Trusts and Estates OutlineFall 2019

Trusts and Estates Outline

Wealth Transfer Upon Death: The Fundamentals

· Freedom of disposition

· Freedom of disposition: the decedent’s property could pass in accordance with the decedent’s declared wishes if they are reliably preserved, or if not, then in accordance with a default system of succession that tracks the probable intent of a typical decedent

· Right to inherit property is not a fundamental right, but a creation of law – a testator may completely disinherit his children

· A condition precedent to a bequest requiring the putative devisee to marry within a particular faith is a reasonable restriction that does not violate public policy or the Fourteenth Amendment of the United States Constitution – as long as it’s not a total resistant on marriage

· Freedom of disposition is not strong enough to do something illegal or violate public policy

· The probate process

· Non-probate property: inter vivos trusts, pay on death (POD) and transfer on death (POD) accounts/contracts, life insurance, joint tenancy

· Non-probate succession has become the norm

· Probate: process by which the court goes ahead to figure out distributions of assets – only probate property can be distributed.

· Probate assets: have to be solely owned by the decedent

· Examples: real property (solely in their name or tenancy in common), bank account with no beneficiary named or not a joint account, personal property

· Intestate succession

· Probate or non-probate – always figure out what is in probate and outside probate

· Heirs

Providing for the Family: Intestate and Forced Shares

· The law of the state where a decedent was domiciled at death governs the disputation of the decedent's personal property, and the law of the state where the decedent's real property is located governs the disposition of the real property

· Will cannot tell you what to do with non-probate property

· Right of Surviving Spouses and Family Members

· §2-101 Interstate Estate

· §2-102 Share of Spouse intestate statutes only protect legal spouses

· Surviving spouse seen on higher footing than anyone else

· Every state is different on the percentage of the estate going to the spouse

· §2-103 Share of heirs other than surviving spouse

· §2-105 No Taker

· If the individual does not survive by 120h (5d) by clear and convincing evidence the gift is deemed to lapse

· Rights of Decedents

· Three systems

· English Per Stirpes/strict per stirpes

1. System of representation that treats each line of descent equally

2. Property is divided into as many shares as there are living children of the designated person and deceased children who have descendants living

3. First division at the generation closest to the decedent

· Modern per Stirpes

1. Aka: per capita with representation

2. First: look to see whether any children survived decedent

3. If so, identical to English Per Stirpes

4. If not: estate divided (per capita) at the first generation in which there are living takers (usually grandchildren)

5. Treats equally each line of descent beginning at closest living generation

6. If writing will, be specific with the type of Per Stirpes

· Per capita at each generation (1990 UPC)

1. Decedent's intestate estate or part thereof passes by representation to the decedent's descendants, the estate, or part, is divided into as many equal shares as there are (i) surviving descendants in the generation nearest to the decedent which contains one or more surviving descendants and (ii) deceased descendants in the same generation who left surviving descendants, if any. Each surviving descendant in the nearest generation is allocated one share. The remaining shares, if any, are combined and then divided in the same manner among the surviving descendants of the deceased descendants, as if the surviving descendants who were allocated a share and their surviving descendants had predeceased the decedent

2. §2-106(b) the initial division of shares is made at the closest generation in which 1+ descendants are alive but the shares of the deceased person on that level are treated as one pot and are dropped down and divided equally among the representative in the next generation

3. Achieves horizontal equality

4. Builds on modern Per Stirpes

5. Notion of treating each generation equitably

· Ancestors and Collaterals

· Parent: if an intestate decedent is survived by a descendant, the decedent’s ancestors and other collaterals do not take

· Negative disinheritance: UPC allows “I purposefully choose not to leave any property to X”

· UPC avoids laughing heirs if you can fuck them, they cannot inherit from you

Transfers to children

· Defining children

· Default to helping the younger generation

· UPC will give to step-children rather than having state escheat

· Adoption

· Step parents are not legally parents unless they adopt the children

· How states deal with the issue of if adopted children can inherit from blood – key determination if there is a parent-child relationship

· Adopted child inherent only from adoptive parents and their relatives; or

· Adopted child inherent from both adoptive parents and genetic parents and their relatives; or

· Adopted child inherits from adoptive relatives and also from genetic relatives if the child is adopted by a step-parent (majority of states)

· Adult adoption: most intestacy statutes draw no distinction between adoption of a minor and of an adult

· Where an adult is adopted for the purpose of making that person an heir entitled to inherit under a pre-existing testamentary instrument, that person will not be considered an heir if doing so conflicts with the intention of the testator.        

· Nonmarital and posthumous children

· Posthumously conceived children have the right to inherit under Massachusetts intestacy laws if the genetic relationship to the decedent is established and the deceased parent consented to the posthumous conception and posthumous support of the child or children.

· Scotus confirmed that a posthumously conceived child is eligible for social security survivors benefits only if the child would be an intestate heir of the predeceased parent

· Genetic relationships and legal relationships are not always the same

· Advancement and Hotchpot

· Common law: lifetime gift assumed to be out of inheritance

· Now: need a writing indicating that its an advancement

· Hotchpot: if a gift is treated as an advancement, it is accounted for in distributing the decedent’s estate by bringing it into hotchpot

· Legal fiction: the actual money of the probate estate plus the advancement

· Advancement calculation template

· Step 1 Start with probate estate

· Step 2 List advancements made to all beneficiaries (“B”)

· (only if under UPC 2-109 it is actually an advancement)

· Step 3 Add Steps 1 & 2 for the preliminary hotchpot estate value

· Step 4 Determine the intestate shares to which each B is entitled

· Step 5 Review the advancements made to each B

· Step 6 Subtract Step 5 numbers from Step 4 on a B by B basis

Statute of Frauds (land) (1677)

Wills act (1837)

Uniform Probate Code (1990)

Uniform Probate Code (1990, rev. 2008)

Writing

Writing

Writing

Writing

Signature

Subscription

Signature

Signature

Attestation via subscription by 3 witnesses

Attestation via subscription by 2 witnesses

Attestation via subscription by 2 witnesses

Attestation via subscription by 2 witnesses Or notarization

Wills: execution, revocation, components, and capacity

5 major check lists

1. Was it properly executed?

2. What is the status of the will?

3. What are the components of the will?

a. Integration

b. Incorporation by reference

c. Republication by codicil

d. Acts of independent significance

4. Did they have capacity? Was there influence?

5. Construction

Execution of wills

· 2-502: Need:

· Writing

· Signed by testator

· 2+ witnesses within a reasonable time after the individual witnesses either the signing of the will or the testator’s acknowledgement of the signature.

· Strict compliance rule: under traditional law, a will must be executed in strict compliance with all the formal requirements of the applicable wills act

· The only way to have standing to challenge a will, have to be a beneficiary under the will or would have inherited through intestate succession.

· Interested v. disinterested witness

· Interested: taking under the will

· Disinterested: someone who is not

· Common law: interested witness unable to testify in the court.

· If attested by interested witnessed, deemed no good

· Purging statutes: interested witness no longer gets anything/witnesses loses extra benefit on top of what the intestate benefit would be

· Guardians ad litem: when the interests of a minor or unborn person are at stake in a litigation, courts commonly appoint guardian ad litem to represent those interests

· Need clear and convincing evidence that there was an attempt to comply with the formalities

· Harmless error rule: UPC 2-503 if the proponent of the document or writing establishes by clear and convincing evidence that the decedent intended the document or writing to constitute: (1) will (2) partial or complete revocation of the will (3) addition/alternation of the will (4) partial or complete revival of formally revoked will

· need clear and convincing evidence that decedent intended the document/writing to be their will

· more than ½ jurisdictions do not have harmless error

· a will that the decedent did not review/give final assent to cannot be admitted to probate

· only time harmless error comes into place when will was faulty executed

· Notarized Wills

· Holographic Wills: written by the testator’s hand and is signed by the testator; does not need to be attested

· First generation: entirely written, signed, dated in testator’s hand

· Second generation: material provisions and signature in testator’s writing

· If you can cut out typed provisions and it still makes sense

· Third generation: material portions and extrinsic evidence

· allows preprinted will forms

· UPC

· critical to have the words identifying the property and the devisee

Revocation of wills -- UPC 2-507 Revocation by writing or by act

· revocation requires:

· Intent

· written (which meets the formalities of execution) OR physical act/destruction

· writing: express or implied/inconsistency (i.e. leaving everything to A, next will leaves everything to D)

· a written revocation on the back of a will that does not otherwise comply with statutory requirements for revocation obliterates or defaces the text of the will

· lost wills and the presumption of revocation:

· law presumes if will cannot be found that it was destroyed with the intention of revoking it

· if lost or mutilated will was last known to be in the possession with someone other than the testator, there is not presumption of revocation, and the will is entitled to probate unless there is proof the testator revoked

· if lawyer loses the will, will is lost, not revoked, may be probated if contents can be proved

· partial revocation by physical act:

· jurisdictions differ

· UPC permits complete or partial revocation by physical act (and majority of jurisdictions) – others say nah

· Dependent relative revocation (DRR): if testator undertakes to revoke her will upon a mistaken assumption of law or fact, under the doctrine of DRR the revocation is ineffective if the testator would not have revoked the will but for the mistaken belief

· Limited doctrine – only applies in limited, specific circumstances

· Need a valid revocation

· Requires: Valid revocation that is premised on a condition but the condition is not realized so the revocation is ignored.

· Courts trying to get to what the testator wanted

· DRR = rebuttable presumption of what the testator wanted – courts are less likely to use if there is a reduced gift, with a higher gift its clear courts are supporting the testator’s intent

· Courts have held that DRR applies only (1) if there is an alternative plan fo disposition that fails, or (2) if the mistake is recited in the terms of the revoking instrument or is established by clear and convincing evidence

· Revival of revoked wills: 2-509

· (a) If a subsequent will that wholly revoked a previous will is thereafter revoked by a revocatory act under Section 2-507(a)(2), the previous will remains revoked unless it is revived. The previous will is revived if it is evident from the circumstances of the revocation of the subsequent will or from the testator’s contemporary or subsequent declarations that the testator intended the previous will to take effect as executed.

· physical -- complete (presuming the previous will remains revoked unless particular evidence the testator intended to revive)

· (b) If a subsequent will that partly revoked a previous will is thereafter revoked by a revocatory act under Section 2-507(a)(2), a revoked part of the previous will is revived unless it is evident from the circumstances of the revocation of the subsequent will or from the testator’s contemporary or subsequent declarations that the testator did not intend the revoked part to take effect as executed.

· Physical -- partial (presuming that once revoked the codicil, the underlying will is revived, unless very clear evidence to the contrary)

· (c) If a subsequent will that revoked a previous will in whole or in part is thereafter revoked by another, later will, the previous will remains revoked in whole or in part, unless it or its revoked part is revived. The previous will or its revoked part is revived to the extent it appears from the terms of the later will that the testator intended the previous will to take effect.

· Relying on written

· 2-804 revocation by operation of law

· Applies to non-probate transfers

· Ex-spouse gets cut

Components of a will

· Integration: addresses question of which pieces of paper were meant to be in the will

· Incorporation by reference: allows the testator to give testamentary affect to words not physically present at execution ceremony by incorporating paper not present at the will execution (UPC §2-510 for three-part test).

· Compare with newer UPC §2-513 which allows the incorporation of a document for personal property only

· Republication by codicil: a validly executed codicil republishes and validates a previously executed will

· Acts of independent significance: allows the will to dispose of property by reference to act/events outside the four corners of the will, when they have significance apart from the will (UPC § 2-512).

· Integration:

· This doctrine allows all papers present at the time of execution and intended to be part of the will to be treated as such

· Must be clearly apparent that the testator intended that both pages constitute the will pages need to reference each other

· Republication by Codicil

· A validly executed codicil republishes and validates a previously validly executed will

· A valid executed will is treated as re-executed as of the date of the codicil

· Republishing a will can override a newly executed will because it brings the date of execution up to the present doctrine should only be applied if updating the will carries out the testator’s intent

· All documents must be properly executed for this to work

· Will has to be valid for the codicil to republish

· Incorporation by reference:

· Allows the testator to give testamentary effect to words not physically present at execution ceremony by incorporating paper not present at the will execution (2-510)

· Can be compared with 2-513 – which allows the incorporation of a document for personal property only

· Existing writings – the writing must be in existence at the time for incorporation by reference to work

· Will that was in existence but not present at the time of execution, and was not executed, may be absorbed into Testators will – need to meet the three requirements:

1. Writing at the time of execution

2. Adequately described

3. Intent to manifest the document

· Can incorporate by reference, in some jurisdictions, printed portions of a will form critical to have the words identifying the property and the devisee

· 2-513: separate writing identifying devise of certain types of tangible personal property

· Will may refer to a written statement or list to dispose of tangible personal property not otherwise specifically disposed of by the will, other than money

· Must be: signed by testator and describe items and devisees with reasonably certainty.

· Can be prepared before or after execution of the will – can be altered after preparation

· Some jurisdictions have a limit on the value that can be done

· Acts of independent significance

· A will may dispose of property by reference to acts and events that have significance apart from their effect upon the dispositions made by the will, whether they occur before or after the execution of the will or before or after the testator’s death. The execution or revocation of another individual’s will is such an event. 

· Events independent from testamentary intent – have to let the testator live their lives

Grounds for will contest: mental capacity, undue influence, and fraud

· Testator has the freedom to do what they want with their property at death, but the more unreasonable/unorthodox it looks, the more the court will look into it to ensure the testator was sane and had capacity at the moment the will was executed

· Due execution creates a presumption of capacity

· Mental capacity: testator must be capable in knowing and understanding in a general way

· (1) the nature and extent of the property

· (2) the natural objects of his bounty

· (3) the disposition that he is making of his property

· (4) must be capable of relating these elements to each other and forming an orderly desire regarding the disposition of the property

· Need to show the testator has the ability to reason/appreciation of the consequences of the decision

· Witnesses should be comfortable that the testator has the capacity to execute the will

· A few isolated acts of abnormal behavior cannot rebut an inference of testamentary capacity

· Majority of jurisdictions, it’s a will contestant who bears the burden of proving lack of capacity -- preponderance of the evidence standard

· To prove lack of testamentary capacity, the party challenging the will must present proof showing that the testator’s condition prevented her from having a decided and rational desire as to the disposition of her property.

· Insane Delusion

· Person may have capacity, but if suffering from an insane delusion, will or particular disposition of the will may fail

· Contestant must show both that (1) the testator labored under an insane delusion and (2) that the will or some part of the will was a product of the insane delusion

· Legal term of art

· False belief adhered to against reason

· Current way of dealing with: for a contestant to prevail in an insane delusion case, contestant has to show that the testator actually suffered from the insane delusion and that the will or a portion of the will is a product of the insane delusion

· Majority: the delusion is insane even if there is some factual basis for it, or even if a rational person would not have drawn that conclusion, if the contestant can show that the testator suffered from the false belief, that would be good enough. Majority view is that the insane delusion has to materially affect the disposition of the will

· Undue influence

· Donative transfer is procured by undue influence if the wrongdoer exerted such influence over the donor that it overcame the donor’s free will and caused the donor to make a donative transfer that the donor would not otherwise have made

· Trier of fact may infer undue influence from circumstantial evidence that shows: (this is the burden on the contestant)

· The donor was susceptible to undue influence

· The alleged wrongdoer had an opportunity to exert undue influence

· The alleged wrongdoer had a disposition to exert undue influence

· There was a result appearing to be the effect of undue influence

· Two main ways to get a claim of undue influence:

· Through the issue of circumstantial evidence, have to prove susceptibility of the testator, wrongdoer had opportunity, wrongdoer had disposition, the result shows the effect of Undue influence --> substantially relying on circumstantial evidence

1. Burden on contestant

· Confidential relationship and suspicious circumstances (see relationship types below)

1. Suspicious circumstances:

· If the will was done in secrecy

· Unnatural disposition -- the more dispositions come out of the norm, the more scrutiny the will be under

· If the wrongdoer participated in making the will

· Was there independent council

2. If the contestant can demonstrate confidential relationship and presence of s. circumstances, burden shifts to the wrongdoer to disprove undue influence -- contestant introduces, burden on wrongdoer

· Undue influence is “unruly” and each jurisdiction frames the issue slightly differently. Professor Sitkoff notes, “[t]he prevailing rule is that a contestant has the burden of proving that a will was procured by undue influence.” (CB p. 282) Direct evidence of UI is very rare and most often the will contestant is required to offer circumstantial evidence. To prove undue evidence, four factors (see pages 283-84) are generally required: 

· Susceptibility of the testator;

· Wrongdoer had opportunity;

· Alleged wrongdoer had the disposition to exert UI; and

· The result/devise(s) appears to be the effect of UI.

· Rare to have direct evidence of undue influence

· A claim of undue influence is comprised of 4 elements

1. An unnatural disposition has been made

2. By a person susceptible to undue influence to the advantage of someone

3. With an opportunity to exercise undue influence, and

4. Who in fact has used that opportunity to procure the contested disposition through improper means

· Contestant by preponderance of the evidence, would have to show all 4 things

· In majority, if will contestant can show confidential relationship and suspicious circumstances, the majority of jurisdictions, the burden shifts to the will proponent, the alleged wrongdoer, to disprove

· Three types of confidential relationships

· Fiduciary relationship: confidential relationship arises from a settled category of fiduciary obligation – PoA

· Reliant Relationship: contestant must establish there was a relationship based on special trust and confidence – Caretaker

· Dominant-subservient relationship: contestant must establish that the donor was subservient to the alleged wrongdoer’s dominant influence – can overlap with reliance

· Duress

· Undue influence + coercion = duress

· A donative transfer procured by duress if the wrongdoer threated to perform or did perform a wrongful act that coerced the donor into making a donative transfer that the donor would not otherwise have made

· Undue influence PLUS

· Physical coercion -- threat of force

· i.e. someone was prevented from having necessary medical treatment as a way of having her execute her will

· Fraud

· Test: a donative transfer is procured by fraud if the wrongdoer knowingly or recklessly made a false representation to the donor about a material fact that was intended to and did leave the donor to make a donative transfer that the donor would not otherwise have made

· Fraud in the execution

· When a person intentionally misrepresents the character or contents of the instrument signed by the testator, which does not in fact carry out the testators intent

· Giving someone a paper to sign, not their will/not what they thought it said

· Fraud in the inducement

· Misrepresentation causes the testator to execute or revoke a will, to refrain from executing or revoking a will, or to include particular provisions in the wrongdoer's favor.

· Different from undue influence

· Representation made with the intent to deceive and with the purpose of influencing the testamentary disposition

· Usually with misrepresentation of fact (sometimes law)

Wills: Construction problems

· The plain meaning rule: ambiguity, mistake, and omission

· Plain meaning rule: rule of construction: judges should only rely on the plain meaning of the words within the will

· Designed for judges to stick within the 4 corners of the will

· Notion of no reform/change of the will – rely on the plain meaning

· No extrinsic evidence

· No extrinsic evidence rule: excludes the oral declaration of the testator that conflict with the language of the will – court wants to rely on the will

· the testators statement that would contradict the plain language (or even explain in greater detail) – want to rely on the will

· some extrinsic evidence will come through

1. i.e. family relationship info

· part of the rule: no reformation the court does not re-write the will

· exceptions to no extrinsic evidence rule

1. lack of testamentary intent/lack of capacity/insane delusion/undue influence

2. some extrinsic evidence needs to be permitted – surrounding circumstances

3. acts of independent significance

4. latent ambiguity (trend towards patent)

· Patent ambiguity: evident from the face of the will

· Latent ambiguity: manifests only when the terms of the will are applied to the facts

· Equivocation: when 2+ persons/things fit the description exactly – need extrinsic evidence to determine which thing was intended

· Personal usage: if extrinsic evidence shows that a testator habitually used a term in an idiosyncratic manner, the evidence is admissible to show that the testator used the term in accordance with his personal usage rather than ordinary meaning

· Misdescription

· No exact fit

· UPC 2-805: The court may reform the terms of a governing instrument, even if unambiguous, to conform the terms to the transferor’s intention if it is proved by clear and convincing evidence what the transferor’s intention was and that the terms of the governing instrument were affected by a mistake of fact or law, whether in expression or inducement.

· Can fix something as long as there is clear and convincing evidence of a mistake in rendering the testator’s actual intent at the time of making the will

· Under the principle of “falsa demonstratio non nocet” or “mere erroneous description does not vitiate,” if property described in a will does not match any of the testator’s property at death, then the less essential characteristics of the description may be disregarded as long as the remaining characteristics match existing property in the estate.

· Growing number of courts are willing to reform a mistake term in a will

· Harmless error v. Reformation

· COMPLETELY DIFFERENT – KEEP SEPARATE

· Harmless error: can a document intended to be a will be admitted – focused on will execution issues

· Reformation: the actual language of a will and whether or not we can amend the language in the will

· Lapse: death of beneficiary before death of testator

· A DEVISE is a gift by Will of Real Property.

· A BEQUEST is a gift by Will of Personal Property.

· An INHERITANCE is a general term that applies to any transfer from a decedent, including a transfer by virtue of the intestate succession statute.

· Common law/UPC: must survive the testator by 120 hours to be entitled to take a devise – otherwise the device LAPSES (fails)

· If devisee is dead when the will is executed – devise is VOID

· Under common law: lapsed or void gift goes to residue

· Specific/general devise lapse goes to residue

· Residuary devise lapse (in whole or in part) goes intestate succession

· The Common law rule is that there is NO-RESIDUE-OF-A-RESIDUE. The failed share passes, instead, by intestate succession. (Russell) overturned in most states

· IF the devise was a CLASS GIFT and a member(s) of the class predeceases the testator, the effect is simply that there are less members of the class to divide the gift between

· Common law rules are default – testator can avoid them by providing otherwise in the will

· ANTILAPSE statutes

· Avoid lapse by designating a substitute beneficiary for the beneficiary who predeceased the testator

· Only apply where the original beneficiary was a descadenat of the testator

· UPC includes stepchildren

· The 1969 UPC § 2-605 [P. 357] Antilapse Statute applies to grandparents of the T’or and all lineal descendants of grandparents (which, of course, includes all lineal descendants of the T’or).

1. -the issue of the deceased residuary legatee would take by substitution. If the deceased residuary legatee had no issue, then that residuary gift would go to the other residuary beneficiaries.

2. Spouses are not include

· Majority rule of survivor ship: “to X is he survives me” are sufficient to preclude application of the anti-lapse statute to the gift of X.

· Class gifts

· Idea that they are taking as a group, should all have the same relationship as each other – group minded label, sharing of common characteristics and common attributes

· Default Rule is that if a devise is to a class of persons and if a member predeceases the T’or, the share that would have gone to the deceased member is simply divided among the remaining members of the class.

· Needed for a class gift:

1. Number or body of persons with common characteristics, common attribute, stand in same relation to each other

2. If amount or share uncertain until will takes effect, better evidence of “class” whereas if specific shares named, more evidence of individual bequest

· Ademption

· Applies only to specific devises, so need to differentiate different types of devises

1. Specific devise: disposition of a specific item of the testator’s property

· Extinguished by ademption if the specific item is not owned by the testator at his death testator changes testamentary plan by disposing of the certain specific item during lifetime

2. General devise: disposition which has no relationship to any particular item of testator’s property

3. Demonstrative devise: hybrid – general legacy which is to be paid, if possible, from a specific source. If specific source does not exist at testators death, or is inadequate to cover the entire legacy, its paid from other assets in the estate

4. Residuary devise: includes the portion of the testators estate noth otherwise devised by other parts of the will

· Under the identity theory of ademption, if a specifically devised item is not in the testator’s estate, the gift is extinguished. Under the intent theory of ademption, if the specifically devised item is not in the T’or’s estate, the beneficiary may nonetheless be entitled to the cash value of the item if the beneficiary can show that this is what the T’or would have wanted.

· Majority of jurisdictions follow the identity theory of ademption

· Abatement

· Whether a Will so provides or not, the executor’s first duty is to pay the T’or’s debts, including funeral expenses and the expense of administering the estate. Obviously, such payments reduce the amounts that will be transferred to the Residuary Beneficiaries.

· The principle of Abatement: if the probate estate is not adequate to cover debts, debts first come from residue, then general devises, then specific devises; within each category, the devises are proportionally reduced.

· Order of abatement

1. Residuary devise

2. General devise

3. Demonstrative devise

4. Specific devises

· Within a category, each gift/devise is abated pro rata each devise is reduced by the same percentage

· Rights of surviving spouse

· The elective share of a separate property surviving spouse

· Surviving spouse gets an elective share/forced/statuary share of the decedent's property

· Support obligation

· UPC: Elective share of surviving spouse Partnership theory of marriage

· Surviving spouse can file a notice of election

· UPC:

· The longer the marriage the greater the elective share

· Augmented estate is defined by 2-203(a) to include the sum of the decedent's net probate estate (2-204), plus the decedent's non probate transfers to others (2-205), plus the surviving spouses property and non probate transfers to others (2-207)

· the marital property portion of the augmented estate is computed by multiplying the augmented estate by a percentage that is determined by the length of the marriage under 2-203(b)

· protection against unintentional omission

· common law: premarital will revoked by marriage

· Surviving spouse as intestate share, no less than the value if the testator died intestate, intestate share can only come from probate property, UPC doesn’t want to disturb the estate plan, only allowed so much of the intestate share that isn't devised to children or grandchildren

1. If everything is devised to children or grandchildren, the spouse might be out of luck

· Exceptions:

1. It appears from the will or other evidence that the will was made in contemplation of the marriage -- it wasn’t an oversight

2. Expresses the intention to be effective notwithstanding any marriage

3. Provided for the spouse by transfer outside the will -- shown by statements or reasonably inferred

· Much more likely going to happen in a second or third marriage

· Have to look at the facts pretty closely to see what applies

· If the spouse cannot get anything through this, they would go back to the elective share

· Probate estate gets extra protection if devised to children and grandchildren

· UPC § 2-202 provides that the surviving spouse has a right to an elective share that is equal to 50% of the value of the marital-property portion of the augmented estate.

· UPC § 2-203 provides that the value of the marital-property portion of the augmented estates consists of several components multiplied by a percentage based upon the length of marriage. The components of the augmented estate include:

· The decedent’s net probate estate (UPC § 2-204)

· The decedent’s nonprobate transfer to others (UPC § 2-205)

· The decedent’s nonprobate transfers to the surviving spouse (UPC § 2-206); and

· The surviving spouse’s property and nonprobate transfers to others (UPC § 2-207)

· Steps for calculating the elective share:  

· Step 1: calculate the marital property portion of the augmented estate (UPC § 2-203)

· Step 2: multiply the marital property portion of the augmented estate in Step 1 by 50% (UPC § 2-202)

· Step 3: Identify the assets that will be used to satisfy the Elective Share to determine if the surviving spouse should actually elect  

· UPC § 2-209 requires that the elective share first come from the augmented estate §§ 2-204, 2-206, and 2-207. If there is insufficient property, then the court will look to the decedent’s non-probate transfers to others (UPC 2-205) to satisfy the elective share and ratably abate the shares of those intended beneficiaries. 

· Augmented estate consists of:

· Net probate estate

· Non-probate to others

· Non-probate transfers to surviving spouse

· The surviving spouses own property and non-probate transfers to others

· Unintentional disinheritance of child:

· Pretermitted heir statutes -- designed to prevent the unintentional disinheritance of a child

· UPC 2-302 Omitted Children

· If the testator devised the entire estate to the surviving spouse and executed the will at 2 kids, another kid later born, not what this is about

· Idea behind 2-302 is to treat an after born/adopted child, treat all children on equal footing -- the third child should be able to share in the pot left to the other children -- only that pot, not more

· If left all to surviving spouse: idea that the spouse will provide for the children

· Need a specific gift to specific children

· The new child gets an equal amount

Trusts: creation, types, and characteristics

· Creation of a trust

· Intent to create trust

· Ascertainable beneficiaries who can enforce the trust

· Specific property, the res, to be held in trust

· A writing may be required to satisfy the Wills Act or the Statute of Frauds

· Terms:

· Settlor: person who creates the trust

· Trust is created with a deed of trust in which the settlor conveys a property to another person as a trustee (the deed of trust or the trust property must be delivered to the trustee)

· Or a trust may be created by a declaration of trust in which the settlor declares himself to the be trustee of certain property

· Testamentary trust: created by will

· Beneficiaries have equitable title to the trust property, trustee has legal title

· Declaration of trust of personal property requires neither delivery nor a deed of gift – statute of frauds does require a writing for a declaration of trust of real property and the Wills Act requires writing for testamentary trust

· Creation of trust

Inter vivos

Testamentary

Creation

Declaration or deed of trust

will

Type of transfer

Non-probate (will substitute)

Probate

Revocability

Revocable or irrevocable

Irrevocable

· Necessary elements for valid trust

· 1 Creation: oral v. written (trust v. gift v. precatory language) for trust of real property, must be in writing so comply w/ Statute of Frauds

· Even though specific language not required for trust (Jimenez), must be clear intent to create trust

· 2 Settlor

· 3 Trustee (duties of T’ee - loyalty/no self-dealing; prudence; impartiality; inquiry; earmark; inform and account)

· 4 Beneficiary (are duties truly owed such that we have a valid and ascertainable B? (e.g., Clark, Searight’s Estate)

· 5 Res/Corpus (what constitutes valid Res? Unthank/earmarked property? UTATA?)

· Bifurcation of ownership

· The trust supplies managerial intermediation by separating beneficial ownership (the beneficiary) from managerial responsibility (the trustee). The extraordinary adaptability of the trust owes much to this bifurcation, and the longstanding tradition of using the trust to get around feudal taxes and other inconveniences depends on it.

· The trust is not an entity but rather a fiduciary relationship that gives the trustee separate personal and fiduciary selves for dealing with creditors (asset partitioning), and of the role of fiduciary administration in safeguarding the beneficiary from mismanagement and misappropriation by the trustee.

· A trust will not fail for a lack of a trustee – the court will appoint one

· Trustee holds legal title to trust property – Res/Corpus

· Once trustee accepts position of trustee, can be released only by consent of all beneficiaries or court order

· Duties of the trustee:

· Loyalty: no self-dealing

· Prudence: in managing the trust – investment decisions must be appropriate considering the purposes and assets of the trust and its circumstances as a whole; must diversify unless that would imprudent under the circumstances; must meet the needs of the beneficiaries

· Prudent investor rule: governs the trustee’s responsibility for oversight of the suitability of investments already made as well as the trustee’s decisions respecting new investments – facts and circumstnaces standard

· Impartiality: fairness to all classes of beneficiaries

· Other duties

· Must carry out purpose of the trust

· Trustee must keep trust property separate from non-trust property

· Good records; beneficiaries are entitled to an accounting

· Inquiry and distributions

· Notion of trusteeship

· custodial function: safe guarding

· administrative function: providing the accounting, record keeping, taxes

· investment: duty of prudence, review asserts

· distributive function: making the distributions in accordance with the trust terms

· Creditors of the trustee cannot reach the trust property

· Intent to create trust

· No particular wording, sole question is intent

· Necessity of trust property (res)

· For a trust to be valid, it needs trust property (corpus or res)

· Exception: unfunded revocable inter vivos trust that works with a pour-over will

· Trust beneficiaries

· A private trust must have 1+ ascertainable beneficiaries to whom the trustee owes fiduciary duties and who can call the trustee to account

· Charitable trust enforced by state AG

· Honorary trust

· Transferee is not under a legal obligation to carry out the trust purpose, but if she does not, she is said to hold the property on resulting trust and the property reverts to the settlor or settlor’s successors

· Statutory purpose trust

· Trusts for pets or other noncharitable purposes (provided the purpose is not capricious)

· Example: cemetery plot maintenance

· UPC 2-907

· Powers of appointment:

· Initial owner who severs the power – donor

· Person with the power to appoint – donee

1. Does not have legal title to the property – just the power to appoint

· Prospective new owners – objects

· When the done exercises the power, the prospective owners (objects) become appointees

1. Take the title from the donor, not the donee

· If the donee fails to exercise the power, property goes to default takers

· If no default takers are named, the property reverts to the donor or the donor’s estate

· Purpose, terminology, and types of powers

· The parties

1. Person who creates the power of appointment is the donor of the power

2. Person who holds the power: donee (powerholder in Uniform powers of appointment act (UPAA)

3. Persons in whose favor a power may be exercised are the objects of the power (also known as the permissible appointees)

4. When a power is exercised in favor of an object, that person becomes an appointee

5. The persons who will receive the property if a donee fails to exercise a power of appointment are the takers in default of appointment

6. The property subject to a power of appointment is the appointive property

· Creation

1. To create a power of appointment, the donor must manifest an intent to do so, either expressly or by implication

2. The terms of the instrument creating the power manifest the donors intent to create in a powerholder a power of appointment over the appointive property exercisable in favor of a permissible appointee

3. Discretion on the donee

· General and non-general powers

1. General power: power which is exercisable in favor of the donee, his estate, his creditors, or the creditors of his estate

2. Non-general powers: power not exercisable in favor the of the donee, his estate , his creditors, or the creditors of his estate

· Non-general power also known an special power or limited power

· Time and manner of exercise

1. Power of appointment may be exercisable by deed during life or by will at death

2. a power that can be exercised only by will is testamentary power

3. Power exercised by deed is inter vivos or lifetime power

4. Power is said to be presently exercisable if it may be exercised at the time in question

5. Power is postponed power if it is exercisable only upon the occurrence of a specified event, satisfaction of an ascertainable standard, or passage of a specified time.

· Three benefits of Power of Appointment:

· Flexibility: postpone and delegate decisions about who will receive future distributions of the trust property

· Tax avoidance: can be structures to avoid estate or gift tax when exercised

· Asset protection: can be structured to avoid claims by creditors of the power holder

· Equitable charge: testator devises property to a person, subject to the payment of a certain sum of money to a third person – creates a security interest in the transferred property – no fiduciary relationship

· Trust instrument needs to make it clear what property is being held in trust – complicated to rely on extrinsic evidence for that

· Resulting trust

· Property that was no expended for beneficiaries/could not be transferred to beneficiaries per the directive of the trust instrument -- goes back to the estate -- like residue

· Constructive trust

· Not a trust that has a settlor/trustee/beneficiaries -- its an equitable device, if as the result of fraud someone took under a will, and only took because of fraud, the property is held in constructive trust for the true intended beneficiaries, the person who has the property but shouldn’t, has to transfer it back to the intended beneficiaries.-- equitable device to get the property back

Non-probate transfers and planning for incapacity

· Non-probate succession: at death, property transfers either by document or law

· Revocable inter vivos trusts (RIVT)

· Life insurance

· Various types of pay on death (POD) bank accounts

· Transfer of dead (TOD) securities account

· Pension accounts, primarily of the individual account variety

· UPC expressly extended the divorce revocation statute to will substitutes

· Revocable inter vivos trusts

· Revocable trust may be created by a deed of trust whereby the settlor transfers to the trustee the property to be held in trust

· On the settlors death, the trust property is distributed or held in further trust in accordance to the terms of the trust

· Can also be created by declaration of trust whereby the settlor declares himself to the trustee of certain property for his own benefit during his life with the remainder to pass at his death in accordance with the terms of the declaration

· because the settlor retains the power (as settlor) to revoke the trust and take the property back, there is little discernable change in the settlors relation to the property during his lifetime

· UTC §603 Settlor's powers; powers of withdrawal

· (a) While a trust is revocable [and the settlor has capacity to revoke the trust], rights of the beneficiaries are subject to the control of, and the duties of the trustee are owed exclusively to, the settlor.

· (b) During the period the power may be exercised, the holder of a power of withdrawal has the rights of a settlor of a revocable trust under this section to the extent of the property subject to the power.

· The only duty the trustee owns in inter vivos trust is to settlor, not beneficiaries during the settlor’s life

· Brings together probate and non-probate estate

·

· Revoking and amending a RIVT

· UTC §602. Revocation of Amendment of Revocable Trust

· (a) Unless the terms of a trust expressly provide that the trust is irrevocable, the settlor may revoke or amend the trust. This subsection does not apply to a trust created under an instrument executed before [the effective date of this [Code]].

· (c) The settlor may revoke or amend a revocable trust:

1. (1) by substantial compliance with a method provided in the terms of the trust; or

2. (2) if the terms of the trust do not provide a method or the method provided in the terms is not expressly made exclusive, by:

· (A) a later will or codicil that expressly refers to the trust or specifically devises property that would otherwise have passed according to the terms of the trust; or

· (B) any other method manifesting clear and convincing evidence of the settlor’s intent.

· (d) Upon revocation of a revocable trust, the trustee shall deliver the trust property as the settlor directs.

· Subsidiary law of wills

· After a settlor’s death, creditors may reach the trust assets to satisfy the settlor’s debts to the extent that the settlor, during his lifetime, would have had access to those assets for his own benefit by retaining his power to amend and revoke the trust or the power to control the principal and income.

· Where a person places property in trust and reserve the right to amend and revoke, or direct disposition of principal and income, the settlor's creditors may, following the death of the settlor, reach in satisfaction of the settlor's debts to them, to the extend not satisfied by the settlor's estate, those assets owned by the trust over which the settlor had such control at the time of his death as would have enabled the settlor to use the trust assets for his own benefit

· UPC 2-804 provides for revocation to spouses by divorce by operation of law

· If a will is included in the estate plan – can bring in will stuff ^^

· RIVT in practice

· Doesn’t have to comply with formalities of UPC 2-502

· Does not go through probate

· Planning for incapacity

· Pour over will

· Revocable trust + will devising probate estate to the trustee of the trust

· Trust can be unfunded in this case

· Other will substitutes

· Life insurance

· Commonly used to insure against lost income of death of wage earner

· Term life insurance:

1. Term policy is a K that obligates the insurance company to pay the named beneficiary if the insured dies within the policy's term

2. Usually 1, 5,10,20 years

3. Some policies allow for conversion to permanent insurance at the expiration of the terms irrespective of subsequent changes in the insured's health

· Whole life insurance

1. Aka: ordinary, straight life

2. Combines life insurance with a savings plan

3. The policy eventually becomes paid up or endowed, after which no further payments are owned

4. The owner of a life insurance policy, or the beneficiary after the insured death is typically entitled to select from an array of settlement options for the receipt of death benefits

· the beneficiary of a life insurance policy may only be changed by strict compliance with the methods set forth in the policy itself.

1. There are three exceptions:

· (1) if the insurer waived strict compliance and made the change based on the insured’s request,

· (2) if the insured literally could not comply with the requirements, and

· (3) if the insured complied with the policy’s requirements but died before the change was made.

· Pay on Death (POD) and Transfer on death (TOD) contracts

· POD account, the death beneficiary has no rights during the life of the dispositor

· UPC §6-101. Nonprobate transfer on Death

1. A provision for a nonprobate transfer on death in an insurance policy, contract of employment, bond, mortgage, promissory note, certificated or uncertificated security, account agreement, custodial agreement, deposit agreement, compensation plan, pension plan, individual retirement plan, employee benefit plan, trust, conveyance, deed of gift, marital property agreement or other written instrument of a similar nature is nontestamentary (its okay it doesn’t comply with will formalities). This section includes a written provision that:

· A. money or other benefits due to, controlled by or owned by a decedent before death must be paid after the decedent's death to a person whom the decedent designates either in the instrument or in a separate writing, including a will, executed either before or at the same time as the instrument, or later;

· B. money due or to become due under the instrument ceases to be payable in the event of death of the promisee or the promisor before payment or demand; or

· C. any property controlled by or owned by the decedent before death that is the subject of the instrument passes to a person the decedent designates either in the instrument or in a separate writing, including a will, executed either before or at the same time as the instrument, or later.

· Joint account v. Agency Account:

1. Joint account:

· Common law: when established, presumed gift of $$

· UPC: proportion to the net contribution of each

Trusts: Fiduciary administration

· Bifurcation: trustee holds legal title, beneficiaries have equitable title

· Fiduciary administration -- to induce the trustee to adhere to the terms of the trust and to act prudently and in good faith in the best interests of the beneficiaries

· Three kinds of trust in practice

· Business trusts for commercial deals

· Revocable trusts for nonprobate transfers

· Irrevocable trusts for ongoing fiduciary administration

· Trustees' Powers

· Traditional law: powers limited to those granted expressly by the terms of the trust

· Modern: same as an owner

· §815: in addition to the powers conferred by the terms of the trust, by default a trustee has all powers over the trust property which an unmarried competent owner has over individually owned property plus any other powers appropriated to achieve the proper investment, management, and distribution of the trust property

· Fiduciary governance

· Duty of loyalty: proscribes misappropriation and regulates conflicts of interest by requiring the fiduciary to act in the best or even sole interest of the principal

· Administer the trust for the benefit of the beneficiaries

· Proscribing misappropriation -- no self dealing involved

1. Includes selling to spouse

· Straight bright line rule: no further inquiry

· Duty of care/prudence: prescribes the fiduciary's standard of care by establishing an objective "prudence" or "reasonable" standard in which the meaning of prudence or reasonableness is informed by industry norms and practices

· Make sure all the distributions are being followed

· Prescribing an objective standard, the things a trustee should do

· No further inquiry rule:

· If a trustee undertakes a transaction that involves a conflict between the trustee’s fiduciary capacity and personal interest, no further inquiry is made the trustee’s good faith and fairness of the transactions are irrelevant

· Defenses

1. Settlor authorized the particular conflict in the terms of the trust

2. Beneficiary consented after full disclosure

3. The trustee obtained judicial approval in advance

· Remedies for breach:

· Compensatory damages – make the trust whole again

· Disgorge the trustee any profit

Types of trust

· Mandatory Trust: directs the T to pay something to the B without any exercise of discretion. 

· E.g., “the trustee shall pay the net income of the Trust to Beneficiary in quarterly installments” or “the trustee shall pay income to Beneficiary annually” or “the trustee shall pay $1,000 to Beneficiary each month.”

· Trustee is mandated to pay something

· Creditor have resource against the trust

· Discretionary Trust: directs the T to exercise judgment in deciding what/how much to distribute. Guidance is usually included in the trust instrument, along with discretionary standards, such as “education,” “happiness,” “welfare and best interests” and the like.

·  E.g., “the trustee shall pay so much of the income and principal to B as T, in her sole discretion, decides.”

· Directs the trustee to exercise judgment, doesn’t know the needs of the beneficiaries, but trusts the trustee.

· Protection for a beneficiary from a creditor

· Support Trust: provides an ascertainable standard for the T; T has discretion to interpret the standard, but usually courts view as enough to maintain B’s accustomed standard of living. Goes beyond merely food/housing. T can be specific in trust instrument; usually not include fancy cars/vacations unless Settlor provides and/or if that is the standard of living to which B was accustomed.

·  E.g., “the trustee shall pay to the B all of the income and so much of the principal necessary for the B’s support and maintenance.”

· Trustee has discretion to interpret the standard -- usually courts say a custom standard of living

· Discretionary Support: hybrid; discretion re: support, but also “sole” discretion for additional payments 

· E.g,, “the trustee shall pay to the B as much of the principal the trustee determines necessary for the B’s support and may further use her discretion to make additional distributions of principal.”

· Idea that there is discretion to help pay for health/education/welfare and also the discretion to make extra support payments

· UTC and Restatement collapse the distinction between discretionary and support trusts – its all discretionary to them

·  Spendthrift: a clause in the trust that prevents both voluntary and involuntary alienation of interests by the B 

· E.g., “No B shall have any right to anticipate, sell, assign, mortgage, pledge or otherwise dispose of or encumber all or any part of any trust established for her or his benefit. No part of the trust, including income, shall be liable for the debts or obligations of any beneficiary or be subject to attachment, garnishment, execution, creditor’s bill or other legal or equitable process.”

The custodial and Administrative Functions

· Custodial function: taking title and custody of the trust property and properly safeguarding it

· Administrative function: includes record keeping, bringing and defending claims held in trust, accounting and giving info to the beneficiaries, and making tax and other required findings

· Duty to collect and protect trust property

· Without unreasonable delay

· Make sure its insured

· Duty to earmark trust property – very similar to the duty not to co-mingle trust funds

· Keep separate from trustee's own property

· Trust name should be referenced

· Personal creditors should not be able to reach trust

· Duty not to mingle trust funds with trustee's own

· Duty to keep adequate records of administration

· Duty to bring and defend claims

· Duty of impartiality

· Due regard and the terms of the trust

· Requires trustee to give due regard to the beneficiaries’ respective interests as defined by the settlor in terms of the trust

· Impartial does not mean equal: one beneficiary might have greater needs than the other –requires that the trustee looks into the interests of the beneficiaries

· Define:

· Income:

· Principal beneficiary:

· Remainder beneficiaries:

Trusts: Alienation and Modification

· By making a gift in trust rather than outright, a settlor ensures that the property will be managed and distributed in accordance with his wishes as expressed in the terms of the trust in spite of any contrary wishes of the beneficiaries

· Restraint on alienation of a beneficial interest

· Common law jurisdictions: beneficiary of a discretionary tryst cannot alienate his beneficial interest

· Credit cannot compel the trustee to make a distribution

· Only 2 grounds for modifying or terminating a trust without the settlor's consent:

· By consent of all the beneficiaries if the modification or termination is not contrary to a material purpose of the settlor --the Claflin Doctrine

· Changed circumstances not anticipated by the settlor that would defeat or substantially impair the accomplishment of the purposes of the trust -- the equitable deviation doctrine

· Trust decanting: trustee who has a discretionary power to distribute the trust property uses that power to distribute the property to a new trust with revised terms

· Trustee removal

· Traditional law: needed a breach of trust

· Modern: easier

· Alienation of the beneficial interest

· Discretionary trust: most instances, creditor doesn’t have access to trust

· Spendthrift trust: creditor who potentially had resource against mandatory and maybe discretionary, now is completely out of luck

· Hamilton order:

· enables the creditor to be paid before the beneficiary if the trustee decides to make a distribution

· Discretionary

· Trustee is not supposed to circumvent a Hamilton order

· Common law approach

· § 502. Spendthrift provision.

· (a) A spendthrift provision is valid only if it restrains both voluntary and involuntary transfer of a beneficiary’s interest.

· (b) A term of a trust providing that the interest of a beneficiary is held subject to a “spendthrift trust,” or words of similar import, is sufficient to restrain both voluntary and involuntary transfer of the beneficiary’s interest.

· (c) A beneficiary may not transfer an interest in a trust in violation of a valid spendthrift provision and, except as otherwise provided in this [article], a creditor or assignee of the beneficiary may not reach the interest or a distribution by the trustee before its receipt by the beneficiary.

·  

· § 503. Exceptions to spendthrift provision.

· (a) In this section, “child” includes any person for whom an order or judgment for child support has been entered in this or another State.

· (b) A spendthrift provision is unenforceable against:

· (1) a beneficiary’s child, spouse, or former spouse who has a judgment or court order against the beneficiary for support or maintenance;

· (2) a judgment creditor who has provided services for the protection of a beneficiary’s interest in the trust; and

· (3) a claim of this State or the United States to the extent a statute of this State or federal law so provides.

· (c) A claimant against which a spendthrift provision cannot be enforced may obtain from a court an order attaching present or future distributions to or for the benefit of the beneficiary. The court may limit the award to such relief as is appropriate under the circumstances.

· No tort exceptions for spendthrift (unless you’re in Georgia)

· Self-settled asset protection trusts

· Person cannot shield assets from creditors by placing them in a trust for their own benefit

· Against public policy to permit a settlor-beneficiary to tie up their own assets in a way that prevents creditors from reaching it, but allows their use

· Statutory reforms:

· Discretionary and support trusts are combined

· UTC § 504(b) establishes the general rule that forbids a Creditor from compelling a distribution, even if the T has failed to comply with the standard of distribution or has abused discretion.

· UTC § 504 (c) allows a child or spouse or former spouse to claim that T has abused discretion or failed to comply with standard of distribution and can enforce a court order for unpaid support or maintenance. So, keep in mind a family court has already determined that someone owes child or spousal support and now that judgment or order is being enforced. The court then directs T to pay child or spouse as equitable under the circumstances, but not in excess of the amount the T was otherwise required to distribute to or for the benefit of the B.

· Spendthrift trusts and the UTC

· UTC § 502 validates spendthrift trusts

· UTC § 503 makes special exceptions for 3 categories of creditors: 1) child/spouse; 2) judgment creditor who has provided services for the protection of the B’s interest in trust (i.e., attorney!); and 3) state or fed’l gov’t claim

· -§ 503 (b)(1) permits a creditor to attach present or future distributions that would otherwise be made to the B. These include mandatory payments or distributions the T has decided to make through an exercise of discretion. It DOES NOT authorize the child or spousal creditor to compel a distribution from the trust where T has abused discretion or failed to comply with a standard for distribution; for that, use § 504.

· There is no Hamilton order with spendthrift – designed to shield from creditors

· Hamilton order has to do with discretionary payments

· Spendthrift clause (503) will not apply to prevent: former spouse/child/individual who helps protect trust asset/government creditos

· Modification and termination of trusts

· Under the Claflin doctrine, if all of the beneficiaries agree, they may compel a modification or termination of an irrevocable trust if not contrary to a material purpose of the settlor.

· What is a material purpose? 1) spendthrift clauses, 2) discretionary provisions (whether pure or support), 3) support, and 4) postponed enjoyment

· Codified at UTC § 411

· NOTE: while the UTC drafters suggested that spendthrift clauses are not a material purpose per se, no state has adopted that provision and currently, a spendthrift clause remains a material purpose.

· By consent of all the beneficiaries if the modification or termination is not contrary to a material purpose of the settlor -- Claflin doctrine

1. All beneficiaries have to agree and it cannot be contrary to the material purpose of the settlor

· Material purpose:

· Spendthrift clause

· Discretionary purposes

· Support

· Postponed enjoyment

· Changed circumstances not anticipated by the settlor that would defeat or substantially impair the accomplishment of the purpose of the trust --equitable deviation doctrine

· Claflin Doctrine -- a trust cannot be terminated or modified on petition of all the beneficiaries if doing so would be contrary to a material purpose of the settlor.

1. If continuance of a trust without change is necessary to carry out a material purpose of the settlor, the beneficiaries cannot compel modifications or termination.

2. The material purpose rule safeguards the settlor's freedom of disposition; the beneficiaries cannot overcome a material purpose of the settlor.

3. A trust cannot be terminated if (1) it is a spendthrift trust (2) the beneficiary is not to receive the principal until attaining a specified age (that is, enjoyment is postponed), (3) is it a discretionary trust, or (4) is it a trust for support of the beneficiary

· § 411. Modification or termination of noncharitable irrevocable trust by consent.

1. [(a) [A noncharitable irrevocable trust may be modified or terminated upon consent of the settlor and all beneficiaries, even if the modification or termination is inconsistent with a material purpose of the trust.] [If, upon petition, the court finds that the settlor and all beneficiaries consent to the modification or termination of a noncharitable irrevocable trust, the court shall approve the modification or termination even if the modification or termination is inconsistent with a material purpose of the trust.] A settlor’s power to consent to a trust’s modification or termination may be exercised by an agent under a power of attorney only to the extent expressly authorized by the power of attorney or the terms of the trust; by the settlor’s [conservator] with the approval of the court supervising the [conservatorship] if an agent is not so authorized; or by the settlor’s [guardian] with the approval of the court supervising the [guardianship] if an agent is not so authorized and a conservator has not been appointed. [This subsection does not apply to irrevocable trusts created before or to revocable trusts that become irrevocable before [the effective date of this [Code] [amendment].]]

2. (b) A noncharitable irrevocable trust may be terminated upon consent of all of the beneficiaries if the court concludes that continuance of the trust is not necessary to achieve any material purpose of the trust. A noncharitable irrevocable trust may be modified upon consent of all of the beneficiaries if the court concludes that modification is not inconsistent with a material purpose of the trust.

3. [(c) A spendthrift provision in the terms of the trust is not presumed to constitute a material purpose of the trust.] bracketed = even the UTC knew it would be super unpopular -- no one has adopted -- spendthrift clause IS A MATERIAL PURPOSE

4. (d) Upon termination of a trust under subsection (a) or (b), the trustee shall distribute the trust property as agreed by the beneficiaries.

5. (e) If not all of the beneficiaries consent to a proposed modification or termination of the trust under subsection (a) or (b), the modification or termination may be approved by the court if the court is satisfied that:

· (1) if all of the beneficiaries had consented, the trust could have been modified or terminated under this section; and

· (2) the interests of a beneficiary who does not consent will be adequately protected.

· EQUITABLE DEVIATION:

· Traditional law: under equitable deviation doctrine, a court will permit a trustee to deviate from the administrative terms of a trust if compliance would defeat or substantially impair the accomplishment of the purposes of the trust in light of changed circumstances not anticipated by the settlor

1. Not enough to show the deviation would be advantageous to the beneficiaries

2. Proposed deviation must be necessary to accomplish a purpose of the trust

· CL: Under the deviation doctrine, a court may authorize a trustee to deviate from a term of the trust if, owing to changed circumstances, adherence would frustrate accomplishment of the purpose of the trust.

· UTC: Under the UTC § 412, deviation is available for administrative and dispositive provisions, and the threshold is lowered to a showing that deviation would “further the purposes of the trust” in light of changed circumstances.

· Pursuant to equitable deviation, a court can authorize a wide range of administrative revisions (provisions addressing the operation of the trust) such as: 1) changing the trustee; 2) permitting the trustee to perform acts that are not authorized or are forbidden by the trust instrument; 3) prohibiting the trustee from performing acts that the settlor mandated in the trust instrument; 4) modifying the terms of the trust; and 5) terminating the trust.

· In recent years and in accordance with UTC § 412, courts are increasingly willing to exercise their power of deviation over dispositive provisions (provisions addressing distributions), e.g., increasing the support to a beneficiary.

· Usually trustee driven

· § 412. Modification or termination because of unanticipated circumstances or inability to administer trust effectively.

· (a) The court may modify the administrative or dispositive terms of a trust or terminate the trust if, because of circumstances not anticipated by the settlor, modification or termination will further the purposes of the trust. To the extent practicable, the modification must be made in accordance with the settlor’s probable intention.

· (b) The court may modify the administrative terms of a trust if continuation of the trust on its existing terms would be impracticable or wasteful or impair the trust’s administration.

· (c) Upon termination of a trust under this section, the trustee shall distribute the trust property in a man

2. Different from the Claflin doctrine, here the purpose of ED is to try and make the trust work better -- give the trustee greater authority to modify investments

· Trustee removal

· Traditionally for a breach of trust

· Modern law: more freely granted, effectively as a modification of the trust, sometimes in circumstances that reveal a tension between intent of the settlor and wishes of the beneficiary

· § 706. Removal of trustee.

· (a) The settlor, a cotrustee, or a beneficiary may request the court to remove a trustee, or a trustee may be removed by the court on its own initiative.

· (b) The court may remove a trustee if:

1. (1) the trustee has committed a serious breach of trust;

2. (2) lack of cooperation among cotrustees substantially impairs the administration of the trust;

3. (3) because of unfitness, unwillingness, or persistent failure of the trustee to administer the trust effectively, the court determines that removal of the trustee best serves the interests of the beneficiaries; or

4. (4) there has been a substantial change of circumstances or removal is requested by all of the qualified beneficiaries, the court finds that removal of the trustee best serves the interests of all of the beneficiaries and is not inconsistent with a material purpose of the trust, and a suitable cotrustee or successor trustee is available.

· (c) Pending a final decision on a request to remove a trustee, or in lieu of or in addition to removing a trustee, the court may order such appropriate relief under Section 1001(b) as may be necessary to protect the trust property or the interests of the beneficiaries.

· Charitable trusts

· For a charitable purpose (compared to an ascertainable beneficiary)

· State AG enforces the trust

· Exempt from the rule against perpetuities

· More freely modified

· 6 things a charitable trust can be (purpose)

· Relief of poverty

· The advancement of education

· The advancement of religion

· Promotion of health

· Governmental or municipal purposes

· Other purposes the accomplishment of which is beneficial to the community.

· Modification for charitable trusts

· Historically: applied if the if the exact purpose is illegal, impossible, impractical but the settlor had general charitable intent

· Now: will apply Cy Pres if impossible, illegal, impractical, or wasteful

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