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The transfer of property upon death Wills only become effective when you die you can constantly

y change and modify it. Trusts the major nonprobate way of doing things I. I. Introduction to Probate and the Probate Process Probate and Nonprobate Property 1. Probate property passes under the decedents will or by intestacy a. If the transfer of property is not done by nonprobate means, you need an official way to do it b. One advantage of probate Non-claim statute: if you think this person owes you any money, you better make your claim now or else be foreclosed later on 2. Nonprobate property passes under an instrument other than a will; Includes: a. Joint tenancy property (both real and personal) joint (checking/savings) accounts, rights of survivorship; automatically transfers to survivor b. Life insurance a contract; upon his death his money goes to her; need death cert. c. Pensions, IRAs (retirement accounts) d. Government bonds another type of joint account e. Contracts with payable-on-death provisions, and f. Interests in trust set up and can transfer while alive, upon death it is automatically transferred g. Gifts h. Cars title makes a difference in whether you need to use probate. Who owns it? Special procedure, but does not necessarily have to go thru probate i. Real estate you need official notice that you have title j. Pay on death accounts bank accounts with specific instructions about when I die k. Furniture, personal property if married, assume these things are held together, as a practical matter, people usually do not carry too much about this stuff. 3. Separate the probate and nonprobate property a. Take nonprobate and do away with it accordingly b. Take probate property and ask Did this person have a will? If so, it will explain what to do with the probate property. If they do not, their probate property will be given away thru intestate succession. 4. What do they owe? Pay out any lawful debts. Do people absolutely need to have a will? It depends 1. It is possible to transfer all of your property thru nonprobate means; the will may just be a catch-all 2. You may want a will if you have specific requests (ie Mary gets the fur coat), because of the non-claim statute (ie clean up a business), b/c you can decide who will handle the estate designation, or to name a guardian/provide for minor children Table of Consanguinity Intestate succession only applies to probate property 1. Intestate succession sets up the rules if someone dies without a will 2. Most often, people die totally intestate; Or, even if they had a will, they did not give away all of their property and they now go thru intestate succession 3. Relation by blood in-laws and spouses dont count (unless its the spouse of the deceased) 4. Exhaust the first chain first until youve given away all the money 5. First line collaterals are the parents, brothers, nephews, etc; Second line collaterals are the uncles, first cousins, etc. Some states will draw the line after the second line Intestate Succession 1. Assuming someone dies without a will, go to the table of consanguinity; Scheme: a. Start with the deceased, look for a spouse, and then go down the line of children, grandchildren b. If there are no kids, go to parents, siblings and others 2. Surviving Spouses UPC 2-2102, 2-103

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If there is a surviving spouse and no will, look at 2-102: The surviving spouse will be mandated a specific share whether the person died intestate or with a will. b. If there is no surviving spouse and no will, look at 2-103 c. 2-102(1): First situation, if there is a surviving spouse, she will get at least half. If there are no descendents, she will get the entire estate. If the only descendents of the decedent are also the only descendents of the surviving spouse, she gets the entire thing. Assumption about the relationship between surviving spouse and children she will pass it on to children at her death and that she will act in the interest of her children. d. 2-102(2)-(4): Policy issue: Assuming there is a surviving spouse and no children, do the parents get any share? (3) and (4) deal with the second marriage situation. Assumption is that the surviving spouse will be less likely to take care of children who are not her own. (3) is if the surviving spouse has other kids; (4) is if the decedent has other kids. There are assumptions of how surviving spouses will treat their kids. e. 2-103: If there is something else that is left over that has not gone to the surviving spouse. (1) tries to give an easy answer: to the decedents descendents by representation. What does by representation mean? Problem p. 76: In-laws do not count! a. Per stirpes (English in book): We can also think of people as particular members of a family or branch (vertical). Because it focuses primarily on the branch, you could have some very wide distributions within generations; b. Per capita with right of representation: One theme is that every member of the same generation should be treated the same (horizontal). What generation do we use for the first cut at the pie? Instead of automatically starting with the 1st generation, it starts with the 1st generation where someone is alive; If the 2 are dead in the first generation, then we go to the grandchildren and if there are 3, divide by 1/3s. All grandchildren are treated alike, no matter how many are in each linear family. Divide equally by the number of people have at least one person alive in a generation. c. UPC Scheme Per capita at each generation: UPC 2-106. The theory is easy. All it cares about is treating every member of a same generation the same. Also finds the first generation where someone is alive. Whatever is left over is divided equally among the next generation down. All fractions should be the same horizontally. Each child has the same fraction, each grandchild has the same fraction. 2-104: Requirement that Heir Survive Decedent for 120 hours (5 days) a. You would have to probate two estates in succession; This is an administration problem b. The UPC decided to put this in as a matter of law under intestate succession. Not every state does this. Make sure you look at dates that people die (Exam). 2-108: Posthumous children An individual in gestation at a particular time is treated as living at that time if the individual lives 120 hours or more after death. 2-114: Adopted Children a. When the child is adopted, he is treated exactly like everyone else in the new family. b. UPC takes an intermediate position. The adopted child becomes part of the new family. 1. (b) deals with the second marriage and the legal relationship if the new spouse adopts the child. The rights of the natural parent are not terminated by adoption by spouse. The kids are not made any worse off because of this this is an incentive for adoption. The second part gives the advantage to the child; there is no by in this language, meaning the noncustodial natural parent cannot inherit from the child, but the child can from him. In some cases, the kid can inherit from both parents.

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(c) has a proviso neither natural parent can inherit from or thru a child unless the natural parent openly treats the child as his or hers. 7. 2-113: Related Through Two Lines typically involves adoption within the family a. Parents have died, and grandparents adopt their grandchildren to take care of them. This creates overlap natural grandparents, legal parents. b. UPC says child is entitled to only a single share based on the relationship that would entitle the individual to the larger share (typically as a child, not a grandchild) 8. Children Born out of Wedlock a. Laws have changed. Cannot justify these restrictions on kids. Issue of acknowledgement. 1. Formal goes to court and swears these are his kids 2. Informal dad is less willing, but there are witnesses and letters that he acknowledges he is the dad. b. Limits the Supreme Court acknowledges 1. Its ok if states want to limit it by saying the person must have formally acknowledged it when he (dad) was alive. c. Under UPA (Uniform Parentage Act) parent-child relationship extends to every parent and child, regardless of marital status. A parent-child relationship is presumed to exist between a father and child if 1. while child is less than age 2, the father lives in the same house and openly holds out the child as his natural child 2. the father acknowledges his paternity in writing filed with appropriate court or agency 9. Half-bloods very narrow issue; rare a. H1 and W have 3 children; H1 dies, W remarries and has 2 kids with H2. What are the rights of the 1st group of children? They get half-shares under common law. b. UPC 2-107: Relatives of half blood inherit the same share they would inherit if they were of whole blood. 10.Surrogate Motherhood a. Whose child is it for purposes of intestate succession? Some states do not recognize these contracts as against public policy. b. Some states say the surrogate mother is the mother and the other mother must adopt the child. c. What do you do where a women wants a child, and writes an agreement that you do not have to support the child. Virtually every state says you cannot contract around child support. 11.Letter of Instruction a. Wills do not do everything that is necessary. b. Purpose: To list what their property is (Property we own, addresses, where the deeds are, insurance, amount, where the papers are, etc); To give personal instructions and give descriptions on funeral, etc. 12.Problem 120-121 a. Probate Lot and cabin, Remainder interest in moms home, Gen Corp stock, Mutual Fund b. Non-Probate Residence,* Checking account, COD, IRA, American Mutual Fund, Life Insurance c. Conflict of laws: with respect to real property, the laws that apply are the laws where the property is physically located. d. You need to clear title to real property 13.Wills are public documents divide by personal and real property. Residual clause if there is anything extra or anything I forgot, heres where it goes. 14.Table of Consanguinity a. You dont look to the next line unless everyone in the previous line is gone.

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Under the UPC, dont go past the grandparent line (2nd line collaterals); If you are ever under intestate succession, you have to be within the first two lines. Then it will go to the state c. UPC 2-103(4) cut off after second line collaterals, and split by paternal and maternal. 15.Laughing Heirs Distant relatives. Laughing all the way to the bank. UPC cuts off laughing heirs Administration of Probate Estates 1. Appoint personal representative to wind up decedents affairs; Duties include a. Inventory and collect assets of decedent b. manage the assets during the administration c. receive and pay the claims of creditors and tax collectors d. clear any titles to cars, real estate, or other assets e. distribute remaining assets to those entitled Simultaneous Death 1. Husband and wife name each other as beneficiary; what happens when they die together? This typically has to do with non-probate property. USDA tries to take the default rules and change them. a. Default rules: Beneficiary gets the money. Problem is that you extend the period of when you probate this stuff and the money has to go thru two successive proceedings in a relatively short period of time. b. USDA has a solution to this. If this situation arises, it will try to keep the property within the same estate (husbands property stays with the estate of the husband, and vice versa). It involves only a single administration. Purpose is to keep the assets within the same family line. Still only a default rule will, letter of instruction can explain how to handle this. 2. Janus v. Tarasewiccz a. Facts: Husband and wife died after taking cyanide-laced Tylenol capsules. Husband was pronounced dead on Sept. 29, wife on Oct. 1. $100,000 insurance policy on husband, with wife as beneficiary. b. Under default rules, the money would go to her estate and to her family. (Court decision) c. (New) USDA will treat it as if each had predeceased the other, and pretend for purposes of the policy, that the wife died first. The money will stay in the husbands estate. 3. The courts seem to go out of their way to find evidence to prove they did not die simultaneously. a. H and W drown try to prove one was a better swimmer; Plane crash carbon monoxide in one; Car crash one was hit first 4. USDA (1993) Not every state has adopted this. a. First thing it does: creates 120-hr (5-day) requirement (UPC); If beneficiary does not survive for 5 days, he is presumed to have predeceased the testator. b. Second, it gives specific rules about what will be evidence of death. c. Exceptions to USDA survival is not required if governing instrument deals with simultaneous death; USDA is simply the default rule. Reasons for Change in Intestate Share 1. Advancements 2-109 based on assumption that the parent would want an equal distribution of assets among the children and that true equality can be reached only if lifetime gifts are taken into account in determining the amount of the equal shares. a. Gift it is out of estate and does not count as an advancement. b. Loan expect it to be paid back; debt owed to the estate; you pay money back and it goes back into the pot of distribution. c. Advancement I will give you this money now, and it will come off the share you would otherwise receive at my death. You will get $10k less when I die. d. UPA 2-109: Makes it relatively hard to prove an advancement. b.

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Decedent must have declared the advancement in a contemporaneous writing (must be done right away; cannot come back later and say you meant it as an advancement) or 2. the heir acknowledges the advancement in writing (may be done any time). e. Hotchpot: UPC does not tell you everything you need to know. You put everything together in a single pot. Assume 3 kids and $10,000 advance to one child. For accounting purposes only, add the advance into the whole estate. $50k plus $10k = $60k. What is each childs respective share? $20k each. Now apply the advancement, A gets $10k, B gets $20k, and C gets $20k. $50k estate is distributed. f. You do not have to pay back amount of advancement that was bigger than your hotchpot share.. g. What if A dies before dad? Does the advancement (debt) carry over to the children? UPC 2-109(c) property is not taken into account unless the descendants contemporaneous writing provides otherwise. So, the contemporaneous writing needs to say if its an advancement and whether it carries over to the other children. 2. Slayer Statutes a. In this probate proceeding, this individual is no longer entitled to this. b. What has to be proven? All we need in the civil proceeding is proof by a preponderance (versus beyond a reasonable doubt in criminal); A conviction in criminal court makes this easy. If he was not found guilty, it does not preclude a finding of preponderance in a civil proceeding. c. Remedy Pretend that he died before the person he killed. What about his children? Corruption of blood does conviction of crime run to entire family? No. 3. Loans Understand the emotional context Practical Concerns a. Transactions during life with your kids. Was this transaction a gift, advancement, or loan? b. Kid wants to borrow money; there should be formal documents (but probably not); the kid stops paying on his loan. Make sure the kid goes to a lawyer and is represented. c. Have some stipulations in the will about what is to happen with the loan and how the other kids are to be treated. Treat it as an advancement? Give slightly larger gifts to other siblings? 4. Disclaimers Do I have to take the money Ive been given through a will? a. It is a vehicle for estate planning; First option is to take it (w/ estate taxes, etc); Or, you can disclaim, and it just skips over you and it will go directly to the grandkids b. Every state will have a general disclaimer statute for property (not just wills) c. Must be in writing and within a relatively short period of time after death of decedent (3-6 months usually) d. If I die, does a representative of my estate have the ability to do this? Post-death estate planning. e. Once the property has been disclaimed, it relates back to the time of the gift. If I get it in Jan. and in Mar. I disclaim we pretend that you never owned it and that it went to your kids on Jan. 1st. 5. Negative Wills Only in UPC a. Critical for intestate succession b. You dont like who will get your property if you die intestate. Be sure that you give it away to someone else (non-probate or effective will) c. If something is wrong with the will, and you end up dying intestate or partially intestate, you can declare that X does not get any of my money. Wills Execution (Part 5 of UPC) Formal Wills

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1. Requirements of Execution a. First reason/function of wills Ritual; A special ceremony. b. Second Evidentiary function (writing, witnesses) b/c the person who knows the most about this is dead. Gives us more confidence to know this is what he wanted. c. Third Protective function wills are written when you are older and not until you are about to die. What condition are these people in? The last version will govern upon their death. They may have been older and more vulnerable. d. UPC (1990) requires writing, subscription, and attestation & signature by 2 witnesses e. If you fail to follow some of the formalities, the will might still be upheld as valid. 2. In re Groffman his 2 witnesses were not there at the same time. Invalid. a. Presence Line of sight (I can see you) v. Conscious presence (physical; I knew you were there) 3. UPC 2-502: UPC makes it easier, but do not assume that this is the way it is supposed to be done. a. Uses the term conscious presence if someone else is signing for the Testator. b. T may sign outside the presence of witnesses; Just needs to acknowledge signature or will to the witnesses. Does not need to be expressly stated - Can be inferred from Ts conduct. T can sign anywhere in/on the will. Does not have to be at end. c. Witnesses do not need to sign in the presence of the testator or of each other. d. Signed (mark, initial, nickname) by at least 2 witnesses, within a reasonable time after witnessing or acknowledgement; Do not have to sign immediately. Could sign after Ts death. 4. Substantial Compliance a. Movement away from formalism (where intent did not matter) b. UPC 2-503: Harmless Error. Treated as if it was if 1 of 4 things are met by clear and convincing evidence. Suddenly, we care about intent. If we screw up, we dont want to completely invalidate the will. c. Dispensing Power (Court looks at it, and then asks Are we certain enough that this person intended this document to be his will by clear and convincing evidence?) Or d. Substantial Compliance (well let it go; the will is ok) 5. In re Will of Ranney Witnesses signed the self-proving affidavit (last page, separate paper), but not the actual will at the attestation clause. Not a valid will under common law. Today: Substantial Compliance: If youre close enough, well let it go and hold the will valid. How badly can you screw up? ie. not enough witnesses. a. Attestation Clause says Im a witness and tracks the formal requirements for a will. Purpose is for evidence. One of several reasons you have witnesses is so that when the testator dies, someone can say yes, this is correct and I was there. This clause adds prima facie evidence. b. Self-Proving Affidavit UPC 2-504 Looks like an attestation clause but has a notary. This adds even more evidentiary value. Purpose is for conclusive evidence (this goes beyond prima facie evidence) that the formalities were followed. This takes care of having to go to court later on. It is conclusive about the ceremony. It does not prove defenses and will not protect against every attack. There is nothing to be lost by having this. This is a separate piece of paper witnesses sign twice. c. Many states have included these together, and the witnesses just have to sign once. 6. In re Estate of Hall Couple saw a lawyer and drafted a will, man died before it was formally written out. They signed and Lawyer notorized the draft. No witnesses. They went home and ripped up the earlier will. At common law: invalid will. Today: Might be ok under harmless error.

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7. Requirements of Witnesses a. Witness must only have legal competency Certain age (may be called to testify) b. Witnesses used to have to be disinterested. c. Remedies: What do we do with the particular gifts to the beneficiaries? 1. Easiest you do not get the gift. Money goes back into the general estate. 2. Second approach Purging statutes: Takes away any extra incentive under the will. Compare what youre getting under the will with what you would have gotten under intestate succession. Any extra you got under the will is taken away. d. UPC 2-505: Does not care about interested witnesses. Just need competency. Might be able to make an argument for undue influence. e. Estate of Parsons 3 witnesses (E gets $100, M gets real estate, B gets nothing). 2 disinterested witnesses needed for a valid will under common law. E decides later to disclaim and argues it reverts back and so there are actually 2 disinterested witnesses at the signing of the will. Court says a disclaimer does not revert back; there must have been 2 disinterested at the execution. 8. Execution Ceremony a. A will is an ambulatory document and only becomes effective when you die. b. General Procedures Pages are fastened together and specifies exact # of pages. Lawyer makes sure the testator read the will and understands it. Lawyer, testator, 3 disinterested witnesses, and notary in a room (lawyer can be notary). Close door, no one enters, no one leaves - Satisfies the presence requirement. c. Publication Testator must declare that this document is their will. Is this your will? d. Testator signs every single page and at the end. e. Attestation Clause Witnesses sign (they do not have to know the contents of the will just know that it is his will and that is his signature) f. Self-Proving Wills Testator and witnesses sign before notary, notary signs and seals g. Safeguarding Wills Lawyer should give copy to testator and keep original in file. h. Letter of Instruction no legal status, but very helpful. Heres where our assets are, this is what property we own, heres our insurance policy, pension assets. Probate and non-probate, this is everything so you can find it. Inventory. Special instructions about funeral. i. Videotape Many states (including IN) allow this. The videotape does not constitute the writing. This is an additional safeguard for an execution ceremony see everything that happens, see them talk, see the witnesses, and see that everything was done. Evidence. Holographic (and Conditional) Wills 2-502b 1. A will that is in the handwriting of the testator. If you have witnesses sign your holographic will, then it is a holographic formal will. 2. It is possible to have a holographic codicil to a formal will. 3. Requirements a. UPC 2-502b allows for holographic wills, whether or not witnessed, if the signature and material portions of the document are in the testators handwriting. b. This makes it easier to recognize a holographic will. 4. Harmless error applies to holographic wills! 5. Special Problems with Holographic Wills a. Form if we have a formal will drafted by a lawyer, its pretty clear what it is. With a holographic will, all that is required is a writing. This could be all kinds of things letters, written in the side of a wall, on a bag, carved into a tractor. It does not have to look like a regular legal document. It can be anything in permanent form, as long as its writing.

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Intent you must know that this particular document was intended by the testator to be his will. Or is this just a general exposition this is what I like, but its not really my will. c. Conditional will Only effective if X happens or during a specific period of time. If something happens to me on this trip... I am not executing a general will, but rather just a conditional will. If the condition does not come to pass and he returns from the trip, did he mean for this to be effective only during this period or as a general, open-ended if I die? d. Kimmels Estate letter home if enny thing happens... and says where his money is and who is property goes to. Is this a will? Argue its a letter, no intent as a will. New Will v. Codicil 1. In re Estate of Kuralt Ct found the holographic will was a codicil to his 1994 formal will. The letter met the threshold requirements for a valid holographic will. Intent. 2. A codicil is a testamentary instrument that amends a prior will; it does not replace it. Other Types of Wills 1. Statutory Wills some states have authorized simple statutory fill-in-the-form wills. They must be signed and attested in the same manner as any attested will. Many fail in probate because they are improperly completed or executed. 2. Noncupative Wills Oral will. (oral is spoken, verbal is with words/written) This is a special limited exception recognized in some states. Typically involves someone who is about to die and all they have time to say is how they want their property to go. a. It may be limited to personal property. b. Some may say you cannot contradict your formal will; you can only add c. Some say it has to be reduced to permanent form (writing) within a short period of time. Typically not recognized if someone just testifies that it was said 6 mo ago. Formal Wills Practice Concerns 1. Children equal or unequal shares? a. If you give it away in a will, its going to be public. b. 1st example: One child has done better financially than the other. Talk to the children! c. If youre going to give different amounts, here are some options: Give equally in the will (which is public), and then give more outside to one child (life insurance policy, side transfer of money/property) d. Revocable intervivos trust. Never expect that disputes will go away after you die. 2. Children equal or unequal sharing of power? a. Have multiple trustees and let the children decide for themselves. b. Let them have a hand in it if their money depends on it, theyll clear it up together 3. Valuable and household contents. a. Personal items inventory them and mark them. People will come in and grab. b. Parents should ask the children. Parents can give it away while theyre still alive. Out of estate. 4. Succession of family business a. This one asset constitutes most (or all) of the estate. Hard to divide b. One member wants to keep it going, one wants to sell, etc. One option is to have that child buy out the other child(ren). Difficulty is valuation sweat equity, etc. Why should I pay you when something is valuable because of what I did to it? c. Equalize outside the will life insurance. One gets the business, the other money. 5. The family residence a. May be painful or difficult to sell; What if one child wants it? What if one child still lives there? b. Second spouse situations are also complicated. 1st kids kick out that 2nd spouse?

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Let the 2nd spouse have the house for a certain period of time, and then sell it. Life insurance gives the kids something right away. Use other nonprobate assets. 6. How much is too much? a. Dont surprise them. Tell kids early if theyre not going to get as much as they think. b. You might want to get assets out of your estate before you die. You can give $11,000 per year to a person as a gift, which is not subject to taxes. Pay for college up front. 7. Controlling children with money a. You have to marry someone of a particular religion this is illegal, it will be struck down; you have to marry a particular person illegal. b. Things you can control (legal, but not always wise): you have to go to X school and graduate before I die; I want you to graduate from X within a certain time period; you can go anywhere you want, but I will only pay if you go to X; Go and become a doctor/lawyer you will get a bonus. This is an incentive. c. They may be concerned about a kids work ethic. Give incentives to keep going. 8. Lawyers People just want you to do it for them and tell them how its supposed to be done. Fewer disputes about the estate will occur when people are happy. (angry clients will sue). Components of Wills Integration 1. All papers present at the time of execution, intended to be part of the will, are integrated into the will. 2. Look to intent. If there are just scratchings, argue that it was not meant to change the will Republication by Codicil 1. Codicil: An amendment to an existing will a. Standards, intent, formalities are the same as with formal wills. b. Usually used to a make a relatively simple change to a pre-existing will. 2. A will is treated as re-executed (re-published) as of the date of the codicil. You rely on the formalities and date of the second document (codicil). 3. Example: A testator revokes a 1st will by a 2nd will, and then executes a codicil to the 1st will. The 1st will is republished, and thus the 2nd will is revoked by implication 4. Applies only to a prior validly executed will 5. First ask, What is the relationship between these documents? a. It may just be a codicil to the pre-existing will b. Or, the second document may be meant as a 2nd will to take the place of the 1st c. The first sentence should explain what the document is. If there is no language, you have to look at the underlying structure and terms. 6. If it is a codicil, there is a long-standing doctrine about republication. It shifts the date of the 1st will. a. When you execute a codicil, the will is republished as of the codicil date. b. The two are meant to be looked at together, and are considered to have the same date. 7. When it is republished, you are relying on the 2nd instrument Incorporation by Reference 1. UPC 2-510: Any writing in existence when a will is executed may be incorporated by reference if the language of the will manifests this intent and describes the writing sufficiently to permit its identification 2. Clark v. Greenhalge specific, written bequests of personal property contained in a notebook were incorporated by reference into the terms of her will. a. There was a list, then a will, then a change, and then a codicil. b. Argue that the changes are incorporated by reference because of the republication by codicil. 3. You can have your will, and then incorporate by reference another document, which now becomes part of the will. c. d.

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4. Traditional limitations at common law: a. The will itself must make reference to this other document b. This document has to be in existence on the date that the will is executed c. Why? Worry that it could be changed later w/o formalities and increased problems of fraud UPC Separate Writing 1. UPC 2-513: This is some other piece of paper, maybe all in handwriting, and you have to figure out if it is a part of the will. a. It has to be mentioned in the will. b. Only tangible, personal property not the home, stocks, or money c. Must be signed by the testator and describe the items with reasonable certainty. The rest of the list does not have to be handwritten. d. It is specifically different from common law incorporation by reference: It may be referred to as one to be in existence at the time of the testators death. The testator can write it later. e. It may be prepared before or after the execution of the will f. It can also be altered later by the testator 2. This is a very limited doctrine Acts of Independent Significance 1. UPC 2-512 2. You will have to do a little investigation. Look outside the will to interpret and understand what it means. Is there a car? How many employees? Who are they? 3. Ex: I give you the car that I own on the date of my death. This is vague and is allowed. 4. Ex: I want to give $1,000 to each of my employees who work for me on the date of my death. 5. If it is accessible to someone else (desk drawer), there is a concern that the person will change the will. Concern with fraud. Safe deposit boxes are ok and will be upheld as AIS. Revocation of Wills UPC 2-507: Revocation by Writing or Physical Act. Easier than common law. The cancellation does not need to touch any of the words on the will. You need the same standards to revoke it as you do to make it. (Intent, formalities, etc) You need both the intent and the act. Otherwise, its not revoked. Revocation by Subsequent Instrument 1. Typically, you revoke a will be making a subsequent will. I hearby revoke all other wills and codicils... so that there is no doubt about it. 2. If I just revoke the codicil, then the underlying will still stands. 3. If I just revoke the will (and not the codicil), what happens? The codicil is also deemed to be revoked when the underlying will is revoked. 4. If the 2nd will makes a complete disposition of the estate, a presumption arises that the 2 nd will was intended to replace the previous will. 5. If the 2nd will does not make a complete disposition of the estate, a presumption arises that the 2nd will was intended to supplement (codicil) rather than replace the previous will. Revocation by Physical Act 1. Total physical revocation a. Removal of Ts signature (tear, erase, line thru, etc.) constitutes a sufficient revocatory act to revoke the entire will. 1. T can also direct someone to remove his signature under the conscious presence test. Does not need to be in Ts line of sight. b. Harrison v. Bird Attorney tore up Birds will at her request, but not in her presence. She never wrote a new will. Presumption that she destroyed her will herself after the attorney sent her the pieces. Will was revoked. c. Thompson v. Royall She wanted to revoke her will and codicil, but decided not to destroy it so that she could use it as a memoranda to write her new will. She had the intent, but did not write in her own handwriting that it was revoked. She

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did not physically mutilate or deface or cancel any written parts of the will. Revocation was ineffectual. The requisite act was not done. Different result under UPC. d. First thing you have to ask is whether the revocation is a subsequent instrument? Is it a holographic will? Second, did she revoke it by physical act? 2. Partial physical revocation a. UPC allows partial physical revocation; some states also recognize it b. This is an issue because of the problems for fraud. c. First step, does this handwriting constitute a valid holographic will? Does this state recognize them? Then what about partial physical revocation? You can probate a lost will. There are ways to prove the existence of the will. I cross something out and write something else in there. What does this mean? 1. First, does this state recognize valid holographic wills? If yes, is this a valid holographic codicil? Apply the normal standards. 2. Second, if this is not the case, then ask if it is a partial physical revocation? Two parts: Revoking by the line thru and writing on it. 3. If the state does not recognize holographic or partial physical revocations, then the doodle on the paper means nothing. 4. Third, if it is a partial physical revocation, then it may be a case where I want to apply DDR. Maybe I was mistaken by what I did and I didnt realize what would happen. Relevant Acts After Revocation Arguments for Undoing a Revocation 1. Dependent Relative Revocation a. If the testator purports to revoke his will upon a mistaken assumption of law or fact, the revocation is ineffective if the testator would not have revoked his will had he known the truth. Its not what T thought was going to happen he was mistaken. b. Three options. 1. What is it that this person thought they were doing? Intent. Give T what he wanted (what did T really want to do? What did T think he was doing?) You cannot actually do this. 2. T was mistaken, so what is the impact of this if we apply the law? As applied (What would the law require if we just applied the law to what T did? This is a true legal ruling) 3. What would happen if we just undid it and went back to square one? Undo the revocation and pretend it didnt happen. c. All DDR is about is choosing which of the last 2 options are closer to the intent (as applied or undone). You can never give them what they really want. DDR is designed to come as close as possible to what T wanted; there should be good evidence of intent. d. Estate of Alburn Milwaukee will in 1955 and Illinois will in 1959. She destroyed the Illinois will under the mistaken belief that the Milwaukee will would control. Under DDR, Illinois will goes to probate. (State specific) 2. T crossed out $10,000 and wrote in $15,000. The first is a revocation and the second is an attempted something. a. DDR analysis: 1. First step, does the state recognize holographic wills? If so, does this scribble satisfy the requirements for holographic wills? (material portion changed and signed) If yes, you are done. If a state does not recognize holographic wills or if it is not valid as a holographic will, then go to the next step. 2. Second, does the state recognize partial physical revocations? If no, then its just a doodle and means nothing. If the state does recognize partial physical revocation, then you go to DDR. Two options. As applied he gets $0. Undone then he gets the $10,000. 3. UPC DDR states that revival will now cure most problems and will not have to go thru DDR

E. A.

B.

C.

4. Revival a. UPC 2-509: Whole, partial, and 3rd will revocation b. I revoke will #1 with will #2. What if I decide to revoke will #2, with nothing in its place? Does will #1 come back? Three options: 1. A few states will give will #1 full revival. 2. Some states have a modified version of that. Will #1 will come back if that was the intent of the testator. UPC says the revocation of #2 will revive #1 if it is evident from the circumstances of the revocation of #2 or contemporaneous or subsequent declarations that T intended #1 to take effect as executed. The UPC presumes that Ts act of revoking #2 was not intended to revive #1. 3. Or, some states will say no revival at all because the formalities were not followed. You have to execute the will according to the formalities and you did not. Defenses to Formation of Wills and Will Contests Mental Capacity 1. UPC 2-501: An individual 18 yrs or older who is of sound mind may make a will. 2. Restatement 8.1: Testator must be 18 and capable of knowing and understanding in a general way a. the nature and extent of his property (what property I have) b. the natural objects of his bounty (people to give it to) c. the disposition that he is making of that property, and d. capable of relating these elements to one another and forming an orderly desire regarding the disposition of the property. e. The test is of capability, not of actual knowledge. 3. Requisite intent must be there for making a will/codicil, revocation, etc. 4. In re Estate of Wright gave $1 to many relatives; Witnesses testified of Wrights unsound mind and lack of testamentary capacity. Will upheld. You can be weird. 5. Capacity to make a will requires less mental ability than to manage ones investments, make a contract, or make a gift. However, legal capacity to make a will requires a greater mental competency than is required for marriage. Insane Delusion 1. General incapacity means you dont have the capacity to make the will the whole will is struck down. 2. Insane delusion is different it is an unreasonable belief about a particular or narrow topic. You may have had general capacity, but you had delusional beliefs about a narrow subset of things. The argument is that this goes to particular provisions in the will. 3. In re Strittmater T was feminist and left her estate to the Natl Womens Party. Insane delusion affected the entire will - Will not upheld. Different result today. 4. In re Honigman Testator cut off his wife; insane delusion that his wife was unfaithful; Court remanded to allow the jury to decide if he was delusional. If relatives can come forward and give another reason, (help poor relatives, etc.), then wife loses. 5. Insane delusion is a belief not susceptible to correction by presenting the testator with evidence indicating the falsity of the belief. a. A mistake is susceptible to correction if the testator is told the truth. b. Courts do not reform or invalidate wills because of mistake. 6. You have to show the causation; show that this defect caused a manifestation in the will. 7. If you can come up with an alternative explanation, that will undercut any of these claims. Undue Influence 1. To have undue influence, there must be coercion. Influence alone is ok. 2. Iowa: The rule for rebutting the presumption of undue influence arising from a confidential relationship only requires the grantee of a transaction to prove by clear, satisfactory, and convincing evidence that the grantee acted in good faith throughout the transaction and the grantor acted freely, intelligently, and voluntarily.

3. Lipper v. Weslow Testators will left nothing to her daughter-in-law or grandchildren from one son; other son wrote will. No evidence of undue influence. 4. In re Will of Moses Undue influence found where T went to another lawyer to draft her will and left everything to her other lawyer-lover. 5. In re Kaufmanns Will Undue influence found with gay men. 6. Most commonly used defense. 7. Its always a good idea to get written letters explaining reasons and that it is their intention to do this. D. Fraud 1. Fraud occurs where the testator is deceived by a misrepresentation and does that which the testator would not have done had the misrepresentation not been made. The misrepresentation must be made with both the intent to deceive and the purpose of influencing the testamentary disposition. 2. Any provision in a will procured by fraud is invalid. A fraudulently procured inheritance is invalid only if the testator would not have left the inheritance had the testator known the true facts. 3. Fraud in the inducement occurs when a person misrepresents facts, thereby causing the testator to execute a will, to include particular provisions in the wrongdoers favor, or to refrain from executing or revoking a will. (A promises testator that he will convey property to B, but has no intention of doing so.) 4. Fraud in the execution occurs when a person misrepresents the character or contents of the instrument signed by the testator, which does not in fact carry out the testators intent. (Bad eyesight) 5. Puckett v. Krida 2 nurses persuaded testator to leave everything to them, making T believe her family wanted to put her in a nursing home. This was fraud. Tortious Interference with Expectancy 1. Intentional interference with an expected inheritance or gift is a valid cause of action. 2. Plaintiff must prove that the interference involved conduct tortious in itself, such as fraud, duress, or undue influence. Cannot be used when challenge is based on mental incapacity. 3. Marshall v. Marshall Anna Nicole; Howards son tortiously interfered with her $ by slowly draining his fathers assets. 4. Test: A plaintiff must prove: a. The existence of an expectancy b. a reasonable certainty that the expectancy would have been realized but for the interference c. intentional interference with that expectancy d. tortious conduct involved with the interference, and e. damages. 5. An action for tortious interference is not a will contest. It seeks to recover tort damages from a 3rd party Special Precautions against Will Contests Special Precautions 1. Get clients to write, in their handwriting, the details of the dispositions. Advise; ask for letters. 2. Videotape the testator explaining why he wants to dispose of the property in that way. 3. Attorney should document mental capacity. 4. Have the will contain a no-contest clause. The Special Case of No-Contest Clauses 1. UPC 2-517: A no-contest clause provides that a beneficiary who contests the will shall take nothing. The provision is unenforceable if there is probable cause. 2. Enforcement of a no-contest clause could discourage unmeritorious litigation, family quarrels, etc. 3. On the other hand, it could also inhibit a lawsuit proving forgery, fraud, or undue influence.

E.

F. A.

B.

G. A. B.

C. D.

E.

4. No-contest clauses do not mean that all types of litigation are out. States will often read in a good faith and probable cause requirement. You want legitimate concerns to be raised. Construction of Wills Construction Generally 1. Wills are not construed in the same was as contracts. Contracts are between 2 people, wills are documents of a single person. Latent and Patent Ambiguities 1. How obvious is this construction issue on the face of the document? a. Patent ambiguity: You can just look at the document and know there is a problem b. Latent ambiguity: If you have to go outside and figure out the problem 2. Estate of Russell Latent ambiguity about dog: whether it was to receive half the estate or just be cared for by Quinn, named in will. A dog cannot be a beneficiary, so the gift to Roxy is void. Half the estate passes to heirs at law. Reformation 1. General equitable remedy can be used for a will 2. Mistakes are made. They can reform the will to conform to the true intent of T. Death of Beneficiary Before Death of Testator Anti-lapse Statutes 1. UPC 2-603, 5 Applies only to the devises to a grandparent or a lineal descendant of a grandparent (stops at 2nd line collaterals). Includes a devise to a stepchild. This is merely a default rule, applying only when T fails to evidence a contrary intention. a. People who are not family members are excluded (Spouses, friends, etc). b. Anti-lapse statutes substitute other beneficiaries for the dead beneficiary if certain requirements are met. Issue (children) are generally substituted for the predeceased devisee. c. 2-603b3 If you do not want this anti-lapse statute to apply, what kind of language do you need? If he survives me and to my surviving children are not enough. 2. At common law, the gift to the dead beneficiary just lapsed. He did not get it at all. a. Specific gifts (car, boat), general gifts ($10,000), and residuary gifts (catch-all, every will should have a residual clause). b. If a specific or general gift lapses, then the gift goes down to the next level, typically to the residuary clause. Somebody will get it. c. If there are multiple beneficiaries at the residuary level, and one dies, hes just knocked out. 3. Not every gift is covered by the anti-lapse statutes. 4. What if A is dead on the date that I execute the will, but I dont know it? Typically a void gift. Do anti-lapse statutes cover these? 5. Allen v. Talley a. Facts: Mary devised all her property to her 5 living siblings. Only 2 were still alive when she died, but there were nieces and nephews from the deceased siblings b. Issue: Whether will contains words of survivorship which preclude application of the anti-lapse statute? Yes. Living brothers and sisters are words of survivorship. Neither those who did not survive Mary nor their heirs are entitled to take under her will. 6. Majority of cases held that an express requirement of survivorship states an intent that the antilapse statute not apply (ie kids are not substituted for parent). The UPC revised this belief, holding that to my surviving children and if he survives me are not sufficient indications of an intent contrary to the application of the section. 7. UPC 2-604: Part b deals with multiple beneficiaries in the residuary clause. If A and B are named in the residuary clause, and A dies before T, the rest of the residuary goes to B. It does not go to the intestate share. Changes in Property After Execution of a Will 1. Ademption by Extinction

F.

Specific devises (Blackacre, diamond ring) of real and personal property are subject to the doctrine of ademption by extinction. (Ex. T devises X to B in her will, but sells X for Y before T dies. B has no claim to Y.) b. Ademption does not apply to general ($100,000), demonstrative ($100,000 to be paid from my GM stock), or residuary devises. c. Under identity theory of ademption, if a specifically devised item is not in Ts estate, the gift is extinguished. Under intent theory, the beneficiary may be entitled to the cash value of the item or replacement item. d. Ways to get around identity theory: Classify the devise as general or demonstrative, rather than specific; Classify the inter vivos disposition as a change in form, not substance; Construe the meaning of the will as of the time of death rather than as of the time of execution; Create exceptions e. UPC 2-606, 8 adopts the intent theory, but creates a presumption in favor of ademption. The party claiming the cash value has the burden of proving that ademption is inconsistent with Ts intent. 1. T devised 1988 Buick to X. T sold Buick and bought BMW. X gets BMW 2. T devised 1988 Buick to X. T sold Buick and bought shares in stock. X does not get shares. X would get car even if not bought with Buick proceeds. 3. Burglar stole diamond ring but not brooch. B still gets brooch, A should get $ 4. X not entitled to value of painting when T gives it away to charity. 2. Ademption by Satisfaction a. Applies when T makes a transfer to a devisee after executing the will. (T devises $50k to B in will. After execution, T gives $30k to B. Presumption that gift was in partial satisfaction of legacy, so B will only take $20k at Ts death) b. Applies to general bequests, not specific. (If family Bible is devised by will, but given before death, it is considered adeemed by extinction) c. UPC 2-609 requires intent of T to adeem by satisfaction to be shown in writing 1. T can also satisfy a devise to A by making a gift to B. 3. Exoneration a. Some states hold that mortgage or debt where T is personally liable is paid out of residuary estate so that title will pass free of the lien. b. UPC 2-607: A specific devise passes subject to any mortgage interest existing at the date of death, without right of exoneration, regardless of a general directive in the will to pay debts. This is the default rule. 4. Abatement a. Problem when the estate has insufficient assets to pay debts as well as all the devises; some devises must be abated or reduced. b. Property not disposed of by will is abated first, then residuary devises, then general, then specific and demonstrative. c. UPC 3-902: if the testamentary plan...would be defeated by the usual order of abatement, the shares of the distributees abate as may be necessary to give effect to the intention of the T. d. Wise to make substantial devises in the form of shares (%s) of the residue. Other Problems of Construction 1. Omission of Issue (Pretermitted Children) a. A child has no statutory protection against intentional disinheritance by a parent. However, the law does not favor cutting out the child when there is no surviving spouse. b. Pretermission statutes are designed to prevent the unintentional disinheritance of descendants. 1. Some statutes include every child, while other states will just apply it to after-born children this is a huge limitation.

a.

2. This principle only applies to probate property/assets. Azcunce v. Estate of Azcunce Whether a child who is born after the execution of her fathers will but before the execution of a codicil is entitled to take a statutory share of her fathers estate? No. 1. Ts child, who is living at the time the codicil is executed is not a pretermitted child within the meaning of the statute. 2. Her status as a pretermitted child was destroyed at the execution of the codicil. She is automatically excluded. 3. Because she was omitted from the will, she lacked standing to sue her fathers lawyer. This is a terrible injustice. d. Wills often define who a child is may include stepchildren, adopted children, names them, and then says and to any child or children hereafter born to me. e. Some states will look to intent in other places, other states will say it has to be in the will itself. Assuming the statute applies, some states will put the omitted children back in. Maybe give them an intestate share. This approach does not have to correlate with what was given to the other kids. f. UPC 2-302 Omitted Children: Gives a share equivalent to what the other kids got; also provides the case of the mistaken belief that the child is dead. 2. Gifts of Principle or Interest at Certain Ages a. Assume there is a gift in a will to a minor, and the minor is supposed to get it when he turns 21. b. Clobberies Case - This case deals with the problem when the child beneficiary dies early. Does it go to the childs estate or back to Ts estate? Was the gift vested or contingent in reaching a certain age? 1. Where a sum of money was to be paid with interest to a woman when she reached 21 or got married, and she died before either, the money goes to her executor. Principle and interest (income) is the equivalent of being vested and goes to the kids estate. 2. Where a sum of money is bequeathed to someone at 21, and he dies before then, then the money is lost. The money has not vested. The money goes back to the testators estate. 3. If money is to be given to one, to be paid at 21 years, and he dies before, the money goes to the executor of the kids estate. c. A gift of the entire income to a person, with principal to be paid at a certain age, indicates survival to the time of possession is not required. d. Today, there are a number of states that say all 3 are the same goes to kid 3. Gifts to Classes a. I want to give $5k to each of my grandchildren. This is easy. I want to give $50k to my grandchildren. The number of people in this group can go up or down, making it debatable about who the money will be divided between. b. Class-closing limits the total number of people who can be in this group. c. The Class-Closing Rule 1. In a gift to B for life, then to Bs children, all of Bs children will be alive (or in gestation) when the class is physiologically closed at Bs death. 2. In a gift to A for life, then to Bs children, when does the class close? 3. *Under the class-closing rule (or rule of convenience common law), a class will close whenever any member of the class is entitled to possession and enjoyment of his share. No one else can enter, but people can still drop out. Immediate gift if someone can take right away, the class closes. 4. Ex: T bequeaths $10k to Bs children. B is alive, and has 2 kids, C and D. C and D can demand immediate possession and the class closes. Each gets $5k. 1 year later, E is born to B. E does not share in the bequest. 5. However, if B had no children before Ts death, the class would not close until Bs death because it is assumed that T intended all class c.

H. A.

B.

members, whenever born, to share. The class does not close until the death of the designated ancestor, B. 6. Ex: T bequeaths $10k to children of B who reach 21. B has children, but none are 21 when T dies. The class will close when a child of B reaches 21. Postponed gift. 7. T bequeaths $15k to the children of B who reach 21. At Ts death, B has 2 children C and D. Three years later, E is born to B. Then, C reaches 21. On year after, F is born. D dies at age 20. E then reaches 21. F then reaches 21. What result? When C reaches 21, C can take and the class closes. 1/3 goes to C right now. No additional children can be added. F is excluded, D drops out (half of Ds $5k is distributed to C), E takes $7.5k at 21. This was a postponed gift. 8. T bequeaths a fund in trust to pay the income to A for life, then to distribute the principal to the children of B who reach 21, and in the meantime the children of B who are eligible to receive, but have not yet received, a share of the principal are to receive the income. At As death, B is alive and has one child, C (age 5). After A dies, the following events occur: D is born to B; C reaches 21; one year later, E is born to B; D and, later, E reach 21. The first member of this group who meets this condition closes the class. The class closes when C reaches 21. Only C and D are in the class. Half goes immediately to C. What happens while we wait for the rest to reach 21? The money goes equally to those who are waiting to reach 21. So, once the class closed, the money is distributed. d. Children is the first generation. Issue includes the children and all the subsequent descendants after that (children, grand, great-grandchildren, etc) e. A gift to a class of remaindermen will not close until the life tenant is dead. f. Antilapse statutes are designed to carry out the average testators intent and that the average testator would prefer for the deceased beneficiarys share to go to the beneficiarys descendants rather than to the surviving members of the class. 4. Gifts to A and Her Children The Rule in Wilds Case a. To B and her children. If B has children at the time of the devise, B and her children take as tenants in common (after-born children are excluded). B does not take a life estate and the children a remainder. If B had no children, some states would give at least a life estate, others would give a fee simple. 5. Gifts to A for Life, Remainder to As Heirs The Rule in Shelleys Case a. If land were conveyed to A for life, then to As heirs, the attempted creation of a contingent remainder in the heirs was not recognized. b. The life estate merged into the remainder, giving A a possessory fee simple absolute. c. Has been abolished in practically all states (not IN). Restrictions on the Power of Disposition: The Special Case of Protection for the Surviving Spouse An Overview of Marital Property Systems 1. Typically, the spouse gets half. 2. Separate (Common Law) Property H and W own separately all property each acquires a. Most states give the surviving spouse an elective (forced) share in the estate of the deceased spouse. Usually 1/3 3. Community Property H and W own all acquisitions from earnings after marriage in equal undivided shares. a. Deceased spouse owns and has testamentary power over only his share. b. Property acquired before marriage or thru gift, devise, or descent is kept separate. Right of Surviving Spouse to Support 1. Civil Unions Gay couples should have the same rights, and tell the legislature that they have 2 options: Everyone is in the category of marriage, or create a category of civil unions.

C.

D.

E.

F.

I. A.

2. Same Sex Marriage Mass case (Goodridge): Takes a different approach and says you cannot have the civil union option. There is an equal protection aspect, so its all marriage. Elective Share Forced share applies only to probate property. This is the source of a lot of problems. Angry husband transfers everything into non-probate property or to kids, girlfriend, etc. to try and leave the surviving spouse as little as possible. 1. Elective Share mandates a certain share, automatic, to the surviving spouse. It is elective because it gives a choice to the surviving spouse: You can either take what is given in the will, or take the mandatory elective share. a. An elective share re-writes the will. b. For the most part, the share under intestate succession is the same as what the spouse will get under the will. 2. Progressions to remedy this: a. Common law illusory transfer; this transfer is illusory, well take it back and make the probate pot a little bigger; this is case-by-case b. Statutes some states have tried this to make it more uniform; take this illusory transfer doctrine and expand it to make sure there is a clear statute. Problem with these is that they are limited to bad spouse situations. c. UPC augmented estate; this is a more comprehensive remedy. This is special to the UPC. (see below) Provisions on Restraint of Marriage (Wills) 1. You must marry a Catholic in order to get this money is struck down. Illegal; Public policy 2. You get this money, but if you remarry, you get nothing. This will not be upheld. The Special Remedy of Augmented Estate and Its Alternatives; Elective Share 1. UPC 2-202: The central idea of the elective share is to add up all the property of both spouses and split it according to a percentage based on the length of the marriage. This augmented estate may include transfers made before marriage, as well as those during. This was to resemble the community property system. a. Bad spouse v. Good spouse: The UPC tries to look at the big picture. You may undo some transactions to 3rd parties. You draw assets back into probate, even if they had been transferred earlier. 1. What if the surviving spouse already has a fair amount of money? If you were taken care of thru these lifetime transfers, we will look at the big picture. It may be that the lifetime transfers add up to your entitled share. If so, the surviving spouse may not get any more. Look at all the transfers (lifetime, non-probate) to define the augmented estate. 2. Get around the bad spouse situation by looking at all of the lifetime transfers. If there is not enough, then pull back some of the transfers The Special Case of Community Property 1. A widows election involves a will executed by the husband devising all the community property in trust to pay the income to his wife for life, with remainder to others on the wifes death, and requiring the wife to elect between surrendering her half of the community property and taking under the husbands will. Will Substitutes: Avoidance of Probate Will Substitutes and Avoidance of Probate Generally 1. Four main (pure) will substitutes constitute the core of the nonprobate system (transfers of property on death): a. Life insurance 1. Functionally indistinguishable from a will it is revocable until the death of T and the interests of the devisees are ambulatory (nonexistent until Ts death) 2. Beneficiary in life insurance policy serves precisely the function of the designation of a devisee in a will. b. Pension accounts c. Joint accounts

B.

d. Revocable trusts 2. Each reserves to the owner complete lifetime dominion 3. Imperfect will substitutes include joint tenancies the cotenant acquires an interest that is no longer revocable and ambulatory. A death certificate suffices to transfer title. 4. Most will substitutes are asset-specific, they avoid probate, and the formal requirements of a will do not govern. Contracts Relating to Wills 1. Contracts to Make a Will a. UPC 2-514: The will must set forth the material provisions of the contract or make express reference to the contract and extrinsic evidence to prove the terms, or there must be a separate signed writing evidencing the contract. b. A person may enter into a contract to make a will or a contract not to revoke a will 1. Contract law, not the law of wills, applies. 2. If, after a contract becomes binding, a party dies leaving a will not complying with the contract, the will is probated but the contract beneficiary is entitled to a remedy for the broken contract. 3. The remedy amounts to either the value of the property which was to come under the contractual will or an order compelling the decedents successors to transfer the property to the contract beneficiary. c. Many states (UPC) subject contracts to make a will to Statute of Frauds (writing) 2. Contracts Not to Revoke a Will a. UPC 2-514 b. Typically arise where husband and wife have executed a joint will or mutual will. 1. These contracts are a very bad idea; these are disfavored 2. 2-514 states that the execution of joint or mutual wills does not create a presumption of a contract not to revoke the will(s). c. A contract not to revoke is unenforceable unless it is proved by clear and convincing evidence; some courts find that the use of pronouns such as we and our imply a contract not to revoke in joint wills. d. Reduce this danger by inserting in every joint or mutual will a provision that the will was or was not executed pursuant to a contract. Joint wills should not be used. e. A contract not to revoke a will is breached if a party dies leaving a will that does not comply with the contract. This usually occurs because T affirmatively revoked the contractual will. f. Via v. Putnam Children, as 3rd party beneficiaries under the mutual wills of their parents, should not be given creditor status when their interests contravene the interests of the surviving spouse under the pretermitted spouse statute. 1. Mom and Dad executed mutual wills. Mom died. Dad remarried and failed to execute a subsequent will to provide for his 2nd wife. His mutual will was admitted to probate 2. 2nd wife petitioned to take an elective share. Children argued that by remarrying, dad breached his contract in the mutual will. They also argue that they are 3rd party beneficiaries of the contract between the parents and deserve creditor status (which would give them priority over the share of the pretermitted spouse and would receive the entire estate) 3. Legislature did not intend to allow creditors claims by 3rd party beneficiaries of previously executed mutual wills to take priority over the statutory rights of a pretermitted spouse and deny the pretermitted spouse any share in the decedents estate. 3. Pay-On-Death Provisions in Contracts a. Property will be automatically transferred upon your death.

b. c. d.

e.

Wilhoit v. Peoples Life Insurance H died and left money to W; W had right to dispose of the fund as she saw fit. W could change the beneficiary of her trust (consisting of proceeds from late husbands insurance policy) thru her will. Estate of Hillowitz Partnership agreement that stated the dead partners share should be transferred to his surviving spouse is valid and is not a testamentary disposition invalid under the statute of wills. UPC 6-101: Nonprobate Transfers on Death 1. Provisions for nonprobate transfers are nontestamentary. 2. Does not require survivorship by POD beneficiaries of contracts 3. It does include an antilapse provision for POD designations, which substitutes the issue of the named beneficiary who does not survive the benefactor. ( 2-706) Cook v. Equitable Life Assurance H named W as beneficiary to insurance policy. They divorced. He remarried and had kid. Made will leaving everything, including life insurance, to W2 and son. W1 was still beneficiary of policy, which was not revoked by their divorce. Policy requires written notice to company to change the beneficiary. Will is not enough.

C.

D.

E.

F.

Life Insurance 1. Principle purpose is to shift the financial risk of dying young to an insurance company 2. Life insurance is also commonly purchased to protect a partnership or closely held corp 3. Whole life insurance (or ordinary or straight) is a combination product involving both life insurance and a savings plan. 4. Term life insurance has no savings feature. It can be purchased for less than a whole life policy. This is sensible for young couples who have (or plan to have) children. Pension Accounts 1. Annuity is a payment every year for the rest of the beneficiarys life 2. Defined benefit plan ER promises to pay an annuity on retirement; risk is taken by the ER and ER makes the choice of investments 3. Defined contribution plan both ER and EE make contributions; shifts risk to EE and allows EE to choose investments. Most are this way. 4. Egelhoff v. Egelhoff H designated W as beneficiary of pension plan. They divorced, he died, and his prior children want the money. ERISA pre-empts state statute and ex-wife retains nonprobate asset. 5. Traditional IRA you dont pay money up front, you pay taxes when you die 6. Roth Account (IRA) If youve already paid taxes on this money youre putting in, they promise you will not have to pay taxes on this money ever again. 7. 401K Pension accounts that you have with your ER; ER promises that he will contribute a certain amount of money to your 401K. EE gets to choose where to put the money. This is a defined contribution plan. ER will give money up front and EE gets to make the decisions about the money. EE is responsible. Multiple-Party Bank Accounts 1. Include a joint and survivor account, a POD account, an agency account, and a savings account trust. 2. With a joint and survivor bank account owned by A and B as joint tenants with right of survivorship, both A and B have the power to draw on the account and the survivor owns the balance of the account, which will not pass thru probate. 3. The UPC has devised a newer type of bank account to transfer property upon death without probate. This makes it easier to make non-probate transfers. This may be very significant for small estates or people with very little money. 4. 6-211 Life; 6-212 Death 5. *** 6-213: You are not able to change, thru the will, survivorship designations of nonprobate assets. (See JT below) Joint Tenancies 1. In General

The creation of a joint tenancy in land gives the joint tenants equal interests upon creation. Joint tenancies in land require the agreement of all tenants to take most important actions. They are imperfect will substitutes. b. ***A joint tenant cannot devise her share by will. If a joint tenant wants someone other than the co-tenant to take her share at death, she must sever the joint tenancy during life, converting it into a tenancy in common. c. A creditor of a joint tenant must seize the joint tenants interest during life. 2. Practice Concerns Life JT Agency POD Yes (A and B own it together during As life) Some (B can draw on account during As life) Mine (no ownership interest while As alive) Death Yes (B gets balance at As death) No (B is not entitled to the balance at As death) Yours (when A dies, it goes to B)

a.

G.

H.

J. A.

***People may want an Agency or POD account, but the bank just gives them the standard JT account. This causes big problems at death. Misunderstanding. Deeds of Land 1. Assume my biggest asset is land and I dont want a will. With this deed I want to do something effectively like a will but without a will or lawyers. 2. I would deed it to you, but with conditions. I will give it to you when I die, but if I really need it, I want to be able to get it back. Gifts of Personal Property 1. Why do we care about gifts? If I have given this property away during my lifetime, it is not part of my estate. It was not property I owned upon my death. Its out of my estate. 2. Two classifications a. Inter vivos (lifetime) gifts Once the item has been delivered, I cannot take it back. I have transferred it and it is your property. b. Gifts causa mortis If I dont die, I can get it back. I gave you the keys to the car, but I recovered and did not die. For gifts causa mortis, I have to die. These gifts can be revoked. 3. For a gift, I need intent and delivery. The twist is that there can be different types of delivery. a. Actual delivery a diamond ring b. Symbolic/Constructive delivery I gave you the keys to the car; access to the gift An Overview of Trusts Terms and General Concepts 1. Uniform Trust Code: Not widely adopted. 2. A trust is a device whereby a trustee manages property as a fiduciary for one or more beneficiaries. The trustee holds legal title to the property. The beneficiaries hold equitable title and are entitled to payments from the trust income and sometimes from the trust corpus, too. The trust provides managerial intermediation. a. Revocable trust: O declares herself trustee of property to pay the income to O for life, then on Os death to pay the principal to Os children. O retains the power to revoke the trust. A revocable trust avoids the delays, costs, and publicity of probate. This is the biggest will substitute used for estate planning today. These trusts are nonprobate assets. b. Testamentary marital trust: Federal estate tax law permits a marital deduction for property given to the surviving spouse. The deduction is allowed for a life estate given to the spouse. H devises property to X in trust to pay the income to W for her life, and on her death to pay the principal to Hs children. This trust qualifies for the marital deduction. No estate taxes are payable at Hs death; they are postponed until Ws death.

Trust for incompetent person: Os son A is mentally impaired and unable to manage his property. O transfers property to X in trust to pay the income to A for life, remainder to As issue, and if A dies without issue to his sister B. d. Trust for minor: Federal gift tax law allows a tax-free gift of $11k per year to a donee. A gift to a minor creates problems with managing property. O creates a trust to use the income and principal for the benefit of A before she reaches 21 and to pay A the principal when she reaches 21. Every year, O can make a taxfree gift of $11k to the trustee for A. e. Discretionary trust: T devises property to X in trust. The trust provides that the trustee in its sole and absolute discretion may pay the income or principal to A, or for As benefit, as the trustee may see fit. Useful in lessening the tax burden on family wealth by distributing income to members of the family in the lowest tax brackets, and useful in preventing creditors from reaching the income or principal of the trust. f. Public Trust: Charitable trusts with large number of beneficiaries. 3. A trust ordinarily involves at least three parties: the settlor/trustor who creates the trust, the trustee, and one or more beneficiaries. a. Settlor 1. The trust may be created during the settlors life (an inter vivos trust created by a declaration of trust or by a deed of trust) or created by will (a testamentary trust) 2. The declaration of trust is often used as a will substitute and the settlor is the trustee. All that is necessary is that the donor manifest an intention to hold the property in trust no delivery or deed of gift is required. Although a declaration of trust of personal property may be oral, if the trust is to be funded with real property, the Statute of Frauds requires a written declaration of trust. 3. A settlor may be both a trustee and a beneficiary. In order to have a valid trust, the trustee must owe equitable duties to someone other than herself. 4. If the settlor is not the trustee of an inter vivos trust, a deed of trust is necessary. The deed of trust or property must be delivered to the trustee. If a trust is created by will, the settler can obviously not be the trustee. b. Trustee 1. There may be one trustee or several trustees, who may be an individual or corporation. 2. Trustee may be the settlor or 3rd party, or a beneficiary. 3. If the settlor intends to create a trust but fails to name a trustee, a court will appoint a trustee to carry out the trust. Trust wont fail for lack of trustee. 4. If the will names someone as trustee but that person refuses or dies, and the will does not make a provision for a successor trustee, the court will appoint one. This does not apply if the court finds that the trust powers were personal to the named trustee. 5. To safeguard the beneficiary against mismanagement by the trustee, the trustee is held to a fiduciary standard of conduct. Duties of loyalty and prudence. 6. In order to have a trust, it is necessary for the trustee to have some duties to perform. Trustee cannot be sole beneficiary. 7. A trustee can be amateur (friend, family) or fee-paid institutional (bank) c. Beneficiaries 1. Hold equitable interests; 2. If there is only one beneficiary, he cannot also be trustee must have a equitable duty; Beneficiary can also be trustee if there are multiple beneficiaries.

c.

B.

Special remedies: Have a personal claim against the trustee for breach of trust; personal creditors of the trustee cannot reach the trust property. 4. The creation of a trust involves the creation of one or more equitable future interests as well as a present interest in the income. 5. O transfers $100k to X in trust to pay the income to A for life and then to B for life. X has legal title and a fiduciary duty. A has an equitable life estate. B has an equitable remainder for life. Bs issue have an equitable contingent remainder in fee simple. O has an equitable reversion. 4. What distinguishes a trust from everything below is the fiduciary duty! 5. Distinguishing Precatory Trusts, Equitable Charges, and Debt a. Testator may express a wish, hope, or recommendation that the property devised should be disposed of by the devisee in some particular manner. 1. If this language indicates merely a moral obligation unenforceable in court, it is called precatory language. Not enforceable as a trust. 2. Precatory trusts are unenforceable dispositions of this sort. 3. Do not put recitals in testamentary instruments or, if you must, be clear. (I wish, but do not legally require, that C permit D to live on the land.) b. If the testator devises property to a person, subject to the payment of a certain sum of money to a 3rd person, the testator creates an equitable charge, not a trust. 1. An equitable charge creates a security interest in the transferred property; there is no fiduciary relationship. The holder of the charge and the beneficiary are more like debtor/creditor. c. If the transferor intended only a moral obligation or is found to have created an equitable charge, then there is no trust and hence no fiduciary relationship. 6. Distinguished from Uncompleted Promises of Oral Gifts a. Hebrew Univ. v. Nye Scholar wanted to give books to university. The books were not delivered/transferred over. He died, and heirs to estate argued the books were theirs. Argue it was a trust set up for the benefit of the university. At that moment, those books would have belonged to the university. A trust will not fail for want of a trustee. b. Uncompleted gifts (wasnt delivered, papers were not done) argue that you set up a trust major advantage is that you do not have to transfer the property. 7. Trusts by Operation of Law Resulting and Constructive Trusts a. A resulting trust is an equitable reversionary interest that arises by operation of law in two situations: 1. where an express trust fails or makes an incomplete disposition, or 2. where one person pays the purchase price for property and causes title to the property to be taken in the name of another person who is not a natural object of the bounty of the purchaser. b. A resulting trust involves 3 people. May result from attempt to defraud creditors. Sometimes this is a proper arrangement between relatives. c. O devises property to X in trust to pay the income to A for life and upon As death to distribute the property to As descendants. A dies without descendants. The remainder to As descendants fails. X holds the remainder on resulting trust for Os heirs or devisees. d. Constructive trust: term that has nothing to do with consensual trust; this is a legal remedy. It is an equitable remedy that is imposed on people by a court. Typically imposed when there is fraud. 1. Once we declare a constructive trust, the person who defrauded still holds legal title, but holds it in equitable trust for the benefit of the correct beneficiary. Necessity of Trust Property 1. 402: To have a trust, you must have intent, the 3 parties (however arranged), and property. a. It must be a present property interest. b. The trust will not come into existence otherwise.

3.

C.

D.

2. Brainard v. Commissioner B orally stated that he declared a trust of his expected profits from stocks to his wife and children. This declaration did not create a valid trust because at the time of his declaration, he had no property interest in profits from stock. All profits should be taxed to him, not the beneficiaries. a. An invalid will will fall back into the estate, wherever the will designates (residual clause, etc.) 3. Speelman v. Pascal Pascal wrote a letter promising to give profits from his upcoming play; this was an enforceable right. He made an irrevocable transfer. 4. R of Trusts, 41: An expectation or hope of receiving property in the future, or an interest that has not come into existence or has ceased to exist, cannot be held in trust. 5. Prevailing view is that a person can assign future earnings from an existing contract. Necessity of Trust Beneficiaries 1. There must be someone (a person) to whom the trustee owes fiduciary duties, someone who can call the trustee to account. 2. The beneficiaries of a private trust may be unborn. However, there cannot be a valid bequest to an indefinite person. 3. Clark v. Campbell A bequest for the benefit of the testators friends fails for the want of certainty of the beneficiaries. Where a gift is impressed with a trust ineffectively declared and incapable of taking effect because of the indefiniteness of the 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. a. Anytime you get a general term like friends, there will be an indefinite beneficiary. What about cousins, grandchildren? b. It must be definite enough to know who these people are. c. Compare with UTC 402c. It may be valid under UTC. 4. If the class of beneficiaries is so described that some person might reasonably be said to answer the description, the power is valid. 5. In re Searights Estate A bequest for the care of a specific animal is known as an honorary trust; one binding the conscience of the trustee, since there is no beneficiary capable of enforcing the trust. a. The bequest for the care of the dog is not unlawful. b. The $1000 provided a time limit that did not violate the rule against perpetuities. Agreed that the dog had a value of $5 and caretaker was taxed on that. c. Honorary trust: If the trustee wanted to do it, and no one complained, the trustee can do it. Here, the heirs who otherwise would have gotten the money complained 6. 2-907; 408: A trust for the care of a pet animal is valid for the life of the animal. Oral Trusts The Special Problems of Statute of Frauds 1. The Statute of Frauds requires any inter vivos trust of land to be in writing. 2. The Statute of Wills requires any testamentary trust be created by a will. 3. Oral Intervivos Trusts of Land a. Where O conveys land to X upon an oral trust to pay the income to A for life and upon As death to convey the land to B, the SoF prevents enforcement of the express trust. b. Is X permitted to keep the land? Most decisions permit X to retain the land. c. A constructive trust for the beneficiaries will be imposed where the transfer was wrongfully obtained by fraud or duress, etc. d. Many cases involve children: The court will provide some remedy to the parents the remedy is a constructive trust. You (kid) now hold this trust for your parents. 4. Oral Trusts for Disposition at Death a. Olliffe v. Wells T left residuary estate to Reverend to distribute at his discretion. He said she told him she wanted it to go to charity. The will declares a trust too indefinite to be carried out, and the next of kin must take by way of resulting trust.

E.

A trust not sufficiently declared on the face of the will cannot therefore be set up by extrinsic evidence to defeat the rights of the heirs at law or next of kin. Rev. had no beneficiary interest. c. Secret Trust: The will does not reference or indicate a trust; The whole side deal is oral. 1. Remedy: we will go back and enforce the side deal, calling it fraud and calling it a constructive trust; we are not enforcing this side deal outright. Impose/enforce a constructive trust. d. Semi-secret Trust: Will indicates that a person is to hold the legacy in trust but does not identify the beneficiary; You know there is a side deal, you just dont know what it is or what the exact terms are. 1. Remedy: Fails. This creates a resulting trust and all the property will go back to the estate (probably residuary clause). Revocable Trusts and the Related Concept of Durable Power of Attorney 1. Revocable Trusts a. A revocable inter vivos trust is the most flexible of all will substitutes because the donor can draft both the dispositive and the administrative provisions precisely to the donors liking. 1. The creator of the trust transfers legal title to property to another person as trustee pursuant to a writing in which the settlor retains the power to revoke, alter, or amend the trust and the right to trust income during lifetime. 2. On his death, the trust assets are distributed or held in further trust for other beneficiaries. b. Farkas v. Williams 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. this is my property, and while Im alive I can do anything I want with it. Upon my death, I will give it to you, but I can change it or do whatever I want while Im alive. While Im alive, I have complete control over it. 2. This sounds like a will. Thats ok. 3. The court had to justify this to get around the Statute of Wills: They said that the beneficiary had a present interest. (With wills, there is no present interest by the beneficiary) This whole case depends on this present interest given to the beneficiary. B c. If the trustee is the sole beneficiary, there is no trust, because the trustee owes no duties to anyone except himself. d. A presumption of revocation does not apply to a revocable inter vivos trust if it cannot be found at death (unlike a will). e. R 63: A revocable trust may be revoked absent a contrary provision in the terms of the trust, in any way that provides clear and convincing evidence of the settlors intention to do so, which includes revocation by will. f. Where a person places property in trust and reserves the right to amend and revoke, the settlors creditors may, following the death of the settlor, reach in satisfaction of the settlors debts to them, to the extent not satisfied by the settlors estate, those assets owned by the trust over which the settlor had such control at the time of his death as would have enabled the settlor to use the trust assets for his own benefit. g. Trust assets were subject to the claims of creditors to the extent that those claims could not be satisfied out of his probate estate. 2. Durable Power of Attorney a. Continues throughout the incapacity of the principal until the principal dies. b. UPC 5-501 5-505 1. We can make this power contingent: This power will only come into existence when I need it for whatever reason. 2. It will exist even after common law capacity has ended.

b.

F.

G.

H.

Durable powers must be created by a written instrument. A durable power ceases when the principal dies; the holder of the power can make no transfers after the principals death; a durable power does not avoid probate. e. The power of the durable attorney should be tailored to the clients needs. Revocable Trusts in Estate Planning 1. A revocable trust can be created by a declaration of trust, whereby the settlor becomes the trustee of the trust property. 2. A revocable trust can also be created by a deed of trust, naming a 3rd party as trustee. 3. Consequences during life of settlor a. Property management by fiduciary A 3rd party trustee may be selected to manage a funded revocable trust. b. Keeping title clear Prevent ambiguities of ownership c. Income and gift taxes Assets in a revocable trust are treated as still owned by the settlor. It is not treated as a gift to beneficiaries when created. d. Dealing with incompetency revocable trust can be used in planning for the contingency of incapacity. 4. Consequences at death of settlor: Avoidance of probate Testamentary Trusts 1. This is a trust inside a will. a. The formalities of a will will govern. b. Harder to change; must go thru formal will formalities c. Not quite as flexible you are sometimes stuck with the court/jurisdiction of the will. 2. Pour-Over Provisions in Wills a. Idea to deal with a problem of the common law. b. We have a will and we have a trust. How do we coordinate these 2 documents? c. A pour-over provision says that anything left over will be poured over into the trust. They want the trust to be the main source of estate planning. 1. This starts to sound like a will substitute. Changing the trust without the formalities of the statute of wills. 2. This simple arrangement to have these provisions had a variety of legal concerns. 3. Trust is main mechanism d. 2-511: Testamentary Additions to Trusts: Found in virtually every state 1. Purpose: If you want to do this, its ok in all kinds of ways; more flexible than at common law. It will be valid and easy to use 2. The trust could come into existence after the formation of the will. 3. If you want to set up a trust and use as the main source a life insurance policy this is ok; this is one way, a type of exception. 3. Designation of Testamentary Trustee as Recipient of Life Insurance a. What if I want the proceeds of this life insurance policy to go into my estate? b. You can make, as a beneficiary designation, this trust that is set up inside the will. The money goes from the life insurance in this way. 4. Life Insurance Trusts a. Funded life insurance trust keeps the payments being made b. An unfunded life insurance trust: count on some other source to make the payments c. You can make this trust your main document: revoke it, change it, etc without the formalities of a will. This is a great will substitute. Gifting Causes of Action (Charitable Remainder Trusts, etc.) 1. What if I want to give some of my money away? Tax law makes this easy to do. 2. Charitable Remainder Trusts a. I have this certain amount of money that I would really like to keep. b. I give it to this institution; I dont pay taxes, they dont pay capital gains

c. d.

K. A.

B.

C.

D.

L. A.

B. XIII. A.

What do I want in return? They provide some type of annuity. You have a guarantee that you will get something during life. d. However, you are entirely dependent on the financial resources of these institutions. Practice Concerns Living Trusts 1. Dominant estate planning mechanism 2. This is a will substitute. I have a will, I have a pour over provision, and then I have my revocable trust. 3. I am trustee and have complete control over my assets. If I die, this trust becomes irrevocable. Special Needs Trusts 1. There is someone in the family who needs care (child, etc.) for as long as theyre alive. 2. If you give them money directly, there are usually eligibility standards. You dont want to make them ineligible for any government programs. 3. It is possible to set up these trusts; idea is that these are for extra things not supposed to take the place of the underlying obligation. Trusts and Guardians for Minor Children 1. Set up thru life insurance or something else a way that they will be taken care of 2. You can set up a testamentary trust within a will. This trust only becomes effective on the death of the testator. It sets up payments and things for children. Advantage: You can extend this as long as possible. If you dont want the kid to get the money until hes 25, you can do this. 3. Talk to someone about who will be custodian of the children. Talk about how the trust and other things will work out. You can extend control past your death. Informing Children 1. Good idea for kids to know how much money parents have/what the estate plan is? 2. Probably good to tell kids to their faces, while everyone is still civil, so that they have an idea. Advance (Health Care) Directives Instruments and documents you have for your death/incapacity or events leading up to death. 1. Very necessary for health care. 2. Three different types of documents a. Living Wills 1. Each person has a constitutional right to make health care decisions, including the right to refuse medical treatment 2. Discuss how you want to die; end of life decisions 3. Must be in the possession of the medical personnel. b. Health Care Proxies designate an agent to make health care decisions c. Power of Attorney designate an agent to make decisions; can include healthcare 3. Sometimes these documents will be combined into 2 4. They have very different functions Bush v. Schiavo Random Spendthrift Trusts (And Discretionary Trusts and Support Trusts) 1. Spendthrift Trust: A trust formed for the beneficiarys support, but with restrictions imposed so as to safeguard against the beneficiarys abuse. a. A beneficiary of a spendthrift trust cannot voluntarily alienate her interest. Nor can her creditors reach her interest in the trust. b. A spendthrift trust is created by imposing a disabling restraint upon the beneficiaries and their creditors. c. T devises property to X in trust to pay the income to A for life and upon As death to distribute the property to As children. A clause provides that A may not transfer her life estate, and it may not be reached by As creditors. A is given a stream of income that A cannot alienate and her creditors cannot reach.

c.

B.

C.

Future income: Worried that A cannot control his money; if it says $1k each month, then A has to wait each month for his money. 2. Rights of creditors: Cannot get to money. 2. Scheffel v. Krueger Spendthrift trust assets are not reachable by tort creditors even when the beneficiarys conduct constitutes a criminal act (sexually molested boy), unless the beneficiary is also the settlor or the assets were fraudulently transferred to the trust. 3. 502 Spendthrift Provision: Valid only if it restrains both voluntary and involuntary transfer of beneficiarys interest. 4. 503 Exceptions to Spendthrift Provision a. Judgments for child or spousal support can be enforced against the debtors interest in spendthrift trusts in the majority of states and UTC. b. No exception for tort creditors c. Traditional rule is that a person (creditor) who has furnished necessary services or support (for the protection of the beneficiarys interest) can reach the beneficiarys interest in a spendthrift trust. 5. Discretionary Trusts: 504 If your state does not recognize spendthrift trusts, then you can still get really close to it with one of these. a. You give the trustee the discretion to distribute money. Keep power away from beneficiary. b. The trustee can decide not to pay money out to the beneficiary or how to distribute each month. c. A creditor cannot compel distribution from the trust even if the trustee has failed to comply with the standard of distribution or has abused a discretion. d. Only the beneficiary has the power to make a claim against the trustee for abuse of discretion. 6. Support Trusts: You can do it, but there will be a statute of limitations. Makes it harder to use this as a scam. Have to keep it clean for the10-year period. Self-Settled Asset Protection Trusts 505 1. A revocable trust is subject to the claims of the settlors creditors while the settlor is living. 2. Longstanding principle of trust law holds that you cannot shield your assets from creditors by placing them in a trust for your own benefit. a. Your creditors always have recourse against your entire interest in a self-settled trust, even if the trust is discretionary, spendthrift, or both. b. Creditors can reach the maximum amount that the trustee could pay the settlor or apply for the settlors benefits. c. O, a surgeon, transfers property to X in trust to pay income to O as X determines in Xs sole and absolute discretion. 5 years later, O botches a surgery, injuring A. A may enforce an award of damages against the entire corpus of the trust, because X could, in Xs discretion, pay the entire corpus to O. This is true even if the trust instrument provides that Os interest may not be reached by Os creditors (a spendthrift clause). Nor does it matter that Os right to the trust is subject to X. Modification and Termination of Trusts 1. 406, 410-412, 414-417 2. 406: A trust is void to the extent its creation was induced by fraud, duress, or undue influence 3. Modification a. If you have an irrevocable trust, it will not be modified under limited circumstances, a court may be able to modify it. b. If you have set up a revocable trust, you can revoke it, but does the power to revoke include a power to amend it? 1. Usually, they will say yes, you can amend it. 2. It will become irrevocable once you die. But until you die, you can revoke it, change it, or do anything you want.

1.

D.

E.

What if nothing is expressly said whether its revocable or not? Most states say that if nothing is said, they will assume the trust is irrevocable. Minority of states assume that it is revocable unless something else is said. 4. Termination a. Rule against Perpetuities comes into play you better know who the beneficiaries are. Limitation on the length of trusts. b. 411: It is possible for the beneficiaries, if they all agree, to terminate the trust. Charitable Trusts 1. Creation and Nature a. 405: A charitable trust need not have an ascertainable beneficiary to be valid. The court will specify one. The trust must have a valid charitable purpose (? See 405). b. Shenandoah Valley National Bank v. Taylor For a charitable trust to be valid, it must benefit or advance the social interest of the community. There is a fundamental difference between a trust that is charitable and one that is benevolent. The trust set up for school kids has no assurance that the money will be used for education and violates the rule against perpetuities. Being nice doesnt qualify it for a charitable trust. c. Charitable trusts may endure forever; they are privileged with an exemption from the Rule against Perpetuities. 2. Modification (The Special Case of Cy Pres) a. 413: Under the cy pres doctrine, if the settlors exact charitable purpose cannot be carried out, the court may direct the application of the trust property to another charitable purpose that approximates the settlors intention. As nearly as possible. b. Only applies with public or charitable trusts. c. Presumes a charitable intent by the settlor. If no intent is found, the trust fails. d. What is the threshold test? 1. It is relatively strict. Cy pres only applies if the trust became impossible, impractical, or illegal. 2. Very high threshold standards. It will not be modified for convenience. e. In re Neher Where a will gives real property for a general charitable purpose, the gift may be reformed cy pres when compliance with a particular purpose grafted on to the general purpose is impracticable. Neher willed her property to be used in honor of her husband as a hospital. The village did not have the resources to do so, and petitioned the court to maintain a building for administration purposes. Trust upheld. Distinguishing Trust from Other Legal Concepts: The Special Case of Custodianship Under the Uniform Transfers to Minors Act 1. A custodian is a person who is given property to hold for the benefit of a minor. 2. Two different acts: a. Uniform Gifts to Minors legislation meant to fill the need of someone wanting to give a relatively modest amount of money to a minor; not enough money for a trust. If you want to give a gift, well allow it and set up a standard template. You do not have to go to a lawyer to get it. Go to the bank and check a box. You do need a custodian (this makes it like a trust), typically a parent. Legal obligations are clear and straightforward. b. Uniform Transfers to Minors meant to expand and remedy problems of the UGM. 1. Gifts versus transfers Under UGM, I was limited on types of things I could give (property was not allowed). UTMA expands the types of transactions its no longer just cash that can be given. 2. UTMA makes it easy to set up these counts in other ways thru a will or trust. This was not allowed under UGM.

c.

N. A.

3: One feature of these accounts is that the type of the account becomes part of the name. (see below specific designation so we know what it is) 4. Lifetime gifts are allowed. Also easy to make this gift thru a will. 3. Property may be transferred to a person (including the donor) as custodian for the benefit of the minor. A devise or give may be made to X as custodian for M under the Indiana UTMA, thereby incorporating the provisions of the states uniform act and eliminating the necessity of drafting a trust instrument. 4. Problems/worries: a. Tax implications of these transfers special IRS rules. b. Limitation its a one size fits all. These are set up so that it can never be used beyond the age of 21. An Overview of Powers of Appointment Types of Powers 1. Trusts often contain powers of appointment in trust beneficiaries, powers that give the beneficiaries the ability to choose who next will take the beneficial interest in the property subject to the power. a. Powers of appointment are routinely found in well-drafted trusts because thru them the settlor is able to postpone and delegate decisions about who should receive a future interest in the trust. b. Powers of appointment allow the settlor to leave it to the beneficiaries to deal flexibly with changing circumstances in the future with births, deaths, and marriages, etc. c. Gives the power to someone else to decide how the property will be given 1. Ex: I can set up in my will to give a designated person the power of appointment. This person gets to exercise this power. This gives flexibility over time. The appointee can decide 20 years later what to do with the property. 2. Terms: a. The person who creates the power of appointment is the donor of the power b. The person who holds the power is the donee. c. The persons in whose favor the power may be exercised are the objects of the power. d. When a power is exercised in favor of a person, such person becomes an appointee. e. The instrument creating the power may provide for takers in default of appointment if the donee fails to exercise the power. 3. A general power of appointment is a power which is exercisable in favor of the decedent [donee], his estate, his creditors, or the creditors of his estate. a. I can appoint anybody, including myself. b. A general power may permit the donee to do most of the things that an owner of fee simple could do c. T devises property to X in trust to pay income to A for life, or until such time as A appoints, and to distribute the principal to such person or persons as A shall appoint either by deed during As lifetime or by will; if A does not exercise the power of appointment, at As death X is to distribute the principal to B. T is the donor. A is the donee of a general power of appointment exercisable by deed or will. B is the taker in default of appointment. d. A is close to being the absolute owner of the property, but must first sign a piece of paper appointing himself. A does not have ownership until the power is exercised in As favor. e. T devises property to X in trust to distribute the income and principal to such of the creditors of As estate as A shall appoint by will. 4. A special power is not exercisable in favor of the decedent. a. I cannot appoint myself.

3.

B.

C.

O. A.

The most common kind of special power is the power to appoint among the issue of the donee. c. T devises property to X in trust to pay the income to A for life, and on As death to distribute the principal to such one or more of As issue as A shall appoint by will; if A does not exercise the power of appointment, at As death X is to distribute the principal to As then living issue, such issue is to take per stirpes. d. A is like Ts agent. e. T devises property to X in trust to pay the income and principal to any person whom A appoints by deed or by will except that A may not appoint to herself, her estate, her creditors, or the creditors of her estate. 5. A power of appointment may be created in a trustee, a beneficiary of a trust, a person with a legal interest not held in trust, or in a person who has no other interest in the property. A power may be created by anyone. Creation of Powers of Appointment 1. Intent to Create a Power a. Donor must manifest an intent to create a power of appointment, either expressly or by implication. The words do not necessarily have to be used. b. Words that express merely a wish or desire (precatory words) do not create a power of appointment in the absence of other circumstances indicating a contrary intent. 2. Powers to Consume a. Sterner v. Nelson Where there is a grant, devise, or bequest to one in general terms only, expressing neither fee nor life estate, and there is subsequent limitation over what remains at the first takers death, if there is also given to the first taker an unlimited and unrestricted power of absolute disposal, express or implied, the grant, devise, or bequest to the first taker is construed to pass a fee simple interest, and the attempted subsequent limitation over is void. Exercise of Power of Appointment by Will 1. Powers of appointment are routinely put in wills 2. How do I know whether its been exercised? a. 2-608: I can exercise the power in my will. When I die, people will look at my will. It may not say it exactly, but there are other provisions (residuary clause) that people will argue about. b. The residuary beneficiary did you mean to exercise the power of appointment? c. 2-608 says no, if its just general language like a residuary clause, then its not enough to create a power. There must be specific language. Limits on the Duration of Trusts The Special Intricacies and Delight of the Rule Against Perpetuities An Introduction to the History and Purposes of the Rule 1. No interest in real or personal property is good unless it must vest, if at all, not later than 21 years after some life in being at the creation of the interest. a. Generally 2 generations. Beneficiaries must be identified at this point. b. Effective date for a will or revocable trust is when the testator dies; effective date for an irrevocable trust is when the trust is created. c. Then look to either a measuring life or story to validate/invalidate the trust. 1. How to tell an invalidating story: It is one story. a. It must be a hypothetical. Look at the contingency in the document. b. The first move is critical assume somebody is born after the effective date of the instrument who can affect the contingency. If someone is born after the effective date of the instrument, they cannot be a measuring life. c. 2nd Assumption: Any number of people could die at the same time. We can also assume that anybody alive on the effective date of the instrument is capable of having children.

b.

B.

d. Is it possible that this contingency might not be resolved in the time period? Will we know whether or not it will happen? Will we have our answer? 2. It is a restriction on the remote vesting of interests, in trust or otherwise, but does not apply to charitable trusts. RAP only applies to private trusts. 3. A remainder is vested if a. it is given to a presently ascertained person, and b. it is not subject to a condition precedent. c. If O conveys a fund in trust to A for life, then to B, B has a vested remainder. 4. A remainder is contingent if a. it is not given to a presently ascertained person, or b. it is subject to a condition precedent. c. If O conveys a fund in trust to A for life, then to B if B survives A, then B has a contingent remainder. d. The Rule limits the time during which property can be made subject to contingent interests to lives in being plus 21 years. e. It must be resolved in this time period. It doesnt have to actually happen, we just have to know if it could or could not in that time. 5. All legal and equitable contingent future interests created in transferees are subject to the Rule. Hence, all contingent remainders and executory interests come within the ambit of the Rule. 6. Future interests retained by the transferor reversions, possibilities of reverter, and rights of entry are not subject to the Rule. 7. A contingent future interest is void from the outset, if it is not certain that the interest will either vest or fail that one or the other must happen with 21 years after the death of some life in being at the creation of the interest. (Generally 2 generations) a. O transfers a fund in trust to pay the income to A for life, then to As children for their lives, then to pay the principal to B. A has no children. As life estate is vested in possession upon creation. The remainder to As children for their lives will vest in possession or, if there are no children, fail upon As death. Bs remainder interest is vested in interest upon creation. All interests created by the transfer are valid. b. T bequeaths $10k to A when she marries and $5k to As first child. A is unmarried without children. The bequest to A will vest during As life, if at all; it is valid. The bequest to As first child will also vest during As life, if at all; it is valid. c. O, a teacher, declares a trust of her book for the first student in Os current wills class to be sworn in as a judge. The gift will vest or fail within the lives of the students of the class. The condition precedent will necessarily be met, if it is ever met, before the last surviving student dies. d. O transfers a fund in trust to pay the income to A for life, then to pay the principal to As children who reach 21. The remainder is valid because it will vest, at the latest, 21 years after As death, for all As children must reach 21 within 21 years after A dies. 8. The validating life or lives must be in being when the perpetuities period starts to run. a. The first generation is someone alive on the effective date of the instrument. Validating life. b. If an interest is created by will, the validating life or lives must be in being at the testators death. c. If the interest is created by deed or irrevocable trust, the validating life or lives must be persons in being when the deed or trust takes effect (when the instrument is executed/created) d. If the interest is created by an inter vivos trust revocable by the settlor alone, the validating life or lives must be persons in being when the power to revoke terminates (usually death). The Key Element of Measuring Lives

C.

1. To A for life, then to B if B goes to the planet Saturn. a. The contingency is that B will get it if B ever goes to the planet Saturn. The contingency is framed in terms of whether a particular person will do it. Valid. B is the measuring life. 2. To A for life, then to B if any person goes to the planet Saturn. a. The contingency is focused on anybody. It does not have to go to B when B is alive. It will go to B or Bs heirs whenever this happens. Invalid. b. First step assume someone is born after the effective date of the instrument. c. Second kill off everyone who was alive at the effective date of the instrument (could be everyone on earth). d. Three we have someone who was born after the effective date, he is not a measuring life, so we only have 21 years. There is no way we could be certain that this issue will be resolved within the 21 years. 3. To A for life, then to B for life if any person goes to the planet Saturn. a. Little technicality about life estates this is Valid. b. Life estates are not inheritable they are linked to the life of the named person. The contingency will have to be determined during the life of B. What-Might-Happen and Some Classic Traps 1. Gifts Over Three Generations a. Fertile Octogenarians 1. Usually appears in a 2-generation trust 2. T bequeaths a fund in trust for her sister A (age 80) for life, then for As children for their lives, then to distribute the trust assets to As issue then living. a. The law conclusively presumes that A is capable of having more children. b. Because of this assumption, the remainder to As children for their lives may include an afterborn child of A, and the remainder to As issue might vest on the death of this afterborn child, which is too remote. c. The remainder to As issue is void. b. Conditions Beyond the Age of 21 1. You can name any child you want, even if it is when he reaches 100. If its a particular person, we will know and it will be valid. 2. If you say 21 years and 1 hour, it will be invalid. 3. Anytime you have an age contingency in excess of 21 years, you have a red flag. 4. Name the grandchildren! 2. Unborn Widows and Widowers a. Dickerson v. Union National Bank of Little Rock 1. T left her money in trust to two sons and the widow, unknown and unnamed, of one of the sons. 2. The identity of the persons who would take at the termination of the trust cannot be determined until the death of his widow. The two sons are the lives in being, so when they die the trust is invalid because the widow could have been born after T and live for more than 21 years after the sons deaths. b. Alternative contingencies: If T makes gifts on alternative contingencies, one of which offends the Rule and the other which does not, the gifts are judged separately. The invalid gift fails; the valid gift takes effect if the event happens upon which it is limited. 1. Suppose T bequeaths a fund in trust to my son A for life, then to As widow for life, then upon the widows death or upon As death if A leaves no widow, to As issue. 2. The gift on the death of the widow is void. The gift to As issue is valid if A leaves no widow.

D.

E.

3. T must expressly separate the contingencies. c. Name the person and that person will become a measuring life. 3. Administrative Contingencies a. Another unusual possibility is that a will may not be probated for many years after Ts death. b. An administrative contingency is something that is not linked to the birth or death of a person. It is an event that has to happen and you have not specified who has to do it. You only have 21 yrs. c. The possibility of remote distribution gives rise to slothful executor cases: 1. T devises property to Ts issue living upon distribution of Ts estate. 2. Ts purpose is to avoid extra administrative costs and possible taxation in the estates of any of Ts issue who die before Ts estate is distributed. 3. Yet, because Ts estate may not be distributed for many years, perhaps after all Ts surviving issue are dead, the gift to Ts issue living at distribution may be held void. d. Two arguments to save the gift in the above example: 1. It can be argued that the distribution of the estate will not be delayed beyond a reasonable time, which necessarily is less than 21 years. 2. It can also be argued that, inasmuch as T did not intend the executor to have the power to select recipients by delaying distribution, the class of issue will close at the time distribution reasonably should be made. e. This is an administrative contingency: A true condition precedent where T requires Ts issue to survive distribution in order to take. f. Language not requiring survival (to A upon distribution of my estate, to my issue when my debts are paid, to A upon probate of this will) should be construed merely as postponing possession and not imposing a condition precedent. 4. Basic Moves: 1. Assume someone who can affect the contingency (child) is born after the effective date of the instrument. He or she cannot be a validating life. 2. Assume that everyone else who was alive on the effective date of the instrument and who can affect the contingency (parents, other children) is killed off. 3. Assess whether the contingency must happen or not within 21 years. Typically it cannot. All potential measuring lives are killed off and the person born after the effective date cannot be a measuring life, so we are left with the 21-year period. 5. What are the Consequences of violating the Rule? a. Violation occurs in residuary clause in a will, the invalid interest passes by intestate succession. b. The contents of an invalid intervivos trust pass as a resulting trust. Attorney Malpractice and the RAP 1. In most states, attorneys are liable to the intended beneficiaries of negligently drafted instruments. 2. It is sometimes said that it is not malpractice to draft an instrument that violates the Rule against Perpetuities. a. Shaky precedent given the ease with which compliance can be assured through the use of a savings clause. b. In sum, it is most certainly malpractice to violate the Rule by failing to include a perpetuities savings clause. Savings Clauses 1. Attorneys draft a perpetuities savings clause to take care of any possible violation. 2. Purpose is simply to make sure the Rule is not violated. 3. If I messed up and the trust will not terminate within the lives in being plus 21 years, I want it to. 4. It must be tailored to the type of provision youve got. 5. Ex: Notwithstanding any other provision in this instrument, any trust created hereunder shall terminate, if it has not previously terminated, 21 years after the death of the

F.

P. A.

B. C.

D.

survivor of the beneficiaries of the trust living at the date this instrument becomes effective. 6. The trust ends within or at the end of the perpetuities period, and the assets are distributed at that time, thereby making no interest in the trust assets violate the Rule. 7. The last sentence of the clause is important: it makes clear that the donee of a power of appointment can change the measuring lives for the trust. Perpetuities Reform 1. The Cy Pres or Reformation Doctrine a. Under this doctrine, a court reforms a trust that violates the Rule so as to carry out Ts intent within the perpetuities period. b. A court may insert a savings clause. c. Assumption that underpins corrective state statutes is that T intended the interest to be valid, and thus instruments of transfer are to be construed to avoid the Rule 2. The Wait-and-See Doctrine a. See if any provision is invalid. Then wait to see what happens. b. Maybe 90 years. 3. Abolition of the Rule Asset Allocation and Modern Portfolio Theory Cost is the biggest factor The investment with the lowest cost is the best. 1. VanGuard A mutual mutual fund company. Second largest mutual fund. This is a coop type of situation. Costs are low compared to other companies. Big on education for investors and has a wide selection of index funds. 2. Fidelity Largest mutual fund. 3. TIA Crep Originally for teacher retirement. Used to be totally non-profit. Some parts still deal with special eligibility, others are open to public. Low-cost. More risk equals more return. If you want more return, you have to take more risks Asset classes different investing causes of action; Certain risks lead to certain returns. 1. Bonds risks on interest rates 2. Real estate specific risks related to real estate 3. Stocks you are taking on risks of the market 4. By taking on asset classes, you can manage risks. Combine risks create return. Diversify within and among asset classes. 5. You are never compensated for risks you could diversify away; you are better off with going with large asset classes. 6. Try to combine these assets in a way to satisfy your needs. Then leave it alone! It does not help to trade. You are better off than if you try to anticipate what the market will do. 7. Look at the overall return in the basket of asset classes you have do not look at the individual assets/investments. How is the entire basket of funds operating? This is the main question. 8. Rebalancing Once you have made your initial allocation to these asset classes. Some will do better than others. Put it back on track. 9. Asset allocation may change over time ie retirement. You will take less risks as you get older. 10.Figure out what you or the institution thinks about risks. This is highly individual. Decide whether its worth it. People historically take too little risks. 401(k) 1. You are presented with a menu from your ER and you have to pick; figure out your asset allocation. a. Asset allocation is something individual EEs have to do. There is a limited amount of financial advising that goes on with this. 2. Cost Because most ERs are ignorant of whats going on, the vast majority of 401ks are much higher in cost than they have to be. a. Some money is going to the investment company; Some is going to loads/commissions b. High costs! 3. Rollover

Once you terminate your employment, you can move your 401k to your second job. Talk to the 2nd investment company. They get the money from the 1st investment company. This is an incentive for the 2nd company. b. Do not take the money out of your 1st 401k! 10% penalty if you take it out early (before age 59). c. You can roll it over to a retirement fund. 4. Required Minimum Distribution a. You have to start taking money out of your 401k at age 71. 5. Taxes a. 401k is ordinary income. b. You may pay higher taxes on this than if you put it in a different account. c. Difficulty with non-retirement investing is that it is a taxable event. d. I would only pay long-term capital gains over a long period of time this is a benefit; if I put that same fund into a retirement account, I will pay ordinary income tax on everything. E. IRA 1. Individual Retirement Account a. You can have this in addition to any other investments you have b. It is tax-deferred. You do not pay taxes on what you put in; only later. 2. Roth IRA a. Done with after-tax dollars. Big difference from regular IRA! b. Do you want to pay tax now and never pay it again, or do you want to wait on taxes later? Bet on current or future tax rates? c. You will never pay federal income tax on that again! d. Special characteristics 1. All you need to qualify for a Roth is earned income. You could do it if you are 13 with a summer job. 2. Roth limits the amount of money you can make and invest in a Roth (cannot make something over $90k) 3. Make sure your kids have them at age 17. 4. There is no required minimum distribution! You can keep it going. You can even give this account to someone else. 5. This is a great deal in America. Next few years, IRA plans will have Roth-type features. 529 Accounts 1. One reason people want to invest is for education. a. Federal government will sanction the states in setting up these education savings accounts. The states run it and decide what the investments will be. b. Every state has one. 2. Advantages a. Its like a 401k the money accrues tax-free and there is no tax paid on it when the money is taken out for educational purposes. b. Typically run by the states gives you a large option; you can invest in any 529 plan in any state. Some give benefits to own residents. It promotes competition among the states. c. I can control it. I decide who the beneficiary is and I can change who that is. d. Estate tax you are able to put a fair amount of money up front ($100k) and that would be out of your estate. This is a special tax advantage. 3. Financial Aid a. Is the 529 account an asset of the beneficiary or asset of the parents? Parents. b. Incentive for education. 4. Two types a. Mutual fund type of account here are your choices, you pick, your return depends on the market. Traditional market risks. b. Buy a years tuition at whatever cost it is today (mostly small, independent colleges), then I am guaranteed that whenever my beneficiary wants to use it,

a.

F.

G.

Q. A.

B.

R. A.

B. C. D. E. F. XIX. A. B. C.

they already have one years tuition. Market uncertainty guaranteed 100% of whatever tuition is. Downside it only includes tuition, not room and board. 5. Disadvanatages of 529s a. Billions of dollars involved. Investment companies got their hands on it and some states have turned the 529s over to investment companies. b. Now you may pay high fees. IN has high fees. Be careful. Find the right state. c. Commissions, loads, and high rates in some states. Uniform Prudent Investor Act 1. Adopted in many states sets the current standards for investing. a. Adopts Modern Portfolio Theory b. Default standard is this Act; it is possible to vary from this Act if the trust/will says so. 2. 2 a. Heart of the Act says MPT. b. 2b valuated as a whole. 6 different asset classes does not matter. Look at overall portfolio. 3. 3 Diversification a. Trustee shall diversify. b. Use different asset classes and diversify within asset classes. 4. 7 Investing Costs a. A trustee may incur only costs that are appropriate and reasonable b. A 1% difference if fees over 40 years may make a huge difference. c. Most lawyers and judges are not aware of this stuff. 5. 9 Delegation a. How much, as trustee, do you have to do yourself? b. You can delegate to an investment company. Get advice. This is ok. 6. 11 Application a. This Act applies to trusts existing on and made after the date this Act is passed in the state. 7. MPT is required by law! It works. Special Issues About Wealth and Money Who Has the Money? 1. Most investors think they are doing better than the market. They are not. 2. 19% of Americans think they are in the top 1% of wealth. 3. Big wealth transfers when rich people die. Future Market Returns 1. Return is 10% over 200 years; long periods of time. You get money over long periods, even though this can vary a lot over different time periods Great Depression, etc. 2. 1982 to 2001 was the biggest bull market in history. 3. Calculate your risk for bonds, markets. 4. Remember this return is very period-dependent. 5. Its all about matching risks with assets. New Rules of MPT Risk is related to return 1. If you need this money in a few years, it will not make sense to go into the market. You cannot afford the risk. 2. Needs are different from capacity to take risks. Different asset classes exist Mixing different asset classes reduces risk Diversity within asset classes reduces risk Market timing does not add value Individual stock selection does not add value Tax sheltered accounts and retirement accounts Retirement accounts can be switched around; these moves are not taxable events. Roth IRA accounts avoid taxes 401k defers taxes

XX. A. B. XXI. A. B. C. D. E. F.

Callan Periodic Table Shows how asset classes change and the rate of returns. Good to diversify Estate Tax Suppose my estate includes a $1M 401k. That $1M is used to calculate the amount of my estate tax. Estate tax is based on the unpaid value of these accounts. If I take money out of that to pay the estate taxes, I will also pay ordinary income tax on it. This is a lot of money taken in taxes. Could be 80% in taxes. There are ways to get around this. Go to a lawyer to get this done right.

Estate Tax An estate tax is a tax on the estate of the person who died. This is different from an inheritance tax (the person who receives the money pays tax). If Congress does nothing, the estate tax will be repealed in 2010. Stepped-up Basis Lets say I am the soon to be decedent. If I give a piece of property in my will to someone else, the recipient gets a stepped-up basis (FMV at time of death). This is a huge advantage because there is no tax paid on the appreciation of the decedents piece of property upon transfer. Remember the difference between probate and nonprobate property does not make a difference when talking about estate taxes. The following are examples of property subject to estate tax. Life insurance if it goes to the estate! Trust assets Cars Homes Retirement accounts Other real estate Lets say you have a substantial estate worth $2 million. 45% will go to estate taxes. So what are some ways to reduce the estate (and reduce tax)? Make gifts to individuals Remember the gifts usually must be made earlier than 3 years before death. The maximum gift is $12,000 per person, per year! There is essentially limitless since you can make gifts to as many people as you want Giving to charity Typically there are associated tax benefits with charitable gifts Lets say I have an asset I bought 40 years ago that has appreciated greatly I could sell it and incur taxes However, if I give it to charity, not only is it out of my estate, but I may also get a deduction. Charitable gift annuities I may want to give money to my college, but I am worried about needing the money. A lot of colleges have plans where you can give the college a set amount of money. In return, the college will pay you a set amount of money as long as you live. Establish 529 accounts Paying tuition for the child directly to the University This avoids the $12K gift limitation Retirement accounts

Assume you have a $1 million retirement account. You have not paid taxes on this yet. This amount is considered part of the estate when assessing the estate tax. $450,000 will go to estate taxes. In addition, when you liquidate the account, you will have to pay income tax. Since the retirement is considered ordinary income, you will pay 35% on the $1,000,000. You are left with only $200,000 when all said and done. So how can you minimize the taxes? Convert your individual retirement account to a Roth IRA! Lets say you have $1 M in your retirement account. If you convert to a Roth, you will pay the present rate tax on the $1 million. When you die, the estate tax will take 45% of the remaining about (presumably 650K). In the end, you would be left with $292,500 after taxes. While a lot was consumed by tax, you are saving nearly 100K in tax! Set up a trust in which a certain amount of the income goes to the surviving spouse When the surviving spouse dies, the trust is still sitting outside the estate. The kids, as beneficiaries, will get the appreciated amount in the trust! This provides significant tax advantages and is extremely easy to set up. Set up an irrevocable life insurance trust. The beneficiary is not the estate. Instead, the beneficiaries are the kids. Insurance policies You give the money to the kids to take out a policy on your life. The kids get the money free of estate taxes. Second to die insurance This is a policy taken out on the husband and wife. The policy does not pay until the last spouse dies. The advantage to these is they are not that expensive! The taxes will pay the estate tax. Long-term care insurance This is an insurance policy that will pay out if you need nursing home care.

Retirement Accounts Most retirement accounts require you to take out a minimum amount of money at a certain age. However, a big advantage of Roths is there is no minimum distribution requirement! A big advantage is you can give retirement accounts to spouses, children, etc. The recipient will get the same tax status. If done right, you can stretch the tax advantages over several generations. Eg. If you have a Roth that already has the tax paid, the children will get it and not have to pay taxes on it.