[Note: Numbers in brackets refer to the printed pages of

Understanding Trusts and Estates by Roger W. Andersen
where the topic is discussed.]

LexisNexis Capsule Summary
Trusts and Estates

Chapter 1

LAWYERS, ESTATES, AND TRUSTS

§ 1 Serving the Living [1-2]

Trusts and Estates is the study of ways to help living people solve family problems. Recognizing that lawyer conduct affects the living, some courts have broken down traditional defenses and held lawyers responsible to will beneficiaries who were not their clients.

A. Traditional Defenses

1. Privity

Traditionally, will beneficiaries who lost their share because of the lawyer’s negligence were out of luck. Because the lawyer had rendered service to the now-dead client — rather than to the will beneficiaries — the beneficiaries had no “privity” with the lawyer and could not recover.

2. Statute of Limitations

Traditional rules said the statute of limitations for any negligence began to run when the will was drafted, often many years before the error was discovered after the client died. The delay barred many claims.

B. A Trend

Starting with Lucas v. Hamm, 364 P.2d 685 (Cal. 1961), courts have been abolishing the privity defense and reading the statute of limitations as beginning to run at the testator’s death. The trend is not universal. See, e.g., Miller v. Mooney, 725 N.E.2d 545 (Mass. 2000) (rejecting tort liability, but leaving open the question of third party beneficiary liability).

§ 2 An Overview of Intergenerational Wealth Transfer [2-11]

A. Probate

1. The Process

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

a. Subject to Probate.

Property that the decedent held alone or as a tenant in common is subject to the system. Joint tenancy (or tenancy by the entirety) property, life insurance proceeds on the decedent’s life, and property in lifetime trusts are all outside of probate. Depending upon local rules, the decedent’s half of community property may or may not pass through probate.

b. Personal Representative

When a person dies and a decision is made to probate his estate, someone—usually a family member—will petition a court in the decedent’s state of domicile to appoint a “personal representative” to handle the work. Executors (if there is a will) and administrators (if there is no will) are the most common types of personal representatives.

c. Small Estates

Many states allow small estates to pass without court administration, or with minimal court involvement. See, UPC §§ 3-1201 to 3-1204.

d. Supervised Estates

Though local practice will vary, administration of a court-supervised estate generally looks like this:

Upon appointment of the personal representative, the court issues appropriately titled “letters” to evidence the individual’s authority. The personal representative then contacts banks, stock transfer agents, and the like, to collect the decedent’s assets. An inventory is filed and creditors are notified. If known or reasonably ascertainable creditors are given actual notice, their claims may be cut off if the creditors don’t file promptly. See Tulsa Professional Collection Services, Inc. v. Pope, 485 U.S. 478 (1988).

Next, estate administration enters a holding period. Appraisals are made; tax forms are filed; sometimes property is sold to pay creditors or because no one wants it. There may be a will contest or litigation about the will’s meaning. When all questions are resolved, the personal representative closes the estate by distributing the remaining property to those entitled to it.

2. Is Probate Necessary?

Probate is not always necessary. All, or virtually all, of the property may pass free of probate. There may be no creditors, or they may have been found and paid. Everyone may agree on who’s to get the property.

B. Lifetime Transfers

1. Trusts

Harvard Professor Austin W. Scott said, “[t]he purposes for which trusts can be created are as unlimited as the imagination of lawyers.” 1 Austin W. Scott & William F. Fratcher, The Law of Trusts 4 (4th ed. 1987-1991).

a. Basic Requirements:

· Intention

· Property

· Trustee

· Beneficiary

b. Living v. Testamentary

A trust created during the life of the settlor is called a “living” (or “lifetime” or “inter vivos”) trust. A trust is created by will is called a “testamentary” trust. Questions involving living trusts can be resolved in courts of general jurisdiction, but there is no ongoing judicial supervision. Testamentary trusts are typically subject to the continuing jurisdiction and supervision of the probate court.

2. Other Lifetime Transfers

Surviving joint tenants own the entire property when one joint tenant dies. Because the survivor no longer shares ownership with the one who has died, the decedent effectively has transferred wealth at death without the need of probate Funds paid by a third party (like a life insurance company) at the death of someone are often treated as contract rights of the beneficiary, rather than property of the one who died. “Payable-on-death” and “transfer-on-death” bank and brokerage accounts reach the same result.

C. The Uniform Codes and the Restatements

The Uniform Probate Code (UPC) and the Uniform Trust Code (UTC) offer statutory language and commentary to state legislatures considering reform (and indirectly influence court decisions). The Restatements of Property and of Trusts provide guidance to courts (and indirectly influence legislatures).

Chapter 2

INTESTACY

§ 3 Overview [13-14]

Intestate statutes identify who takes a decedent’s probate property:

· if there is no valid will (total intestacy) or

· to the extent that the will does not dispose of all of the property (partial intestacy).

Often these statutes also serve as models for other laws that mandate shares for disinherited spouses or forgotten children. Intestate schemes also provide document drafters with a large variety of choices to present to their clients who want wills or trusts.

§ 4 Spouses [15-18]

A. Who Is a Spouse?

Whether an individual can inherit as a “spouse” is usually a question of each state’s domestic relations law. Most states require a valid marriage between people of different genders. Someone who has cohabited under a good faith, but mistaken, belief that he or she was married may be able to claim an intestate share as a putative spouse. See Restatement (Third) of Property § 2.2 comment. e. Vermont recognizes parties to a civil union as spouses. See 15 Vt. Stat. Ann. § 1204(b).

B. The Spouse’s Share

The size of a surviving spouse’s share varies, depending upon both state law and who else survives. If the decedent left no children, the spouse might get everything, or might share with the decedent’s parents. If the decedent left children, the spouse will often share with them, taking half if there is one child, and one-third if there is more than one child. Some states give the spouse a lump-sum amount and then divide the balance between the spouse and the children. In other states, the spouse gets everything, and the children have to rely upon their surviving parent to serve as a conduit, leaving them anything that is left over at her death.

1. The Conduit Theory

The conduit theory may work well in the traditional situation of spouses who marry, raise children, and die without having divorced or remarried.

When the surviving spouse is not the parent of some or all of the decedent’s children, however, the survivor may be less likely to favor those children and, thus, be less reliable as a conduit.

The UPC distinguishes between single-marriage and multiple-marriage situations. If the surviving children are all children of the decedent and surviving spouse, the surviving spouse gets everything. UPC § 2-102(1)(ii). If the surviving spouse is the parent of the decedent’s children, but also has other children, the survivor takes $150,000, plus one-half of the balance. UPC § 2-102(3). If the decedent left children who are not children of the surviving spouse, the survivor takes only $100,000, plus one-half of the balance. UPC § 2-102(4).

§ 5 Other Family Members [18-30]

A. Qualifying to Take

1. Nonmarital Children

At common law, nonmarital children could not inherit from anyone. Now they can always inherit from their mothers. Jurisdictions define differently the situations in which nonmarital children can inherit from their fathers (and vice versa).

The Equal Protection clause of the 14^th Amendment protects nonmarital children to some extent. Trimble v. Gordon, 430 U.S. 762 (1977), invalidated an Illinois statute that allowed nonmarital children to inherit from their fathers only if their parents eventually married and the fathers acknowledged the children. In Lalli v. Lalli, 439 U.S. 259 (1978), the Supreme Court upheld a New York statute that allowed a nonmarital child to inherit from her father only if the man had been found to be the father in a paternity action brought both within two years of the child’s birth and while the man was alive. These sorts of requirements seem harder to justify in an age of DNA analysis.

2. Adopted Children

a. Identifying the Question

Questions can arise about whether the adopted person (the adoptee) can inherit from the adoptee’s genetic parent or through the adoptee’s genetic parent (for example, from a grandparent). Similarly, there may be questions about whether the adoptee can inherit from the adoptee’s adoptive parent or through the adoptee’s adoptive parent. The same sorts of questions can arise in the other direction, if the adoptee dies first (for example, whether the adoptee’s genetic grandparent can inherit from the adoptee).

b. In General

At least in situations not involving adoption by stepparents, many states remove the adoptee from the families of the genetic parents and place her in a new family, that of the adoptive parents. Some place the child in both families for all inheritance purposes. Some allow the child to inherit from both her genetic and her adopted families, but cut off the genetic parents from inheriting from the child.

c. Step-parent Adoptions

Many states have established rules governing inheritance in the special situation of a stepparent adoption. There is no widespread agreement, however, on what those rules should be. Pre-1990 UPC § 2-109 simply said that “adoption of a child by the spouse of a natural parent has no effect on the relationship between the child and either natural parent.” The section has since been revised to distinguish between custodial and noncustodial genetic parents. In the context of a stepparent adoption, the full parent-child relationship is maintained with the custodial genetic parent, but the relationship with the noncustodial genetic parent’s family runs only to the benefit of the child.

3. Half-bloods

Two people are in a half-blood relationship when they have one common ancestor. A few states discriminate against half-blood, as opposed to whole-blood, surviving relatives, but the distinction is dying out.

4. Degree of Relationship

To determine who among a decedent’s surviving relatives will inherit, you must consult the local statute. Usually you will be well served by treating the decedent’s spouse as a special case and then applying the “look down, look up, look down, look up” (more formally, the “parentelic”) principle. When looking for heirs, first look down for descendants, following each child’s line down, stopping when you find a survivor. If there are no descendants, look up to the parents. If none, look down again, to sisters and brothers and, if necessary, nieces and nephews. If none, go up to the grandparents (on both sides). Then it’s down again, this time to aunts, uncles, and cousins. A large number of states follow this approach this far.

The UPC cuts off relatives more distant than descendants of the decedent’s grandparents. UPC § 2-103.

When survivors get more remote than grandparents and their descendants, many states designate the “next of kin” to take the estate. The typical way of determining who is “next” is to count the number of people in the family tree connecting the decedent to the survivor. The closest one “wins.”

A. Allocating Shares

1. The Problem

Two basic notions work both independently and together in various schemes for allocating intestate estates among the heirs. One, called a “per capita” approach, counts people. The other goes by either of two names, “per stirpes” or “by right of representation,” and views the family vertically, “by the stocks.”

For a chart setting out the hypothetical Jones family and series of examples of the schemes described below, see pages 27-30 of the text.

2. Per Capita

Under a per capita approach, we simply give an equal share to each survivor identified.

3. Representation: Strict Per Stirpes

The “strict per stirpes” approach divides at the first generation of descendants. Lombardi v. Blois, 40 Cal. Rptr. 899 (Cal. App. 1964). Those who prefer this system view the family tree in vertical terms. As a result, however, persons closer to the decedent may get smaller shares than those more distant. Moreover, people in the same generation may get widely differing shares; their shares depend on how prolific their parents or grandparents were.

4. Representation: Per Capita with Representation

As a partial response to such uneven results, pre-1990 UPC § 2-106 and some states adopted a compromise interpretation of “representation.” The estate is divided into shares at the first generation leaving survivors. Older, “empty” generations are skipped. While sometimes called division by “representation,” this technique often is called “per capita with representation.” It is “per capita” at the first level that has survivors, and “with representation” after that.

5. Representation: Per Capita at Each Generation

A few states and revised UPC § 2-106 emphasize equal treatment of each generation. Called “per capita at each generation,” this approach views the family horizontally. To use it, divide the estate in a series of steps. First, find the first generation with survivors and add the number of survivors plus the number of those who died leaving descendants who survive. Give each survivor in the older generation a share based on the total. Next, move down a generation and divide the remainder of the estate according to the same principle. How many survivors are there in this generation, and how many in this generation have died leaving descendants? Keep repeating the process until you run out of takers. This scheme treats equally those who are equally distant from the decedent.

Chapter 3

WILLS

§ 6 Overview [31-32]

As you work through this section consider each topic from different angles: a litigator looking back upon existing documents; a planner designing an approach able to withstand future challenges while retaining the flexibility to adapt to unforeseeable change; a public-policy maker sensitive to directions the law may take as it continues to develop.

§ 7 Creation [32-63]

A. The Mental Element

1. Intention

As a threshold matter, for a will to be valid, the testator must have had a “testamentary intention” at the time the will was executed. Testamentary intention is commonly an issue when wills are homemade. See, e.g., In re Estate of Kuralt, 15 P.3d 931 (Mont. 2000) (Language in letter: “I’ll have the lawyer visit the hospital to be sure you inherit the rest of the place in MT. if it comes to that” was intended as an amendment to a will.).

2. Capacity

The capacity element in wills law stems directly from statutory requirements that testators be “of sound mind.” See, e.g., UPC § 2-501. Capacity can be lacking in either of two senses.

a. Mental Deficiency

Mental deficiency concerns the general capacity to make a will. Thus, a testator who has a guardian because he cannot handle his own affairs may still be able to make a will. See Gilmer v. Brown, 44 S.E.2d 16 (Va. 1947). Though courts use a variety of formulations, they tend to require a testator to:

(1) Know the nature and extent of his or her property,

(2) Know which persons would be expected to take the property,

(3) Understand the basics of the plan for disposing of the property, (4) Understand how the above elements interrelate.

If a testator suffers from mental deficiency at the time the will was executed, the whole will is invalid.

b. Insane Delusion

An insane delusion is a false belief adhered to against reason. Challenges on insane delusion grounds often involve beliefs about family members. See, e.g., In re Honigman’s Will, 168 N.E.2d 676 (N.Y. 1960) (testator thought his wife had been unfaithful). If that false belief affects provisions of the will, those provisions are invalid.

3. Undue Influence

A will (or will provision) that is the product of undue influence is invalid.

Although courts have struggled to articulate a test for undue influence, they typically focus upon some mix of the following factors:

· the testator’s condition

· the opportunity of the influencer to exercise control

· some activity on the part of the influencer

· the effect on the mind of the testator

· the level of secrecy

· whether the influencer was in a confidential relationship with the testator

· whether the testator received independent advice

· whether the influencer received an undue benefit

See generally 1 Page on Wills §§ 15.1-15.13.

Like insane delusion, an undue influence challenge often leaves most of the will alone, invalidating only the tainted provisions. If the influence extends to the whole will, or if the offending gift is so central to the estate plan that the plan collapses without it, the whole will fails. See, e.g., In re Estate of Marsh, 342 N.W.2d 373 (Neb. 1984).

4. Fraud

Fraud might be either in the inducement, which involves fooling the testator into making or changing will provisions, or in the execution, which involves getting the testator to sign the wrong document. The elements have been stated as follows: “A will is invalid if the testator has been willfully deceived by the beneficiary as to the character or contents of the instrument, or as to extrinsic facts which are material to the disposition and in fact caused it.” Atkinson on Wills § 56. Often the fight is about whether the facts are “material.”

5. Planning Considerations

a. Structural Elements

The estate plan might include any combination of a number of features

designed to discourage bringing, or limit the chances of succeeding at, a

will contest.

i. No-Contest Clauses

A no-contest clause denies benefits to someone who contests a will, but the clause can work only if it is accompanied by a gift to the potential contestants. Otherwise, they have nothing to lose by bringing the contest. In most capacity and undue influence cases, if the contest is successful, the no-contest clause will have no effect. It will fail with the will or the other challenged clauses.

When contests fail, courts are divided on whether no-contest clauses are a good idea. See generally Martin D. Begleiter, Anti-Contest Clauses: When You Care Enough to Send the Final Threat, 26 Ariz. St. L.J. 629 (1994). Many jurisdictions refuse to apply no-contest clauses if there was “probable cause” to bring the contest. In addition, courts often construe such clauses narrowly.

ii. Explanations

When a testator wants to leave out some family members or reduce their shares, one option is for the testator to explain in the will the reasons for the different treatment. If the testator is equalizing treatment among various takers, as when one child’s gift is reduced to take into account a lifetime gift, this technique may work well.

When favoritism of one side of the family is prompted by ill will toward the other side, displaying the family laundry in public may fuel a contest.

iii. Living Probate

A few jurisdictions allow wills to be admitted to probate before the death of the testator. Though the details vary, the basic idea is to allow a testator to give notice to interested parties of an intent to probate the will. If there are no objections, or if proponents overcome them, the court admits the will to probate. That will, unless it is later revoked, controls distribution of the estate.

iv. Living Trusts and Other Gifts

Another way to get property to a favored beneficiary without risking a will contest is to make lifetime gifts, including creating a trust. Later, a will contest would be irrelevant because the property would not be in the estate.

v. Family Law Options

In some situations, testators may be able to protect their estate plans by getting married or by adopting an intended beneficiary.

b. Conduct

Working with one eye viewing the elements of mental capacity and undue influence, lawyers can preserve evidence that their clients were acting competently on their own at the time they executed the wills. If the testator is disinheriting someone for reasons that he would rather keep private, the lawyer could ask the testator to write out an explanation to keep on file for later use. A videotape of the testator explaining the will could be powerful evidence of competency and actual intention. Because witnesses in these situations are more likely to be called to appear in court, clients should choose witnesses with care. Also, right after the will execution ceremony, lawyers could ask the witnesses to dictate their recollections of the event. These statements could then be used in later litigation to refresh recollections.

B. Execution

A testator must meet particular formal, statutorily-mandated requirements to create a valid will. For citations to wills statutes around the country, see Restatement (Third) of Prop. § 3.1, Statutory Note.

1. The Policies

Commentators have identified four principal functions of Statutes of

Wills:

· preserving evidence

· channeling testators to use similar forms, features, and procedures

· requiring a level of formal ceremony

· preventing others from overreaching.

Traditionally, courts have strictly construed Statute of Wills requirements.

The following comment is typical: “[T]he testator’s intent to execute

a valid will is not by itself sufficient to give validity to an instrument

not executed in accordance with the statutory requirements.” In re Estate of Weber, 387 P.2d 165, 169 (Kan. 1963).

2. A Typical “Statute of Wills”

a. In Writing

With minor exceptions, wills must be written. They may be handwritten, typed, or printed from a word processor. Nevada now allows electronic wills. 2001 Nev. Stat. ch. 458.

Some states allow oral wills (“nuncupative wills”). Sometimes called “Soldiers’ and Sailors’ Wills” because they apply only to last-illness gifts (and sometimes are only available to armed services personnel), they may be limited to giving personal property only, or to giving amounts under a stated value.

b. Signed [At the End?]

The requirement that the testator sign the will has two aspects. First, there must be some sort of mark on the will. While a formal, complete signature is common, a label of relationship, initials, or even an “X” is acceptable. Second, the signature must have been intended as an operative, validating act. See In re Estate of McKellar, 380 So. 2d 1273 (Miss. 1980).

The title to this section includes “at the end?” in brackets because that requirement is included in a few states. Sometimes there are disputes about where the “end” is.

c. By the Testator or Another

Virtually all states allow someone else to sign on behalf of the testator. Usually the proxy must sign in the testator’s presence, at his direction.

d. Attested in the Testator’s Presence

Unless the state allows so-called “holographic” wills (see § 7, B, 3), wills must be witnessed. Virtually all states require two witnesses. Commonly, the witnesses must themselves sign “in the presence of” the testator. Sometimes they must also sign in the presence of each other. Courts have struggled with what “presence” means. They have generally followed either a “line-of-sight” test or, more commonly, a “conscious presence” approach. Compare In re Demaris’ Estate, 110 P.2d. 571 (Or. 1941) with Stevens v. Casdorph, 508 S.E.2d 610 (W. Va. 1998).

UPC § 2-502 eliminated the presence requirement, except for proxy signatures (where conscious presence is required). Witnesses must still “witness” something the testator did: the signing itself, an acknowledgment of the signature, or an acknowledgment of the will. Their own signatures, however, need not be affixed in the testator’s presence. Moreover, the signatures need only be placed on the will within a “reasonable time” after the witnessing took place, even if that is after the testator’s death.

e. By Competent Witnesses

Witnesses must be competent in terms of mental ability at the time of the will’s execution. Many states also say part of being competent is being

“disinterested,” in the sense of not taking any gifts under the will. Strictly applied, the rule would invalidate most wills signed by interested witnesses. Rather than letting the will fail, however, states that follow this rule usually save the will through “purging statutes,” which eliminate the gain to the interested witness. If the witness would have had a share under an earlier will or the intestate statute, the new gift usually is reduced to the size of the earlier share. See Estate of Parsons, 63 Cal. Rptr. 70 (Cal. App. 1980).

UPC § 2-505(b) has abolished the rule: “The signing of a will by an interested witness does not invalidate the will or any provision of it.”

f. Some Other Rules

Some jurisdictions require witnesses to sign in each other’s presence. Some require publication, which generally means the testator identifies the document as his will. Some require the testator to request the witnesses to sign.

g. Attestation Clauses and Self-Proving Affidavits

Neither attestation clauses nor self-proving affidavits are required as part of a valid will, but they are commonly included. Attestation clauses typically appear after the testator’s signature, but above the witnesses’ signatures. They are phrased from the witnesses’ point of view, attesting that the elements of the local statute have been followed. In most states, they set up a rebuttable presumption that the facts stated in the clause are correct.

UPC § 2-504 has popularized self-proving affidavits. The big differences between self-proving affidavits and traditional attestation clauses are: (1) the testator also signs the self-proving affidavit, and (2) the affidavit is notarized. Under the UPC, self-proving affidavits raise a conclusive presumption that the statute’s signature requirements have been met.

3. Holographs

Many states allow informal wills called “holographs.” These wills should be viewed as qualifying for recognition under an alternative set of rules.

Most importantly, holographs need not be witnessed. In return for eliminating the need for witnesses, states require additional elements, mostly aimed at assuring the genuineness of the document. UPC § 2-502(b) sets these bare-bones requirements: the signature and “material portions” must be in the testator’s handwriting. More traditional statutes require the document to be “entirely” in the testator’s handwriting and may require a date or some of the elements applicable to attested wills.

Because of their minimal requirements, holographic wills can crop up in

unlikely places. See In re Kuralt, 15 P.3d 931 (Mont. 2000) (part of a letter). Once courts validate these writings, however, they carry the same weight as a document executed with all the trimmings in a law office.

4. Mistake in Execution

a. Traditional Law

Orrell v. Cochran, 695 S.W.2d 552 (Tex. 1985), illustrates how courts traditionally have interpreted the elements in their statutes. A witness signed the will where the testator should have, and the testator only signed in a self-proved affidavit following the will. Because the testator did not sign the will itself, it was denied probate.

b. Substantial Compliance

One solution for those frustrated with the tradition of strict interpretation of will statutes’ requirements is to validate a will if there has been “substantial compliance” with the statutory elements. See In re Will of Ranney, 589 A.2d 1339 (N.J. 1991); Restatement (Second) of Prop. § 31.1 comment g.

c. Excusing Harmless Error

UPC § 2-503 provides: “Although a document or writing added upon a document was not executed in compliance with Section 2-502 [which gives the basic elements], the document or writing is treated as if it had been executed in compliance with that section if the proponent . . . establishes by clear and convincing evidence that the decedent intended the document or writing to constitute (i) the decedent’s will . . . .”

The reform is variously called a rule of excusing “harmless error,” “excused noncompliance,” and a “dispensing power.”

d. Working with the Doctrines

Note carefully that while substantial compliance focuses on being close, harmless error ignores the traditional statutory elements and focuses directly on whether the testator intended the document to be effective.

Here is a series of questions to ask in will-execution situations:

· Does the document strictly comply with the elements for an attested will?

· If not, does your jurisdiction recognize holographic wills?

· If so, would the document work as a holograph?

· If not (or if holographs are not recognized), do the facts show “substantial compliance” with the statutory elements?

· If not, should the will be allowed under a harmless error approach?

5. The Execution Ceremony

Anyone familiar with courts’ traditionally picky approach to will execution and the ease with which mistakes can happen should approach a will execution ceremony with great care.

§ 8 Components [63-66]

This section centers around the question: What items constitute the will?

A. Integration

The doctrine of integration addresses the question in the physical sense: which pieces of paper were meant to be in the will when it was executed? Integration is seldom a problem because usually all of the will’s pages are found stapled together, with the signatures at the end. Occasionally, however, someone will offer a loose pile of papers as a will. See In re Beale’s Estate, 113 N.W.2d 380 (Wis. 1962).

B. Incorporation by Reference

Incorporation by reference is a way to give testamentary effect to a document not present at the execution ceremony. In most states, the following elements must be met for a document to be incorporated by reference:

· 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.

Because the last element has proved troublesome in practice, UPC § 2-510 requires only the first three. See also Restatement (Third) of Prop. § 3.6.

Litigation often arises because someone has tried to use the doctrine to include material added after the will’s execution. See Simon v. Grayson, 102 P.2d 1081 (Cal. 1940).

1. Tangible Personal Property

UPC § 2-513 allows wills to refer to a separate, signed writing that identifies who should get particular items of tangible personal property. The writing can be changed after the will has been executed.

§ 9 Revocation [66-77]

By a variety of methods, wills can be revoked completely or in part.

A. By a Writing

1. Formal Requirements

A will can be revoked by a later writing that itself meets the elements for creating a will. See text pages 32-63. Courts traditionally have taken the same strict approach toward revocation requirements as they have toward will executions, with the same intention-defeating results. See In re McGill’s Will, 128 N.E. 194 (N.Y. 1920).

2. Express Revocation

The most common, and surest, way to revoke a will is by executing a later document that expressly revokes the will. Documents intended to revoke a will in part are called “codicils.”

3. Inconsistency

If a later will is inconsistent with a prior will, but lacks a clause expressly revoking the prior one, complicated problems can arise. The second will might impliedly revoke the first to the extent of the inconsistency. If the inconsistency is too great, however, the second may totally revoke the first. Courts have struggled with where to draw the line. See, e.g., Gilbert v. Gilbert, 652 S.W.2d 663 (Ky. Ct. App. 1983).

To avoid litigation in these situations, UPC §§ 2-507(b)-(d) establish some presumptions. The key is whether the later will made a complete disposition of the estate. If so, it is presumed to have revoked the prior will completely. If not, it is presumed to have been intended as a supplement to the prior will. In either case, the presumption can be overcome by clear and convincing evidence.

B. By Physical Act

1. Specific Acts

Testators can also revoke wills by physically altering the document with the intent to revoke it. Typically, statutory lists include words like “tearing,” “burning,” “canceling,” and “obliterating.” A common source of litigation has been whether particular physical acts were enough to revoke the will in question. Words like “burning” or “tearing” refer to acts done to the paper; words like canceling” or “obliterating” refer to the language on the page. Traditionally, the act must actually interfere with the words. See Thompson v. Royall, 175 S.E. 748 (Va. 1934). UPC § 2-507(a)(2) allows revocation by burning, tearing or canceling, even if the act does not touch the words on the will.

2. Presence

The acts must be done by the testator, or in the testator’s presence at his direction. Resolving whether the testator is in the “presence” of those doing the act involves the same issues as whether witnesses are in the testator’s “presence” at a will’s execution. See text pages 48-50.

3. Presumed Revocation and Lost Wills

If a will cannot be found, but was last in the testator’s hands, it will be presumed revoked. (If a will has not been revoked, but nonetheless cannot be located, its validity and terms can be proved by other evidence. See, e.g., Ohio Rev. Code Ann. § 2107.26.)

4. Partial Revocation

Many (but not all) states allow partial revocation by physical act. Often the question is whether the physical act was intended to revoke the whole will, or only a particular section.

A different sort of partial revocation problem arises if there are both a will and a codicil, but only one document is touched. Imagining the will as a base, with the codicil resting on top, helps the general rules make sense. If the intention is to revoke both documents, destroying the will is usually sufficient. If the intention is unclear, however, the codicil may remain valid if it can sensibly stand alone, but it will fail if it needs the will’s support. Conversely, tearing up a codicil normally leaves the supporting will in place.

C. By Operation of Law

Wills may also be revoked (totally or partially) “by operation of law.” In particular, many states have statutes that revoke all or part of a will if a testator divorces, but does not amend the will to take into account the change.

D. Revival

“Revival,” identifies the issues surrounding this circumstance: A testator executes Will I, and then sometime later executes Will II, which revokes Will I. Changing his mind again, the testator revokes Will II. The question is whether Will I is good again.

Virtually all states have statutes on the question. See Restatement (Third) of Property § 4.2, Statutory Note. There are three basic approaches:

· Because wills speak only at the testator’s death, Will I was never really revoked by Will II, so Will I still stands as the testator’s “last will.”

· Because Will I was revoked by Will II, the only way to get back Will I is to re-execute it.

· If the testator intends to revive Will I at the time of revoking Will II, that intention will prevail. Otherwise, Will I stays revoked.

The third option is the most common, but identifying a testator’s intention can be difficult. See In re Estate of Boysen, 309 N.W.2d 45 (Minn. 1981).

UPC § 2-509 distinguishes between complete and partial revocations, and

revocations by physical act and those by written instrument:

· If Will II totally revoked Will I and is itself later revoked by physical act, Will I is revived only “if it is evident from the circumstances of the revocation of the subsequent will or from the testator’s contemporary or subsequent declarations” that the testator intended Will I to be effective.

· If Will II only partially revoked Will I, the previously revoked parts of Will I are revived, “unless it is evident . . . that the testator did not intend” the revival.

· If a third will is involved (revoking all or part of Will II), Will I is revived “to the extent it appears from the terms of the later will that the testator intended” the revival.

E. Dependent Relative Revocation (Ineffective Revocation)

1. A Remedy for Mistakes

“Dependent relative revocation,” known to generations of law students as “DRR” is fundamentally a doctrine for undoing mistaken revocations. It carries an odd title because courts—traditionally reluctant to correct mistakes involving wills—engage in a fiction. When they decide to ignore a mistaken revocation, they traditionally pretend that the revocation itself was really dependent on some condition. When (because of the mistake) the condition is not met, the courts may then presume that the mistaken revocation never really happened in the first place. Because there has been no revocation, the will in question stands.

2. An Example

Suppose Hans Schmidt wanted to redo his will. At the execution ceremony for the new will, Hans somehow managed not to sign it. Wrongly believing the new will to be effective, he tore up the old one. When the mistake is discovered after Hans’ death, a court unable to probate the new will (because there is no signature) might well use DRR to ignore the revocation of the old will. In theory, Hans’ revocation of the old will was dependent upon the new will being effective; since the new will fails, the old will was never revoked when Hans tore it up.

3. A Consolation Prize

The doctrine does not give Hans what he really wanted, and thought he had: the new will. Rather, he gets a consolation prize: the old will he thought he had revoked. Most courts look at the circumstances, compare the various wills and the intestate statute, and then choose what they believe the testator would have done had the testator known what hindsight has revealed.

4. A Warning

Students sometimes see DRR cropping up everywhere. As a device for keeping DRR under control, treat every revocation separately and ask, “Did this happen by mistake?” If not, ignore DRR.

F. The Ethics of Safeguarding Wills

Clients can lose wills, mangle them, “correct” them, use them for scratch paper. In response, many lawyers have kept the will for the client. That way it will be protected from harm and easily available when needed. Not so coincidentally, later updating and, most lucratively, the ultimate probating, are likely to be handled by the law office where the will has been stored. Because of the conflict of interest, some have criticized this approach. See State v. Gulbankian, 196 N.W.2d 733 (Wis. 1972).

§ 10 Contracts Regarding Wills [77-80]

Contracts to make – or not make – or to revoke – or not revoke – wills do not change wills law. Wills can still be made or revoked, despite the promises. But the contracts do affect how property is ultimately distributed. A common remedy will be to create a constructive trust in favor of the promisee and enforce it against estate assets. As a practical matter, the promisee takes the property as a creditor, before will beneficiaries or intestate heirs.

To discourage litigation about whether there was such a contract, UPC § 2-514 requires contracts concerning succession to be in writing or, at the very least, to be referred to in a will and then proved by extrinsic evidence.

Questions about whether there has been an agreement not to revoke a will generally arise between spouses who have children from prior marriages and who execute wills with reciprocal terms. See, e.g., Junot v. Estate of Gilliam, 759 S.W.2d 654 (Tenn. 1988). Even if valid, these contracts are notorious litigation-breeders. In virtually all blended-family situations, a trust will better protect the interests of all the survivors.

Chapter 4

PRIVATE EXPRESS TRUSTS

§ 11 An Overview [81-83]

This chapter supplements the introduction appearing on pages 8-9 of the text.

A. Living v. Testamentary Trusts

To establish a living trust, the settlor can either give the property to someone else (or an institution, like a bank) to hold as trustee or declare herself to be the trustee. Testamentary trusts are created by a will, which simply gives estate assets to someone to be held in trust according to directions.

In general, living trusts are more complicated to set up, but are more flexible once they are in operation. Testamentary trusts are easier to establish, but generally subject to more restrictions when funded.

B. Reasons for Creating Trusts

Common reasons for creating trusts include:

· Providing asset management for disabled persons or minors

· Avoiding probate (if a living trust)

· Saving estate taxes

§ 12 Creation [83-98]

An important reason that trusts are so wonderfully flexible is that the law requires so little to create a trust. The key concept is creation of a fiduciary relationship by separating ownership into two parts: “legal title” in a trustee with management duties, and “equitable title” in a beneficiary who can enforce those duties.

A. Intent

Usually the intention to create a trust is quite clear: a multi-page document is labeled “Trust Agreement,” or a will section is titled “Family Trust.” However, trusts can arise easily without such formalities. See Jimenez v. Lee, 547 P.2d 126 (Or. 1976) (father held to be trustee of savings bond his mother purchased for his daughter’s education).

1. Mandatory v. Precatory Language

Poorly drafted documents may not make clear whether the settlor intended to impose duties on a particular beneficiary, or only expressed a desire that the beneficiary behave in a certain way. The result will depend upon whether a court finds the language regarding the children to be “mandatory” (a trust) or “precatory” (no obligation). Cases like these tend to be resolved very much on their own facts. See, e.g., In re Estate of Martin, 300 N.Y.S.2d 751 (N.Y. App. Div. 1969) (“request” was mandatory); Brannon v. Morgan, 106 S.W.2d 841 (Tex. Civ. App. 1937) (“request” was pre-catory). The lesson: be specific. If a trust is intended, say so. If not, use language like “I hope, but I impose no obligation.”

B. Trust Property

To have a trust, there must be trust property. After all, there must be something for a trustee to protect. In many cases, there is really no question about trust property.

In some situations the items claimed to be held in trust can be very insubstantial, like future profits or the beneficial interest in a life insurance policy. Then the question becomes whether the item can be defined as “property” for the purpose of sustaining a trust. In answering that question, some courts are quite rigid, while others are very flexible. Compare Brainard v. Commissioner, 91 F.2d 880 (7th Cir. 1937), with Speelman v. Pascal, 178 N.E.2d 723 (N.Y. 1961).

A. Beneficiary

1. Separation of Title

Doctrinally, beneficiaries are required in order to achieve the separation of legal and equitable title which characterizes the trust relationship. A trustee must owe duties to someone else. See Morsman v. Commissioner, 90 F.2d 18 (8th Cir. 1937).

2. Identifiability

Even if the separation of title question is not present, beneficiaries of a private trust must be identifiable. The trustee must be able to tell who should get the property, and a court should have a standard by which to judge whether the trustee distributes trust benefits to the right persons.

This rule does not apply to charitable trusts, which are characterized by the lack of particular, identified beneficiaries. See text pages 112-116.

3. Chosen by the Trustee?

When the settlor names someone, usually the trustee or executor, to choose among the members of an indefinite group (like “friends”), courts traditionally have said no trust can arise. See Clark v. Campbell, 133 A. 166 (N.H. 1926). Restatement (Second) of Property § 12.1 comment e, seeks to

reform the rule. It says that rather than failing, a provision like that in Clark “should be construed to give the [trustees] a power of appointment exercisable within a reasonable period of time . . . .” See also Restatement (Second) of Trusts § 122; Restatement (Third) of Trusts § 46(2). Uniform Trust Code § 402(c) is direct: “A power in a trustee to select a beneficiary from an indefinite class is valid.”

4. Honorary Trusts

Recognizing that funds to care for a pet or an inanimate object—like a grave site—serve a social purpose, courts usually allow them under a theory of “honorary trusts.” The “trustee” who is given the money has the choice of honoring the trust or of returning the money to the estate. Uniform Trust Code sections 408(b) & 409 allow a settlor (or a court) to appoint someone to enforce the trust.

D. Trustee

If a trust is intended, but no trustee is named, or if a sitting trustee dies or resigns, a court will appoint a trustee rather than let the trust fail.

1. Choosing Trustees or Trust Advisors

Settlors should choose trustees with great care. They must handle both the financial and the personal sides of administration. Settlors sometimes appoint co-trustees, one a corporation and the other an individual. The corporate trustee, usually a bank, provides investment expertise, and the individual provides the personal touch. A co-trustee arrangement can be unwieldy, however, because all trustees traditionally must join in acting on the trust’s behalf.

To avoid that problem, clients may want to name a single trustee and also identify a trusted friend or relative to serve as a “trust advisor.” The trust document could require the trustee to consult with, or get the approval of, or follow the directions of, the advisor before distributing the trust’s funds.

E. The Problem of Revocability

A testamentary trust, as part of a will, is revocable under wills law. Living trusts will be recognized even though the settlor reserves a power to revoke. In most states, the power to revoke a living trust must be reserved expressly in the document. In contrast, UTC § 602(a) puts the burden on those who want irrevocable trusts to say so.

The validity of revocable living trusts was open question because these trusts can look a lot like wills, but usually do not meet the local Statute of Wills requirements. Consider a settlor who creates a trust giving a remainder to his wife, but retaining a life estate (to secure present enjoyment of the property) and

a power to revoke (in case he changes his mind). The form is different, but the substance is close to the situation of a testator who retains ownership and executes a will leaving everything to his wife. The parallel is even closer if the settlor declares himself to be the trustee. Nonetheless, virtually all courts will

sustain such a trust when created in reliable circumstances. See Farkas v. Williams, 125 N.E.2d 600 (Ill. 1955).

1. Ignoring Trust Form

The law is coming to recognize that a trust might be recognized for one purpose, but not for another. For example, State Street Bank & Trust Co. v. Reiser, 389 N.E.2d 768 (Mass. App. 1979), allowed creditors of an estate to reach the assets of a valid living trust, even though the trust assets would otherwise pass outside the probate system. See also Sullivan v. Burkin, 460 N.E.2d 572 (Mass. 1984).

F. Formalities (and Constructive and Resulting Trusts)

1. A Writing

Oral living trusts for land typically run afoul the Statute of Frauds’ writing

requirement. Oral testamentary trusts conflict with the Statute of Wills.

2. Constructive Trusts

Not allowing an oral trust may enrich a grantee unjustly. Suppose Javier delivers a deed of Blackacre, absolute on its face, to Maria, but Maria orally promises to hold the land in trust for Javier for life and then transfer it to Frank. If Maria refuses to turn over the land to Frank, we have a conflict between the policy of limiting oral evidence (and thereby the danger of false claims) and the policy of preventing people from unjustly enriching themselves. To avoid unfair results, courts sometimes will apply a “ constructive trust” against a donee like Maria to prevent the donee from holding in her own behalf.

The constructive trust theory does not impose management duties on the “trustee.” Rather, constructive trust is a remedy. The constructive trust theory is a device for preventing unjust enrichment by moving legal title from a person who has title but should not, to someone who should. The remedy is appropriate in a wide variety of situations.

3. Resulting Trusts

Unjust enrichment can also arise when there is a semi-secret trust. These occur when will shows a trust intention on its face, but the details are oral. To prevent the “trustee” from becoming unjustly enriched by keeping the property, a court may impose a “resulting trust” under which the trustee holds the property for the benefit of the estate. Olliffe v. Wells, 130 Mass. 221 (1881). This is just one example of a resulting trust theory applying to an express trust that fails.

§ 13 The Size of a Beneficiary’s Interest [98-107]

A. Discretionary and Support Trusts

1. Discretionary Trusts

Trusts that authorize the trustee to pay the beneficiaries “such amount of income or principal as the trustee in its absolute discretion shall deem advisable” are commonly called “discretionary trusts.” Sometimes the discretion applies only to income or only to principal.

2. Support Trusts

Trusts that attempt to control the trustee’s discretion by limiting distributions to those “necessary for the comfortable support of the beneficiary” are commonly called “support trusts.”

3. Hybrids

Sometimes a settlor will create a hybrid, a “discretionary support trust,” by giving the trustee “uncontrolled discretion” to pay funds “for support.” To clarify these categories, Restatement (Third) of Trusts § 50 and Uniform Trust Code § 504 treat support trusts as a type of discretionary trust.

4. Why Trustees Are Often Conservative

Trustees can often be more stingy than their settlor would have wanted. See, e.g., Old Colony Trust Co. v. Rodd, 254 N.E.2d 886 (Mass. 1970). Trustees tend to be conservative because the law presents them with different risks. If they are too generous, they risk a court later ordering the trustee to repay to the trust the money which should not have been distributed. On the other hand, if they are too stingy, they are likely only to suffer a slap on the wrist and an order to be more generous in the future.

The selection of the trustee or trust advisor is probably the most important factor for achieving the balance between the flexibility and control appropriate for any particular client. Words of guidance in a document can also help. For some suggestions, see text pages 100-101.

B. Alienability

Two principles underlie much of the law surrounding the transfer of a

trust beneficiary’s interest. First, unless a statute or the trust document

provides otherwise, a trust beneficiary can transfer his or her interest to

someone else. Second, creditors’ rights typically follow alienability: the

creditor usually can get what the beneficiary can transfer. For a good illustration of how various trust devices affect creditors’ claims see Shelley v. Shelley, 354 P.2d 282 (Or. 1960).

1. Voluntary Transfers

Just as you can give an old armchair to a friend or sell it at a garage sale, so can a trust beneficiary give away or sell a life estate or a remainder interest in trust. Sometimes, with an eye to protecting beneficiaries against against their own foolishness, a settlor may want to restrict a beneficiary’s power to make such transfers. A discretionary or a support trust can achieve that result. So can a spendthrift trust (discussed below).

Discretionary, support, and spendthrift trusts are often viewed primarily as devices for avoiding creditors. However, such devices can also affect the ability of both trustees and beneficiaries to adjust to changing situations.

2. Involuntary Transfers: Creditors’ Claims

Unless a document or statute provides otherwise, creditors can satisfy

their claims by reaching a trust beneficiary’s interest. The procedure varies among the states, but familiar creditors’ devices like attachment,

garnishment and execution tend to be available. See UTC § 501.

a. Spendthrift Clauses

Spendthrift clauses both prohibit a beneficiary from transferring his trust interest and protect that interest from creditors’ claims. The clauses do not mean the creditor can never get paid, but they do put the creditor at a distinct disadvantage. Rather than obtaining their debtor’s beneficial interest in a spendthrift trust, or forcing the trustee to pay them directly, creditors must wait until the trustee pays the beneficiary and then try to catch the money there.

Commentators have long debated the merits of spendthrift clauses, but they have been approved overwhelmingly (but not universally) by courts and legislatures.

1. Exceptions

In some situations, spendthrift clauses have not been effective. The most common rule is that one cannot create a spendthrift trust for oneself (a “self-settled” trust). But some states are abandoning that limitation. See Alaska Stat. § 34.40.110. Many states eliminate the spendthrift shield when a claim comes from some of the following classes of creditors: alimony, spousal support, providers of “necessary” services, state claims, federal claims, and (in a few cases) some kinds of tort claims. See Restatement (Third) of Trusts § 59; UTC § 503.

b. Special Needs Trusts

Many jurisdictions authorize individuals to create “special needs trusts” on behalf of disabled persons. These trusts allow supplemental support without endangering the beneficiaries’ rights to government benefits. The rules vary considerably from state to state. See generally Joseph A. Rosenberg, Supplemental Needs Trust for People With Disabilities: The Development of a Private Trust in the Public Interest, 10 Boston Univ. Pub. Int. L.J. 91 (2000).

§ 14 Modification and Termination [107-112]

A. Beneficiaries’ Consent

If the settlor has not reserved a power to revoke, a trust cannot be terminated without all the beneficiaries’ consent. Here there are two catches. First, all of the beneficiaries might not consent.

Second, and more likely, some of the beneficiaries may be unidentified or unborn, and obtaining consent on their behalf can be difficult. Two different theories have arisen to help solve the latter problem. Guardians ad litem might be appointed to represent the unborn, or the doctrine of “virtual representation”

might allow older relatives to waive claims of ones not yet on the scene. UPC § 1-403 codifies both doctrines. See In re Wolcott, 56 A.2d 641 (N.H. 1948).

B. Material Purpose

A trust cannot be changed without the settlor’s consent if to do so would violate a material purpose of the trust. Since in most cases, the settlor is dead, changes are particularly hard to achieve.

Courts have struggled to determine what a trust’s “material purpose” might

be, and whether a particular change would violate it. See Claflin v. Claflin, 20 N.E. 454 (Mass. 1889). Courts typically have interpreted the inclusion of spendthrift, discretionary or support trusts as indications that a “material purpose” of the trust would be thwarted if the trust were modified or ended early. This approach may be changing. Under UTC § 411(c), a spendthrift clause “is not presumed to constitute a material purpose of the trust.” See also Restatement (Third) of Trusts § 65, comment.

C. Indestructible Trusts

The Rule Against Perpetuities has served to limit the time landowners and settlors can tie up wealth. In recent years, however, the Rule has been under attack. See text pages 316-317 for discussion of that issue, but note that indestructible trusts could become a problem. The guardian ad litem and virtual representation approaches cannot help, because terminating the trust would deprive those unknown beneficiaries of benefits they might enjoy if the trust continued.

§ 15 Charitable Trusts [112-116]

Charitable trusts operate under some different rules. First, a charitable trust need not have definite beneficiaries. Second, a charitable trust is not subject to the Rule Against Perpetuities. Finally, there is a long tradition allowing courts to modify charitable trusts to further trust purposes in the face of changed circumstances.

A. Charitable Purposes

The basic concept of a charitable purpose is something that benefits the community in general. According to Restatement (Third) of Trusts § 28, “Charitable purposes include: (a) the relief of poverty; (b) the advancement of education; (c) the advancement of religion; (d) the promotion of health; (e) governmental or municipal purposes; (f) other purposes the accomplishment of which is beneficial to the community.” Accord UTC § 405(a).

B. Modification (Cy Pres)

Sometimes settlors give property for charitable purposes which later become impossible or impractical to pursue. If the settlor also had a general intention to support charitable purposes, a court can apply the trust proceeds to another charitable purpose consistent with the settlor’s general intention. See Restatement (Third) of Trusts § 67; UTC § 413.

§ 16 Trusts and Pour-Over Wills [116-118]

“Pour-over” is the name given to wills that designate a trust as one beneficiary. Often pour-over wills include a number of dispository provisions (cash to individuals, real estate or specifically identified items of personal property to particular family members), and then give the rest of the testator’s property to a preexisting trust. The effect is to pour probate assets into the trust.

The most common estate plans using the pour-over device work this way (see Figure 4-1 on text page 117):

· the client creates a living trust, but intends it as a shell to be activated later.

· the client creates a will naming the trustee of the living trust as a will beneficiary.

· the client names the trustee as beneficiary of life insurance policies.

· after the client’s death, the will pours probate property, and the life insurance policy pours insurance proceeds, into the trust.

Chapter 5

OTHER NONPROBATE DEVICES

§ 17 Lifetime Gifts [119-122]

A. Personal Property

Traditionally, to make an effective gift of personal property, the donor must deliver the property to the donee with the intention to make a gift. Manual delivery is a particularly important element because it is such strong evidence of intention. Some tangible items (like a piano) are too big for easy delivery, so constructive delivery may suffice. Donors can transfer intangible property (like stocks or bank accounts) by manually delivering the stock certificate or bank book evidencing the property.

There is now developing a rule allowing the donor to use an intervivos donative document instead manual delivery, even if the tangible item could have been delivered. Restatement (Third) of Prop. § 6.2, comment c.

1. Gifts Causa Mortis

Gifts of personal property made in fear of death then imminent (gifts causa mortis) require delivery and an intention to make a present gift, but unlike most other gifts, they are both revocable and conditional (on the donor dying). If the donor changes her mind, she can get the property back. Moreover, if the donor survives, the gift is automatically revoked.

B. Real Property

Gifts of real property must meet the Statute of Frauds writing requirements and must also be “delivered.” A common problem is that lay people often do not appreciate the law’s distinction between a lifetime gift and one intended to take effect only at death (and thus requiring Statute of Wills compliance). See Ferrell v. Stinson, 11 N.W.2d 701 (Iowa 1943).

§ 18 Joint Interests [122-125]

The right of the survivor to own the whole is the distinguishing feature of these interests. When one owner dies, her interest simply disappears, leaving the survivor(s) owning the whole. Most estate planning problems involving joint interests center around whether and when grantors intended a completed gift.

A. Real Property

Joint tenancy can be an effective probate avoidance device. However, a deed creating a joint tenancy, unlike a will identifying a beneficiary, is not revocable. See Gross v. Gross, 781 P.2d 284 (Mont. 1989).

B. Personal Property [Especially Bank Accounts]

In an estate context, perhaps the most common controversy about a jointly held account is whether it was opened only for the “convenience” of one depositor. If so, there was no completed gift and the property remains in the estate of the depositor. See Franklin v. Anna National Bank of Anna, 488 N.E.2d 1117 (Ill. App. 1986).

If banks and others were to offer accounts clearly designated as convenience accounts, much litigation could be avoided. For example, the UPC provides a “check off what you want” form, which includes a “multiple-party account without right of survivorship.” See UPC § 6-204.

A form of ownership peculiar to savings accounts is the so-called “Totten Trust,” sometimes also known simply as a “savings account trust.” In form, the depositor opens an account in his own name, “as trustee” for someone else. In fact, there is really no trust relationship established. Rather, the depositor can withdraw the funds at any time for his own use and the “beneficiary” gets what is left when the depositor/trustee dies. See In re Totten, 71 N.E. 748 (N.Y. 1904).

§ 19 Life Insurance and Other Contracts [125-127]

Despite its functional similarity to wills, life insurance has escaped the “testamentary transfer” label. The enforceability of life insurance policies is governed by contract law, not the law of wills.

§ 20 Retirement Funds [127-129]

The rules surrounding pension plans are extraordinarily complex, and detailed descriptions are beyond the scope of this text. As a practical matter, most pension plans are governed by the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1001 et seq., and the Internal Revenue Code (IRC).

Employer plans fall into two broad categories. “Defined benefit” plans establish each employee’s benefit according to a formula. “Defined contribution” plans either require or allow employer contributions at various levels. Accounts are kept for each employee, and whatever has been accumulated before retirement becomes available to that person.

§ 21 Using a Will to Change a Will Substitute [129-130]

Sometimes testators will attempt to use their wills to transfer property not subject to probate court jurisdiction. Often those attempts seek to change who benefits from various will substitutes. Generally the efforts fail, but the law is not consistent. Compare In re Schaech’s Will, 31 N.W.2d 614 (Wis. 1948) (will could not change title to will substitutes), with Burkett v. Mott, 733 P.2d. 673 (Ariz. Ct. App. 1986) (will could change a life insurance beneficiary designation).

UPC § 6-213(b) prohibits changing by will rights of survivorship or payable-on-death designations in bank accounts, but takes no position regarding other will substitutes. UTC § 602(c)(2)(A) allows a will to revoke a lifetime trust.

Chapter 6

PLANNING FOR INCAPACITY

§ 22 Property Management [131-138]

A. Guardianship

Much like the way the law of intestacy serves as a foundation for the law of wills, guardianship law undergirds other approaches to property management for incapacitated people. When someone is a minor or is unable to make various kinds of decisions, the law provides for a “guardian” (though many different titles are used) to make decisions on that person’s behalf. The disabled person is called a “ward.” In general, in order for a court to appoint a guardian, the ward must be “incompetent.”

1. Limited Guardianships

Traditionally, guardianship was an all-or-nothing proposition almost everywhere: a ward lost virtually all decision making authority. Many states

have reformed their laws to allow “limited” or “partial” guardianships, so

that a guardian’s authority is tailored to the needs of the particular ward. Under this approach, someone might be incompetent for one purpose, but competent for another.

2. Guardian of the Person

A guardian of the person has the responsibility to care for the personal needs of the ward. These guardians handle topics like setting bedtimes and monitoring TV viewing for a minor or supervising travel plans or personal hygiene for an adult.

3. Guardian of the Property

A court may also appoint the same person or another (including an institution) as guardian of the property of the ward. This person would handle some or all of the ward’s financial affairs.

Guardianship over property offers the advantage of court-supervised

administration, which can help avoid arbitrary or fraudulent activity, but

guardianship presents significant disadvantages. By labeling the ward as at least partially “incompetent,” guardianship carries a stigma which may hurt the ward’s self-esteem. Because it is court-supervised, guardianship is also costly, in terms of both time and money. Also, the list of permissible investments may limit flexibility. Many people decide to leave guardianship as a last resort.

B. Durable Powers of Attorney

By executing a power of attorney, someone who is competent, but plans for the possibility of incompetence, can often avoid the need for guardianship. A power of attorney is an arrangement under which one person (the principal) gives another person (the agent) the power to act on behalf of the person executing the power. Under traditional agency law, the power of the agent ends if the principal becomes incompetent. See Restatement (Second) of Agency §§ 120 & 122 (1958). To overcome the restrictions of agency law, all states have authorized some form of a “durable” power of attorney, under which the agent retains authority despite the principal’s incapacity. See, e.g., UPC §§ 5-501 to 5-505.

1. “Springing” Powers

Powers of attorney can either be immediately effective, or can be written

to “spring” into action upon the happening of a future event, usually the

disability of the principal.

§ 23 Health Care Decisionmaking [135-138]

Clients regularly ask their lawyers to prepare appropriate documents to allow the client some control over end-of-life decisions. The law has responded in three stages to these needs.

The first stage, running roughly in the 1970s, involved the advent of living wills. See In re Quinlan, 355 A.2d 647 (N.J. 1976). Created by analogy to wills disposing of property, living wills speak directly for the patient. They try to anticipate various medical situations which could arise, and say what care the patient would want. Many states impose various execution requirements similar to those applying to wills of property.

The second stage, beginning in the 1980s, brought a surge of interest in durable powers for health care decisions. See Cruzan v. Director, Mo. Dep’t of Health, 497 U.S. 261 (1990). These documents name someone else to act on behalf of the patient. The grant of authority may be broad, or may be limited to particular situations.Basically, the agent directs the patient’s care as the agent believes the patient would have wanted it.

The 1990s brought two significant changes. First, more states adopted “family consent” statutes, which establish procedures for naming surrogate decisionmakers if the patient has not done so. These statutes serve as backstops for advance directives. The second movement is toward merging living wills and durable powers into a single, simplified document. The Uniform Health-Care Decisions Act (UHCDA) pushes both of these developments forward, while eliminating many of the restrictive rules many states have established for advance directives. See 9 (Part IB) Unif. Laws Anno. 143 (Supp. 1999).