Trusts and Estates

J. Anderson

Trusts and Estates Adrienne Davis Fall 2002

I. Introduction a. Hodel v Irving (p 3) (SC 1987) i. Facts – congress enacted the indian land consolidatioin act, which contained a provision that certain fractional interests owned by tribe members would escheat to the tribe. ii. Rule of Law – the complete abolition of the rights of an owner to dispose of property rights is a taking without just compensation, violating the owner’s rights guaranteed under the Fifth Element. b. Shapira v Union National Bank (p 24) (Ohio 1974) i. Facts – Plaintiff’s interest under his father’s will was conditioned on the requirement that he marry a Jew whose parents were both Jewish within 7 years of his father’s death. ii. Rule of Law – A testator may validly impose a restraint on the religion of the spouse of a beneficiary as a condition precedent to inheriting under the will. c. Simpson v. Calivas (p 59) (New Hampshire 1994) i. Facts - Son and wife of deceased are feuding over word “homestead” – wife gets homestead, but does that include the 100 acres surrounding the house? ii. Held: (1) duty runs from attorney to intended beneficiary of will; (2) identified beneficiary may enforce terms of testator's contract with attorney as third-party beneficiary; (3) intended beneficiary was not collaterally estopped by probate court findings from suing attorney for negligence or breach of contract; (4) court committed clear error in refusing to admit appraisal contained in probate record regarding value of land on issue of damages; and (5) refusal to allow intended beneficiary to testify as to amount he paid his stepmother for her life estate in land two years after testator's death was not error. Reversed and remanded. d. Hotz v Minyard (p 66) (South Carolina 1991) i. Law firm could be held vicariously liable if lawyer had breached fiduciary duties. II. The Default Position: Intestacy a. Janus v Tarasewicz (p 78) (Illinois Appellate 1985) i. Facts – Stanley and Theresa Janus died after ingesting cyanide-laced Tylenol capsules. Theresa was supported on life support for a while. Should Stanley’s property pass to Theresa’s beneficiary or the second in line for Stanley’s property? ii. Rule of Law – The determination of legal death must be made in accordance with the usual and customary standards of medical practice. iii. Note - Uniform Probate Code states that if the devisee dies within 120 hours of the decedent, they are considered to have predeceased the decedent. Attorney’s contract around this by saying the devisee dies with the decedent in a common disaster, any person by the will shall pass as if such person predeceased the decedent. b. Hall v Vallandingham (p 98)(App Maryland 1988) – Adopted Children i. Facts – After Earl died, Vallandingham (P), his children, were adopted by Kilgore, his wife’s new husband. ii. Rule – An adopted child is no longer considered a child of either natural parent and loses on adoption all rights of inheritance from his natural parents. iii. UPC §2-114 – endorses method were spouse adopts kids then they still get original rights of inheritance. Basically says there is an exception for step parent adoption. c. O’Neal v Wilkes (p 108)(Georgia 1994) – Adopted Children i. Facts – O’Neal (P), who had been raised by testator but never formally adopted, petitioned the court for a declaration of virtual (equitable) adoption. ii. Rule – A contract to adopt may not be specifically enforced unless the contract was entered into by a person with the legal authority to consent to the adoption. 1. Therefore, since the aunt did not have the authority to consent to the adoption, the adoption was invalid in this case. d. Hecht v Superior Court (p117)(Cal App 1993) – non-marital children

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i. Facts – Can mistress of guy who committed suicide get the sperm he left in a sperm bank for her, both in his will and in the release at the sperm bank. ii. There is no public policy prohibiting the artificial insemination of the girlfriend because of her status as an unmarried woman; nor is there a public policy prohibiting conception by artificial insemination using the sperm of a deceased man. iii. The child could not inherit under intestate succession (although if expressly accounted for in a will then okay). e. In re Estate of Mahoney (p 141)(Vermont 1966) – bars to succession i. A conviction of murder or voluntary manslaughter disables the party convicted from inheriting any property from the decedent. The intent is the deciding factor (thus involuntary manslaughter does not bar succession). ii. Any inheritance should be held in a constructive trust in favor of other heirs or next of kin. The chancery court must distribute to the killer, but the court of equity creates the constructive trust. iii. RESTATEMENT 3rd of Property – a slayer is denied any right to a benefit from his wrong. This is proven by a preponderance standard, instead of no reasonable doubt standard. f. Troy v Hart (p 151)(Maryland App 1997) - disclaimer i. Used disclaimer so would continue to qualify for Medicaid (sister’s conned dying brother into disclaimer). Court says disclaimer was against public policy and sets up a constructive trust. III. Wills I: Freedom of Testation a. In re Strittmater (p 159)(New Jersey App 1947) – mental capacity i. Facts – Strittmater left her estate to the national Women’s party out of extreme hatred for men. ii. Rule – If a will is a product of an insane delusion, it will not be probated. Here her doctor said she was a schizo, as evidence by here bequeath according to the court. b. In re Honigman (p 166)(N.Y. App. 1960) – Insane Delusion i. Facts – Honigman had an unfounded belief that his wife was unfaithful to him. ii. Rule – A person operating under an insane delusion with respect to one of his heirs, is incapable of making a will with respect to that heir. iii. Insane Delusion -a delusion that the testator adheres to against all evidence and reason to the contrary. 1. In order to establish an insane delusion you must show something more than the fact that the testator was operating under a fixed, incorrect belief. Different than mistake. iv. It doesn’t matter that there were other reasons for constructing the will the way it was. It is sufficient that the delusion may have caused the wills provisions. v. Only the part affected by the delusion is invalid. c. Lipper v Weslow (p 177)(Tex App 1963) – Undue Influence i. Undue influence is shown when such control was exercised over the mind of the testator so as to overcome his free agency and free will and to substitute the will of another so as to cause the testator to do what he would not otherwise have done but for such control. ii. Facts – grandkids sue, because lawyer son was involved in disinheriting them. d. In re Moses (p 188)(Mississippi 1969) – undue influence i. A presumption of undue influence arises when an attorney with whom the testator has a continuing fiduciary relationship is a beneficiary under the will, which is not necessarily overcome simply because the will was actually prepared by an independent attorney with whom the testator consulted on her own. ii. This is that old rich drunk lady who shacks up with her attorney after 3 failed marriages. e. In re Kaufmann’s Will (p 193)(NY 1965) – undue influence i. Undue influence was found in will that guy gave his estate to gay lover, whom he had lived with for many years. Many wills were created. ii. The court felt the undue influence was not the type which prevents testator from exercising his will by force and threats of harm but was of the class which is insidious and subtle, which subverts the intent or will of the testator and moves the testator to do that which is not his intent but the intent and end of another.

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f. Latham v Father Divine (p 215)(NY App 1949) – fraud i. Where legatee prevents testator from executing new will in favor of another, such legatee holds property so acquired on constructive trust for intended legatee. 1. The complaint alleged that testatrix was prevented from making will favoring plaintiffs by misrepresentations and other devious means on part of defendants. ii. White woman gives all her money to black preacher. IV. Wills II: Formalism and Substantial Compliance a. DID NOT READ In re Groffman (p 227)(England 1968) – attested wills i. Rule – a will is not properly executed unless signed in the presence of two witnesses. b. DID NOT READ Estate of Parsons (p 236)(Cal App 1980) – attested wills i. A subscribing witness to a will who is named in the will as a beneficiary does not become a “disinterested” subscribing witness by filling a disclaimer of his interest after the testator’s death. 1. Look at the time of the execution of the will. ii. UPC § 2-505 – (a) an individual generally competent to be a witness may act as a witness to a will; (b) the signing of a will by an interested witness does not invalidate the will or any provision of it. c. In re Will of Ranney (p 252)(NJ 1991) i. Where witnesses, with the intent to attest a will, sign a self-proving affidavit but do not sign the will or an attestation clause, clear and convincing evidence of their intent should be produced to establish substantial compliance with the statutory requirements. ii. Attestation clauses (expressing present intent to act as witness) serve different function than self-proving affidavit (swears the will has been signed). d. Harrison v Bird (p 277)(Alabama 1993) – revocation of wills i. Rule – a rebuttable presumption of revocation exists where a will cannot be found among a deceased’s personal effects. 1. Where a testator destroys her copy of the will in her possession a presumption arises that she has revoked her will and all duplicates, even though a duplicate exists that is not in her possession. e. Thompon v Royall (p 280)(Virginia 1934) – revocation of wills i. Rule - revocation of a will by cancellation is not accomplished unless the written words of the document area mutilated, erase, deface, or otherwise mark portions of the will of the will to be impaired. 1. Writing on the back, as in this case, or in the margins is ineffectual. f. Via v Putnam (p 323)(Florida 1995) i. Rule – the rights of beneficiaries under a contract to make a will are limited by the possibility that the survivor might remarry and that the subsequent spouse might elect against the will. MINORITY RULE 1. The majority of states hold that the 3rd party beneficiaries prevail over the second wife. V. Wills III: Will Substitutes or Nonprobate Wills? Toward a Unified Theory of Succession a. Wilhoit v Peoples Life Insurance (p 331)(7th 1955) – P.O.D. contracts i. Rule – a party who establishes a trust consisting of the proceeds of a life insurance policy may, by will, designate a trust beneficiary other than the one named in the trust instrument. b. Estate of Hillowitz (p 336)(NY App 1968) – P.O.D. contracts i. Members of a partnership may provide, without fear of running afoul of our statute of wills, that upon the death of a partner, his widow shall be entitled to his interest in the firm. c. Cook v Equitable Life Assurance Society (p 339)(Indiana App 1981) – P.O.D. K’s i. Held: decedent's attempt to change beneficiary of life insurance policy by will, without more, was ineffectual. 1. You have to change the beneficiary the way the life insurance policy dictates. If however, the testator has done everything they can to change it but don’t, then the court may allow it. d. Franklin v Anna National Bank (p 345)(Ill App 1986) – multi-party bank accounts

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i. One claiming adversely to an agreement creating a joint tenancy has the burden of establishing the donor’s lack of intent by clear and convincing evidence. 1. The intent is when the account is created. It is proper to look at events after the creation of the account, however, in discovering this intent. e. Farkas v Williams (p 352)(Ill 1955) – revocable trusts i. Rule – even though the settlor retains the power to revoke the trust and appoints himself as trustee, if the beneficiary obtains any interest in the trust before the settlor dies, a valid inter vivos trust may have been formed. 1. The court says that the interest is hard to pin down, but there. 2. The court reminds us that Williams could sue Farkas for breach of fiduciary duty. f. In re Estate and Trust of Pilafas (p 361)(Arizona App 1992) – revocable trusts i. Rule – when a settlor reserves a power to revoke his trust in a particular manner or under particular circumstances, he can revoke it only in that manner or under those circumstances. 1. Just because you can’t find a copy of the trust in the testator’s effects, does not mean it has been revoked (as opposed to a will where that is the presumption). g. State Street Bank & Trust v Reiser (p368) (Mass App 1979) – revocable trusts i. Rule – where a person places property in trust and reserves the right to amend and revoke or to direct disposition of principal and income, the settlor’s creditors may, following the death of the settlor, reach in satisfaction by the settlor’s debts of them, to the extent not satisfied by the settlor’s estate, those assets owned by the trust over which the settlor had such control at the time of his death as would have enabled him to use the trust assets for his own benefit. h. Clymer v Mayo (p 375)(Mass 1985) – pour-over wills i. Statute which operated to revoke testamentary disposition to former spouse was applicable to revoke disposition to decedent's divorced husband in inter vivos trust executed contemporaneously with her will. ii. "Pour-over" trust is valid even though it did not receive funding until decedent's death. VI. Wills IV: Freedom of Testation Redux: Forced Succession a. In re Estate of Cross (p 488)(Ohio 1996) – rights of surviving spouse. i. Held: probate court did not abuse its discretion in electing for surviving spouse to take against will (will provided for nothing), inasmuch as failure to do so would render her ineligible for Medicaid benefits (because she must avail herself of all possible income to remain elgible) upon which she relied for care and support. b. In re Estate of Cooper (p 492)(NY Sup 1993) – rights of surviving spouses i. Held: The term surviving spouse does not apply to homosexual life partners and therefore the homosexual life partner cannot take against the will and take the elective share. 1. Most courts go this way. Some get around this by setting up a constructive trust. VII. Introduction to Trusts a. Jimenez v Lee (p 568)(Oregon 1976) – intent to create a trust i. Where funds are held in a trust for a specific purpose, the trustee will be liable for all expenditures not related to that purpose. 1. There is a duty to keep exact records of all expenditures on the part of the trustee. Otherwise the trustee is liable for all un-accounted for sums (even if he acted honestly). ii. Indicates the trustee must establish that all expenditures are within the purposes of the trust. b. The Hebrew University Assoc v Nye (p 575)(Conn 1961) – intent to create trust i. Held: courts do not supply conveyances where there are none, and even when intended donee is charity, gift which is imperfect for lack of delivery will not be turned into declaration of trust for no better reason than that it is imperfect for lack of delivery. ii. There needs to be an intent to impose enforceable duties of a trust nature (here the woman did not impose a duty on herself that would have given rise to being sued). c. The Hebrew University Assoc. v Nye (p 578)(Superior Conn 1966) – intent to create trust

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i. Held: when deceased publicly announced that she was giving her library to university, and accompanied the declaration with delivery to university of an itemized memorandum of what the gift included, there was a completed inter vivos gift based on constructive or symbolic delivery. 1. This is really probably symbolic delivery and not constructive delivery. d. Unthank v Rippstein (p 581)(Tex 1964) – necessity of trust property i. Rule – a mere promise tot give periodic gifts in the future will not support a finding that a trust has been established. 1. A gift to make payments in the future is merely a promise without consideration. ii. There is no res for the trust. There was no intention to bind the entire estate’s property to cover the $200/ month periodic gift. e. Brainard v Commissioner (p 586)(7th 1937) i. Rule – where a promise to declare a trust of property not yet in existence is unsupported by consideration, and the intention to hold the property in trust is not manifested until sometime after its acquisition by declarant, the property is not received in trust and is therefore taxable to the declarant. 1. An interest not yet in existence (future profits from stock trading) cannot constitute the property of a trust. 2. While an individual can contract to provide the property of the trust in the future, such a contract is not binding unless supported by consideration. f. Speelman v Pascal (p 589)(N.Y. App. 1961) i. Rule – a gift of property to be acquired in the future is valid and effective if the donor manifests an irrevocable intention to make a present transfer of his interest. 1. For a valid gift or trust involving property not in existence, the donor or trustee must give a present and irrevocable transfer of his interest in the property. He cannot maintain any control over the properties future distribution. g. Clark v Campbell (p 598)(New Hampshire 1926) – necessity of trust beneficiaries i. Facts – trustees of the estate were directed to give decedent’s personal effects to the friends they knew she wished to receive them. ii. Rule – where the beneficiary of a non-charitable trust cannot adequately be determined, the trust fails. 1. “Friends” is not the same as “relatives.” 2. Must be definite or if not the trust must spell out adequate standards so as to determine beneficiaries in the future. iii. Where a gift is impressed with a trust, ineffectively declared, and incapable of taking effect because of the indefiniteness of the cestui que trust, the donee will hold the property in trust for the next taker under the will, or for the next of kin by way of a resulting trust. h. In re Searight’s Estate (p 602)(Ohio App 1950) – necessity of trust beneficiaries i. Facts - the testator by will left $1000 to his executor to pay another to care for his dog for the rest of the dogs life; the probate court found that it was a valid trust and that the recipient of the dog could only be taxed on the dog’s value (5$), over the objection of the government who claimed that the it was not a trust and the $1000 was taxable. ii. Rule – an “honorary trust” is valid where it is for a valid purpose and the trustee accepts the testator’s wishes, even though there is no beneficiary who can enforce the trust. 1. Most jurisdictions don’t accept this. i. Shelley v Shelley (p 633)(Oregon 1960) – spendthrift trusts i. “The duty of the husband to support his former wife should override the restriction called for by the spendthrift trust.” ii. Facts – Grant Shelley’s father created a trust for his benefit containing a spendthrift provision. His two former wives and children sought to reach the trust income and principal to satisfy court-ordered alimony and child support obligations. iii. Rule – public policy requires that the spendthrift provisions of a trust be overridden by a beneficiary’s obligations to support his wife and children, and valid claim for such support can be enforced against that the portion of the trust realized by the beneficiary.

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1. The kids here can get at the corpus, but the wives have to wait until the ex- husband claims some of the corpus (now it is an unexercised interest). j. United States v O’Shaughnessy (p 643)(Minn 1994) – discretionary trusts i. Trust agreements providing that trustees "may pay all or such part of the principal or the annual net income of the trust estate as they shall see fit during beneficiary's lifetime" were "discretionary trusts." ii. Because discretionary trusts give trustee complete discretion to distribute all, some, or none of trust assets, beneficiary has "mere expectancy" in nondistributed income and principal until trustee elects to make payment; creditors, who stand in shoes of beneficiary, have no remedy against trustee until trustee distributes property. iii. Express trust creates two separate interests in subject matter of trust: legal interest vested in trustee and equitable interest vested in beneficiary. iv. Because discretionary trusts give trustee complete discretion to distribute all, some, or none of trust assets, beneficiary has "mere expectancy" in nondistributed income and principal until trustee elects to make payment; creditors, who stand in shoes of beneficiary, have no remedy against trustee until trustee distributes property. k. In re Trust of Stuchell (p 652)(Oregon App 1990) – modification of trust i. Facts – a life-income beneficiary of a trust sought court approval of an agreement to modify the trust, allowing it to continue if her mentally retarded son survived her since a direct distribution to him would impact his ability to qualify for public assistance. ii. Rule – a trust may be terminated if all of the beneficiaries agree, none of the beneficiaries is under a legal disability, and the trust’s purposes would not be frustrated by doing so. iii. Restatement (Second) Trusts § 167(1) provides: "The court will direct or permit the trustee to deviate from a term of the trust if owing to circumstances not known to the settlor and not anticipated by him compliance would defeat or substantially impair the accomplishment of the purposes of the trust; and in such case, if necessary to carry out the purposes of the trust, the court may direct or permit the trustee to do acts which are not authorized or are forbidden by the terms of the trust." 1. However, Comment b to that section states: "The court will not permit or direct the trustee to deviate from the terms of the trust merely because such deviation would be more advantageous to the beneficiaries than a compliance with such direction." iv. Here they only want to modify the trust merely because it is advantageous for the beneficiaries. l. In re Estate of Brown (p 657)(Vermont 1987) i. Rule – an active trust may not be terminated, even with the consent of all the beneficiaries, if a material purpose of the settlor remains to be accomplished. ii. The court says the trust had two purposes – to educate the nephew’s kids and to provide for the nephew after that. One purpose was over – the education. But you can’t change the trust to give the parents the money, because the uncle did not want them to have the money that way, otherwise he would have provided for that in the trust. VIII. Flexibility: Powers of Appointment a. Irwin Union Bank & Trust v Long (p 668)(Indiana App 1974) i. Held: where beneficiary was given power under testamentary trust to distribute property not his own by electing to withdraw not more than 4% of the trust corpus under certain circumstances, the power given to the beneficiary was a 'power of appointment' and beneficiary's former wife was not entitled as a creditor under divorce decree to reach property covered by the power of appointment which was unexercised. ii. Rule – a power of appointment which unexercised may not be reached by a creditor of the trustee. iii. Where the power is a special power, the appointee derives no benefit therefrom, and therefore, it cannot be reached by his creditors. iv. Basically, the right of appointment is not property. 1. The right of appointment is personable and cannot be alienated. b. Sterner v Nelson (p 677)(Nebraska 1982)

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i. Where devise was "absolute," grant was a fee simple, and thus it was without qualification regardless of what the testator may have intended regarding vesting of property in his foster daughter and her children upon his wife's death. ii. A testator cannot give an estate in fee simple by clear and concise language and subsequently diminish or destroy the devise by use of other language. c. Seidel v Werner (p 683)(NY County Ct 1975) – release of power of appointment i. Rule – a contract promising to exercise a testamentary power of appointment in favor of a specific party is not specifically enforceable, and no damages may be awarded for its breach. ii. However, the injured party though may recover in restitution the value of the property or rights given in exchange for the unenforceable power.