Best Trusts and Estates Outline

TRUSTS AND ESTATES OUTLINE TRUSTS AND ESTATES OUTLINE

THE BASICS

Introduction Policies that Inform Estate Planning

(1) Freedom of Disposition“Unless the will provides otherwise” in all the statutes

Strong cultural tradition to be able to do what you want to do with property when you’re alive and when you die

Exceptions 49/50 states have law that states that you cannot disinherit your spouseRule against perpetuity (see below)Tax rules limit your ability to give away all your moneyPublic policy limits your ability to do certain things, like discriminate, etc.

(2) A Need for CertaintyTo prevent litigation Creates a set of default rules

(3) Reducing Possibility of FraudLegislature and judges have required a fair amount of formality to create a valid will (makes it hard for someone to defraud)

Definitions(1) Estate

Depending on the context, estate may mean:(1) The interest which a person has in property, or(2) The aggregate of property which a person owns.

(2) PropertyAnything that may be the subject to ownership, and is real or personal property

(3) Will [§1-2.19](1) A will is an oral declaration or written instrument, (2) to take effect upon death, (3) whereby a person

(a) disposes of property (b) directs how property shall be disposed of, (c) disposes of his body or any part thereof, (d) exercises a power, (e) appoints a fiduciary, or (f) makes any other provision

(4) which is revocable.(5) Unless the context otherwise requires, the term “will” includes a “codicil.”

(4) Codicil (1) A supplement to a will, either

(a) adding to,(b) taking from, or(c) altering its provisions, or

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(d) confirming it in whole or in part by republication, (2) but not totally revoking such willProf – A codicil re-dates the will

(5) DispositionA transfer of property by a person during his lifetime or by will

Distribution – for intestacy, both real and personal propertyGift/Bequest – for personal property in willsDevise – for real property in wills

(6) DistributeeA person entitled to take or share in the property of a decedent under the statutes governing intestacy.

(7) Testamentary BeneficiaryA person in whose favor a disposition of property is made by will.

(8) Personal Representative A person who has received letters to administer the estate of the decedent

Termed “executor” if there is a will or “administrator” if there is not.(9) Fiduciary

A person who (1) meets the description of “personal representative,”(2) is designated by the creator or court to act as an assignee for the benefit of creditors, or(3) is a committee, conservator, curator, custodian, guardian, trustee, or donee of a power during minority.

(10) IssueUnless a contrary intention is indicated,

(1) Issue are the descendants in any degree from a common ancestor(2) including adopted children

INTESTATE SUCCESSION

Disposition Per Stirpes or by Representation EPTL § 1-2.14: Per Stirpes

(1) Disposition/distribution of property (2) who take as issue,(3) where property is divided into as many equal shares

(a) at the nearest generation with surviving issue (b) plus any deceased issue who left surviving issue, if any.

(4) The share of a deceased issue shall be distributed in the same manner.EPTL § 1-2.16: Representation

(1) Disposition/distribution of property(2) who take as issue,(3) where property is divided into as many equal shares

(a) at the nearest generation with surviving issue (b) plus any deceased issue who left surviving issue, if any.

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(4) The remaining shares, if any, are then combined and then divided in the same manner as if the surviving issue who were allocated a share above had all predeceased the decedent, without issue.EPTL § 2-1.2: Issue to Take by Representation

Whenever a disposition of property is made to issue, such issue takes by representation, unless a contrary intention is expressed.

How Does This Work? Difference Between Per Stirpes and Representation Hypo 1:

Great-grandfather

X Y Z

1 2 3 4 5

In per stirpes, 1–3 each get 1/3 of 1/3 and 4–5 each get ½ of 1/3. In representation, 1–5 each get 1/5 of 2/3.

IntestacyOverview

Remember, if any property is not covered under the will, intestacy applies.A child in gestation at the time of the decedent’s death is considered a valid distributee if she is born alive (codified in EPTL § 2-1.3).

Step-parents and step-children are not considered distributees unless a contrary intention is indicated.

Survival, if only by an instant, is sufficient for intestate succession.See below for simultaneous deaths in NY.

Intestate succession only deals with estate in decedent's own name -- doesn't affect joint property, joint accounts, pensions, life insurance, and other will-substitutes.

Policy Behind IntestacyDesigned to effect the orderly distribution of property.Purpose is to distribute property that approximates what the decedent would have done if they had made a will.Spouses and children enjoy a favored position under the intestate laws because, on statistical average, they are the nature objects of most people’s bounty.Serves society by protecting and promoting the family, avoiding the complication of titles to property, encouraging accumulation of property, and avoiding familial strife.

EPTL § 4-1.1: Intestacy (1) Applies to property that is not disposed of in decedent’s will(2) In computing the distribution, debts, administration expenses, and reasonable funeral expenses are deducted and all estate taxes are disregarded

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(3) If the decedent is survived by:(a) Spouse and issue $50,000 and ½ of residue to spouse and rest to issue(b) Only spouse all to spouse(c) Only issue all to issue(d) Only parents all to parents(e) Only issue of parents all to issue of parents(f) Only grandparents or issue of grandparents split in half, to give equally to paternal and maternal sides. Issue of grandparents shall not include issue more remote than grandchildren of such grandparents.(g) Only great-grandchildren of grandparents split in half, to give equally to paternal and maternal great-grandchildren, who take per capita (in equal proportion).

(4) Half-bloods are treated the same as whole bloods and adopted children are treated the same as biological children (as governed by DRL §117, see below).

EPTL § 4-1.2: Inheritance by Non-Marital Children(1) A non-marital child is a legitimate child of his mother for inheritance purposes(2) A non-marital child is a legitimate child of his father for inheritance purposes if:

(a) A court with jurisdiction, during life of father, made an order of filiation(b) The mother and father have executed and filed an acknowledgement of paternity(c) The father has signed an instrument of paternity, provided that it is made/ acknowledged before witnesses and a notary, filed within 60 days, and the department of social services sends a written notice in the mail to the mother(d) The paternity has been established by clear and convincing evidence and the father has openly and notoriously acknowledged the child as his own, or(e) A DNA test along with other evidence establishes paternity by clear and convincing evidence

Will of HoffmanHeld that the word “issue” standing alone, when appearing in a will, should be construed to refer to biological and non-marital children alike, in the absence of an express qualification by the testatrix (codified in EPTL 2-1.3).

Adoption and Inheritance RightsEPTL § 2-1.3: Adopted Children as Members of a Class

Unless the creator expresses a contrary intention, a disposition of property to persons described in any instrument as the issue, distributees, etc, includes:

(1) adopted children and their issue in their adoptive relationship. Their rights are governed by DRL § 117.

Domestic Relations Law § 117: Effect of Adoption on Intestacy(1) After the making of an order of adoption

(a) the birth parents shall be relieved of all parental duties, responsibilities, and rights by intestacy, (b) the rights of an adoptive child to intestacy from and through his birth parents shall terminate

(2) The adoptive parents and child shall sustain toward each other the legal relation of parent and child and shall have all the rights, responsibilities, and duties of that relation, including the rights of intestacy

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(3) When a birth or adoptive parent, having lawful custody of a child, marries or remarries and consents that the stepparent may adopt such child, such consent shall not change her parental duty or rights of such consenting spouse and such adoptive child to intestacy.(4) Exception

If: (a) the decedent is the adoptive child's birth(?) grandparent or is a

descendant of such grandparent, and (b) an adoptive parent

(i) is married to the child's birth parent, (ii) is the child's birth grandparent, or (iii) is descended from such grandparent,

the rights of an adoptive child to intestacy from and through either birth parent shall not terminate upon the making of the order of adoption.

(5) However, an adoptive child who is related to the decedent both by birth relationship and by adoption shall be entitled to inherit only under the birth relationship unless the decedent is also the adoptive parent, in which case the adoptive child shall then be entitled to inherit pursuant to the adoptive relationship only.

How Does this Statute Work?Hypo 1: W marries H and has child C. Later H dies, W marries H-2, and H-2 adopts C. If H’s mother dies intestate, can C inherit from her?

Yes. Exception applies. The decedent is the adoptive child’s grandparent and the adoptive parent is married to the child’s birth parent.

Hypo 2: W marries H and has child C. Later, W and H divorce and, because W is an awful mother, her mother adopts C after a court has terminated H’s parental rights. If C predeceased H without a spouse or issue, can H share in C’s estate?

No. Exception does not apply and the general rule kicks in After adoption, birth parents are relieved of intestacy rights.

Hypo 3: S has three children, C-1, C-2, and C-3. When C-1 was four years old, S surrendered him for adoption to her brother, B-1, who had no children. B-1 and S died last year. This year, S’s brother B-2 died intestate, with no wife, issue or parents. In addition to the people already mentioned, B-2 was survived by another brother, B-3, who had a child, C-4. Who gets what in B-2’s estate?

B-3 gets ½ and C-1, C-2, and C-3 each get 1/6. C-1 does not take as an adoptive child, but instead takes under the biological relationship.

Domestic Relations Law § 117: Effect of Adoption on Inheritance through Wills(1) After the making of an order of adoption, adopted children and their issue do not take under a will of birth relatives, whether executed before or after the order of adoption, which does not express a contrary intention or does not expressly include the individual by name or by some classification not based on a parent-child or family relationship.(2) In a will, a designation of a class of persons shall, unless the will or instrument expresses a contrary intention, be deemed to include an adoptive child who was a

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member of such class in his or her birth relationship prior to adoption, and the issue of such child, only if:

(a) an adoptive parent (i) is married to the child's birth parent, (ii) is the child's birth grandparent, or (iii) is a descendant of such grandparent, and(b) the testator or creator is the child's birth grandparent or a descendant of such grandparent.

(c) A person who would be a member of the designated class, both by birth relationship and by adoption shall be entitled to benefit only under the birth relationship, unless the testator or creator is the adoptive parent, in which case the person shall then be entitled to benefit only under the adoptive relationship.

Disqualification Of Parents: EPTL § 4-1.4

No distributive share of a deceased child shall be allowed to a parentif the parent, while the child is under 21 years-old,

abandoned child or lost parental rights.

Estate distributed as though the parent had pre-deceased the child.The section does not apply to parents who were fraudulently induced to give child up for adoption.

Of Spouse: EPTL § 5-1.2(1) A surviving spouse inherits unless it is established in court that:

(a) there is a valid divorce, annulment or dissolution when decedent died(b) the marriage is void as incestuous, bigamous, or invalid(c) the spouse procured outside NY a final decree of judgment of divorce, annulment, or dissolution, not valid in NY(d) a final decree of separation, valid in NY, rendered against the spouse, in effect when the decedent died(e) the spouse abandoned the decedent up to and including time of death(f) the spouse failed in his duty to provide for the deceased spouse though he had means to do so up to and including the time of death.

(2) Surviving spouse gets disqualified from taking in intestacy, right of election, inheriting exempt assets, damages from wrongful death lawsuit

WILLS : EXECUTION

Due Execution Overview

Who may make a will? Every person over 18 years old who has testamentary capacity may make a will.

What property may be disposed of by will?Every estate in property.

Who may receive property in a will?Any person who has capacity to acquire and hold the property.

Burden is on the proponent.

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Purposes of Statutory Formalities (1) Evidentiary function: will gives you best evidence of existence and content of testator’s directives.(2) Cautionary function: indication that directions were not casually arrived at.(3) Protective function: reason to think that directions were product of D's free choice(4) Testamentary capacity: mental capacity to comprehend the property owned, those it is being given to, and state of family relations.

The mental capacity item is a definition of testamentary capacity.(5) Channeling function: We want some level of uniformity and formality to channel all these funds. Wills channels to takers in a way that's organized.

EPTL § 3-2.1: Execution and Attestation of Wills; Formal RequirementsEvery will must be in writing, and executed and attested in the following manner:

(1) Signed at the end by testator or, signed in the name of the testator, by another person in his presence and by his direction, subject to the following:

(a) If there is writing after the testator’s signature at the time of execution, it will not invalidate the writing appearing before the signature, except if the court believes: (i) the will is too incomplete without it, or (ii) to give effect to the writing before the signature would subvert the

testator’s original plan(b) No effect will be given to any writing after the signature in the will or subsequent in time to the execution.(c) Any person who signs the testator’s name, shall sign his own name and add his address, and will not count a valid attestation witness. A lack of own signature will invalid the will whereas a lack of address will not.

(2) The testator should sign or acknowledge his signature in the presence of the witnesses, either all together or separately. (3) The testator shall, at some time during the ceremony, declare to each witness that the instrument bearing his signature is his will (this proves intent)(4) There shall be at least 2 attesting witnesses, who shall, within one 30 day period, both attest to the testator’s signature, and at the request of the testator, sign and affix their addresses to the end of the will.

The 30 day period is a rebuttable presumption (5) This procedure does not have to be followed in the precise order, so long as all the requisite formalities are observed during a period in which the surrogate is satisfied that the ceremony continued.

Note: Although there is no requirement that an attorney supervise a will ceremony, the testator will lose the presumption of regularity if the attorney is not present.

EPTL 3-2.2: Nuncupative and Holographic Wills (1) Nuncupative: unwritten, with the making thereof and its provisions clearly established by at least 2 witnesses.(2) Holographic: written entirely in testator’s hand, and not executed under 3-2.1.(3) These wills are only valid if made by

(a) member of armed forces while in service during a war, declared or undeclared, or other armed conflict

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(b) A civilian who serves alongside armed forces above(c) A mariner while at sea.

(4) These wills become invalid: (a) If made by member/civilian of armed forces, upon the expiration of 1 year following his discharge/end of service(b) If made by mariner, upon the expiration of 3 years from time will was made.

(5) If the testator loses capacity, the length of time before invalidity tolls until 1 year after regains capacity.(6) These wills are subject to other provisions, provided that they are applied consistently with their character.

Crossed Wills: Matter of StrideWhat happens when a couple signs each other’s wills by accident? Under NY statute, seemingly we wouldn’t allow the wills to go to probate. BUT, here, the court said the wills were valid. This is substantial compliance, and limited to its facts.

Witnesses as Beneficiaries EPTL § 3-3.2: Competence of Attesting Witness Who Is a Beneficiary

(1) An attesting witness who is also a beneficiary under the will is a competent witness (and can testify accordingly) subject to the following:

(a) Any such disposition made to attesting witness is void unless at least 2 other attesting witnesses to the will who were not beneficiaries were present

(2) Subject to sub-(1), any such disposition to an attesting witness is effective unless the will cannot be proved without testimony of such witness, in which case the disposition is void. (3) Any attesting witness whose share is void, and who would be a distributee through intestacy, is entitled to receive so much of his intestate share as does not exceed the value of disposition in the will. (4) Share recovered as follows:

(a) In case void disposition becomes part of residuary, from the residuary disposition only (disposition is pre-residuary)(b) In case the void disposition passes in intestacy, ratably from the distributees who succeed to such interest (disposition is residuary)

Turano’s Will Ceremony(1) Person reads and understands the will. (2) Staple the will together after the person has approved

Clerks look for second set of staple holes, and if they are there, need to fill out an affidavit.

(3) Two witnesses in NYWitnesses should come into the room and stay during the ceremony.

You shouldn’t generally use yourself as a witness, in case goes to litigationUse witnesses younger than the testator, and try to get lawyers to be witnesses, particularly if someone is being disinherited. Introduce the witnesses and have them make small talk with testator

This helps the witnesses gauge capacity. If there will be a disinheritance, get the testator to discuss it with the witnesses and write a memo later on describing it.

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(4) Testator QuestionsCan you tell us what this document is? My last will and testament Does this will express your wishes?

Not specifically in statute, but it's to counter any undue influence claim.Do you want X and Y to serve as witnesses and sign your will? Do you want them to sign the self-proving affidavit?

(5) Testator Signs Will and Initials Each PageTestator signs the will at the end of the will. And the witness should see the testator sign the will.

(6) Witnesses Prepare Their SignaturesAttestation clause… she has one witness read the clause aloud to know what they're signing (that this person signed in their presence, had sound mind, etc.)Witnesses sign signature and add their addresses.

(7) Witnesses Sign Self-Proving AffidavitWitness sign SPA so that you can probate the will without their testimony. It needs to be notarized. Usually the drafting lawyer serves as the notary. Cannot be notarized by a witness. Staple it to the back of the will.But can't use self-proving affidavit if

(a) someone is contesting the will or (b) it’s a deathbed will.

(8) Execute Only The OriginalIn special circumstances (i.e. person is in hospital) check to make sure that you complied with the institution’s requirements.Then you can make copies of it. Lawyers often offer to keep ORIGINAL will in their will vault. But the practical reason is also to keep the will out of the safety deposit box, because then there’s a special proceeding required to open that S.D. box.

IMPORTANT: if the testator possessed her own will and kept it, and it's missing at her death, it's presumed that she destroyed it with the intention of revoking it. This is not true if the will's in the lawyer's vault and is lost there, there is no presumption of revoked will.Turano’s Recommended Three-Pack of Documents

(1) Will(2) Living Will

Statement of what you would like to happen to you if you can't make your own decisions. Dr.'s can be compelled to honor this. Includes healthcare proxy.

(3) Durable Power Of Attorney Endures beyond a person's incapacity, but not beyond death, and is effective immediately upon signature. Someone else is appointed as your agent to handle your financial matters.

Conditions in Wills Overview

Freedom of disposition is one of the strongest themes we have. Therefore, conditions are almost always enforcement

Exception : the disposition can't violate other rules, i.e. rule against perpetuities; disinherit spouse; violate public policy.

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Courts will usually resolve a question of a condition in favor of validity.EPTL § 3-3.5: Conditions Qualifying Dispositions

(1) A condition is operative despite the failure of testator to provide for an alternate gift to take effect upon the breach or non-occurrence of such condition.(2) A condition, designed to prevent disposition from taking effect in case the will is contested by the beneficiary [in terrorum clause], is operative despite presence or absence of PC, subject to following:

(a) Such condition is not breached by contest to establish will is forgery or that it was revoked by later will, provided that such contest is based in PC(b) An infant or incompetent may affirmatively oppose the probate of a will (c) The following conduct, singly or in aggregate, shall not result in the forfeiture of any benefit under the will:

(i) Objecting to jurisdiction (ii) Disclosure of any information relating to any document offered/relevant, to let other parties make an objection or get the court sua sponte to examine will’s validity (iii) Refusal/failure to join probate petition or execute consent/waiver of notice to proceeding(iv) Deposing the proponent’s witnesses, will preparer, the nominated executors, and proponents in probate proceeding(v) The institution of, or the joining or acquiescence in a proceeding for the construction of will or any provision

Effect : If contestation is effective, the will is revoked and the contestant might take under a prior will, or under intestacy. If contestation is ineffective, the contestant loses his share and that share passes in intestacy if it is a residuary share, or to the residuary if not in residuary share. [CONFIRM]

Incorporation by Reference Restatement § 3.5

A writing that is not valid as a will but is in existence when a will is executed may be incorporated by reference into the will if the will manifests an intent to incorporate the writing and the writing to be incorporated is identified with reasonable certainty.

NY RuleNY is a strict jurisdiction, and refuses to recognize a general incorporation by reference. In order to be incorporated, the document must be executed with all the normal will formalities.

Exception EPTL §3-3.7, revocable living trusts (see below in the trusts section).

Acts of Independent SignificanceGeneral Rule

All jurisdictions give effect to devises that identify the property or the devisee by reference to acts and facts that have independent significance.

Q to ask: Does it have significance independent of making a bequest to someone? Examples

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Hypo 1: I leave $ to whoever is my cleaning lady at my death – OK because you’re not apt to change cleaning lady to manipulate will.Hypo 2: I give $ to the last person that I give a flower – not OK because its very easy to manipulate this.Hypo 3: I give to A my bureau and its contents – Book says OK but prof wonders.Hypo 4: I give to A my summer house and its contents – probably OK unless has contents switched out right before death.

Joint WillsOverview

Think of it as a bad thing – don’t do it for clients because problems always arise.Tax issue – In US, if give estate to spouse, pay no estate taxes. There are some requirements – generally, meant to give outright because theory is we don’t care about taxing twice at generation, only once when couple dies. A lot of time joint wills state first goes to spouse, then goes to children. IRS can argue that doesn’t give spouse outright, just holds until children die. So might lose exemption.

Single document that serves as the will of two peopleWhen one dies, the will is offered for probate, and 2nd dies, offered for a 2nd time

EPTL 13.2.1: Will Contracts(1) Statute of Frauds Provision: every agreement is unenforceable unless it or some memorandum thereof is in writing and signed by the party to be charged, if such agreement:

(a) is a contract to make a trust or testamentary provision of any kind.(2) Contract to make a joint will, or not to revoke a joint will can be established only by an express statement in the will that the instrument is a joint will and that the provisions thereof are intended to constitute a contract between the parties.

Prof’s sample language: “We declare this to be our joint will and we have agreed upon the foregoing disposition of our property which shall be forever binding on us and shall not be revoked by either of us or the survivor”

Survivor’s Gift RightsTo prevent a survivor from breaching an obligation under a will contract, courts have held that inter-vivos gifts by the survivor of substantial portions of the property can be set aside. The survivor is free to make reasonable gifts, where the question is one of degree, and depends upon the proportion that the value of the gift bears to the estate.

WILLS : GROUNDS OF CONTESTATION

There are 4 general ways to contest a will: (1) due execution, (2) testamentary capacity, (3) undue influence, and (4) fraud.

Testamentary CapacityRestatement § 8.1: Requirement for Mental Capacity

(1) The testator must be capable of knowing and understanding in a general way the nature and extent of his property, natural objects of bounty (spouse, kids, etc), and

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disposition that he is making of that property (who’s getting what) (2) The testator must be capable of relating these elements to one another and forming orderly desire regarding disposition of property.

What Is Not Lack of Capacity(1) Stage 2 Dementia

Old age, feebleness, forgetfulness, filthy personal habits, personal eccentricities, physical disability, absentmindedness, and mental confusion.

(2) Lucid IntervalsA person who is mentally incapacitated part of the time but who has lucid intervals during which she meets the standards for capacity.

(3) Insane DelusionsBelief to which testator adheres to against all evidence and reason, springs from diseased condition of mind.

Exception : Insane delusion doesn’t necessarily affect the validity of the will, unless evidence goes further and establishes that the will itself is a product of that delusion and that the testator devised his property in a way which, except for that delusion, he would not have done.

Miscellaneous Burden is on the contestant.Witnesses to testify about capacity include expert witnesses and attesting witnesses. Capacity is measured at time of will execution.

Undue Influence Restatement § 8.3: Undue Influence, Duress

Any will is invalid to the extent that it was procured by:(1) Undue Influence: If wrongdoer exerted such influence over the testator that it overcame the testator’s free will and caused him to make a will that testator otherwise wouldn’t have made (basically same in NY)(2) Duress: If wrongdoer threatened to perform or did perform a wrongful act that coerced testator into making will that testator otherwise wouldn’t have made (not separated out in the NY definition)

Confidential RelationshipsOften, undue influence comes up when there’s a confidential relationship

Spouses, priests/clergy, lawyers, nursing home administrator Classic – marries new wife, younger, children get nothing and object

Usually not successful unless marriage of very short duration Presumption: Where have confidential relationship, jury is permitted to draw an inference that you unduly influenced the testator

NY Rule: Inference can only be drawn if can show a confidential relationship and some other factors.

Susceptibility, opportunity, character of accused, and result.Lawyers as Beneficiaries/Executors

As Beneficiary: If an attorney both drafts the will and receives something from it, there is a presumption of undue influence

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As Executor: Executor has the right to hire an attorney. Attorney would get testator to name him as executor, he would do both, and make enormous amounts of money. The passage of SCPA 2307-a: Putnam affidavit

(1) Disclosure: When an attorney prepares a will and is therein an executor-designee, the testator shall be informed prior to the execution of the will that:

(a) Any person, including an attorney, is eligible to serve as an executor;(b) Any person who serves as an executor is entitled to receive an executor's statutory commissions; and(c) if such attorney or an affiliated attorney renders legal services in connection with the executor's official duties, such attorney or is entitled to receive just and reasonable compensation for such legal services as well.

(2) Testator's written acknowledgment of disclosure: An acknowledgment by the testator of the disclosure must be

(a) set forth in a writing (b) executed by the testator (c) in the presence of at least one witness other than the executor-designee(d) Such writing must be separate from the will (but which may be annexed to the will), may be executed prior to, concurrently with or subsequently to a will, and must be filed in the proceeding for the issuance of letters testamentary to the executor-designee.

(3) Effect of absence of acknowledgment: Absent compliance with the requirements, the commissions of an attorney who serves as an executor shall be 1/2 the statutory commissions to which such attorney as executor would otherwise be entitled pursuant.

Miscellaneous Burden is on the contestant. Most often proved by circumstantial evidence.Undue influence is a pattern; fraud occurs in one moment of time.

FraudRestatement § 8.3: Fraud

Any will is invalid to the extent that it was procured by:(3) Fraud: If wrongdoer knowingly or recklessly made a false representation to testator about a material fact that was intended to (knowingly caused reliance) and did lead testator to make will that he wouldn’t have otherwise made (reliance)

Two TypesFraud in the Execution - Occurs when testator are defrauded about the nature or contents of the documents they are signing. [akin to palpable undue influence.]

Fraud in the Inducement - When testators are intentionally misled into forming a testamentary intention that they would not otherwise have formed.

WILLS : POST-EXECUTION EVENTS AFFECTING WILLS

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Death: Lapse and Anti-Lapse (do not apply to intestate succession/ invalid wills)Overview

At common law, a person had to survive the decedent in order to receive under a will. But, over time the legislature realized that a person who goes to the trouble of doing a will doesn’t want bequests to lapse into intestacy.Always draft around the lapse statutes. It will only come up in litigation. Don’t let the statute make the rule for you.If a gift is pre-residuary and it lapses, it goes to the residuary. If it is residuary and it lapses,” it passes in intestacy.

EPTL § 3-3.3: Anti-Lapse Statute(1) Unless will, whenever executed, provides otherwise:

(a) Whenever a testamentary disposition is made to issue or to brother/sister, (b) and such beneficiary dies before the testator, leaving issue surviving the testator, (c) such disposition does not lapse but vests in such surviving issue, by representation.

(2) Provisions above apply to disposition made to issue, brothers/sisters as a class as if disposition made by individual names,

(a) Exception: no benefit shall be conferred here on surviving issue of an ancestor who died before execution of will in which the disposition to the class was made.

Deactivating Anti-LapseA testator can put language into her will in order to deactivate the anti-lapse statute.

In NY, “to sister, provided that she survives me,” that is enough to deactivate

How Does This Statute Work?Hypo 1: In his will, D bequeathed $200,000 to his brother B, $400,000 to his wife W, $40,000 to his niece N, and the residuary estate (which amounted to $100,000) to Habitat for Humanity. D died yesterday. Sadly, B, W, and N had all predeceased D and each left two children surviving him. Who gets what in D’s estate?

Each of the brother’s children get 100,000. His children get nothing. The niece’s issue gets nothing. Habitat gets 540,000.

Hypo 2: D’s will contained the following clause: “I give my residuary estate to my children.” Another child is born after D executes his will. Is that child entitled to a share of the estate?

Yes. Part of a class.Hypo 3: D’s will contained the following clause: “I give my Aresiduary estate to my brothers and sisters in equal shares.” D’s eldest sister was already dead when D made his will, leaving issue surviving her. Is that child entitled to a share of the estate?

No.

Death and More: Residue of a ResidueOverview

This is also a default statute that should be written around.This statute is triggered anytime a residuary gift is ineffective

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As compared with the anti-lapse statute, which is only triggered by the death/renouncement of a beneficiary.

EPTL § 3-3.4: Consequence of Partly Ineffective Disposition to 2+ Residuaries (1) Whenever a testamentary disposition of property of 2+ residuary beneficiaries

(Have to first ask whether it is a residuary gift)(2) are ineffective in part(3) as of the date of the testator’s death, and(4) anti-lapse does not apply to such an ineffective part,(5) nor has an alternative disposition been made in will,(6) such ineffective part shall pass to and vest

(a) in the remaining residuary beneficiary, or(b) in such beneficiaries, ratably, in the proportions that their respective interests bear to the aggregate.

How Does This Statute Work? Hypo 1: D died yesterday, leaving her estate ½ to her son, S and ½ to her daughter, D-2. Both S and D-2 predeceased her. D-2 left issue surviving D, and S left none.

This is considered a residuary gift. D-2’s issue gets it all – they take on status of residual beneficiaries via 3-3.3. Intestacy does not kick on.

Hypo 2: D died yesterday, survived by grandchildren and no other relatives. She left her residuary estate as follows: ½ to her friend X, ¼ to her cousin Y, provided Y had not resumed her relationship with the notorious Z, and ¼ to her niece N. Everyone survived D, but Y had resumed her relationship with the notorious Z.

At first 2:1:1 ratio. But, Y’s share lapses. Therefore, new ratio of 2:1. X gets 2/3 and N gets 1/3.

Death: Simultaneous Deaths (applies to both wills and intestacy)Overview

Purpose of the statute is two-fold: (a) get property to the right beneficiary and (b) lessen administrative costs (avoids property going through two estates)

The average person would rather have property go to their own distributees or beneficiaries rather than the other person’s distributees or beneficiaries

In NY, look for evidence – statute only applies if there is not sufficient evidence that the persons died other than simultaneously (even 1 minute is enough)

Hypo: H & W died in a plane crash. the court found that H died immediately but W had carbon monoxide in her blood so she could not have died immediately-thus W survived her husband and the statute did not apply

EPTL § 2-1.6: Disposition of Property Where There is No Sufficient Evidence that Persons Have Died Otherwise Than Simultaneously

(1) Where title depends on priority of death and (2) there is no sufficient evidence that persons have died other than simultaneously, (3) the property of each person shall be disposed of as if he had survived, except:

(a) 2+ Alternative beneficiaries by survivorship: the property shall be divided into as many equal portions as there are alternative beneficiaries and such portions distributed respectively to those who would have taken the whole property in the event that the designated beneficiary through whom they take had survived.

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(b) Joint tenants/Tenants by the entirety: the property shall be distributed ½ as if one had survived and ½ as if the other had survived. If more that 2 joint tenants, property distributed in the proportion that one bears to the whole number of joint tenants. (c) Insured and beneficiary: the proceeds shall be distributed as if the insured had survived the beneficiary.(d) Owner and beneficiary of a security: the security shall be treated as if the owner had survived the beneficiary.

(4) This is a default provision and can be written around.

How Does This Statute Work? [go through again] Hypo 1: A and B had mutual wills: Each left the entire residuary estate to the other, and if the other failed to survive, to their children 1 and 2. A and B died simultaneously in a boating accident. Their wills were silent on simultaneous death. They died survived by two children, 1 and 3, and two grandchildren, G-1 and G-2, from child 2, who predeceased them. How are their estates distributed?

A — B

1 2 3

G-1 G-2

½ the estate comes via A’s will and ½ the estate comes from B’s will. Therefore, 1 gets ½ of A’s ½ and ½ of B’s ½ = ¼ + ¼ = ½ of the total estates of A and B. Same goes for 2, but he is deceased, so his ½ share gets split between G-1 and G-2 (¼ each) via the anti-lapse statute.

Hypo 2: X owned a house worth $1,500,000. Y had securities worth $250,000. X’s will gave everything to Y, or if he predeceased, to X’s friend F. Y’s will gave everything to X, or if she predeceased, to the Nature Conservancy. They died simultaneously in an airplane crash. How should their estates be distributed?

F gets the 1,500,000 for the house and the Nature Conservatory gets the securities.

Hypo 3: X and Y owned their home as joint tenants with a right of survivorship. Neither had a will. They had no spouses or children, and both were survived by their parents. They died simultaneously. Who gets the house?

Their parents each get ½ interest in the house.Hypo 4: X had life insurance on his life in the amount of $1,000,000. He designated Y as the primary beneficiary and their children 1 and 2 as alternate beneficiaries. X and Y died simultaneously in an accident. Who gets the life insurance?

1 and 2 split the life insurance because 2-1.6 was written around in K. Hypo 5: X had a Totten Trust bank account payable to Y upon X’s death. X and Y died simultaneously in a car crash. Both were intestate and each left one child surviving. Who gets the money in the Totten Trust account?

Goes to X’s child

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?? Hypo 6: T made a will with the following provision: I give my books to my sister, A, if she survives me. If she predeceases me, I give the books to my sister, B, if she survives me. If she predeceases me, I give the books to my sister, C, if she survives me. If she predeceases me, I give the books to my sister, D, if she survives me. I give my residuary estate to my three sons in equal shares.” Implausibly, T and her four sisters died simultaneously in a crash, each survived by three daughters. Who gets the books?

Divide it into quarters and divide that quarter into thirds. Triggers anti-lapse. (3)(a) seems to supersede rule that language in the statute causes the gift to lapse.

Advancements (applies to both wills and intestacy)Overview

Established to prevent fighting if someone received a gift during decedent’s lifetime – it reduces the donee’s share of the probate estate after donor’s death Remember that the gift is always valid, never have to give it back

EPTL § 2-1.5: Advancements and their Adjustment(1) An advancement is

(a) an irrevocable gift (b) intended by donor as an anticipatory distribution (c) in complete/partial satisfaction of interest in donor’s estate, (d) either as

(i) distributee in intestacy or (ii) as beneficiary under existing will

(2) No advancement shall affect distribution of estate unless proved (a) by a signed writing contemporaneous therewith [within a couple days] evidencing his intention to make it an advancement, or (b) by donee acknowledging that such was the intention.

(3)When proved, the advancement is part of estate of donor for purposes of distribution. (a) If equal or greater than interest of donee, donee/successor in interest may not share in distribution; (b) when less than share/interest, donee/successor in interest, may take his share reduced by amount of advancement.

(4) Unless otherwise provided in writing contemporaneous with advancement and signed by donor:

(a) An advancement may be adjusted out of property as may be equitable(b) The advancement shall have value at which it is appraised for estate tax purposes, or if not included in gross taxable estate, what it would have been appraised if included therein [basically, FMV at death of donor]

(5) Nothing shall increase or decrease the elective share of a surviving spouse, except authorized by the testamentary substitute subsection of 5.1-1A.

How Does This Statute Work?Hypo 1: D made a will giving her entire estate to her children in equal shares. D advanced $200,000 to S-2, along with a writing that announced that S-2’s share of D’s estate should be accordingly reduced. When she died, D had a net estate of $1,800,000. Her husband H did not elect against the will. How is the estate distributed?

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D H

Daughter S-1 S-2 S-3

$1,800,000 + $200,000 = 2M. 2M / 4 = $500,000 each. S-2 was advanced $200,000 so he only gets $300,000 of net estate. All other children get $500,000.

Hypo 2: Assume the same facts as in #1, except that when D died, her net estate was $10,000 instead of $1,800,000.

S-2 doesn’t get any of the net estate because his advancement was greater than his interest under the will. The $10,000 is split into 1/3s.

Hypo 3: D executed a will in which he gave his cooperative apartment to his father, F, $200,000 to his sister, S, and the residue to the Nature Conservancy. Later, D advanced $50,000 to S (with the contemporaneous writing). By the time he died, F and S had both predeceased, survived by sons B and N respectively.

F

S D B N

The $200,000 bequest to S passes to N, reduced by the 50,000 advancement. N gets 150,000. The apartment meant for F lapses. Therefore, the residuary beneficiary gets the co-op. Hypo 4: D was a widowed New Yorker. He executed a simple will leaving his

estate to his issue by representation. He later advanced $300,000 to his son S-1 (with a contemporaneous writing). S-1 predeceased D, leaving a child surviving D. Tragically and against all odds, both of D's other children also predeceased him, leaving issue surviving him as noted below. D’s net estate was $900,000.

D

S-1 S-2 S-3

1 2 3 4 5 6

Don’t know this answer. Advancement charged to issue?you would add the 300k advancement to the 900k. giving you 1200.  then divide by how many GCs there are (first line with surviving issue) to give you 200k that each would be entitled to.

since since the advancement was greater than 200k, that child gets nothing.

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so you divide the 900k by the remaining GC and they take that much each

Categories of Dispositions Overview

Two step process (1) identify the bequest

It is here where you ask about the testator’s intent!If you give all of a certain property to X at the time of will execution, and that property increases in size, it is also included in the bequest after death.

(2) apply the ademption, abatement, or accession rules(1) General Disposition

EPTL § 1-2.8A general disposition is a testamentary disposition of property not amounting to a demonstrative, residuary, or specific disposition.

Restatement § 5.1Testamentary disposition, usually of a specified amount of money or quantity of property, that is payable from the general assets of the estate

An executor can satisfy bequest in kind as well! (like in artwork, etc).(2) Specific Disposition

EPTL § 1-2.17A specific disposition is a disposition of a specified or identified item of the testator’s property.

Restatement § 5.1A testamentary disposition of a specifically identified asset

These two statutes are different – under EPTL, can get identified property, not necessarily the property that was available at the time of the bequest, as long as it fits the description

(3) Demonstrative Disposition EPTL § 1-2.3

A demonstrative disposition is a testamentary disposition of property to be taken out of specified or identified property.

Restatement § 5.1A testamentary disposition, usually of a specified amount of money or quantity of property, that is primarily payable from a designated source, but is secondarily payable from the general assets of the estate to the extent that the primary source is insufficient.

(4) Residuary DispositionRestatement § 5.1

A testamentary disposition of property of the testator’s net probate estate not disposed by a specific, general, or demonstrative devise.

How Does This Work?General

I give $10,000 to Camille.

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I give 300 shares of Amex to Beatrice.If it is a general bequest and the testator does not have 300 shares of Amex stock, the testator will go out and buy 300 shares!

Specific I give my North Fork bank account #12345 to Erin. If $100 in it when bequested and $20 in it when died, Erin gets the $20. I give my co-op apartment/one-half interest of my co-op apartment to Cate. I give my 982 shares/all of my of Geico stock to Justin. I give the sales proceeds/half the proceeds of the sale of my condo to Josh.

Demonstrative I give $10,000 out of my Washington Mutual account to Biana. I give $10,000, to be paid out of the proceeds of the sale of my condo, to Naira. I give 300 shares of Geico stock from my American Express account to Vanessa.

Residuary I give the rest, residue and remainder of my estate to Jim.I give my entire estate to Elizabeth.

Ademption (applies to wills only)Overview

Occurs when a specific disposition is impossible because the testator no longer owns the property. Intent is only examined to determine what kind of disposition was made, not to determine whether the testator intended the ademption of the property.

NY Rule NY follows the ademption by extinction rule: If the subject of a specific bequest is gone at the testator’s death, the beneficiary gets nothing. The rule of ademption by extinction prevails without regard to the intention of the testator of the hardship of the case, and is predicated upon the principle that the subject of the gift is annihilated or its condition so altered that nothing remain to which the terms of the bequest can apply.

Three Ways of Avoiding Ademption by Extinction (1) Reclassification of the devise

Since ademption by extinction only refers to specific bequests, NOT general or other bequests, courts can get around ademption by finding that the disposition is not a specific one.

(2) Change in form Courts avoid ademption of a specific devise by finding that, although the subject matter of the devise is not in the estate in its “original form,” it is still in the estate in a “changed form”

Hypo: Like if a corporation merged and its stock was renamed. (3) Time-of-death construction technique

Assume that the will was written and “words were spoken at death.” EPTL § 3-3.1: What a Testamentary Disposition Includes

Unless the will provides otherwise, a disposition by the testator of all his property passes all of the property he was entitled to dispose of at the time of his death.

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EPTL § 3-4.5: Insurance Proceeds from Specific Disposition Not Subject to Ademption(1) Where insurance proceeds from property (2) which was the subject of a specific disposition (3) are paid after death, (4) such proceeds, to the extent received by the personal rep, are payable by him to the beneficiary of such disposition; (5) such proceeds retain the character of a specific disposition for all other purposes.

EPTL § 3-4.4: Conveyance of Property of an Incompetent/Conservatee(1) In case of a sale or transfer by a guardian (not someone with a POA), (2) during lifetime of incompetent/conservatee, (3) of any property which they had previously disposed of specifically by will when he was competent, and(4) no order had been entered setting aside the incompetency/conservation ruling by the time of death,(5) the beneficiary of such disposition becomes entitled to receive any remaining money or other property into which proceeds from such sale/transfer may be traced.

Prof – its strange that there is no “retain character of a specific disposition” here

How Do the NY Ademption Statutes Work?Hypo 1: D bequeathed her fountain pens to her daughter in her 2000 will. During her lifetime she lost all the pens. Does the daughter get anything from the estate?

No. General doctrine applies here.Hypo 2: D bequeathed her fountain pens to her daughter in her 2000 will and named her daughter executor. In August 2007, a flood swept away both D and her pens. The daughter applied to D’s homeowner’s insurance carrier, which yesterday paid her $75,000 for the loss of the pens. Can the daughter keep it?

Yes. § 3-4.5.Hypo 3: D bequeathed her fountain pens to her daughter in her 2000 will. In August 2007, a flood swept away D’s pens but (miraculously) spared D. She applied to her homeowner’s insurance carrier, which paid her $75,000 for the lost pens. She put it in an account labeled “Insurance Proceeds of Pen Loss – Give to Daughter.” D died yesterday. Is the daughter entitled to the money in the account?

No. § 3-4.5 states that the insurance proceeds must be after testator’s death. Hypo 4: In her 2000 will, D bequeathed $100,000 out of her Citibank account to her daughter. In 2004, disgruntled with her daughter, she closed the Citibank account and never reopened it. D died yesterday. Does the daughter have any claim to $100,000 from D’s estate?

Yes. It’s not a specific disposition; demonstrative bequests do not adeem.Hypo 5: D bequeathed her fountain pens to her daughter in her 2000 will. In 2004, a hit-and-run driver inflicted serious head injuries on D and the court appointed a guardian to handle her affairs. In July 2007, the guardian sold the fountain pens for $75,000 to pay for round-the-clock nursing care. D died yesterday. The guardian has $70,000 left from the sale of the fountain pens. Does D’s daughter have any claim to it?

Yes. § 3.4-4.

EPTL § 3-4.2: Agreement to Convey Property Previously Disposed of By Will

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(1) An agreement made by a testator (2) to convey any property (3) does not revoke a prior testamentary disposition of such property;(4) but such property passes under the will to the beneficiaries, (5) subject to whatever rights were created by such agreement.

Gift adeems if the property no longer is in the estate. If the property is in the estate but the testator made a contract to sell it, the K does not revoke the gift, but instead, the beneficiary succeeds to the K rights.Devisee is entitled to the rest of the selling price but not the $ already received by testator

EPTL § 3-4.3: Conveyance, Settlement or Other Act Affecting Property Previously Disposed of By Will

(1) A conveyance, settlement or other act of the testator (2) by which an estate in property, previously disposed of in his will, (3) is “altered but not wholly divested” does not revoke such disposition, (4) but instead the property that remains passes to the beneficiaries pursuant to the disposition. (5) Exception: Any such conveyance, settlement or other act which is wholly inconsistent with such previous testamentary disposition does revoke it.

Hypo: if testator made specific devise to A of a diamond ring, BUT then the ring is made into earrings, 3-4.3 will allow the earrings to be given to A

Separation Agreements and EPTL § 3-4.3In Matter of Maruccia, the wife had left a bequest in her will to her husband, they later entered into a separation agreement, and she died. In one of the terms of the separation agreement, she relinquished “all claims or rights which may now exist or hereafter arise by reason of the marriage with respect to any property, whether real or personal . . . .” Court held that wife did not intend to relinquish rights under will, and that the separation agreement was not totally inconsistent with her will.

Moral: If you mean to relinquish gifts in a will under a separation agreement, you have to be specific

Accessions and Accretions (applies to wills only)Overview

In general, courts have held that specific devises transfer that specific asset together with any accessions and accretions occurring after the testator’s death.

Specific devises of debts or obligations usually carry with them interest accrued but unpaid at the testator’s death.Collected interest on a specifically devised bond does not pass to the specific devisee even if the interests remained part of the testator’s estate

NY Rule: Stock Splits(1) Determine whether the devise is specific v. general (2) If it’s specific then the beneficiary gets all shares from the split, but if it’s general then the beneficiary will not.

This rule is followed by NYStock dividends are problematic and the law is still unclear.

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Watson rule: In absence of anything manifesting a contrary intent, a legatee of stock is entitled to any additional shares received by a testator as the result of a stock split occurring in the interval between execution of a will and the testator’s death.

Encumbrances on Property (applies to both wills and intestacy)EPTL § 3-3.6: Encumbrances on Property/Life Insurance Proceeds

(1) Where any property (including life insurance) at the time of decedent’s death(2) which is subject to any lien or security interest,(3) is specifically disposed of in a will or passed via intestacy, the personal rep is not responsible for paying that lien [the property comes with the encumbrance](4) unless, in case of a will, it expressly or by necessary implication states otherwise.

Hypo: so if Z gets an apt in the will, & apt has a mortgage, Z gets the apt but has to pay off the mortgage. Executor does not have to pay off mortgage unless will says something like “I want the executor to pay off the mortgage.”

(5) A general provision in the will for payment of debts is not enough.(6) Nothing in this section imposes personal liability.

Hypo: Therefore, if X gets a house worth 200K, but the remaining mortgage is 150K and she cannot pay it, the bank will foreclose & sell the house. If they only get 140K from the sale, X is NOT responsible for the remaining 10K.

Abatement Overview

Only comes into play when there’s not enough in the estate to cover all the distributions. When the estate requires that a specific disposition be abated, the beneficiary has two options:

(1) Executor can sell the specific disposition and give you the remainder, if any(2) You can keep the specific disposition and give back the difference.

Relationship with 3-4.4 (and presumably the other ademption statutes)It’s really important that something is deemed specific. Even if the diamond was sold during testator’s lifetime pursuant to this statute, after death, it will still be treated as a specific request when it comes to abatement.

EPTL § 13-1.3: Assets Chargeable with Payment of Estate Obligations(1) All property and any income therefrom is chargeable with payment.(2) Priority of payment:

(a) funeral expenses(b) administration expenses(c) debts (d) estate taxes

(3) Whenever such property is insufficient to satisfy the above + all dispositions under the will, the property abates as follows:

(a) Distributive shares not disposed of by will (intestate distributions & invalid dispositions)(b) Residuary dispositions(c) General dispositions

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(i) Demonstrative dispositions are treated as general if that property/fund has adeemed.

(d) Specific dispositions and any income derived therefrom, ratably, in accordance with the value of the respective interests of beneficiaries.

(i) Demonstrative dispositions are treated as specific if the property/fund is still there.

Any bequests subject to marital deduction(4) If provisions in this section are inconsistent with express or implied intention, then the will controls.

How Does This Statute Work? Hypo 1: In D’s will he gave his book collection to Q, $500k from his Washington

Mutual account to R, $100k to S and $1M to T, and the residue to U and V equally. Sadly, D’s net estate had dwindled to $1,360,000 including the book collection valued at $200k, the Washington Mutual account, and $660k in stocks and bonds.

D still gets the book collection. R gets 500K from WaMu account. S gets 60,000 and T gets 600,000 (1:10). Too bad so sad for U and V.

Hypo 2: Assume the same facts, except that the will gave $200k from the Washington Mutual account to R, and at his death the Washington Mutual account contained only $100k. D's net estate was $1.1M , including the books, the Washington Mutual account and $800k in securities. Who gets what?

Q gets books. U and V get nothing. R gets Wamu account with 100,000 (treated as specific bequest) plus his portion of the other 100,000 ratably (because it’s treated as a general bequest). 1:1:10 for R:S:T. R gets $66,667 more, S gets $66,667 and D gets $666,667.

Hypo 3: D’s will gave his ring (worth $90,000) to his son, $20,000 from his Washington Mutual account to his daughter, $300,000 to W, his wife, $100,000 to his mother, and the residue to the Nature Conservancy. The net estate consisted of the ring plus $220,000, including the Washington Mutual account. Who gets what?

Wife gets $300,000 and daughter and son split the $10,000 left in a 9:2 ratio. Hypo 4: D’s will gave his ring (worth $10,000) to his son, $200,000 in Washington

Mutual account to his daughter, $200,000 to his sister, $100,000 to his mother, and the residue to Wife. The estate consisted of the ring and $200,000 in the Washington Mutual account. Who gets what?

There’s no residuary gift here. Therefore, the wife gets nothing. Son gets ring, daughter gets her account. But, wife can elect against the will under EPTL 5-1.1-A (as we shall see).

Presumption of Death From 3 Years AbsenceEPTL § 2-1.7: Presumption of Death from Absence

(1) A person who is absent for a continuous period of three years,(2) during which, after diligent search, (3) he has not been seen or heard of or from, (4) and whose absence is not satisfactorily explained, (5) shall be presumed, in any court proceeding concerning property/estate,

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(6) to have died (a) three years after the date such unexplained absence commenced, or(b) on such earlier date as clear and convincing evidence establishes as the most probable date of death.

(7) The fact that such person was exposed to a specific peril of death may be a sufficient basis for (b) above.

Murderous Heirs Riggs General Rule

You cannot profit from your own wrongRestatement 8.4: Slayer Rule

(1) A slayer is denied any right to benefit from the wrong. (2) A slayer is a person who, without legal justification, is responsible for the felonious and intentional killing of another.

(a) determined by a preponderance of the evidence in a civil proceeding.(b) a conviction conclusively establishes it.

NY Common Law GlossEstate of Covert

Slayer killed wife then himself. Court held that the Riggs doctrine nullifies any and all bequests from wife to him. But, he may still maintain an interest in any already-vested property – he does not forfeit his own property.

Estate of Macaro Slayer killed the intestate-decedent’s heirs. Court held that he was not entitled to take his now-larger intestate share.

Matter of GulbrandsenWife killed husband. Held house as tenants by the entirety. Court treated wife as fictionally predeceasing husband, but cannot deprive wife of her interest in house. Court therefore computed an amount representing the wife’s life estate in the house.

How Does This Work?Hypo 1: G makes an irrevocable transfer in trust directing the trustee to pay income to A for life, and at A’s death to distribute the corpus of the trust to B. B kills A. Should A’s estate be able to obtain an amount equal to the present value of the income interest based on A’s life expectancy?

B should not have to forfeit the remainder he would be entitled to if A lived. Tough thing, when do you give it to him? Do you subtract that now and give the remainder to B now? That would seem like a profit. Court would commute the value of the life estate and give to A’s estate.

EPTL § 4-1.6: Disqualification of Joint Tenant (1) A joint tenant convicted of murder-2 or murder-1 of another joint tenant(2) shall not be entitled to any money in a joint bank account created or contributed to by decedent, (3) except for those monies contributed to by the convicted joint tenant.

EPTL § 5-3.2: After-Born Children(1) Whenever a testator during his lifetime or after his death, (2) has a child born after the execution of a last will,

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(3) dies leaving the afterborn child neither provided for nor mentioned in the will (can draft around this statute), (4) every such child shall succeed to a portion of the testator’s estate as provided:

(a) If there is 1+ children living when testator executes the will(i) If no child is provided for, then the afterborn gets nothing (ii) If at least one child is provided for, then the afterborn shares in the estate:

(A) His share is limited to the max disposition made to the other children(B) He gets such share as he would have received had the testator included all afterborn children, and given an equal share of the estate to each child.(C) If it appears that the testator’s intention was to make a limited provision which specifically applied only to the children born before the execution of the will, the afterborn share is his intestate share. Apply only where there is a stated reason for disinheritance.(D) To the extent feasible, the afterborn’s interest shall be of the same character as the interest conferred upon the other children.

(b) If there is no children living at time of execution, the afterborn’s share is his intestate share.

(5) Afterborn means born in testator’s lifetime or in gestation at his death and born after.(6) The after-born child may recover the share of the testator’s estate to which he is entitled, either from the other children, or if there are none, from the other testamentary beneficiaries, ratably out of the portions of such estate passing under the will.

(a) In abating the interests of such beneficiaries, the character of the testamentary plan adopted by the testator shall be preserved to the maximum extent possible.

How Does This Statute Work?Hypo 1: When T signed her will in 2003, she had children 1 and 2. In her will, she bequests to 1 and 2 are respectively $100,000 and $200,000 and she gave the residuary estate to her husband H. Child 3 was born in 2004. Does he have any rights in D’s estate?

Yes. Take ratably from 3 siblings, limited to 300k. Afterborn gets 100k. Siblings contribute in a 1:2 ratio.

Hypo 2: At the time she signed her will in 2003, D had no children. She bequeathed her entire estate to her husband. She later had children 1 and 2 in 2006. Do they have any rights in D’s estate?

Yes, as if died intestate. Husband gets 50k off the top plus ½, kids get the rest. Pushes husband’s share into intestate?

Hypo 3: D’s 2003 will stated: “I leave $10 to my son because he dropped out of school.” In 2005 D had another son. Does he have any rights in her estate?

Yes, give an intestate share.Hypo 4: D’s 2003 will stated: "I leave nothing to my son because he dropped out of school." In 2005 D had another son. Does he have any rights in her estate?

No.

WILLS : REVOCATION AND RENUNCIATION

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RevocationOverview

Done with some formalities to prevent fraud, and also to prevent people from revoking without thinking.Always need intent to revoke the will (and evidence of intent!)

EPTL § 3-4.1: Revocation of wills; effect on:(1) A revocation or alteration, if intended by testator, may be effect by following manner only:

(a) A will or any part thereof may be revoked/altered by [writing]:(i) another will (ii) a writing of testator clearly indicating intention to effect such revocation or alteration, executed with normal will formalities

(b) A will may be revoked by [act – revokes entire will]: (i) An act of burning, tearing, cutting, cancellation, obliteration, or other mutilation or destruction performed by (A) Testator (B) Another person in presence and by direction of testator, proved by

additional 2 witnesses (so cant call lawyer to rip it up)(2) If you are allowed to create a nuncupative or holographic will, then you can revoke or alter by the same type of declaration or alteration, but

(a) for nuncupative wills it must be clearly established by 2+ witnesses and (b) for holographic wills it must be entirely in the hand of the testator.

(3) Revocation of a will, as provided in this section, revokes all codicils thereto.Codicils

A codicil can revoke a part or the entire willBUT, revoking a codicil does not revive an earlier will (but, in practice, if the codicil was destroyed, nobody would even know it ever existed, so the earlier will would still be probated)

How Does This Statute Work?Hypo 1: D validly executed a will and later crossed out with a thin line of ink a

bequest of $5,000 to her friend F. She simultaneously wrote in the margin next to that bequest, “Revoked. I give the $5,000 to my Rabbi R instead.” What result?

F gets 5,000 because her bequest was not revoked. Only way to revoke part of a will is by another will or a formally executed writing.

Hypo 2: D cuts out a provision of her validly executed will with scissors. Has she revoked the gift to A contained in that provision?

No difference than above. However, if the excised material cannot be determined, the court has to decide the hard question of whether to admit the will without it.

Hypo 3: D’s will contained the clause, “I give my fountain pens to my friend F.” Later he executed a codicil that said, “I revoke the gift of the fountain pens to F and I give them to my cousin C.” Later he tore up the codicil. Does F get the pens?

No. Revocation of a later codicil does not revive prior will. The pens go to the

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residuary beneficiary of the will. Furthermore, if F was the residuary, the pens would then pass intestate.

How Do You Know Whether a Later Will Is a Revocation and Not a Supplement?The fundamental question is whether the later will “was intended to wholly supplant the earlier will.”Restatement 4.1, comment d

If the later will makes a complete disposition of the testator’s estate, it is presumed that the testator intended the later will to replace the earlier will.

Unless the presumption is rebutted by clear and convincing evidence, the later will is operative.

If the later will does not make a complete disposition, it is presumed that the testator intended the later will to supplement rather than replace the earlier will.

If this presumption is not rebutted by clear and convincing evidence, the later will revokes the earlier will only to the extent that the later will is inconsistent with the earlier will, and each will is otherwise fully operative.

Evidentiary PresumptionsIf the will is physically not there, then it is presumed revoked

Every year, lost wills are put into probate via SCPA 1407If attorney kept will, there’s no presumption

SCPA § 1407: Proving a Lost Will(1) Prove that the will was duly executed with formalities,(2) Prove the contents of the will, and

1 and 2 are fairly easy to prove, by showing a copy of original version or by witnesses

(3) Prove that the will was not revoked.This is the hardest – if lawyer had it they could say they that person never stated they wanted a new will. It’s much harder when person takes will home, and because it's missing and testator had custody.

RevivalEPTL §3-4.6

(1) If after executing the will the testator executes a later will which revokes or alters the prior one, a revocation of the later will does not, of itself, revive the prior will or any provision thereof.(2) A revival of a prior will or of one or more of its provision may be effected by:

(a) The execution of a codicil which in terms incorporates by reference such prior will or one or more if its provisions(b) A writing declaring the revival of such prior will or 1+ of its provisions, which is executed with the normal will formalities(c) A republication of such prior will, requiring re-execution of all the normal will formalities

Dependent Relative Revocation (Ineffective Revocation)Overview

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Gives testator results that come close to actual intention when actual intention though established to a court’s satisfaction, cannot be given effect.We do have the doctrine in NY, but its questionable because haven’t been to Court of Appeals

Restatement 3d of Property(a) A partial or complete revocation of a will is presumptively ineffective if the testator made the revocation:

(1) in connection with an attempt to achieve a dispositive objective that fails under applicable law, or(2) because of a false assumption of law, or because of a false belief about an objective fact, that is either recited in the revoking instrument or established by clear and convincing evidence.

(b) The presumption established in subsection (a) is rebutted if allowing the revocation to remain in effect would be more consistent with the testator's probable intention.

Basic Analysis(1) Did testator clearly revoke Will #1?(2) Did testator revoke Will #1 on the assumption that Will #2 would substitute for it, but it did not in fact substitute for it?

(Was testator disappointed in that assumption?)(3) Would testator have preferred Will #1 to intestacy?

This is the crucial step (and this is where NY courts are murky) – is Will #1 closer to her intent than intestacy?

If answer is yes to all 3 questions, then Dependent Relative Revocation applies

How Does This Work?Hypo 1: T, who has long been estranged from her daughter, D, validly executed a will on May 1, 2007. Later, she revoked it by a will dated June 1, 2007, which retained the generous bequest to U. Still later, D crossed out all the dispositive provisions of the June 1 will and noted at the bottom that the May 1st will was "restored in full force and effect." Was it? What arguments can be made that June 1 will should be probated?

May will was revoked. June will was revoked as well. Any application of DRR to May will? No. The June will validly substituted for it. Any application of DRR to June will? Yes. She clearly revoked the June will, revoked on assumption that the May will would be restored, and would clearly prefer the June will to intestacy. (This is sort of reverse DRR).

Revocation By Divorce EPTL § 5-1.4

(1) If, after executing a will, the testator gets(a) divorce(b) annulment(c) dissolution on grounds of absence

(2) it revokes any disposition or appointment to the former spouse(3) unless the will expressly provides otherwise(4) and the provisions of the will take effect as such former spouse had predeceased.

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(5) If revocation solely by this section, revival shall occur only on remarriage

How Does This and The Joint Will Statute Work Together?Hypo1: H and W entered into a valid contract to make a joint will. The will provided that upon the first spouse's death, the estate would go to the surviving spouse, and upon the surviving spouse's death, everything would go to H's children and W's children. H and W later divorced. In their separation agreement each relinquished the right to the other's property and released the other from any contracts they had executed. When H died, he had not changed his will, and his children and her children therefore shared his estate. W then wrote a new will leaving everything to her children (omitting H's). Do his children have any rights?

Not sure of the answer here.

Renunciation (applies to both wills and intestacy)Overview

Purpose : allows you to not have to accept property that you don’t want. Enables you to pass it to someone else as if you had never owned the property.

Why? Tax purposes, having your children or whoever inherit it, might be an undesirable property, you have creditors at your door, to get marital deduction.Creditors generally cannot get at anything you renounce or disclaim

Hesitation is in the Medicaid cases of recent years.Disclaimers = renunciation

Disclaimer is federal and renunciation is stateApplies to both intestacy and will dispositions Can renounce in whole or part.

Federal Disclaimer Statute(1) Irrevocable,(2) unqualified,(3) in writing, and(4) filed in 9 months from:

(a) time of transfer, or (b) disclaimant’s 21st birthday.

(5) Must not accept any interest or any of its benefits, and (6) interest must pass without direction by disclaimant to either:

(a) transferor’s spouse, or (b) person other than disclaimant.

In NYS you can get the court to extend the renunciation period (for good cause). If you get an extension, you have to keep both federal and statute statutes in mind [you don't get an extension under federal statute].

EPTL § 2-1.11: Renunciation of Property Interests(1) A disposition includes:

(a) Will (b) Totten trust bank account(c) Power of appointment

(hypo: income to X, and remainder to person of X’s choosing)(d) Transfer of security (stocks and bonds) to beneficiary

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(e) Insurance policy(f) Joint tenancy(g) Retirement/employee benefits(h) Any trust or any disposition (i) Or by operation by law(j) Any of the foregoing created or increased by reason of a renunciation made by another person (has 9 months further to renounce)

(2) General Rule – any beneficiary can renounce a disposition (that he has not accepted yet) in whole or in any part

(a) Exception: A surviving joint tenant/tenant by the entirety may not renounce that portion of an interest which is allocable to amounts contributed by him.(b) An interest is considered “accepted” if a person voluntarily transfers, encumbers, or contracts to do either, accepts delivery or payment of, exercises control over, executes a waiver, or indicates acceptance of the interest.

(3) Renunciation has to be:(a) in writing, (b) signed, (c) acknowledged, (d) accompanied with an affidavit that renouncing party has and will not received any consideration, and(e) filed within 9 months after effective date of disposition, (f) with notice of such renunciation served on all interested parties.

(4) When does the nine months start to run?

Will/ Intestacy Date of testator’s death.Interest Under A Testamentary Trust Date of testator’s death.Interest in Joint Property Date of other joint tenant’s death.Life Insurance Date of death of the insured.Pension/Retirement Plan Date of death of the employee.Interest in Totten Trust Date of death of the creator of the trust

account.Interest in a Lifetime Trust Date of the trust agreement

[when made irrevocable or date of creation if already irrevocable]

Interest Created by Presently Exercisable Power of Appointment

Date of the exercise of the power of appointment.

Interest Obtained in Default of Someone's Exercise of a Power of Appointment

Date of previous holder's renunciation/ default/death.

Future Interest in a Trust The date it becomes possessory.

(a) The time to file and serve the renunciation may be extended in the discretion of the court on good cause and on notice to interested parties.(b) Renunciation is retroactive, to the effective dates above.

(5) Who may renounce?(a) the beneficiary(b) guardian of an infant or incompetent, if authorized by the court(c) personal rep of decedent, if authorized by the court(d) attorney with durable POA, provided:

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(i) if property which was renounced is disposed in favor of attorney, his spouse, or issue, it shall not be effective unless (A) the POA instrument authorizes renunciation, or (B) the court has authorized renunciation

(ii) anyone with a POA over a disabled person still needs authorization from the court

(6) Effect of renunciation:(a) Unless creator of disposition has otherwise provided,

(i) the filing of renunciation has same effect as if the renouncing person has predeceased the decedent, or(ii) if the renounced interest is a future estate, as if that person had died at time of filing or just prior to possession, whichever is sooner.

(b) Renunciation will accelerate any subsequent future interests. But: (i) If the future interest is limited on a preceding estate other than the renounced interest, it will not cause acceleration.(ii) A person who has both a present and future interest and renounces the present interest in whole or part shall be deemed to renounce the future interest to the same extent.

(c) If the renunciation causes a disposition/distribution by representation, then solely for the mechanics of distribution, the renouncing person shall be treated as post-deceasing the decedent.

(7) Different Effect for Spouses:If a spouse renounces in whole or part, it shall not be deemed a renunciation of any other disposition in favor of the spouse, regardless of whether the property which would have passed under said renounced disposition is by reason of said disposition disposed to or in favor of the spouse, unless otherwise provided in the renunciation.

Hypo: Will says I give $100 to W, and residue to trustee to pay income to W for life and remainder thereafter to the Red Cross. W can renounce the $100, and still enjoy the income from it once it goes into the trust for life from that property. Everyone else, other than the spouse, can NOT do this.

(8) Renunciations are irrevocable.

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How Does This Statute Work?Hypo 1: T duly executed a will in which she gave $500,000 to her son, S, and the residuary estate to Habitat for Humanity. S, who had four children, duly renounced his bequest. What happens to the $500,000?

Anti-lapse statute kicks in and it gets split evenly between S’s children. Hypo 2: Assume that in the preceding example, 4 predeceased T, survived by two children, and that 2, who had six children, duly renounced within nine months of D’s death. What result?

1 2 3 4

A B C E F G 9 10

1 and 3 get ¼, 9 and 10 get 1/8, and A–G get 1/24 each. The statute alters distribution by representation.

Hypo 3: X’s grandfather made a trust, income to X for life, remainder to Y. Within 9 months of his grandfather’s death, X renounced his income interest. What result? What if the trust said income to X for life, then income to Y for life, remainder to Z?

First part – Y gets it all immediately, with the income interest too. Second part – Y gets it, remainder to Z.

Hypo 4: X’s grandfather made a trust to pay the income to X until he reached the age of 35, then remainder to him at that time. Within nine months of his grandfather’s death, X renounced his income interest. What result?

He renounces entire interest.

Actuarial ValuationsAllows you to compute present interest when it actually is an income stream or remainder when a certain age/year is reached. Hypo 1: Assume 6% interest rates, and assume the trust provides for income to be paid to A for life and remainder to B. If A is 30, then remainder factor is .10002 of the trust. The value of her income interest is therefore .89998. . . .

WILLS : PROBATE AND PROCEDURE AFTER DEATH

OverviewThe Probate/ Non-Probate Distinction

Why does it matter?Only the property that is considered probate property gets probated through the will/intestacy.

Examples of Non-Probate PropertyJointly owned property with a right of survivorship

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D

Totten trust bank accounts Life insurance (beneficiary - legal foundation is contracts)Pensions (matter of contract)Trusts Partnership interest s

Probate ProcedureA probate proceeding is where a will is offered by the proponent. Need the will, death certificate, and a petition to the court. If the will is found to be valid, it is admitted to probate. The court then appoints an executor/administrator through the granting of letters testamentary or letters of administration. He figures out who the necessary parties are and serves them with a citation/waiver. They get it notarized and send it back. If no objections, court grants powers to executor and she uses those powers to do what is necessary to administer the estate.

EPTL § 3-5.1: Multi-Jurisdictional Estates(1) Definitions

(a) Real property – land, estate in land, leaseholds, fixtures/mortgages, liens(b) Personal property – everything besides real property (c) Formal validity – formalities requirements (d) Intrinsic validity – capacity(e) Effect – legal consequences of statutes, i.e., anti-lapse, right of election, etc.(f) Interpretation – procedure of applying law to determine testator’s intention

(2) In General(a) Real Property

Formal validity, intrinsic validity, effect, interpretation, revocation, or alteration of a disposition, and intestacy are all determined by the law of the jurisdiction in which the land is situated.

(b) Personal PropertyIntrinsic validity, effect, revocation, or alteration of a disposition, and intestacy are all determined by the jurisdiction in which the decedent was domiciled at death.Interpretation of disposition of personal property is determined by jurisdiction in which decedent was domiciled at time of execution.Revocation/alteration of a disposition by subsequent writing/act is determined by jurisdiction in which testator was domiciled at time subsequent writing executed or act performed.

(3) Formal Validity(a) A will disposing of

(i) personal property, or(ii) real property in NY,

(b) made within or without NY by a domiciliary or non-domiciliary thereof,(c) is formally valid and admissible in NY, if it is

(i) in writing,(ii) signed by testator, and (iii) otherwise executed and attested in accordance with the law of:

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(A) NY(B) the jurisdiction in which the will was executed, at time of execution(C) the jurisdiction in which testator was domiciled, either at time of execution or death.

(4) Change in DomicileA disposition of personal property intrinsically valid under testator’s domicile’s laws at time of execution shall not be invalidated by change of domicile to a place where disposition is intrinsically invalid.

(5) Power of Appointment over Personal Property(a) Intrinsic validity, effect, revocation, or alteration of disposition (b) by which power of appointment is exercised, and (c) whether such power should be exercised at all, are determined by:

(i) Presently exercisable power – jurisdiction in which donee was domiciled at time of death(ii) General power:

(A) created by will – jurisdiction in which donor was domiciled at death(B) created by inter vivos disposition – jurisdiction in which donor intended to govern such disposition(C) if donor = donee of general power exercisable by will alone – jurisdiction in which donor was domiciled at death

(6) Choice of Law in the Will (a) Whenever the testator, not domiciled in this state at time of death,(b) provides in his will that he elects to have disposition of property situated in this state governed by laws of NY, (c) then all issues of law are determined by laws of NY.

Exception – formal validity still governed by sub-(3) above.

How Does This Statute Work? Hypo 1: D, a New York domiciliary, had valuable furniture in his home in Pennsylvania. In his will he gave it to his sister S. D’s wife W wants to elect against D’s estate, including the house and furniture. What law governs?

NY law governs for personal property; PA law governs for real property.Hypo 2: D, a New York domiciliary, owned a summer home in Pennsylvania. In his will he gave it to his son, S. Later, he tore up the will with the intention to revoke it. What law governs the effectiveness of the revocation?

PA law governs.Hypo 3: D, a domiciliary of Alabama, executed a will disposing of NY real property. Although only one witness attested to T’s signature, the will was formally valid in Alabama when she executed it. Can the will be admitted to probate in New York?

Yes.Hypo 4: Would your answer be the same if his will disposed of real property located in Nevada?

No – real property is always governed by the laws in which the land is situated. Hypo 5: D made a bequest of personal property to his "issue" in a will executed while he was a Georgia domiciliary. He died a New York domiciliary. What law governs the issue of whether non-marital children can share in the bequest?

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Interpretation – Georgia law applies. Hypo 6: When T was an Alaskan domiciliary, he executed a will disposing of his personal property. Later he moved to Hawaii and revoked his prior will by writing a new one. He finally died domiciled in New York. What law governs the revocation?

Hawaii law governs. Hypo 7: T left personal property to an organization which fosters an activity legal in the jurisdiction where he was domiciled when he made his will. He then moved to New York where such an activity is illegal. Would his will be given effect here?

Yes.

Spousal Right of Election Overview

The spouse is the only relative favored by protection against intentional disinheritances, and one of the very few limits that we have on freedom of disposition.

Policy – marriage is an economic partnership, with each spouse entitled to a near equal share of the marital property

EPTL § 5-1.1A: Right of Election by Surviving Spouse(1) The spouse has a right of election to take a share of the decedent spouse’s estate.(2) Elective Share

(a) Elective share is the pecuniary amount equal to the greater of(i) 50k or if its less than that, the capital value of the estate, or(ii) 1/3 of the net estate

(b) The net estate does not include debts, administration expenses, or funeral expenses.

(3) Net Elective Share(a) The net elective share is:

the spouse’selective share

MINUS Interest that Does Not Pass Absolutely: an interest that so passing from decedent to spouse consists of (i) less than the decedent’ entire

interest in the property, or Think about whether there is

any chance the spouse can lose her gift. E.g., fee simple, condition, life estate etc.

(ii) any interest in a trust or trust equivalent created by decedent.(b) Unless decedent provides otherwise, the election shall have same effect with respect to any interest which passes or would have passed to spouse, other than absolutely, as though the spouse predeceased the decedent.

(a) The capital value of any interest that passes absolutely (i) by intestacy (ii) by testamentary substitute (iii) by will(b) Or is renounced.

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Therefore, it will accelerate a remainder interest.This section means that the spouse forfeits her non-absolute interests when she chooses to elect against a will.

(4) Inter Vivos Gifts Treated as Testamentary Substitutes: The following will be treated as testamentary substitutes, whether benefiting the spouse or any other person, and shall be included in the net estate subject to the spouse’s right of election.

(A) Gifts Causa MortisA gift made in fear and contemplation of impending death that is automatically revoked if the donor survives the apprehended peril

(B) Gifts w/in 1 Year of DeathThe aggregate transfer of property as a gift or partial gift, to or for the benefit of any person, within 1 year of death, to the extent that they (i) exceed the 12k per donee annual tax exclusion or (ii) are uncapped education or medical payments for kids.

(C) Totten Trust AccountsMoney deposited plus interest, in a Totten trust savings account, remaining on deposit at decedent’s death.

(D) Joint Bank AccountsMoney deposited plus interest, held jointly with another with a right of survivorship, remaining on deposit at decedent’s death.

(E) Jointly Held PropertyAny property held (i) as joint tenants with a right of survivorship, (ii) as tenants by the entirety, or (iii) by decedent payable upon his death to another.Includes US savings bonds.

Transactions described in (D) and (E) above shall be treated as testamentary substitutes in the proportion that the funds on deposit were the property of the decedent immediately before the deposit/consideration was furnished by the decedent.

Spouse has burden of proving proportion. If spouse is other person, then proportion shall conclusively be one-half.

(F) Revocable TrustsAny lifetime transfer made by decedent, in trust or otherwise, to the extent that decedent (i) retained a possessory or income interest, except to the extent that it was

in exchange for consideration, or (ii) retained either alone or with another that does not have a substantial

adverse interest, the power to revoke, consume, invade, or dispose by express provision

(G) Pension PlansAny money or other property payable under a benefit/retirement plan. If the plan is qualified, than only half of the money.

(H) Power of Appointment If the decedent

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(i) held at death a presently exercisable general power of appointment or (ii) exercised or released such a power within one year before death, the property subject to the power of appointment is a testamentary substitute.

(I) A Transfer of a Security to a Beneficiary(5) Tell Banks ASAP

Spouse has to get to the banks quickly and let them know that there is a right of election. Otherwise, they are allowed to pay out to the beneficiaries the amount that is due to them. Brokerage accounts and banks are covered from liability.

(6) General Provisions Regarding Right of Election (1) When the spouse elects against the will, the will is valid as to the residue after the elected share has been deducted, and terms of the will shall remain otherwise effective as far as possible (abolishes illusory transfer doctrine).(2) Except as otherwise provided, ratable contribution to the spouse’s elected share shall be made by the beneficiaries/distributees/recipients of testamentary substitutes either by cash or specific property, at their discretion.(3) The right of election may be made by

(i) spouse(ii) guardian of spouse, when authorized by the court

(4) Any question arising as to right of election shall be determined by court on notice to all interested parties. A spouse may cancel election, provided there won’t be prejudice, upon application to court and notice to interested parties.(5) Right of election is not available to spouse of decedent who was not domiciled in this state at death, unless provided for property in NY to be governed by laws of NY in his will.(6) Decedent’s estate shall include all property of decedent wherever situated.

(7) Procedure for Right of Election (a) An election must be made

(i) within 6 months of date of issuance of letters testamentary/ administration, (ii) but no later than 2 years from date of decedent’s death.

(b) with written notice to the decedent’s personal rep,(c) and a filing in the appropriate Surrogate’s court.(d) Extensions may be granted by order of court for 6 months per application on reasonable cause and notice to interested persons.(e) A spouse may waive the right of election, in writing, subscribed, and acknowledged or proved in manner required by property laws, during the decedent’s lifetime.

A Close Up on Testamentary Substitutes The list of testamentary substitutes encompasses most (but not all) non-probate transfers.

Irrevocable dispositions made more than one year before death (or made before marriage) and life insurance are virtually the only non-probate transfers that are not testamentary substitutes.

Life Insurance Proceeds Life insurance is not a testamentary substitute. Thus, even if the decedent named his spouse as beneficiary of a 500K life insurance policy, the 500K received by

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the spouse does NOT affect either her entitlement to or the amount of her elective share.

Set-Off or Exempt PropertyEPTL § 5-3.1: Exemption for Benefit of Family

(1) If person dies and leaves spouse or children under 21, the following items are not probated (creditors cant reach them) but vest in, and shall be set off to such surviving spouse (or children if there is no spouse).

(a) All housekeeping items, not exceeding in aggregate value $10,000.(b) The family bible, family pictures, tapes, discs, and software used by such family, and books, not exceeding in value $1,000.(c) Domestic animals with their necessary food for sixty days, farm machinery and tractors not exceeding in aggregate value $15,000.(d) One motor vehicle not exceeding in value $15,000.

(i) If the decedent owned more than one car, even if one is more than 15k, the spouse can pick any one he wants but must repay the estate the difference.(ii) Spouse can elect to receive the value of the car, not exceeding 15k, instead of the car.(iii) If any motor vehicle was a specific disposition in decedent’s will, the payment to the estate of the amount by which the value of the motor vehicle exceeds $15,000 shall vest in the specific beneficiary.

(e) Money or other personal property not exceeding in value $15,000, except that where assets are insufficient to pay the reasonable funeral expenses, the personal rep must apply such money/property to defray any deficiency.

(2) No allowance shall be made in money or other property if the items of property described above are not in existence when the decedent dies.(3) As used in this section, the term “value” shall refer to the fair market value of each item, reduced by all outstanding security interest or other encumbrances.

This statute trumps even contrary provisions and dispositions in the will.

TAX : OVERVIEW (from Justin Marino’s Outline, supplemented by Sim’s notes)

Overview Of Estate, Gift, & Generation Skipping TaxesDefects in the old law necessitated changes that lead to the current law. Congress changed three basic things: (1 and 2) Congress unified BOTH the estate and gift taxes, and (3) enacted a generation skipping tax. (1) Unified Tax Rates Rates apply to BOTH the estate and gift taxes. So now the whole system…both the gift and estate taxes are CUMULATIVE!

Hypo: If you made taxable gifts in the amount of 1,600,000 and then die owning a taxable estate of 1,000,000 THEN the estate tax is going to be calculated at 2,600,000.

(2) Unified Credits Instead of having a separate deduction for gifts…turned it into a credit and unified it with the estate stuff.

This credit is 2 million!Difference Between A Deduction & Credit

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A credit comes out after you have calculated everything – comes out at the bottom and you take out an amount that exempts X from taxes (you calculate at a higher tax bracket). A deduction comes out right off the top and then you tax the remainder. A deduction would be worth MORE for a rich person (takes them out of a higher tax bracket).

Hypo: Every American can pass $2 million to her loved ones free of estate taxes. In addition, every married American can give 100% of her estate (no matter how large) to her spouse without taxes. Assume that you have married clients whose estates are lopsided – say H has $3,500,000 and W has forty cents. Assume also that all they care about are the tax consequences, not about each other or their children. Would you advise W to put in her will a clause relating to the order of their deaths? If so, what might it say? Would you advise H to say something in his will about the order of their deaths? If so, what?

Husband should give wife 1 million right now. Make provision that in case die simultaneously, assume husband has survived.

(3) Cumulative System of TaxationThis would treat the children’s death as a taxable event. SO under this, can no longer skip taxes at one generation, and have to pay taxes at every generation. Taxes are calculated as follows: Compute the gross estate (decedent's probate assets + lifetime transfers (which are similar to testamentary substitutes, but don't include gifts given w/in one year) + lifetime gifts that you made). On this gross estate, you compute tentative tax (it goes from 18% to 55%) then you subtract out the lifetime gifts & subtract any available credits (life unified credit worth $2 million).

Three Sets of Taxes Make Up the Unified SystemThey are all excise taxes – taxes that are imposed when there is a transfer.

1) Gift TaxesThis is the tax assessed on the amount of money that is given to the donee.

What is a Gift?The gift tax is imposed on direct gifts AND indirect gifts. For example, it includes money that you gratuitously give other people, money that anyone owes you, transfers for inadequate consideration, and exercise of a power of appointment in favor of someone.

How to Compute – identify the current year’s gift, then determine what part is deductable, due to charitably, spouse, 12K, etc, then add in prior taxable gifts and compute the taxes using the tax rate table. Then subtract gift taxes that you have paid on prior gifts. Again, thrust is to get into highest bracket, not to double tax you. Then subtract available credits, significantly unified credit.

Retention of Power Over Property A donor cannot retain the power over the property. If he does, it is NOT a gift. This can cause the property to be included in the gross estate.

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Note: If something is taxed as a gift during your lifetime…BUT if you retain control over it so that it comes back into your estate…then you will get a credit for the gift tax you paid. When it comes back into your gross estate…it puts you at a higher tax bracket for tax purposes!

Annual Exclusions This is one of the TWO advantages remaining for people who make gifts during their lifetime.

Gifts made by a donor during a calendar year to the same donee are deductible up to 12K. Can make an 12K gift to as MANY donees as the T wants EVERY year!Gift Splitting – Can double the 12K if you get your spouse to consent. SO can then make a 24K gift to as many donees as the hub and wife want EVERY year! Tuition and Medical Expense Exclusion – In addition to the 12K exclusion, are allowed to pay tuition and medical expenses and they are not counted as gifts. This has to be paid directly to the school or doctor.

Inclusive versus Exclusive Tax Base This is the SECOND advantage remaining for people who make lifetime gifts.

Gift taxes are EXCLUSIVE whereas estate taxes are INCLUSIVE.Gift Tax – G makes a gift to A of $100. The gift tax rate is 30%. Would pay the government a gift tax of $20 and receives the $100.Estate Tax – G dies owning $130 that she devises to B. The estate tax rate is 30%. G’s estate pays the government an estate tax of $39 AND B receives the remaining $91.

2) Estate TaxesThis is the tax assessed on the amount of money that the decedent owns and is measured on the death time value of the property. Because of big variations in the market, can opt to value estate property SIX months after death (if value decreased).

To calculate estate tax – First figure out the gross estate, and then subtract all deductions (charitable, marital, and expenses, debts, and funeral costs – all these deductions are due to policy considerations, except for the debts and costs – that is for reality purposes; to know what the estate will be). Then, add back ‘adjusted taxable gifts’ (definition - taxable gifts [beyond 12K stuff…] during the decedent’s lifetime not included in gross estate). Then, on the total, compute your tentative tax. Then subtract gift taxes paid on post-1976 gifts (a little oversimplified). Then subtract every available credit, including the current $2m credit and unified credit.

a) Property Included In Gross Estate (1) Probate Property – Property that decedent owned in his individual name that can pass to another person (2) Lifetime Gifts Made Within THREE Years of Death – ALL gifts are included in the gross estate if they are transferred in the last three years of life.

Exceptions :(a) Small transfers made in the last couple of years that are going to blossom into something larger later on (i.e., life insurance policy). (b) Trusts where you have retained something that causes it to be included in the gross estate (i.e., income interest).

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(3) Retained Property Interest – The following are included in a gross estate: the retention of an income interest, retention of a reversionary interest, and the retention of a right to revoke in a revocable trust.

This can be drastic. If you give your house away and retain the right to live in it….the WHOLE value of the house would be included in your gross estate when you die.

(4) Powers of Appointment – A general power of appointment is included in the gross estate if you are allowed to use it in your own favor, in the estate’s favor, in a creditor’s favor, OR in a creditor of the estate’s favor.

Hypo: If a person exercises a general power of appointment in favor of X, he has made a gift to X. However, if he fails to exercise the power of appointment and it passes by default to Z, he has made a gift to Z.

(5) Jointly Owned Property – If the other joint owner is your spouse…ONLY half will be included in the gross estate. If the other joint owner is someone else, the portion that the decedent paid for will be included in the gross estate.(6) Life Insurance – If the insured owns the policy on their own life, then it is included in the gross estate. If the insured has incidents of ownership (i.e., right to change the beneficiary, right to cash in on the policy, the right to pledge the policy as a collateral for a loan, etc), then it is also going to be included in the gross estate. If the beneficiary is the estate, then it is included in the gross estate.(7) Annuities – If testator is receiving the payments during their lifetime, and someone else receives the remainder after they die…then it is included in the gross estate. (also applies to pension plans).

b) Marital Deduction This is UNLIMITED! Can give 100% of your estate to your spouse and there will be ZERO taxes.

Exception: Terminable Interests The marital deduction is NOT available for terminable interests. SO if you give your spouse something less than the entire estate…would not be eligible for the marital deduction (i.e., I give my estate to my husband…but if he remarries, the kids get.) HOWEVER…there are some exceptions to this terminable interest rule.

Exceptions to the Exception: (1) Q-Tip Trust – The idea behind this is that the property should only be taxed once in the two spouse’s estates. So, any property that had been Q-tipped in the first estate is going to be taxed in the second estate.

Hypo: Husband puts the money in a trust and directs that all of the income be paid to the spouse, unrestricted, and when spouse dies, goes to kids. When the husband dies, he has a 100% marital deduction for the property. When the wife later dies, that trust is added on to her gross estate.

NOTE: Here, we are taxing the second spouse for property that she only had an income interest in. In reality, the taxes are taken out of the trust BUT are calculated as though they were added on as part of her estate. So, Q-Tip trust pays taxes at the highest rate after considering the spouse’s other assets.

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(2) Life Estate & General Powers of Appointment Trust – If a trust gives spouse ALL the income, unrestricted for the rest of their lives AND allows them to appoint the remainder by will to anyone in the world, including their estate, it qualifies for the marital deduction.

Hypo 1: H died with a net estate of $4,000,000, survived by his wife and three adult children. He had a simple will leaving everything to his wife, or if she predeceased him, to their children in equal shares. The wife wants to renounce her share. What would be the result?

The children get it in equal shares. Wife is treated as predeceased. Bad idea – gets taxed at 50%. Wastes 2m unified credit. She could disclaim half of it. H’s estate is then tax free. Gross would be 4M, marital deduction 2M, taxable 2M (which is wiped out by unified credit).

Does it matter what the wife’s estate is worth?

Still avoiding the tax. Even if it boosts her into a higher bracket, deferring taxes is almost always a good thing. And she can use her 12,000 per year per donee gifting program to reduce her estate.

What if (back to original questions, where H has left everything W), you put a clause in their will: to invade principal for her in the trustee’s discretion (and you name her sister trustee), and at her death to distribute the principal to my children. Good plan.

Hypo 2: If the will says “I give my estate to my H, and if fails to survive me, to my children,” and then H and W both die simultaneously in a car crash. Who gets property?

we just presume that W did survive H, and then her property goes to her kids.

But if you have a situation where H and W have lopsided estates, like H is poor and W has a lot of $$, you really should write in the wife’s will that the husband is deemed to have survived her in the event of simultaneous deaths, so that H gets ½ of W’s estate. That way, H gets ½ the estate and its not taxed because of the marital deduction and then the other ½ can be used by the wife’s unified credit to give to her kids, and H can use his share to pass to kids with unified tax credit. Both estates then have no tax.

c) Life Insurance This may be created as a way of paying estate taxes. If you anticipate that you will have total taxes of 2 million, could buy a 2 million dollar insurance policy. HOWEVER, the downside is that life insurance goes back to the estate to calculate the rate. So how do we create a fund that is going to be large enough for taxes BUT won’t cause that fund to become part of the estate and incur more taxes? – Have to create an irrevocable life insurance trust. Decedent would let the trustee of the trust purchase life insurance in the amount he assumes the taxes will be. The beneficiary of the life insurance would also be the trustee! After the decedent dies, the fund would NOT be included in the gross estate because the decedent has no incidents of ownership (not payable to the estate).

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If there is enough liquidity in the estate…the executor would just use that to pay taxes and the trust would replace the liquidity.

3) Generation Skipping Transfer TaxHypo: A grandmother sets up a trust to her daughter…giving her income for the rest of her life and remainder to her grandchildren. Pre-1977 – NO tax at the daughter’s generation. 1977 – generation skipping transfer tax was enacted. There are THREE triggering events:a) Taxable Termination When income beneficiary dies (i.e., daughter). This kicks in at the top rates for estate and gift. So, when daughter dies, there will be a 50% tax on the principal of the trust.b) Taxable Distribution When the trustee has the authority to distribute to other generations. When trustee gives to grandkids, this is a taxable event at a tax rate of 50%.c) Direct Skip A gift from the grandmother directly to the grandson would be a taxable event at a tax rate of 50%.

BUT the gift tax is also 50%. So the grandmother would be making a taxable gift AND invoking the 50% generation skipping tax. Would that use the whole thing up? – There is a generation skipping tax exemption of 1 million dollars. So both grandmother and grandfather could give a total of 2 million. Over and above that, the whole asset could possibly be wiped out.

Powers of AppointmentPossessing a general power of appointment can have BOTH estate and gift tax consequences. A general power will be included in the gross taxable estate. If you exercise the power of appointment in favor of someone else or just give it to someone else, you are making a gift.

Exception Hypo: Give a trustee a power of appointment over a 1 million dollar trust. Direct that the income be paid to hub for the rest of his life (50K). Also, give hub the right to take out 5% or 5K, whichever is greater…EXCEPT…he can only do this in a year or else it will lapse and remain in the trust.

This trust will NOT be included in the gross estate. By doing it this way, have succeeded in capturing the wife’s one million dollar deduction AND the husband’s one million dollar deduction.

SUMMARY: If you want to give your spouse maximum benefits, you should give them income for life AND a 5 or 5 power. In addition, you can make the trustee someone friendly and give them the right to invade the principal for the spouse…can take out more money and give it to them.

Stepped Up v. Carry-Over Basis Basis – The cost at which the property was acquired. The rest is “appreciation/gain” –We need basis in estate taxes. Gains are treated as income for estate purposes once the property is sold. On the other hand, any property included in her gross estate has its basis increased to the date of death value.When you sell property, the amount selling price exceeds basis results in income taxes. When you die, the property included in gross estate has its basis increased to the date of death value

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Hypo: So if X buys a house for 5k, and when he dies house is worth 500K, the basis is 500K. If X’s wife sells the house for 500K, it is NOT taxed. If she sells it for 600K, then 100K is taxed.

TAX : APPORTIONMENT

EPTL § 2-1.8: Apportionment of Federal & State Estate TaxesBasic Rule

(1) Whenever there appears that a fiduciary may be required to pay an estate tax,(2) under the laws of any state,(3) with respect to any property required to be included in the gross tax estate,(4) except if the

(a) testator otherwise specifically directs in the will, or(b) he does so by any instrument other than will, which only affects the taxes for the funds in disposed of in at instrument

(5) the taxes shall be equitably apportioned among the persons benefited.(6) The taxable property shall be valued at FMV at time of death or 6 months later.

Temporary Interests(1) Unless otherwise provided, (2) when a disposition is made by which the person is given

(a) an interest in income(b) an interest in an estate for years or life, or(c) any other temporary interest,

(3) the tax apportionable against such temporary interest and remainder (4) is chargeable against and payable out of the principal,(5) without apportionment between such temporary rights and the remainder.

Apportionment, Exemptions, and Deductions(1) Unless otherwise provided,(2) the tax shall be apportioned at the ratio of value of property :: total value of property received by all persons benefited.(3) But, any exemption or deduction allowed by law (marital, annual, charitable) shall inure to the benefit of all persons benefited, (4) and any deduction for property previously taxed/credited shall inure to the benefit of all persons benefited and the tax to be apportioned shall be the tax after allowance of such deduction or credit.

Multiple Instruments (1) Any direction as to apportionment,(2) whether contained in a will or non-testamentary instrument,(3) relates only to the property passing thereunder, (4) unless such will or instrument provides otherwise.(5) If it is later in time and contains a contrary direction, it shall govern provided that the later specifically refers to the direction in the prior.(6) Non-Testamentary Instruments

(a) Any such direction provided in a non-testamentary instrument (b) only relates to payment of tax from the property passing thereunder, and

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(c) such direction shall not serve to exonerate such non-testamentary property,(d) from the payment of its proportionate share of the tax, (e) even if otherwise directed in that non-testamentary instrument.

The Fiduciary’s Rights and Responsibilities(1) Fiduciary is authorized to and shall recover from, persons benefited by any property that is not in the fiduciary’s possession, their ratable portion of the taxes.

Procedure : Fiduciary can write a letter and ask for that person’s share of taxes. If they don’t do this, there is a Surrogate Court proceeding. The Surrogate has broad discretion for getting this back. If fiduciary has possession of the fund…will just take the taxes out before distributing it.

(2) Fiduciary doesn’t have to distribute the estate until after taxes are paid or adequate security for such payment is furnished.

Fees (1) The fiduciary can apportion an equitable share of expense in connection with the determination of apportionment in specific circumstances. (2) Whenever an attorney renders services to do with litigation, the surrogate may assess against the property an equitable share of compensation for legal services.

Q-Tip TrustAlthough Q-tips to the spouse are not absolute interests, she may choose for the Q-tip to be eligible for the marital deduction. But, if she does this, the trust is treated as though it is part of her estate when she dies, and estate taxes will be deducted then.So this statute says that the taxes due from Q tip trusts are to be paid from the Q tip trust itself. [CONFIRM]

Placing Out of EPTL 2-1.8You can say that you want the taxes paid out of residuary instead.

Hypo 1: you give daughter a piece of raw property worth 5M & you give 5M residuary to son. If you say you want taxes paid from residuary, son probably wont get anything because taxes would eat up the residuary.

But, if you say “I want executor to pay all taxes, debts, and expenses as soon as possible,” that does not place you out of § 2-1.8.Non-probate assets are generally taxable even though decedent did not really own them at death

Hypo 2: so if you say “I direct all taxes out of my residuary estate” that will NOT include the insurance because insurance does not pass through the will. So, whoever gets insurance still has to pay their fair share of taxes!So, you have to say “I direct all taxes on property passing under the will OR otherwise to be taken out of residuary” and then even non-probate assets taxes will be included.

Be careful when directing taxes to be paid from residuary.Hypo 3: I give my engagement ring to my daughter. I give my residuary estate to my husband. I direct that my estate taxes be paid out of the residuary. You are allowed to say that husband pays estate tax, but you’re going to get marital deduction for husband, but you don’t know how much going to get because has to take estate taxes. Circular problem. The IRS gives a formula for this.

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How Does This Statute Work?Hypo 1: In his will, T gives his artwork, valued at $100m, to A, his books, valued at $400m, to B, $100m to the Nature Conservancy, and his residuary estate ($500m) to C. His estate taxes total $350m. How should the executor apportion them?

100m to Conservancy is not taxable, so it is taken out. Total gross estate then 1B. 1:4:5 ratio. T – 1/10, A – 4/10, C – 5/10.

Hypo 2: In his will, T gives $100k to A, $200k to B, and residuary estate ($3m) to C. In 2004 T made a $300k revocable lifetime trust to pay income to himself for life, remainder to D and E in equal shares. In 2005, he deposited $400k in a bank account in his name in trust for E. Both lifetime transfers are includible in the gross estate. His estate taxes total $1m. How should the executor apportion them?

Ratio is 100:200:3000:150:550. 4m gross estate. A – 1/40, B – 2/40, C – 30/40, D – 1.5/40, E – 5.5/40.

Hypo 3: Read above as originally written, and assume that in the lifetime trust, T included an instruction that he wanted any estate taxes incurred by the trust to be paid out of his residuary estate. Is that effective?

No, not effective. The will can apportion taxes but the trust can only apportion taxes within the trust itself.

Hypo 4: In 1980, T made a lifetime trust (corpus $1m) to pay income to himself for life, remainder to A and B, and he directed that all estate taxes incurred by the trust be paid equally by A and B. In his 2007 will disposing of his $3m probate estate, he directed that all estate taxes be paid out his residuary estate. Do A and B have to bear the burden of the taxes incurred by the trust?

Yes – its not specific enough in the later instrument.

TRUSTS : EXPRESS PRIVATE TRUSTS

Introduction Why Create a Trust?

Extremely flexible and impartial for property management Convenient way to avoid probateTaxes – irrevocable inter vivos trusts are taxed at the time you give the property away, not at time of death

Restatement Definition: A trust is (1) a fiduciary relationship with respect to property, (2) arising as a result of a manifestation of an intention to create that relationship, and (3) subjecting the person who holds title to the property to duties to deal with it, (4) for the benefit of one or more persons, (5) at least one of whom is not the sole trustee.

A trust may be a testamentary trust or a lifetime (inter vivos) trustA trust may be revocable or irrevocable.

A trust that says nothing is irrevocable.Three Parties to the Trust

The creator (grantor, settler, testator (for testamentary trusts))The creator may name herself or somebody else as trustee

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The creator may name himself as beneficiaryThe trustee – the legal owner of the property; holds title to it.

A trust won’t fail for lack of a trustee, a court will appoint one if there isn’t oneThe beneficiaries – have an equitable interest in the trust property

At least one of the beneficiaries cannot be the trustee. A trust will fail for lack of a beneficiary.

Division of OwnershipThis division of ownership is at the very heart of trusts.

The trustee holds legal title but not beneficial title, which carries with it the fiduciary duties with respect to propertyThe beneficiaries hold equitable title, which confers rights in personam to enforce those duties.

Different Types of Express Trusts and “Trusts”(1) The Constructive Trust

This is not a trust at all, but a remedy – the court’s answer to unjust enrichment in equity.Court has given for remedy a constructive trust for failed joint will contracts, fraud, murderous heirs, etc.

Hypo 1: D validly executed a will and later directed X (a beneficiary under it) to bring the will to her so she could destroy it. Unbeknownst to D, X substituted another document, which D tore into little pieces. Can D’s will be admitted to probate?

Yes. Since testator didn’t revoke it, can admit it. But court would then impress a constructive trust on the property and direct that it be paid to the intestate distributees.

(2) The Resulting Trust This trust arises when an express trust fails or does not completely dispose of the trust property. Like the constructive trust, this really isn’t a trust at all—it is a property interest analogous to the reversion retained by a grantor who conveys a legal interest in property for life without creating a remainder interest thereafter—it creates an equitable beneficial interest.

(3) The Q-Tip Trust A trust created while one spouse is still alive, with the sole beneficiary being the other spouse, that the IRA allows to be included in the marital deduction. It gets taxed when the 2nd spouse dies.

Generally, the marital deduction is only for absolute gifts; an income interest in a Q-tip trust, however, is the exception to the rule.

(4) The Pour-Over Trust (Revocable Living Trust)EPTL §3-3.7: Pour-Over Trusts

(1) A testator may dispose of or appoint all or any part of his estate to a trustee of a trust, (2) the terms of which are evidenced by

(a) a written instrument (b) executed by testator

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(c) in manner provided for under §7-1.17 7-1.17: in writing, executed and acknowledged by initial creator

and, unless the creator is the sole trustee, by at least 1 trustee, in the manner required for a real property sale, or executed in the presence of 2 witnesses and signed by them.

(d) prior to or contemporaneously with the execution of the will and (3) such trust instrument is identified in such will.(4) The testamentary disposition or appointment is valid even though:

(a) the trust instrument is amendable or revocable or both So, can add amendments to trust after trust was enacted (and even

can have post-death amendments) and still be a valid trust. But, only those amendments up until the testators death will be

given effect unless the testator expressly states that she wants post-death amendments to take effect.

(b) the trust instrument or any amendment thereto was not executed with the formalities of a will (under §3-2.1)

(5) A revocation or termination of the trust before the death of the testator shall cause the disposition or appointment to fail, unless the testator has made an alternative disposition.

Benefits to Pour Over Trusts(1) At point of death, no stopping of probate, immediately becomes effective

Good housekeeping function (2) Avoid filing fee(3) Very valuable when closest relative are cousins back in the old country, because probate proceedings very extensive and may not even know who relatives are.

“I give everything I own at the time of my death to my trustee for my revocable living trust” or something like that in the will.

(5) The Irrevocable Living TrustRemember in NY, irrevocable is the default when making an inter vivos trust – you have to expressly state that the trust is revocable to make it so!

(6) The Testamentary TrustA trust established in a will, and only upon the death of the testator.

(7) The “Credit Shelter” TrustTrust gives the trustee amount equal to unified credit and prevents that amount from being included in wife’s estate when she died, and its tax free in testator’s estate because he is also using the credit.

You don’t want to fund the trust with more than the unified credit because then it will be taxed in your wife’s estate

(8) The Life Insurance TrustThe trustee becomes the beneficiary of the life insuranceNow its not included in the gross tax estateEPTL § 7-1.5: The proceeds of a life insurance policy, under trust or other agreement, upon the insured’s death, may not be transferred, subject to encumbrance, or subject to legal process.

(9) Charitable Trusts

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Introduction A charitable trust requires a fiduciary relationship with respect to the property, a trust corpus, and intent to create a trust. It does not require, however, definite beneficiaries or compliance with the rule of perpetuities.

Lacking definite beneficiaries, a charitable trust is principally enforced by the state attorney general.

Generally, in order to be a charitable trust, the trust must have a purpose that is beneficial to the community. Charities get special tax emeptions.

EPTL § 8-1.1: Disposition of property for charitable purposesSame requirements as above. In NY, no need even for a trustee, the court will substitute itself as trustee.Allows a trust instrument to be incorporated by reference in a will [we only had to skim this statute]

The Cy-Pres DoctrineRestatement § 67: Failure of Designated Charitable Purpose

(1) Unless the terms of the trust provide otherwise, where property is place in trust to be applied to a charitable purpose and it is or becomes

(a) Unlawful, (b) Impossible or impracticable to carry out that purpose, or (c) To the extent it is or becomes wasteful to apply all the property

to the designated purpose,(2) the charitable trust will not fail but the court will direct application of the property or appropriate portion thereof to a charitable purpose that reasonably approximates the designated purpose.

NY Requirements (1) Restatement above, plus(2) T’s Intent:

(a) Specific charitable intent NO Cy Pres (b) General charitable intent YES apply Cy Pres

Elements of a Trust(1) Trust Res/Corpus/Principal

The property put into trust.Trustee has legal title to corpus.Beneficiaries have various equitable interests in the trust

Examples: life estate interest, income interest, remainder interest, etc.The only property that is considered in trust is that which is transferred to the trust.

(2) TrusteeIn General

A trustee must be an honest adult, but not a non-domiciliary alien.Unless:

Unfit because of drunkenness or improvidence, or Clueless as to what it means to be a fiduciary.

EPTL § 7-1.1: When trust interests not to merge

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(1) A trust is not merged/invalid because 1 person, (a) including but not limited to the creator of the trust,

(2) is or may become the sole trustee and the sole holder of the present beneficial interest therein, (3) provided that 1+ other persons hold a beneficial interest therein,

(a) whether such interest be vested or contingent, present or future,

(b) and whether created by express provision of the instrument or as a result of reversion to the creator’s estate.

EPTL § 7-2.3: Trust estate not to descend on death of trusteeVests in the court

(1) On the death of the sole surviving trustee of an express trust, (2) the trust estate does not pass to his rep/distributees/devisees,(3) but, in absence of contrary direction by creator,(4) if the trust has finished, (5) the trust estate vests in the court, as the case may be,(6) and the trust executed by a person appointed by court.

Notice for continuation(1) Upon notice to beneficiaries(2) the court may direct(3) upon application for successor trustee,(4) unless creator has directed otherwise,(5) the court may appoint a successive trustee(6) whenever in the court’s opinion(7) such appointment is necessary for effective administration and distribution of the trust estate, subject to following:

(a) successor trustee hall give security as court may direct (b) a successor trustee shall be subject to the same duties as

imposed by law on trustees, and (c) gets reasonable administration expenses plus such commissions

as may be fixed by court not exceedable by law.EPTL § 7-2.6: Resignation of Trustee

(1) Subject to the relevant provisions of law, the supreme court has the power (a) on application of a trustee, to accept his resignation and to discharge him on such terms as it deems proper

(3) Specific Trust Intent (for NY, see below in formalities)In General

A trust is created only if the settler properly manifests an intention to create a trust relationship:

(1) property arrangement(2) requiring a corpus(3) with ownership divided into its legal and equitable portions

Intention can manifest itself through actual transfer or language of transfer.

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A trust can be created without notice to or acceptance by any beneficiary or trustee.

Precatory LanguageUnless the testator or other transferor manifests an intention to impose enforceable duties on the transferee, the intention to create a trust is lacking and no trust is created.

Inquiry imposing legally enforceable duties or requiring a moral obligation?

Factors (1) specific terms and overall tenor of words used

Colton (SC) – a request to widow legatee with no implied alternative = command

(2) (in)definiteness of property involved(3) ease/difficulty of ascertaining possible beneficiaries and interests(4) interests/motives and nature/degree of concerns that reasonably influenced transferor(5) financial situation and expectations of parties(6) transferor’s prior conduct/statements/relationships(7) personal/fiduciary relationship between transferor and transferee

(4) Identifiable Beneficiaries Must be Ascertainable

A trust is not created, or if created will not continue, unless the terms of the trust provide a beneficiary who is ascertainable at the time or who may later become ascertainable within the period and terms of the rule against perpetuities.

A valid trust can be created that includes unborn children or issue.Must be Intentional

A person is a beneficiary of a trust if the settler manifests an intention to give the person a beneficial interestA person who merely benefits incidentally from the performance of the trust is not a beneficiary

How Does This Work? Hypo 1: Income to A for life, remainder in corpus to my (G’s) friends.

This is invalid.Hypo 2: Income to A for life, remainder in corpus to such of my (G’s) friends as A shall select.

Discretionary powers of appointment are almost always valid. It is valid unless the group of permissible appointees (G’s friends) is so indefinite that it is impossible to identify any person who the donor intended should be permissible appointees of power.

Hypo 3: Income to A for life, remainder in corpus to such of my (G’s) friends as the trustee shall select.

Mandatory power of appointment are not usually valid and the test for validity here is much more stringent than in discretionary. In this case, the trustee’s power is too indefinite.

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Formalities of a Trust (A) In General

EPTL § 1-2.20: Lifetime TrustLifetime trust means an express trust and all amendments thereto created by other than a will.

EPTL § 7-1.14: Who May Make a Lifetime TrustAny person may by lifetime trust dispose of real and personal property, as long as they are 18 years or older.

EPTL § 7-1.15: What Property May be Disposed of by Lifetime TrustAny estate in property.

(B) Funding of a TrustEPTL § 7-1.18: Funding of a Lifetime Trust

(1) A lifetime trust shall be valid as to any assets therein to the extent the assets have been transferred to the trust.

(a) A transfer is not accomplished by recital of assignment, holding, or receipt in the trust instrument, and(b) in case of a trust where creator is the sole trustee, transfer shall mean

(i) For assets capable of registration the recording of the deed or completion of registration in name of trust or trustee.

(ii) For other assets a written assignment describing the asset with particularity.

(C) Execution of a TrustEPTL § 7-1.17: Execution . . . of Lifetime Trusts

(1) Every lifetime trust shall be in writing,(2) executed and acknowledged by

(a) the initial creator, and(b) by at least 1 trustee (unless creator is sole trustee)

(3) and either(a) in manner required by laws of state for recording a real estate sale, or(b) executed in presence of and signed by 2 witnesses

(D) Amendment/Revocation EPTL § 7-1.16: Revocation of Lifetime Trust by Will

(1) A lifetime trust shall be irrevocable unless it expressly provides that it is revocable.(2) In addition to the method set forth below, a revocable lifetime trust can be revoked or amended by express direction in the creator’s will, which specifically refers to such lifetime trust or a particular provision thereof.

EPTL §7-1.7: Amendment/Revocation of Lifetime Trusts(1) Any amendment/revocation(2) authorized by the trust(3) shall be in writing and executed by the authorized person, and (4) except as provided in the government instrument,(5) shall be witnessed and acknowledged same as required in execution, and(6) shall take effect on the date of execution.

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(7) Written notice must be delivered to at least 1 other trustee within a reasonable time

(a) Failure to do so won’t effect the validity of the amendment/revocation. (8) No trustee shall be liable for any act reasonably taken in reliance of the old trust instrument prior to notice of amendment/revocation.

EPTL § 7-1.9: Revocation of [Irrevocable] Trusts(1) Upon written consent, (2) acknowledged/proved in a manner required for recording a real estate sale,(3) of all the persons (present and future) beneficially interested in the trust property,

Excludes possible unborn beneficiaries (4) the creator of such trust may revoke or amend the whole or any part(5) by an instrument in writing acknowledged or proved in a like manner(6) thereupon the estate of the trustees ceases.(7) If the trust instrument was recorded, the revocation/amendment and consents must also be recorded.(8) For the purposes of this section, a disposition to “heirs,” “next of kin,” or “distributees” of the creator does not create a beneficial interest.

How Does This Statute Work?Hypo 1: Grantor made a trust to pay income to herself for life, remainder to her children. Her children are 14 and 16.

In accordance with laws of state for recording of conveyance of real property, 14 and 16 considered minors who cannot consent.

Hypo 2: Grantor made a trust to pay income to her children for life, remainder to her grandchildren. Her children are 60 and 62, and her grandchildren are 20 and 22.

Need all their consent.Hypo 3: Grantor made a trust to pay income to her children for life, remainder to her grandchildren, and if none survived, remainder to her intestate distributees. Her children are 60 and 62, her grandchildren are 22 and 24, and her only other relative is her sister.

Get consent from children and grandchildren; no need to get consent from aunt or any other intestate distributees.

(E) Ineffective Dispositions in TrustsEPTL § 2-1.14: Consequences of Partly Ineffective Dispositions of Trust

(1) Whenever the remainder of a lifetime or testamentary trust passes,(2) whether

(a) outright, or(b) in further trust,

(3) to 2+ designated beneficiaries, and(4) such a remainder is ineffective in part and (5) no alternative disposition has been made in the governing instrument,(6) such ineffective part shall pass

(a) to the other designated beneficiary or,

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(b) if there are 2+ beneficiaries, to such beneficiaries in the proportions that their respective interests in such principal bear to the aggregate.

How Does This Work? Hypo 1: D died yesterday. Her will left her residuary estate in trust, income to her husband for life, remainder half to her sister S if she were alive at the death of the husband, and half to the New York City Opera. S survived her but predeceased the husband. S was survived by issue.

S’s share was ineffective because of the condition. Husband maintains his income for life, and NY City Opera get the full remainder.

Hypo 2: D died yesterday. Her will left her residuary estate in trust, income to her husband for life, remainder half to her sister S and half to the New York City Opera. S survived her but predeceased the husband. S was survived by issue.

Now, the issue split S’s share equally because the remainder interest vested in the sister.

(F) Potential Ways to Terminate a Trust (1) When the Trust Money Runs Out

The trust ceases to exist when the corpus is depleted to nothing.(2) When the Income Beneficiary Dies, and the Remainderman Gets Paid(3) When the Purpose of the Trust Has Been Fulfilled

Note: if the T had not said what occurs after the purpose has been fulfilled, then it would go back to the T's estate. In a charitable situation, we look at the cy pres doctrine (see above)

(4) When the Purpose of the Trust is FrustratedT makes a trust to pay her son's rent in his apartment for the rest of his life. The son buys a house and moves out of the apartment. The trust terminates.

(5) When All Beneficiaries ConsentSee above for NY rule § 7-1.9 on revocation with beneficiaries’ consent.American Rule: A beneficiary of a trust cannot compel premature modification or termination unless:

(a) All beneficiaries consent, and (b) Premature termination will not defeat a material purpose of the trust

(i) Postpone enjoyment (Clafin) (ii) Spendthrift, discretionary, and support trusts (iii) Allow trustee to sprinkle income among beneficiaries (iv) Etc. It is very easy to find a material purpose.

(6) According to the Trust InstrumentSee above for NY rule § 7-1.17 on revocation via trust instrument.

(7) According to the Testator’s Will See above for NY rule § 7-1.16 on revocation via will.

Restraining Alienability of Beneficial InterestsOverview

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Once a trust has been properly formed, should the law ensure that it will continue, or should the law enable the beneficiaries to undo the trust against the wises of the grantor?

Balance 2 competing interests:(1) The freedom to dispose property into a trust as he wishes; and(2) The rights of the beneficiaries and their creditors.

The question is one of distribution of power, and conflict arises in the context of the three types of trusts listed below.

Overview on the Types of Trusts(1) Spendthrift Trusts

A trust that contains a provision imposing a disabling restrain of the alienation of the beneficiaries’ equitable interests.

Disabling restraint: one that purposes to nullify any attempted assignment/transfer by a beneficiary of his/her equitable interest, in whole or part, and any attempted attachment of a beneficiary’s interest by the beneficiary’s creditors.

Don’t forget the rule against alienation in an analysis here.In the absence of a valid restraint on alienation, the trust is freely transferable and alienable.

NY– most trusts are automatically made into spendthrift trusts (see below)(2) Discretionary Trusts

A trust that contains a provision giving the trustee discretion to pay to or apply for the benefit of the beneficiary only so much of the income or principal or either as the trustee sees fit

(3) Support Trusts A trust that contains a provision directing the trustee to pay to or apply for the benefit of the beneficiary so much of the income and principal or either as is necessary for the beneficiary’s education and support

NY Alienability and Creditors’ Rights StatutesEPTL § 7-1.5: When trust interest inalienable; exceptions

The interest of the beneficiary of any trust may be assigned or otherwise transferred, except that:

(1) The right of a beneficiary in an express trust to receive the income from property and apply it to the use or pay it to any person (2) may not be transferred by assignment or otherwise(3) unless a power to transfer such right, or any part thereof, is conferred upon such beneficiary in the trust instrument.

So all trusts are alienable except income trusts.Exception 1

(1) The right of a beneficiary in an express trust to receive the income from property and apply it to the use or pay it to any person (2) may, unless otherwise stated in the trust instrument, (3) transfer any amount in excess of 10k of the annual income to

(a) spouse, issue, or 1st degree relatives, (b) a trustee, guardian, etc

(4) if such transfer is evidenced by

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(a) a written instrument signed and acknowledged by the beneficiary

(b) delivered to trustee, (c) with an affidavit stating that transfer is not for consideration.

(5) Any such transfer shall be effective in any year only, and if there is more than one such transfer, and the total amount exceeds the yearly income from the trust, transferees shall be preferred in delivery order.(6) A transferee may further transfer his interest without consideration to any of the permissible beneficiaries listed above.

When the transferee dies, any income not so transferred by him shall be an asset in his estate.

(7) A beneficiary is not precluded from anything in this section from transferring or assigning his interest to or for the benefit of persons whom the beneficiary is legally obligated to support.

Exception 2Matter of Vought – There was an express provision in the trust NOT allowing the alienability of the remainder interest. Son assigned his interest in a series of transactions. HELD: The court held that the T’s intent in keeping the property inalienable prevails. Thus, the creditors to whom the son had assigned his interest could not get the money.

EPTL § 7-3.1: Disposition in trust for creator void as against creditors(a) A disposition in trust for the use of the creator is void as against existing or subsequent creditors of the creator.

Hypo: For example, G creates an irrevocable trust, income to G for life, remainder to X. G’s creditor’s can reach the income interest and principal. If future creditors, than can only attack the income?

EPTL § 7-3.4: Excess income from trust property subject to creditor’s claims(1) Where a trust is created to receive the income from property, and(2) no valid direction for accumulation is given,(3) the income in excess of the sum necessary for the education and support of the beneficiary (4) is subject to the claims of his creditors in the same manner as other property which cannot be reached by execution.

CPLR § 5205 A creditor can levy against 10% of the trust income even if it is needed for the beneficiary’s support and education.Sum: All interests are alienable except for income interest beneficiaries and except if T provides otherwise.

Remainder interest is alienable UNLESS you make it inalienable.Income interest is inalienable UNLESS you make it alienable.

The Merger of the Discretionary and Support Trusts at Common LawThere is now a single standard for discretionary and support trusts in the Restatement the support trust is a discretionary trust with a support standard Restatement § 50

A discretionary power of a trustee to determine the benefits to be paid to a beneficiary is subject to judicial control only to prevent

(1) misinterpretation or

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(2) abuse of discretion What may constitute abuse depends on the terms of the discretion

and the grantor’s purposes in granting the power and creating the trust.

An interest under a discretionary trust is inalienable, since the beneficiary’s interest is viewed as mere expectancy.

EPTL § 7-1.12: Supplemental needs trusts established for persons with severe and chronic or persistent disabilities

(1) Definitions(a) Person with severe and chronic or persistent disability – a person with mental illness, developmental disability, or other physical or mental impairment whose disability will or does give rise to a long-term need for specialized services, and who may need to rely on gov’t services. (b) Supplemental needs trust – a discretionary trust established for the benefit of a person described above, which conforms to the following:

(A) The trust document clearly evinces the creator’s intent to supplement, not supplant/diminish, gov’t benefits for which the beneficiary may otherwise be eligible/receiving (B) The trust document prohibits the trustee from giving out the trust assets in any way which might supplant/diminish gov’t benefits; provided that the trustee may be authorized to make such distributions as necessary for food, clothing, shelter, or health care but only if the trustee determines:

(i) that the beneficiary’s basic needs will be better met with distribution and

(ii) that it is in the beneficiary’s best interest to suffer the consequential effect, if any, on the beneficiary’s gov’t benefits.

(C) The beneficiary cannot alienate the trust property(D) If inter vivos trust, the creator is someone other than the beneficiary or the beneficiary’s spouse.(E) The beneficiary may be the creator if meets the requirements of Social Services Law 366(b)(2):

(i) disabled person must be under 65 (ii) the trust created by parent, grandparent, guardian, or court, (iii) upon the disabled person’s death, the gov’t is repaid for the

amount that the disabled received as benefits(2) Presumptions and Guidelines

(a) It shall be presumed that creator intended that neither principal or income be used to pay for any expense paid by gov’t benefits(b) Neither principal nor income shall be deemed available for the beneficiary. In addition, giving money outright to the beneficiary would disqualify them. (c) If trust provides trustee authority referenced above in (1)(b)(B), and its mere existence would result in gov’t benefit disqualification, then

(A) if trust instrument provides, the term is void, or(B) the trust will no longer be treated as a supplemental needs trust

(3) Actual Language: “the grantor’s intent to create a supplemental needs trust . . .”

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Modification of TrustsOverview

If trust beneficiaries have right to compel termination, they also have a right to compel modification of the trust’s provisions.Equitable deviation doctrine

The court still might modify or terminate the trust because of circumstances not foreseen by grantor (not in the trust instrument). In addition, the trustee may deviate from the trust terms without prior court approval if he reasonably believes there is an emergency, and he has no time to get court approval before deviating.

Distributive DeviationsIn General

A beneficiary may seek to accelerate or increase his right to income or principal beyond what is granted by the terms of the trust, by invading the principal.Restatement §66: Unanticipated Circumstances

The court may modify an administrative or distributive provision of a trust, or direct the trustee to deviate from such a provision, if because of circumstances not anticipated by grantor, the modification or deviation with further the purposes of the trustIf trustee knows or should know of circumstances that justify judicial action above, then the trustee has duty to petition court.

EPTL § 7-1.6: Application of Principal to Income Beneficiary (post 1996)(1) If express trust is an income beneficiary trust,(2) unless otherwise provided in the disposing instrument,(3) the court may in its discretion make an allowance from principal to income beneficiary (4) whose support or education is not sufficiently provided for,(5) whether or not such person is entitled to the principal or any part,(6) provided that the court, after a hearing on notice to all beneficially interested, is satisfied that

(a) the original purpose of the creator cannot be carried out, and(b) such allowance effectuates the intention of the creator.

(7) If such income beneficiary is becomes entitled to a share of the principal, such allowance as given above will be charged against the income beneficiary’s share of the principal.(8) This section does not apply of its application or possibility of its application would reduce or eliminate any charitable deduction otherwise available.

Administrative DeviationsOverview

The most common court-approved administrative deviations usually involve the power of trustees to sell or invest trust assets.Again, administrative deviations occur when circumstances that the grantor did not anticipate produce an exigency or emergency, which would defeat or substantially impair the trust purposes.

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Matter of Pulitzer (NY) A trust was funded with shares of stock in a newspaper company. Shares of the stock fell so low that the trust beneficiaries wanted to sell the stock even though the trust said “never to sell.”

Held: The court allowed the emergency sale to protect the beneficiaries from serious loss or destruction of the substantial assets in the corpus (the stock).

Trusts: Fiduciaries

Fiduciary Duties of TrusteesOverview

Why Hold Trustee as a Fiduciary?Because the trustee will not bear the direct consesquences of its decisions concerning how to manage the trust estate, has no immediate incentive to exercise its managerial authority carefully and in the best interests of the beneficiaries. Most important duties loyalty and prudence

Multiple FiduciariesEPTL § 10-10.7: Exercise of powers by multiple fiduciaries (trustees)

3+ Fiduciaries(1) Unless contrary to express provisions of instrument, (2) a joint power other than power of appointment,(3) conferred upon 3+ fiduciaries,(4) may be exercised by (a) a majority of such fiduciaries, (b) a majority of surviving fiduciaries, or (c) the sole surviving fiduciary

2 Fiduciaries (1) Such a power conferred on 2 appointed/surviving fiduciaries (2) may be exercised jointly, (3) unless contrary to express terms of instrument.

Failure to Act and Dissent(1) A fiduciary (a) who fails to act through absence/disability, or (b) a dissenting fiduciary who joins in carrying out majority’s decision as

long as dissent is expressed promptly in writing (2) shall not be liable for consequences of majority decision (3) provided that liability for failure to join in administering estate/trust to prevent breach of trust may not this be avoided.

Duties of the Fiduciary(1) Maintain a high standard of loyalty toward the beneficiaries

Meinhart - “A trustee is held to something stricter than the morals of the marketplace. Not honesty alone, but the punctilio of an honor the most sensitive is then the standard of behavior. As to this there has developed a tradition that is . . . unbending and inveterate. Uncompromising rigidity has been the attitudes of courts of equity when petitioned to undermine the rule of undivided loyalty . . . .”

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The fiduciary must act solely in the interest of the beneficiary. A conflict of interest is potentially harmful to beneficiary but is allowed in certain circumstances.

Self Dealing (NY)There is no further inquiry once the court finds that the person has self-dealt. You must repay any profits you made.

(3) Administer the trust or estateTrustees: Make the property productive with due regard to income beneficiary and remaindermen.Executors: Marshal and protect assets, make distributions.

(4) Keep accounts, render accountsMust keep accounts of what money comes in and goes out. Keep a log.Also must render accounts – a formal document of an accounting – what you received and paid out, and beneficiaries have a chance to look it over and bring objections. Trustee may be surcharged for what they did wrong.

(5) Hold trust or estate property earmarked (no commingling)(6) Perform (don’t delegate) duties(7) Exercise reasonable care and skill(8) Enforce claims

Attempted Exculpation of DutiesAlthough the fiduciary duties are mostly by default, the grantor cannot be allowed to waive all of the duties duties such as loyalty and prudence may be subject to grantor modification, not elimination

Modification can occur through an exculpatory clause, which are generally not permitted to immunize the trustee from bad faith, reckless indifference, or intentional or willful neglect

EPTL § 11-1.7: Limitations on Powers & Immunities of Executors & Trustees(1) The attempted grant to an executor (will) or testamentary trustee, or successor of either, [doesn’t apply to lifetime trusts](2) of any of the following powers or immunities,(3) is against public policy and void (and in a will, will be excised rendering the remaining terms effective, as far as possible):

(a) The exoneration of such fiduciary from liability for failure to exercise reasonable care, diligence, and prudence(b) The power to make a binding and conclusive fixation of the value of any asset for purposes of distribution, allocation, or otherwise.

(4) Any interested person may contest the validity of any purported grant of power of immunity without affecting adversely his interest in the estate or trust (unless otherwise stated in the instrument).

EPTL § 11-2.3: The Prudence Investor RulePrudent Investor Rule

(1) A trustee has a duty to invest and manage property held in a fiduciary capacity(2) in accordance with a prudent investor standard, (3) except as otherwise provided by the express terms of instrument

Prudent Investor Standard Generally

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(1) The rule requires a standard of conduct, not outcome or performance (a) Compliance is determined in light of all facts and circumstances

(2) Trustee is not liable to the extent that trustee acted (a) in substantial compliance with prudent investor standard or (b) in reasonable reliance on express terms if instrument

(3) Trustee shall exercise reasonable care, skill, and caution to make and implement investment/management decisions as a prudent investor would for entire portfolio,

(a) taking into account purposes, terms, and provisions of instrument Prudent Investor Standard Requires Trustee to:

(1) pursue overall investment strategy to enable hi to make appropriate distributions, in accordance with risk and return objectives reasonably suited to entire portfolio;(2) to consider size of portfolio, duration of fiduciary relationship, liquidity and distribution needs of instrument, general economic conditions, tax consequences, expected total return, needs of beneficiaries, etc.;(3) to diversify assets, if reasonable;(4) within reasonable time after creation of fiduciary relationship, whether to retain/dispose of initial assets.

Prudent Investor Standard Authorizes Trustee to:(1) to invest in any type of investment;(2) to consider related trusts, income and resources of any beneficiaries, and an asset’s special value to beneficiaries;(3) delegate investment and management functions; and

(a) But, trustee must exercise care, skill, and caution in picking the delegee, establishing the scope if his delegation, periodically reviewing him, and controlling the overall cost by reason of delegation.(b) And, delegee has duty to trustee and trust

(4) to incur appropriate and reasonable costs, as measured against instrument’s terms, the assets, and trustee’s skills.

Trustee’s Power to Adjust(1) Where the rules of the Principal and Income Act apply and (2) the terms of the trust describe the amount that may or must be distributed to beneficiary by referring to trust’s income, (3) the prudent investor standard also authorizes the trustee to adjust between principal and income (4) to extent advisable to make appropriate present and future distributions (5) if trustee determines that such adjustment would be fair and reasonable to all beneficiaries, (6) so that current beneficiaries may be given such use of trust property as consistent with preservation of its value.(7) Factors: In deciding whether to exercise above and to what extent, a trustee may consider the following extra factors:

(a) grantor’s intent, assets of the trust, extent to which an asset is used by beneficiary, whether asset purchased by trustee or received from grantor;

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(b) net amount allocated to income under Principal and Income Act and the increase or decrease in value of principal assets; and(c) terms of trust in relation to principal invasion, and how often the trustee has done it before

(8) A trustee may not make adjustment: [summary](a) that diminishes income interest in a trust that requires all income to be paid at least annually to spouse and for which marital deduction is claimed(b) reduces actuarial value of income interest in trust to which person transfers property with intent to qualify for gift tax exclusion (c) changes amount payable to beneficiary as a fixed annuity of trust’s value(d) from any amount that is permanently set aside for charitable purposes(e) if benefits the trustee

(9) Terms of trust that limit power to adjust are not contrary to this section unless its clear that terms are intended to deny trustee power of adjustment

Special Investment SkillsStandard changes to “exercise such diligence . . . as would customarily be exercised by prudent investor of discretion and intelligence having special investment skills.”

Principal and IncomeWays to Think about Income

(1) taxable income(2) Income as compared with remainder – actuarial division of the trust between or among classes of beneficiaries.(3) Income as compared with principal – what the trust earns – trust accounting income – this is our topic

Principal and Income Act (EPTL 11-A) Defines Income as money or property that a fiduciary receives as current return from a

principal asset, and Principal as property held in trust for distribution to a remainder beneficiary

when the trust terminatesBut it gives the fiduciary two options:

(1) If the trustee opts to administer the trust under the Principal and Income Act, he can make equitable adjustments between income and principal.(2) Alternatively, he can treat the trust as a unitrust under a new EPTL § 11-2.4 and pay out 4% of its value annually to the income beneficiary (regardless of the actual income earned by the trust assets). Don’t have the division between what is income and what is principal and

is allowed whether the trust assets earned 4% or not. It is like you are creating a fake income stream.

This solves problem of how to engage in risky investments with the assets but still give the income beneficiaries what they need/deserve.

EPTL § 11-2.3-A: Judicial control with respect to fiduciary’s power to adjust

A court will not overrule a trustee’s decision to exercise or not to exercise an adjustment power unless it finds that he has abused his discretion.

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To the extent that the abuse of discretion results in no distribution (or too small a one), the court will order a distribution from the trust.

EPTL § 11-1.1: Powers of TrusteesAs usual, go to the instrument first to see what powers are conferred. This statute is for when the powers are not conferred.

Accept additions to an estateAcquire an remaining interest in jointly held propertyKeep or acquire insuranceInvestTake possession or sell property (they do have legal title)Can lease property (executor can lease for 3 yrs, trustee can lease for 10 yrs)Can mortgage property if it needs liquidityMake repairsGrant options for the sale of propertyForeclose on propertiesCan deal with stocks and assets through accounts instead of certificatesTo contest or compromise or settle claims in favor of estate or in favor of third party claims against estate – so you don’t have to go to ct unless a child is involvedTo make distributions in cash or in kind.

One thing an executor CANNOT do is borrow money.

Rule Against Perpetuities

Future InterestsEPTL § 6-4.2: Definition of a Future Estate

(1) A future estate limited to commence in possession at a future time, (2) either

(a) without the intervention of a precedent estate, or (b) on the determination, by lapse of time or otherwise, of a precedent estate created at the same time.

EPTL § 6-4.3: Definition of RemainderSame as above but created in favor of a person other than the creator.

Overview of Types of Future InterestsIn the Grantor

(1) Reversion (2) Possibility of Reverter(3) Right of Reentry/Reacquisition

In Someone Else(1) Vested Remainder (2) Contingent Remainder (3) Executory Interest

This is subsumed in NY into contingent remainder Estates in Favor of the Grantor

(1) EPTL § 6-4.4: Reversion (1) A future estate,

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(2) other than possibility of reverter and a right of reacquisition,(3) left in the creator(4) upon the simultaneous creation of one or more lesser estates than the creator originally owned.

(2) EPTL § 6-4.5: Possibility of Reverter(1) A future estate left in the creator(2) upon the simultaneous creation of an estate(3) that will terminate automatically(4) within a period of time defined by the occurrence of a specified event.

For example, “for as long as,” “until,” “while,” “during such time as.” It is words that denote time.

(3) EPTL § 6-4.6: Right of Reacquisition (1) A future estate left in the creator (2) upon the simultaneous creation of an estate(3) on a condition subsequent.

The grantor needs to exercise this right. Key language: “but if.”Estates in Favor of Someone Else (Remainders)

(1) EPTL § 6-4.7: Indefeasibly Vested (1) An estate created in favor of 1+ ascertained persons in being, (2) which is certain when created to become an estate in possession whenever and however the preceding estates end, and(3) which can in no way be defeated or abridged.

(2) EPTL § 6-4.8: Vested Subject to Open(1) An estate created in favor of a class of persons,(2) 1+ of whom are ascertained and in being,(3) which is certain when created to become an estate in possession whenever and however the preceding estates end, and(4) is subject to diminution by reason of another person becoming entitled to share therein.

(3) EPTL § 6-4.9: Vested Subject to Complete Defeasance (1) An estate created in favor of 1+ ascertained persons in being,(2) which would become an estate in possession upon the expiration of the preceding estates, but(3) may end or be terminated

(a) as provided by the creator(b) at, before, or after the expiration of such preceding estates.

Types of Present Interests [CONFIRM](1) With a condition subsequent (2) With a limitation

(4) EPTL § 6-4.10: Subject to a Condition Precedent (Non-Vested Interest)(1) An estate created in favor of 1+ unborn or unascertained persons, or(2) An estate created in favor of 1+ presently ascertainable persons upon occurrence of an uncertain event.

Most common: survivorship or age contingency

How Does This Work?

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Hypo 1: G puts property in trust, income to A, then at A’s death corpus back to G.A has life or present interest that is inalienable. G has a reversionary interest.

Hypo 2: G gives property to A for life.A has a life estate. G has a reversion. Reversion doesn't have to be

articulated. If you haven’t given away 100% of the estate, then what is left is the reversion.

Hypo 3: G gives property to A for life, then remainder to B.A has life estate. B has indefeasibly vested remainder. If B’s dead, his estate

gets it.Hypo 4: G gives property to A for life, then to B if B survives A.

A has life estate. B has contingent remainder interest subject to a condition precedent. G has right to reverter. This is always valid under the rule of perpetuities.

Hypo 5: G gives property to A for life, remainder to A’s children. A has no children at the time of transfer.

G has life estate. A's unborn children have a contingent remainder interest subject to a condition precedent (that is, a condition of being born). G has reversion.

Hypo 6: G gives property to A for life, remainder to A’s children. A has children.A has life estate. Born children have vested remainder interest subject to

open. Unborn children have contingent remainder interest subject to a condition precedent.

Hypo 7: G gives property to A for life, remainder to A’s children who reach the age of 30. A has no children who have reached 30.

A has life estate. A’s children: contingent remainder interests subject to TWO conditions precedent: 1st – must be born; 2nd – must reach the age of 30. G has reversion if NONE of the conditions are met.

Hypo 8: Same as above but A had children who have reached 30. Children – Vested remainder interest subject to open. There could be more kids who reach 30.

Hypo 9: In his will, T gives property to W for life, remainder to T’s son-in-law, but if the son-in-law has divorced T’s daughter, remainder to T’s daughter.

W has life estate. T’s son in law has vested remainder subject to complete defeasance. There is a condition subsequent because of the “but if.” T’s daughter has contingent remainder interest subject to a condition precedent.

Hypo 10: Same as above but now assume that T’s daughter predeceased T and that she was still married at her death.

T’s son in law gets indefeasibly vested remainder. Hypo 11: G gives property to X for life, remainder to Y, but if Z should return to town, remainder to Z.

Y has vested remainder subject to complete defeasance. If Z returns to town, Y will lose the property. Z has contingent remainder subject to a condition precedent – this is the classic common law executory interest.

Hypo 12: G gives his property to the city, so long as it is used for a park.G has possibility of reverter. City has fee on limitation.

Hypo 13: G gives his property to Z and his issue for so long as they do not serve

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alcohol there.G has possibility of reverter because of the language of duration of time. Z has a fee on limitation.

Hypo 14: G deeds his property to his daughter, but if she fails out of law school he gets it back.

Grantor has right to reacquisition. G has a fee on condition.

Rule Against Perpetuities In General

SummaryAn interest is VOID right from the start if there is any possibility, however, remote, that the interest may vest more than 21 years after some life in being at the creation of the interest.

If a situation can be imagined in which the interest might not vest within the perpetuities period, the interest is void!

If it is possible that the interest COULD vest more than 21 years after all the lives in being have died, that interest is invalid from the start there’s no way to save it.

Interests that are Exempt from the RuleCharitable Trusts – May last forever.Vested Interests – A vested remainder in a person is NOT subject to the rule.

Exception : vested remainders in a class are subject to the rule so long as the class remains open.

Reversionary Interests – Reversions, possibilities of reverter, and rights of entry are all vested in interest and are not subject to the RAP.

The Common Law Rule: EPTL §9-1.1(b)(1) No estate in property shall be valid unless it must vest, if at all,

(a) not later than 21 years (b) after 1 or more lives in being at the creation of the estate and any period of gestation involved.

(2) In no case shall lives measuring the permissible period of vesting be so designated or so numerous as to make proof of their end unreasonably difficult.

The Interest “Must Vest”It must be certain that the interest becomes an estate in possession at some point.

You don’t need actual possession. An interest becomes “vested” when:(1) It becomes a present possessory estate,(2) A vested future interest

It becomes an indefeasibly vested remainder, or It becomes a vested remainder subject to total divestment.

Future 3rd Person InterestsThe rule is ONLY applicable to future interests created in 3rd persons.You only need to do a perpetuities analysis if the interest is:

(1) contingent remainders, (a) Be born/Survivorship/Reaching a Certain Age

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Remember, unborns have to be born, and then if there is a further condition (like reaching age 21), they have to meet that condition as well.

(b) Living but unascertained (c) Conditioned not certain to happen

(2) executory interests, and (3) vested remainders subject to open.

The Interest Must Vest, “If At All”This means that the interest does not have to vest within the perpetuities period in order to be valid; after all, many contingent remainders never vest because the condition precedent to their taking is not satisfied.

The interest must be certain before the end of the perpetuities period to:(1) vest or (2) fail to vest

“No Later Than 21 Years”Main Rule: An interest is void if there is any possibility, however remote, that the interest may vest in more than 21 years.Main Question: Is it possible that the interest court vest (that is, the contingency could occur), more than 21 years after the death of “lives of being”

The 21-year period may be valid in gross or connected to the minority age of any beneficiary.

For example, “to all descendants born within 21 years of my death” or “such children of A if they reach the age of 21.”

Lives in BeingMeasuring Life

A person in being when the future interest is created who enables you to prove the interest will vest or fail during that person’s life, or at that person’s death, or within 21 years after that person’s death.

Some life in being that is related to or somehow affects vesting.The person must be alive when the interest is created.

The measuring lives need not be given a beneficial interest in the property, and they need not even be expressly referred to in the instrument.

When the Perpetuities Period Begins to Run The validity of the interests under the rule is determined at the time the interests are created, taking into account the facts then existing.

Wills – date of death Revocable trusts – date the trust becomes irrevocable (at creator’s death) Irrevocable trusts – date the trust is created

The BeneficiaryThe beneficiary of the interest has to be alive/in gestation at time of transfer (either at time of creation or death, see above) or within 21 years after that.

Look at the people who are actually alive at the creation of the interest…asking whether it is possible if they could die, and then 21 years could pass before the contingency could attach. [CONFIRM ALL THIS]

RAP Checklist(1) Look to see if there is a contingent interest

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(a) Conditioned on survivorship (b) Conditioned on reaching certain age(c) Conditioned on the birth of children/grandchildren (an unascertained class)(d) Conditioned on an uncertain event

(2) Who should you think of when determining lives in being?It’s often helpful to think about the parents of the class whose interest you’re analyzing. They have to be people who were actually alive.

(3) Is it possible that the interest could vest (that is, that the contingency could occur) more than 21 years after the death of “lives in being”?

We need initial certainty—if something can vest later than that, then it’s too remote. If you can find anyone in the class whose interest is going to vest too late, the whole thing is invalid. All or nothing rule.

(4) Apply the NY Rules and Rule of ConvenienceNY Rules (applies to both RAP and suspension of alienation)

EPTL § 9-1.2: Reduction of Age Contingency(1) Where an estate would, except for this section, be invalid(2) because made to depend, for

(a) its vesting, or(b) its duration

(3) upon any person attaining or failing to attain an age in excess of 21 years, (4) the age contingency shall be reduced to 21 years(4) as to any or all persons subject to such contingency.

EPTL § 9-1.3: Rules of Construction: Unless a contrary intention appears, (b) Validity Presumption

(1) It shall be presumed that the creator intended the estate to be valid. This is only applied to cure an ambiguity, not an invalidity.

(c) Unborn Widow Rule(1) Where an estate would, except for this ¶, be invalid (2) because of the possibility that the person to whom it is given or limited may be a person not in being at the time of the creation of the estate, and (3) such person is referred to in the instrument creating such estate as the spouse of another without other identification, (4) it shall be presumed that such reference is to a person in being on the effective date of the instrument.

(d) Contingency Presumption(1) Where the duration or vesting of an estate is contingent upon

(i) the probate of a will, (ii) the appointment of a fiduciary, (iii) the location of a distributee, (iv) the payment of debts, (v) the sale of assets, (vi) the settlement of an estate, (vii) the determination of questions relating to an estate, or (viii) the occurrence of any specified contingency,

(2) it shall be presumed that the creator of such estate (3) intended such contingency to occur, if at all,

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(4) within 21 years from the effective date of the instrument creating such estate.

(e) The Fertile Octogenarian Rule (1) Where the validity of a disposition depends on the ability of a person to have a child at some future time, it shall be presumed that a male can have a child at 14 or over, and a female can have a child between 12 and 55. (2) Except:

(i) In the case of a living person, evidence may be given to establish whether he is able to have a child at the time in question.

(ii) The possibility that a person may have a child by adoption shall be disregarded.

(3) A determination of validity or invalidity of a disposition under RAP by application of above shall not be affected by the later occurrence of facts in contradiction to the facts presumed above.

Rule of Convenience (AKA the class-closing rule)This is a real property concept not just a perpetuities issue. It is always applicable. First prong

The use of only a group or class description indicates that all persons who fit the description—whenever born—were intended to share in the gift.

Hypo: T writes a will in which she create a trust for her children. Children born after the execution of the will are entitled to share.

Second prong You can close the class artificially and prematurely at the point when a distribution may be made (when the money is ready to be paid out)

Hypo: T drafted a will in 1990, leaving her estate in to her children and grandchildren in equal shares. In 1992 she had another child and in 2004 her eldest child presented her with a grandchild. When she died yesterday, all her children and her grandchild share her estate, but after-born children are out (born after the testator’s death) because the money was ready to be paid out—it was a will, and the testator died.

Third prongWhen they conflict, prong #2 prevails over prong #1.

How This Rule Work?Hypo 1: T makes a will, giving property to his children for life, remainder to his grandchildren.

The bequest to the children for life is good. It vests in them upon creation of the trust. The contingency for the remaindermen is to be a grandchild of the testator. That means being born to one of the testator’s children.

The trust is created when the testator dies, and that’s when you measure validity for perpetuities purposes. The lives in being are T’s children. It’s a closed class because the testator is dead and can’t have more children. Perpetuities question: Could contingency occur more than 21 years after death of T’s children (the lives in being)? No. Grandchildren necessarily must be born within the

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lives of the children. It’ll vest in the grandchildren when they’re born, during the children’s lifetimes.

Hypo 2: Creator makes a trust (lifetime or testamentary) to A for life, then to B for life, then to such of B's children as reach the age of 21.

A’s interest for life vests immediately upon its creation, so its valid.There is no contingency for B, because his interest also vests immediately upon its creation.Contingency for remaindermen, B’s children – must be born, and must reach age of 21. Measure perpetuities period from when make trust, or when creator dies.Lives in being is B. Closed class.Perpetuities question: Could contingency occur more than 21 years after death of B (the lives in being)? No. B’s kids will vest when they reach 21, which can happen only within 21 years of B’s death.

Hypo 3: Creator makes a trust (lifetime or testamentary) to A for life, then to B for life, then to such of B's children as reach 24.

Here, contingency can occur more than 21 years after death of B – they could occur 4 years too late! B could have a baby today and die tomorrow, and his baby would reach 24 almost 24 years after his death. Remainder invalid under common law, but NY age contingency reduction rule would save this gift and reduce age to 21 years old.

Hypo 4: Grantor makes an irrevocable lifetime trust, income to grantor's children for their lives, remainder to grantor's grandchildren.

Income to grantor’s presently living children vests immediately on creation of trust, so its ok. Income to grantor’s afterborn children, if at all, vests immediately at their births, so their interest is contingent on being born. But, interest is valid because children’s births have to occur during grantor’s lifetime.Remainder to grantor’s grandkids – contingency is grantor having kids, then his kids also having kids – grandchildren must be born.Perpetuities question – could grandchildren be born more than 21 years after death of grantor’s children who were alive when trust was created, the lives in being? YES. The grantor could have another child after making trust. Then lives in being could all die, and the afterborn could give birth to grandchild of grantor more than 21 years later. The remainder interest is invalid, and therefore the trust will pay income to the children for their lives, then revert to the grantor. Could that reversion violate the rule? No. Reversions vest upon creation and never violate the rule.

Hypo 5: The testator makes a bequest to such of A's children as reach the age of 30; A is dead at the testator's death.

Contingency – A’s children need to be born, need to reach age of 30. Perpetuities period starts to run at testator’s death.Who’s the lives in being? A is dead, so it cannot be A. All of A’s children are alive and are themselves the lives in being. Could contingencies occur more than 21 years after testator dies? All of A’s children will either reach 30 (or fail to) during their own lifetimes!

Hypo 6: The testator makes a bequest to such of A's children as reach the age of 30; A is alive at the testator's death and one of his children has reached 30.

Contingency – A’s children have to be born and reach the age of 30.

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Could contingency occur more than 21 years after death of A? Initially that seems problematic, because of the possibility that A could have more children. However, one of A’s children has reached 30, so the distribution is ready to be made and the class can close under the rule of convenience.

All of A’s children living at T’s death are therefore lives in being , and they’ll reach 30, if at all, during their own lifetimes.

Hypo 7: The testator makes a testamentary trust, income to B for life, remainder to A's children who reach 30. B is dead at the testator's death and one of A's children has reached 30.

Income to B for life is valid, but he is dead. Contingencies for A’s children are that they are born and reach 30. But, because B’s dead and 1 child is already 30, class closes. Remainder to A’s children who reach 30 vests immediately on testator’s death. They are their own lives in being and will reach 30 or not in their own lifetimes.

Hypo 8: The testator makes a bequest to such of A's children as shall reach 30. At the testator's death, A is alive and none of A's children has reached 30.

Ok, here the class cannot close because distribution isnt read to be paid. Contingencies – A’s children need to be born and reach 30. A is the life in being. Can contingency occur after 21 years of death of A? Yes. But saved by NY’s contingency reduction rule.

Hypo 9: Testamentary trust, income to A for life, then to such of A’s children as reach 25. A is alive and A’s eldest child had reached 25 at the creation of the trust.

The remainder is invalid in common law. The class remains open, because the rule of convenience operates only when the distribution can be made. Here, it can’t, because A is still alive. But, saved by NY’s contingency reduction rule.

Hypo 10: The testator makes a testamentary trust, income to the testator's brother for life, remainder to the testator's nieces who reach the age of 21.

Income to testator’s brother is valid.Remainder interest: It depends. The contingencies for nieces are to be born and to reach 21.What lives in being are useful to consider? The testator’s brothers and sisters who were alive when he died. Is it possible that a niece could vest after all their deaths? What if the testator’s parents had a child after the testator’s death, and then all the lives in being died? Then, what if the after-born sibling gave birth to a niece? She might vest (turn 21) more than 21 years after the death of the lives in being.What could save it?

First, it’s valid if the testator’s parents were dead at his death. The testator’s brothers and sisters would be a closed class, and a niece would reach 21 (or not) within 21 years of their deaths. Second, if the rule of convenience would permit closing the class. That would happen if T’s named brother were dead at testator’s death and one of the nieces had reached 21. In that case, any after-born nieces would be excluded and could not share.Third, in New York, if the father were dead and the mother were over 55, the class would be biologically closed under the fertile octogenarian rule (EPTL 9-1.3(e)).

Hypo 11: The testator devises real property for his children for life, then for his grandchildren

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for life, then remainder to the grandchildren's surviving issue.The life estate to the children is valid. It’s not contingent; it vests upon creation of the interest. The life estate to the grandchildren: The contingency is to be born. The class of T’s children is closed because the testator has died. All grandchildren will be born during the lives of their parents, the closed class of testator’s children. The grandchildren’s life estate is therefore valid. The remainder to the more remote issue: the contingency is to be born to a grandchild of T. The useful lives in being are the grandchildren alive at testator’s death, which is not a closed class. An after-born grandchild could give birth to a great-grandchild more than 21 years after the death of lives in being. Just being able to imagine that is fatal. The remainder is invalid.

Suspension of Alienation Rule Overview

This is a 2nd rule that you also have to satisfy in order for the disposition to be valid.EPTL § 9-1.1(a): Rule Against Perpetuities/Suspension of Alienation

(1) The absolute power of alienation is suspended when there are no persons in being by whom an absolute fee or estate in possession can be conveyed or transferred. (2) Every present or future estate shall be void in its creation which shall suspend the absolute power of alienation by any limitation or condition for a longer period than lives in being at the creation of the estate and a term of not more than 21 years.

Lives in being shall include a child conceived before the creation of the estate but born thereafterIn no case shall the lives measuring the permissible period be so designated or so numerous as to make proof of their end unreasonably difficult.

Recall § 7-1.5(a), the rules on whether trust interests are alienable: Generally, all trust interests are freely alienable except income interests in trusts are inalienable unless the creator expressly makes them alienable.

That is, a remainderman can alienate his interest any time (even if it’s contingent), and an income beneficiary never can, for his whole lifetime.

Three generalizations for Suspension of Alienation (to Master) 1. Even if an income interest vests in time, it will be invalid if an after-born could enter the

class of income beneficiaries. 2. If a remainder interest vests on time, it’s valid under the suspension of alienation rule

(b/c you can alienate even a contingent remainder). 3. If a remainder interest vests too remotely, it is invalid under the suspension rule only if

the contingency is to be born.

Turano’s CommentaryThe suspension of alienation rule voids any interest that suspends the absolute power of alienation beyond lives in being plus 21 years.

The power of alienation is suspended when there are no persons in being who can transfer the fee simple absolute.

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Present interests as well as future interests can be invalidated under the suspension of alienation rule

Under § 7-1.5, income interests are inalienable unless expressly made alienable, so a violation occurs when a grantor attempts to create an income interest in persons not alive at the effective date.

Two Ways SOA Can Fail - either (1) no one is alive to alienate the interest or (2) The interest is inalienable (i.e., even though the person is alive, they can't get rid of the property)

How Does this Rule Work?Hypo 1: T makes a will, giving property to his children for life, remainder to his grandchildren.

Gift to the children for life is valid because they can immediately alienate it.Remainder is valid b/c they can alienate it as soon as they’re born (through guardian), which will be within lives in being, namely the children’s lives.

Hypo 2: Creator makes a trust (lifetime or testamentary) to A for life, then to B for life, then to such of B's children as reach the age of 24.

To A for life and to B for life are both valid because, though it’s inalienable, it remains so only for their lifetimes (a life in being).To B’s children who reach 24 is valid. They can alienate their remainder interest as soon as they get it, at birth.

Hypo 3: Grantor makes an irrevocable lifetime trust, income to grantor's children for their lives, remainder to grantor's grandchildren.

Income to Grantor’s children is invalid , because he could have an after-born child. That child’s interest would remain inalienable for the child’s whole lifetime, which could be more than 21 years after Grantor’s death. Remainder to Grantor’s grandchildren is invalid, because there could be a period of time longer than lives in being plus 21 years when no grandchild was yet born; during that period no one would be able to convey fee simple absolute in the property.

Hypo 4: The testator makes a bequest to such of A’s children as reach the age of 30; A is alive at the testator's death and one of his children has reached 30.

All interests valid. A may have more children, but the class is closed by rule of convenience and his children can alienate their interests immediately, even if under 30.

Hypo 5: The testator makes a bequest to such of A’s children as shall reach 30. At the testator's death, A is alive and none of A's children has reached 30.

All interests are valid! Although class doesn’t close, A’s children whether they were living at testator’s death or not, can alienate as soon as they’re born, which has to be within A’s life.

Hypo 6: The testator makes a testamentary trust, income to the testator's brother for life, remainder to the testator's nieces who reach the age of 21.

Income to testator’s brother is valid because although it is inalienable, it is only so for a life in being (his life).Remainder interest looks problematic. Unless the testator’s parents are dead, or his mother is over 55 and his father is dead, it is invalid because a period could elapse

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when no niece is in existence to alienate her interest. And note that it could also be saved if the brother is dead and a niece has reached 21, because the class would close artificially under the rule of convenience.

Hypo 7: Testator makes a testamentary trust, income to A for life, then income to A's children for their lives, then remainder to X, Y, and Z if living, or if not, to their issue.

Income to A is valid (inalienable only for A’s lifetime).Income to A’s children is invalid, because it remains inalienable for their whole lives, and they are not all lives in being (A could have an after-born).Remainder to X, Y and Z is valid, because they can alienate as soon as the testator dies.Remainder to X, Y and Z’s issue is valid, because they can alienate it as soon as the testator dies.

Hypo 8: Irrevocable lifetime trust. Income to A for life, then income to A’s children for their lives, remainder to A’s issue alive at the death of A’s children.

A’s interest valid though inalienable because A is a life in beingA’s children’s income interest is invalid because a child of A’s born after the creation of the trust could outlive A by more than 21 years.Remainder interests are alienable, even when contingent, which means that A’s grandchildren can alienate their contingent remainder interests upon their birth. However, a child of A’s born after the creation of the interest could have a child more than 21 years after lives in being, during which time no person would be alive to convey a fee. Consequently, the remainder interest violates the SOA rule.

Powers of AppointmentEPTL §10-2.2: Definitions

(1) Donor – a person who creates or reserves a power(2) Donee – a person to whom a power is given or in whose favor a power is reserved(3) Appointee – A person in whose favor a power of appointment is exerciseable (4) Appointive Property – Property which is the subject of a power of appointment

EPTL §10-3.2: Classifications of Powers of Appointment(1) A power of appointment is general or special.

(a) General – to the extent that it is exercisable wholly in favor of(i) the donee, (ii) his estate, (iii) his creditors, or(iv) the creditors of his estate

(b) Special – all other powers of appointment(2) A power of appointment is exclusive or non-exclusive.

(a) Exclusive – if it may be exercised in favor of 1+ appointees to the exclusion of others(b) Non-Exclusive – if it must be exercised in favor of all the appointees.

EPTL § 10-3.3: Classifications of Powers of Appointment as to Time of Exercise(1) A power of appointment, as to the time of its exercise, is either presently exercisable, testamentary, or postponed.

(a) Presently exercisable – if it may be exercised by donee, during his lifetime or by his written will, at any time after its creation, and does not include a postponed power

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Turano – Have to be exercisable (1) during lifetime or (2) during lifetime or by will – it’s the wording of the power that determines its classification

(b) Testamentary – if it is exercisable only by a written will of donee(c) Postponed – if it is exercisable by donee only after expiration of a state time or after the occurrence or non-occurrence of a specified event.

How Does This Work?Hypo 1: Grandmother makes a trust, income to son, remainder as son appoints in his will.

Son’s power is general, because he could exercise it in favor of his estate, his creditors or his estate’s creditors.

Hypo 2: Grandfather creates a trust, income to daughter, remainder as she appoints among her children.

It’s special, exclusive, presently exercisable.Hypo 3: Wife makes a testamentary trust, income to her husband, and he can withdraw 5% or $5,000 per year from principal.

Husband’s power is general and presently exercisable because as soon as wife dies (that is, as soon as the trust is created), husband can exercise his power.

Hypo 4: Husband creates a trust, income to his wife, remainder in any proportions to their issue.

Special and presently exercisableHypo 5: Husband makes a trust, income to his wife for life, remainder as she appoints in her will.

Testamentary and general Hypo 6: Grandmother makes a trust, income to daughter, and on Mar. 1, 2009 she can appoint the remainder among the grandmother’s issue.

PostponedHypo 7: Wife makes a trust, income to husband for life, remainder as he appoints by will among their children, and he can take $5,000 or 5% each year out of principal.

His power over the remainder is a special testamentary power. His power over the principal is a general presently exercisable power.

Hypo 8: Father makes a trust, income to son for life, remainder as the son appoints by will among his issue, and he can withdraw from principal any time to provide luxuries for his mentally retarded brother.

The power over the remainder is a special testamentary power, and the invasion power is a special presently exercisable power.

Steps in a Powers of Appointment RAP and SOA Analysis (1) Powers of appointment require two separate analyses under the rule against perpetuities:

First, the power itself may be invalid because it violates the rule.On the exam, the power itself will always be valid

Second, the appointment (the new trust or part of it) may be invalid because it violates perpetuities.

(2) Identify the kind of power of appointment

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EPTL § 10-8.1: Rule Against Perpetuities; Time at Which Permissible Period Begins

For general powers presently exercisable, you start from the time of exercise.For all others, you start from the time of creation of the power.

You tack the exercise (the new trust) onto the original trust.(3) If it is not a general power presently exercisable, tack the exercise (the new trust) onto the original trust and apply the Wait and See Rule

EPTL § 10-8.3: RAP; Facts to be Considered (a) If you have to measure the perpetuities period from the creation of the original instrument (because the power is not general and presently exercisable), (b) you can consider the facts that exist at the time of P’s exercise of her appointment in determining the validity of interests created by instrument exercising that power.

How Does This Work?Hypo 1: D made a will in which he gave his residuary estate, which amounted to approximately $3 million, to his brother Tom as trustee with directions to pay income to D’s partner P for life, remainder as P appointed in her will. P executed a will directing that Tom pay the corpus of D’s trust to the North Fork Bank as trustee, to pay income to P’s children for their lives, remainder to P’s issue surviving at the death of all her children. D died in 1990. P died yesterday.

This one is not a general power presently exercisable (it’s testamentary), so measure it from the date of D’s deathTack “Income to P, then income to P’s children for their lives, then remainder to P’s then surviving issue.”Although it looks prima facie problematic—because for the income interest to P’s children, P could have a child born after D’s death, who could retain an inalienable interest too long, and for the remainder interest, P’s after-born child could give birth to P’s issue too late, violating vesting and SOA)—it might not.

Part (a): Assume that P’s three children were born respectively in 1985, 1991, and 1993, and that they all survived her. Discuss the validity of all interests.

The wait-and-see rule allows you to look at the actual facts when P exercises. Her children were not all alive when D created the trust.Income to P (good), then income to her children (good for vesting, bad for suspension of alienation).then remainder to issue (bad for both, because of P’s after-born children, and the possibility of P’s having more children).

Part (b): Suppose her children born in 1991 and 1993 tragically predeceased D?All interests are valid. The one child remaining was a life in being, and all interests vest and become alienable in time. That is, you’re allowed to take into account that there are no (and will be no) after-born children.

Hypo 2: Same facts as above, but what if D died in 1996?In part (a), where P’s children were born in 1985, 1991, and 1993, all interests are valid.

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Rule Against Perpetuities and Commercial InterestsTwo Starting Thoughts

(1) What’s the difference between an option and a right of first refusal (preemptive right)?(2) What’s at stake in applying the rule against perpetuities to commercial interests voluntarily undertaken by two competent parties?

It burdens the property Options Cases

Symphony Space Facts: Commercial building but had a pre-existing theater and residential units adjoining. Symphony Space is a non-profit D. P is owner of property, who sold it in 1078 to Symphony Space for 10 grand, way below market, in order to get tax break. Symphony Spaced leased everything except theater back to P for a dollar a year through 2003 (unless terminated sooner). But, P kept an option to repurchase through 2003. P tried to exercise option in 1985 but the not-for-profit refused, claiming the option violated RAP.Holding: It did violate RAP because by its own term the option could be exercised 25 years after the sale. Rationale: Under the common law, options to purchase land are subject to the rule against remote vesting. Such options are specifically enforceable and give the option holder a contingent equitable interest in the land. This creates a disincentive for the landowner to develop the property and hinders its alienability

Buffalo SeminaryFacts: The D gave P and his successors an option to buy a 20 foot strip of land between their property The option was binding on the Ds heirs as well. Two years later, when P tried to exercise the option the D refused, claiming that it violated perpetuities Holding: It did violated RAPRationale: We don’t have a wait and see rule, instead we have initial certainty rule

Right of First Refusal (Preemptive Right) CasesMTA v. Bruken

Facts: MTA bought LIRR from Penn RR for 65m. To reduce the price, the MTA gave Penn RR an “option” to buy 12 lots in the freight yard in Queens. Under option agreement, the Penn RR could acquire the lots if MTA decided to sell it. The option lasted 99 years. Penn RR wanted to buy the lots and the MTA tried to repudiate the “option” on RAP grounds.Holding: The court held that it was a right of first refusal, not an option, and that Buffalo Seminary did not contemplate rights of the first refusal in commercial properties. But What About the Rule Against Alienation?

The common law rule against unreasonable restrictions does apply.Here, the validity of the preemptive right rests on its reasonableness judged by duration, price, and purpose.

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Court held that agreement was reasonable under all three criteria Duration – reasonable because Penn RR had to exercise the option

within 90 days of MTA’s decision to sell Price – reasonableness because based on market value Purpose – reasonable because the purpose was beneficial (public

RRs are good for state).Morrison v. Piper

Facts: Aunt conveyed property to nephew and agreed that they (and their heirs) would each have right of first refusal on each other’s property Holding: the Bruken exception does not apply to private sales of residential property

RANDOMNew Practice Commentaries Information

Can notary count as an attesting witness?Only if the testator requests of them to sign, and they meet the other requirements 3-2.1

Can target of in terrorem examine drafter of prior will?No – this person was disqualified

Can a post-conceived child share in a gift to “issue”?A child in gestation is allowed to share, but post-conceived children is not.

T crosses out a clause and writes “delete” alongside it, executes it a la 3-2.1. Okay because of 3-4.1(a)(B).

In terrorem target is disqualified because she contests. Can she seek construction? Have to make decision, can’t seek construction before probate. Don’t know the answer to this question.

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