Wills Outline JiJi

Professor Torielli Wills, Trusts, and Estates Outline 1

Wills, Trusts, and Estates OUTLINEI. WILLS AS A SUBJECT

A. The Law of Wills:

1. There is no federal code; statutes and common law determine the law of wills.2. Michigan’s version of the Uniform Probate Code is called Estate and Protected

Individual Code (EPIC), and is very typical.3. What law applies? In general, the law that is applied to the decedent’s estate is the

law of the state where the decedent was domiciled at the time of death.

B. Four Underlying Principles Relating to Estate Distribution:

1. Courts like to give deference to a property owner’s intent; courts want to honor the property owner’s intent because the property owner has rights (within limits).

a. Money cannot be left in a will for an unlawful purpose.b. Property owners cannot violate public policy.c. Eyerman v. Merchantile Trust Case:

i. Facts: Decedent’s will says to tear down the house and sell the land (with no reason left in the will).

ii. Holding: This is against public policy. Rights of the decedent are balanced against public policy to not leave a gap in the neighborhood and depreciate adjoining property values. It is a waste of an asset, with no apparent good to come out of it. If decedent provided a reason for her intent, the outcome may have been different.

iii. Definition of Public Policy: We will know it when we see it; it contradicts the morals of the time. Examples would include something that is arbitrary and capricious OR wasting of an asset with no good reason.

iv. General Rule: Courts will allow a deceased person to direct their property in death; if they can direct the property in life, they can do it in death. Courts will defer to a decedent’s intent in terms of where they want their property to go after death.

v. Exception – Public Policy Exception: If it goes against public policy (i.e. illegal, unconstitutional, or some other reason backed up by statute, case law, etc.), decedent’s intent is against public policy and will not be honored.

vi. Note: While living, a person may manage, use, or dispose of his property with fewer restraints than a decedent by will; the transfer of property in life is more broad; there are more restrictions in death.

2. The decedent is not available to testify (dead), so there is no expert on his/her intent, i.e. no expert to tell the court what the decedent intended.

a. Courts are suspicious of oral testimony of testator’s intent.

3. Courts will consider other reliable evidence to determine D’s intent.a. The court must rely upon reliable evidence to determine what a person’s intent

is.i. The most reliable evidence is a person’s will.

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ii. Beyond that, the court may look outside the will for additional evidence in certain situations.

4. When there is no reliable evidence or the court doesn’t feel confident due to ambiguity in the will, then the court has to make presumptions. The presumptions will be based on statutes or common law.

C. Property and Property Rights:

1. Types of Property:a. Personal Property (two types):

i. Tangible Property: Car, Clothing, I-Pod, Computerii. Intangible Property: Bank Accounts, Patent Rights, Contract Rights,

Retirement Plans, Life Insurance.b. Real Property: House, Condo

2. Rights to Property:a. Sell itb. Give it awayc. Difference between a person’s ability to control disposition and use of

property intent in life and after death:i. In death, you are more restricted on how you can handle your property.

ii. If you have not designated a beneficiary, the state will step in via the laws of intestacy.

II. BASIC TERMINOLOGY

A. Probate:1. Definition: The process of “proving” a will, or having it declared valid and effective

following the death of the testator2. Other Names for It: Testacy Proceeding.3. EPIC 1107(k): A testacy proceeding is a proceeding to establish a will or determine

intestacy.

B. Personal Representative:1. Definition: The person appointed by the probate court to administer the estate of a

decedent; it is the executor of a will or administrator of an intestate estate. In other words, the personal representative is assigned to stand in the place of the decedent.

2. Duties: The personal representative collects and inventories the estate’s assets, invests or manages them to the extent necessary, gives all required notices to interested parties, sees that taxes are paid and creditor’s claims are satisfied or rejected, and distributes the remaining assets to legatees or heirs.

3. EPIC 1106(n): “Personal representative” includes, but is not limited to, an executor, administrator, successor personal representative, and special personal representative, and any other person who performs substantially the same function under the law governing that person’s status.

C. Estate:

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1. Definition: Either the total property of a decedent that passes by will or intestate succession, or the nature and extent of an interest in real or personal property. In other words, it is all the property the decedent owns and has a right to at the time of death.

2. Note: The estate does not necessarily encompass all the property that passes at the testator’s death; usually only the probate estate is included. It thus excludes so-called non-probate assets, such as life insurance proceeds and property held in joint tenancy.

3. EPIC 1104(b): “Estate” includes the property of the decedent, trust, or other person whose affairs are subject to this act as the property is originally constituted and as it exists throughout administration.

4. EPIC 1106(s), Property: “Property” means anything that may be the subject of ownership, and includes both real and personal property or an interest in real or personal property.

D. Distributable (Net) Estate:1. Definition: The amount that is available for distribution after any bills or priority

claims are paid; you start with the gross estate and subtract any priorities to get the net estate.

E. Testate (Testacy):1. Definition: To die testate means that the decedent has died leaving a will.

F. Testator:1. Definition: A testator is a person who has died leaving a valid will. The term is

used also to refer to one who has executed a will but is still alive.2. Note: A decedent is a person who dies, and whether they are also a testator depends

on whether they left a will or not.3. EPIC 1107(l): “Testator” includes an individual of either sex.

G. Will:1. Definition: A will is an instrument or declaration by which one directs the

disposition of one’s property after death; document that attempts to distribute an estate.

a. Note: A will is, by definition, ambulatory, or subject to change until the death of the testator.

2. Other Names for It: Testament3. EPIC 1108(b): “Will” includes, but is not limited to, a codicil and a testamentary

instrument that appoints a personal representative, revokes or revises another will, nominates a guardian, or expressly excludes or limits the right of an individual or class to succeed to the decedent’s property that is passing by intestate succession.

H. Devise (Devisee):1. Definition of Devise: A devise is a gift of real property under a will.

a. Bequest: A gift of personal property under a will, which is also known as a legacy.

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2. Definition of Devisee: A devisee is a will beneficiary, who receives a gift of real property or other benefit under a will or trust.

a. Legatee: A legatee is a will beneficiary, who receives a gift/bequest of personal property under a will or trust.

3. EPIC 1103(m): “Devise” means, when used as a noun, a testamentary disposition of real or personal property and, when used as a verb, to dispose of real or personal property by will.

4. EPIC 1103(n): “Devisee” means a person designated in a will to receive a devise. For the purposes of article II, for a devise to a trustee of an existing trust or to a trustee under a will, the trustee is a devisee and a beneficiary is not.

I. Intestate (Intestacy):1. Definition of Intestate: To die intestate means to die without a valid will.2. Definition of Intestacy (Intestate Succession): Intestacy refers to the passage at

death of the property of a person who has died without a valid will.3. Note: The rules of intestate succession (or intestacy) are set out in each state’s

probate code. Intestacy laws provide a statutory estate plan, generally intended to pass property as the average intestate would have wished.

4. EPIC 2101(1): Any part of a decedent’s estate not effectively disposed of by will passes by intestate succession to the decedent’s heirs as prescribed in this act, except as modified by the decedent’s will.

J. Decedent:1. Definition: A decedent is a person who has died without a will, i.e. a person who

died intestate.a. Deceased: A person who dies with a will or where it is unsure if they have a

will.

K. Heir:1. Definition: An heir is a person who is entitled to another’s real property by intestate

succession; take under the laws of intestacy where there is no will or the property is not included in the will.

2. Note: Those entitled to another’s personal property are the intestate’s distributes or next-of-kin.

a. Michigan does not make the distinction between real and personal property; many modern statutes use the term “heir” to designate the intestate takers of any type of property.

3. EPIC 1104(m): “Heir” means, except as controlled by 2720, a person, including the surviving spouse or the state, that is entitled under the statutes of intestate succession to a decedent’s property.

a. Note: The “heirs” must survive the decedent in order to take under the laws of intestacy.

4. Heir Presumptive: A person who would inherit from another if the latter died intestate; this is what the heir is called when the decedent is still alive.

5. Heir Apparent: One who certainly will inherit when and if another dies intestate, needing only to survive the intestate.

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L. Descendant/Issue:

1. Definition: Issue refers to a person’s descendants, consisting of one’s children, grandchildren, and so forth down through later generations; descending line.

2. Note: Issue never includes relations by marriage, although it does include adopted and illegitimate descendants.

a. Also Note: There is a difference between heirs and issue because a spouse can be an heir, but not an issue.

3. EPIC 1103(m): Descendant means, in relation to an individual, all of his/her descendants of all generations, with relationship of parent and child at each generation being determined by the definitions of child and parent contained in this act.

M. Ancestors:

1. Definition: An ancestor is a person’s parents, grandparents, and so forth up through prior generations, i.e. up the line.

2. Note: A person related to another only by marriage is not considered an ancestor.

III. PROBATE PROCESS: HOW DOES IT WORK?

A. Step One: Person dies.1. At the moment of death, property passes.2. Look for a will.3. If there is a will, the person who dies is a testator. If there is no will, the person who

dies is a decedent.

B. Step Two: The person who wants the process to move along will file the death certificate with the court.

1. If there is a document believed to be a will, this is filed with the court as well.

C. Step Three: The court must determine who the personal representative of the estate will be.

1. Will: EPIC tells us to first look to the will to see if a person has been designated. If the will designates a personal representative, that person becomes the personal representative.2. No Will or Will with No Specification: If the person dies intestate or the will doesn’t assign a person, there is a list of priority relatives that the courts like to use, and the judge will appoint a person (fiduciary person).

a. The preference list starts with a spouse, and then other family members.b. If there are no family members in the will, the court will pick someone, i.e. a public

administrator.

D. Step Four: Administration:

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1. Definition: Administration is the process of collecting, managing, and distributing the property of a decedent in accordance with the terms of the decedent’s will or the intestacy statutes.

2. Administration is carried out by the personal representative, who acts in a fiduciary capacity.

3. The administration process generally begins with appointment of the personal representative and ends with a final decree of distribution.

4. Letters of Administration: This is the formal documentations issued by a probate court to signify that a person has been appointed the administrator of an estate and giving the administrator the powers that accompany that office.

5. Court Supervision: The extent the court supervises the administrative process depends on whether it is a formal or informal administration (which can be specified in the will):a. Formal Administration: The court supervises everything; very expensive,b. Informal Administration: Basically, the court checks in at the end; less expensive.

6. Length of Administration Process: It usually takes a long time.a. Find All the Property: The personal representative must find and collect all of the

decedent’s property and determine what’s in the estate and what’s not (refer to step 5 and 6).

b. Ancillary Proceeding: Some property may be in another state, and the state where decedent died doesn’t have jurisdiction over it, so the other state will be provided the letters of administration, and the property will be collected.

c. Paying Bills: The personal representative has to pay the decedent’s bills out of the estate. For known creditors, send them a formal letter and pay the bill. For unknown creditors, post a notice in the newspaper telling everyone they have 4 months to make a claim for money owed to them. If they don’t file a claim within the time period, they lose their chance to collect.

d. Pay Estate Taxese. Render an Accounting: Lay out the assets and the debts; with whatever is left, it

must be determined who it goes to.

E. Step Five: What Goes into the Estate?1. Gross Estate: The estate includes anything that is owned by the decedent at the time

of death.2. Probate Estate: The probate estate does not include ALL the property that passes at

the testator’s death.a. Non-Probate Assets are not part of the probate estate, i.e. life insurance

proceeds, property held with survivorship, like a joint tenancy or tenancy by the entirety.

3. Refer to Problems 1 and 2 from Class One for examples of what goes in and what stays out of the probate estate.

F. Step Six: Will Substitutes (non-probate assets) – What Does NOT Go into the Estate?

1. Right of Survivorship, i.e. joint tenancy or tenancy in the entirety.a. Your right extinguishes when you die, and it goes to the other person.b. This never comes into the estate.

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c. Times you will see this is with real property and bank accounts.2. Death Benefit and Life Insurance Policy:

a. If the death benefit is payable to someone other than the deceased or the estate, it is NOT part of the probate estate.

3. Retirement Account/Plans:a. If you designate another person (not your estate) as a beneficiary, it won’t end up in

the probate estate.b. An example is an employment benefit or IRA with a named beneficiary.

4. Revocable Trusts:a. People usually create trusts for the purpose of keeping it out of the probate estate; it

is out of the eye of the public and serves as a will substitute.b. Where you put your property in a trust but retain the right to revoke, a completed

gift has not been made. Because you have the right to revoke, you have a reverter interest and the thought is that once you die, your right to revoke is extinguished and therefore the property is erased from your probate estate for probate purposes.

5. Inter Vivos Gifts: a. Anything you give away during your life is not part of the probate estate because

you no longer own it when you die.6. Gift Causa Mortis:

a. Gift causa mortis is not a will substitute, but acts like one because it takes the property out of the probate court.

b. Definition: A gift causa mortis is a gift made in contemplation of death that is revocable until the death of the donor and is automatically revoked (or remains revocable) upon recovery.

c. Elements: Note that it is the fourth element which makes it different from a regular, valid gift.i. Donative Intent: Intent to make a gift

ii. Delivery Actual or Constructive

iii. Donee Acceptance: In most cases, it is presumed, but it’s still a required element.

iv. Made in Contemplation of Death: (1) Must have fear of IMMINENT death AND (2) Must die from the very thing that was feared.

v. The gift will be enforced if the 4 above elements are met AND there is clear and convincing evidence.

d. In re Van Wormer’s Estate:i. Facts: Decedent suffered from depression and killed himself. Decedent feared imminent death

of suicide and gave stock to brother, money to mother, and a will leaving everything to his children. A broker (non-interested party) testified to this set up.

ii. Holding: Court said that this looked like decedent had a plan; clear and convincing evidence of donative intent, constructive delivery, implied acceptance, fear of imminent death, and dying from the fear.

iii. Note: Courts generally dislike taking testimony regarding intent and usually defer to the valid, written will as opposed to other language. But, the court will sometimes take into consideration the wishes of the decedent.

e. Refer to Class One Problems, number 3.

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G. Step Seven: Payment of Claims: The following statutes tell us what gets paid out and in what order.

1. EPIC 3805 – Creditor’s Claims: If the applicable estate property is insufficient to pay all claims and allowances in full, the personal representative shall make payment in the following order of priority (each level is paid in full before you move to the next level):

a. Costs and expenses of administrationi. Court fees, legal fees, accountant, etc. This ensures that someone will make this

process happen.b. Reasonable funeral and burial expensesc. Homestead allowance

i. Protection for the immediate family; for support of dependent surviving spouse and/or minor children.

d. Family allowancei. For support of dependent surviving spouse and minor children, up to $18,000

annually. e. Exempt property

i. For surviving spouse and/or children, $10,000 net encumbrances. f. Debts and taxes with priority under federal lawg. Reasonable and necessary medical and hospital expenses of the decedent’s last

illness, including a compensation of persons attending the decedent.h. Debts and taxes with priority under other laws of this state.i. All other claims.

i. Creditor’s get paid before the devisees/heirs get any money.ii. Examples: Visa bill, judgment from successful lawsuit.

Note: Refer to Class One Problems, number 4. Note: The remainder is distributable (net) estate.

Note: A preference shall not be given in the payment of a claim over another claim of the same class, and a claim due and payable is not entitled to a preference over a claim that is not due. For example, if there are three people in one class, and only $30,000, each would get 1/3 ($10,000). Note: Even if a trust is not in your probate estate for division to devisees, it may be pulled in to cover unpaid costs, i.e. cover the deficiency through 7501. 2. EPIC 7501 – Claims Against a Decedent’s Revocable Trust:

a. The property of a trust where settlor has given himself the right to revoke the trust is subject to all of the following, BUT ONLY to the extent that the settlor’s property subject to probate administration is insufficient to satisfy the following expenses, claims, and allowances: i. The administration expenses of the settlor’s estate

ii. An enforceable and timely presented claim of a creditor of the settlor, including a claim for the settlor’s funeral and burial expenses

iii. Homestead, family, and exempt property allowances

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IV. INTESTACY

A. When Does Intestacy Apply?

1. EPIC 2101: a. Any part of the decedent’s estate not effectively disposed of by a will passes by

intestate succession to the decedent’s heirs as prescribed in this act, UNLESS modified under the decedent’s will.

b. The law will distribute to the appropriate people under intestacy, unless there is a negative bequest.i. A negative bequest allows a person to disinherit a person who would normally

inherit under the laws of intestacy.

2. Situations Where Intestacy is Applied:a. No willb. Will that doesn’t pass all the property (which can be avoided by adding a residuary

clause)c. Some part of the will is deemed effectived. Negative bequest

3. Purpose: The state legislature has determined what the average person would have wanted to do with their estate if they died.

4. Refer to Class One Problems, number 5.

B. Who Takes Under Intestacy?

1. Introduction: Usually, when a person dies, they would want their spouse and children to have their estate. However, when there is no spouse or children, there are other family members, like parents, brothers, and sisters, etc.

2. EPIC 2104: An individual heir who fails to survive the decedent by 120 hours is considered to have predeceased the decedent for purposes of homestead allowance, exempt property, and intestate succession.

a. Using clear and convincing evidence, it must be shown that the heir survived the decedent by 120 hours. If this cannot be shown, the individual will be considered to have failed to survive for the required period, EPIC 2702(1).

b. Note: You can put a longer or shorter survival period in your will.c. EPIC 2108: An individual in gestation at a particular time is treated as living at that

time if the individual lives 120 hours or more after birth. Example: Your wife is pregnant and then you die. This unborn child or yours is a descendant

and if they live 120 hours after birth, they are treated as if they were alive at the time, and can inherit under intestacy.

3. EPIC 2103: Any part of the intestate estate that does not pass to the decedent’s surviving spouse, or the entire intestate estate if there is no surviving spouse, passes in the following order to the following individuals who survive the decedent:

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a. The decedent’s descendants by representation.b. If there is no surviving descendant, the decedent’s parents equally if both survive or

to the surviving parent.c. If there is no surviving descendant or parent, the descendants of the decedent’s

parents or of either of them by representation.d. If none of the above, but the decedent is survived by one or more grandparents or

descendants of grandparents, ½ of the estate passes to the paternal grandparents equally if both are alive (or their descendants); and the other ½ passes to the maternal relatives in the same manner.

4. Spouse:a. Presumption: The decedent wants the biggest part of their estate to go to their

spouse.b. Who/What is a Spouse? This question is determined by the state’s marriage laws.c. EPIC 2801:

If you are married to the decedent at the time of death, you are a spouse. To not be a spouse, you must have divorced or annulled the marriage. A surviving spouse does NOT include any of the following:

o (a) An individual who obtains or consents to a final decree or judgment of divorce or annulment from the decedent, which is not recognized as valid in this state;

o (b) An individual who, at the time of decedent’s death, is living in a bigamous relationship;

o (c) An individual who did any of the following for 1 year or more before the death of the deceased person:

(1) Was willfully absent from the decedent spouse, (2) Deserted the decedent spouse, OR (3) Willfully neglected or refused to provide support for the decedent

spouse if required to do so by law.o Why? But for money/property, you want a divorce from this person.

5. EPIC 2107: A relative of the half blood inherits the same share he or she would inherit if he or she were of the whole blood.

a. Half-Blood? A person is of half blood where they have one natural parent in common. Half bloods are treated as though they are fully related in terms of family.

b. EPIC 1103(f): Step-Children? A stepchild is not a child for the purposes of inheriting from

you under the laws of intestacy. Natural Children? Under the statute, children include natural children. Foster Children? A foster child is NOT a child for the purposes of inheriting

from you under the laws of intestacy. Adopted Children? The legislature would think that you want them to be

treated like your natural children; therefore, adopted children will be included in the line of descendants.

C. How Much Do They Take Under Intestacy?

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1. EPIC 2102 – Spouse’s Share: 2102 prescribes the portion of the distributable estate which goes to the surviving spouse. The intestate share of a decedent’s surviving spouse is 1 of the following:

a. The entire intestate estate if no descendant or parent of the decedent survives the decedent.

b. The first $150,000 + ½ of what’s left from the intestate estate, if all of the decedent’s surviving descendants are also descendants of the surviving spouse and there is no other descendant of the surviving spouse who survives the decedent.

c. The first $150,000 + ¾ of what’s left from the intestate estate, if no descendant of the decedent survives the decedent, but a parent of the decedent survives the decedent.

d. The first $150,000 + ½ of what’s left from the intestate estate, if all of the decedent’s surviving descendants are also descendants of the surviving spouse and the surviving spouse has 1 or more surviving descendants who are not descendants of the decedent.

e. The first $150,000 + ½ of what’s left from the intestate estate, if 1 or more, but not all, of the decedent’s surviving descendants are not descendants of the surviving spouse.

f. The first $100,000 + ½ of what’s left from the intestate estate, if none of the decedent’s surviving descendants are descendants of the surviving spouse.

2. Refer to Class One Problems, number 6.

D. Who Gets the Intestate Estate?1. EPIC 2103 – Priority of Who Takes:

a. Surviving Spouseb. Decedent’s descendants by representationc. Decedent’s parents equally if both survive or to the surviving parentd. Descendants of the decedent’s parents or of either of them by representatione. If decedent is survived by 1 or more grandparent or descendants of grandparents, ½

of the estate to the paternal side and the other half to the maternal side. The descendants take by representation. If there is no one left on one side, one of two things will happen:

o It goes over to the other side and gets evenly split up, ORo EPIC 2105: The intestate estate escheats to the State if there are no

descendants of the grandparents.o You have to look at the statutes to determine which one will occur.

2. Take “By Representation”a. In a system where certain property is divided up, it is the right of a person to take a

share of an estate that a predeceased ancestor would have taken (to represent the ancestor).

b. Example: D dies and has A, B, and C as children, but C is dead, with children G1 and G2. When G1 and G2 take C’s share of the estate, they are taking it through representation.

c. Note: None of the debts of the person above the person taking by representation come out of the estate.

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3. Types of Representation Systems for Descendants of the Decedent:

a. General Information: Stocks and Generations:

o Generation: All the descendants in a horizontal rowo Roots/Stems: Family lines; A and A’s children are one stem.o Root Generation: Generation closest to the deceased.

If the decedent’s estate passes by representation to the decedent’s descendants, the estate is divided into equal shares. Each surviving descendant in the generation nearest to the decedent that has 1 or more surviving descendants gets to take equally. The remaining shares are divided among the surviving descendants.

Identify the Root Generation: The root generation is the generation (horizontal) closest to the decedent when one is still alive; count the number of survivors in that generation.

b. Three Schemes of Intestate Succession: (1) (Pure) Per Stirpes System:

o Definition: Per Stirpes is a system of representation whereby descendants of a deceased taker of a share of an estate receive their ancestor’s share.

o Root Generation: Always the first generation.o Number of Primary Shares in Root Generation: Total of (1) actual

survivors in the root generation PLUS (2) predeceased persons who left surviving descendants.

o Recombine “Unused” Primary Shares? NO.o Example: I died, having three children, A, B, and C. Only B survived her, but A left

child D, and C left, children E and F. If the surviving issue were to take per stirpes, B and D would each take 1/3 of the estate, and E and F would each take 1/6.

(2) (Pure) Per Capita System:o Definition: Per Capita is a scheme of distribution of an estate whereby all

individuals of the relevant status take equal shares. It’s a counting of heads, where each taker takes the same amount.

o Example: I died, having three children, A, B, and C. Only B survived her, but A left child D, and C left, children E and F. If the surviving issue were to take per capita, I’s estate would be divided 4 ways, regardless of generation.

(3) Per Capita With Per Capita Representation (Old UPC):o Definition: Mixture of Per Stirpes and Per Capitao Root Generation: First generation with at least one actual survivoro Number of Primary Shares in Root Generation: Total of (1) actual


o Recombine “Unused” Primary Shares? NO. (4) Per Capita At Each Generation (Michigan):

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o Definition: This is a scheme of representation whereby all takers of an estate in a generation are treated equally, regardless from whom they are descended or how many siblings they have.

It is this method that is thought to adhere more closely to what the average person would desire.

o Root Generation: First generation with at least one actual survivor.o Number of Primary Shares in Root Generation: Total of (1) actual


o Recombine “Unused” Primary Shares? YES. o Example: I died, having three children, A, B, and C. Only B survived her, but A left

child D, and C left, children E and F. Under per capita at each generation, B would receive 1/3 of the estate; D, E, and F would take 2/9 each.

E. Limitations on the Intestate Share: These are things that might affect whether or not you will get an intestate share.

1. Disclaimer (Renunciation):a. Definition: A disclaimer is a voluntary refusal to accept the benefits under a will or

intestate succession statute; this usually happens where you have outstanding debts and you don’t want the creditors to reach the estate or where you are sitting pretty already and would prefer for someone else to have it, or for tax purposes.

b. Common Law Rules: Competing Theories:

o Intestate: An heir inherits property by operation of law, instantaneously upon the death of the intestate, so that disclaimer could not prevent the property from passing to the heir; the property is yours and even if you renounce it, it doesn’t defeat the interest of the creditors.

o By Will: Inheritance is like a testamentary gift and can be refused. If you don’t accept it, the creditors cannot touch it and you won’t be taxed.

Coomes v. Finnegan:o Facts: Lola’s mom dies intestate (no will). Lola wants to disclaim her inheritance

because she doesn’t want creditors to get her share, which was part of the family farm.o Holding: It automatically became Lola’s; she cannot defeat the creditor’s interest.

However, if there was an instrument (will), Lola could have disclaimed her interest. c. EPIC Allows Disclaimer, both under intestacy and under a will:

General Rule, EPIC 2902(1): You can disclaim either in whole or in part, i.e. say no, under both intestacy or under a will. A trustee may only disclaim if the will expressly grants him the right to do so.

Requirements of a Valid Disclaimer, EPIC 2903: A disclaimer is NOT valid UNLESS it complies with ALL of the following:o (1) In writingo (2) Declares the disclaimero (3) Describes the disclaimed interesto (4) Is signed by the disclaimant o (5) Is delivered in accordance with EPIC 2904, 2905, and 2906.

Delivery and Timing, EPIC 2904:

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o (1) The disclaimer must be delivered AFTER the death of the owner of the property AND BEFORE any of the following events:

EPIC 2910: If any of the following events occur before the disclaimer, the disclaimer will not be valid:

(a) An assignment, conveyance, encumbrance, pledge, or transfer of the property, or a contract for such a transaction.

(b) A written waiver of the right to disclaim. (c) An acceptance of the disclaimable interest or a benefit under

the disclaimable interest after actual knowledge that a property right has been conferred.

(d) A sale of the property under judicial sale. (e) The expiration of the permitted applicable perpetuities

period.o (2) Also, the disclaimer must be delivered to the proper person (personal

representative or trustee). Effect of Disclaimer, EPIC 2907(1):

o If a disclaimed interest arises under a will, testamentary trust, or by the laws of intestacy, and the decedent has not provided an alternative for disposition, the disclaimant will be treated as predeceasing the decedent and the interest will pass by representation.

Refer to Class Two Problem, Disclaimer.

2. Malfeasance (Killing the Decedent):

a. Introduction: Another way you can lose your inheritance involuntarily, by feloniously and intentionally killing the decedent.

b. Common Law Rules: In re Estate of Mahoney:

o Facts: Decedent was killed by his wife, who was convicted of manslaughter. Decedent’s only survivors were his wife and his mother and father. His estate was worth $3,885.89.

o Holding: The court created a constructive trust, where wife had legal title and held it for the benefit of the parents.

Three Variations Among States:o (1) Majority – Create a Constructive Trust:

This applies where the killing was intentional. The constructive trust would be for the heirs or next of kin of

decedent. The slayer would hold legal title for the trust as trustee, but cannot

touch the estate because it is for the benefit of another. Equity will not allow the killer to profit from his/her illegal act. The problem with this approach is that it is expensive because the

court will have to constantly supervise the killer.o (2) Common Law Intestacy Approach:

Legal title to the killer; in other words, the killer still gets the property. The slayer would profit from his/her crime. To do otherwise would be extra punishment.

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o (3) Legal title will not pass to the slayer because people CANNOT profit from their crimes.

This applies where the killing was unintentional.

c. EPIC 2803, Michigan’s Slayer Statute: This applies to both intestacy and testacy. Burden of Proof: Preponderance of the Evidence Elements:

o Felonious ando Intentional Killing

Effects:o Forfeits ALL benefits.o If decedent died intestate, the estate passes as if the killer disclaimed his/her

intestate share.o Revokes all of the following:

Disposition or appointment of property made by the decedent to the killer in the governing instrument.

Provision in a governing instrument conferring a general or non-general power of appointment on the killer.

Nomination of the killer in the governing instrument, nominating or appointing the killer to serve in a fiduciary or representative capacity, including a personal representative, executor, trustee, or agent.

o Slayer is treated as predeceasing the decedent: All the descendants that would normally have benefited will take the

slayer’s share. Children of the slayer are not punished and may collect the slayer’s

share.o Severs joint tenancy with rights of survivorship between slayer and

decedent, converting it into a tenancy in common. Killer gets his share, but cannot touch decedent’s share because this would be extra punishment.

d. Refer to Class Two Problems, B. Killer as Heir

3. Advancements:a. Definition: An advancement is something a person gives away in life and the

concept is that the person intends that gift to be something toward what you would get in intestacy.

b. EPIC 2109: A gift given during life counts as an advancement if one of two requirements

are met:o (1) The decedent must declare, in writing (formal or informal), at the time

the gift was made (contemporaneous writing), that it was an advancement, OR

o (2) The heir must have acknowledged in writing that the gift was an advancement, and the writing does not have to be contemporaneous.

Valuation of the Advancement: The property advanced is valued at the time one of the below happens first:

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o (1) At the time the heir came into possession or enjoyment of the property; OR

o (2) At the time of the decedent’s death If the person receiving the advancement dies before the decedent:

o The property is not taken into account in computing the division and distribution of the decedent’s intestate estate, UNLESS the decedent’s contemporaneous writing provides otherwise.

Refer to Class Three Problems, Advancements.

4. Assignments of Expectancy:a. Definition: This is when you assign your intestate share to someone else.b. Example: You want to buy a Porsche, but cannot afford it, so you tell the dealer that if he sells it to

you, he can take your inheritance when you get it.c. General Rule: A court of law will not enforce an assignment of expectancy of

interest in an intestate share. HOWEVER, a court of equity will enforce it if there is fair and adequate consideration. If there is no consideration and just expectancy, the courts will not enforce it

because expectancy is not enough of a property right. Policy for not allowing someone to assign an expectancy in the court of law:

There might be coercion, harassment, fear of overreaching, and wanting the decedent to give the property to where they want it to go

Note: Some states require the decedent to know about the assignment and acknowledge and approve it.

d. Wilmer Scott v. First National Bank of Baltimore: Facts: Scott wanted a divorce so he could be with another woman. Before the divorce, he told

his wife his intentions and they entered into a separation agreement for support for the child, and under seal, one-half expectancy of his estate to his daughter. Wilmer later tried to claim that the expectancy in the estate lacked necessary consideration.

Holding: Ex-wife may have taken less money from the divorce because of the assignment and took on other burdens, which is consideration in itself. The daughter became the priority creditor.

V. FAMILY PROTECTION

A. Overview of Family Protection:

1. EPIC 2401: The law of the state where the decedent was domiciled is what applies; this is the law that controls.

2. There Are Three Allowances:a. The Homestead Allowanceb. The Family Allowancec. Exempt Property

3. The Family Protections are available whether decedent dies testate or intestate.4. Family Protections are paid BEFORE the estate is divided.5. Policy Reason: To protect the immediate family, even if we have a testator who has a

lot of bills.

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B. The Homestead Allowance – EPIC 2402:1. Purpose: The purpose of homestead allowance is to provide the family with

somewhere to live.2. Amount: Right now, the homestead allowance is $15,000. However, Section 1210

adjusts the number for inflation. For 2007, the $15,000 is now adjusted to $19,000. 3. Recipients of Homestead Allowance: The surviving spouse gets this allowance. If

there is no surviving spouse, it will be split among minor and dependent children.4. The Allowance is exempt from advancements because this allowance comes off the

top of the estate, except for administration costs and funeral/burial expenses which get paid first.

C. The Family Allowance – EPIC 2403:1. Purpose: The purpose of family allowance is to provide support/maintenance for the

family, during the time the estate is open.2. Amount: There is no dollar amount; it is REASONABLE family allowance/support;

an amount that is reasonable based on the size of the estate or the needs of the family. Generally, the personal representative gives at least $18,000 a year, to be adjusted by inflation.

3. Recipients of Family Allowance: This is different than the homestead allowance. a. The spouse AND any minor children/dependents AND any other person that was

being supported by the decedent.b. If the current wife is the second wife and there are children from the first wife that

live with the first wife, two checks will be cut; partial allowance for the second wife and partial allowance for the minor children or their fiduciary.

4. Duration of the Support:a. The support is for the duration the estate is in probate ORb. 1 year, if there is not enough money in the estate for all other claims.

D. Exempt Property – EPIC 2404:1. Purpose: The purpose of exempt property is to allow the family to get household

furniture, cars, appliances, and personal effects; sentimental personal property. If there is none, they can get cash instead.

2. Amount: The spouse gets $10,000 and the children, combined, get $10,000.3. Recipients of Exempt Property: The surviving spouse and the children (it doesn’t

have to be a minor, can be an adult) get this.a. Note: Exempt property is the only one that can be sought by adult, independent

children.4. Come off the Top: Not deducted out of the intestate will; they are not held against

you.5. Example: Dad owns a car that is worth $25,000, but he still owes $15,000 on it. This can be given as

exempt property as long as you assume the loan because you are allowed to take up to $10,000 in value, which is what this really is.

VI. SPOUSAL PROTECTIONS AND PROTECTION FOR CHILDREN

A. This section deals with OTHER spousal protections and protections for children, in addition to the three above.

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B. The Elective Share of the Surviving Spouse – EPIC 2202:

1. Where Decedent was INTESTATE – EPIC 2202(1):a. A surviving spouse may elect:

i. Intestate share under EPIC 2102; ORii. Dower rights

Dower rights are for female surviving spouses only; the widow has the choice of:o (1) Life estate to real property; ORo (2) Collect 1/3 of the rents from the property.o NOTE: When the widow dies, the property goes back into the

husband’s estate.

2. Where Decedent was TESTATE – EPIC 2202(2): a. A surviving spouse may elect:

i. Take what they would get in the will (abide by the terms of the will); ORii. Dower rights; OR

iii. Forced share A forced share is a share of the estate, set aside by law, for the surviving

spouse, regardless of what the will provides. Formula for Forced Share:

o Forced Share = ½ (Intestate Share from EPIC 2102) – ½ (Value of Property Received from the Decedent).

NOTE on Forced Shares:o The forced share is NOT available in community property states.

In community property states, each spouse has an immediate half interest in the property that cannot be alienated by the other spouse. Therefore, the concept of a forced share doesn’t make sense.

o Policy Concept: Marriage is a partnership and anything that accrues during the partnership belongs to both of them (marital property, half and half. The separate property goes to the person who owned it before the marriage.

o Common Law: Under the common law, any property acquired by marriage

belongs to who earned it and received it. The spouse won’t have rights to it unless it is titled in their name.

If the marriage was short, community property won’t get you much, but with common law, you get to elect all the property and not just what was acquired during the marriage.

3. Effects of the Elective Share:a. Refer to Problems, “Surviving Spouse’s Elective Share Problems” (EPIC 2202).b. Refer to Problems, “Spousal Protection In-Class Problems.”

C. Protection of After-Married Spouses – EPIC 2301: OMITTED SPOUSE

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1. What is an after-married spouse?a. An after-married spouse is a spouse that married the testator AFTER a valid will had

already been executed, i.e. omitted spouse.b. The presumption is that the after-married spouse was NOT left out intentionally, so

protections are provided.

2. What can the after-married spouse elect?a. Where he/she elects to abide by the will, the after-married spouse can receive what

they would have gotten under intestacy (spouse’s intestacy share).b. Note, however, that any property left to a child born (or adopted) to the testator from

a previous relationship, cannot be touched.c. If everything is left to the testator’s children from previous relationship (adopted or

biological), then the surviving spouse can get NOTHING.

3. Exceptions to Electing: These are situations where the WILL won’t be disturbed, i.e. where the surviving spouse has no special rights/cannot elect for intestate share.

a. The will was made in contemplation of the marriage to the surviving spouse.b. If the testator expressly intended to leave the spouse out of the will, i.e. testator

intended for the will to be effective even in the subsequent marriage.c. The testator provided for the spouse outside of the will, where the transfer was

intended to be a substitute for a testamentary provision (shown by statements or reasonably inferred from the amount, or other evidence).

4. How to Elect:a. The surviving spouse can choose whichever (2301 or 2202(2)) one is better for

them; the higher of the amounts.b. If the will leaves everything to the children of a previous relationship, EPIC 2202(2)

is the better option.c. In re Estate of Ida Sprenke-Hill:

i. Facts: The decedent executed a will and trust, providing that when she died her entire estate would go into trust, which would be disbursed to two individuals and the remainder to her two sons. Six months before she died, she married Hill, but the will was never changed.

ii. Holding: The spouse may choose whichever of 2301 or 2202(2) is better for them. Here, because the will leaves everything to the children, Hill may go to EPIC 2202 and get his forced share, because he will get nothing under 2301.

D. Protection of After-Born/After-Adopted Children – EPIC 2302: OMITTED CHILD

1. Purpose: EPIC 2302 allows for a child, who is born after the will is drawn up, but before the testator dies, to be accounted for.

2. Eligible Children under 2302:a. Children born after the will was executedb. Children adopted after the will was executedc. Pre-existing children that the testator mistakenly thought were dead (will be treated

like after-born children)

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3. If No Children When Will Was Executed:a. If no child was living when the will was executed, the child takes the intestate share

the child would have received had the testator died intestate.b. UNLESS:

i. The will provides all or a substantial portion of the estate to the other parent AND parent survives the testator AND is entitled to take under the will, i.e. not an ex-spouse or a slayer.

The presumption is that the parent will provide for the child.

4. If Children When Executed:a. If testator had one or more living children at the time the will was executed, and the

will devised property or an interest in property to one or more of the then-living children, an omitted after-born or after-adopted child is entitled to a share of what the provided-for children received, AS LONG AS:i. The omitted child’s share is limited to devises made to the testator’s then-living

children in the will;ii. An equal share of the estate is given to each child;

iii. The interest granted is feasibly of the same character, whether equitable or legal, present or future, as that devised to the testator’s then-living children under the will.

b. Example of Where the Same Amounts Were Left to the Provided-for Children: Nancy executed a will in 1982, when she had her husband and two sons, B and D. The will left $10,000 to each son, with the remainder to husband. In 1988, Nancy had twins, C and E. Nancy died without executing another will, with a distributable estate of $150,000.i. Step 1: Add up the amounts received by the provided-for children. $20,000

ii. Step 2: Divide total amount by number of children. $5,000 to each omitted child.iii. Step 3: Subtract the amount equally from provided-for children’s share, leaving $10,000/2 =

$5,000 per each provided-for child. c. Example of Where the Provided-For Children Were Left Different Amounts: A died, with only

a will that was made before the birth of Z. A left $40,000 to X and $20,000 to Y, both of which were A’s children.i. Step 1: Add up the amounts received by the provided-for children; $40,000 + $20,000 =

$60,000ii. Step 2: Divide the total by the number of children; $60,000/3 = $20,000; this is the amount that

the after-born will receive.iii. Step 3:

5. Exceptions: This rule does not apply where any of the following exist:a. The omission of the after-born/after-adopted child was intentional.b. The after-born/after-adopted child was provided for outside the will, in a way where

it appears that it was a substitute for being in the will.c. If the will leaves everything to the spouse, and nothing to the children, the after-born

child will get nothing, because it is presumed that the surviving parent will take care of the child.

d. If the testator left nothing to the already-born children, it is assumed that testator did not want to leave anything to the after-born children either.

E. Prenuptial Agreements (Waiver of Spousal Rights):

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1. EPIC 2205 and MCLA 557.28:a. A spouse is allowed to waive any and all family protections if:

i. In writing; ii. Signed; and

iii. Made after full disclosure.b. The waiver may be made before or after the marriage.c. Only spouses may waive their rights; children cannot.

2. The Spouse’s Right to Waive Includes (as long as the document doesn’t state otherwise):

a. Rights to intestate shareb. Homestead allowancec. Electiond. Dowere. Exempt propertyf. Family allowanceg. Rights to will in existence at the time of the waiver

F. Professional Liability Issues: 1. General Rule: If an attorney is negligent in preparing estate planning documents, his

negligence may extend to the named beneficiaries of the will.2. Standing: In order to sue, you have to be named in the will or other testamentary

documents; you CANNOT use extrinsic evidence to prove the mistake of a lawyer.a. RULE: When determining if the attorney has committed malpractice, you can only

look at the FOUR CORNERS of the will (and other documents/estate planning package). If you are named as a beneficiary in the will and the attorney has done something wrong (like improperly executed the will), you have standing to sue.

b. RULE: Third party beneficiaries in the estate planning documents are able to have standing to sue the attorney even though they are not in direct privity with the attorney. i. The third party must establish that the decedent’s intent was frustrated in

the document (all documents that are part of the estate planning); you cannot use extrinsic evidence.

3. Refer to Attorney Liability Problem.

VII. WILLS

A. Introduction to Wills:

1. What is a Will?a. In General:

i. Will, Defined: A will is an instrument or declaration by which one directs the disposition of one’s property after death; a written intention of how someone wants to leave their worldly possessions after they die.

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ii. Ambulatory: A will is subject to change/revocation until the death of the testator, and the last valid will on your death is what counts.

iii. A.K.A. Testament iv. EPIC 1108(b): A will includes, but is not limited to, a codicil and a

testamentary instrument that appoints a personal representative, revokes or revises another will, nominates a guardian, or expressly excludes or limits the right of an individual or class to succeed to the decedent’s property that is passing by intestate succession.

v. Codicil: Defined: A codicil is a supplement to a will that adds or deletes provisions

or otherwise changes the will. Requirements: A codicil is subject to the same formal requirements as a

will. o Each document constituted to be part of the will must stand alone in

regard to formalities. A codicil republishes a will, meaning that it brings the will’s provisions up

to the date of the codicil, as if both instruments had been executed on a later date.

b. Testator’s Intent and Required Formalities in Any State: i. (1) Testamentary Intent AND

Two Concepts:o (a) The written document is intended by the signer to be his will; ando (b) The plan of distribution contained in the document is what the signer

intended to have happen to his estate assets. Note: The best way to nail testamentary intent is to put “this is my will” on

it.ii. (2) Valid Statutory Formalities

A will is valid only if it is executed with the formalities required by the relevant jurisdiction’s law.

Types of Wills Allowed in Michigan:o (1) Formal Will, EPIC 2501, 2502(1)o (2) Holographic Will, 2502(2)o NOTE: Michigan does NOT support oral wills

B. General Statutory Requirements for Wills in Michigan (EPIC 2501 and 2502):

1. Requirements for Formal Wills – EPIC 2502(1):a. Testamentary Intent

i. Defined Aboveb. Testamentary Capacity – EPIC 2501 (defined above)

i. Age and Must be at least 18 years old

ii. Sound Mindc. In writing

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i. It doesn’t have to be a document; it just has to be in writing.d. Signed by the testator

i. Or signed by another in direction of the testator and in testator’s conscience presence.

e. Two witnessesi. The witnesses must sign/attest the will within a reasonable time after:

(1) Watching the testator sign, OR(2) Testator’s acknowledgement of that signature, OR(3) Testator’s acknowledgement of that will.

2. Requirements for Holographic Wills – EPIC 2502(2):a. Testamentary Intent

i. Defined Aboveb. Testamentary Capacity

i. Age and Must be at least 18 years old

ii. Sound Mindc. Material portions in handwritingd. Testator’s signaturee. Dated

i. The date of execution is when the validity is determined.f. NOTE: There is no witness requirement for a holographic will.g. NOTE: The new EPIC statute states that the date and signature doesn’t have to be

anywhere in particular.

3. Refer to Will Formation and Execution Problem #3A-G.

C. Conditional Wills:1. Definition: A conditional will is a will that is intended to be operative only on the

occurrence of a specified condition or event; if the condition or event does not occur, the will fails or has no effect.

2. RULE: Courts are willing to recognize a condition in a will if it is stated in clear and unambiguous language.

3. Refer to Will Formation and Execution Problem #2.4. In re Estate of Bem:

a. Facts: Testator handwrote a two-page will and dated and signed it. He then added more to the will on the same page and re-dated and signed. There were a total of five codicils. The codicils made reference to trips, and stated, “if I don’t come back,” but he did come back from each trip.

b. Holding: The court found that this was not a conditional will. He kept adding to the document, using language that made the court believe he meant the will to survive the trips. The court found the trips to be the motivating force behind the testator’s decision to write a will, and found that each codicil must be together as a whole.

D. Harmless Error Rule – Writings Intended as Wills:1. EPIC 2503:

a. If the will does not meet the requirements of a valid formal will or a valid holographic will, look to EPIC 2503, which refers to the harmless error rule.

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b. A will could still be treated as valid if the proponent of the document establishes, by clear and convincing evidence, that the testator intended the document or writing to be any of the following:i. Decedent’s will

ii. A partial or complete revocation of the williii. An addition or alteration to the williv. A partial or complete revival of a formally revoked will or portion thereof

c. NOTE: Even under the harmless error rule, however, the signature of the testator MUST be present.i. The court will not ever fix the error of a missing signature, but it will fix other

harmless errors. It must be clear that it is a document of the testator. 2. In the Matter of the Estate of Sky Dancer:

a. Facts: Decedent died from gunshot wounds and the police recovered what was allegedly the original copy of his last will and testament. The legatee (beneficiary under the will) was involved in the decedent’s death, which rose suspicion of the decedent’s testamentary intent (whether it was the decedent’s intent for this to be her last will and testament) because the signature page was separate from the typewritten pages, which contained incomplete portions.

b. Holding: There was more than just a minor deviation from the formal requisites of the execution of a will. Even the material parts of the will cannot be attributed to the decedent because they are typed rather than written, and there is no evidence that she signed it. The court will not use the harmless error rule to fill in a signature.

3. In the Matter of the Estate of James M. Hall:a. Facts: Decedent and wife had attorney create a joint will. After making several changes, the agreed

on the terms of the joint will and attorney said he would send them the final version, but at the conclusion of the meeting, decedent asked attorney if the draft could stand as a will until the final version was ready. Attorney said yes, as long as they execute it and he notarized it, which he did. There were no witnesses there. Decedent told wife to tear up the old will from several years prior, which she did. At decedent’s death, daughter requested formal probate of the original will from several years prior.

b. Holding: Generally, the missing witnesses would mean that the will was invalid and decedent died intestate. However, the harmless error rule protects this type of error, where CLEAR AND CONVINCING evidence that the testator intended the document to be his will is established. Here, testimony from the wife and attorney about the conversations in the office and about wife being told to tear the old will was clear and convincing evidence. Note, however, if only the wife came in and testified, it may not have been clear and convincing because she is an interested party. Here, however, the attorney testified as well, which shows intent that the document was to control and the lack of a witness was not fatal.

E. Issues With Witnesses:1. General Witness Requirements:

a. To be a witness, you have to have the intent to witness; the intent to validate.b. A witness has to have the intent to attest to or assure that there is proof that there

was compliance with the execution requirements; they must observe the testator executing the document.

2. Competency of Witnesses:a. If you are competent to testify in court, you are competent to be a witness for a will.

3. Where the Witness is Also a Devisee (Interested Party):a. EPIC 2505(2): Where an interested party to the estate signs as a witness to a will,

the will is NOT invalidated.

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i. However, in some states, what will happen is that the interested party usually doesn’t get to their interest in the will unless there were two other non-interested witnesses to the will.

ii. In Michigan, it doesn’t matter.iii. Note the Common Law: In common law, this situation would disqualify the

whole will.b. Refer to Will Formation and Execution Problem #3H.

4. Where the Witness Also Acts as Notary:a. General Rule: A notary is not the same thing as a witness; a notary validates the

authenticity of a signature, and a witness validates the testator’s intent and testamentary capacity.

b. Exception/Majority: Where a notary signs as a witness to a will, there must be evidence that the notary performed both functions of the notary and a witness; the notary must do the observations that a witness does to be included as a witness.

c. In the Matter of the Estate of Gerhardt:i. Facts: When decedent died, she left a will; the attestation clause of the will contained the

signature of one attesting witness and a signature and seal of a notary.ii. Holding: The will was admitted to probate because testimony was given by all members present

at the execution that the decedent herself is the one who asked the notary to be a witness to the signing of the will. Although signing in her official capacity as notary, the notary performed functions which qualified her as a witness. She ensured that the decedent voluntarily and willingly executed the will as her last will and testament, confirmed that the decedent was over 18, and of sound mind, and not acting under any constraint or undue influence. The surrounding circumstances clearly show the intent to attest the instrument. It would be inequitable to invalidate the will that was made deliberately and voluntarily by the testator.

5. Witness Attestation Clause:a. It’s best to put a witness attestation clause in the will. “We, (the witnesses) sign our

names to this document and have taken an oath, administered by…”

F. Testamentary Capacity – EPIC 2501:

1. Who Can Execute a Will?a. The testator must be at least the age of 18 and of sound mind.b. Neither sickness nor impaired intellect is sufficient standing alone, to render a will

invalid. If at the time of execution the testator was capable of recollecting the following, that is sufficient to constitute sound mind:

The business the testator is engaged in;The testator knows he/she is making a will.

Testator’s property;Testator must know the property he/she owns.

The natural objects of testator’s bounty;Essentially, the testator needs to know who their immediate family is. It doesn’t mean the testator has to give them anything; it just means that they

need to be aware of who is who.Disposition of property

Testator must show a plan of where he wants the property to go. c. Note: If you know the four things above, you are of sound mind even if you are

insane. To make a will, all you need is a fairly low competence level.

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2. What is “Of Sound Mind?”a. Mental Incapacity:

i. Mental weakness is not inconsistent with testamentary capacity. You can be insane and still make a will because you don’t need the same level of competence as your witness does.

ii. A less degree of mental capacity is requisite for the execution of a will than for the execution of contracts and the transaction of ordinary business.

iii. The testator is of sufficient sound mind if he meets the 4 requirements of sound mind (found above).

iv. Gilmer v. Brown and Others: Facts: Decedent was old and being aided by Rosa Belle, who decedent considered to be her

closest relative. At some point, a judge appointed a guardian ad litem (not a conservator) for decedent to handle and manage her estate. At decedent’s request she had an attorney leave everything in a will for Rosa, and in the event that Rosa died first, everything would go to two nieces.

Holding: Just because decedent was mentally deteriorated doesn’t mean that she did not have testamentary capacity to make the will.

b. Insane Delusions:i. Standard for Having an Insane Delusion: It has to be an irrational belief that

goes against any facts; inconsistent with the facts presented and nothing to support it.

ii. Rule: If the insane delusion stands in the way of one of the four factors of sound mind with nothing rational to back it up, the testator will be deemed to be not of sound mind where it causes an effect (like a change) on the document.

iii. In the Matter of Proving the Last Will and Testament of Hargrove: Facts: Decedent married a woman and had two kids with her. Decedent became interested

in the business of his then father-n-law and made a connection with Smith, an attorney. A couple years later, wife asked decedent for a divorce and within an hour of the entry of the decree, Smith got a divorce and announced that he was marrying decedent’s wife. Decedent didn’t hear from his ex-wife or children for 31 years before his death. In an affidavit, the decedent stated that his wife confessed to him that the children were not his and that he believed her. The instrument offered for probate was in his own handwriting and ten witnesses testified that decedent was at all times of sound mind.

Holding: It cannot be found that decedent lacked testamentary capacity to make a will. Even though he was having an insane delusion that was keeping him from knowing the natural objects of his bounty (kids), consideration must be given to his situation. If there are any facts that would cause a prejudice or bias mind, it does not constitute an insane delusion, and it will not negate testamentary capacity.

G. Misdescription and Ambiguity:

1. Extrinsic Evidence:a. Defined: Extrinsic evidence is evidence of facts and circumstances beyond the

words of the will; it is any evidence outside of the actual executed will or trust.b. General Rule: In most instances, evidence of the testator’s intentions beyond what

is indicated in the four-corners of the formal will is excluded.

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i. Rationale: Since the best witness (decedent) is not available, the court tends to try to stay within the 4 corners of the will to effectuate the desires of the decedent and give out their property the way they wanted it to go.

c. Exception: Where the will contains an ambiguity or a misdescription, extrinsic evidence may be used to resolve the ambiguity or misdescription, in certain situations.

d. Permissible Uses of Extrinsic Evidence:i. Demonstrate or rebut proper execution

ii. Demonstrate lack of testamentary capacityiii. Demonstrate lack of testamentary intentiv. Demonstrate the existence of undue influence, fraud, mistake, duress or

revocationv. Demonstrate the existence of an ambiguity

vi. Clear up an ambiguity (may include evidence of testator’s own statements as to his intent)

vii. Demonstrate testator’s intent as to the effect of a writing (Will? Revocation? Revival?)

viii. Rebut a presumed intent (may include evidence of testator’s own statements as to his intent)

ix. Rebut a presumption other than intente. Refer to Will formation and Execution Problem #4A-F.

2. Misdescription:a. Rule: The court will allow outside evidence to correct false description like an

address or a person’s name.

3. Ambiguity:a. Rule: If an ambiguity can be found within the will, extrinsic evidence may be

admitted to resolve it.b. Two Types of Ambiguity:

i. Patent Ambiguity: It appears on the face of the will. Merely reading the will reveals the

ambiguity or uncertainty.ii. Latent Ambiguity:

You don’t realize it’s an ambiguity until you look outside to other evidence.iii. Equivocation: The description fits more than one person or object equally well

(or equally poorly).iv. Example: My car to my employee Millie Perkins. It turns out testator has two employees with

the same last name, one of which goes by Millie and the other Minnie. c. In the Matter of the Last Will and Testament and Estate of Lawson:

i. Facts: In the will, decedent bequeathed her resident and its contents to Lambert and Moore. Stocks and bonds were found in a lockbox in the house. The issue was whether the bonds were considered “contents” of the house.

ii. Law: If someone gives you contents of their home, it usually refers to things like furniture, and not securities, like stocks and bond that might be in the house.

iii. Holding: The stocks were not contents of the house for purposes of the construction of the will. Decedent was very specific in her will about everything else and it cannot simply be said that her intent was to include the stocks as contents of the home. Decedent had even stated in the will

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that anything not listed were to fall into intestacy. This decision was arrived by looking at the language of the will – rule of construction. Look at the will to determine intent and then look at case law, which shows that the kinds of contents that are usually meant are normal household goods.

iv. Rule on Receptacles: The presumption is that if you get the receptacle, then you get the contents, unless the will says otherwise.Example: Testator leaves the filing cabinet to Joe. Anything in it becomes Joe’s property.

H. Challenges to Wills, In General:

1. Types of Challenges:a. Formation

i. Was the will validly executed? The requirements of a valid will must be present.b. Testamentary Intentc. Testamentary Capacity

i. Must be of the age of 18ii. Must have the four requirements for sound mind

iii. Must not have an insane delusion with no reasonable beliefd. Fraud:

i. Fraud in the Inducementii. Fraud in the Execution

e. Mistake:i. Mistake in the Inducement

ii. Mistake in the Executionf. Undue Influenceg. Revocation

NOTE: Refer to Will Challenge Problem (covered in week 6) for an example of will challenge.

2. Burden of Proof When a Case is Being Contested – EPIC 3407: a. Burdens of the Proponent/Petitioner:

i. To establish intestacy, proponent has the burden of establishing prima facie proof of:(a) Death (b) Venue (c) Heirship

ii. To establish a valid will, proponent has the burden of establishing prima facie proof of:(a) Due execution of the formal will(b) Proof of Death(c) Venue (look at where testator was domiciled at time of death)

b. Burdens of the Contestant:i. The contestant has the burden of establishing a will contest – lack of

testamentary intent or capacity, undue influence, fraud, duress, mistake or revocation.

c. Burden of Persuasion:

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i. A party has the ultimate burden of persuasion as to a matter with respect to which the party has the initial burden of proof.

3. Standing:a. Any beneficiary has standing to bring a will contest; this includes a fiduciary who

is representing one of the beneficiaries.b. Any heirs under the laws of intestacy have standing to contest a will (even if the

heir is not named in the will).c. Creditors:

i. Creditors of the testator DO NOT have standing; creditors get paid in the order of priorities before the court even gets to the will.

ii. Creditors of beneficiaries/heirs MAY contest the will, in the place of the beneficiary, ONLY if they are:(a) Secured creditors;(b) Judgment creditors; OR(c) Lien creditors.

I. Undue Influence:

1. Undue Influence, Defined: Undue influence is an act that has the effect of overcoming the testator’s free will in the execution of a testamentary instrument.

a. It has to be something stronger than just whining; the emphasis is on “undue,” which is a subjective word.

b. The law considers that you have sort of overpowered the mental capacity of the testator such that they wouldn’t have done this under their own free will.

c. Undue influence is a common law doctrine, and Michigan’s formulation of it can be found in the Karmey and Swenson cases.

d. Effect: Undue influence invalidates a will if it cased the challenged disposition.

2. General Test: The contestant must prove a close, confidential relationship and other suspicious circumstances. If this can be proven, then there is a presumption created that there was undue influence, and the burden shifts.

a. Confidential Relationship:i. The relationship must be a close, confidential relationship.

ii. If you are in a position of fiduciary, you have control over some aspect of the person.

iii. Note that even though there is a confidential relationship with your spouse, this test requires something a little more unusual, like a way younger second wife.

iv. Sometimes relatives have an unusually close, confidential relationship.b. Other Suspicious Circumstances:

i. Factors:(1) Procurement: Participation of the beneficiary in the preparation of the will.(2) Lack of Independent Advice: A beneficiary who participates in preparation

of a will and occupies a confidential relationship to the testator has a duty to see that the testator receives independent, disinterested advice.

(3) Secrecy and/or Haste in the Preparation of Change of the Will

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(4) Change in Attitude Towards Others(5) Change in Disposition of the Estate(6) An Unnatural or Unjust Gift: A unilateral or unjust/unnatural gift by the

decedent; note that this can be cleared up with an explanation.(7) Susceptibility to Influence: Examples would include elderly,

emotionally/mentally challenged, extremely dependent, sick, etc. ii. In the Matter of the Estate of Swenson:

Facts: Daughters brought a proceeding to contest the will of the deceased. The will left everything to Cora (sole beneficiary), and they contended that decedent lacked testamentary capacity and the will was the product of undue influence exerted by Cora.

Holding: The will was the product of undue influence because Cora was the one who called the attorney to make the will, she chose the attorney and didn’t give deceased advice to get independent advice, she did not give any notice to family, deceased’s attitude changed in a short period of time towards the daughters, the deceased all of a sudden made the new will to give everything to a stranger rather than her daughters, the gift of the entire estate is unnatural and against the natural subject of her bounty, and deceased was very ill and couldn’t take care of herself and dependent on drugs and alcohol, and therefore was very susceptible to being taken advantage of.

3. Michigan Test (Karmey):a. In Michigan, a lot of the factors are the same for undue influence, BUT the

contestant has to show a person using the close, confidential relationship to get an unusual benefit – MOTIVE.

b. Michigan has a stronger showing for undue influence.

4. Defenses:a. Rebutb. Show evidence of independent counselc. Establish the execution ceremony as iron cladd. Videotape your discussion with the testator

J. Mistake:

1. In General:a. Definition: Mistake is an inadvertent, usually self-induced misconception of fact or

law that has an effect on the testator’s will.b. General Rule: Generally, mistakes by the testator cannot be corrected by the court.

i. Note: There is one mistake the court will correct – where the testator thought the child was dead.

c. Dalk v. Allen:i. Facts: Decedent’s will was signed by two witnesses and notarized, but due to all the documents

being passed around for signatures, the decedent’s signature wasn’t on the will. Decedent’s half sister appealed the trial court’s order admitting the will to probate.

ii. Holding: This is an example of mistake in the execution. Every will must be signed by the testator, with two witnesses attesting. Therefore, the order admitting the will to probate is reversed and intestacy shall follow since the will is invalid for lack of formalities. Since the will is invalid, testator’s intent is no longer controlling, even though the intent was the decedent was obvious.

iii. NOTE: If Florida had the harmless error statute, the problem would have been fixed and the will would have been valid.

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2. Types of Mistakes:a. Mistake in the Inducement: This occurs when the testator is mistaken about some

matter of fact or law and is thereby induced to execute a will in a certain way.i. This is a mistake in what the testator believes and not what they wrote, i.e.

mistaken belief that caused the writing.b. Mistake in the Execution: This occurs when the testator is mistaken as to the

nature or content of the document executed. i. This is where the testator knows the facts but didn’t understand what was in the

will or there was a mistake in what in the will. ii. Exception to the General Rule: The court may be induced to strike mistakenly

included language – take a red pen and cross out words; the argument is that in order to have a good will, there must be testamentary intent, i.e. thought it was his will and what’s in it is what he intended. Words can be crossed out, but not added in.

iii. Exception to the General Rule: Sometimes, if the wrong will is signed, the court will overlook it if there is a harmless error statute.

c. In re Estate of Pavlinko:i. Facts: Decedent and wife retained a lawyer to draw their will and wished to leave their property

to each other. However, the wife signed decedent’s will and vise versa by accident. There were two attesting witnesses. The wife died first, but her will was never probated, so the issue never arose. When husband died, the residual legatee offered the will to probate and the will was found to be null.

ii. Holding: The court did not allow the will to be probated because there would have been a lot of crossing out and adding in, like changing husband to wife, etc. And, they didn’t feel like they could use the other one because they would have to add the signature. Unfortunately, there was no harmless error statute to fix the mistake.

iii. Dissent: The court should have probated it because it was such a minor mistake and on top of it, both wills had the same residuary clause.

3. How is Mistake Different from Fraud, Malfeasance? a. Pope v. Garrett:

i. Facts: Testator was in hospital and left everything in her will to her caretaker. The children get into a fight when testator goes to sign it and testator ends up stroking out before she signs because of their violent attempts to stop her from signing.

ii. Holding: This is not a fraud case, but instead a mistake because it was only not signed because of acts of violence. The court creates a constructive trust to fix the mistake, with the caretaker as the beneficiary and the heirs as trustee, since the heirs would get the property through malfeasance.

iii. NOTE: There were relatives that were not involved in the malfeasance; however, everyone gets punished because none of the innocent heirs would have taken under intestacy if there weren’t bad actors to begin with, since the entire estate was being left to the caretaker.

K. Fraud:

1. In General:a. Definition: Fraud is an intentional deception of the testator by another in such a

manner as to affect the terms of the testator’s will.

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b. Elements: Absent any one of these elements, there is no ground for fraud contest:i. False statement made

ii. Known to be false by the makeriii. The false statement must be materialiv. Intent to defraud or deceivev. It must actually deceive the person

vi. The person acts in reliance of the statement

2. Types of Fraud: Both types of fraud must satisfy the elements (above). a. Fraud in the Execution: This concerns deception as to the nature or contents of the

document that the testator signs.b. Fraud in the Inducement: This refers to a misrepresentation to the testator as to

facts that serve as an inducement for the execution of the will or the inclusion of certain provisions.

c. Estate of Charles E. Roblin:i. Facts: Decedent and wife, who are both deceased, were split up due to tensions between the

decedent and son. Wife left everything except a small amount of money to the son and daughter ended up with a little over $60 after paying costs of funeral and administration. Daughter told decedent that everything was left to son and decedent requested to daughter that she get him a lawyer, so she did. The lawyer was the cousin of the daughter’s husband, but the lawyer met with the decedent in confidence and a will was prepared which left $1 to son and the rest to daughter. Son appeals on grounds of testamentary capacity, undue influence, and fraud for the statement that mom left son everything.

ii. Holding: There is no evidence of lacking testamentary capacity (all elements met); there is no evidence of undue influence because even though daughter picked lawyer, she did it upon dad’s request and the meeting with the lawyer was in confidence (not in the presence of the daughter). Also, fraud did not exist because her intent to defraud was lacking; she was just communicating her belief at the time and some people do embellish.

3. Remedies for Fraud:a. Court’s Goal: The court’s goal is to accomplish the intent of the testator; the court

is aiming at what they think the testator would have wanted had there not been fraud.b. Ways to Achieve the Goal:

i. Cross out fraudulent person’s gift, invalidating only that portion of the will.ii. Create a constructive trust; in this case, the defrauder is not crossed out, but

instead, there is a constructive trust if favor of the others under the will.iii. Invalidate the entire williv. NOTE: The court will choose the remedy that best fits the distribution of

property the testator had intended.

L. “In Terrorem” (Anti-Contest) Clauses – EPIC 2518:

1. Definition: “In Terrorem” Clause is a clause that seeks to frighten or coerce a person into taking or refraining from some action. It is a clause in a will that is intended to prevent challenges to the will.

2. AKA: No Contest Clause3. Is the Clause Enforceable?

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a. EPIC 2518: A provision in a will purporting to penalize an interested person for contesting the will or instituting other proceedings relating to the estate is UNENFORCEABLE IF PROBABLE CAUSE EXISTS FOR INSTITUTING PROCEEDINGS.

b. Common Law: No Contest Clauses were enforceable.4. Things that are NOT considered to be a Will Contest:

a. Ambiguities in a will; interpretation is not a will contest.b. Bringing in a more recent will to have the court look at; subsequent will that

someone wants probated.c. Rule of perpetuitiesd. Construction of a will

M. Settlement of Will Contests – EPIC 3914:

1. Settlement of Will Contests: This is allowed and encouraged. Michigan courts do have the power to cut a deal that is different than what would have happened under the will or under intestacy, where all potential heirs and beneficiaries agree to it.

2. Problem with Settlement: Only those that sign off on the settlement agreement are bound by it, so anyone that is under the will (even if there is more than one will in dispute) would have to sign the agreement, including all potential heirs under the law of intestacy. If all signatures are not collected (cannot find someone or some of the heirs are not yet born or minor/incapacity), problems will arise.

a. Note: For a minor, the court could assign a guardian, who could sign off on the agreement. i. But even here, many guardians won’t feel comfortable in signing someone’s

inheritance away (unless it’s a good deal). ii. However, if the settlement appears to have been made in good faith and is

reasonable for the individual interest, the court will make the guardian sign, leaving no liability to the guardian since the court made them do it.

3. Requirements of Settlement of Will Contest:a. Written Agreementb. Executed by all that are affected

4. Settlement Can be Done in the Following Manners:a. Probate the will and then the devisees must pay of the heirs.b. Refuse to probate the will and have intestacy kick in and have payments made from

there.c. Court order distribution; this is the best one because you don’t have to rely on

anyone to make the payments. 5. When Won’t the Court Allow Settlement?

a. When the settlement is being made in an attempt to avoid creditors or tax authorities OR

b. When the testator wanted to postpone enjoyment, like a life estate to one, and then to someone else.

N. Revocation of Wills:

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1. Introduction:a. Definition of Revocation: Revocation is the act of rendering an otherwise valid

will of no further effect. b. Common Law: If we have a will that does not expressly revoke the first will, we

will harmonize the wills together.c. EPIC 2507: A will can be revoked either (1) expressly or by inconsistency, and/or

(2) a revocatory act (coupled with intent).i. It may be done at any time, by the testator, or by someone in the conscience

presence of the testator or at the testator’s discretion. d. Revocation can be effectuated in two principal ways: by some physical act upon

the will, and by a subsequent instrument. Under some circumstances, a will also may be revoked by operation of law.

e. Ambulatory: It is the nature of a will to be revocable; it is always subject to change and able to include property newly acquired.

f. Effect of Revoking a Codicil: Revocation of a will’s codicil does not revoke the will, although in many states revocation of a will automatically revokes its codicils.

g. Revocation of a Duplicate: Revocation of one duplicate will revoke all.

2. How to Revoke a Will – EPIC 2507:a. Revocation by Physical Act:

i. Rule: Revocatory Acts PLUS Intent Revocation must include some sort of physical act, such as burning, tearing,

canceling, obliterating, or destroying the will. The physical act does not have to actually touch the words to constitute

revocation. Revocation must have been the testator’s intent.

ii. Presumption with Lost Wills: Common Law Rebuttable Presumption: If there was a validly executed

will in the possession of the testator, where there was no access to the will by people with a benefit, and after a diligent search, it could not be found, the presumption is that the will was revoked. o This presumption may be rebutted if any of the following evidence

is introduced: (a) Interested parties had access to the will (b) The testator indicated happiness with the will (c) There was a house fire that destroyed the will NOTE: In sum, a will that has been lost or destroyed without the

testator’s intent to revoke technically is not revoked and can be probated.

Estate of Markofske:o Facts: Decedent died. Before her death, she had executed three wills, the last of

which was in 1965 and had very little differences than the prior wills. The two latest will were missing.

o Holding: The absence of any testimony that the decedent was dissatisfied with the will, destroyed it, or that she intended to revoke; the evidence that she did not have control of her personal papers and files for nearly two years prior to her death; reference by decedent to her Will 4 or 5 months before her death; and the manner in

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which decedent kept her other important papers such as stocks and bonds, is sufficient to rebut the presumption and support the conclusion that the 1965 Will was not revoked by the decedent by destruction or otherwise.

Cason v. Taylor:o Facts: Decedent died and was survived by her children, Linda Cason and Earl

Taylor, who were her only heirs at law. Decedent had a formal will, which was made in 1996 and which was admitted to probate. The formal will gave Linda substantially all of decedent’s estate. However, Earl filed suit to impose a constructive trust on the estate and to probate a holographic will which could not be located but which was created some time after the formal will. The trial judge admitted the lost holographic will to probate and set aside the prior probate of the formal will.

o Holding: There was (1) proof that the holographic will was duly executed (had all the necessary elements to make it a valid will), (2) proof of the cause of the will’s non-production and of the proponent’s inability to produce it by reasonable diligence (proponent used reasonable diligence in locating the will), and (3) substantial proof of the contents of the will by a credible witness (or a copy of a will which can be used as evidence of the contents but not the will itself).

Note: Where the three things in this holding are found, a lost will may be probated.

In the Matter of the Estate of Goodwin: How may a copy of a will be used in probate? o Facts: Decedent died with no known will, leaving an estate. His heirs at law were

two adult sons, an adult daughter, and a granddaughter (the sole issue of another son who predeceased decedent). The trial court denied granddaughter’s probate of a purported last will and testament; instead, the trial court found that decedent died intestate and that granddaughter failed to prove the existence of a lost will. Granddaughter appealed.

o Holding: Affirmed. Although the document was a duplicate of the original, the document itself does not contain decedent’s original signature or those of his witnesses. Also, it cannot be probated as a lost will because there is no proof that the original existed at the time of decedent’s death.

b. Revocation by Subsequent Will:i. Note: A subsequent will can revoke a first will either expressly or

inconsistently. Expressly: There are words within the will that actually revoke the first will.

ii. General Rule with Inconsistency (Testator’s Intent):Where there is something in the second will that is inconsistent with the first

will, the testator’s intention should control; there should be some attempt to ascertain what the testator wanted.

In re Wolfe’s Will:Facts: Testator died with two wills made just a few days apart from one another. The

first will left real estate property to his daughter and the second will said that he bequeathed all of his effects to his siblings.

Holding: The language in the second will is clear and unequivocal; however, the terms “all of my effects” in the second will are usually used to embrace personal property and not usually real estate. Furthermore, there is nothing in the second will actually revoking the first will and revocation by implication is not favored. Also, the two wills are not inconsistent enough to revoke the first will.

iii. Presumptions in EPIC 2507: Where Will #2 Makes a Complete Disposition:

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o If the second will completely disposes of the testator’s estate, we will presume that the first will is completely revoked. This can be rebutted, however, by CLEAR and CONVINCING evidence to the contrary..

Where Will #2 Does NOT Make a Complete Disposition: o Where the testator did not express revocation AND the whole estate is

not wiped out in the second will, it is presumed that the first will is not revoked in whole, but instead the second will works to supplement the first will. This can be rebutted, however, by CLEAR and CONVINCING evidence to the contrary.

iv. Cash Gifts in a Will: General Rule: Where there are two wills and there are cash gifts given to a

person in both of them, add (accumulate) the cash from both wills together unless you have evidence to the contrary. If there is evidence to the contrary, it is presumed that the second will replaces the cash gift in the first will.

Courts will not step in and presume revocation here; it will be seen as a supplement, rather.

3. Revocation By Operation of Law – EPIC 2808:a. Introduction:

i. Revocation by Operation of Law is a revocation of a will by virtue of some statutorily defined triggering event or circumstance.

ii. Courts hesitate to revoke UNLESS there are statutes that dictate a change in the will; Michigan has these statutes.

b. Revocation by Divorce – EPIC 2807:i. The Presumption: If you get divorced or annulled, the gifts to your ex-spouse

and your ex-spouses family are revoked. If either are named as personal representative, that part is revoked as well. Family members of the ex-spouse cannot be fiduciaries and it severs joint tenancies as well. Exception: If there is a subsequent will that leaves the ex-spouse or relative

of the ex-spouse something, or there are express terms of a governing instrument that state that the gift is not revoked, then the gift will not be revoked.

Note: If the ex-spouse and you remarry, the will is still good.ii. In the Matter of the Probate of the Alleged Will of Reilly:

Facts: Reilly executed a will one day before his marriage to B, which left his entire estate to B. They got married the next day, divorced a couple years later, and he died without ever revoking or altering the will.

Holding: The will was revoked by operation of law. The only way to have effected revival is by: remarriage to the former spouse, invalidation of the judgment of divorce, re-execution of the will or execution of a codicil. Reilly never undertook any of these revival modes.

c. The Slayer Statute – EPIC 2803:i. The Presumption: If someone kills you (intentionally and feloniously), it

revokes the part of the will pertaining to the killer.ii. Difference between Divorce and Killing: If you kill the decedent, at least

relatives and children will still get their part under the will, but not if you divorce.

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4. Dependent Relative Revocation (Presumed Conditional Revocation): a. Definition: Dependent Relative Revocation is a common law doctrine of

conditional revocation that permits a court to disregard a purported revocation of a will.

b. Situation: This doctrine is used where a subsequent will was made with the intent to replace the prior will, but there is a problem with the validity of the subsequent will. The testator’s purported argument is that had he known that the subsequent will was invalid, the testator would never have revoked the prior will.

c. Presumption: Due to the circumstances, the prior will shall be revived.d. Typical Fact Pattern:

i. Testator has an effective will.ii. Testator effectively revokes the will or a provision in the will, with the intent of

replacing it. Revocation can be by revocatory act or by subsequent will that expressly revokes.

iii. Testator attempts to execute a replacement for the will or provision that testator had revoked.

iv. Testator’s attempted replacement of the revoked will or provision fails to meet the statutory requirements of an enforceable declaration of testamentary intent.

e. Issues to Address (five):i. 1. EPIC 2502: Is there an effective will?

(a) If no, intestacy. (b) If yes, go to the second issue.

ii. 2. EPIC 2507: Was the will or a provision in the will effectively revoked? If so, how? (a) If no, Will #1 controls. (b) If yes, there was an effective revocation and go to third issue.

iii. 3. EPIC 2502: Is there an attempt at a new will or new provision? If so, is it effective? (a) If no, the estate goes into intestacy (at least to the part that was revoked). (b) If yes, and it is not effective, then move to the fourth issue.

iv. 4. EPIC 2503: If the attempted new will or provision is not effective, is there a chance that the “Harmless Error” section of EPIC will save the attempted replacement will or provision? (a) If so, what is the remedy? The replacement will or provision is valid, and

will be operative. (b) If not, then we go to Issue #5.

v. 5. Will the court invoke the equitable doctrine of Dependent Relative Revocation to save the “revoked” will or provision? (a) The answer depends on whether there is evidence to show that the

revocation of the first will or provision in it was conditioned (dependent) on the validity of the new will or provision.o (1) Does it appear that the testator revoked the will or provision no

matter what?o (2) Or does it appear that the testator would have wanted the revoked

will or provision to remain valid if the attempted replacement fails?

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Note: Always compare intestacy and the second will to what was intended.

(b) If the court uses the doctrine of Dependent Relative Revocation, what is the remedy? Revive the revoked will or provision (the first one), because the revocation was dependent on a condition that failed. o If the doctrine is not used, the will is revoked and the estate goes to

intestacy. f. LaCroix v. Senecal – In re Dupre’s Estate:

i. Facts: Testator died with a will leaving half of her real and personal property to her nephew and the other half to an unrelated person (Aurea). There was also a codicil made a few days after the will where all provisions remained the same but the testator clarified her nephew’s name. One of the witnesses to the codicil was Aurea’s husband (note that this is not a MI case. If it were, there would be no issue because it is okay in MI to have an interested party as a witness).

ii. Holding: The sole purpose of the testator executing a codicil was to make a minor clarifying change to eliminate uncertainty as to her nephew. This was her only intention. When the codicil is considered together with the will, as it should be, it is clear that her intention to revoke the will was conditioned upon the execution of a codicil which had the same disposition. Therefore, even though the codicil is void, the conditional intention of the testator to revoke the will was rendered inoperative, and the gift to Aurea under the will continued in effect.

g. Carter v. First United Methodist Church of Albany:i. Facts: Testator had a will, but it had pencil lines through certain provisions and folded with it,

there was a written will, but it lacked signature and witnesses. The court probated the will that had lines in it and found that the testator did not intend to revoke her will.

ii. Holding: The written will was invalid due to it lacking certain requisites. Even though the original will showed evidence of cancellation, under Dependent Relative Revocation, it should be given effect. The court looked at her intentions: She had everything bundled together, and it was clear that she intended to use the new one over the old one. When comparing intestacy to the old will, the old will looked more like her intentions from the new, invalid will, and therefore DRR kicked in.

5. Refer to Will Revocation Problems – EPIC 2507 Problems 1-6 (covered in week 6).6. Refer to Wills Review Question on Dependent Relative Revocation.

O. Revival of a Revoked Will:1. EPIC 2509:

a. Where you have a valid first will that is then revoked by a second will, and then the second will is revoked, use the chart below to determine what happens to the first will:

Subsection What did Will #2 do to Will

#1?

How was Will #2 revoked?

Is there a Will #3?

What happens to Will #1?

(1) Wholly revoked will #1

Revocatory Act No Will #1 is presumed to stay revoked.

(2) Partially revoked Will #1

Revocatory Act No The part of Will #1 that was revoked by Will #2 is presumed

to be revived.

(3) Either wholly or partially revoked

Will #1

By Will #3 Yes Will #1 (or the part of it that was

revoked by Will #2

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if Will #2 only partially revoked

Will #1) is presumed to stay revoked, unless

Will #3 says otherwise.

Note: The presumptions in sections (1) and (2) can be overcome by evidence of the circumstances of the revocation or the testator’s contemporaneous or subsequent declarations. b. Refer to EPIC 2509 Problems #1-3 (covered in week 6).

2. Republication by Codicil: This is a common law concept.a. A codicil is meant to make a change.b. When you execute a valid codicil that amends a prior will, it has the effect of

republishing the prior will.c. It brings the will forward as if the will was executed at the date of the codicil.d. This affects spouses and children (especially after-married spouses), SO PAY

ATTENTION to this stuff when you have republication. e. Refer to Republication by Codicil Problem (covered in week 6).

P. Classifications of Gifts and Abatement – EPIC 3902:

1. Introduction:a. Abatement, Defined: Abatement is the reduction of a testamentary gift in order to

pay some other obligation of a higher priority. Abatement is the process of determining which gifts will be reduced, in what order, and by what amount.

b. When does this come into play? Abatement may be necessary any time the testator’s estate is insufficient to pay all the estate’s obligations.

c. EPIC 3902 – Order of Abatement where there isn’t enough money in the estate: It is the opposite of the order of distribution.i. (1) Property not disposed of by the will

ii. (2) Residuary Devisesiii. (3) General Devisesiv. (4) Specific Devises

If it gets to this point, you can ask for contribution or sell all and make adjustments.

d. If the will expresses a different order for abatement, the will controls (pro rata share).

2. Types of Gifts/Devises:a. Specific Devise:

i. Defined: A specific gift is a particular thing that can be identified as part of the testator’s estate.

ii. Examples: 1998 Jordan Tennis Shoes, My shoes, My Checking Account

iii. If we have to sell a specific devise to cover certain costs, it doesn’t necessarily mean that the person who should have received the specific

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devise gets nothing – EPIC 3902(4): If the subject of a preferred devise is sold or used incident to administration, abatement shall be achieved by appropriate adjustments in, or contribution from, other interests in the remaining assets.

b. General Devise:i. Defined: A general gift is of a certain quantity or type of property, but it does

not refer to, and is not payable out of, any particular asset of the estate.ii. Example: Money, i.e. I give a sum of $1,000 to Joe.

c. Demonstrative Devise:i. Defined: A demonstrative gift is a gift that combines the characteristics of both

specific and general gifts. Like a general gift, it is of a quantity or type (but not a specific item) of property; but it is to be satisfied out of a specific fund or asset source if available, otherwise from the general assets of the estate.

ii. Example: $10K from Checking Account to John.iii. How is this treated for distribution?

To the extent that there is money in the source, it is treated as a specific devise.

If there isn’t money in the source, it is considered a general devise. d. Residual/Residue Devise: Clean-Out Clause

i. Defined: A residuary gift is of whatever remains in the estate after the payment of specific, general, and demonstrative gifts. The fund it represents is referred to as the residue.

ii. Example: The rest of my property goes to Bob.

3. Order of Distribution (of Assets): The order of distribution is important because the estate may not be big enough to cover everything.

a. First, pay the priority expenses/family allowances under EPIC 3805, in the order below.i. Administration

ii. Funeral Costsiii. Homestead Allowanceiv. Family Allowancev. Exempt Property

vi. Debts and Taxes with Priority under Federal Lawvii. Medical and Hospital Expenses of Decedent’s Last Illness

viii. Debts and Taxes with Priority under Laws of the Stateix. All Other Claims

b. Second, find out if there are forced shares or omitted spouses or children. These must be taken out of the estate before people can receive their devises.i. NOTE: If any of the above expenses exist, devises will ABATE according to

the order of EPIC 3902.c. Third, Specific Devises.d. Fourth, General Devises.e. Fifth, Residual Devises.

i. This is given last because this is the only way to know what is left.f. NOTE: In any particular class, each person in the class must be probated equally.

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g. NOTE: If the will expresses a different order between the second and fifth order of distribution, the will controls.

4. Refer to Abatement – EPIC 3902 Problems and In re Tamika Williams Problem (covered in week 7).

Q. Contracts to Make Wills:

1. In General:a. Will Contract, Defined: A will contract is not actually a will, but is a document

that affects wills. Since it is not a will, it is not probated as such.i. A will contract is an agreement, with consideration, by a testator to execute (or

not to revoke) a will containing particular provisions. Proving Consideration:

o One way to prove consideration is to die having performed.o Another way to prove consideration is if you irrevocably departed with

something.ii. Consequence of breaking the agreement: If the testator does not follow

through on the agreement, it creates a cause of action – sue for breach of contract.

b. Disfavored: Courts disfavor contracts to make a will, but they will most likely be enforced.

c. Common Situations for Contract to Make a Will:i. Someone performs personal services with expectation of a bequest in will

ii. Mutual willsd. Rigby v. Powell:

i. Facts: Husband and wife had mutual wills. But, wife ended up executing a different will leaving husband a life estate on the condition that he doesn’t remarry. Husband says this is invalid.

ii. Holding: Wife breached the contract, which had valid consideration because husband left property in her name, under the mistaken belief that she had performed her contract. The court must honor the contract.

2. First Level of Analysis – EPIC 2514: Can I prove there was a contract under EPIC 2514?

a. A contract (made after July 1, 1979) to make a will or devise, not to revoke a will or devise, or to die intestate, if executed after the effective date of this act, can be established only by 1 of the following:i. A provision of a will stating material provisions of the contract; OR

ii. An express reference in a will to a contract and extrinsic evidence proving the terms of the contract; OR

iii. A writing signed by the decedent evidencing the contract.b. If you have one of these three things, you can bring it is as evidence to prove that

there was a contract but it is not the contract that you are probating.c. Unless one of these three things exists and the contract was entered into after 1979,

the person cannot just come, in Michigan, and say there was an oral contract. It cannot be proved without one of the three things above.

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d. Burden of Proof: The party seeking specific performance of a contract to leave property under a will has the burden of proving the contract. A petitioner is therefore required to prove an actual express agreement and not a mere unexecuted intention.

3. Second Level of Analysis – Can I come under some theory of unjust enrichment and at least get compensation for services performed?

a. If you cannot prove there was a contract, look for an implied contract, and receive quantum meruit for the services performed.

4. Two Types of Contracts:a. Contracts Implied In Law:

i. This is not a contract, but an obligation imposed by a court to do justice because it would be unfair not to get compensation for performance.

ii. Courts will not enforce the contract where there is a “relationship” because there is a presumption that it is reasonable to expect the person to get these services for free, where the persons are related by blood or marriage OR where parties that live together act like they are married.

b. Contracts Implied in Fact:i. The concept is that there are services performed for which there is an expectation

of payment, but at that time, there is no meeting of the mind. In this case, extrinsic evidence may be used to prove services were provided

with the expectation of payment.ii. Note: In Michigan, if the subject of the contract is a will or devise, and services

are rendered merely on the expectation of a legacy, you cannot come in under this theory; you cannot try to prove a contract-implied-in-fact.

c. In re Estate of McKim:i. Facts: The decedent died without a will, leaving three heirs at law. The petitioner, a non-

relative, lived with the decedent as his caretaker from several years. In return for her services, petitioner claims that decedent contracted with her to inherit the house and $100,000 under the terms of decedent’s will.

ii. Holding: Petitioner’s claim was barred. Petitioner testified that she and the decedent expressly agreed that the decedent would leave her a bequest under the terms of his will in exchange for personal services. This alleged oral agreement is properly characterized as an agreement to make a will, or devise, because the terms come due after the promisor’s death. However, the decedent died without a will, and petitioner neither alleged nor offered a writing signed by the decedent evidencing the alleged contract. This means that the petitioner failed to meet her burden of proving that an agreement to make a will or devise existed.

R. Mutual and Joint Wills:1. Definitions:

a. Joint Will: A joint will is one physical document that consists of two people’s wills, both of which have executed them.

b. Mutual Will: A mutual will is two documents (wills) that mirror each other, or have the same provisions; reflection of each other’s wills.

2. EPIC 2514 – Presumption: Just a fact that a mutual or joint will exists does not create a presumption that there is a contract. You still need other evidence of a fact that they planned to do this together and had no intent of changing.

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3. Where there is evidence of leaving the mutual will the way it is: Either party can revoke it before death, but after the death of one, it becomes a contract that is sealed. The court says that until the point that one of two spouses died, having performed the contract, there is no consideration for the contract.

4. O’Connor v. Immele:a. Facts: Decedent and husband entered into a mutual contract to dispose of their estates by mutual and

reciprocal wills. However, at decedent’s death, it turns out that decedent violated the contract and did not leave the husband the estate.

b. Holding: The facts were exceedingly persuasive that the wills were made in accordance with an agreement – the wills were made as a result of a mutual agreement.

S. Matters of Inclusion: This is a way to add outside items into a will that would not normally meet the will requirements. ON THE EXAM, GO THROUGH ALL FOUR DOCTRINES SO YOU DON’T MISS AN ISSUE.

If you are in a situation where you are trying to interpret a will and you need outside information, these are the steps to follow:

(1) Is it a codicil?(2) If not, work through the doctrines below.

If you cannot get the outside information in from one of these doctrines, then outside evidence cannot be brought in for the purpose of interpreting the will.

1. Doctrine of Integration:a. Defined: Integration is the inclusion in one whole document, or series of

documents, of all the writings that constitute a will.b. Purpose: Integration simply pertains to what pieces of paper are to be probated as

the testator’s “will.”c. What will be integrated? Only those things that were in front of the testator and

were intended by the testator to be included at the time of execution will be integrated.

d. Presumption: A presumption is made that when the will and other pages are found together, we will presume that the testator had all the documents present at the time the will was made.i. Refer to the Sky Dancer case.

e. Ways to Ensure Integration:i. Physical attachment

ii. Put page numbers on the documents, i.e. 1 of 10.iii. Make sure sentences run on to the next page to show that they go together.

f. Question to Ask Yourself:i. Would the document, by itself, be a valid codicil?

If yes, it may be integrated. If no, move on to the other doctrines.

2. Incorporation by Reference:a. In General:

i. Defined: Incorporation by reference is a process for giving testamentary effect to documents that are not physically a part of the executed will.

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ii. Rule: In order for extrinsic paper to be incorporated into a will by reference, such paper must be in existence at the time of the execution of the will; and the description of the paper in the will must not be so vague as to be incapable of being applied to any instrument in particular, but must describe the instrument intended in clear and definite terms.

iii. Appeal of Bryan, Estate of Philo S. Bennett: Facts: Decedent died with a will. The will had a provision where it bequeathed $50,000 to

his wife for a specific purpose, which the will stated could be found in an attached letter. The probate court refused to approve the writing as part of the will.

Holding: The probate court did not error. The document that was sought to be incorporated must be in existence at the time of execution of the will and there must be a reference in the properly executed document to the informal document as an existing one, and not a future document. The language regarding the specific purpose is unclear and ambiguous, with no specific document being referenced. Anyone could have sealed the letter and attached it to the will.

b. EPIC 2510: Elements for Incorporation by Reference – i. (1) The writing has to be in existence when the will is executed.

ii. (2) The language in the will must show testator’s intent to incorporate.iii. (3) The will provision must describe the thing being incorporated specifically –

clear and definite terms.c. Refer to Incorporation by Reference Problems (covered in week seven).

3. Written List of Tangible Personal Property:a. EPIC 2513: A will may refer to a written statement or list to dispose of items of

tangible personal property not otherwise specifically disposed of by the will (other than money), where the following ELEMENTS are met:i. (1) The list is handwritten OR typed with a signature at the end;

ii. (2) The list has to describe items and devisees with reasonable certainty;iii. (3) There has to be some reference in the will to the list, but not the same type of

description needed by incorporation by reference.b. NOTE: The list can be made before or after the execution of the willc. NOTE: Stocks and bonds are intangible and therefore cannot be on the list.d. NOTE: The list cannot contain anything that is specifically devised in the will

because the will trumps the list, and will control distribution.

4. Facts of Independent Significance:a. Defined: Facts of Independent Significance is a doctrine that gives testamentary

effect to facts or circumstances that are not a part of the executed will.b. EPIC 2512:

i. If the outside source exists for some other purpose besides distribution of the estate, it is a fact with independent significance (this is the only requirement).

ii. 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.

iii. The act or event can occur before OR after the execution of the will OR testator’s death.

iv. Example: The will states, that I leave $100 to every student in my Trinity 2007 Wills Class. Even though the will leaves the gift, the names of the students are not provided. However, I can go to the Registrar for the list of students who were enrolled in that class and write them their

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checks. The registrar is an independent source, and the court will allow the personal representative to go outside the will to get these names. The list existed for some reason besides the distribution of the property.

c. In the Matter of Tipler:i. Facts: The decedent executed a will, and later executed a holographic codicil to the will, which

directed that, if her husband predeceased her, her property should be distributed in accordance with his will. At the time of the codicil, the husband didn’t have a will yet. Then, husband made a will sometimes after. Enforcement of the codicil was contested by decedent’s heirs.

ii. Holding: The doctrine of facts of independent significance is applicable in this case to permit testator’s codicil to refer to husband’s will, provided the document is a valid holographic codicil.

d. Refer to Facts of Independent Significance Problems (covered in week seven).

VIII. CHANGES IN CIRCUMSTANCES

A. Ademption:

1. Ademption by Extinction:a. Definition: Ademption (by extinction) is the nullification of a bequest of property

because it is no longer in the testator’s estate at the time of death. i. At the time I make my will, the property is in my estate, but at the time of my

death, I no longer own it.b. What does it apply to? Ademption by Extinction applies to specific bequests only.c. Common Law Theory – Identity Theory: If the identical piece of property that is

devised in the will doesn’t exist at the time of testator’s death, it is presumed that the devisee was cut out of the will. The testator’s intent does NOT matter under here. i. Wasserman v. Cohen:

Facts: Trust said, “to Wasserman, my apartment building.” However, the deceased never put the building into a trust, and instead, sold the building. Wasserman wanted the money from the sale.

Holding: The court presume that the intent was to get rid of the building, or to adeem the devise. The Doctrine of Ademption applies to the trust, since the testator disposed of it during his lifetime, no matter was his intent or motive was.

ii. In common law, the courts will sometimes try to soften the rule.d. EPIC 2606 – Intent Theory: This applies ONLY to specific devises (and not to

residue or general) and pretty much throws the concept of Ademption in the garbage. i. Summary: A specific devisee is given property that has replaced property

specifically devised, and even if there has been no replacement, the devisee receives the equivalent in value UNLESS the evidence or circumstances indicate that Ademption was intended. In other words, intent is determinative.

ii. Presumption: There is a presumption against an intent to adeem.iii. The Actual Rule: A specific devisee has a right to the specifically devised

property in the testator’s estate at death and all of the following: (a) Any balance of the purchase price, together with any security agreement,

owing from a purchaser to the testator at death by reason of sale; (b) Any amount of a condemnation award for the taking of the property

unpaid at death;

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(c) Any proceeds unpaid at death on fire or casualty insurance on, or other recovery for, injury to property;

(d) Property owned by the testator at death and acquired as a result of foreclosure, or obtained in lieu of foreclosure, of the security interest for a specifically devised obligation;

(e) Real property or tangible personal property owned by the testator at death that the testator acquired as a replacement for specifically devised real property or tangible personal property.

(f) Unless the facts and circumstances indicate that Ademption of the devise was intended by the testator or Ademption of the devise is consistent with the testator’s manifested plan of distribution, the value of the specifically devised property to the extent the specifically devised property is not in the testator’s estate at death and its value or its replacement is not covered by subdivisions (a) to (e).

e. Two Places Where Ademption by Extinction ARE NOT Applied:i. General Devises

ii. Residual Devisesf. Ways Around Ademption by Extinction:

i. .ii. .

iii. Change in form; sometimes the court will do that.g. EPIC 2607 – Non-Exoneration: If a specific devise or a transfer has a mortgage or

other security interest on it, the obligation passes on to the devisee, without the right of exoneration, regardless of a general directive in the will to pay debts.

h. Refer to Ademption by Extinction Problems (covered in week eight).

2. Ademption by Satisfaction:a. Definition: Ademption by Satisfaction is the abrogation of a bequest by an inter

vivos gift made by the testator to the legatee.i. The owner of the property has made a pre-death gift intended to take the place of

one at death. A bequest is satisfied only if the testator so intended at the time of the gift. Such an intent usually is presumed if property of a similar nature to that bequeathed is given to a beneficiary.

ii. NOTE: Ademption by Satisfaction is the testate version of advancements for intestacy.

iii. Hypo: If testator’s will gives $10,000 to Lynn and the rest to Ted, and then a year later testator gives Lynn a check for $7,500 with a note in the memo line that this is to be subtracted from the gift in the will, Lynn will get $2,500 under the will. The check (with the memo line) serves as a contemporaneous writing, proving that the gift is in satisfaction of the devise or shall be deducted from the value of the devise. Difference between Advancement (intestacy) and Satisfaction (testacy):

o Advancement: If Lynn were to die before T, the check is ignored.o Satisfaction: If Lynn were to die before T, the check is still taken into

account under the lapse and anti-lapse statutes. Lynn’s child would get $2,500. UNLESS the testator’s contemporaneous writing provides otherwise.

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b. What does it apply to? Satisfaction usually applies only to general gifts, like money.

c. Doctrine of Ejusdem Generis: If what is given inter vivos is not of the same nature as the thing bequeathed, a satisfaction will not be presumed; if property is both specifically enumerated and generally described, it is presumed that reference is only to the kind of items enumerated.

d. EPIC 2608: Property a testator gave in his or her lifetime to a person is treated as a satisfaction of a devise in whole or in part only if any of the following are true:i. (a) The will provides for a deduction of a gift;

ii. (b) The testator declared in a contemporaneous writing that the gift is in satisfaction of the devise or that its value is to be deducted from the value of the devise;

iii. (c) The devisee acknowledges in writing that the gift is in satisfaction of the devisee or that its value is to be deducted from the value of the devise.

iv. NOTE: For purposes of partial satisfaction, property given during the testator’s lifetime is valued as of the time the devisee came into possession or enjoyment of the property or at the testator’s death, whichever occurs first.

B. Exoneration/Non-Exoneration – EPIC 2607:1. Refer to section VIII, A, 1, g.

C. Accretion/Accession – EPIC 2605:1. Defined: Accessions and Accretions are additions to or increases in the value of

bequeathed property that accrue before the death of the testator or before distribution to the beneficiary.

2. Examples of Property: Interest on a bond, dividends on shares of stock, securities, and even improvements to real property.

3. EPIC 2605 – Increase/Additions in Securities:a. If the testator executes a will that devises securities that he already owns, the devise

will include any increase or addition that is acquired after the will is executed if the securities are any of the following:i. Securities of the same organization acquired by reason of action initiated by the

organization or related organization (not including the exercise of a purchase option);

ii. Securities of another organization acquired as a result of a merger, consolidation, reorganization, or other distribution;

iii. Securities of the same organization acquired as a result of a plan of reinvestment.4. Refer to Accretion Problem (covered in week 8).

D. Lapse and Anti-Lapse: This is when the people change rather than the property.

1. Definition of Lapse: Lapse is the termination of a testamentary gift because the beneficiary predeceased the testator or is unable or unwilling to accept the gift.

2. Anti-Lapse Statutes: Some states have these statutes, which save lapsed gifts and give them to other persons, creating a substitute gift for the devisee’s descendants.

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a. Lapse will occur UNLESS:i. Anti-lapse statute can save it OR

ii. There is an alternative deviseb. When Confronted With a Lapse/Anti-Lapse Problem, Ask the Following

Questions:i. Did a devisee predecease the testator?

To use anti-lapse, the devisee must die before the testator.ii. Did the testator’s will provide for an alternative devise?

If yes, the will supersedes a substitute gift, and do the analysis for an alternative devisee.

If no, go to step 3.iii. Is the devise: (If the devisee is a protected member, go to step four; if not,

then the gift is not protected by the statute). Testator’s grandparent; or The decedent of testator’s grandparent; or Testator’s stepchild? Note: Any devise that fails/lapses, other than a residuary devise, becomes

part of the residue. If it lapses and is part of the residue, then it goes to intestacy.

iv. Did the devisee leave surviving descendants? If yes, then the gift is saved, and the gift passes through to his descendants.

3. Common Law Rule for Lapse:a. Generally, if the devisee doesn’t survive the testator, the devisee’s gift is completely

removed.i. In some states, the gift would go to intestacy rather than the residue.

ii. If it happened to be the residue beneficiary who died, then it would go to the laws of intestacy.

b. In re Estate of Ulrickson:i. Facts: Testator died with a will leaving several specific bequests, and then leaving the residue to

her brother and sister, and also saying if one dies, then all to the other. But, both died, brother leaving two children and sister leaving no issue.

ii. Holding: The anti-lapse statute kicked in and gave the brother’s issue the residue because this is favored over intestacy.

4. Statutory Rule/Anti-Lapse (EPIC 2601-2604, 2608):a. The Assumption: With an anti-lapse statute, it is assumed that the average testator

would not want the gift to lapse, so instead, it goes to the issue of the devisee (rather than the residue or intestacy).

b. Who does it apply to? Anti-lapse only applies to a devisee’s grandparents, the grandparent’s descendants (which is pretty much anyone who can take under the laws of intestacy), and stepchildren (only circumstance where stepchildren are protected).

5. EPIC 2603(1) – Is there a substitute gift?

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a. The anti-lapse statute will create a substitute gift if the devisee left descendants and the devisee was part of the protected group. If the devisee is not part of the protected group, the anti-lapse statute offers no protection.

6. Who Gets the Substitute Gift?a. Where the Devise is a Class Gift:

i. Each surviving devisee takes the share to which he or she would have been entitled had the deceased devisees survived the testator. Each deceased devisee’s surviving descendants who are substituted for the deceased devisee take by representation the share to which the deceased devisee would have been entitled had the deceased devisee survived the testator.

ii. Class Gift: A class gift is a gift devised to a class of people, i.e. a single gift/amount that is to be divided among a class of people. The number of people in the class must be determined, and the tricky part is figuring out who is in the class. When does the class close? It closes at a certain time, i.e. rule of

convenience – if at the time the testator dies there is at least one person that is in the class, the class closes right then, even if others are not yet born.o If you are in gestation and then live at least 120 hours after you are born,

you are treated as born.o If no one from that class is eligible at the time the testator dies, you have

to wait for all of them to be born before you close the class. Can the class close before the testator’s death? Yes. For instance, if the

class is “all my nieces and nephews,” and yet you have no living siblings, and no parents alive who can create more siblings, that means it is impossible for anyone else to join the class, so it is closed.

b. Where the Devise is Not a Class Gift:i. If the deceased devisee leaves surviving descendants, a substitute gift is created

in the devisee’s surviving descendants, who take the property by representation.

7. What if There Was an Alternative Devise?a. If the will creates an alternative devise with respect to a devise for which a substitute

gift is created by death of a devisee, the substitute gift is superseded by the alternative devise ONLY if an expressly designated devisee of the alternative devise is entitled to take under the will.

8. Words of Survivorship – EPIC 2603: a. Words of survivorship, such as in a devise to an individual “if he survives me” or in

a devise to “my surviving children,” are not, in the absence of additional evidence, a sufficient indication of an alternative devise, so they are made into substitute gifts.

9. Refer to Lapse/Anti-Lapse Problems (covered in week 8).

E. Prohibited Will and Trust Provisions:1. Introduction:

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a. Ordinarily, we want to honor the testator’s intent. However, sometimes we cannot honor the testator’s intent where there is a “bad provision.”

2. Examples of Bad Provisions:a. Defrauding Creditorsb. Fostering Illegal Activityc. Against Public Policy (like restraints on marriage)

3. Restraints on Marriage:a. Restraints on all first marriages:

i. General Rule: Marriage is a fundamental right; a flat prohibition on your first marriage is not going to be upheld; however, reasonable restraints will be upheld.

b. Restraints on some first marriages:i. To a particular person

ii. To a member of a group Shapira:

o Restraints are allowed UNLESS it’s a blanket bar; then, it’s against public policy.

c. Restraints on marriage until reaching a designated age:i. A restraint on a first marriage is okay where the restraint is until you reach a

designated age, if the designated age is reasonable (like 25 or less). Reasonable means that the restraint doesn’t look like it’s acting as a complete ban (like a restraint until the age of 70).

4. Restraints on Remarriage:a. There is more leeway when dealing with a remarriage.b. A spouse can say that they will allow the other to receive money until they remarry.

This is reasonable even though it is a total restraint.5. Encouraging Separation or Divorce:

a. Restraints encouraging separation or divorce are against public policy.6. Provisions Concerning Religion:

a. A restraint on your spouse’s religion is okay.b. However, it is a fundamental right to practice religion, so a restraint on the devisee’s

religion will not be upheld. 7. Provisions Concerning Personal Habits:

a. A restraint that encourages bad behavior/habits is against public policy.b. A restraint encouraging good behavior/habits is okay and will be upheld.

8. Refer to Prohibited Trust or Will Provision Problems (covered in week 8).

VIII. TRUSTS

A. The Basics:

1. What is a Trust?a. Definition: A trust is a fiduciary relationship with respect to property, in which one

person (the trustee) holds property (the trust res) for the benefit of another person

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(the beneficiary), with specific duties attaching to the manner in which the trustee deals with the property.

b. Split of Title:i. Legal Title:

Definition: Legal title is the interest in trust property held by the trustee of a trust.o The legal title represents the “official” title, giving the holder the right to

sell, encumber, or otherwise deal with the property, although for the benefit of another.

ii. Equitable Title (Beneficial Title): Definition: Equitable title is the interest in trust property held by a

beneficiary of a trust.o The equitable title represents the beneficial interest in the trust property,

i.e. the right under principles of fairness and equity to the enjoyment of its fruits.

iii. Refer to Splitting Legal and Equitable Title Problems (covered in week 9). c. Purposes of Trusts:

i. The settlor is concerned that the beneficiary cannot take care of the gift himself.ii. The beneficiary is a minor and doesn’t have the ability to handle the property.

iii. A trust is a good vehicle for managing successive interests (multiple interests is a property), like where there are two beneficiaries (to my wife for life and then the kids after her death).

iv. Avoiding certain taxesv. Separating management from enjoyment

2. Types of Trust:a. Express Trusts: An express trust, sometimes referred to as a direct trust, arises by

virtue of the intentional act of its creator, the settlor.

i. Inter Vivos/Living Trust: Definition: An inter vivos trust is a trust created while the settlor is living; it

is executed and comes to life while the settlor is still living. Purposes:

o Tax reasonso Assistance where the settlor is incapable, i.e. let’s say the settlor is in a

coma. If he were to make a testamentary trust, it could not be touched until he dies, but coma is not death, so the doctor’s note would give the trustee the ability to manage the property.

Pour-Over:o Sometimes a testator’s will directs that property in the estate (like the

residue) be transferred to an existing inter vivos trust. The trust is then termed a pour-over trust, and the will a pour-over will.

o EPIC 2511: Those devises that pour over into the trust are still considered inter vivos, rather than testamentary. The property passes right out of the will to the trustee and the trust will operate under the trust agreement.

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o NOTE: If the trust is revoked before the death of the settlor/testator, the bequest lapses.

Method of Creation of Inter Vivos Trust:

ii. Testamentary Trust: Definition: A trust is testamentary if it is created by will or by a

testamentary document. It is subject to probate.

iii. Private Trust: Definition: A private trust is a trust that has a purpose of benefiting a small,

discrete number of people, i.e. like all my children.

iv. Charitable Trust: Definition: The trust itself has a purpose of benefiting a large charitable

class; the purpose is to primarily benefit the general public or a segment of the public.

b. Implied Trusts: An implied trust arises by operation of law, without anyone’s expressed intention to create it.

i. Constructive Trust: Definition: A constructive trust is an equitable device used to avoid unjust

enrichment of a person who receives property from another under circumstances that would make retention unconscionable.

Example: In a state where there is no Slayer Statute, there is a slayer. To avoid unjust enrichment, that person will hold legal title, but they have to use the property for the benefit of someone else.

ii. Resulting Trust:Definition: A resulting trust is what occurs where a settlor tries to create a trust

and there is some sort of failure; a resulting trust is created and the trustee holds the property for the benefit of the heirs of the settlor.

Example: Settlor creates an express trust where beneficial title goes to A for income for the rest of A’s life, but then it doesn’t direct what to do after that. A resulting trust forms here.

iii. Dry Trust (Naked Trust, Passive Trust):Definition: A dry/passive trust is where the trust creates no duties in the trustee,

which means the trust doesn’t meet the necessary requirements. Result: The trust is ineffective and results in legal title passing to the

beneficiaries. Exception: Life Insurance Trust – this is a passive trust, where the res consists

of the proceeds of a life insurance policy, or the policy itself. Its recognized importance as an estate planning devise has allowed for such trusts to be declared valid, sometimes reasoning that a trustee who watches and waits for the insured’s death is performing “active” duties.

3. The Parties:a. Settlor (Donor, Grantor, Trustor):

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i. Definition: The settlor is the person who creates a trust (usually called a settlor when an inter vivos trust is created and a trustor when a testamentary trust is created).

b. Trustee:i. Definition: The trustor is the person who, in a trust relationship, holds and deals

with trust property for the benefit of another (the beneficiary). ii. Title: Legal title.

iii. Note: There can be more than one trustee, i.e. co-trustees, but they all have to agree in order to take action on the trust.

iv. Note: The trustee can be a beneficiary, BUT NOT WHERE the sole trustee is also the sole beneficiary.

c. Beneficiary (Cestui Qui Trust, Grantee, Donor):i. Definition: The beneficiary is the person who is entitled to the benefit of

property held in trust and to whom the duties of the trustee are owed.ii. Title: Equitable title.

iii. Note: A trust may have one or more beneficiaries; they may include anyone capable of holding an equitable interest in the trust property, including the settlor.

iv. Note: A trust must have definite, ascertainable beneficiaries such that it is clear (or will be when enjoyment of their interest would begin) who is included and who is not, and therefore who has a right to enforce the trust.If the description of beneficiaries is omitted or too vague and indefinite, and it

cannot be interpreted to mean some more definite class of persons, the trust will fail.

d. Remainder Beneficiary (Distributee): i. Definition: Sometimes, beneficiaries may hold either concurrent or successive

interests; the successor holds a future interest, or the remainder after a different beneficiary holds a life estate.

4. Res (Principal, Property, Corpus, Estate): a. Definition: The trust res is the property that is held by the trustee in trust for the

benefit of the trust’s beneficiaries.

B. Elements of a Trust: Must have all five in order to have a valid trust.

1. Settlor Capacity:a. In order to have a valid trust, there must be a competent settlor and a competent

trustee. b. Settlor:

i. The competence of a settlor for a testamentary trust must be the same as that needed for a will.

ii. The competence of a settlor for an inter vivos trust must be that of the competence needed for a contract, i.e. age of majority, cannot be insane, no mental defect, legal capacity to deal with property, etc.)

c. Trustee:

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i. The trustee would need the ability to manage funds, which is the same ability you need to contract.

ii. If you name an incompetent trustee, the trust will NOT fail for want of a trustee. A trust will NEVER fail for want of a trustee because the court can appoint another one.

2. Intent to Create a Trust: a. Just because the words “in trust” are in the document doesn’t mean that the intent

was to create a trust.b. There has to be clear intent to create a trust; clear language.c. Refer to Intent to Create a Trust Problems (covered in week 9).

3. The Res (or Corpus):a. Every trust must have some res, or property. There must be some “thing” in the

trust.b. What constitutes good res?

i. It can be anything (tangible or intangible), including a future interest.ii. However, you have to have a present interest in that property and contribute it to

the trust. The property right MUST BE IN EXISTENCE AT THE TIME THE TRUST IS CREATED.

c. Transferring Property (the Res) to a Trust:i. There must be some sort of delivery; give the trustee possession of the property.

d. How much control can the settlor retain over the trust?i. Settlor can make a broad transfer, leaving himself no control over the trust (this is

where complete legal title is given away).ii. A settlor may retain some rights to the property.

Income beneficiary while he is alive and then when he dies to someone else (retaining life estate).

Retain interest to use the principal; right to invade the trust with permission of trustee.

Retain the right to revoke the trustRight to amend the trust; right to be flexible.Right to direct investment; say the trust can only be invested in certain ways.

iii. However, retaining too many rights in a trust may result in declaration that the trust is invalid.

Where the settlor makes his trustee more like his agent, the settlor lacks the requisite intent to create a trust OR it can be argued that where the settlor creates so many rights in himself, like making the trustee get written permission from him for every little thing, there is no res because there was no property actually put in the trust.

4. Identity of Beneficiaries:a. A trust must have at least one beneficiary, and the beneficiary(s) must be identified

OR identifiable. b. Example: If someone says my beneficiaries are to be my students in Wills class

from Trinity 2007, these are identifiable beneficiaries.

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c. Note: Where there is clear intent to create a trust, but no identifiable beneficiary, the express trust fails and by operation of law creates a resulting trust, leaving the trustee as the holder of legal title, and the beneficiaries as the heirs of the settlor (which means that it passes on in intestacy).

d. Note: Where the settlor leaves it up to the trustee to determine who the beneficiary is based upon some specific guidelines (like to the person who takes care of me most), the standard for choosing the beneficiary should be enough where all other elements of a valid trust are met.

5. Actual Duties are Required of the Trustee:a. There has to be something for the trustee to do; some duties to uphold.b. If there are no duties for the trustee, the trust becomes a naked trust, and will be

ineffective. c. Refer to Mandatory Duties of Trustee Problems (covered in week nine).

C. Alienability of Equitable Interests: Spendthrift, Discretionary, and Support Trusts deal with alienability.

1. Can Beneficiaries Assign Trust Interests?a. General Rule: Freely Alienable

i. As a beneficiary, you can sell your interest in a trust.ii. A beneficial interest in a trust can be bought, sold, attached and seized by

creditors, and transferred. b. General Rule: Creditors of Beneficiary Can Reachc. Asset Protection Trusts in Five States: There are certain trusts that can be created

to avoid trusts getting into the hands of the creditors.d. How to Prevent Alienability:

D. Spendthrift Trusts:

1. In General:a. Definition: A spendthrift trust is a trust that includes a provision – a disabling

restraint – prohibiting the beneficiary from voluntarily or involuntarily alienating the beneficial interests.i. Example of Spendthrift Language: “S, to T $1,000,000 for benefit of B. T shall pay all trust

income to B quarterly. This is a spendthrift trust. No interest in the income or principal of this trust may be voluntarily or involuntarily transferred, anticipated or assigned by B before payment or delivery of the interest to B by the trustee; nor shall any interest be subject to the claims of creditors.”

b. What does it do? The spendthrift provision prohibits the beneficiary from spending the money before it is distributed to him.

c. How to Create a Spendthrift Trust: i. The settlor would insert a clause stating, in effect, that one or more of the

beneficial interests could not be transferred by the beneficiary and was not subject to payment of the beneficiary’s debts.

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ii. In some states, however, even if no such language is included, all or certain trusts are statutorily presumed to be “spendthrift” in nature with respect to voluntary or involuntary transfers on both.

2. Creditors That Can Reach Trust Assets:a. General Rule: With a spendthrift provision, creditors cannot get to the property

while it is in a trust. However, without a spendthrift provision, creditors can get to property. i. Creditors cannot reach the assets in a spendthrift trust. That is the whole

purpose of the spendthrift provision.b. Broadway National Bank v. Adams:

i. Facts: A trust was created by the decedent for the benefit of his brother Charles. Charles is the income beneficiary and he could expect to receive the income semi-annually during his lifetime, and his payments to be made personally. There is a conflict between the creditors and the settlor’s right to control the property as he sees fit.

ii. Language: “In trust to invest the same in such manner as to them may seem prudent, and to pay the net income thereof, semiannually, to my said brother Charles W. Adams, during his natural life, such payments to be made to him personally when convenient, otherwise, upon his order or receipt in writing; in either case free from the interference or control of his creditors, my intention being that the use of said income shall not be anticipated by assignment.”

iii. Holding: Spendthrift cannot be reached by creditors and cannot be assigned. You cannot restrain alienation of legal title, but can restrain alienation of equitable title.

iv. Why does this case say it is fair? If someone is waiving their trust over you, you can see if the provision is in there, and if it is and you don’t agree with the restraint, then don’t take it. Lenders Beware!

v. American Rule: It’s the settlor’s property and the settlor should be able to do what they want with their property, unless it is against public policy.

vi. English Rule: It is a gift to the beneficiary and you can put this type of restriction on a gift.

c. Exception to Enforceability of Spendthrift Provisions:i. Settlor as Sole Beneficiary – Ware v. Gulda:

Facts: Settlor placed property in trust with bank as trustee (inter vivos trust – irrevocable) and settlor as beneficiary, and then refused to pay the attorney who set up the trust, which had a spendthrift provision in it. Settlor was given 60 days to pay the attorney.

Holding: Generally speaking, you cannot use spendthrift to avoid your own debts. A settlor cannot place property in a trust for his own benefit and keep it beyond the reach of creditors.

You cannot protect yourself from known creditors. General Rule: You cannot set up a spendthrift trust to protect yourself.

ii. Alimony and Child Support – anyone the beneficiary is obligated to support – Shelley v. Shelley: Facts: The trust leaves son payments for life (after mom dies), plus, principal when he

reaches the age of 30 (spendthrift provision). Son is married twice, with two children per wife. Son disappears. In the first divorce, the decree called for child support. In the second divorce, the decree called for child support and alimony.

Language: Each beneficiary is restrained from alienating, anticipating, encumbering, or in any manner assigning his or her interest or estate, either in principal or income, and is without power so to do, nor shall such interest

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or estate be subject to his or her liabilities or obligations nor to judgment or other legal process, bankruptcy proceedings or claims of creditors or others.

Holding: Alimony and child support can break through a spendthrift provision. As to the income, the court will allow the spouses to break through. If the payments to son were discretionary, then the wives probably would not have been able to break through to get the income.

Public Policy: We don’t want the kids and the ex-spouse to have to rely on the state to support them.

d. Other Exceptions:i. Another exception is where the federal government is seeking payments of

taxes.ii. Another exception that MIGHT be able to break through the spendthrift

provision would be a creditor who provided necessities to the beneficiary, i.e. emergency care, shelter, and/or food. This would especially be true of the trust was a support trust set up to take

care of the beneficiary. The person providing the services can make a claim for the trust, provided

that the claim is reasonable in relation to the services provided, and so long as the claim doesn’t undermine the purpose of the trust.

E. Discretionary Trusts:1. There are some states that don’t allow spendthrift trusts, but there are two other similar

trusts that can be used: Discretionary Trust or Support Trust.2. For a discretionary trust, the trustee has the discretion over whether or not to pay,

when to pay, and how much to pay. a. You can give a trustee discretion on a lot of things, but this is not what is meant by

discretionary trust.b. Example: Pay interest to A, at the discretion of trustee. A’s interest is at the discretion of the trustee,

so A cannot force a payment (unless the discretion provision did not exist).i. A’s creditors don’t have the right to force a payment to himself either because A isn’t the one

with the discretion. It is the trustee who has the discretion. 3. Could the creditor attach A’s interest, i.e. can the creditor get between A and the

trustee? Yes, in a discretionary trust, the trustee can use his discretion to give the money to A’s creditor instead of A, because if A is going to get the money, the creditor will get it first.

a. If you have this type of discretion, you have to act in good faith.b. If it looks like the trustee is not using discretion, i.e. deciding not to decide, then

some beneficiary is going to complain, and in some courts, an objective reasonableness standard will be placed on the trustee.

4. Discretionary Language: a. “To T, $1,000,000 in trust for benefit of B. T shall distribute the income to B

quarterly, at T’s discretion. Upon B’s death, T shall distribute the principal and accrued interest, if any, to R.”

b. “To T, $100,000, for the benefit of B. Trustee shall use the income and principal of this trust at T’s full discretion for eduction of B.”

F. Support Trusts:

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1. Definition: A support trust is a trust that directs the trustee to use income (and/or principal) as needed for the support of the beneficiary.

a. Example: Pay income to X. Y. or Z for their support/education/maintenance.b. Here, it is not so much giving discretion on whether to pay; the discretion is on what

support/education/maintenance includes. c. If the trustee cannot come up with a good reason why it is not support, d. A support trust does not protect you from creditors that have provided you with the

necessities of life; however, if the casino is coming to collect, the trustee doesn’t have to pay because they may conclude that this is not for support.

2. Trustee’s Duty: The trustee’s duty is to keep the beneficiary maintained and supported in the way in which he has been accustomed to.

3. Miller v. Department of Mental Health:a. Facts: The settlor is Carol Miller’s father, who set up a trust for himself during his lifetime, and then

to Carol for support if she survives him: Trustee shall pay so much of the income and such amounts of principal as trustee deems proper for her support, maintenance, and welfare. The daughter was in a mental institution, and the hospital wanted money to cover necessities. It was at the trustee’s discretion about how much of the income and principal should be paid.i. There is no question that the State of Michigan was providing daughter with the support and

maintenance of her life.ii. If this is a support trust, the State of Michigan needs to be paid from the trust.

iii. However, if this is a discretionary trust or a hybrid discretionary-support trust, it is at the trustee’s discretion to pay the State of Michigan, and the trustee can refuse to pay. So, if it is a discretionary trust, no money goes to the State.

iv. The language that made the argument towards it being a discretionary trust was “as Trustee deems proper.”

b. Holding: A support trust coupled with a discretionary provision will never allow a creditor to get in. This includes child support, alimony, creditor, or people paying necessities. Case was remanded to determine whether settlor intended discretion to be for total cost, or if it was totally discretionary for costs not covered by the department. i. If a trust is discretionary, trustee doesn’t have to pay.

ii. If a trust is merely a support trust, trustee may only be able to use discretion according to how much he pays (reasonable amount), rather than whether or not to pay.

iii. Note: The trustee doesn’t have to pay legal fees out of their own pocket, so here, the legal fees for the trustee were being taken out of the trust.

4. Typical Support Trust Language: “To T, $1,000,000 in trust for the benefit of B. T shall use the income for the support, maintenance and welfare of B.”

NOTE: You can do a trust that has all three trust provisions in it. It is actually very common.

G. TERMINATION OF TRUSTS: This section deals with when a trust will end.

NOTE: Private trusts cannot go on and on. They must end.NOTE: There are different ways a trust may end: Express terms, Termination Rights, Settlor as Sole Beneficiaries, and others listed under this section.NOTE: It is very common to make trusts revocable by the settlor.NOTE: If the settlor doesn’t retain the right to revoke, can they still revoke it? Yes, if the settlor is also the sole beneficiary.

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1. Express Terms:a. There is something in the trust that provides an actual ending.b. Read the trust and see if there is a natural ending.c. Example: When the beneficiary reaches the age of 18, the principal will be paid out.d. Example: This trust will be a 10-year trust. e. Example: Life estate to B and when B dies, the property passes to C.

2. Settlor as Sole Beneficiary:a. Rule: If you are the sole beneficiary and the settlor, even though you didn’t retain

the right to revoke the trust, the trust may still be revoked because there is no one else to complain.

b. Woodruff v. Trust Company of Georgia:i. Facts: The original trust gave settlor the right to revoke/amend. Settlor amended it to require

trustee’s consent in order to amend/revoke. The trust was payable to settlor during her life, then to settlor’s estate. At some point, the settlor became incompetent and the trustee wouldn’t approve revocation.

ii. Woodruff Trust Language: Donor reserves the right to alter, amend, modify or revoke this trust in whole or in part at any time and from time to time by instrument in writing signed by donor and delivered to trustee, but only with the written consent and approval of the trustee. This trust shall be irrevocable except with the written consent and approval of the trustee.”

iii. Holding: Where the settlor is the sole beneficiary of an inter vivos trust, the settlor can terminate the trust even though the trust was by its terms irrevocable. To have the right to terminate is to also have the right to revoke. Nobody else has an interest and the court is protecting her intent as the settlor.

iv. Note: As long as there is a good faith reason to contest competency, the trustee can take attorney fees from the trust.

3. Mistake, Challenge, Undue Influence, Fraud, Duress, Bad Execution, Etc.a. Will challenges can be used against a trust.b. If the challenge is successful, the trust is void.c. Challenges can terminate trust by undue influence, fraud, and duress.d. Rule:

i. If a challenge on fraud, undue influence, or duress is upheld, the trust property will go back to the settlor’s estate.

ii. When the grantor has not reserved a power to revoke, a voluntary trust may only be set aside upon a showing that it was induced by fraud, duress, undue influence, or mistake.

iii. However, all parties, including those with a future interest, must consent to the revocation of the trust.

iv. Evidence must be clear and convincing to prove mistake; strong corroborating evidence is required to revoke an irrevocable trust.

e. Pernod v. American National Bank & Trust Company of Chicago: MISTAKEi. Facts: Nellie Pernod was the settlor of a voluntary inter vivos trust. The trust was set up to pay

the settlor for life, a sum of money necessary for her welfare and comfortable living. After the settlor’s death, the trustees were to pay the income to the settlor’s daughter, then her granddaughter, then to her great-grandson. The settlor never asked for an irrevocable trust because she said that she didn’t know anything about it being irrevocable, but the attorney says

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otherwise. She claims she thought a trust was like a will. The settlor claimed mistake (in the execution – the document is not what she thought) as a way to try to get the trust revoked.

ii. Holding: Although the attorney admits that settlor may have misunderstood, he also stated that he did explain the trust to her, and this ended up not being enough evidence to convince the court; therefore, the trust is still valid.

iii. Standard for Mistake: It is a very high standard, clear and convincing, and the testimony of only the settlor is not clear and convincing. There has to be some corroboration that you didn’t understand what was going on.

iv. RULE: Absent some clear and convincing evidence of a mistake that is corroborated by another person, the trust will not be revoked due to mistake.

4. Termination by Agreement of Beneficiaries and Trustee:a. General Rule – Consent of All Beneficiaries: If ALL beneficiaries and trustee

agree to terminate the trust, it will be allowed to terminate; all parties of interest must be included.i. This situation is helpful, but of limited help, because all beneficiaries may

not be around yet. ii. Underhill v. United States Trust Company:

Facts: A wealthy mother and daughter were both married to deadbeats. The settlor (mother) makes a trust to mom for life and the power to appoint during life, and the remainder is to the daughter for life (income interest), and then the daughter’s kids for life (ultimate beneficiaries, i.e. principal). Both mom and daughter get a divorce, so they want to terminate the trust because they only had it so the husbands couldn’t be wasteful with the money, i.e. the purpose of the trust was accomplished.

Holding: Even though the daughter has no kids at the time, she still could have kids because she is still alive. Therefore, the interests of the kids are not represented and the trust cannot terminate. It is a conclusive presumption that you can have kids until you are dead, no matter how old you are. o Note: The daughter said that if her children were alive, she would

consent as guardian for the revocation of the trust. However, the court found that this would be a conflict of interest.

b. Exception – The Material Purpose Test: There CANNOT BE A MATERIAL PURPOSE left to the trust – if the court finds that the trust has a material purpose, even where all the beneficiaries agree to terminate, the court will deny the termination of the trust. The settlor’s intent must be honored; note, however, that if the settlor agrees to termination as well as the trustee and all beneficiaries, the trust will terminate. i. The trust CAN terminate if the material purpose no longer exists.

ii. Examples of Material Purpose: (1) Age Limit – it is very common to have a trust provision, which states

income to my children until age 21, and then the principal will be distributed. This is a totally legitimate purpose for the settlor, and even if all beneficiaries agree to end the trust, it won’t matter because the material purpose still exists.

(2) Support Trust – if you set up a trust to support someone, the beneficiary cannot come in and say give me all the money now. The material purpose is to support the beneficiary over time and not all at once.

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(3) Spendthrift Provision – the settlor is trying to protect the beneficiaries from wasteful habits. This is a material purpose, so also note that this gives you reason to think as to whether you do want a spendthrift provision or not.

iii. Claflin v. Claflin: Facts: A testamentary trust was created by will, where wife gets one-third of proceeds from

the sale of the residue of the personal estate, son Clarence gets one-third, and son Adelbert gets one-third, $10,000 at 21, $10,000 at 25, and $10,000 at 30. Adelbert received the first $10,000 at the age of 21 and before he reached 25 petitioned the court to compel the trustees to pay him the remainder of the trust fund, since he was the last beneficiary. His contention is, in effect, that the provisions of the will postponing the payment of the money beyond the time when he is 21 are void.

Holding: The strict execution of the trust had not become impossible; the restriction upon his possession and control is one that the testator had a right to make; other provisions for the son are contained in the will, apparently sufficient for his support. There is no good reason why the intention of the testator should not be carried out. Court will honor settlor’s intent.

iv. Bellows v. Page: This case is an example where there is no material purpose for the trust. Facts: There are two decedents involved, father and aunt. The father’s will left everything

to his wife and daughter, half to be held in trust for daughter by wife, and can be used for support. Aunt’s will also left stuff to daughter in trust to be held by wife. Daughter claimed that she was entitled to absolute title to the property placed in trust for her under the aunt’s will because her aunt’s trust was passive.

Holding: The court agreed that the aunt’s trust was passive (naked or dry trust with no duties for the trustee) and held that the trust imposed no duties on the trustee (wife) and therefore daughter was entitled to absolute title with regard to aunt’s trust; i.e. there was no material purpose. However, father’s trust was an active trust because the trustee had a purpose, i.e. something to do, and therefore he created a support trust (discretionary). If it was a support trust, it has a material purpose so it is remanded for more evidence.

BOTTOM LINE: If all the beneficiaries and the settlor agree to terminate, you really don’t need the

trustee to agree. If the settlor is dead, and the trustee and all the beneficiaries agree to terminate, again,

you will most likely be able to terminate. EPIC 7207: This rule is very similar to a will settlement, but in regards to trusts.

o It allows for a settlement of a trust dispute that provides for something different than what the settlor wanted if all the beneficiaries and the trustee agree.

o The question that is raised by this section is whether there is still validity to the Material Purpose Test. If you are allowed to counter the settlor’s purpose of the trust, it’s almost saying that the Material Purpose Test is irrelevant. This question still exists.

H. TRUST MODIFICATIONS:

1. In General – Modification by the Court:a. Example 13.1 on P. 167: Camille establishes a trust for his wife, Julie, and his infant son Lucien,

Julie to have a life estate and Lucien the remainder. He directs Claude, the trustee, to invest the trust funds in government bonds and similar safe investments, but to retain in the trust certain paintings

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and sell them at a rate of one per year, adding the proceeds to the trust principal. At Julie’s death, Lucien is to receive the remaining principal, including whatever paintings have not been sold. The trust makes no provision for invading the principal. After Camille died, an unanticipated event occurs: Julie needs more money for an emergency operation than the trust income produces. The trustee, Claude, wishes to invade the principal to pay for Julie’s operation. The request probably will be denied, as it would require an alteration in the shares of the trust allocated to the two beneficiaries. i. Can you modify a trust like the one in the example? There is a life

threatening need. Can the trustee go to the court and ask for permission to save Julie? The answer is NO.

ii. The settlor can retain the right to amend the trust, as they can retain the right to terminate the trust. If the settlor doesn’t give someone else this right, it is NOT changeable. You have to go to the court for instruction.

iii. In this situation, the trustee wants to invade the principal to save Julie, but when the change is to change who gets the money, the court almost never allows the change.

b. The Key: Absent getting all the beneficiaries to agree to the change, the trust will not be modified, in regards to dispositive provisions.

c. What about administrative issues? Is there a way to make modification for this?i. Definition: Administrative deviation is deviation from the administrative

instructions because something else needs to be done to accomplish the settlor’s intentions of providing a home for the son.

ii. Refer to Trust Modification Problems (covered in week eleven).iii. Example 13.2, Page 168: Assume the same facts as in Example 13.1. Although Camille had

assumed the fine art market would be fairly stable (or rising) for the foreseeable future, there is a sudden (though probably temporary) collapse of the market. Claude wishes to delay selling any paintings until the market has become more stable. This request, seeking only a change in the method by which the trust is administered, probably will be granted. The court will examine Camille’s purposes in setting up the trust; if it finds that those purposes would be seriously endangered by a strict adherence to the administrative terms of the trust, it will permit the administrative deviation. Here, it is likely that Camille intended to increase the trust’s liquid assets over time by sale of the paintings, but to do so gradually and preserve as many as possible for Lucien. To require a hasty sale under temporarily adverse conditions would serve neither purpose and result in a net loss for both beneficiaries.

2. Who Else Can Modify the Trust?

3. Adams v. Link:o Facts: A will was set up in a trust, with income going to two non-relatives for life, and then to

NY Association for the Blind. Heirs challenge the will. A settlement agreement was made, which was expressly made subject to court approval: 15% to heirs, 37% to NY, and 48% to the remaining beneficiary (the other one died).

o Holding: The court did not allow the modification, which called for termination, because of the settlor’s intent. Settlor intended to assure that beneficiary would have income for life. If we giver her the money outright, she may not have enough to last for life and there may be nothing left for the NY Association for the Blind.

4. In re Bosler’s Estate:o Facts: The will divided the estate into 6 equal shares. One son is an income beneficiary of

$20,000 for life with a spendthrift provision, and then to his issue. The settlor’s intent was to ensure lifetime support and personal comfort. This son was also given the general power to appoint the remainder if he has no issue. At the age of 65, the son had no kids and was about to retire, but the higher cost of living meant that he needed more money.

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o Holding: The court must look at the settlor’s intent and NOT the change of circumstances. The

spendthrift provision is a material purpose; therefore, the trust will not be terminated/modified.

I. POWERS OF APPOINTMENT:

1. In General:a. I have property. Can I say who gets to have it when I die? Yes.b. Do I have the right to give someone else this right? Can someone else decide, i.e.

appoint, who gets to have my property next? Yes.c. Power of Appointment, Defined: Power of appointment is the right (power) to

select (appoint), within prescribed limits, who shall receive an interest in property or how various interests in the property shall be allocated.

d. Primary Function: Its primary function is to permit a person to dispose of property while postponing or giving to another the authority to decide the precise manner of disposition.

e. Different Players in the Power of Appointment:i. Creator of the Right: Donor of the Power

In the first Power of Appointment example, Charles is the donor.ii. Holder of the Power

Sharoniii. Receiver of the Property/Object of the Power: Beneficiaries

Unknown because Sharon can choose.iv. Takers in Default – people who would take where Sharon doesn’t exercise her

power Julie and Jeffrey If no one was named, the property would revert back to Charles and Charles’ estate, since

Sharon only has use of it when she is alive. In the first case, can Sharon appoint it to herself? Can she be the object? Yes.

2. General Powers:a. Definition: General power of appointment is a power of appointment that permits

the donee to appoint to (that includes among its objects) the donee or the donee’s creditors, estate, or estate’s creditors.

b. Example: Charles’ will says, “To my wife, Sharon, my house on Arbor Lane in East Lansing, Michigan, with the power to appoint by deed or by will to whomever Sharon chooses. If Sharon does not exercise the power of appointment, the house on Arbor Lane shall go equally to my niece, Julie, and my nephew, Jeffrey, if the survive Sharon.” i. Sharon could give the property to herself.

3. Limited Powers:a. Definition: Limited power of appointment is a power of appointment limited to a

group or class of permissible appointees that does not include the donee or the donee’s creditors, estate, or estate’s creditors; also known as special power of appointment.

b. Example: Sanford’s will says, “To Ted in trust to pay the income to my wife for her lifetime or until such time as my wife appoints and to distribute the principal to those of my children as my wife shall appoint either during her lifetime or by will. If my wife does not exercise the power of appointment, Ted is to distribute the principal to Bob, my oldest son.”

c. Donor: Sanford

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d. Holder of the Power: Wifee. Potential Objects of the Power: Childrenf. Here, the wife is limited; she cannot give it to herself or to anyone who is not listed.

It can only go to the children, so this is a limited/special power of appointment.i. This might be typical language you would find in a Q-Tip trust as well.

g. Taker in Default: Bobh. Advantage of this Type of Power of Appointment (cannot give to anyone but the

kids, but she gets to choose which one): There is an incentive for the kids to take care of the mom.

IX. ESTATE AND GIFT TAX

A. Federal Estate Tax:

1. In General:a. Federal estate tax can take a large bite out of an estate; it is important to be aware of

taxes.b. A tax is imposed on the total net value of the decedent’s estate as of the date of

death. In general, the net value is the total of the fair market value of all the assets of the estate, less liabilities, charitable contributions, expenses of the estate, and the marital deduction. The tax rate is graduated, increasing from 18% to 45% (2007 rates).

c. Estate tax, generally, is based on the fair market value of the decedent’s assets as of the date of death. Fair market value is what a willing buyer would pay a willing seller, where neither is under a compulsion to complete the sale.

2. The Formula for the Estate Tax:a. Step One: Gross Estate – Deductions = Taxable Estate.

i. Deductions: (1) Liabilities of the decedent, i.e. mortgage, car loan, Visa, any bills that

you owe are subtracted from the gross estate. (2) Cost of administration, i.e. hiring an accountant, lawyer, court costs,

etc. (3) Any charitable gifts, i.e. so if your will contains charitable gifts, they are

subtracted from the gross estate because there is a strong public policy in favor of charity.

(4) Marital deduction, i.e. anything you pass to your spouse on death; 100% of it is subtracted out of the gross estate.

b. Step Two: Taxable Estate x Tax Rate = Tentative Tax.i. Tax Rate:

There is a rate schedule provided by the Internal Revenue Code. The more you make, the higher the rate is. This year, the top rate is 45%. Computing the Rate:

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o Refer to the tax rate schedule; find the amount of the estate on the right side of the chart. Find the amount on the left hand and everything over that amount is multiplied by the percentage by it.

o Refer to Estate and Gift Tax Problems (covered in week 10; look at problem packet).

c. Step Three: Tentative Tax – Credits = Estate Tax. i. Credit:

Definition: A credit represents a dollar for dollar reduction of the amount of tax owed. Every estate is entitled to a credit. This credit is referred to as the unified credit, and Congress determines the amount of the unified credit statutorily.

Unified: The credit is called “unified” because it applies to both estate taxes and gift taxes.

In 2007, the unified credit is $780,000, so a taxable estate that is $2 million or less is excluded from paying estate tax.

2008: The unified credit is $780,000, so $2 million of property is excluded. 2009: The unified credit is $1,455,800, so $3.5 million of property is

excluded. 2010: Estate tax repealed. 2011: The unified credit is $345,800, so $1 million of property is excluded.

3. Determining the Gross Estate:a. Gross Estate includes all of your probate AND non-probate assets.b. Non-Probate Estate: Life insurance policies, 401K or other retirement plans, joint

property (real or personal) with rights of survivorship, inter vivos trusts (anything in your trust at the time of death pours out of your probate estate).

c. Probate Estate: Anything else that you own at the time of your death.d. The Gross Estate Includes ALL:

i. Cash ;ii. Personal Property , such as jewelry, furniture, collections, cars, recreational

vehicles, and boats;iii. Real Property , such as homes, vacation homes, and investment properties;iv. Bank Accounts , such as checking accounts, savings accounts, and certificates of

deposit;v. Financial Products , such as stocks, bonds, mutual funds, and annuities;

vi. Business Interests , such as partnership interests or LLC interests;vii. Life Insurance , such as life insurance payable to the estate and life insurance

policies the decedent owned on the life of another person;viii. Retirement Accounts , such as IRAs, Roth accounts, 401Ks, and profit sharing

plans;ix. Property over which the decedent had the right to income or beneficial

enjoyment, such as living trusts and grantor trusts;x. Property over which the decedent had the right to income or beneficial

enjoyment, such as living trusts and grantor trusts;xi. Property over which the decedent retained the right to revoke , such as any

revocable trust; and,

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xii. Property over which the decedent had a general power of appointment . e. NOTE: Unless otherwise includable in the gross estate, the estate does not include

any interest which the decedent held in a capacity as trustee, legal guardian, or fiduciary.

4. Tax Planning Techniques:a. Using the Unified Credit:

i. Refer to Section IX(A)(2)(c). b. The Estate Tax Marital Deduction:

i. Every estate of a married person is entitled to a deduction, referred to as the marital deduction, for assets transferred from the decedent to the decedent’s spouse.

5. Filing the Return and Paying the Tax:a. The estate tax return, Form 706, United States Estate (and Generation-skipping) Tax

Return, must be filed and the tax paid within nine months of the date of the decedent’s death. The executor of the estate is obligated to file the return and pay the tax out of funds of the estate.

B. The Federal Gift Tax: 1. In General:

a. Generally, the estate tax cannot be avoided by giving away assets prior to death. The estate and gift tax is a “unified” tax. This means that, in addition to being applicable to assets held at death, it is applicable to gifts made during lifetime.

b. The Internal Revenue Code imposes a tax on gifts made during lifetime and on assets owned at the time of death. The tax is in addition to, and separate from, the income tax that must be paid by a taxpayer each year.

c. The gift tax is based on fair market value of the asset on the date of the gift.i. However, the tax is only applicable to the extent the value of the gift exceeds

$12,000. This exclusion is available to the donor each year and for each separate recipient.

ii. The annual exclusion for gifts is indexed annually for inflation. iii. To the extent the value of the gift exceeds $12,000 and is subject to the tax, the

unified credit can be used against the amount of tax due. At death, gifts in excess of the annual exclusion are included in the gross estate and the estate is then entitled to the full unified credit.

2. Tax Planning Techniques: There are three tools for minimizing gift tax. a. Excluded Gifts:

i. $12,000 per person, per year is excluded from gift tax (indexed for inflation).ii. Things that are paid directly to the provider (such as medical or tuition expenses)

are deducted; not included as taxable gifts as long as they go straight to the provider.

iii. Payments to political organizations (right to them) are excluded.iv. Charitable gifts are excluded from gift tax.

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v. NOTE: Even though you don’t have to file a gift tax return for $12,000 or less per person, you might still want to file it for statute of limitations purposes – IRS only has three years to make a claim against you.

b. Gift Tax Marital Deduction:i. As with transfers occurring upon death, lifetime transfers between spouses (over

and over) are tax-free. Accordingly, even if the value of a gift to a spouse exceeds the annual exclusion amount, no tax is due.

ii. Refer to Example 4 in the Federal Estate and Gift Tax Packet (covered in week 10).

c. Using the Maximized Unified Credit:i. The gift tax is valued at the time you give it, and the estate tax is valued at the

time you die. Since the unified credit is essentially the same for both, get more property out when it is worth less.

3. Filing the Return and Paying the Tax:a. A Form 709, Gift Tax Return, must be filed on or before April 15th of the year

following the year in which the gift was made. In addition, a Form 709 must be filed if the taxpayer claims that the value of the gift is computed using a discount. The tax is determined based on the fair market value of the gift on the day the gift was made and is due when the return is filed. The donor is primarily responsible for paying the tax. In the event the donor does not pay the tax, the donee is secondarily liable for the tax.

C. Computing Estate Tax Liability:

D. Taxation of Trust Income:

1. Gift of Property – Who is taxed on subsequent income? The donee.2. Gift in Trust – The settlor deposits property into trust for the benefit of the

income beneficiary and the principal beneficiary:a. The trust has income from interest, dividends, etc.b. First look is at the settlor and the settlor is taxed on the trust’s income if he or she

retains significant control (even if the income is going to someone else).c. Significant control is defined as:

i. IRS Code §673: Reversion of principal within about 40 years.ii. IRS Code §674: Power to change beneficiaries.

iii. IRS Code §675: Certain administrative powers.iv. IRS Code §676: Power to revoke the trust.v. IRS Code §677: Income used for Settlor’s benefit/

d. If settlor is not taxed on the trust income, then the trust is taxed on the income if it retains the income, and the beneficiary is taxed if the beneficiary gets the income.

3. Credit Shelter Trust: This is a testamentary trust, which means that the settlor won’t have any retained rights, so to determine tax issues, we must look at who is receiving the income or where the income is going.

a. Disposition of Property that is NOT transferred to the Surviving Spouse:

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i. The decedent might dispose property that does not go to the surviving spouse through a Credit Shelter Trust, also known as a Family Trust.

ii. Ways to Dispose: To the children outright; In trust, for the benefit of the children; In trust, for the benefit of the spouse and children:

o Income to spouse for lifeo Principal to spouse, in the discretion of the neutral trustee (ability to

invade principal)o Remainder to children.

iii. Result: By setting up a Credit Shelter Trust, the property doesn’t go into the surviving spouse’s estate; if the trust keeps the income, then the trust pays taxes at the trust rate (highest rate is 35%).

iv. Refer to Example 4 in Federal Estate and Gift Tax Packet (covered in week 10).

4. Q-Tip Trust: a. Definition: A Q-Tip Trust is one where property is transferred to the surviving

spouse in the form of a trust, which qualifies for the marital deduction.b. Purpose: This type of trust is created where the settlor wants the marital deduction,

but wants to keep control over the property after his death. People create Q-Tip Trusts when they want tot keep the tax at zero (by receiving the marital deduction) and also want to retain control of the property.

c. Result: The property transferred into the trust is eligible for the marital deduction and is included in the estate of the surviving spouse.

d. What is Needed to have a Q-Tip Trust:i. All income must be paid to the surviving spouse for life;

ii. Income must at least be paid annually or more often;iii. Remainder passes to whomever the decedent chooses;iv. Executor/personal representative of the decedent’s estate elects to have the

property taxed in the estate of the surviving spouse, i.e. whatever is left will be taxed in the surviving spouse’s estate.

NOTE: The classic estate planning technique is to fund the Shelter Trust up to just enough, and then put the rest in the Q-Tip trust.

E. Advising Clients and Professional Liability:1. The Smith Family Problem:

a. Refer to Federal Estate and Gift Tax Packet, page 10. 2. Karam v. Law Offices of Kliber, Kliber, Kliber:

a. Facts: Decedent wanted the kids from the first marriage to get half of the estate and the wife to get the other half. When decedent died, his estate was taxed up the ass because there was more money in the kid’s trust.

b. Issue: Did the attorney commit malpractice where there was way more money in the Q-Tip trust?c. Holding: Based on cases, we are not going to look outside the documents, which said split it, and we

won’t look further than this.

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X. ELDER LAW

A. An Overview of Elder Law:1. Three Areas of Concern to Elderly Clients: Three legal issues of concern to clients.

a. Personal Autonomy:i. Definition: The ability to make decisions on your own without someone else

interfering; right to your own life.b. Medical/Healthcare c. Financing

B. Personal Autonomy:

1. Guardianships:a. Definition: A guardian is one who is appointed to protect the person or property of

an infant (minor) or of a person who is mentally incompetent or physically incapacitated. The guardian is over the personal daily living of the person, impacting one’s autonomy. i. EPIC 5306:

(1) The court may appoint (after a petition is filed) a guardian if the court finds by CLEAR AND CONVINCING EVIDENCE (note that civil matters usually use preponderance of the evidence, which means here, with clear and convincing evidence, the evidence is of a higher level since we might be taking away someone’s rights) two things:o (a) The individual for whom a guardian is sought is an incapacitated

individual AND EPIC 1105(a): Incapacitated individual means an individual who is

impaired by reason of mental illness, mental deficiency, physical illness or disability, chronic use of drugs, chronic intoxication, or other cause, not including minority, to the extent of lacking sufficient understanding or capacity to make or communicate informed decisions.

o (b) The appointment is necessary as a means of providing continued care and supervision of the incapacitated individual.

o NOTE: Each finding must be supported separately on the record. (2) The court order must specify what powers are granted to the guardian and

for how long; the length of time can be no longer than necessary to provide for the need of the incapacitated individual.o NOTE: If the person has a patient advocate, the guardian cannot hold

any of the same powers and the limitations must be specified. (3) If the court finds by CLEAR AND CONVINCING EVIDENCE that an

individual is only incapacitated for some tasks, but not all, the court may appoint a limited guardian to provide guardianship services for those purposes.

(4) If the court finds by CLEAR AND CONVINCING EVIDENCE that the individual is totally without capacity to care for himself, the court may appoint a full guardian.

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(5) If an individual executed a patient advocate designation, the guardian cannot exercise the power or duty of making medical or mental health treatment decisions that the patient advocate is designated to make UNLESS the patient advocate is not acting in the individual’s best interests; at that point, the court can modify the guardianship’s terms to grant those powers to the guardian.

b. EPIC 1105(i): “Legally incapacitated individual” means an individual, other than a minor, for whom a guardian is appointed under this act or an individual, other than a minor, who has been adjudged by a court to be an incapacitated individual.i. A/k/a Ward

ii. The ward must be given notice of the petition for guardianship, and a hearing. c. Termination of a Guardianship:

i. Court action is needed for termination of guardianship.

2. Conservatorships:a. Definition: A conservator is appointed only for a conservatee’s estate and may take

title to the conservatee’s property. Conservatorship is over the estate (money and other assets). i. Petition, notice, and hearing is needed.

ii. You get appointed by the court, and if necessary to terminate, it must be done by the court as well.

b. EPIC 5401: Protection of Property of an Individual under Disability or Minori. (1) Upon petition and after notice and hearing, the court may appoint a

conservator or make another protective order for cause (refer to sec. 3).ii. (3) The court may appoint a conservator or make another protective order in

relation to an individual’s estate and affairs if both are determined (the level of proof here is only preponderance of the evidence because no one’s rights are being taken away): (a) The individual is unable to manage property and business affairs

effectively for reasons such as mental illness, mental deficiency, physical illness or disability, chronic use of drugs, chronic intoxication, confinement, detention by foreign power, or disappearance ANDo This sounds like a contract level of competency.

(b) The individual has property that will be wasted or dissipated unless proper management is provided, or money is needed for support, care, and welfare or for those entitled to the individual’s support, and that protection is necessary to obtain or provide money.o So, this deals with waste or dissipation of property due to not being able

to properly manage his/her own property.c. The Following People may be Appointed as Conservators:

i. EPIC 5409: The list is in order of priority. (a) A conservator, guardian of property, or similar fiduciary appointed by the

appropriate court of another jurisdiction in which the protected individual resides.

(b) An individual or corporation nominated by the protected individual if he or she is 14 years of age or older and of sufficient mental capacity to make an

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intelligent choice, including a nomination made in a durable power of attorney.

(c) The protected individual’s spouse. (d) An adult child of the protected individual. (e) A parent of the protected individual or a person nominated by the will of

a deceased parent. (f) A relative of the protected individual with whom he or she has resided for

more than 6 months before the petition is filed. (g) A person nominated by the person who is caring for or paying benefits to

the protected individual. (h) If none of the persons listed are suitable and willing to serve, any person

that the court determines is suitable and willing to serve.ii. NOTE: A person named is subsection (a), (c), (d), (e), or (f) may designate in

writing a substitute to serve instead, and that designation transfers the priority to the substitute.

iii. NOTE: If under any section there is more than one person that fits, the court will determine which one is best qualified to serve.

iv. NOTE: If the court finds it’s not in the protected person’s best interest for someone in the priority list to serve, someone from lower priority will be appointed instead.

3. Powers of Attorney: a. Power of Attorney, Defined: It is essentially an agency contract/assignment, with

a principal/agent relationship. The agent steps in the principal’s shoes, and can only give away the powers that the principal has and nothing more. i. Parties: Principal and agent

ii. Example: Refer to Elder Law Problem/Edward (covered in week twelve). The best answer for this problem would be a power of attorney.

b. Durable Power of Attorney Defined: One person (the attorney-in-fact) has the power to act in the place of another, often with respect to the latter’s property interests.i. Parties: Principal and attorney-in-fact

c. Relationship: A power of attorney is an agency relationship; the attorney-in-fact (agent) does not hold title to the principal’s property and usually has only limited powers respecting it.

d. Survival of a Power of Attorney: i. Unlike a trust, a power of attorney does not survive the principal’s death; when

the principal dies, the power of attorney ends.ii. A regular power of attorney ends when the principal is incapacitated.

However, it does not terminate on the incapacity of the principal where it is a DURABLE Power of Attorney, and to be durable, the document must say it on there.

4. Advance Health Care Directives:

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a. Definition: Advance Health Care Directive (Advance Directive) is a directive that states if I become incapacitated, this is what I want to happen.i. Advance Directive takes two forms:

(1) Statement of Intent/Living Will OR (2) Power of Attorney Appointing Agent (Surrogate) to make decisions.

o The majority of states authorize this form of advance directive.

b. Power of Attorney for Health Care Decisions:i. Durable Power of Attorney for Health Care, Defined: It is limited to the

making of health care decisions after the principal has become incompetent.ii. Appoint an Agent: An agent is appointed to make decisions in very narrow

circumstances, like removing life-sustaining machines. Examples of Agents: Surrogate, Patient Advocate, Attorney in Fact. Can appoint a successor patient advocate (don’t need a lawyer).

o 1. Terminally ill or facing immediate death, oro 2. Vegetative state (irreversible coma).

iii. Two doctors (one your primary care doc) must certify that the condition exists.iv. ONLY a springing power (in the event of incompetence) agent required to

accept designation. v. Empowered in the majority of states by a statute.

c. Living Will:i. Definition: A living intent is a statement of intent.

ii. Statement of Intent:

d. Do Not Resuscitate Order (DNR): This is not something executed by the patient; the patient just talks with the doctor and it gets put in their file that they do not want to be resuscitated if their heart stops beating.

C. Medical Care:

1. Introduction:a. Things that Elderly People have to Spend Their Money On:

i. Nursing homes, prescription drugs, supplements, hospitalizations.ii. There are ways to pay for some of this stuff, i.e. Medicare, Medicaid, and

personal funds.

2. Medicare:a. 42 USC §1395: Medicare is a federal program that is authorized by federal statute,

42 USC §1395. b. Medicare will pay for only certain expenses.c. Eligibility: People that are eligible are people who are 65 years or older, people

who suffer from renal or kidney failure, or people who have certain kinds of disability under the age of 65.

d. Characteristics of Medicare:i. Co-pay: Percentage of the charge

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ii. Deductible: This is the out-of-pocket amount; the deductible is somewhere around $150 per year.

iii. Medicare will then pay (after the deductible) certain things.e. Types of Medical Expenses Medicare Covers:

i. Hospitalii. Doctor services

iii. Some medical examinationsiv. Ambulancev. Blood transfusions

vi. Some Nursing Homevii. Some Prescription Drug

f. Shortcomings of Medicare:i. Nursing home coverage; Medicare only covers a certain number of days in a

nursing home, at the most up to 150 days period! This is not even 6 months. The average stay is 2.5 to 3 years. Medicare only covers the cost of two types of care in the nursing home:

o (1) “Skilled” Medical Care Usually, this is not what people receive in the nursing home,

however. People are usually getting custodial help, and Medicare won’t cover it.

o (2) The care has to lead to improved condition. It is not enough to be getting the care. Medicare will stop paying where the patient is not improving

anymore. ii. Prescription coverage; Medicare added prescription coverage in 2006, but it

works like a prescription club. People can choose to get their prescriptions from a particular provider. This is not automatic and people have to pay for it, i.e. premiums of $35 per month, which is taken out of your social security check. The deductible is $250 (where patient pays 100%) and then Medicare kicks in, and only covers 75% (patient pays 25%) of your drug costs, until you have reached $2,250 of drugs, and then between $2251 through $3600, patient carries it 100%. Anything over $3600, patient pays 5% and Medicare pays 95%. These numbers are PER year.

g. NOTE: Medicare is just not going to do it for your elderly clients. What might help them is to buy long-term care insurance (this is a relatively new concept) and go to a trusted company to do this (Mutual of Omaha, etc.). i. Long Term Care Insurance Policy:

Insurance will pay some or all of the costs where you go into assisted living. The best age range to invest into this is somewhere between the age of 50

and 55. If someone is younger, they spend unnecessary money on premiums. If they are older than that, it is going to be very pricey for premiums.

Things to Consider When Talking About Long Term Care Insurance:o The dollar amount per day that the insurance will pay;o Inflation Protection/Rider;o How long will you have to wait until the insurance kicks in (the longer

you wait, the cheaper);

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o Do you want a Rider that includes home care?

3. Medicaid:a. 45 USC §1396: This is also authorized by federal statute.b. Medicaid was established to give coverage to poor people, i.e. families with

dependent children, caretakers, people who medical issues, etc. We are going to focus on 65 years old.

c. When Does it Kick In? When the person is 65, either blind or disabled, AND poor. d. Good Program:

i. It covers a great deal more than Medicare.ii. It is a combined program administered by a state agency, where $2 comes from

the federal government, and $1 comes from the State.iii. In Michigan, Medicaid takes about 25% of the entire State budget (maybe more).iv. It covers long-term care, even if it is just custodial care, and it covers it FULLY.v. Your client wants a way to make the State pay for their nursing home care; there

is a very lucrative practice to help people become eligible for Medicaid coverage; however, the downside is that the State will become bankrupt if it continues.

e. How Poor Do You have to Be To be Eligible? You need TWO things.i. Limited Income (approximately $700 a month income for an individual or less)

ANDii. Limited (countable) Assets (about $2,000 or less).

f. How Can Someone With More Than That Become Eligible?i. Get your client as a medically-needy individual; if your client can qualify as

medically-needy, their excess income can be dealt with in a “spend-down.”ii. A person who is medically-needy has a crap load of medical costs per month,

which brings their income below $700 a month, even though the client earns way more than that. Formula: Income ($1200) minus medical expenses ($700) = $500. From there, each month, the client pays the first $500, and then Medicaid

pays the rest. g. Non-Countable Assets: Medicaid will ignore the following toward assets –

i. One home (residence)ii. One Car

iii. All Personal Property iv. Irrevocable Funeral Trust (up to $2000)

h. Other Topics Under Medicaid:i. Divestment—If client divests himself of property for purposes of obtaining

Medicaid, state will deduct up to 30 months and will not allow Medicaid to cover (# of months deducted from nursing home care is determined by the amt deducted). Couple: Has $800 per month (not eligible) --$200 for Medical Expenses =

$600.ii. Estate Recovery—You cannot transfer assets out of your estate for the purpose

of becoming eligible for Medicaid. You will be dinged if you transfer money w/ 3 yrs or if in a trust they can go back 5 yrs. If you have $30,000 in the bank & transfer away

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$15,000 (leaving you w/ $15,000) then you can use the other $15,000 to spend on the nursing home. You saved $15,000.

iii. Medically Needy—Month-by-month. Spousal Impoverishment—Not going to force the spouse not living in the

nursing home to have to give up everything. Married couple: One partner is going into the nursing home. Assets are

counted together as one. The 1st $2,000/month is ok to have. $90,000 for a home.

D. Financial Benefits: When people retire, they don’t make money, so they have to figure out how to pay for things.1. Social Security: You can help your client apply for social security benefits from the

time they are 62 or older; the longer they wait, the more expensive it will be. There are three main programs under Social Security.

a. OASDI:i. Old Age Assistance: To be eligible, you have to have worked during your

lifetime. FICA: If you work, you will see this on your check; it is taken out of your

check. It is measured on three month periods/quarters. You had to have worked 40 quarters to receive this. If over your lifetime you have met this requirement, you will be eligible to receive Social Security.

b. Disability: This is disability insurance; if your client is disabled and they cannot work, your client might be eligible for Social Security.i. Equal Access to Justice Act (EAJA) allows people seeking certain kinds of

benefits to hire attorneys and guarantee them 25% of what the attorneys recover for them.

c. Supplemental Security Income:i. Program for the poor, designed for people whose Social Security income doesn’t

come up to $700 a month; if they qualify for this, they automatically qualify for Medicaid also.

XI. THE RULE AGAINST PERPETUITIES

A. Common Law Rule Against Perpetuities:

1. Definition: The Rule Against Perpetuities is a rule of law that prohibits the creation of future interests that possibly may vest beyond the period of those lives in being at the date of its creation plus 21 years.

a. In Other Words: The Rule declares that to be valid, an interest “must vest, if at all, not later than 21 years after some life in being at the creation of the interest.” This span of time is known as the perpetuities period.i. The RAP sets a time period in which a trust beneficiary MUST be

identified; RAP sets the outside parameter.ii. NO INTEREST IS GOOD UNLESS IT MUST VEST, IF AT ALL, NOT

LATER THAN 21 YEARS AFTER SOME LIFE IN BEING AT THE CREATION OF THE INTEREST.

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b. It only limits the time between the creation of a future interest and its vesting; it does not (directly) limit the duration of the trust or of an interest in property.

2. Principal Elements and Concepts:a. Perpetuities Period:

i. Definition: The perpetuities period is the period of time, commencing which the creation of an interest in property, during which the interest must be certain to vest or fail in order to satisfy the Rule Against Perpetuities.

ii. Common Law: Lives in being + 21 years. iii. Period begins: date of creation of an interest (when creating instrument takes

effect). Will = testator dies Deed = delivery

b. Life in Being:i. Definition: A life in being is a person who was alive at the time of the creation

of a contingent future interest and within whose lifetime or within 21 years of whose death that interest must either vest or fail. It is someone who has an interest in the trust AND is alive at the time the trust is created. We determine who the lives in being are from the time the trust is

considered created.o If trust is irrevocable and made inter vivos, the trust interest is

created at the time.o If trust is revocable and made inter vivos, the death of the settlor is

when the trust interest is created.ii. Measuring Life: A “life (or lives) in being plus 21 years” measures the

perpetuities period under the Rule Against Perpetuities; it is traditionally called the measuring life.

c. Vest: i. Definition: To vest means to become a fixed right of present or future

enjoyment of property; it is the certainty that an interest will either vest or fail within the perpetuities period that prevents its invalidation under the Rule Against Perpetuities. You have to be able to ascertain who the specific beneficiary is to be and

then it vests, i.e. it becomes fixed. ii. A vested interest is not contingent (not subject to a condition precedent) and is

created in an ascertained (or immediately ascertainable) person. iii. NOTE: Contingent remainders and executory interests are the most commonly

encountered non-vested interests and those that most often violate RAP. iv. An interest is vested subject to divestment (or defeasible) if it is subject to no

condition precedent, but there is a condition subsequent under which it may be taken away.

v. If there is no condition subsequent, the interest is indefeasibly vested and still satisfies RAP. However, if it is vested subject to open it is not vested for the purpose of this rule.

d. PROBLEM: T’s will provides: To trustee to pay the income to my wife for life, and then to pay the income to my children for their lives, and upon the death of the

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last child to die, to pay the principal to my grandchildren. T is survived by his wife and two children.i. The trustee is created at the time of his death, and the lives in being are the wife

and two children. Let’s say that they died right now, who else has a right? The grandchildren. Is there a possibility that a grandchild can be born if the children die? No. So, there is no RAP problem here under Common Law.

e. PROBLEM: T’s will provides: To trustee to pay the income to my wife for life, then to pay the income to my children for their lives, and then to pay the income to my GC for their lives, and upon the death of the last surviving grandchild, to pay the principal to my GGC. i. Look at the trust when he dies and the lives in being are wife and two children.

If they die right now, grandchildren and great-grandchildren can have interests. Is it possible for a grandchild to be born within 21 years? No, but it is possible for the great-grandchildren to be born, so the PGGC part violates the RAP.

B. Difference between CL Rule and the Provisions of the Uniform Rule Against Perpetuities Act:

1. Uniform Statutory Rule Against Perpetuities: This has been adopted by several states; it establishes a 90-year waiting period “in gross” and dependent on no lives at all: Every interest has 90 years from its creation in which to vest and be valid or terminate.

a. It has to meet either the CL rule of perpetuities OR the rule above, which is a wait-and-see. We wait 90 years and see if there are any great-grandchildren that pop out in 90 years.

b. What if it doesn’t happen in 90 years? If it violates the common law rule, and it might or cannot come valid within the 90 years, the court can come in and fix it under the 554.74 MCLA statute.

c. On the exam:i. Do common law first.

ii. If there is an issue, then talk about the MCLA 554.74 statute.d. Whenever you are dealing with great-grandchildren, your antenna should go up! e. Whenever you have an age limit that could have after 21 years from that point, your

antenna should go up for that too!

C. Avoidance and Reform:

1. Two Ways to Avoid Violating the Rule Against Perpetuities:a. By drafting only provisions that comply with the Rule, orb. By including an extra provision (a “saving clause”) to take care of any accidental

failures to do so.i. If you put this in there, you would never have to wait-and-see.

c. NOTE: Both methods can be employed to avoid the prohibitions of RAP.

2. Perpetuities Saving Clause:

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a. Definition: The Saving Clause is a clause in a trust or other document of transfer, operative only if some part of the disposition violates the Rule Against Perpetuities, that directs the disposition of the offending interest in such a manner as to prevent such violation.

3. Wait-and-See Doctrine:a. Definition: Wait-and-See Doctrine is one of the principal modes (together with cy

pres) of reform of the Rule Against Perpetuities; under wait-and-see, it is not presumed (like it is under Common Law) that anything that possibly could happen to cause an interest to vest outside of the perpetuities period will happen. Instead, we “wait and see” if those remote possibilities actually do occur.

4. Cy Pres:a. Definition: Cy Pres is a form of the Rule Against Perpetuities under which a court

modifies (reforms) provisions in a transfer that, left unmodified, would violate the Rule.

b. Goal: The court is enjoined to achieve a modification that comes as near as possible to the original intent of the transferor but still avoids violation of the Rule.

XII. CHARITABLE TRUSTS

A. Charitable Trust, Defined: A charitable trust is a trust whose purpose primarily benefits the general public or a segment of the public (and thus a charitable purpose); also called a public trust.

B. Acceptable Categories for a Charitable Trust:1. Relief of poverty2. Advancement of education or religion3. Promotion of health or of some governmental purpose4. Catchall: “Beneficial to the community” – but this largely depends on the particular

court’s view of the importance and wisdom of the stated purpose. 5. Public Parks or Roads

C. Differences between Charitable and Private Trusts:

1. Benefit:a. A charitable trust benefits the public (intended to serve the broader community),

whereas a private trust benefits specific persons (private persons).

2. Favored By Law: a. Charitable trusts are favored over private trusts, and the court will go out of its way

to uphold them.

3. Three Most Important Differences:a. Valid charitable trusts can (and usually must) have indefinite beneficiaries;

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i. Indefinite Beneficiaries, Defined: Beneficiaries of a trust who are not specifically identified or identifiable as those to whom the benefits of the trust must pass.

ii. NOTE: A private trust will fail for lack of identifiable beneficiaries, but a public trust won’t because the state can enforce it.

b. Valid charitable trusts can have an indefinite duration, and c. Valid charitable trusts, under some circumstances, can vest in a charity beyond

the period of the Rule Against Perpetuities.

4. If Criteria Is Not Met: If the charitable trust fails to satisfy the criteria, the trust won’t automatically fail if it can meet the criteria of a private trust.

D. Requirements for a Valid Private Trust and Valid Charitable Trust:

1. Elements of a Good Private Trust:a. Competent settlor and trusteeb. Identifiable Beneficiariesc. Resd. Intent to Create a Trust

i. Duties for trusteeii. RAP

2. Elements of a Good Charitable Trust:a. RAP applies differently for a charitable trust; it is more relaxed. Only one

person has to get it within the time period. Once the period is over, it has to stay vested in a charitable purpose.

b. We don’t have to have identifiable beneficiaries at the time the trust is created; in fact, you are shooting for a broad charitable class.i. Why is this okay? Who has standing to sue (in a private trust, the identified

beneficiaries have the standing, so who has it here)? In every state, there is some government official who has the authority to have standing to enforce the charitable trust. In Michigan, it is the Attorney General (statutory standing to enforce the trustee’s duty in a charitable trust).

c. Cy Pres Doctrine – public policy support (refer below)

E. The Cy Pres Doctrine:

1. What is it? The Cy Pres Doctrine is a reform of the Rule Against Perpetuities under which a court modifies (reforms) provisions in a transfer that, left unmodified, would violate the Rule; it is the power of a court to vary the dispositive terms of a charitable trust to prevent the trust’s failure.

a. It literally means “as near as” and that is what the court is enjoined to achieve: a modification that comes as near as possible to the original intent of the transferor but still avoids violation of the Rule.

b. This only applies to charitable trusts.

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c. It allows the court to change a provision that is frustrated to come as close to what they think the settlor intended.

d. PROBLEM: In 1930, S creates trust leaving $1 million for the development of a polio vaccine. S dies a year later. In 1952, a polio vaccine is tested and found to be successful. What happens to the trust?i. If it was private, it would end because there is no material purpose left.

ii. If it was charitable, the court will look at evidence of the settlor’s intention, so first the document, and if they find evidence of a broader intent as opposed to a specific bullet, the court may redo the provision.

e. PROBLEM: S creates a trust to fund skiing lessons for children, aged 5-8, living in Aspen, Colorado. In 1997, the trust income is more than enough for this purpose. Parents of children aged 9 and 10 petition to have the funds also pay for their children’s lessons. What will the court do? i. It is pretty specific so they are going to allow the property to stay in trust for 5-8

just in case there are more children next year. 2. When does it apply? A court will apply Cy Pres if it finds that the original charitable

purpose of the trust has become impossible or impracticable and that behind the narrow specific purpose the settlor had a more general charitable intent.

3. Lafond v. City of Detroit:a. Facts: The will leaves money to Detroit to build a playground “for white children.” Detroit agrees to

accept the money IF they can build the playground for ALL children. The will specified that the testator wanted her will to be “carried out to the letter.” The lower court sent that property back to her heirs rather than the park.i. NOTE: She didn’t use the words “trust,” so why are we looking at it as a trust?

Because it’s to be held by the city. b. Holding: The court found testator’s words to be words of command and the doctrine of cy pres could

not be used here because the testator’s words, “for white children,” could not be ignored. The purpose cannot be broadened here, so Detroit lost the money and instead, it goes into intestacy. Constitutionally, if the city were to have taken this on, they would be doing an unconstitutional act (government action in discriminating).

XIII. TRUSTEE DUTIES (EPIC 1501-1503, 7301, 1212, 1214)

A. Acceptance of Duties:

1. Duties of the Trustee, Defined: The duties of the trustee are the functions of a trustee that the trustee must carry out. Failure to perform a duty is a breach of trust.

2. The duty is mandatory and failure to perform is a breach of duty, which is actionable.

3. For someone to be on the hook as a trustee, they have to affirmatively accept the designation as trustee. If they do not, it goes to the successor trustee or someone will go to court and have a trustee designated.

4. After acceptance, the duties kick in:a. Requirement to post a bond: Protect what they are doing and give beneficiary

something to recover if trustee violates; some states allow the trustee to waive the bond.

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i. Michigan Rule - 7304: A trustee does not have to post a bond for performance unless required for the trust or reasonably requested by a beneficiary or the court finds the need to protect beneficiaries that cannot protect themselves.

b. Requirement to register the trust: This puts the court on notice that the trust is out there.i. Michigan Rule – 7101: The trustee CAN register with the court but it is not

required unless it is a testamentary trust, which would be under the purview of the court.

c. Duties on Inception - : Get your hands around the assets; get the titles in your names; get an inventory of them, decide which ones should be kept or invested or sold, etc.

d. Trustee has to do what they are instructed to do under the trust; mandated duties within the trust. These are fiduciary duties.

e. There are a set of fiduciary duties that attach to the trustee under common law – EPIC 1212: i. Duty of Loyalty (no self-dealing/1214)

PROBLEM: One of the assets of a trust is a Dali painting. Trustee is a collector of fine, contemporary art. He wishes to purchase the painting from the trust, and will pay 5% over fair market share. If he purchases the painting, will be breach his fiduciary duty? o If he buys it, he violates his duty of loyalty to not self-deal.

Your own personal interest has to be ignored.ii. Duty of Care

iii. Prudence (be smart about what you are doing)iv. No Commingling; you have to segregate the assets.v. Duty to be fair and impartial

vi. Duty of Confidentiality – 1212(2): Unless you have to for the business of the trust, you are not allowed to blab about the trust assets.

B. Earmarking:1. Duty to Segregate and Earmark, Defined: The duty to segregate and earmark is

keeping the trust property separate from the trustee’s own property (segregation) and labeling it clearly (earmarking it) as belonging to the trust (or the equivalent in terms of title or other records), where either is practicable.

C. Avoiding Commingling of Funds:1. Defined: Commingling refers to the mixing together of trust and personal assets,

either inadvertently or intentionally blurring the lines of ownership; this must be avoided and it is the duty of the trustee to avoid this.

2. If you commingle and there is any loss to the beneficiaries, even where you were careful and prudent, you owe the loss to the beneficiaries.

a. Note that if you have a corporate trustee, they can commingle small trusts because they are careful enough about the accounting, so this is an exception to the general rule.

D. The Duty of Loyalty (and Impartiality):

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1. Defined: The duty of loyalty and impartiality is the duty to act for, and only for, the good of the trust and its beneficiaries and not in the trustee’s own personal interest or that of any third person.

2. Inherent in the Trustee’s Duties of Loyalty: There is a prohibition against self-dealing and other forms of conflict of interest.

a. General Conflict: This is usually justified if it is fair to the beneficiaries and if the trustee acted in good faith.

b. Self-Dealing: Under the no-further inquiry rule, the trustee is liable for any losses that occur, regardless of good faith or objective fairness.

E. The Duty of Care: This means that you are going to use the care that a normal, prudent person would use in caring for the trust’s assets. You are going to use general standards of acceptable behavior when dealing with the trust.

F. Delegation of Duties:

1. Common Law: Trustees may delegate some powers, but have no power to delegate others.

a. Can Delegate: Ministerial Acts/Duties, like painting building; your ability to delegate is in part based on your duties and in part on your expertise. As long as you are reasonable in selecting and employing the person you hire, you can delegate.

b. Cannot Delegate: Discretionary Acts/Powers, like deciding whether to purchase or sell building, or to choose who is more worthy of beneficiary income.

2. EPIC 1510: Trustee may delegate investment and management functions.a. You can do this as long as you exercise reasonable care, skill, and caution in picking

the agent and reviewing/monitoring their performance. If you are, the statute says that you as the trustee are not liable for any actions made by the agent.i. The agent has a duty to the trust to apply reasonable care.

3. Sometimes the settlor expressly says you can delegate, but courts will construe this narrowly.

G. The Duty to Provide Accountings:1. Defined: The trustee has the duty to keep the beneficiaries informed of pertinent facts

relating to the management and condition of the trust. At the termination of the trust, as well as periodically during its existence, the trustee has a duty to render an account of trust transactions.

H. Duty in Terms of Investment:1. Prudent Person Standard or Prudent Investor Standard: This is the standard for

keeping investments.a. Prudent Person Standard looks at each investment, each of which must be safe.b. Prudent Investor Standard looks at the portfolio as a whole.

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2. PROBLEM: Prudent Person Standarda. 1,000 shares of a fledgling company, Alchemy Corporation, whose scientists claim

to be on the verge of perfecting a process of turning lead into gold;i. This would be a problem under the prudent person standard, and would be

prohibited.b. An FDIC-insured five-year certificate of deposit for $50,000 paying 2% interest.

i. There might be a problem with this because the interest rate is too low.c. A collection of antique furniture.

i. Under the prudent person standard, each of these three things would be a problem and violation of their duty.

3. EPIC 1502: How do you look at the investments? Look at your portfolio as a whole and how they will fit in there your strategy. You have to look at a variety of factors (which are in the statute).

4. EPIC 1503: 5. These are default provisions. It can be expanded, restricted, or eliminated by a trust or

a will. You can make more risky strategy allowable or you may be more restrictive; if you don’t say anything, you will end up with the prudent investor standard.

6. PROBLEM: Trustee invested $100,000 in JIB. For several years, the stock paid good dividends and appreciated in value. After an outbreak of mad cow disease ad reports of E. Coli contamination in a Seattle location, the value of the stock dropped dramatically. Is the trustee liable for making an improper investment?

a. Hindsight is allowed; the trustee won’t be liable for this. If they followed the correct standard, they won’t be liable as long as they did it prudently.

XIV. TRUSTEE POWERS

A. Powers of the Trustee, Defined: The powers of the trustee are the functions that a trustee is permitted and enabled to perform, as distinguished from trust duties, which are functions that the trustee must perform.

1. A trustee’s powers are expressly granted by the settlor, legislature, or the court, or necessarily implied from the circumstances.

a. Express Power: Specifically enumerated in the trust instrument, court order, or a statute.

b. Implied Power: Power is implied when its existence is necessary or highly desirable for the proper functioning of the trust, and it can be inferred that the settlor intended the trustee to exercise it.

2. EPIC 7401 – Powers of Trustees:a. A trustee has the power to perform in a reasonable and prudent manner.b. There are no powers unless they are given by the government or the trust document

gives you the powers.c. To get around that, there are default provisions; if the document does not provide

otherwise, the trustee will have these particular powers under 7401

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XV. LIABILITY OF TRUSTEE TO BENEFICIARIES AND THIRD PARTIES

A. Liabilities of the Trustee:

1. Liability: A trustee is responsible to the beneficiaries for any breach of trust, that is, any violation of a trust duty.

2. EPIC 7306: A trustee becomes personally liable, only when:a. In Contract:

i. Trustee does not identify that he is the trustee and that it is engaged for the trust.b. In Tort:

i. The trustee is personally at fault.

3. Liability of Trustee to Beneficiaries:a. If the trustee violates any of their duties, it’s a violation of their fiduciary duty and

they can sue for breach of the trust.b. Remedies:

i. Specific performance (not for discretionary trust)ii. If there is commingling, can get a constructive trust created for the wrongfully

held moneyiii. Surcharge – self-dealingiv. Trustee can be denied payment in some casesv. Trustee can be removed by the court for certain breaches

c. How long does the liability go on?i. For one year after the receipt of the accounting.

ii. If you put out an annual statement for every year, then if the beneficiaries haven’t brought suit at the end of the year, then your liability is cut off.

4. Liability of Trustee to Third Parties:a. Here, we are talking about you acting as trustee and someone with which you had

some kind of dealing with respect to the trust feels injured and wants to sue. Can they sue you personally as the trustee or do they sue the trust?

b. Common Law: The trustee personally gets sued, i.e. is personally liable with respect to actions as trustee. If the trustee could show that they had been acting reasonable, then they might have a right of indemnification from the trust.i. This applies to tort and contract.

c. By Statute: UPC limits the liabilities; under EPIC:i. Unless a contract provides otherwise, the trustee is not personally liable on the

contract to a third party unless the trustee fails to reveal that they are acting under a fiduciary duty.

ii. In terms of tort, it is derivative and I am only sued personally if I am personally at fault.

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Documents

Wills Outline JiJi