raised after the
property is distributed
c) takes longer
D. Standing to challenge a will
1. must have a direct pecuniary interest in the outcome of the will challenge
a) counter-ex: creditors and executors can not challenge because they get
paid first either way
b) counter-ex: in CA, inheritance is separate property so a legatee’s spouse
does not have standing to challenge the will
c) counter-ex: H leaves $10,000 to wife in will, but her intestate share is
also $10,000 - wife does not have standing because she gets the same
amount either way.
E. No-Contest Clauses
1. strictly construed by the court because they discourage meritorious claims
2. however, they prevent airing the testator’s dirty laundry after he is dead
3. need good faith and probable cause to challenge a will without triggering
the no-contest clause
a) counter-ex: Son was left little in will by mother, who put a no contest
clause in the will. Son brings a creditor’s claim against mother’s estate
for services rendered during her life. Court found that this was an
indirect attack on the will, frivolously attempting to get around the no
contest clause, and therefore son forfeited.
F. Testamentary Capacity - low standard
1. Age - must be chronologically 18 years old (not necessarily 18 mentally)
and capable of understanding at the time of execution:
a) the nature and extent of your property;
b) the natural objects of your bounty (who are your inner circle); and
c) the distribution that is being made (who gets what).
G. Insane Delusion
1. An unreasonable belief in certain facts which are not true, and which belief
is held beyond all reason, evidence and probability.
a) ex: Weird Harold says “I’m going to the mountains to meet with the
UFOs, and when they take me, I want my estate to go to you for the
purpose of informing people about UFO’s.” - may not rise to the level
of insane delusion because many people believe in UFOs.
Roger W. Martin
15
684085036
Printed: 7/13/2017
2.
An insane delusion does NOT invalidate a will if the testator does not act
on it in disposing of his testamentary property.
a) ex: T believes he is Abraham Lincoln. T leaves all his property to his
wife. Will is valid because the insane delusion did not affect the
disposition of his property.
3. Although insane delusion is easy to persuade the jury at trial, it is likely to
be overturned on appeal.
H. Undue Influence
1. Such influence is exerted that the testator’s will is overcome by the will of
the person exerting the influence.
2. Begging and pleading and kissing up do not normally rise to the level of
undue influence.
3. Can show undue influence in two ways:
a) Long way:
(1) highly susceptible testator (old, alone, sick)
(2) opportunity to influence for a wrongful purpose (spends lots of
time with testator alone, secrecy and haste)
(3) disposition to do a wrongful act (character of influencer); and
(4) an un-natural disposition of the property (not to inner circle or very
unbalanced, sudden change of attitude)
b) short way:
(1) confidential relationship (atty.-client, parent-child, doctor-patient);
and
(2) un-natural disposition of the property
4. Attorneys should not do relatives’ wills because of confidential
relationship.
I. Fraud
1. Will provisions induced by fraud are invalid
a) ex: Husband is already married to wife #1, and commits bigamy by
marrying wife #2. Wife #2 leaves her entire estate to Husband. But
for the Husband’s fraud, the Wife #2 would not have given him her
entire estate.
TRUSTS OUTLINE
I.
Equitable Trusts arising from operation of law
A. Purchase Money Resulting Trust
1. If A gives O purchase money for blackacre, but directs O to transfer the
property to B, then a purchase money resulting trust arises with B as trustee
and A as beneficiary, UNLESS:
a) B is a natural object of A’s bounty (inner circle), in which case it is a
presumed gift to B.
Roger W. Martin
16
684085036
Printed: 7/13/2017
(1) ex: parents buy condo for daughter at college and instruct the seller
to title the condo to the daughter - presumed to be a gift to the
daughter.
2. Prevents B’s unjust enrichment - B must transfer title to A on demand
3. Does not apply to loans, because there is an intent to pay back the loan.
4. Statute of Frauds writing requirement does not apply because it is an
equitable remedy.
B. Constructive Trusts
1. Imposed on property as an equitable remedy to prevent unjust enrichment
of the constructive trustee.
a) ex: Heirs by force prevent T from executing a will on her death bed,
thus allowing T’s property to pass intestate to the heirs. Court will
place constructive trust on the property for the benefit of the persons
named in the unexecuted will to prevent heirs from being unjustly
enriched by their wrongful act. Heirs duty under the trust is to pass
title to legatees.
C. Active Trusts vs. Passive Trusts
1. A trust will exist only as long as is required to carry out its active purpose.
When there are no active duties for the trustee to perform, the statute of
uses executes the trust, and title vests in the beneficiaries free of the trust.
a) ex: Trust to pay the income to A for life, and then the remainder to B.
At A’s death, the trust becomes passive because the trustee has no other
duty than to transfer title to B. Thus, the trust terminates.
D. Things that are not a trust:
1. A normal contract for insurance is not a trust - it is a contract for the insurer
to pay a certain sum to the beneficiary upon the happening of a triggering
event.
2. A normal pension contract is not a trust - it is a contract for the company to
pay the employee a certain sum upon retirement.
3. A person can not hold a debt in trust that the person owes to a creditor
because nobody could enforce the trust if the person did not pay (can’t sue
himself for breach).
II. Elements of a Trust
A. Basic requirements for a trust:
1. A settlor or trustor with the present unequivocal intent to create a trust.
a) ex: H leaves $50,000 to Friend. “I want Friend to take care of my wife.”
Since Friend is not in the inner circle, strong presumption that H had
intent to create a legal obligation in the Friend, otherwise he would
have given the money to wife outright.
b) counter-ex: H leaves property to W as “her absolute estate”, with the
“request” that she pass the property to his heirs on her death. Fee
simple created with no trust because there is no present intent to create
Roger W. Martin
17
684085036
Printed: 7/13/2017
a trust - “request” is precatory language which did not legally obligate
W to do anything.
c) counter-ex: S says that next week he will set up a trust in favor of A.
No present intent, words of futurity. A has no remedy unless under a
contract theory there was some consideration for the promise.
2. A trust res or corpus
a) there must be “delivery” of the res or corpus - can be constructive
delivery of a trust deed to escrow agent unless the settlor retains the
right to revoke from the escrow agent.
3. A trustee with positive duties to perform and a fiduciary duty to someone
a) anyone who can hold legal title to property can be a trustee, except the
court will transfer title to a person with the capacity to contract if the
named trustee is a minor or incompetent.
b) testamentary trust will not fail for want of a trustee - court will assign
one if not named or if named one dies
c) however, the court will not appoint a trustee in an inter-vivos private
trust is the settlor is still alive.
d) trustee can NOT be both settlor and sole beneficiary because he can’t
sue himself, but as long as there is a remainder beneficiary, a settlor
may become the trustee of his own property to pay income to himself
for life and the remainder to B.
4. A beneficiary to receive the benefit of the trust
5. A valid trust purpose.
B. Duties of A Trustee
1. Highest fiduciary duty imposed by law
a) must administer the trust solely for the benefit of the beneficiaries.
b) self-dealing is prohibited unless the trust expressly provides that the
trustee can transact with the trust, and then the transaction must be
fair.
2. Must preserve the trust property and make it productive
a) duty to both the income beneficiary to get the best income and the
remainder beneficiary to preserve the corpus.
b) ex: a vacant lot is not productive, and the trustee must sell it and invest
the proceeds productively or develop it.
3. Duty to segregate and earmark the trust property
a) can not co-mingle the trust property with private funds
b) ex: trustee must maintain a fence between the trust property sheep and
neighboring sheep.
4. Duty to keep accurate accounts/records.
5. Duty to make decisions rather than delegate them to agents.
a) prudent investor rule - trustee must invest with the care that a prudent
investor would use, unless the trust document relieves him of this
standard by providing more discretion.
Roger W. Martin
18
684085036
Printed: 7/13/2017
6.
If trustee violates his duties, he loses his compensation as trustee, and
becomes personally liable for losses, and may also be removed.
C. Trust Property
1. Trust property can be real, personal, tangible or intangible, a vested future
interest, etc.
a) ex: S gives Patent to T in trust for A for life, remainder to B. B may
then set up a trust to put his vested remainder in trust to C.
b) majority rule is that contingent future interests also may be placed in
trust.
(1) ex: S gives Patent to T in trust for A for life, remainder to B if B
survives A. B may still put his contingent remainder interest in
trust to C.
2. Trust property may not be a speculative interest in property.
a) ex: S gives “all profits from future record sales” in trust to T for the
benefit of A. Not a valid trust because the corpus is not yet in
existence, it is only speculative. (also maybe a present intent problem).
b) however, CA may have allow symbolic or constructive possession of
the future profits if there is a tangible product that is likely to produce
such profits.
(1) ex: if in the above example, S already has the record and is
marketing it, there is symbolic possession of the profits and the
trust is valid in CA.
(2) counter-ex: if S does not already have the record, and has not even
signed a record contract, then there is no tangible product that is
likely to produce such profits.
D. Beneficiaries
1. A beneficiary does not need to know that he is a beneficiary for the trust to
be valid.
2. A beneficiary may refuse to accept the beneficial interest in the trust.
3. Unborn children are valid beneficiaries - guardian ad litem may be
appointed to protect their interests
a) ex: S to T in trust for A for life, remainder to A’s children. Even if A
has no children at the time the trust is created, it is valid. But if A dies
without children, a resulting trust to S results.
4. For private trusts, beneficiaries must be specifically named an in existence
at the time the trust is created or capable of being ascertained within the
period of the rule against perpetuities.
5. CA allows corporations and unincorporated associations to be beneficiaries.
6. Class Designations
a) class designations such as “brothers”, “sisters”, are okay.
b) class designation “family” will be interpreted as limited to the
bloodline.
Roger W. Martin
19
684085036
Printed: 7/13/2017
c)
class designation “relatives” will be interpreted as limited to the inner
circle.
d) class designation of “those most deserving” or “friends” is too
ambiguous and not capable of being ascertained.
7. Powers of Appointment - power of appointee to designate beneficiary shifting use.
a) General power of appointment
(1) holder can exercise the power in favor of themselves, their estate,
their creditors, or their estate’s creditors.
(2) taxable to the holder
b) Special power of appointment
(1) holder can not exercise the power in favor of himself, his estate,
creditors, etc.
(2) not taxable to the holder
c) ex: S to T in trust to pay the income to A for life, T to then pay the
principle to such person as A may appoint by a writing during A’s
lifetime or by A’s will.
(1) If A fails to exercise the power of appointment, then principle goes
back to S’s estate as taker in default as a resulting trust, unless the
trust provides for an alternate taker in default in case of failure to
appoint.
d) The people who are appointed from the pool of potential beneficiaries
are called “appointees.”
E. Trust Purpose
1. Trust can be made for any lawful purpose for which a contract may be
made.
a) Two tests:
(1) Subjective motive (dominant intent of Settlor)
(2) Probable effect test (more objective)
2. Purpose must not be against public policy
a) ex: S gives house in trust to T for 10 years, with T’s duty is to brick up
the house. Against public policy to waste land. Dead hand control nobody alive to suffer the private consequences of having his house
bricked up.
b) ex: S gives house in trust to T for the payment of income to A as long as
he remains married to his present wife, but if he divorces, then he gets
the entire principle free of the trust. Invalid as an incentive to divorce.
(however, it might be argued that it is maintenance due to lack of two
incomes).
3. Restraints - dead hand control
a) a gift contingent upon not marrying anyone is invalid as against public
policy
Roger W. Martin
20
684085036
Printed: 7/13/2017
b) a gift contingent upon marrying from a select group, or at a select time
are valid only if they do not reduce the sphere of permissible marriages
so much that it would make marriage unlikely (partial restraint).
c) a gift contingent upon getting a clergyman’s approval before marriage
is valid unless the clergyman unreasonably withholds his consent.
d) restraints on re-marriage are okay.
e) if a beneficiary does not know about a certain restraint, then it is not
necessarily invalid because it had no effect on the beneficiary’s
behavior.
f) temporary or partial restraints are more likely to be upheld.
III. Creation of Trusts
A. Capacity
1. Minors can not create trust because they do not have the capacity to
contract.
B. Delivery
1. must be delivery of the trust corpus.
2. in a testamentary trust, the issue is whether the will is valid, not really a
delivery problem
3. in an inter-vivos trust, there must be at least constructive delivery
(irrevocable placement with an escrow agent) or delivery of keys to safe
deposit box, etc.
C. Revocability
1. Majority view - trust is irrevocable unless otherwise specified.
2. Minority view -CA - trust is revocable unless otherwise specified.
3. Revocable trusts may be taxed to the settlor because he retains control over
them
D. Real Property as the Trust Corpus
1. Statute of frauds requires a writing, unless with the consent of the settlor,
the beneficiary takes possession and makes improvements
2. Settlor must sign writing either before or at the time of creation of the trust.
3. Beneficiary may acknowledge the trust at any time.
E. Personal Property as Trust Corpus - Oral declaration of trust is sufficient, no
writing requirement
F. Secret and Semi-Secret Trusts
1. Secret Trust
a) Where a devise is made absolute on its face, but outside of the
document, an express or implied promise is made to hold it in trust for
someone else.
(1) ex: S wills blackacre to T. T orally promises S that he will hold in
trust for A. - Secret trust
b) need clear and convincing extrinsic evidence to show that a trust
existed - if successful, a constructive trust is put on the property in
favor of the secret beneficiary.
Roger W. Martin
21
684085036
Printed: 7/13/2017
2.
Semi-Secret Trust
a) where a devise is made in trust, but no beneficiary or other terms are
provided.
(1) ex: S to T in trust “to be distributed as we have previously
discussed” - resulting trust to the estate.
b) Majority Rule - creates a resulting trust in the settlor’s estate - passes by
residuary clause or intestacy.
(1) rationale - no extrinsic evidence was needed to discover the
ambiguity, so it should not be allowed to interpret it.
c) Minority Rule - extrinsic evidence is allowed to determine who the
intended beneficiary is.
(1) rationale - if the property can pass under a secret trust, it should
also pass under a semi-secret trust.
G. Inter-vivos trusts
1. Requires a present transfer of the trust property coupled with present intent
to create a trust
a) can’t use words of futurity
b) ex: W declares intent to give library to Hebrew University. While
packing up the library, W dies. Present intent existed, but there was a
lack of delivery. Court found constructive delivery in the delivery of a
memorandum listing the contents of the library plus detrimental
reliance by the University.
2. Not subject to the probate court.
H. Requirements of a Trust Writing
1. Must set forth with reasonable definiteness:
a) the trustee
b) the beneficiaries
c) the trust property
d) and the present intent to create a trust.
I. Oral Trusts for the Settlor
1. Need to show active fraud by the trustee to impose a constructive trust on
property when the promise of a resulting trust was oral.
a) if the trustee fully intended to reconvey at the time of the creation of the
oral trust, but later changed his mind, there is no fraud, only moral
turpitude and the court will not intervene.
2. Restatement §182 - Restitution
a) where the owner of an interest in land transfers inter-vivos to another
in oral trust in favor of the transferor, or upon an oral agreement to
reconvey the land to the transferor, and the trust is unenforceable
because of the statute of frauds, then a constructive trust will be placed
on the land if:
(1) the transfer was procured by fraud, duress or undue influence; OR
Roger W. Martin
22
684085036
Printed: 7/13/2017
(2) there was a confidential relationship (i.e. atty.-client) between the
transferor and the transferee; OR
(3) the transfer was made as security for an indebtedness of the
transferor (i.e. a mortgage).
J. Oral Trusts for a Third Party
1. need to show:
a) the transfer was procured by fraud, duress or undue influence; OR
b) there was a confidential relationship (i.e. atty.-client) between the
transferor and the transferee; OR
c) the transfer was made in contemplation of death.
K. Revocable Trusts
1. A trust is not invalid merely because the settlor reserves the right to revoke
at any time.
2. However, when the settlor exerts excessive control and dominion over the
trust assets, the trust is invalid - it is really an agency that ends at the
settlor’s death.
a) ex: O sets up trust where he is the life beneficiary of the income, and
bank is trustee. O retains the right to revoke or amend (OK), but also
makes frequent withdrawals and deposits of property to the trust,
keeping a tablet of revocation forms handy, uses the trust assets as
collateral on personal loans, etc. Trust is invalid.
3. Totten Trust - Settlor creates revocable trust in a bank account where A is
beneficiary, and if Settlor dies, then A gets the money, but if A dies, then
the trust fails for a lack of beneficiary.
a) need delivery of a document of ownership (i.e. passbook) to A for there
to be a complete gift.
b) a will can revoke a totten trust if it shows sufficient intent to do so
c) creditor can reach a totten trust because the owner can reach it.
L. Pay on Death Account (POD) - not generally valid
1. an account that by its terms transfers automatically to a recipient - invalid
as against the statute of wills.
2. passes by residuary clause if any or intestate
M. Life Insurance Trust
1. two ways to create it:
a) person who is trustee is named as the payee under the life insurance
policy to hold the proceeds in trust for a trust beneficiary.
b) Assign the policy to the trustee
2. Funded vs. Unfunded Insurance Trust
a) Funded Insurance Trust - the money to pay the premiums is provided
in the trust assets, and the trustee pays the premiums on behalf of the
trust.
Roger W. Martin
23
684085036
Printed: 7/13/2017
b) Unfunded Insurance Trust - the money to pay the premiums is NOT in
the trust, and so there is no trust property because the future proceeds
are not available yet. (can argue symbolic possession in CA)
N. Trusts to Defeat Forced Share
1. Since a pretermitted spouse or child must get his intestate share from the
estate, and a trust is not part of an estate, the pretermitted spouse or child is
unable to touch the trust assets.
a) requires that the transfer of the estate into the trust be a good faith
divestment of control and enjoyment of the property, otherwise the
transfer is illusory and does not defeat an omitted heir’s claim.
b) settlor can prevent illusory transfer by providing for a
remainderperson.
2. Totten trust may also be used to defeat a forced share.
3. Modern rule is that a trust where the settlor retains a general power of
appointment is only illusory and therefore invalid.
O. Pour-Over Trusts
1. Testator’s will provides that certain assets (or entire estate) will “pour over”
into an existing trust at testator’s death and become part of the trust corpus.
2. The will and trust are still valid even though the testator may reserve the
right to amend the existing trust (and thus change the disposition of his
property) after the will is executed.
3. Justified under the doctrine of facts of independent significance - the
pre-existing trust had a purpose other than to distribute property on
testator’s death.
IV. Nature of the Beneficiary’s Interest
A. Beneficiary has a cause of action against the trustee in the nature of an equitable
property right.
B. When a trustee is in doubt about beneficiary’s rights or his own or how to
manage the trust, the trustee can go to court for a judicial declaration of rights.
C. Discretion of the Trustee
1. Simple Discretion
a) ex: “Trustee has discretion to pay A so much of the income the trustee
determines.”
b) Trustee must act with:
(1) good faith
(2) proper motive
(3) reasonableness
2. Sole or Absolute Discretion
a) ex: “Trustee has sole or absolute discretion to pay A so much of the
income as the trustee determines.”
b) Trustee must still act with
(1) good faith
(2) proper motives
Roger W. Martin
24
684085036
Printed: 7/13/2017
c)
However, if a trustee has “sole” discretion, but the trust document also
provides guidance for how that discretion is to be exercised, the trustee
must follow the guidance.
d) There must be at least one non-discretionary duty of the trustee, like
“remainder to B” otherwise, nobody would have standing to sue to
enforce the trust.
3. Problems arise when the language used is ambiguous and can be argued
either way.
4. “Support and Maintenance”
a) Trustee is not required to take into account the other sources of income
in determining whether to pay out money for “support and
maintenance” unless otherwise stated in the trust document.
b) when a person remarries, support and maintenance includes the care of
their new family.
V. Transferability of Beneficiary’s Interest
A. In general, a beneficiary can transfer their equitable interest in the trust
property to the same extent that they can transfer other property - only can
transfer what you have.
1. life beneficiary can only transfer life estate in income, not the principal
2. if trustee has discretion to withhold income from the beneficiary, then the
assignee can not force trustee to pay, either.
B. Trustee must make payment to the assignee once he receives notice of the
assignment.
C. Assignment to multiple persons
1. majority rule - first in time, even if the assignment was gratuitous
a) justification is that once the first assignment is made, the beneficiary
had no further interest to transfer.
b) however, later assignees can sue for damages from fraud.
2. minority rule - first to notify trustee of the assignment (race-notice)
D. Creditor’s Rights
1. If the beneficiary can reach it, then the beneficiary’s creditors also can reach
it, unless there is a spendthrift provision
2. Creditor must exhaust all other assets before going after the trust, and can
not reach the principle if debtor is the income beneficiary.
3. Creditor can force a sale of the trust assets to pay the beneficiary’s debt.
E. Renunciation
1. Renunciation of an intestate inheritance is considered a gift to the estate
because title automatically vests by operation of law
2. Renunciation of a testamentary gift prevents title from ever vesting in the
legatee, rather the property relates back to the time of death of the testator
and passes by the residuary clause if any or by intestacy.
3. A beneficiary/legatee can renounce unless he has taken some action of
dominion or control, or delay inconsistent with renunciation.
Roger W. Martin
25
684085036
Printed: 7/13/2017
4.
Can not partially renounce a gift if it was intended by the donor to be taken
as a whole.
a) i.e. can take only the beneficial portion of the gift and renounce the
portion that is a burden if the testator wanted them kept as a single
aggregate gift.
F. Spendthrift Trust Provisions
1. provide that the trust is not subject to the beneficiary’s creditors or attempts
to alienate it.
a) protects the desires of the donor
2. Tort vs. Contract Creditors
a) a tort victim is an involuntary creditor, and so a public policy argument
exists for allowing him to reach the assets of a spendthrift trust
b) a contract creditor is a voluntary creditor and so he can exercise more
vigilance to avoid having an unsecured loan or services.
3. Persons who can reach the assets of a spendthrift trust
a) The government can reach trust to satisfy taxes
b) Wife and child can reach trust for spousal support and child support
c) Persons who expend money protecting the trust can recover in
quantum meruit (i.e. attorneys).
d) persons who provide necessary services (medical, emergency supplies,
etc.) to the beneficiary can recover in quantum meruit
e) some states put a limit on how much of the trust can be sheltered from
creditors
f) A person “authorized” by the beneficiary to receive the income (not an
assignment) - revocable authorization
4. Can not set up a spendthrift provision for yourself to shelter your own
assets from your creditors.
VI. Trust Format
A. Four basic types:
1. Simple Mandatory Trust
a) ex: O to T in trust to distribute all income to A, remainder to B
b) no flexibility or discretion on the part of the trustee
2. Mandatory Spray or Sprinkle Discretionary Trust
a) ex: O to T in trust to distribute all income among a class in such
amounts as the trustee determines, remainder to B
b) trustee has the flexibility in determining how much to give to whom,
but still must distribute all of the income currently.
3. Discretionary Accumulation Trust
a) ex: O to T in trust to accumulate income or pay such income to A in T’s
discretion
b) more flexible, T may accumulate income if A can’t use it or doesn’t
need it - avoids taxation
4. Discretionary Spray or Sprinkle and Accumulation Trust
Roger W. Martin
26
684085036
Printed: 7/13/2017
a) ex: O to T in trust to accumulate income or distribute such income
among a class in such amounts as T determines.
b) most flexible.
B. Protective Trusts - usually found in jurisdiction
1. Trust includes a forfeiture restraint that changes the nature of the trust from
a mandatory trust to an absolute discretionary trust if the beneficiary tries
to alienate his interest or if creditors try to attach it.
2. Provides discipline to the beneficiary to behave responsibly because it cuts
off the income to the beneficiary as well as the creditor.
3. Contrast with a spendthrift provision which does not punish the
beneficiary for fiscal irresponsibility.
VII. Modification and Termination of Trusts
A. Reservation of the power to revoke a trust also includes the lesser power of
amending the trust (but not vice-versa).
B. Requirements to Terminate a Trust
1. A trust can be terminated if all of the beneficiaries, unless termination
would frustrate a material trust purpose, in which case you need the
settlor’s consent as well (tough if settlor is dead).
a) a beneficiary who induced the trustee to terminate the trust is estopped
from later bringing an action against the trustee for breach.
b) class beneficiaries such as unborn children can have their interests
represented by the appointment of a guardian ad litem.
(1) counter-ex: widow is life beneficiary, remainder to her children
who were living when she died. Can NOT terminate trust with
only the widow or her children represented because if NO
children outlive the widow, then there is a resulting trust back to
the estate. Need guardian ad litem for the heirs of the estate?
Lewis case.
c) ex: son is the sole beneficiary of a trust that has a payment schedule.
Son comes before the court to terminate the trust. Court does not
allow termination because it would frustrate the material trust
purpose of the settlor in disciplining the beneficiary. - Clafin doctrine
2. If the trust document gives the trustee discretion to terminate the trust, he
may do so unilaterally
C. Doctrine of Worthier Title applies to inter-vivos trusts
1. A grant of the remainder to the “heirs” used to be treated as a reversion
back to the estate because it was considered more worthy to inherit through
the bloodline (inner circle).
2. Modern trend is to abolish the rule.
3. A rule of construction that raises a rebuttable presumption that a reversion
was actually intended - but can introduce evidence that the settlor actually
wanted it to go to the “heirs”.
VIII. Judicial Power to Modify or Terminate Trusts
Roger W. Martin
27
684085036
Printed: 7/13/2017
A. “Dispositive” provisions - determine who the beneficiaries are and what their
interests are (i.e. how much money they get from income, principle, etc.)
1. Courts are unwilling to deviate from dispositive provisions
a) ex: In a mandatory trust, income beneficiary falls on hard times and
needs more money for support. Trustee not allowed to invade
principle for the income beneficiary because that would decrease the
remainder’s interest.
B. “Administrative” provisions - determine the powers and duties of the trustee
1. courts are more willing to deviate from administrative provisions if you can
prove:
a) there is a real emergency; or
b) there was a good faith belief that there was a real emergency and no
enough opportunity to go before the court to ask for guidance; or
c) an unforeseen change in circumstances that threatens the trust purpose;
or
(1) ex: settlor requires that the trustee invest in a certain stock. If that
stock goes down the tubes, taking the trust with it, the court may
allow a deviation to sell that stock based on an implied power to
sell (settlor would not have insisted that the trust die rather than
sell this particular stock).
d) against public policy
(1) ex: court allowed deviation from requirement that buildings on
land not exceed three stories or be leased for greater than one year
terms because it was a waste of land - dead hand.
2. court will generally only deviate as little as is necessary to correct the
problem
a) ex: Two trust “advisors” in a trust had veto power over the trustee’s
decisions. One of the advisors was acting irrationally, but the other
was acting properly. Court removed only the bad advisor rather than
striking the “advisor” provision out of the trust entirely.
3. Court will not allow deviations merely because another investment would
be more profitable.
a) ex: settlor required that the trust only invest in Grade AA bonds or
better, but no stocks. Even though there is a lower return, the risks
involved with the stock market were known to the settlor and it was his
intent to avoid stocks.
b) inflation is generally something that the settlor can foresee.
IX. Charitable Trusts
A. Valid purposes for a charitable trust - Mnemonic (GOPHER)
1. Government
2. Other (general benefit of community, public)
3. Poverty
4. Health
Roger W. Martin
28
684085036
B.
C.
D.
E.
F.
G.
Printed: 7/13/2017
5. Education
6. Religion
Charitable trusts may exist in perpetuity, but the title to the trust property must
vest in the trustee during the period of the rule against perpetuities.
Testator’s subjective intent in creating the trust is irrelevant. The effect of the
trust is what determines whether it is charitable or not.
1. ex: S creates a charitable trust to have a public golf course built next door to
his house, for the selfish purpose that he doesn’t want to have to walk very
far. Still a valid charitable trust.
The class of beneficiaries must be indefinite, otherwise it is a private trust.
1. ex: “for the purpose of paying law professors’ (or dean’s) salaries at USD” valid charitable trust to a class, not a specific person
2. counter-ex: “for the purpose of paying Prof. Spearman’s salary” - invalid as
a charitable trust, but valid as a private trust to a specific person.
Examples of valid charitable trusts:
1. trust for the establishment of a school where the doctrines of communism
are taught and practiced.
2. trust to advocate a change in the law by non-violent, legal means.
3. trust to pay support to the widows of policeman who will be killed on duty
this coming year (in the future)
Examples of invalid charitable trusts
1. trust for the benefit of the Republican Party - not a government
organization, not charitable organization, etc.
2. trust to set up an alternate alphabet where letters have only one
pronunciation - not for the benefit of community or education?
3. trust to pay support to the widows of policemen who were killed in the last
year - beneficiaries are not indefinite because we know which persons they
are and the class will not change composition.
4. trust for the establishment of a public park that has no public access insufficient benefit to the public, more benefit to those who are near enough
to access it.
5. any trust for an illegal purpose or which induces criminal action
6. any trust that is against public policy
a) ex: segregated park
Honorary Trusts
1. Trustee is not under a mandatory duty, but is on his honor.
2. Usually used for a trust that does not quite qualify as charitable - usually
involves pets
a) ex: a trust to take care of stray cats in La Jolla.
b) ex: a trust to maintain someone’s gravesite
3. Honorary trusts ARE subject to the Rule Against Perpetuities.
4. The heirs who would take if the trust failed will generally keep an eye on
the trustee because if he fails to perform, then they get the trust corpus.
Roger W. Martin
29
684085036
Printed: 7/13/2017
H. Attorney General is usually responsible for enforcing charitable trusts, but a
person can have standing to sue if he can show that his damages are different in
nature and extent than the public at large (i.e. you have special damages
because you were to receive a specific benefit - but you have to name the
Attorney General as a party).
1. state action (14th amendment) issue is always an issue because the state
enforces the trust. So anything that violates the 14th amendment may not
be allowed (i.e. trust for white park only)
I. Doctrine of Cy-Pres - literally “as close as possible”
1. A “saving” device applied to a charitable trust to keep it alive when its
original purpose has been frustrated.
2. Court tries to redirect the trust as closely as possible to the original intent of
the settlor.
a) ex: a trust for the treatment of children with polio became frustrated
after the invention of the polio vaccine, so the court gave the majority of
the trust money for the treatment of other respiratory diseases.
3. Checklist for application of cy pres:
a) There must be a valid charitable trust
b) the original trust purpose must have become illegal, impractical or
impossible to carry out
c) the settlor must have had a charitable intent (subjective) otherwise a
resulting trust is created
d) if there is an alternate disposition in the trust, then it will control unless
the alternate disposition is a private trust (mixed trusts are disfavored
and court will sever them).
e) the longer the time between the creation of the trust and its failure, the
more likely the court is to apply cy pres
J. Supervision of a Charitable Trust
1. action requires majority vote of trustees, as opposed to the unanimous vote
required for private trusts.
X. Fiduciary Office of the Trustee
A. Settlor can name any person he wants to be the trustee - his intent controls, and
court will not remove trustee without good and sufficient reason
1. ex: settlor names his mistress as trustee and wife objects. Too bad.
2. ex: wife named as trustee, mother-in-law is a beneficiary and she hates
wife. Too Bad. Court will not remove the trustee for mere animosity
unless it has an adverse effect on the trust
3. if trustee takes a position adverse to the trust, then the court will remove
him for conflict of interest
a) ex: trustee buys property adjacent to the trust property
b) no further inquiry rule - once trustee has an antagonistic position, he is
removed whether or not harm to the trust resulted.
Roger W. Martin
30
684085036
Printed: 7/13/2017
4.
settlor may provide in the trust instrument that the beneficiary has the right
to remove the trustee for any reason.
B. Compensation
1. Fee schedules are used in many states, but the lawyer trustee still may not
charge an unreasonable fee under the rules of professional conduct.
C. Trustee’s Duties to the beneficiaries
1. make the trust property productive
2. not to make a personal profit
a) trust may provide for self dealing with the consent of all beneficiaries,
but the transaction still must be “fair” (i.e. beneficiaries can not ‘ratify’
an unfair transaction).
b) if a bank has a trust department, it must have a “Chinese wall” between
the trustees and the business persons to prevent self-dealing.
3. not to enter into a contract extending beyond the term of the trust unless
“absolutely necessary” to carry out trust purpose
4. not to take a position antagonistic to the trust (loyalty)
5. not to delegate administrative decisions or duties (unless clerical, and then
he must still supervise)
6. not to negligently select, supervise or retain bad employees
7. to keep accurate accounts
8. retain control over and preserve the corpus
9. earmark and segregate property
a) but failure to earmark is not actionable unless it causes the damage
b) ex: if stock is not properly earmarked to the trust, and it goes down in
value in the market, it is not because of the failure to earmark.
D. Liability of Trustees
1. generally trustees will be strictly liable and personally liable for damage
done to the trust.
a) ex: poorly educated trustee delegated duties to an unethical lawyer.
Trustee was held personally liable, even though she was poorly
educated - creates a “floor” standard that can not be violated regardless
of education/intelligence
b) it does not matter if the trustee was acting in good faith if her actions
fell below the standard of care
2. the settlor may relieve the trustee of some liability for his duties, but can
not relieve him of all liability for any breach
3. Co-Trustees
a) Must both actively participate in the administration of the trust
b) passive trustees are not allowed
c) joint and several liability between co-trustees
d) no “splitting” of duties is allowed.
4. Trustee is not liable for actions of third parties unless he was also at fault.
Roger W. Martin
31
684085036
E.
F.
G.
H.
Printed: 7/13/2017
a) ex: as a successor trustee, it would be negligent not to ask the outgoing
trustee for an accounting to make sure that there were no breaches,
otherwise the successor may be liable if a breach by the first trustee was
later discovered.
Damages
1. general rule - the difference between the principle and income of the trust
as breached, and as it would have been in the absence of breach.
2. beneficiary has the option of ratifying any breaches that are beneficial to
him, and still demanding restoration of the damages from any breach that
is detrimental to him.
a) ex: trust says not to invest in stock. Trustee invests $5,000 in XYZ
stock and then later invests $5,000 in ABC stock.
b) in the case of a “single” breach where both purchases of stock were part
of the same overall transaction, the trustee can “offset” the damages
and may escape liability.
c) if, however, there were two separate transactions, and thus a “double”
breach, the losses can not be offset against the gains. Beneficiary can
ratify the first breach if XYZ stock goes up, and still demand restoration
of the $5,000 if ABC stock goes down.
(1) if there is an intervening proper transaction, then it is a double
breach
d) generally, court looks to whatever punishes the trustee more
Exculpatory Clauses
1. Settlor may relieve the trustee for liability for his negligent actions, but
not for his gross negligence or willful misconduct
Trustee’s Liability to Third Parties
1. General rule is that third party must sue the trustee in his personal
capacity, and not as in his capacity as trustee.
a) trustee pays damages out of his own pocket for his screw-ups.
b) this includes tort liability for negligence, unless the settlor has relieved
him of liability for his own negligence.
c) it is gross negligence for the trustee not to have insurance for the trust
property
2. Exceptions to general rule:
a) if a trustee has acted with due care and skill and within the scope of his
office, but nevertheless breaches a contract, the trustee may be
indemnified out of the trust assets.
b) if the trustee is bankrupt and the trust has received a benefit, the third
party may recover restitution damages to prevent unjust enrichment of
the trust.
c) if there is an exculpatory clause, relieving the trustee of liability for his
negligence, then trustee can seek reimbursement from the trust.
Third Party’s Liability to the Trust
Roger W. Martin
32
684085036
Printed: 7/13/2017
1.
Third party has no duty to inquire whether a trustee has the authority to
transfer title to him for a negotiable instrument
a) However, if the third party has actual knowledge that the trustee is
breaching the trust in dealing with him, then he is liable along with the
trustee for the transaction.
2. Third party does have a duty to inquire whether a trustee has the authority
to transfer title to him for non-negotiable property such as land, etc.
a) if third party is BFP for value, he takes the legal title to the property
free of the trust, and cuts off the beneficiary.
b) if the third party is not a BFP, he can still raise the affirmative defenses
of laches or estoppel.
XI. Miscellaneous
A. Improvements and Repairs
1. Improvements and repairs are generally paid out of rent for the building.
B. Bonds
1. if purchased at a premium, the trustee must amortize the premium over the
term of the bond in order to preserve the trust principle, thereby shorting
the income beneficiary by a certain amount each month.
2. if purchased at a discount, there is no need to amortize, the income
beneficiary gets all the income.
C. Timing of beneficiary’s income
1. Beneficiaries are entitled to income from the day that the asset becomes part
of the trust
2. For rents, the common law rule is that rents do not accrue so a rent due at
the end of the month would all go to income even if the property were
acquired somewhere in the middle of the month.
3. Some jurisdictions allow rents to accrue, meaning that the portion of the
rent that represents the part of the month before the property was acquired
goes to principle, and the part after goes to income.
4. Dividends do not accrue. They are paid as income on the date distributed.
D. Expenses
1. mortgage payments - principle of mortgage payment is charge to principle
of trust, interest of mortgage payment is charged to income of trust
2. ordinary income taxes - charged to income
3. capital gains taxes - charged to principal
4. ordinary repairs - paid from income
5. insurance on real property - charged to income
6. real estate taxes - charged to principal
7. stock broker fees - charged to principal
8. trustee fees - apportioned between principal and income
Roger W. Martin
33