Will formation

* Conflict of laws?

* Formal or holographic?

* Elements

Revocation issues?

If a subsequent will is invalid, check for DRR

(state the alternative results when appropriate)

TRUSTS

Formation

* Private express, charitable, etc.?

* Elements

Cy Pres

DUTIES OF TRUSTEE (organize by action? state remedies for each, too)

Duty of loyalty (no self-dealing)

Duty to Preserve Trust Property / Prudent Investor Rule

Accounting

[typewritten?]

Capacity...

* In writing

2. Signed by testator, 3rd person under T's direction, or conservator.

3. Signing or acknowledgment done in presence of 2 witnesses ("some states, only 1 then the other... in CA, need both")

4. Witnesses sign will during T's lifetime

5. Witnesses understand it is T's will

[after 1/1/2009, can alternatively show clear and convincing evidence T's intention IF ___?___]

Holographic (handwritten) will

Capacity...

1. Signed by testator

2. Material provisions in T's own handwriting

(don't need date or statement of testamentary intent on face of will)

"The doctrine of dependent relative revocation (DRR) applies when a testator revokes his will upon a mistaken belief that another disposition of his property would be effective and but for this mistake would not have revoked the will. To carry out T's intent, the court will look at the consistency of the documents and may also consider the consequence of not applying DRR. However, DRR is not applied when the subsequent instrument revoking the will and making the alternative disposition is defectively executed."

"A fiduciary relationship w/ respect to property [present existing interest] whereby one person, the trustee, holds legal title for the benefit of another, the beneficiary [any ascertainable person(s) incl. legal persons], and which arises out of a present manifestation of intent to create it for a legal purpose."

DO A SHORT IRAC FOR EACH ELEMENT

(Writing? Yes if it's a testamentary trust in a will... otherwise NOT if it's personal property)

PRIVATE EXPRESS TRUST

(test for RAP for private express trusts!)

CHARITABLE TRUST:

substantial benefit upon society (incl. religion)

Indefinite (unnamed) beneficiaries (if "one's poor relatives," split of authority b/c few, but against poverty)

     - [can apply cy pres doctrine to charitable trusts]

"The doctrine of cy pres allows the court to apply the trust property to another charitable purpose, if that indicated by the settlor is as accomplished or becomes impractical. This is allowed if the settlor is found to have a "general charitable intent."

Did S intend the trust to fail or would have instead wanted the property devoted to a similar use? (consider the actual alternative)

Traditionally...

Life Tenant

(cash and income stuff, paying ongoing taxes and maintenance)

Gets:

* cash dividends

* interest income

* net business income

Pays for:

* Interest on loan indebtedness

* Taxes

* Minor repairs (e.g. paint job)

Remaindermen 

(stock stuff, stuff affecting long-term)

Gets: 

* Stock dividends

* Stock splits

* Net proceeds on the sale of a trust asset (capital gain)

Pays:

* Principal part of loan indebtedness

* Major repairs or improvements

Uniform Principal & Income Act

Above are traditional diviisions. Under this Act, the trustee has an adjustment power, if it is necessary to carry out the trust purposes or to administer it fairly, and the allocation is fair and Rzable to all the beneficiaries."

General duties of a trustee?

(IMPORTANT!)

Rule statement, and list some duties

Remedies?

"A trustee can only exercise express or implied powers. . . . [look at any express quotes!]

"A trustee is in a fiduciary relationship to the trust and its beneficiaries. The trustee must exercise that degree of care, skill, and prudence that would be exercised by a reasonably prudent person in managing her own property.

"A trustee owes a duty of undivided loyalty to the trust and all its beneficiaries."

[separate care from loyalty discussion]

* No self-dealing - courts apply "no further inquiry rule", trustee's good faith and reasonableness is irrelevant

* Conflict of interest - must act in best interest of beneficiaries

* Duties relating to care of trust property:

(to collect and protect trust property, earmark, don't commingle, don't delegate investment decisions, to maintain marketability of trust property, to keep property productive, diversify investment, to account to trust beneficiaries, not to speculate)

* Prudent Investor Rule - duty to invest and manage assets as a prudent investor would, in light of the purposes, terms, distribution requirements and other circumstances of the trust

REMEDIES:

Ratification - if beneficial

Surcharge - if loss

Trace and Recover the Property - unless we have a BFP

No self-dealing!

A trustee, his relative, agent or representative cannot purchase any property owned by the trust even if in good faith, and even if he pays full value. 

Result if:

A private express trust has an illegal purpose upon creation?

A private express trust has an illegal purpose AFTER creation? 

Illegality at creation:

Takes free of illicit condition

(if still illegal, then invalidate trust [stays with settlor] or punish by granting to trustee)

Illegality after creation:

Resulting trust

A gift made in contemplation of imminent death (it's a "will substitute")

personal property only

Need "delivery" (actual, symbolic [something representative of corpus], or constructive ["key", or modern view includes doing everything possible to effect delivery])

Pour-over will.

NEED: (when discussing one, discuss all 3)

Incorporation by reference OR

Facts of independent significance OR

UTATTA (Uniform Testamentary Additions to Trusts Act) [if a valid trust existed before will or at time of execution, then valid by statute]

Bill opens a bank account under "Bill, as trustee for Mary Smith."

Bill tells Mary about the account and says he has created a trust for her. Result?

The bank account appears to not be a true trust - it is a Totten "trust" or Totten account. Bill has no fiduciary duties to Mary. Still, Mary takes what's in it upon Bill's death.

HOWEVER, Bill manifested a trust intent. This creates a trust!

Restraints on alienation... define, and state the limitations, of:

Spendthrift trusts

Support trusts

Discretionary trusts

Spendthrift trusts: "... may not transfer his right to future payments... no creditor shall be allowed to attach any beneficiary's right to future payments..."

NOT applicable to PREFERRED CREDITORS:

* government creditors

* those who provide necessities of life to B

* child (child support)

* spouse (spousal support)

* Ex-spouse (alimony)

* Tort judgment creditor

Support trusts: to support beneficiary's "health, support, maintenance, and education"

- difference re: alienation? Cannot voluntarily alienate (defeats purpose)

Discretionary trusts: full, sole, and absolute discretion in trustee

- Can voluntarily alienate? "On the one hand, no [may not get anything]. On the other hand, if assigns, steps into shoes of beneficiary. [like beneficiary,] assigneee can't force payment. BUT if trustee has notice and DOES decide to pay, then must pay ASSIGNEE or be personally liable."

- Creditors? "On the one hand, cannot attach... nothing to attach... [can't force payment] BUT if trustee has notice of creditor's judgment against beneficiary and DOES decide to pay, must pay the CREDITORS or be personally liable."

"Trustee, in his sole and absolute discretion, shall pay the amount needed for the beneficiary's support and maintenance"

What type of trust?

"I devise $100,000 to Abel as trustee..."

What answer do you give?

State rule for semi-secret trusts (no beneficiary named)

Rule for secret trusts (devising to Abel, but oral promise to actually use for benefit of Ben... Abel becomes a constructive trustee) We can look at extrinsic evidence.

This is a semi-secret trust. It fails, and a resulting trust results. (Extrinsic evidence NOT ok)

Ben pays money to Mary to have title to her property transferred to Charlie.

What's the problem and how do we resolve it?

It's not clear if it's intended to be held for buyer (as a trust), or is a gift to Charlie.

If Ben and Charlie are closely related, then rebuttable presumption that it's a gift to Charlie.

If Ben and Charlie are not closely related, we presume a "purchase money resulting trust" for the benefit of Ben.

Rule for secret trust

Rule for semi-secret trust.

This is a secret trust. We can look at extrinsic evidence. Abel is a constructive trustee (--> Ben)

Duties of a Trustee??

Remedies?

"LIES, DAD"

LOOK FOR AT LEAST 3-4!!

(can consider damages, constructive trust or equitable lien, ratification, remove trustee (always consider)...)

Duty of Loyalty (no self-dealing!)

- If a loss, trustee must make good the loss

- If personally profits, then disgorge

Duty to Invest (includes duty to diversity)... split - 3 rules! (in absence of directions of trust)

* state lists

     - GOOD: federal govt bonds, federally-insured certificates of deposit, 1st deeds of trust in real estate [sometimes] stocks in publicly-traded corporations

* common law prudent person test ("Rzably prudent person investing his own property, trying to maximize income while preserving corps")

     - GOOD: first 3 above, blue-chip (solid) stocks, [maybe] mutual funds

* Uniform Prudent Investor Act (measure in context of entire trust portfolio, NOT each investment)

- if breached, must make good the loss (no "netting" w/ good investments!)

Duty to Earmark: must label trust property as such

- if a loss, [modern] then liable ONLY if caused by failure (e.g. attached by trustee's creditors) [traditional: regardless...]

Duty to Segregate: Can't commingle funds

Duty not to Delegate: cannot delegate actual decision-making authority, incl. to another trustee [modern: except a professional money manager]

Duty to Account: must give regular statements of income and expenses to beneficiaries

Duty of Due Care: (almost always discussable)

Rzably prudent person in dealing w/ his own affairs

When can a trustee be sued in his personal capacity regarding contracts? In his representative capacity?

What about in tort?

Common law:

Personally liable for torts and for contracts, unless contract explicitly said can be sued in his representative capacity

(can get indemnity if (1) acted w/in powers and (2) not personally at fault)

Modern rule for contracts:

Sued in representative capacity IF:

1. trustee simply signed contract "[trustee's name], as trustee of the ABC trust"

2. Promisee knew trustee was entering K in representative capacity

Modern rule for torts:

Trustee sued in personal capacity ONLY if personally at fault

Doctrine of Changed Circumstances

Court exercises deviation power (can modify or terminate) IF:

* unforeseen circumstances (unforeseen to settlor) AND

* Necessity to preserve trust

Generally, revoke or modify, unless instrument reserves right to do so.

[minority Jx] presumption one CAN revoke (and therefore also modify)

Owner conveys property to bank in trust: "To A, but if liquor is ever sold, then to B."

Result?

Violates RAP.

A is the only one who has an interest. 

Trust can be terminated now! Statute of Uses applies re: real property. For other property, Statute of Uses applies by analogy

Integration: papers PRESENT at execution and w/ INTENT

Republication by Codicil: will speaks at date of codicil, must itself meet formalities

Incorporation by Reference:

1. writing in existence at execution

2. will shows intent to incorporate

3. writing sufficiently described in will

Acts of Independent Significance:

(to identify beneficiaries or property)

By lifetime acts w/ independent motive

Rule for determining whether a devise is specific or general?

What about the rules for stock splits and dividends?

General: 

"A specific devise is a gift of a particular piece of property, and a general devise is a gift of a general economic benefit, payable out of the general assets of the estate."

Stock splits and dividends:

Under traditional approach, beneficiary not entitled to any shares produced by a stock (split) during the testator's lifetime if the gift was a general devise. But in CA it goes to beneficiary IF:

1. testator owned stock at time will was executed

2. securities matched those being gifted in the will

3. the change was initiated by the corporate entity, not by testator

Specific devise: under common law, it is adeemed by extinction b/c no longer exists. David takes nothing. BUT under CA law, depends on testator's intent to adeem at the time he disposes of the property. If had intent, can recover the value of the adeemed property. (e.g. trading in car for another)

General devise: still award general economic benefit, payable out of the general assets of the estate

I write a will devising my savings to "Jason's children". Jason has 2 children Laura and Eric.

Eric has a child, Brenda, and predeceases me. Result?

Common law: Lapse. With a class gift, only surviving class members take b/c will speaks at the time of my death. Laura takes all. (If it were not a class gift but to "Laura and Eric," Eric's share would fall into the residuary estate.

CA has an anti-lapse statute: IF the devisee was "kindred" (blood relative) of testator or of testator's spouse or ex-spouse, then it goes to that person's issue. Laura and Brenda split the money. (this affects even class gifts - BUT if the class gift were to the residuary devisees, then it would transfer to the other residuar(ies))

I write a will devising $100,000 to my sister Anna. During my lifetime, I write a check to my sister Anna for that same amount.

Result?

What if my will is deemed invalid?

If I manifest intent that it is a substitute lifetime gift to Anna, then it is Ademption by Satisfaction. Anna's gift ______

If will is invalid, then we consider whether it is an ADVANCE PAYMENT of her intestate share. There must be a writing.

Need clear and convincing evidence that a will beneficiary died after the testator. (If an heir, must prove by clear and convincing evidence that heir survived the testator by 120 hours)

If cannot prove that beneficiary died after the testator, then is deemed to have PREdeceased the testator.

Default - divided among the first generation below the decedent who still has a surviving member. Divide among that generation. (If one member predeceased the decedent, then divided among that person's issue)

"per stirpes" - divided among the generation is the one right below the decedent, even if none are alive.