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1: Overview

Trusts and estates is not about dead people its about helping families solve problems

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Probate
Probate systems collect the assets of decedents, satisfy creditors, resolve conflicts among beneficiaries, and distribute what is left to the appropriate persons or institutions

Probate Property - Property which the decedent held alone, as marital property, or as tenant in common - A will is the way an individual gives instructions to the court on how they want their assets distributed Non-Probate Property - Property held in joint tenancy with right of survivorship (JTWROS) - Property held in tenancy by the entirety - Survivorship martial property - Life insurance proceeds on the decedents life - Property in trust - Retirement plans - Joint bank accounts - Payable on death bank account - Transfer on death real estate Probate Process - A family member will petition a court to probate the decedents estate and a personal representative will be assigned to handle the work I. If the decedent had a will, the person named will bet the personal representative or executor II. If the decedent does not have a will, state laws will control (intestacy) Personal property is usually governed by the law of the decedents domicile Real property is governed by the law of its location - If the decedent owned property in other states, a separate, ancillary probate might be opened in each state Upon appointment of the personal representative, the court issues appropriately titled "letters" to evidence the individual's authority The personal representative, armed with official copies of letters and of death certificates, can contact banks, stock transfer agents, and the like to collect the decedent's assets An inventory is then filed The personal representative then has to notify creditors to start the statute of limitations I. Tulsa Professional Collection Services v. Pope Due process requires actual notice to known or reasonably ascertainable creditors before their claims can be cut off (Wis. Stat. 859.02(2)(b)) Once assets have been assembled, creditors paid, and problem areas (will contests) addressed, the personal representative closes the estate by distributing the remaining property to those entitled to it 1

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Community Property & Ownership Rights of Spouses


General Features of Community Property

Community Property States - LA, TX, NM, AZ, CA, NV, WA, ID, WI - Spain and French Influence - WI is the only state to move from the common law to community property Basic Notion - CP rests on a notion that husband and wife are in a marital partnership and should share accordingly - Fundamental idea is that earning of each spouse during the marriage should be owned equally in undivided shares by both spouses Erlangers Paradox - If you dont know whether it is community property, then you do know Presumption of marital property Classifications of Property - Community Property - Earnings during marriage and the rents, profits, and fruits of earnings - Income made from work - Whatever is bought with earnings - Income from separate investment property (LA, TX, WI) - Where characterization of the property is unknown, its presumed CP - Investment property (stocks, etc.) CA Rule Income off an investment property is separate property TX Rule Income off an investment property is CP even if the investment property is separate property WI Rule You may switch between the TX rule and CA rule if you serve notice on your spouse that you want to keep it separate - Separate Property - Property acquired before marriage - Property acquired during marriage by gift or by reason of someons death - Property that is brought into the state from another state during an ongoing marriage Unclassified Property - Property acquired before 1/1/1986 Community property cannot be converted into separate property without consent of both spouses Not clear on how it is determined what CP and SP is courts rely heavily on the presumption of CP 2

Marital Property Agreements - WI allows spouses to contract around CP rules as long as they are not against public policy - Must be substantively fair and procedurally fair Survivorship - CP does NOT have a built-in survivorship feature under which the surviving spouse would automatically own all CP at death - Each spouse is free to dispose of his or her one-half of the CP assets on death - The surviving spouse owns the other half, which is not subject to disposition by the deceased one Determination Date - Marriage date in WI - Both Spouses domiciled in WI - On or after 1/1/1986

II.
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Community Property and Divorce


The WI Marital Property Act (Ch. 766) is NOT divorce law (Ch. 767) Property received as a gift or through inheritance have the most protection in both the WMPA and divorce law

Hierarchy of Protection for Separate Assets in WI 1. Gifts or received by reason of someone's death not marital property and not subject to division upon divorce 2. Brought to marriage not marital property, but subject to division upon divorce 3a. Unilateral statement regarding income from nonmarital property not marital property, but subject to division upon divorce 3b. Income or unknown source, before the determination date not marital property, but subject to division upon divorce 4. Income or unknown source, after the determination date marital property, but subject to division upon divorce

III.
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Couples Migrating from Common Law to CP


In a common law state, if the husband is the wage earner, all of the income is his property, but the other spouse is protected by the elective share system. However, when they move to a community property state, all of that income is considered the separate property of the wage earner To fix this problem, WI has the concept known as quasai-community property, known as deferred marital property

Deferred Marital Property - This is property which would have been characterized as community property if the couple had been domiciled in the community property state when the property was acquired - Out of state real property is not considered CP

Deferred Marital Property (Cont.) - Quasi-community property is treated for the most part as separate property of the acquiring spouse, however, upon death, either one-half of the property belongs to the surviving spouse, or, as in WI, the surviving spouse has an elective right - If the non-acquiring spouse dies first, the quasi-community property belongs absolutely to the acquiring spouse

IV.
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Couples Migrating From CP to Common Law


Sometimes common law states will treat the property as tenancy in common Sometimes courts will disregard community property altogether A number of states have enacted the Uniform Disposition of Community Property Rights at Death Act, which provides that, generally, community property brought into the state and all property in the state that is traceable to community property remains community property for the purposes of determining rights at death

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Professional Responsibility
Horne v. Peckham o It is the duty of an attorney who is a general practitioner to refer the client to a specialist if the attorney cannot handle the matter with reasonable skill and care. If the attorney fails to refer or to consult a specialist when a specialist is needed, the attorney may be held to the standard of skill ordinarily possessed by a specialist On exam, if a question seems to be outside of you expertise, you need to refer you client to a specialist and city Peckham!!!!

2: Intestacy
Terminology - Heirs (Wis. Stat. 854.22(1)) o Takers/recipients under intestacy - Inheritance o What you receive from someone under intestacy o Most people who inherit, dont NEVER USE THE WORD INHERITENCE ON THE EXAM WHEN NOT TALKING ABOUT INTESTACY!!!

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Overview
Intestacy is the default estate plan for those who do not have a will Even when someone does have a will, it may not cover all of their property, so they would be partially intestate

Intestacy Policy - Where would most people without a will want their property to go? - Protecting dependent family members - Keeping property titles simple - Keeping property from breaking into very small shares - Promoting the nuclear family 4

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Disposition of the Estate


Spouses

Wisconsin Law - The size of the surviving spouses share depends on state law and who else survives (852.01) o If no children, surviving spouse might take the whole estate or might share with parents o If children, surviving spouse will take one-half if one child or one-third if more than one child (not Wisconsin law spouse takes half either way) 1990 UPC - 2-102(3) o If the surviving spouse is the parent of the decedent's children, but also has other children, the survivor takes $225,000 plus one-half the balance of the intestate estate - 2-102(4) o If the decedent left children that are not children of the surviving spouse, then the surviving spouse only gets $150,000 plus one-half of the estate

II.
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Other Relatives
If the decedent does not have a surviving spouse, look down to children

Steps to Find an Heir 1. When looking for heirs, first look down for descendants 2. If there is more than one child, follow each child's line down, stopping when you find a survivor 3. If none, look up to parents 4. If none, look down again to sisters and brothers and, if necessary, nieces and nephews 5. If none, go up to the grandparents on both sides 6. If none, gown down to aunts, uncles, cousins The UPC cuts off heirs more distant than the descendants of grandparents of the decedent If no one can be found, the estate escheats to the state

III.

Qualifying to Take

Non-Marital Descendants - Traditionally, children born out of wedlock could not inherit (not true today) - 852.05 o (1): Child may inherit from mother and may inherit from father if: Father has been adjudicated the father Father admits hes the father in open court Father acknowledges hes the father in writing signed by him o (2): Father may only inherit if he has been adjudicated to be the father Adopted Descendants - In Wisconsin, a legally adopted person is treated as a birth child of the persons adoptive parents and the adoptive parents are treated as the birth parents for purposes of transfers at death. - The adopted person ceases to be treated as the child of the persons actual birth parents - Whether an adopted person can inherit depends on 854.20(b) 5

Half-Blood Relations - Some states differentiate between half-blood and full-blood relationships - Half-blood relationships only have one parent in common - Some states give whole-blood a larger share

IV.
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Representation (deals with predeceasing)


When a descendant of a decedent dies before the decedent in question, the descendants issue will represent the descendant for inheritance purposes

Two Approaches to Representation - Per Stirpes o Allocates an equal share for each descendant at the first generation o If one of the descendants at the first generation pre-deceased, his share will be divided among his issue, equally. And so on. o WISCONSIN FOLLOWS THIS (854.04(1)(a))

Per Capita at Each Generation (Per Head) o Views family horizontally rather than vertically o If someone at a specific generation is getting something, then everybody at that generation should get the same share o Everyone at the same generation level receives the same share o This mode has the advantage of treating equally those who are equally distant from the decedent o UPC FOLLOWS THIS (2-709)

3: Wills
A.
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The Mental Component


Intent
For a will to be valid, the testator must have had testamentary intention at the time the will was executed Really only an issue when wills are homemade

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Capacity
The testator must be of sound mind before their acts have legal effect

Burden of Proof - In WI, a showing that the testator didnt have the capacity is placed on the contester and must prove it with clear and convincing evidence Capacity Can Be Lacking in Two Ways: 1. Testator might be suffer from a general mental deficiency - Concerns the general capacity to make a will 2. Testator might be operating under an insane delusion - False conception of reality - A delusion is insane even if there is some factual basis for it if a rational person in the testators situation could not have drawn the conclusion reached by the testator Key Question - Does the testator understand the elements of the will-making process? o Must know the nature and extent of his property o Know which persons would be expected to take the property o Understand the basics of the plan for disposing of the property, and o Understand how the above elements interrelate Cases - In re Estate of OLoughlin o Objector claimed that O did not have the capacity because he was suffering from Parkinsons disease and that he was physically and mentally incapable of managing his property and dealing with disposing it. Held: O had capacity. Two doctors witnessed the signing of the will and said that O had sufficient capacity to execute it. It is true that a person may be incapable for a period during the sickness, yet competent during a lucid interval between periods of sickness - Estate of Wright o Several witnesses testified that Wright was of unsound mind that his behavior was bizarre. Held: Testamentary capcity cannot be destroyed by showing a few isolated acts, foibles, or idiosyncrasies unless they directly bear on and have influenced the 7

testamentary act. There wasnt evidence to show he did not appreciate his relations and obligations to others, or that he was not mindful of the property he owned. In re Honigmans Will o H executed a will one month before his death giving $5000 to each of his grandnieces, and cut off his wife with a life use of her minimum share plus $2500. At the time of his death he was suffering from an unwarranted and insane delusion that his wife was unfaithful to him. He claimed that he himself was sick in the head. Claimed that he witnessed a man entering his house with his wife. Wife denied this at divorce trial. Held: Court found no basis for his belief that his wife was cheating on him and found the will invalid. o Rule: If a person persistently believes supposed facts, which have no real existence except in his perverted imagination, and against all evidence and probability, and conducts himself, however logically, upon the assumption of their existence, he is, so far as they are concerned, under a morbid delusion insanity o Dissent: The right of the testator to dispose of his estate, depends neither on the justice of his prejudices nor the soundness of his reasoning he may do what he will with his own. The evidence failed to prove that the testator was suffering from an insane delusion or lacked testamentary capacity In re Strittmatters Estate o Will was challenged on the grounds that the testator was insane. Testator lived with her parents and never married. She always seemed devoted to her parents. That lasted until their deaths. Testator then went on a rampage about how she hated her father and mother. Chief evidence of her mental condition was comments written on the margins of the testators books. She was really into feminism and regarded men with so much hatred. She wanted to leave her estate to the National Womens Party. She was always very paranoid. Held: Probate was set aside. It was her paranoiac condition, especially her insane delusions about the male, that led her to leave her estate to the National Womens Party.

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Undue Influence
Coercion, usually by phychologival domination, is the key concept in undue influence

Undue Influence Factors - The testators mental condition - The opportunity of the influencer to exercise control - Some overarching activity on the part of the influencer - The effect of the influencers activity on the mind of the testator - The existence of a confidential relationship between the influencer and the testator - The existence of independent advice - Suspicious circumstances surrounding the procurement or execution of the will; and - The receipt of an undue benefit by the influencer which is crucial because without any undue benefit, there is nothing to correct Establishing Undue Influence - To create a presumption of undue influence, must show a confidential relationship existed between the influencer and the testator o Priest-parishioner, guardian-ward, attorney-client, doctor-patient - In WI, burden is on the contestant to show undue influence by clear and convincing evidence 8

In most states, a successful challenge on the grounds of undue influence only invalidates the tainted provisions of the will (in WI, if undue influence, whole will is invalidated)

Cases - Lipper v. Weslow o Testators will lefter her estate to the two Lipper children, and nothing to the Weslow grandchildren. Will was prepared and executed by defendant, Frank Lipper, and attorney, and one of the beneficiaries of the will. There was a lot of evidence showing why testator did not like the Weslows. There were 3 independent witnesses that testified about how the testator told them about why she didnt like the Weslows. Held: No undue influence. The Contestants established a confidential relationship, the opportunity, and perhaps a motive for undue influence by defendant Lipper. However, they failed to show that Lipper was substituting his mind and will for that of the testator. All of the evidence reflected that the testator was of sound mind, or strong will, and in excellent physical condition. Subsequent to the execution of the will, she told 3 disinterested witnesses what she had done with her property in the will, and the reason therefore. A person of sound mind has the legal right to dispose of his property as he wishes. - Estate of Perssion o Perssion executed a will that expressly excluded his wife and minor daughter without explanation. The will left his entire estate to his sister Beatrice Eisenberg, the mother of Donald Eisenberg, the attorney who had drafted and supervised the execution of the will. The relationship between Perssion and his wife was estranged. Perssion told others he wanted a divorce and that he wanted to cut his wife out of his will. However, there is no doubt that he loved his daughter and did everything a father would normally do for an offspring. Held: No undue influence. There was no evidence to show that his sister could influence him. Perssion was an intelligent, alert and stubborn man. Evidence showed that Perssion would not listen to anyone. Evidence showed he wanted to divorce his wife and was very hurt his daughter married and didnt tell him. The will was not made in haste or while in an enfeebled condition. o Rule: An inference of undue influence arises in a situation where the beneficiary is a member of the family of the attorney preparing and drafting the will for his client or the attorney is a member of the beneficiarys family.

B.

Execution of Wills

Execution Requirements (WI 853.03) - Will must be signed by the testator - Will must be signed by two witnesses who signed within a reasonable time after and of the following: o The signing of the will by the testator o The testators implicit or explicit acknowledgement of the testators signature on the will, in the conscious presence of the witness o The testators implicit or explicit acknowledgement of the will, in the conscious presence of the witness

Court Interpretation - Courts usually interpret the Statute of Wills strictly - The formality is designed to protect testators generally from fraud, duress, bath faith, overreaching and undue influence 1999 UPC o Notwithstanding noncompliance with the statutory elements, wills will be effective if the proponent established by clear and convincing evidence that the decedent intended the document to be a will

I.

Statute of Wills
1. In Writing - Wills must be written handwritten, typed, printed from a word processor or produced by some other means - Some states allow oral wills Soldiers and Sailors Wills last-illness gifts 2. Signed (at the end?) - There must be some sort of mark on the will (signature, Dad, initials, X) - Intention - Signature must have been intended as an operative, validating act - The more causal the signature, the more likely a claim that the mark was made without any intention to validate the document 3. Signed by the Testator or Another - Virtually all states allow someone else to sign on behalf of the testator disabled people, etc. - Proxy must sign in the testators presence, at the testators direction 4. Attested - Wills must be formally witnessed by two witnesses (not PA & states w/ holographic) - Usually the witnesses must sign in presence of the testator (NOT IN WISCONSIN) - In WI, witnesses must only witness the testator acknowledge his will and then may signed outside the presence of the testator - Sometimes must sign in presence of each other - 1990 UPC eliminates signature in presence of testator and adopts signature within a reasonable amount of time after will is acknowledged. - Cases - Demaris Estate - Testator signed will on operating table. Wife and doctor took the will out of the room to sign. Wife signed in sight of testator. Doctor signed outside the presence of testator. Held: This is OK because even though the will failed to comply with the strict letter of the law, to hold otherwise would fail to give heed to the statutes obvious purpose. - Brooks v. Hietpas - Brooks signed preprinted will. Brooks died 3 months later with no witnesses signing. Brooks neighbors (husband & wife) came forward to sign will and said that they had seen the will during a visit to Brooks home earlier. Brooks and Wife sat down and looked it over. This occurred when Husband was out of the room. Held: Found that although the neighbors has signed the will within a 10

reasonable time after witnessing it, Husband did not, implicitly or explicitly, witness any acknowledgement by Brooks of either her signature on the will or the will itself. Husband only saw the will, but no reaction from Brooks. - Rule: Testator must acknowledge will in presence of witnesses, but witnesses dont have to sign in presence of testator 5. By Competent Witnesses - Witnesses must be competent when signing the will. - In some states and WI, to be competent, a witness must also be disinterested (not taking any transfers under the will) - UPC doesnt follow this but relies on undue influence) 6. Other Rules - Some jurisdictions require more elements: - Witnesses must sign in each others presence - Publication testator identifies the document as his will - Request the witnesses to sign - Testator actually signs before the witnesses do 7. Attestation Clauses and Self-proving Affidavits - Self- Attestation - Appears after testators signature but before witnesses - Phrased in witnesses POV attesting that the elements of the local statute have been followed - Creates rebuttable presumption that the facts stated in the clause are correct - Useful if witnesses have died or forgotten the relevant event - Self-proving Affidavits - Testator also signs self-proving affidavit and it is notarized - Raises a conclusive presumption that the signature requirements have been met avoids the need to call witnesses - In Wisconsin - If execution of will is proper and contains an attestation clause reciting facts of execution, then not necessary to produce witnesses at probate (856.15) - 853.05: allows testator to self-prove will which disallows any disputes over the will being properly executed except for capacity.

II.

Holographs (Not in WI)


Informal wills that can qualify for recognition under an alternate set of rules Dont have to be witnessed

Requirements - 1990 UPC: signature and material portions must be in testators handwriting - Some traditional statures require it entirely in testators hand writing - Some require date

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Cases - Estate of Johnson o Previously, holographs required material PROVISIONS to be hand written. Johnson filled in blanks on a form. He hand-wrote all of the beneficiaries and their shares. Held: Not a valid will because the handwriting itself did not express a testamentary intent, which came from the printed words. 1990 UPC changed it to material PORTIONS must be in handwriting UPC also provides that extrinsic evidence, including portions of a holograph not in the testators hand writing can be used to establish testamentary intent

III.

Mistake in Execution

1. Traditional Law - Shows the traditional disallowment of wills that have been improperly executed - Orrell v. Cochran - Witness signed where testator was supposed to sign. Testator only signed the self-proved affidavit. Held: Court disallowed will to enter probate. - In re Pavlinkos Estate - Couple accidentally signed each others will. When one died, the will that was intended for him did not bear his signature and didnt make sense. Held: Disallowed to enter probate. 2. Reformation to Correct Mistake Doctrine - Matter of Snide - Couple accidentally signed each others will. When wife died, the will signed by the husband was admitted into probate. To make sense of the will, the court simply substituted the wifes name for wherever the husbands name appeared. Appellate court reiterated that this reformation only applied to these facts. - Rule: Sometimes an error in execution may be fixed. 3. Substantial Compliance Doctrine - You have substantially complied with the statutory formalities, were going to let this little mistake go - Problem here is that courts still view the signature of the will as the central question rather than credibility of the will - Estate of Peters - Couple was married. Wife had son from different marriage. Both made wills leaving property to the other spouse and to the son. Husbands will was only signed by one person because it was executed in the hospital in the heat of the moment. By the time the mistake was discovered, the couple was both dead. Second witness signed 18 months later. Held: Disallowed because the witness did not sign within a reasonable amount of time. Estate escheated to the state and son got nothing! - Matter of Will of Ranney - Witnesses only signed the self-proving affidavit, but not the will itself. Held: The substantial compliance doctrine could save the will despite the mistake 12

4. UPC 2-503: Excused Non-compliance Doctrine (Dispensing Power) - excused non-compliance, excused harmless error, or a dispensing power - Focuses on whether testator intended the document to be effective - Argument against this is that legislature makes the requirements and courts must follow them - 1990 UPC responded to decisions like Peters

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Incorporation By Reference
Incorporation by reference is a way to give testamentary effect to a document that is not present at the execution ceremony Not all states recognize this

Requirements - The document being incorporated must exist at the time of the execution ceremony - The will must indicate an intention to incorporate - The will must refer to the document sufficiently to allow its identification, and - The will must say that the document is in existence (neither UPC nor WI require this)

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Separate Statement For Transfer of Tangible Property: 853.32(2)


Many people have long lists of what property goes to who called Codicils Codicils change a lot Referenced documents may not change, however codicils may

Requirements (853.32(2)) - Will must refer to the separate statement - The transfer must be of tangible personal property - Property transferred must not be subject of a special bequest in the will - The separate statement must describe the items and transferees with reasonable certainty o Each item does not have to be separately identified o all my personal property other than money will suffice - The separate statement must be signed and dated

D.

Revocation: 853.11

Revocation by a Writing: 853.11(1) - Surest way to revoke a will is by executing a later document (usually a new will) that expressly revokes the will - Courts take a strict approach toward revocation requirements In re McGills Will o McGill had a will. She changed her mind and had a friend write a note to the executor of the will saying, Please destroy the will I made. McGill signed the letter and had two friends witness it. She died without the will actually being destroyed. Held: Because the paper itself did not declare the will revoked, but merely requested the executor destroy it, the court held the revocation inadequate. o 13

Revocation/Supplement by later will - If a later inconsistent will lacks a clause expressly revoking the prior one, UPC looks to see whether the later will made a complete disposition of the estate: o If so, its presumed to have revoked a will o If not, it is presumed as a supplement to the prior will o This presumption can be rebutted Revocation by Physical Act: 853.11(1m), UPC 2-507 - Testators can revoke wills by physically altering it with intent to revoke it Specific Acts o Tearing o Burning o Canceling o Obliterating If a will cannot be found after the testators death, and it was last seen in the testators hands, it will be presumed that it is revoked this can be rebutted Cases o Thompson v. Royall Testator gave will to executor and a codicil to her lawyer for safekeeping. Later, she asked them to destroy both documents. Lawyer wrote the words, null and void, on the back of the codicil and on the cover of the will. Testator, but no witnesses, signed the null and void statements. Held: Court found this not enough because the revoking statement did not physically interfere with the written parts of the will. Notes (good thoughts for exam!) Had the lawyer and executor both witnessed the testators signing of the null and void statements, this would have qualified for an attested will. If the testator had both written and signed the statement, it could have qualified as a holograph If the UPCs dispensing power had been available, the revoking statement could have been validated on the clear and convincing evidence that the testator intended the document to be effective. o Estate of Markofske Revocation presumption overcome Testator moved to a nursing home, where she died. Her sister, who was an intestate heir but not named in the will, cleaned out her house and collected her important papers, but no will was found. The sisters interest in not finding the will, coupled with evidence that a few months before her death the testator mentioned her will, helped overcome the presumption that the testator revoked her will.

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The Ethics of Safeguarding Wills


Lawyers want to keep wills out of temptations hands, and one solution is to have the lawyer keep the will on behalf of the client. 14

WI Supreme Court says that original will must be returned to testator and should only be kept by the attorney by special request of the testator

4: Trusts
Terminology - Settlor o Person who creates the trust - Trustee o Holds legal title to the trust property o Must maintain and invent the property, keep accounts, and manage and distribute the trust assets in the best interest of the beneficiaries o Entitled to a fee for his trouble, but cannot benefit in any other way from his position - Beneficiary o Holds equitable title to the trust property o Beneficiary interests are split up over time one or more beneficiaries will have the right to receive income, profits and other distributions from the turs for the duration of their lives Income/lifetime beneficiaries Types of Trusts - Inter vivos o Created during the settlors lifetime o The settlor can give either the property to someone else to hold as trustee or can declare himself as the trustee - Testamentary o Created by a will at the settlors death o The will simply gives estate assets to someone to be held in trust according to directions in the will - Honorary Trust o Beneficiaries are pets or inanimate objects - Passive Trust o Trustee has no duties to preform INVALID Purpose of Trusts - Asset management - Control - Avoidance of legal rules (tax, creditors, spousal rights, probate)

A.

Resulting and Constructive Trusts

Resulting Trust - Remedy that a court imposes when a designated trust cannot be established or an ongoing trust cannot continue - In these circumstances, the trustee is deemed to hold the trust assets in a resulting trust - Example o B is a beneficiary to the trust. B dies. Trust doesnt say what happens when B dies. The remaining trust assets would be distributed to the settlor or his estate.

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Constructive Trust - This is a remedy that a court imposes to avoid unjust enrichment - Not really a trust because there are no ongoing duties of the trustee - Its a device to move legal title from a person who has title but should not, to someone who should have it. - Infrequently used - Example o Heible v. Heible Mom was fearing death by cancer. Transferred house into sons name as JTWROS. As a condition, however, if mom survived, son would give back title. Mom survived and wanted house back, but son refused. Held: Court used a constructive trust ordering him to convey the house to his mom. Court found that the son was unjustly enriched and that he breached his fiduciary duties to his mom.

B.

Creation of Trusts

Trust Definition - A set of instructions - Regarding some property - With someone charged with carrying out those instructions Elements to Form Trust - Intention to create a fiduciary relationship - Terms for the fiduciary relationship - Property which is transferred to the trust - A beneficiary Key Concept - Separating ownership into legal title in a trustee and equitable title in the beneficiaries

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Intent
Intent is usually quite clear: a multi-page document is labeled Trust Agreement, or a section of a will is titled Family Trust Jimenez v. Lee o Grandma gave parents a savings bond to be used for Elizabeths education. Elizabeth sued her parents for breach of trust. Held: Though the word trust had not been used, the court held that a trust had been created. Even though this was informal, all of the fiduciary duties attached to the Father. When father became careless with the trust assets, he breached his fiduciary duties.

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II.
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Trust Property
Usually this is not an issue, however, it can become an issue when whether the item can be defined as property for the purpose of sustaining a trust

Cases - Brainard v. Commissioner of Internal Revenue o Brainard wanted to trade in the stock market for the benefit of his family. He talked to his wife and declared a trust of his future profits from his trading. The beneficiaries claimed their profits on their taxes, which were credited to them, but never received them. Question is whether, at the declaration of the trust, there were any assets. Held: No valid trust had been created. It was only until the stocks were sold that the profits came into existence. There were no assets when the trust was created. The declaration was only made out of love and affection, but was not sufficient consideration for a promise under contracts law. - Speelman v. Pascal o Pascal gave a letter to Plaintiff stating that Pascal would give her 5% of English profits, 2% of US profits, and 5% of profits all over the world. Question was whether the letter gave the plaintiff an enforceable right in those percentages. Held: Future profits constitutes property of trust. Its trust that at the time the letter was written, there was no musical stage or film play in existence, but Pascal, who owned and was conducting negotiations to realize the stage and film rights, could grant another a share of the moneys to accrue from the use of those rights by others. Nother was left for Pascal to do in order to make an irrevocable transfer to plaintiff of part of Pascals rights to receive royalties. Policy Reconciling Brainard & Speelman - The court in Brainard was concerned about taxes - Brainard might have been a tax avoidance ploy - Brainard is trying to spread his income around to people so that he could be placed in a lower tax bracket - This was a loophole and not illegal, however, courts will stop this by coming up with a narrowly tailored decision - Also, the trust in Speelman was a written document. In Brainard, it was an oral statement.

III.
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Beneficiary
A trust must have beneficiaries in order to separate legal and equitable titles If the same person holds legal and equitable title, the titles will merge and the trust will terminate Its possible for the trustee to be a beneficiary too, but only when he is not the SOLE beneficiary and SOLE trustee

Honorary Trust - Beneficiaries are pets or inanimate objects

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IV.
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Trustee
A court will usually name a trustee rather than let a trust fail if no trustee has been named or the trustee dies A trust shall not fail for want of a trustee Trustees handle the financial and personal sides of administration Settlors may appoint two trustees, one corporate to handle finances, and one personal to give a personal touch Alternatively, the settlor can name an individual as trustee and include language urging the trustee to seek professional management assistance as appropriate, paid for by the trust If trustee has no duties to perform, it is a passive trust, and legal and equitable titles vest in the beneficiaries

V.

Revocable or Irrevocable

Presumption of Irrevocability - Unless the trust explicitly states that it is revocable, the presumption is that it is irrevocable NEVER DRAFT A TRUST WHERE YOU DONT SAY WHETHER IT IS REVOCABLE OR IRREVOCABLE

VI.
-

Oral Trusts
Most states allow oral trusts for personal property, however they often run afoul with the Statute of Frauds writing requirement However, not allowing an oral trust might unjustly enrich someone To avoid unfair results, courts will sometimes apply a constructive trust to prevent the donee from being unjustly enriched Olliffe v. Wells o Donovans will gifted Wells certain assets and required Wells to distribute the property in his discretion to carry out the wishes which Donovan has expressed to him or may express to him. Wells said that Donovan told him to use the money for charity, especially towards a mission. Donovans heirs argued that the trust was invalid because its terms were not shown in the will. Held: Not a valid trust. The will on its face shows that the devisee takes the legal title only and not the beneficial interest, and the trust is not sufficiently defined by the will to take effect. Thus, the equitable interest goes, by way of resulting trust, to the heirs as property of the deceased, not disposed of by will. o Rule: The testamentary trust was not sufficiently defined. The terms of the trust had to be in writing in the will in order for Wells to be able to use the money how he saw fit.

C.
-

Use of Revocable Trusts to Pass Property at Death


Also known as: Rev Trust, RLT, Farkus Trus

Terms of a Revocable Living Trust - Typically the settlor creates and funds the trust with the settlor as trustee - Terms of the trust call for all income to be distributed to the settlor (as beneficiary), and for the settlor to have the power to demand principal at any time and to revoke the trust and have all the assets returned to him. - There will be terms for a successor trustee if settlor dies or becomes incapacitated - Detailed provisions for the distribution of the assets at the settlors death (like a will) 18

Living Trust - Much like a will o Settlor has complete control over the assets while living, and o The document serves primarily to pass property at death Estate Planning Tool - When you are your own trustee, you can manage your money as you like - A successor trustee waits in the wings to take over if you become incapable - The trust also dictates who gets the property when you die, so it functions as your will - Your trustee makes the final distribution of your property with no oversight from the probate court Uses - Sinility trust if you become senile - Real estate outside your jurisdiction so you dont have to have a separate probate - Avoid probate where its cumbersome - Avoid challenges - Privacy Cases - Farkas v. Williams o Farkas bough mutual fund share, each time signing a declaration of trust that identified Farkas as the trustee of the shares and as the current income beneficiary. Richard Williams was named to take the shares at Farkas death. Frakas retained the right to change the beneficiary and to revoke the whole trust. As trustee, he retained the right to sell any shares he liked and retain the proceeds in his personal capacity. Held: A valid trust was created. Even though Williams only got a very small interest, this was enough to validate the trust. Court focused on the transaction: it was formal, provided reliable evidence of intention, and lacked any hint of overreaching.

I.
-

Access of Creditors to Revocable Trusts


Traditionally, creditors could not reach trust assets, however, more recently, there has been a move to allow creditors to reach assets State Street Bank v. Reiser o Dennebier set up a living trust to hold the capital stock of 5 closely-held corporations. He retained the power to revoke and the power to direct the disposition of income and principal during his lifetime. When he died, a bank tried to collect its working-capital loan, only to find that the probate estate was not large enough to cover the debt. Bank then sought trust assets. Issue was whether bank could get at the trust assets. Held: Court allowed the bank access to the trust assets. Court recognized that it would be excessive obeisance to the form in which property is held to prevent creditors from reaching property placed under such terms. Basically, the court recognized that Dennebier still maintained complete control over his property o Notes Reiser is probably still represents the minority view on the question. Most courts that have grappled with this issue have concluded that a statute is necessary for creditors to have access to the trust, even if it is revocable 19

II.
-

Tax Consequences of Revocable Trusts


There are no tax benefits of revocable trusts over a will At death, the full value of assets in a revocable trust is included in the settlors gross estate from federal tax purposes

III.
-

Spousal Rights in Revocable Trusts


In community property states, there is no issue because transfer of community property to a trust does not change its classification In common law states, where spouses are protected by the elective share, its a problem because the elective share traditionally only applied to probate estates Some common law states have adopted UPC provisions about the elective share, other have dealt with it through case law

D.
-

Issues in Irrevocable Trusts


Issues arise here because once the settlor creates an irrevocable trust, it cannot be changed.

I.

Discretionary, Support, and Mandatory Income Trusts

Discretionary Trust - Some trusts authorize the trustee to pay the beneficiaries such amount of income or principal as the trustee in its absolute discretion shall deem advisable Support Trust - Some trusts will attempt to control the trustees discretion by providing for only distributions necessary for the comfortable support of the beneficiary Old Colony Trust Co v. Rodd o Sanderson directed his trustee to pay such amount of income and principal as the trustee judged necessary for comfortable support of his father-in-laws descendants. In response to a beneficiary suit, the trial court called the amounts that the trustee had distributed parsimonious (frugal). Court ordered the trustee to increase the amounts of future payments. Mandatory Trust - A mandatory trust gives the trustee no discretion, but must distribute its income or principal according to a schedule set by the trust document. - Alan Bradley Case o Jane Bradley Pettit needed additional income to pay for the construction of the Bradley Center. Via charged that the trustees made investment decisions that were no in her interest but that benefitted Jane. Charges stated that the trustees ignored investment advice that would generate long-term growth for the trusts but instead earned more immediate income, which would benefit jane o Notes Even in mandatory income trusts, there can be issues Here, even though the trustee was charged with paying out assets, they still had the discretion of how to invest the assets 20

Issues - Trustee is too conservative with its distributions (Old Colony) o If trustees are too generous, they risk a court later ordering the trustee to repay to the trust the money which should not have been distributed o If they are too stingy, they are likely only to suffer a slap on the wrist o Like to remain conservative because as beneficiaries begin to age, their healthcare costs soar. - What does support mean? o Usually tied to the manner of living in which the beneficiary is accustomed to - When deciding the appropriate level of support, should trustee consider other funds available to the beneficiary? - What does education mean? o Some courts say it means a four year degree, but not medical school - In mandatory income trusts, how are the assets to be invested? Resolving Issues - Select a trustee that is familiar with the settlors intentions and familys circumstances - A trustee who meets with the beneficiaries regularly will be more likely to understand their needs - The trust document can identify the settlors priorities o Document can identify the primary purpose of the trust or rank needs

II.
-

Alienability
In an irrevocable trust, two principles underlie the law surrounding the transfer of a trust beneficiarys interest 1. Unless a statute or the trust provides otherwise, a trust beneficiary can transfer his interest to someone else 2. Creditors rights typically follow alienability: the creditor can get what the beneficiary can transfer Just as you can give an old armchair to a friend or sell it, so can a trust beneficiary give away or sell a life estate or a remainder interest in trust

Factors When Restricting Beneficiarys Interests - Is he a responsible person? - Does he have a steady income who may need the flexibility of giving up the trust later? - Is he likely to be tempted by the opportunity to sell her life estate and use the funds for a getrich-quick scheme or some wild vacation? - What about his children, many of whom may not be born yet? Ways to Restrict Beneficiaries - Spendthrift Clause ( 701.06(1)-(2)) o Prohibits beneficiaries from transferring their interests and seeks to limit the ability of creditors to reach the trust assets o Example: "No interest of a beneficiary in income or principal shall be anticipated, encumbered or assigned. No such interest shall be subject to the claims of such person's creditors, spouse, former spouse, or others." 21

o o -

Does not affect what happens to property once it reaches the beneficiaries Creditors must wait until the trustee pays the beneficiary to get their money

Protective Trust o A sort of discretionary trust that gives the trustee the right to cancel a beneficiarys interest in the face of creditors claims on the trust. o Scott v. Bank One Trust Co. Settlor prohibited the trustee from distributing assets to the settlors son if he were insolvent, had filed in bankruptcy, or would not personally enjoy the assets. Meaning, if creditors came near, the trustee turned off the spigot. Supplemental Needs Trust o Purely discretionary trust in which the trustee has the power by not the duty to spend money for beneficiaries o If the trust mandates the support of a disabled person, the state can get at the trust assets o However, if the trust only gives the trustee the ability to supplement government programs, then the state cannot get at the assets Trusts for Disabled Persons o Problems here States can attempt to seize the trust property for services rendered to the disabled beneficiary The state can count the trust income and principal when determining the disabled persons eligibility for aid o To avoid this, the purpose of the trust is essential A trust whose purpose is to supplement government aid will protect the trust property This works because it only allows the trustee to distribute assets needed in excess of those supplied by the government Must have provision that disallows beneficiary from demanding principal Trustee should be instructed to purchase only goods and services that arent available from the government Wisconsin Pooled and Community Trusts o Like a supplemental needs trust o All trusts are pooled and managed by the trustee as a single trust but retain their individual identity o Family receives professional management at a reduced cost.

E.
-

Trusts and Pour-over Wills ( 701.08)


701.08 UPC 2-511

Pour-Over Will - Knickname given to wills and other devices such as life insurance policies that designate a trust as a beneficiary 22

Usually include a number of dispository provisions (like cash to certain individuals) and the rest of the testators property going to a pre-existing trust - Pouring probate assets into the trust Common Estate Plans Using Pour-Over Wills - The client creates a living trust, but intends it as a shell to be activated later - The client creates a will naming the living trust as a will beneficiary - The client names the trust as beneficiary of life insurance policies

F.
-

Rule Against Perpetuities


Policy is against tying up property forever at some point, you are dead and should be able to tie it up

General Rule(?) - Lives in being + 21 years o Lives in being are the people that were alive when the interest of the trust becomes irrevocable Savings Clause - Saves you against a violation of the rule against perpetuities - Generic Savings Clause o IF, in the absence of this provision, any trust created in this document would fail in whole or in part because of a violation of any applicable rule against perpetuities, accumulation of profits, restraints on alienation, or remoteness of vesting, o THEN, that trust shall terminate as of the date preceding the termination of the permissible period, and the trustee shall immediately distribute the assets of the trust to ____

5: Other Methods of Non-Probate Transfer


A.
-

Lifetime Gifts
To make an effective gift of personal property, the donor must deliver the property to the done with the intention to make a gift Manual delivery is important because it is such strong evidence of intention

I.
-

Custodianship Under the Uniform Transfers to Minors Act


Under UTMA, property may be transferred to a person (including the donor) as custodian for the benefit of the minor Legal title is vested in the minor Custodian has discretionary power to expend whatever amount of custodial property as the custodian deems advisable for the benefit of the minor without regard to the duty of the custodian Custodianship terminates by expending all its property or when the minor reached 18 or 21, or at the death of the minor

23

B.
-

Joint Interests
Creating joint interest in real or personal property is the most common probate avoidance device When one owner dies, her interest simply disappears, leaving the survivor owning the whole

I.
-

Real Property
A deed creating a joint tenancy is non-revocable o Gross v. Gross Gross wanted to avoid probate so he executed and recorded deeds creating joint tenancies between himself and his son. Gross kept the deeds and occupied and maintained the property. Gross remarried and sought to have the deed declared void because he had no intention to give his son a present interest. Held: Once Gross elected to make the gift, he bound himself to that choice. Grosss uncorroborated self-serving testimony was not clear and convincing evidence to overcome the presumption of delivering raised by executing and recording the deeds. Any party may unilaterally change the survivorship feature without notice, thereby transforming joint tenancy with right of survivorship into tenancy in common

Ambiguity with Survivorship - In WI, the general rule is that if survivorship is not indicated, the default is tenancy in common - If the property is the homestead, it is deemed survivorship marital property(766.605) In WI, if the term joint is used then it means JTWROS In WI, Co-tenancy means co-owners without survivorship Anytime a deed lists more than one owner, it should unequivocally indicate whether or not the ownership is in survivorship form

II.
-

Personal Property (Especially Bank Accounts)


Franklin v. Anna National Bank o Frank was a widower with failing eyesight. He placed his sister-in-laws name on the savings account he had with his wife in order for her to be able to care for him. Cora signed the banks card that designated the account as a joint tenancy with right of survivorship. After Franks death, Cora (the surviving tenant) and Franks executor (as successor to Frank) both claimed the money. Held: Court found clear and convincing evidence that Frank had not intended to make a gift to Cora, but rather had added her as a signatory for his convenience. This was enough evidence to overcome the presumption of joint ownership.

Totten Trust - Depositor opens an account in his own name as trustee for someone else - The depositor can withdraw funds at any time for his own use and the beneficiary gets what is left when the depositor/trustee dies 24

WI has payable on death (POD) account (705.1(9), 705.02(1)(c), 705.03(2), 705.04(2))

C.
-

Life Insurance and Other Contracts with POD Provisions


Despite its functional similarity to wills, life insurance has escaped the testamentary transfer label, and the non-probate transfer of life insurance proceeds is non-problematic in all states. However, non-probate transfers generally need specific statutory or case law authorization as exceptions to the Statute of Wills. Wis. Stat. 705.10: A provision for a nonprobate transfer on death in: o An insurance policy, Contract of employment o Bond, mortgage, promissory note, o Certified or uncertified security, account agreement, o Custodial agreement, deposit agreement, o Compensation plan, o Pension plan, individual retirement plan, employee benefit plan, o Trust, Conveyance, o Deed of gift, Marital property agreement, o Or other written instrument of a similar nature IS NOT TESTAMENTARY

D.
-

Using a Will to Change a Will Substitute


Issue here is that sometimes testators will try to use their wills to transfer property not subject
to probate

I.
-

Equitable Election
In re Schaechs Will o Schaech made a will giving all of his personal property to his wife except as otherwise stipulated. The will then listed a number of transfers of probate and non-probate property. He gave his sisters-in-law a life insurance policy that his wife was named a beneficiary on, and gave his joint tenancy interest in his home (held with his wife) to his daughter. Held: Court held that the will could not change title of something that Schaech did not own. However, the court did force his wife to choose between taking under the will and giving up the life insurance policy and the share of the house, or taking the insurance and house, but giving up property she got under the will. The result in Schaech was codified in 853.15 o Applies only if A will clearly purports to transfer property that actually belongs to another person, and The other person is also a beneficiary under the will o Basically, the person who owns the disputed property cannot take under the will unless he transfers the disputed property to the beneficiary named to receive it under the will o EXCEPTION Does not apply if the owner of the disputed property received it via a transfer or beneficiary designation made AFTER the execution of the will

25

6: Limits on Freedom of Disposition


This section addressed the different legal theories which serve to protect disinherited spouses

A.
I.
-

Disinherited Spouses
Community Property
CP states: AZ, CA, ID, LA, NV, NM, TX, WA, WI, AK Doctrine lumps together "the fruits of the marriage" and calls them community property

Separate Property - Property that is brought to the marriage (by gift or inheritance intended for themselves individually) A consequence of CP is that the surviving spouse already owns half of the community assets Surviving CP spouses cannot elect against an estate plan that disinherits them For WI domestic partners, there is no system of rights that parallels the CP or elective share system

II.
-

Dower
Widowers right is known as curtesy Widows right is known as dower Widower go a life estate in all of the lands his wife owned during the marriage if issue who could inherit the land were born out of that marriage Widow got a life estate in 1/3 of the lands her husband owned during the marriage Most states have abolished these doctrines

III.
-

The Right to Elect: Traditional Approaches


In almost all common law states, surviving spouses have the right to claim a share of their predeceased spouse's estate The share varies from state to state, but usually parallels a spouses share under intestacy The share only relates to probate property (so couldnt a spouse just put the property in trusts?)

IV.
-

The Right to Elect: the Uniform Probate Code


Code sought to prevent spouses from emptying their probate estate

Four Core Features 1. 2-203(a) the augmented estate includes all assets of the spouses probate and nonprobate assets belonging to the husband, the wife, or both as well as certain gifts the spouses have made

26

2. Following the partnership theory of marriage, the elective share is based on that portion of the augmented estate that the UPC considers to be the product of the marriage the marital-property portion a. Instead of tracking the assets in the marriage, the UPC uses the length of marriage to approximate the portion of the augmented estate that should be considered the marital property portion. b. Under 2-203(b), after a year of marriage, the applicable percentage is 3%; it then increases by 3, 6, or 8 percentage points per year until, after 15 years, it reaches 100% 3. Under 2-202(a): The elective share is 50% of the marital-property portion of the augmented estate 4. Under 2-209, the surviving spouses right to elect is offset by the assets he or she already owns, irrespective of their source, and by transfers received from the decedent Wisconsin has a deferred marital property elective share which applies to unclassified property that would have been marital property if it had been acquired under the Marital Property Act (851.055, 861.02)

V.
-

Spousal Rights to Retirement Benefits Under Federal Law


In general, retirement plans created by employers other than governments are subject to the Retirement Equity Act of 1984 (REA) REA protects the non-participant spouse in two ways o If the employee dies prior to retirements, the spouse is to receive a Qualified PreRetirement Survivor Annuity (QPSA) o If the employee dies after beginning retirement, the plan must provide for a Qualified Joint and Survivor Annuity (QJSA) Purpose of REA is to protect the spouse from being left without retirement benefits, which are often a significant asset in the marriage

B.
-

Homestead Provisions
In WI, a surviving spouse or domestic partner can petition to have the home assigned to him after the decedents death if the decedent had an ownership interest in the home and the decedent did not specifically give their interest to someone other than the surviving spouse or domestic partner Home doesnt necessaryily mean the home occupied by the spouses at the decedents death o It can include any dwelling in which the decedent had an interest and that at the time of the decedents death the surviving spouse or domestic partner occupied or intended to occupy o If there are several dwellings, the surviving spouse may designate which one The surviving spouse, however, must pay for the decedents ownership interest, using any combination of property due from the decedent or funds acquired elsewhere

27

C.
-

Personal Property Set-Aside 861.33

The surviving spouse also has the right to set aside certain tangible personal property of the decedent o UPC 2-403 sets a $10,000 limit on this property - Generally exempt from creditors claims - Usually include household furniture, clothing, but may also include a car, farm equipment, and farm animals 861.33(1)(b) - Items that were specifically bequeathed are excluded, unless they are normal furnishings necessary to maintain the home 861.33(3) - Where the only bar is a dollar limit, the surviving SPOUSE can select the item if he or she reimburses the estate for the excess value 861.33(4) - Personal representative may transfer these items without a court order Example - A died and her probate estate include: a piano, a Rolls Royce, 50 shares of ATT stock. - As will gives her entire estate to the UW Law School building fund. - 861.33(1)(a) allows the surviving domestic partner, B, to select various tangible personal property from the estate of A. There is no limit on the value of what can be selected under (1)(a)1-3

D.
-

Family Allowances 861.31


All states have a statute that allows the probate court to award an allowance for the surviving spouse (or domestic partner), and often for any minor or dependent children Typically one year WI probate court can order this allowance with or without notice to creditors that it deems necessary or appropriate for the support of the spouse or domestic partner and any minor children

Special Allowances - WI probate court can grant special allowances to support a spouse more than a year or for education of minor children o Court cannot grant an allowance here if: The decedent has amply provided for each minor child The surviving spouse or partner is legally responsible for support and able to meet that obligation If the surviving spouse or domestic partner has amply means for support Factors when deciding to grant an allowance - Nature of creditors claims - Other resources available for support - Whether provisions of marital property agreement will create hardship for the surviving spouse Allowances may only be drawn from probate property 28

E.
-

Omitted Family Members 853.12 & 853.25


Sometimes people execute wills and later marry, but forget to update their will. Most states have statutes that guarantee the surviving spouse or domestic partner or child a share in the probate estate However, this can be rebutted by a showing that the testator intentionally left the surviving spouse or domestic partner or child out of his will Good practice would be to update the will at any significant life event marriage, divorce, birth of a child, etc.

F.
-

Public Policy Limits


Court might void certain transfers, or conditions on transfers because they are in conflict with public policy Allowing judges to invalidate provisions based on public policy is problematic because it is essentially allowing the judge to substitute the testators intent for his own opinion

Marriage - Shapira v. Union National Bank o Shapira has two unmarried sons and a married daughter. Shapira conditioned his sons shares on them marrying a jewish girl that had two jewish parents. At Shapiras death, a son would have 7 years to comply or his share would go to Israel. Daniel was 21 and unmarried and challenged the restriction as a partial restraint on marriage. Held: OK. As a general rule, restraints encouraging or discouraging marriage to someone of a particular faith are valid if the restraint does not unreasonably limit the transferees opportunity to marry. Court found that Daniel had ample opportunity to find a Jewish wife should he choose to do so. Provisions encouraging divorce are usually held invalid o Fineman v. Central National Bank Father placed a gift in trust providing $300/month to his son. However, if the son divorced his wife, the trust would terminate and the son would receive most of the property. Held: This provision is void as against public policy because it places a reward on divorce.

Destruction of Property - Eyerman v. Mercantile Trust Co. o Neighbors sought to enjoin the executor from razing her house according to directions in her will. Held: Invalid provision. Neighbors and estate beneficiaries would be harmed by the loss of the house. This direction stemmed from apparent whim and caprice, and violated public policy even though the decedent could have razed her house when alive.

29

7: Problems of Interpretation
YOU CANNOT FIX AN ERROR IN A WILL EVEN IF YOU KNOW ABSOLUTELY THAT THERE HAS BEEN AN ERROR A WILL SHALL NOT BE REFORMED EVEN IN THE FACE OF MANIFEST ERROR

A.
-

The Search for the Donors Intent


Courts always try to find the testators intent o "we first place ourselves in the armchair of the testator and remember that the intention of the testator is the polestar in the construction of every will" Courts first look at the language of the document When examination of the document fails to clarify, courts will look to extrinsic evidence

Hierarchy For Dealing With Problems In Wills - Rule of Construction - Rules of Construction that yield to contrary intent (need extrinsic evidence) - Interpretation o Latent ambiguity o Patent ambiguity

B.
-

Mistake and Extrinsic Evidence


Principal reason to allow extrinsic evidence is to resolve ambiguity

I.

Patent and Latent Ambiguities

Patent Ambiguity - One apparent from the face of the document - E.g., I give Arnie one of my two houses in Toledo which house? Latent Ambiguity - Only discoverable by considering evidence extrinsic to the document - E.g., I give $5,000 to my cousin in Madison o Looks fine until its discovered that theres a cousin in Madison, New Jersey and Madison, WI. The modern trend is to allow extrinsic evidence to be admitted to resolve all ambiguities, however, there are still many courts that only allow extrinsic evidence to resolve latent ambiguities

30

II.
-

Interpretation or Reformation?
Courts faced with mistakes in drafting often purport to interpret or construe a document in order to fix the mistake because they cannot technically fix a mistake 2008 UPC 2-805 and 2-806 o Explicitly allows reformation of wills in a broad set of circumstances o Extrinsic evidence must be clear and convincing

Cases - Engle v. Sigel o NJ court willing to stretch interpretation into reformation o Albert and Judith executed wills naming each of their mothers to take the residuary if neither of the testators or their children survived. Will did not anticipate that the mothers might die before the testators. Alberts mother died, but Alberts will was not updated. When Albert, Judith, and their children died in a hotel fire, Judiths mother claimed the entire estate. Alberts family challenged. Held: Court found that it was the testators intent to split the property in half between the two families. The court designated Alberts mother as a representative for her family. Estate of Gibbs o The Gibbs wills gave 1% of their estate to Robert J Krause, now of 4708 N. 46th Street. Robert W. Krause petitioned for the construction of the wills. RWK was an employee of Gibbs for 30 years and was a friend of the family for many years. RJK was not acquainted with either of the Gibbs. Held: Court bent the rules of non-reformation and disallowed RJKs claim and gave it to RWK. Court concludes that details of identification, particularly such matters as middle initials, street addresses, and the like, which are highly susceptible to mistake, particularly in metropolitan areas, should not be accorded such sanctity as to frustrate an otherwise clearly demonstrable intent. Where such details of identification are involved, courts should receive evidence tending to show that a mistake has been made and should disregard the details when the proof establishes to the highest degree of certainty that a mistake was, in fact, made.

C.
-

Changes After Drafting: Death of a Recipient


Most common way for beneficiaries to drop out of a donative document is by dying before the donor

I.
-

Simultaneous Death and Close Order of Death


In order to take under a donative document that requires survival, the beneficiary must have survived the donor This only applies if the document provides that the donee must survive the donor

Survival Time - Both UPC and WI (854.03) require that a done survive the donor by 120 hours before being deemed to have survived for the purpose of interpreting documents Lawyers should recommend that clients include a survival time requirement in their document 31

Things to Know About Statutes Requiring Survivorship 1. The statutes only apply to transfers where the recipient must survive in order to receive the transfer a. Unless the governing instrument provides otherwise, transfers under virtually all governing instruments (wills, TOD arrangements, etc.) require survivorship as a matter of common law or because of the wording of the governing statute i. EXCEPTION: Survivorship for Revocable Trusts, in most jurisdictions, in most jurisdictions, except WI where it is. 2. The period provided in the statute is only a default provision a. If the transfer is under an instrument (as opposed to, say, intestacy), the statute provides that the default rule yields to the contrary intent of the decedent (854.03(5)(bm))

II.
-

Failure to Survive the Donor: Lapse and Anti-Lapse 854.06


Anti-lapse statues were passed to maintain the testators intention Rather than letting gifts fail, these statutes give the property to specified alternative takes Only applies to REVOCABLE instruments that pass property

Applies To: - Wills - Will substitutes (trusts) - Life insurance - Retirement plans - POD accounts When it Applies: - Only applies when the original beneficiary is a grandparent, a descendant of a grandparent, or a stepchild of the decedent Policy - If someone leaves property to a family member and the beneficiary dies first, the donor would want the beneficiarys descendants to take the property Best way to indicate contrary intent is to name contingent beneficiaries for each transfer made in the document

D.
-

Changes After Drafting: Divorce of the Donor 854.15


Issue here is that sometimes wills dont get updated after getting divorced Nearly all states have statutes which automatically revokes all revocable transfers to the former spouse, and to relatives of the former spouse, as well as appointments as personal representative, trustee, or agent under a power of attorney (UPC 2-804(b)) There might be problems with retirement accounts and ERISA Sometimes the Testator intentionally doesnt update his will so WI has a provision allowing contrary intent evidence to be submitted (854.15(5)(bm)) 32

E.
-

A Major Caveat: Federal Preemption


Since many non-probate transfers are in the form of contracts, the "retroactive" application of state statutes have sometimes been challenged as a violation of the contracts clause of the Constitution Whirlpool Corp. v. Ritter o 8th circuit invalidated the application of Oklahoma's revocation-on-divorce statute to life insurance contracts executed before the date of the statute, on the premise that statutory changes cannot retroactively impair contracts Lots of challenges come from the default probate rules and their effect on retirement plans and life insurance

I.
-

ERISA
In the private sector, these benefits are governed by the Employee Retirement Income Security Act ERISA is silent on the issues addressed in state probate codes, but contains language preempting any state law on a matter governed by ERISA Egelhoff v. Egelhoff o US Supreme Court held that ERISA-covered life insurance policies are not subject to state probate code provisions dealing with revocation at divorce o By implication, this decision applies to ERISA-covered retirement plans and to the default rules regarding such matters as adopted children, close order of death, and antilapse ERISA seeks primarily to ensure that employees have access to detailed information about their plans, to assure proper plan management and to ensure that sufficient assets are set aside to pay promised pensions ERISA does not require employers to provide any employee benefit plans or any particular level of benefits, and it does not regulate all aspects of the plans

Important Standards - The plan operate under a detailed written plan and that participant be given an easily readable abstract of the plan - Upon request, participant receive reports concerning their accrued pension benefits - The plan submit detailed financial reports to the federal government - Virtually all employees be allowed to participate in pension plans if one has been established; and - Pensions be vested in accordance with reasonable standards If an employee dies, then the surviving spouse must have the right to a substantial part of the employee's pension plan Generally, a surviving spouse must receive at least half of the benefit available to the deceased employee and, under some circumstances, must receive the whole benefit

33

8: Advanced Directives
Living Will - A set of instructions telling physicians what to do in certain circumstances - Does not appoint an agent to make medical decisions - Contains stock language about not wanting to be resuscitated Power of Attorney - Allows a person you have designated as your agent to make health care decisions for you - Only becomes active on a determination by two physicians or one physician and one psychologist who have personally examined you that you have become incapacitated - Incapacity means that a person is unable to receive and evaluate information effectively or to communicate decisions to such an extent that the individual lacks the capacity to manage his or her health care decisions

9: Tax Issues
In 2012, a person can pass $5,120,000 tax-free at death You may make tax free gifts during life, but if they are over $13,000 in one year to a single person, it will reduce the $5,120,000 available at death May give $13,000 per year to as many different people you want If married, $26,000 to a single person GIFTS ARE NOT TAX DEDUCTIBLE People in heterosexual marriages with US citizens may pass an unlimited amount of property to their spouse during life or at death using the marital deduction

Exceptions - Gifts made directly to educational or medical services are generally exempt State Taxes - Some states have taxes on gifts and on estates (see chart in Stat. Supp.) - WI does not have any taxes on gifts or transfers at death Basis - Basis is a tax term that refers to the starting point for measuring gains or losses when an asset is sold, for purposes of the income tax - When someone buys an item, the cost of that item is its basis if it is sold for more than was paid, there's a profit, and if it is sold for less, there's a loss - However, when a taxpayer dies, the basis of most types of assets is reset to reflect the value that the asset had for purposes of the estate tax, which is almost always the value at the date of death - If an item is included in the "Gross Estate" at death, and is not an item of "deferred income," then it gets a new basis o Gross income: all of the assets that everyone would say you own plus assets that you have ownership-like control over o Deferred Income Income that you dont have to pay taxes on until later (retirement plans) - A new basis wipes out changes in value 34