Quick Review of Wills, Trusts, and Estates
Authors:
Pennell, Jeffrey N. / Newman, Alan
Edition:
6th
Copyright Date:
2019
27 chapters
have results for trusts
Glossary 62 results (showing 5 best matches)
- Express trust
- distributes to a free standing trust, often unfunded during the testator’s life, that contains the testator’s primary estate planning provisions. The receptacle trust sometimes is known as a pour over trust. Compare Testamentary trust and contrast Incorporation by reference.
- Resulting trust
- refers to the existence of an unfulfilled purpose of a trust that would prevent voluntary termination of the trust, even with the consent of all trust beneficiaries.
- is transferring trust assets into a new trust, to alter the situs or trustee, exposure to income tax or creditor claims, or trust administration.
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Chapter 11. Introduction to Trusts [¶ 1] 69 results (showing 5 best matches)
- The third general category of trusts (in addition to express trusts and business and public trusts) is implied trusts. These stand in juxtaposition to express trusts and come in two flavors: resulting trusts and constructive trusts. Both arise by operation of law, not by actions taken by a settlor who intends to create an express trust. The trustee of a resulting or constructive trust is not charged with managing property on behalf of trust beneficiaries over time, but instead is required to convey the trust property to a rightful owner. Until that conveyance is made, the trustee’s duty is to hold title to the property and preserve it for that beneficiary.
- Also called living or revocable trusts, these typically hold most of a settlor’s assets during life, along with the special type of living trust known as a “self-trusteed declaration of trust” in which the settlor also is the initial trustee (and, usually, the initial beneficiary too). Literally, an “inter vivos trust” is a trust created by a settlor during the settlor’s life and may include a variety of different kinds of trusts, such as revocable and irrevocable insurance trusts and trusts for the education of the beneficiaries (typically irrevocable). The most common inter vivos trust is revocable and designed for more active purposes than receiving life insurance proceeds in the future. Among other purposes, inter vivos trusts can avoid probate, provide management of the settlor’s property, and preserve privacy. See Chapter 6. Generally, inter vivos trusts become irrevocable at the settlor’s death, at which time the assets may be distributed outright to the beneficiaries, after...
- Trusts originated in the 1400s when they were known as a “use.” Active uses, the forerunner to the modern trust, provided actual management of property. Passive uses, as to which the trustee had no management responsibilities, were used to avoid feudal duties, circumvent property ownership and transfer limits, evade creditors, or minimize dower rights. A passive use or trust is not effective (with the exception of “land trusts,” which are recognized in a few states, in which the trustee’s only “duty” is to hold legal title to land). A trust will be “executed” if the trustee has no duties to perform (other than not to interfere with the beneficiary’s enjoyment of the trust property). This means that legal title passes to the beneficiaries on demand and thereby merges with their equitable title, causing the trust to terminate and the beneficiaries to have full fee simple ownership. Similarly, a “dry trust” is one that owns no property and thus fails for lack of a trust corpus. Active
- It is helpful to remember that the trustee of a trust is charged with administering the trust to carry out the intent of the settlor as evidenced by the terms of the trust, but the rights and interests in a trust in which the settlor has not retained a beneficial interest belong solely to the beneficiaries. Accordingly, except as provided under the UTC for charitable trusts, a settlor who is not also a beneficiary may not sue the trustee to enforce the trust, nor for damages for breach of trust.
- This Chapter reviews the background, varieties, and purposes of trusts. Basically trusts facilitate creative estate planning and may be established during life or at death, may be revocable or irrevocable, and may be intentional or implied by operation of law (resulting or constructive trusts). Intentional trusts are property management arrangements that bifurcate title between two parties, a fiduciary—the trustee—which holds legal title to the trust property for the benefit of one or more others—the beneficiaries—who hold the equitable or beneficial title to the trust property. For example, a parent might provide by will for estate assets to pass in trust for the benefit of a child until the child reaches a specified age, meanwhile providing management of the trust property for the child’s benefit.
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Chapter 13. Trust Operation [¶ 1] 162 results (showing 5 best matches)
- Trust operational issues addressed in this Chapter include the rights of beneficiaries and creditors of beneficiaries in discretionary trusts, support trusts, spendthrift trusts, and Medicaid qualifying trusts. Also relevant are rules governing the modification or termination of trusts, and issues that are peculiar to charitable trusts.
- Although some trusts empower a “trust protector” or “trust advisor” to alter the trust terms, change the trust situs, or remove and replace the trustee, few trusts give the trustee proper such powers to modify or terminate the trust.
- G created Trust 1 for D and D’s descendants and Trust 2 for S and S’s descendants. G is not a permissible beneficiary of the income or principal of either trust, but G retained a general inter vivos power of appointment over Trust 1, under which G could appoint the assets in the trust to anyone, including G personally. No such power was retained in Trust 2, but G reserved the power to revoke Trust 2, in which case the assets would be conveyed back to G. Assuming transfers to the trusts were not made in fraud of G’s creditors, under the traditional rules a creditor of G could not reach the assets in Trust 2, either directly or by forcing an exercise by G of the power to revoke the trust. But G’s creditor could reach the assets in Trust 1, regardless of whether the transfers to it were made in fraud of the creditor’s rights and without regard to whether G chooses to exercise the power to appoint.
- In most states most creditors of a beneficiary are precluded from reaching the beneficiary’s interest in a spendthrift trust, if the beneficiary is the settlor of the trust. Generally, spendthrift provisions work to protect trust assets from such a beneficiary’s creditors. This protection extends only to the beneficiary’s interest in the trust. Assets distributed to the beneficiary from the spendthrift trust lose their protection from creditors. As a practical matter, a beneficiary attempting to avoid paying creditors will try to spend distributed trust assets before creditors can attach them, but in many states (specifically excepting any that have adopted the UTC) knowledgeable creditors can simply garnish the trust (obtaining a court order requiring the trustee to make payment directly to the creditor). Many trust instruments contain facility of payment provisions that authorize distributions to the beneficiary directly or to third parties for the beneficiary’s benefit. If the...
- It matters whether a trust is a “charitable trust” for several reasons: (1) the Rule Against Perpetuities typically does not apply, (2) the state Attorney General has standing to enforce the trust (as does the settlor under the UTC), (3) favorable tax treatment (deductions for contributions and no trust income tax) may be available, and (4) cy pres may be available to reform the trust.
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Chapter 6. Will Substitutes [¶ 1] 86 results (showing 5 best matches)
- There can be no trust without trust property. An exception to this rule applies if the unfunded “trust” is the devisee under the settlor’s pour over will, because the Uniform Testamentary Additions to Trusts Act validates the trust—and the pour over to it—without regard to whether the trust otherwise had a corpus.
- Settlor created a revocable trust, retaining rights to income and principal for life and providing for distribution of the trust assets to Trust Beneficiary on Settlor’s death. The trust instrument provides that any revocation must be written and delivered to the trustee during life. Settlor’s subsequently executed will leaves the trust assets to Will Beneficiary. On Settlor’s death, both Trust Beneficiary and Will Beneficiary claim the trust assets. If a third party served as trustee, the revocation provision in the trust would preclude any argument that the will constitutes an effective revocation of the trust (unless UTC § 602(c) applies and the trust did not specify the exclusive means of revocation). But because the settlor was serving as trustee when the will , held that the settlor as trustee received the will, which constituted substantial compliance with the terms to revoke the trust, which is consistent with the blockbuster will co
- Even if the settlor is the sole beneficiary for the settlor’s life and serves as the sole trustee, trust validity is virtually guaranteed if there is a remainder beneficiary, based on the nearly irrebuttable (albeit fanciful) concept that the trust creates present rights in the remainder beneficiary, that the trustee has fiduciary duties, and that the settlor’s ability to alienate the trust property has been impaired. Alternatively, revocable trusts are valid under the UTC, and in some non-UTC states, even though no non-settlor beneficiary may enforce the trust during the settlor’s lifetime.
- State Street Bank and Trust Co. v. Reiser, 389 N.E.2d 768 (Mass. App. Ct. 1979)
- Notice also, however, that the coordination of trust and estate law is not always followed. For example,
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Chapter 10. Restrictions on Disinheritance: Pretermission, Elective Shares, and Community Property [¶ 1] 48 results (showing 5 best matches)
- Under the illusory trust test, S likely would reach the trust assets: T retained a life estate, the power to revoke the trust, and complete control over the trust during T’s life by serving as its sole trustee. Similarly, S could reach the trust assets under the Massachusetts general power of appointment test because T created the trust during the marriage and T’s power to revoke the trust was exercisable by T alone and constituted a general power of appointment (an unrestricted ability to use or direct the use of the trust assets for T’s own benefit).
- If a trust is subject to the elective share of a surviving spouse, the remedy also may differ depending on the jurisdiction. One approach, exemplified by , is to hold the trust invalid in its entirety. As a result of , however, the South Carolina legislature amended state law to clarify that the trust is only invalid for purposes of computing and funding the statutory share. That is, if the effort to use a trust to disfranchise the spouse is not effective, trust assets may be counted in determining the elective share and an invasion of the trust (or other nonprobate property) may be necessary if probate property is not adequate to satisfy that share. But the trust should not be invalidated otherwise.
- Under the intent or motive test, the court may examine the equities to determine whether the trust was intended to defeat S’s marital rights. Factors that support S reaching the trust include: the proximity of the creation and funding of the trust to T’s death and the facts that T’s assets are substantially greater than S’s, T provided for S only through the joint tenancy and the trust interest, and T essentially retained unrestricted control over the trust until T’s death. Factors supporting the validity of the trust against S’s election include: T’s motive to provide for a child with diminished mental capacity and S’s needs being provided for by S’s own assets, S receiving the home debt-free, and S being a beneficiary of the trust if necessary to provide for S’s health or support. Our guess: under the intent or motive test, S probably would not reach the trust.
- Assume that the surviving spouse’s elective share is $250,000, and that the decedent’s will provides for $500,000 to be left in trust, with the surviving spouse entitled to all income from the trust for life. Assume also that the actuarial value of the spouse’s interest in the trust (determined by current interest rates and the spouse’s life expectancy) is $250,000. The question is whether the spouse may be forced to accept the trust interest (by counting it as part of the elective share), or whether the spouse may disclaim it and instead take the elective share outright. Until 1993 the UPC position was the former. Now it is the latter. This issue is significant because the decedent can control the disposition of the assets remaining at the spouse’s death if the spouse effectively can be forced to accept a life interest in a trust in lieu of an outright elective share.
- The question involving a trust is the degree of enjoyment and control that a settlor may retain without subjecting the trust to the surviving spouse’s elective share. did, illustrating how easy it is, at least in Illinois, to disfranchise a surviving spouse. On the issue of the degree of control that may be retained without making a trust subject to a spouse’s forced share, said that retention of no more than a life estate and power to revoke will make the trust immune to challenge. Quaere why that is the proper test. After all, hardly any power is more important than the power of revocation, which (because the assets are returned to the settlor on revocation of the trust) gives the settlor the ability to exercise unrestricted control over the assets at will.
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Chapter 12. Trust Creation [¶ 1] 123 results (showing 5 best matches)
- Assume that S has no descendants and that S’s sole heir is N. S creates an inter vivos trust into which S transfers Blackacre, and executes a pour over will under which S’s probate assets, if any, are devised to the trust. S serves as the sole trustee, but the instrument designates N as successor trustee. The trust instrument further provides that, at S’s death, the trust corpus is distributable to N. Extrinsic evidence shows that S intended that Blackacre be held in trust for the benefit of third parties and that S discussed that trust with N. A constructive trust likely would be imposed if the extrinsic evidence also shows that the trust was not properly set out in the instrument due to N’s fraud, misrepresentation, undue influence, or duress. The likely remedy would be a resulting trust in favor of S’s estate if there was no wrongful conduct by N, who instead simply refused to comply with the oral trust. The problem with that result is that Blackacre would pass to N as S’s heir....
- The most common ways to create trusts are by testamentary devise (a testamentary trust), inter vivos transfer (an inter vivos or living trust), and the self-trusteed declaration of trust by which a property owner declares the intent to hold property as trustee. However it is created, a valid trust must have a , and it must have an ascertainable trust to convey property to fund the trust).
- Generally, testamentary trusts and trusts to hold realty require a but aside from this limited writing requirement there are virtually no formalities for the creation of a trust other than those requirements that property law imposes on the transfer of the trust corpus. The trust document may create additional requirements to amend or revoke the trust, but these are after the fact issues and merely underscore how very different the trust creation rules are from the law of wills (e.g., witnesses generally are not required for the creation of a trust). In addition, we will see that a valid trust may be created without a trustee, because normally a court will appoint a trustee to fill a vacancy,
- The issue whether a trust was meant to be imposed seldom arises unless the trust was poorly drafted or an alleged trust is oral or secret or both. The important element is that trusts are relationships under which trustees with fiduciary duties hold legal title to property to manage it on behalf of beneficiaries. The requisite intent is to create that relationship. Words like “trustee” or “trust” do not alone create a trust but their presence in a document may indicate an intent to create a trust. Their absence is indicative of nothing. For example, in , a father as a trustee was accountable to his daughter because gifts for the daughter’s education, made shortly after her birth, were deemed to be in trust. There were no trust instruments nor any express mention made of the creation of a trust. Trusts nevertheless were created because the transfers were made with the intent that the gifts be held for the benefit of the daughter.
- The intent to create a trust is more likely to be found if the language is specific enough to enforce as a trust (e.g., there are identifiable beneficiaries, specific terms, and a clearly defined property meant to be held). If not, finding the requisite intent probably will just result in an unenforceable semi-secret trust with a resulting trust back to the settlor’s estate. Semi-secret trusts are discussed beginning at ¶ 82.
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Chapter 18. Fiduciary Administration [¶ 1] 109 results (showing 5 best matches)
- A final factor to guide a trustee investing under either a prudent person rule (or under the prudent investor rule discussed at ¶ 76) is the trust’s need for liquidity. The assets of a trust for a beneficiary with relatively large short term cash needs (e.g., a trust for the college education of a high school student) should be invested differently than the assets of a trust for a beneficiary without cash needs for the near future (e.g., a trust for the college education of a newborn).
- T, as individual Trustee of the Jones Family Trust, deposits trust funds in Bank. The assets have been earmarked if the account into which the deposit is made is in the name of “T, as Trustee of the Jones Family Trust” (or just in the name of “the Trustee of the Jones Family Trust”). The trust funds have been segregated only if there are no funds of T in the account. Otherwise the trust assets have been commingled, which may make it impossible to judge whether T has properly managed the trust assets (as distinct from T’s own funds). The fiduciary duty is to earmark and segregate. Although commingling usually is not a problem with corporate fiduciaries, it is a common source of individual fiduciary liability (and attorney malfeasance with respect to client funds as well), even if there is no theft or other impropriety attributable to the failure to segregate the funds.
- ABC Bank, as personal representative of the Jones estate, may own 1 unit of ABC’s common trust fund, which in turn may own stocks, bonds, or both of many different companies or other issuers of securities. If there are 100 units of the common trust fund outstanding, the Jones estate will receive one percent of all income, gains, and losses of the common trust fund and may liquidate its interest for one percent of the value of the fund. Statutes in most states, and federal banking regulations for national banks, permit the use of common trust funds unless the trust instrument prohibits investment in them (which would be rare).
- , was decided under the prudent person rule and illustrates how not to invest trust funds. The trustees (one of whom was the testator’s lawyer) invested substantially all of a testamentary trust in a loan to real estate developers (who were clients of the lawyer/trustee) secured by a second deed of trust (similar to a mortgage) on a tract of land. The value of the land securing the loan declined, the borrowers defaulted on the loan, the holders of the first trust deed foreclosed, and the trust received no principal repayments on its loan. The trustees were surcharged for the loss, in large part because the concentration of the trust assets in the loan violated the trustee’s duty to diversify. Furthermore, the loan was secured only by a second deed of trust, which is an imprudent “speculative” investment. Finally, the trustees did not properly investigate such matters as the value of the land securing the second trust deed or the credit worthiness of the borrowers.
- If the fiduciary purchased assets of the estate or trust without authority and still owns them (or has transferred them to someone who is not a bona fide purchaser—i.e., to a third party who did not pay fair market value for them or who took them with notice of the breach of trust), the beneficiaries may recover the assets under the so-called
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Chapter 17. Rule Against Perpetuities [¶ 1] 55 results (showing 5 best matches)
- Today, for this reason (and increasingly as a sop to attract trust business, particularly to compete for generation-skipping trust business), many states have outright repealed the Rule, substantially increased the permissible duration of a trust, or allowed settlors to “opt out” of the Rule, for interests held in trust if the trust assets are alienable by the trustee.
- Although the Rule does not directly limit the duration of trusts to the perpetuities period, continuation of a trust beyond the period of the Rule might be defeated by the beneficiaries. As discussed in Chapter 13, under the so-called “Claflin doctrine” beneficiaries of a trust generally may not terminate the trust if doing so would defeat a material unfulfilled purpose of the settlor in establishing the trust (unless the settlor is alive and consents). In some jurisdictions, however, beneficiaries may terminate a trust that would continue beyond the perpetuities period, notwithstanding any unfulfilled purpose.
- Professor Gray’s classic statement of the Rule was: “No interest is good unless it must vest, if at all, not later than twenty-one years after some life in being at the creation of the interest.” This statement of the Rule requires a refinement with respect to contingent interests created under revocable trusts. Trust interests must vest, if at all, within 21 years after the death of some life in being when the trust becomes irrevocable, which is not necessarily when the trust and the contingent interest were created. In a revocable trust the perpetuities period usually begins at the settlor’s death. In this respect, “creation” under Professor Gray’s statement of the Rule means when the document creating the interest becomes irrevocable.
- The Rule is today subject to various criticisms (which have resulted in its reform or repeal in most jurisdictions, as discussed beginning at ¶ 121). For example, the Rule traps the uninitiated even though it is rather easily avoided by the well informed. Unfortunately, sometimes it also bites even well informed practitioners (which is why proper use of saving clauses is so common, to avoid that result). Further, most future interests today are created in trust, and the Rule is not needed to accomplish its traditional purpose (to protect the alienability of property) when the trust instrument allows the trustee to alienate the trust assets (as do the great majority of trust instruments). Thus, to a significant extent the Rule serves no legitimate purpose for trusts in which legal title to trust property is not restricted.
- G created a trust, the dispositive terms of which are “Income to G’s children for life, remainder to G’s grandchildren who reach age 21.” If the trust was a revocable inter vivos trust, the remainder is valid under the Rule because the perpetuities period does not begin to run until G’s death (assuming G does not release the power of revocation during G’s life). At G’s death, all of G’s children necessarily will be lives in being, and the remainder in G’s grandchildren will vest within 21 years after the death of the survivor of G’s children. If it was an irrevocable inter vivos trust, the remainder is not valid. This is because the perpetuities period begins to run upon its creation. That results in a violation of the Rule because G could have another child, AB (for after born or adopted), after creation of the trust. All relevant lives in being when the trust was created (i.e., G and G’s then living descendants) then could die, after which AB could have a child, GC, who would...trust
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Chapter 4. Revocation [¶ 1] 9 results (showing 5 best matches)
- A second, weaker argument available to C is that O’s will effectively incorporated the O Trust by reference by virtue of its dispositive provisions leaving O’s probate assets to the O Trust for disposition under the terms of the O Trust. If so, the revocation-by-divorce wills statute may apply to the incorporated trust. An incorporation by reference argument likely would fail, however, because the pour over will did not express an intention to incorporate the O Trust into the will (and doing so would not be advisable because the trust arguably would become a testamentary trust).
- expressly apply to dispositions in favor of a spouse under a revocable trust instrument, C nevertheless may argue that the will revocation statute should apply to revoke the disposition in favor of S under the O Trust. First, the revocation-by-divorce wills statute reflects the presumed intent of the average testator—who would not want a former spouse to share in the estate—and that presumption should be equally applicable to a revocable trust that serves as a will substitute. In this and some other contexts courts have applied wills statutes to revocable trusts, based in part on the revocable trust instrument being an integral part of a comprehensive estate plan (usually, as in this case, accompanied by a pour over will). Because the trust was funded during O’s lifetime, however, it did not speak only at death, as a will does, but served also as a property management arrangement. On that basis, a court might be unwilling to apply the wills revocation-by-divorce statute to the
- If under one or more of the theories described above the gift to S from the O Trust is deemed revoked or waived, the next question is how the half of the O Trust assets that S would have received should be distributed. Under most revocation-by-divorce will statutes, the former spouse is treated as having predeceased the testator (or as having disclaimed the devised property, in which case the former spouse also is treated as having predeceased). If the governing statute so provides, the trust assets would be distributable to C under the terms of the trust. If not, S’s half of the trust assets would be distributable under the law of the governing jurisdiction, perhaps to O’s estate. If S is deemed to have waived any claim to half of the trust assets in the divorce proceedings, C would argue that the waiver should be treated as a disclaimer. Otherwise the O Trust did not dispose of the half of the O Trust assets that were to go to S, but were waived by S, and that they therefore...
- At the age of 67 O, single and in good mental and physical health, created a revocable inter vivos declaration of trust (the O Trust) that designated O as the initial trustee and the sole beneficiary for O’s life. The instrument appoints O’s child, C, to serve as the successor trustee, to terminate the trust by distribution to C at O’s death. O’s will is a pour over to the O Trust. Ten years later O married S and, shortly thereafter, O executed an amendment to the O Trust providing that, upon O’s death, the successor trustee will terminate the trust by distributing its assets half to S and half to C, provided that if either of them predeceases O, then all of the trust assets would be distributed to the other. After just one year of marriage O and S were divorced, the decree including a property settlement under which they each received specified property in settlement of all claims of either to the property of the other.
- S is named as the remainder beneficiary of half of the assets in the O Trust at O’s death. There is no indication that the O Trust was amended following the divorce of O and S. Accordingly, S may assert a claim to half of the assets in the O Trust. Most jurisdictions provide by statute that provisions in a testator’s in favor of a former spouse are revoked by operation of law if the testator and the spouse divorce after the will was executed. The UPC and the statutes of some non-UPC jurisdictions provide that a divorce also revokes provisions in favor of the former spouse in instruments governing nonprobate assets, such as assets in a revocable trust. If the governing statute so provides, O’s divorce from S revoked the disposition in favor of S under the O Trust.
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About the Authors 2 results
- Professor Newman is the C. Blake McDowell, Jr. Professor of Law Emeritus at the University of Akron School of Law. An Honors graduate of the University of Oklahoma School of Law, he clerked for the late Honorable Thomas Gibbs Gee of the United States Court of Appeals for the Fifth Circuit. He practiced trusts and estates law and estate planning from 1981 until 1995 in Oklahoma City and frequently has served as an expert witness in litigated trust and estate disputes since becoming a professor. He is a Certified Public Accountant, an Academic Fellow of the American College of Trust and Estate Counsel, and a past chair of both the Taxation Section and the Estate Planning and Probate Law Section of the Oklahoma Bar Association. He served as the Reporter for the Ohio Trust Code Joint Committee of the Ohio Bankers League Legal, Legislative, and Regulatory Committee, and the Ohio State Bar Association Estate Planning, Trust, and Probate Law Section that was responsible for enactment of...
- Professor Pennell is the Richard H. Clark Professor of Law at Emory University School of Law in Atlanta. A graduate of Northwestern University School of Law, he is a Member of the American Law Institute and was an Adviser for its Restatement of the Law (Third) of Property (Wills and Other Donative Transfers), and an Adviser (and Associate Reporter) for its Restatement of the Law (Third) of Trusts, a former Group Chair and member of the Council of the Real Property, Trust and Estate Law Section of the American Bar Association, an Academic Fellow and Former Regent of the American College of Trust and Estate Counsel, and an Academician of The International Academy of Estate and Trust Law. His major publications include traditional law review articles and institute chapters and a variety of books, including Estate and Trust Planning (ABA 2006 with Professor Newman), Income Taxation of Trusts, Estates, Grantors and Beneficiaries (West 1987), Federal Wealth Transfer Taxation (West 2003),...
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Chapter 1. Introduction to Property Transfers at Death [¶ 1] 24 results (showing 5 best matches)
- A decedent may have been the beneficiary of a trust that the decedent or another person created for the decedent’s benefit. Depending on the terms of the agreement, the decedent may or may not have the right to affect who will benefit from the property following the decedent’s death. The trust property will pass to, or continue in trust for, persons designated in the trust agreement without regard to the decedent’s will or the laws of intestate succession.
- In addition, the Uniform Trust Code (UTC) was promulgated in 2000. It has been adopted in over 60% of the states and is still “making the rounds” for consideration in others. It focuses attention on appropriate changes that in many cases will import UPC concepts into the similar but separate law of trusts.
- An exception might apply if the decedent had (and exercised) a testamentary power of appointment (discussed in Chapter 14) over the trust property, in which case it would pass on the decedent’s death in accordance with any exercise of that power. Even then, however, the property will not pass as a part of the decedent’s probate estate, but will instead pass directly from the trustee of the trust to the persons named to receive the trust property in the decedent’s exercise of the power.
- The decedent (D) died survived by a spouse (S), and by two children (C1 and C2). D devised D’s entire estate to T, in trust, to pay income to S for life, remainder to C1. There is an obvious conflict between both S and C1, on the one hand, and C2, who is disinherited, on the other. See Chapter 3 for a discussion of will contest grounds. There also is a potential for conflict between S and C1 because it is in S’s interests for the trust assets to be invested to maximize income; C1 would prefer investments that result in growth of principal. See Chapter 18 for a discussion of the trustee’s duty of impartiality with respect to the administration of the trust for S and C1.
- This Chapter introduces you to the study of wills, trusts, and estates, including much of the terminology you need and the distinction between probate and nonprobate property. Also addressed are sources and limitations on the power to dispose of property at death.
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Chapter 3. Will Execution Formalities and Contest [¶ 1] 26 results (showing 5 best matches)
- Most importantly, the doctrine of independent legal significance makes valid a gift “of the residue of my estate to the acting trustee of the trust executed by me on [date], to be added to and administered as a part of the trust estate held under that trust as in effect at my death.” This is what a typical pour over will would provide, pouring the residue of the decedent’s estate into the trust and allowing the trust document to govern its disposition. A valid pour over relies on the doctrine of independent legal significance, which is essential because it permits the trust to be altered after execution of the will.
- Historically some states required that the trust instrument be executed prior to execution of the testator’s will. The UPC and the Uniform Testamentary Additions to Trusts Act only require that the trust be in existence and able to accept the pour over when the testator dies. This could include a trust created under the will of someone else, provided that the pouring over testator dies second.
- , which also is the freestanding Uniform Testamentary Additions to Trusts Act, permits pour overs to trusts that have not been funded during the decedent’s life. Under traditional trust law there cannot be a trust without trust property. See Chapter 12. Nevertheless, permits a pour over to a trust initially funded by the devise itself. Because substantially all of the ultimate dispositive provisions for the testator’s property usually are in the trust instrument, this result really turns fundamental notions of wills (and their effect) on their head. Yet the Uniform Testamentary Additions to Trusts Act has been adopted in all states, either as part of the UPC proper or as a freestanding enactment. This is contrary to much traditional wills doctrine, and it has contributed to the
- UPC § 2–511, (1) the trust terms may be contained in an instrument executed before, after, or concurrently with execution of the will, (2) the pour over is permissible if the terms of the trust permit the devised property to be administered in accordance with the terms of the trust as amended after the testator’s death (provided that the will does not specifically provide against such postmortem changes), and (3) the testator’s will may provide that the devise does not lapse even if the trust is revoked or terminated prior to the testator’s death. See Chapter 8. This may occur by incorporating by reference the terms of the trust as a part of the pour over will if the trust is not in existence to accept the pour over—which might be useful if the pour over is to the trust of someone else and they might revoke it without the testator’s knowledge or at a time when the testator lacks the ability to change the testator’s will.
- Short of such an authorized procedure, often the answer to the question of how to avoid contests is to use inter vivos trusts, which substantially reduce the likelihood of a contest being brought or of it being a success. There are a number of reasons why this may be the case. For example, a third party trustee who knew the testator can vouch for competence. In addition, the plan was effected while the testator was alive and could alter it, indicating that it was not the product of undue influence. Although it may not make a great deal of sense, trusts are not frequently challenged and are even less often defeated. Consistent with trusts being used as will substitutes (see Chapter 6), the Uniform Trust Code permits challenges to the validity of inter vivos trusts on will contest grounds and the limitation period for such actions runs from the settlor’s death, not from creation of the trust. See
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Chapter 15. Future Interests [¶ 1] 66 results (showing 5 best matches)
- Lapse should not apply, even if the trust instrument is a revocable inter vivos trust that is being used as a will substitute. Such trusts typically will provide for the transferor to be a beneficiary for life (often the sole beneficiary). The beneficiaries designated to receive the trust estate at the transferor’s death have future interests. If one of them dies before the transferor, the law of future interests should apply to determine who takes, not lapse or an antilapse statute. Some courts, however, have applied a lapse analysis in this circumstance, in which case the jurisdiction’s antilapse statute should apply as well.
- Wills and revocable inter vivos trusts frequently provide for the testator’s or settlor’s property to pass to a surviving spouse. If there is no surviving spouse, such instruments commonly leave the probate or trust estate to or in trust for descendants. In such cases, a question is what disposition should be made if there are no descendants who survive the testator or settlor, or if property is left in trust for descendants and they all die before the trust terminates. (And, if other persons are named as beneficiaries, they also are not living.) The drafting solution is to provide for an ultimate contingent beneficiary to whom the property can be distributed. One choice is charity. Perhaps the more common one is the testator’s or settlor’s heirs. Consider the following provision:
- For many readers “future interests” connotes archaic rules of English law that have little or no relevance to the modern practice of law. In fact, future interests are fundamental to a modern trusts and estates practice because trusts are commonly used and routinely create future interests. Most trusts are created to permit enjoyment of trust income and principal by one beneficiary or group of beneficiaries, followed by distribution to a different beneficiary or group of beneficiaries (e.g., income to my spouse for life, remainder to my children). Fortunately, the future interests that we encounter are relatively straightforward and much of the confusion of future interest law is reserved for busted plans (not the kind that you will draft). Indeed, our endeavor in this Chapter is to highlight how to avoid common future interest drafting errors.
- Future interests are entitled to protection. When the future interest is equitable (i.e., in trust), the beneficiary’s remedies usually relate to the trustee’s fiduciary duties, and are a matter of trust law. See Chapter 18. The following is a brief summary of protections available to holders of future interests.
- , is illustrative. The settlor of a revocable inter vivos trust retained a life estate in the trust corpus, with a portion of the remainder given to a son who predeceased the settlor. Had the gift of the remainder been made by will, it would have lapsed unless saved for the son’s descendants by an antilapse statute. But because the son received a future interest upon creation of the trust, and because of the rule against implying a condition of survivorship when none is expressed, the son’s remainder belonged to his estate for distribution to his heirs (if he died intestate) or devisees (if he d
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Chapter 14. Powers of Appointment [¶ 1] 35 results (showing 5 best matches)
- The primary rationale for using powers of appointment is to enable the powerholder to take a “second look” at the facts and circumstances as they develop over the life of a trust and alter the donor’s plan accordingly. For example, if a trust were distributable to the settlor’s descendants by representation, and one descendant developed significant needs, the powerholder could exercise the power to benefit that descendant to a greater degree than other descendants. It is as if the settlor of the trust were still alive and able to respond to changing needs and circumstances. Within limits prescribed by the creator of the power, a power of appointment permits the powerholder to select who will receive the property subject to the power. A power of appointment may be granted over property not in trust, but more commonly powers of appointment are used only with trust property. Thus, the more likely scenario would be a transfer by a property owner in trust for the benefit of one or more...
- Upon the death of my spouse the principal and any accrued and undistributed income of the trust estate shall be held in trust hereunder or distributed to or in trust for such appointee or appointees (including the estate of my spouse), with such powers and in such manner and proportions as my spouse may appoint by will, making specific reference to this power of appointment. Upon the death of my spouse, any part of the principal and accrued and undistributed income of the trust estate not effectively appointed shall be distributed to . . . . [insert default beneficiaries]
- Upon the death of a child who survives me, the child’s trust shall be held in trust hereunder or distributed to or in trust for such appointee or appointees other than the child, the child’s estate, creditors of the child, or creditors of the child’s estate, with such powers and in such manner and proportions as the child may appoint by will making specific reference to this power of appointment. Upon the death of a child, any part of the child’s trust not effectively appointed shall be distributed per stirpes to the child’s then living descendants or, if none, then per stirpes to my then living descendants.
- O’s trust provides that “my stock in Family Business, Inc. (FBI) shall be held for the benefit of my sibling S, half in S’s Trust 1 and half in S’s Trust 2.
- FBI stock was an asset of O’s Trust at O’s death. S’s will provides: “I leave my entire estate to X.” Discuss what disposition should be made of the FBI stock in S’s Trust 1 and in S’s Trust 2 at S’s death.
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Chapter 16. Planning for Incapacity [¶ 1] 14 results (showing 5 best matches)
- Revocable inter vivos trusts often are considered in the context of probate avoidance, but in many circumstances probate no longer is a problem to be avoided. This particularly is true in UPC and many other states in which probate administration has been simplified and streamlined. In those cases trusts are still useful in providing for the management of trust assets in the event of the settlor’s incapacity. See Chapter 6. Frequently the settlor will serve as the sole initial trustee of the trust (a “self-trusteed declaration of trust”). If the settlor becomes incapacitated the well drafted trust instrument appoints one or more successor trustees to serve and only if those nominees are unable or unwilling to act is a successor appointed by individuals or a court acting under the terms of the document. Either way, a court appointment is avoided without creating tax, creditor, or other issues that are present when outright conveyances or joint tenancies are used.
- Two advantages recommend funded revocable trusts over durable powers for a client who wants to avoid a guardianship for managing property in the event of incapacity. Both advantages are attributable to the trustee holding legal title to the client’s assets, in trust. One is that trustees generally may deal with third parties with respect to trust assets easier than can agents under durable powers of attorney. Third parties (e.g., banks, stock transfer agents, and insurance companies) are not as familiar with durable powers of attorney as they are with trusts. They may express concern that the durable power may have been revoked, a special worry if it is “stale” (was not executed recently) and they may ask to review the power of attorney to ascertain whether it authorizes the agent’s action. The other advantage is unrelated to management of the client’s property during life, but a revocable trust has the added benefit of avoiding probate of trust assets. This advantage can be...
- On the flip side of the durable power versus trust debate, a trustee has authority only over assets transferred to the trust. Transferring a client’s assets to a revocable trust can be time consuming, involve expense, and raise questions that a durable power of attorney avoids, such as whether (1) a transfer of mortgaged real estate to a revocable trust triggers a due-on-sale clause, (2) the insurer of a car or home must be notified of the transfer and the trust added as an additional named insured under the policy, (3) the transfer of a home affects any available property tax exemptions such as homestead or an otherwise applicable Medicaid exemption, and (4) the transfer of a partnership interest or stock in a closely held business to a revocable trust is permitted by the governing partnership agreement or a shareholders’
- A court proceeding is not necessary to determine the settlor’s incapacity if the trust instrument names the settlor as trustee and provides for a successor. A well planned trust provides for the settlor’s incapacity to be determined by the settlor’s physician(s), by a trusted family member or friend, or by a committee of several trusted persons (but not by the successor trustee, for fear that someone will allege that self interest informed a determination to take over). If medical personnel are involved the determination may require sharing information now protected by the Health Insurance Portability and Accountability Act of 1996 (HIPAA), so a procedure should be established in advance to guarantee the requisite consent to any anticipated disclosure.
- Often poorly advised individuals reflect a concern about incapacity by transferring legal ownership of their assets to another, such as a spouse or adult child, with an understanding that the transferee will use the assets for the transferor’s benefit. Medicaid rules address intentional efforts to diminish wealth to qualify for federal or state health care benefits, known as “spend down planning,” and impose a period of ineligibility on a transferor if the transfer occurs within five years before an application is made for benefits. See Chapter 13. Outright transfers raise a host of other problems, particularly if the transferee is not a spouse. Among them are dissipation of the property by the transferee; loss of control while the transferor remains competent or after regaining capacity; uncertainties over whether the conveyances are completed gifts or transfers in trust and, if the latter, the terms of the trust; imposition of gift tax, and income tax issues; the risk that...
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Chapter 5. Will Contracts [¶ 1] 10 results (showing 5 best matches)
- In the example above, the siblings could place the property they inherit from their parent into a single trust during their joint lives, with the trust to become irrevocable on the first of their deaths. Such trusts may involve a gift tax on the death of the first settlor to die, difficulties in the event of divorce (if the two settlors are spouses), and questions concerning management and use of the property during their joint lives. So, if prohibiting disposition of the property is not their objective, an even better approach yet is for each individual to create their own trust for the benefit of the survivor for life, with the remainder passing in the agreed manner. If control is important, however, you can see that a certain price is paid for that restriction.
- This particularly is true because the contract obligation can cause reduction of the federal estate tax marital deduction, so contractual mutual wills are not a wise plan for spouses whose estates are large enough to make marital deduction planning important. Using a so-called Qualified Terminable Interest Property (QTIP) trust is far easier and more certain.
- Use of Trusts [¶ 17]
- Husband and Wife each has one child from a prior relationship. They execute a joint and mutual will under which each agrees to leave his or her property to the other spouse, or equally to the two children if the other spouse is not living. Husband dies and leaves his estate to Wife, and Wife later changes her will to leave her entire estate to her child alone, or transfers property via nonprobate vehicles (such as joint tenancy with right of survivorship or a living trust) in violation of the contractual agreement. Although the omitted child has no actionable claim prior to Wife’s death, upon Wife’s death the omitted child could assert a claim for a constructive trust to be imposed on half of the property left by Wife to the other child.
- The circumstance in which control seems to be most important often involves spouses. For example, a “widow’s election” estate plan typically provides for a surviving spouse for life, but only if the surviving spouse agrees to leave property to designated beneficiaries on the second death. For a number of tax and other reasons, these are not common outside the community property jurisdictions and may not be good planning in taxable situations even there. Again, the preferable approach is a trust.
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Table of Cases 44 results (showing 5 best matches)
Chapter 8. Construction: Lapse and Class Gifts [¶ 1] 13 results (showing 5 best matches)
- 2–707, which generally treat will substitutes the same as wills for antilapse purposes. For example, antilapse statutes typically apply to testamentary trusts. Thus, the antilapse statute may apply if T’s will provides for T’s estate to be held in trust for A and A dies before T. A’s descendants would be substituted for A as beneficiaries of the testamentary trust if the will does not address the contingency and the other conditions for application of the antilapse statute (discussed below) are met. The reason this makes sense is because the trust is created by T’s will and therefore is subject to the Wills Act and the antilapse statute. An inter vivos trust, however, would be a different story unless state law is like the UPC in its reach. See Chapter 15.
- O’s inter vivos trust provided for distribution at O’s death of “my stock in ABC, Inc. to the descendants of my friend, F, and my stock in XYZ, Inc. to my first cousins.” At O’s death O’s trust included ABC stock and XYZ stock. F had two children, F1 and F2, and O had two first cousins, M and N, when O created the trust. F, F2, and N survived O (as did a child of F2), but F1 and M predeceased O. Each of F1 and M was survived by one child, both of whom survived O. F1 and M each died with a will that provided exclusively for Charity. At O’s death, discuss how the ABC and XYZ stock should be distributed.
- If a trust were created for T’s grandchildren and the trustee could distribute income or principal to them in its discretion but must distribute corpus only when each grandchild reaches age 35, the class would remain open until the first living grandchild actually reaches age 35, at which time a distribution must be made to that grandchild of an equal share of the trust corpus. The class closes then, so the trustee can determine how large a share to distribute.
- Application to Will Substitutes; Testamentary and Inter Vivos Trusts [¶ 11]
- , in which a grandmother’s will left the residue of her estate to her grandchildren, but further provided that any realty in the residue was to be maintained for the grandchildren and not sold until the youngest reached age 21. The first question was whether the realty passed outright to the grandchildren at their grandmother’s death, in which case the class would have closed then, or whether the gift was made in trust, in which case the class would not close until the youngest grandchild reached age 21. Recognizing the income producing nature of the real property and the young ages of her grandchildren, and providing for the realty to be maintained for them and not to be sold until a future date, the court held that the grandmother intended to create a trust with principal distributions to the grandchildren delayed until a future date. Thus, the class did not close at her death.
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Chapter 2. Intestacy [¶ 1] 11 results (showing 5 best matches)
- One is whether adopteds are treated as natural born under documents that were in existence or in effect before a statute treating adopteds as natural born was enacted (e.g., a testator died before enactment, with a will that created a trust as to which it is necessary to determine if an adopted descendant is a beneficiary of the trust). Many statutes did not provide for retroactive application to pre-existing documents and typically the law in effect when a trust becomes irrevocable (for example, at the settlor’s death with respect to a testamentary trust) will govern for all purposes in the future construction and interpretation of the trust (or a testator’s will). Thus, in many instances the old stranger to the adoption rule would apply. Some statutes, however, have been amended to allow full retroactivity.
- Effect of Adoption on Class Gifts Under Wills and Trust Instruments [¶ 94]
- Two major issues involving wills and trust agreements exist under most adoption statutes.
- Applicability to Class Gifts Under Wills or Trust Agreements [¶ 101]
- legal title to estate assets descended to the wife by intestacy, the court also declared that she received those assets in constructive trust for the decedent’s other heirs if the killing was intentional. See Chapter 11 for a discussion of constructive trusts. The
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Chapter 7. Interpretation: What the Decedent Intended [¶ 1] 19 results (showing 5 best matches)
- In at least one case, however, a court imposed a constructive trust to correct a mistake involving a will when there was no intentionally wrongful conduct. , involved a testator who wanted to revoke a codicil to his will. He mistakenly thought a photocopy of the codicil was the original. He showed the copy to a lawyer, who also thought it was the original. The lawyer told him he could revoke the codicil by tearing it up. Intending to revoke the codicil, the testator tore up the copy, believing it to be the original. At his death, the original was offered for probate. The court held that revocation of a copy of a testamentary document is not a valid revocation and admitted the codicil to probate. Because of the mistake, however, the court imposed a constructive trust on the beneficiary under the codicil in favor of the person who would have received the property if the codicil had been revoked properly. More common than imposing a constructive trust to correct an innocent mistake in...
- When we “interpret” a will or trust, we say that we are attempting to determine what the decedent meant by the words used in the instrument. Often interpretation is a search for the “plain meaning” of a word, phrase, or entire provision from within the “four corners” of the document. Typically evidence extrinsic to the will or trust is inadmissible in this search of the document for the decedent’s intent. As discussed below, however, extrinsic evidence may be admitted to ascertain the decedent’s intent if the document is ambiguous, or if the document is not ambiguous on its face but an ambiguity arises in attempting to apply the document to the facts existing outside of the will or trust. And let’s be honest: Often the decedent had
- , illustrates gaps or omissions caused by errors of drafting attorneys. The will made several specific devises, after which appeared language “[t]o the University of Georgia” in trust for a scholarship fund. The will did not state what property was left to that trust. The heirs argued that the residue passed to them by intestacy because the will otherwise did not contain an effective residuary clause. The court found the will to be ambiguous, admitted extrinsic evidence, and determined on the basis of it that the testator intended the residue to pass to the trust. It corrected the mistake, essentially by inserting the omitted but intended language into the will. Cases like
- Interpreting Wills and Trusts
- The rules in many jurisdictions prohibiting the admission of extrinsic evidence in the absence of an ambiguity, and the refusal to correct mistakes when there is no ambiguity, apply only to wills and not to will substitutes such as trusts, life insurance beneficiary designations, and so forth. In these jurisdictions mistakes in an unambiguous will substitute can be proven by extrinsic evidence and the document may be reformed to effectuate the decedent’s intent and to prevent an unintended beneficiary of a mistake from being unjustly enriched. If simple reformation of the document cannot correct the mistake, then a constructive trust may be imposed on the recipient of the property, obligating that beneficiary to convey legal title to the intended beneficiary.
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Index 74 results (showing 5 best matches)
Table of Contents 17 results (showing 5 best matches)
Chapter 9. Construction: Ademption, Abatement, Accessions, and Exoneration [¶ 1] 7 results (showing 5 best matches)
- , provided for a specific gift of an apartment building to a beneficiary. The gift adeemed when the settlor sold the building prior to death and did not amend the trust to provide an alternative gift. The court refused to consider the question whether the settlor court applied the traditional wills doctrine of ademption to a revocable inter vivos trust. According to the court, “a trust, particularly when executed as part of a comprehensive estate plan, should be construed according to the same rules traditionally applied to wills.” See Chapter 6.)
- ...passing to the surviving spouse are fully deductible and will reduce the taxable estate to well below the amount at which no federal estate taxes need be paid. So there is no need for an additional marital bequest to zero out the taxes, and the formula bequest will therefore give the spouse nothing. The nonprobate property that passes automatically to the spouse will not be affected here, so the only issue is who will take which dispositions from the probate estate, who will pay taxes (such as any state or foreign death tax), and who will suffer abatement if available assets are insufficient. In this case the brother will receive the specific devise of the summer home, and the other specifics of $100,000 have the same first priority. After taking them out of the estate, only $300,000 remains in the probate estate, and there are two general claims against that amount: the $200,000 to charity and the $200,000 to the children’s trust, totaling $400,000. This means that... ...s trust...
- The common law burden-on-the-residue rule imposes inequitable and unintended results. For instance, in the example the residue passing to S would bear the estate taxes for the property passing to C and B even though the devise to S generated no tax itself (because of the marital deduction). The taxes owed on the property passing to C and B might exhaust the residue so that S receives nothing. A tax clause in the will or trust may change the applicable rules in a burden-on-the-residue jurisdiction and may be essential to effect the decedent’s intent, as well as to minimize the tax itself (by avoiding loss of the marital deduction).
- T’s will is silent regarding priority and abatement. It directs the following dispositions: (1) summer home to brother, (2) specific bequests and legacies that total $100,000 to persons other than the surviving spouse, (3) a formula bequest to the surviving spouse (designed to accomplish estate tax minimization) of “the smallest amount needed to reduce my estate taxes to the lowest possible amount,” (4) $200,000 to charity, and (5) “$200,000 plus the residue” to a trust for children. Also assume that the estate consists of $800,000: (1) the summer home, worth $50,000, (2) a residence (in joint tenancy with the surviving spouse), worth $150,000,
- The accessions issue is whether a gift under a will or trust instrument bears interest or receives income (such as dividends or rent) that accrue or are paid (either before or after death) before final distribution. For example, if T’s will gave Blackacre to A and it is leased during estate administration for $10,000, with rental expenses of $2,000, does A receive the $8,000 of net rental income in addition to Blackacre? Careful drafters address such questions in the instrument because the state law rules that otherwise govern may be inadequate, unclear, or inconsistent with the testator’s intent.
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Title Page 1 result
- Publication Date: September 16th, 2019
- ISBN: 9781684675432
- Subject: Trusts and Estates
- Series: Quick Reviews
- Type: Outlines
- Description: This book provides an outline and analysis of Wills, Trusts, and Estates, in a convenient format both for class preparation and studying for exams. It is a clear and concise explanation of legal concepts and terms, the rationale and inter-relation of various principles, and provides hints for analysis, strategies for evaluation, and study tips. Topics covered include intestacy, will execution formalities and contest, revocation, will contracts, will substitutes, construction and interpretation, restrictions on disinheritance, trust creation and operation, fiduciary administration, powers of appointment, future interests, the Rule Against Perpetuities, and planning for incapacity. It is particularly useful in cutting through the fog of future interests, and making sense of the many ancient doctrines that befuddle students and inform modern practice. This title also includes self-testing, review questions, and detailed explanations.
