Wills and Trusts.Schwartz PDF

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Wills & Trusts Prof. Schwartz Spring 2020 TABLE OF CONTENTS Introduction to Wills, Trusts, and Estates: [1].................................................................................1 Introduction to Wills, Trusts, and Estates – Cases: [1]................................................................3 Intestacy: [59]..................................................................................................................................3 Intestacy – Cases: [59].................................................................................................................8 Testamentary Capacity: [141]........................................................................................................10 Testamentary Capacity – Cases: [141].......................................................................................13 Execution, Revocation, and Scope: [199]......................................................................................16 Execution, Revocation, and Scope – Cases: [199]....................................................................24 Non-probate Transfers: [295]........................................................................................................29 Non-probate Transfers – Cases: [295].......................................................................................32 Construing Wills: [365].................................................................................................................33 Construing Wills – Cases: [365]................................................................................................38 Limitations on the Testamentary Power to Transfer: [417]...........................................................40 Limitations on the Testamentary Power to Transfer – Cases: [417]..........................................46 Trusts, Creation, Life & Termination: [485]..................................................................................48 Trusts, Creation, Life & Termination – Cases: [485]................................................................53 Powers of Appointment & Discretionary Flexibility: [589]..........................................................56 Construing Trusts: Future Interests and Class Gifts: [623]...........................................................58 The Rule Against Perpetuities: [671].............................................................................................62 Charitable Trusts: [729].................................................................................................................64 Charitable Trusts – Cases: [729]................................................................................................65 Trust Administration and the Trustee’s Duties: [771]....................................................................66 Estate and Gift Taxes: [845]..........................................................................................................68 Lecture Notes:................................................................................................................................70

Introduction to Wills, Trusts, and Estates: [1] 1. The Power to Transfer Property at Death: The macro issue raised by the course is, “who gets your property when you die?” To the extent the answer is “whomever you intend,” there are a number of theoretical and public policy issues inherent in that answer [1]. a. Power to Transfer: A decedent has the right to dispose of his property at death. Although the states have broad authority to regulate the process, the states cannot completely abrogate the right. b. Theory: Some argue the power to transfer wealth at death is natural and good in that it encourages one to save and promotes family values, while others argue the power to transfer wealth at death perpetuates economic disparity and unfairly rewards those lucky enough to have been born to rich parents. c. Gov’t Power to Regulate: The Sup. Ct. has recognized that there is a right to pass on property to one’s heirs. Consequently, while the gov’t may regulate the transfer of property at death, and may tax such transfers, it may not completely

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abrogate such transfers. See Hodel v. Irving (Indian Land Consolidation Act struck down b/c forcing estates with minimal interests in Indian land to escheat the land to the tribe was an unconstitutional taking) [3]. 2. “Dead Hand” Control: A decedent may condition a beneficiary’s gift on the beneficiary behaving in a certain manner as long as the condition does not violate public policy. a. Validity: “Dead hand” control is generally upheld unless the condition constitutes a complete restraint on marriage, requires a beneficiary to practice a certain religion, encourages divorce or family strife, or directs the destruction of property. See Rest.3d §10.1 cmt.c and Shapira v. Union Nat’l Bank (Decedent’s gift to P son conditioned on P getting married to a Jewish girl within 7 years – or else gift would go to Israel – upheld as only a partial restraint on marriage) [both 21]. 3. Who Takes Decedent’s Property: An Overview: a. Overview: Who takes a decedent’s property depends first on whether the property is non-probate or probate property. Non-probate property is limited to (1) property held in joint tenancy, (2) life insurance contracts (modern trend expands this exception to include all contracts with a payable-on-death clause), (3) legal life estates and remainders, and (4) inter vivos trusts. Non-probate property passes pursuant to the terms of the non-probate instrument. Probate property passes pursuant to the terms of the decedent’s will, otherwise through intestacy.

4. The Probate Process: An Overview: [33] a. Default: Probate is the default for both testate and intestate estates. The decedent must take affirmative steps (execute a valid will or create a valid non-probate instrument) to avoid having the property pass through probate. b. Probate Administration: Formal probate is required for all estates over $100k. The probate court appoints a personal representative who has the job of collecting the decedent’s probate assets, paying off creditors’ claims and distributing the property to those who are entitled to receive the property. 5. Estate Planning: a. Key Objectives: In advising a party about his estate plan, the key objectives that an estate planning attorney should keep in mind are: (1) honoring the party’s intent; (2) avoiding estate taxes; and (3) avoiding probate. b. Professional Responsibility: Under the common law approach, the attorney owes no duty of care to, and is not in privity of K with, intended beneficiaries. Accordingly, intended beneficiaries have no standing to sue for malpractice. Under the modern trend, an attorney owes a duty of care to intended

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beneficiaries, and intended beneficiaries are 3rd party beneficiaries with respect to the K btw the attorney and testator. Intended beneficiaries have standing to sue for malpractice.

Introduction to Wills, Trusts, and Estates – Cases: [1] Hodel v. Irving [3]  U.S. Supreme Court (1987)  Facts: Indian Land Consolidation Act struck down b/c forcing estates with minimal interests in Indian land to escheat the land to the tribe was an unconstitutional taking.  Issue: Can the gov’t completely abrogate the transfer of property at death?  Rule: While the gov’t may regulate the transfer of property at death it may not completely abrogate such transfers.  Analysis: Though the interests were small, they were not de minimis, such that the total abrogation of the right to transfer these interests cannot be upheld. Decedents clearly have a right to pass property to their heirs, but heirs don’t necessarily have a right to receive such property. The gov’t has more latitude in circumscribing this latter right. This case also demonstrates the court’s preference in preventing escheating of property to the state. Shapira v. Union Nat’l Bank [21]  Ohio Court of Common Pleas (1974)  Facts: Decedent’s gift to P son conditioned on P getting married to a Jewish girl within 7 years – or else gift would go to Israel – upheld as only a partial restraint on marriage.  Issue: Is a testamentary gift conditioned on the beneficiary being married to someone of a particular religious background valid?  Rule: Gifts requiring a beneficiary to marry someone of a particular background are valid as only partial restraints on marriage.  Analysis: Gifts conditioned upon the beneficiary marring within a particular religious class or faith are reasonable and not against public policy.

Intestacy: [59] 1. Intestate Distribution Scheme: The default distribution scheme is intestacy. If a decedent fails to dispose of all of his property through non-probate instruments or a valid will, the decedent’s property passes pursuant to the state’s descent and distribution statute to the decedent’s heirs. CPC §6400. a. A Typical Intestate Distribution Scheme: Although the details vary from state to state, the basic order of who takes is fairly similar: (1) surviving spouse, (2) issue, (3) parents, (4) issue of parents, (5) grandparents/issue of grandparents, (6) nextof-kin, (7) escheats to the state. How much each takes is where the differences typically arise state to state. b. Exam Tip: Need to know both California and UPC schemes for exam! 2. Surviving Spouse: Who Qualifies: a. Marriage Requirement: The term spouse assumes that the couple has gone through a valid marriage ceremony (most states include putative spouses, where

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the couple goes through what at least one spouse believes is a valid marriage ceremony, but the marriage is either void or voidable). Cohabitants do not qualify unless the JX recognizes common law marriage and the couple meets the requirements for common law marriage. Once married, even if a couple legally separates, for inheritance purposes they continue to qualify as spouses until a court enters its final order of dissolution. b. Survival Requirement & Simultaneous Death: At common law, to qualify as an heir one has to prove by a preponderance of the evidence that he survived the decedent by a millisecond. See Janus v. Tarasewicz (Court held W wife survived H husband after they took cyanide-laced Tylenol, where both lost vital signs in ambulance but W was on life support for 2 days before being pronounced dead) [68]. Under the modern trend, most JX (e.g. California) require the taker to prove by clear and convincing evidence that he survived the decedent by 120 hours (5 days). See UPC §2-104, 702 [73n3], CPC §§220, 6403. If it cannot be proved that the beneficiary survived the decedent, the claimant is treated as if he predeceased the decedent. See Uni. Simultaneous Death Act [67]. i. Scope: The survival requirement applies to all parties who claim a right to take some of the decedent’s probate testate or intestate property. The JXs are split as to whether a survival requirement applies to non-probate property. In some JX the survival requirement is the same for all types of property, while in other JXs the survival requirement varies depending on the type of property. 3. Surviving Spouse: Calculating Share: If there is a surviving spouse (SS), her share is calculated as follows: a. California Approach: In California, the decedent only owns 50% of the community property and quasi-community property, while the spouse owns the other 50%. CPC §§100, 101. i. Community Property: When the decedent dies intestate, all of his community property passes to his SS. CPC §6401(a)-(b). ii. Separate Property: The separate property of the decedent is distributed as follows (most states distribute this way). CPC §6401(c). 1. No Issue, No Parents, No Siblings: If the decedent has no surviving issue, parents, siblings (full or half), or issue of deceased brothers and sisters (nieces or nephews), then all of the separate property goes to the SS. 2. One Child, or Other Takers: When the decedent leaves only one child (or issue of one deceased child), or leaves any parents, siblings, or issue of deceased siblings, then only 50% of the separate property goes to the SS. The remainder is distributed as described below. 3. Two+ Children: When the decedent has more than one child (either surviving, or by representation of grandchildren), then only 33% of the separate property goes to the SS. The remainder is distributed as described below. b. Uniform Probate Code (UPC): Under the UPC §2-102 [61], the SS takes:

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i. 100% of the decedent’s intestate property if no issue or parents, or 100% if all of the decedent’s issue are also issue of the SS and the SS has no other issue; ii. $200,000 plus 75% of the rest if the decedent has no surviving issue but surviving parent(s); iii. $150,000 plus 50% of the rest if all of the decedent’s surviving issue are also issue of the SS but the SS has other issue; or iv. $100,000 plus 50% of the rest if one or more of the decedent’s surviving issue are not issue of the SS. 4. Issue: Calculating Shares: The term issue includes not only one’s children, but also all of one’s blood descendents. The JXs are split over what it means to divide the decedent’s property equally among the decedent’s issue when the issues are not equally related to the decedent. Depending on the JX, the property is divided per stirpes, per capita, or per capita at each generation (if the decedent dies testate or with non-probate property, the written instrument can expressly provide for which approach applies). a. English Per Stirpes: Under the per stirpes approach, the first division of decedent’s property always occurs at the first generation of issue (whether anyone is alive at that generation or not); the property is divided into one share for each party who is alive at that generation and one share for each party who is dead at that generation but who is survived by issue; and the shares for those who are dead but survived by issue drop by bloodline to their respective issue [74n1]. b. Modern Per Stirpes – Per Capita with Representation: Under the per capita approach, the 1st division of decedent’s property always occurs at the 1st generation of issue where there is a live taker; the property is divided into one share for each party who is alive at that generation and one share for each party who is dead at that generation but who is survived by issue; and the shares for those who are dead but survived by issue drop by bloodline to their respective issue. This is the system used in California [74n2]. See CPC §6402. c. Per Capita at Each Generation – “Equally Near, Equally Dear”: Under the per capita at each generation approach, the first division of decedent’s property always occurs at the 1st generation of issue where there is a live taker; the property is divided into one share for each party who is alive at that generation and one share for each party who is dead at that generation but who is survived by issue; and the shares for those who are dead but survived by issue drop by the pooling approach (the shares are added together and then distributed equally among the issue of the deceased parties at the prior generation). This is the system use in the 1990 UPC [74n3]. d. Negative Disinheritance: Under the common law, a decedent can only disinherit someone by executing a valid will that disposes of all their property. However, the modern/UPC approach is that a decedent can disinherit an heir by properly executing a will that expresses such an intent – the disinherited heir is then treated as if they predeceased the decedent [77-78]. 5. Shares of Ancestors and Remote Collaterals: In California, after deducting the spouse’s share, the decedent’s estate passes to his issue, ancestors, and collateral relatives as follows. CPC §6402. Relatives of half-blood inherit as if they were whole-blooded. CPC §6406.

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a. b. c. d. e.

children equally, with grandchildren taking by representation; grandchildren equally, with great-grandchildren taking by representation; great-grandchildren equally; parents equally, or to the surviving parent; brothers/sisters (half or full) equally, with nieces/nephews taking by representation; f. grandparents equally, or to the surviving grandparents; g. aunts/uncles equally, with cousins taking by representation; h. step-children of predeceased spouse; i. father/mother-in-law of predeceased spouse; j. brother/sister-in-law of predeceased spouse, with their children taking by representation; k. next of kin or nearest relative; l. next of kin of predeceased spouse or their nearest relative; m. if none of the above, escheats to the State of California. 6. Issue: Who Qualifies: Establishing a parent-child relationship means each can inherit from and through the other. Such a relationship can be established naturally, whether the parents are married or not; by adoption, which severs the relationship with the natural parents as a general rule; or through equitable adoption [83]. a. Parents Married: Where the natural parents are married, the general rule is both parties (the natural parents and the child) can inherit from and through each other. b. Adoption: Adoption establishes a parent-child relationship btw the adopted child and the adoptive parents [83]. i. Adoption by Stepparent: As a general rule, adoption severs the relationship btw the adopted child and his natural parent of the same gender as the adopting parent. See Hall v. Vallandingham (C child not allowed to inherit from decedent biological uncle, where C was adopted by stepfather, thereby severing rights to inherit through biological father’s line) [83]. 1. Stepparent Adoption Exception: In many JXs, however, if the adoption is by a stepparent, following the adoption the child can still inherit from and through the natural parent of the same gender as the adopting stepparent, but the natural parent can no longer inherit from or through the child. See UPC §§2-113, 2-114 [86]. ii. California View: In California, an adopted child has the same rights and obligations as a biological child. Adoption does not affect succession [Lecture]. See CPC §§6450-51. iii. Adult Adoption: Generally, adoption of an adult is permissible and such adoptees are treated as described above [88n4]. 1. Spousal Adoption: However, in most states, adoption of one’s spouse/lover is not permitted (see Unif. Adpotion Act §5-101(a)(1) [92n2]), or if permitted, inheritance to the adopted spouse is restricted [88n4]. See Minary v. Citizens Fidelity Bank & Trust Co. (Son A not allowed to adopt his wife W for the purpose of making

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W his issue so she can inherit his rights as beneficiary to trust) [89]. iv. Revocation of Adoption: Adoption in not revocable if the relationship turns sour. But an adopted adult in not considered a child of the decedent when a trust has been created by a 3rd party where decedent was the beneficiary [92n5]. c. Equitable Adoption: Equitable adoption arises where: (1) the natural parents and adoptive parents agree on the adoption; (2) the natural parents perform by giving up custody of the child; (3) the child performs by moving in with the adoptive parents; (4) the adoptive parents partially perform by taking the child in but failing to complete the adoption; and (5) the adoptive parent dies intestate. Equitable adoption permits an equitable adopted child to inherit from the foster parents, but the foster parents cannot inherit from the child [98n1]. See O'Neal v. Wilkes (P not equitably adopted, where P was raised by D decedent, but never formally adopted by D, and P’s custodian never had authority to enter into adoption K with D) [94]. i. California View: In California, equitable adoption requires a showing by clear and convincing evidence that: (1) there existed a relationship btw the child and decedent foster parent beginning during the child’s minority and continuing till...