Chapter 52

Trusts and Wills

 

Objectives:

1. Describe the following kinds of trusts: (1) express; (2) testamentary; (3) inter vivos or living trust; (4) charitable; (5) spendthrift; (6) totten (skip); (7) implied (skip); (8) constructive (skip); (9) resulting (skip)

2. Describe powers and duties of trustee

3. Formalities for making a will

4. Types of wills; statutory, holographic

5. Powers of attorney and living wills

6. Describe intestate succession

 

I. Types of Trusts

          A. Express trusts; need trustor or settler, property (res), trustee, beneficiary

          B. Testamentary trust. Trust established in a will

          C. Inter vivos trust. Trust established while the person is living.

          D. Charitable trust. Charity is the beneficiary. Sometimes, settler is beneficiary for life, then charity gets property at death.

          E. Spendthrift trust. Many trusts have provision keeping trust assets from beneficiary's creditors.

          F. Implied trusts. Come up in weird situations, don't worry about them.

          Skip Estate of Welch, p. 1109

 

II. Trustee Duties

          A. Trustee has duty of utmost fidelity to beneficiaries. Trustee's job is to follow settlor's instructions in trust, for benefit of beneficiaries.

          Estate of Rowe, p. 1111.  Trust had 30,000 shares of IBM, valued at $113/sh., or $3,390,000. For fifteen years, 8% goes to charity each year, at the end, it goes to nieces.  Stock fell in value.  Beneficiaries ask for an accounting, insist that the investment be diversified.  Trustee started selling off bits and pieces.  Stock went as high as $136/sh on one sale.  However, IBM tanks and goes down to $74/sh. Trust still held over 19,000 shares.

          Trial court held trustee liable.  Their own manual required diversification.  Damages exceeded $630,000.

          Appellate court affirmed. Reasonable person would have diversified. One stock is too risky. They should have done it sooner and faster.

          B.  Powers of trustee are defined both by trust terms and the law

 

III. Termination of a Trust

          A. Most end by their own terms, based on lifetimes of those involved

          B. Merger doctrine, trust can end if beneficiary owns both equitable and legal title

         

IV. Decedent's Estates

          A. Wills

             1. Mental capacity. Typically low standard, understands property, understands who beneficiaries are

             In re: Lanning, p. 1115. Facts: Mrs. Lanning had 12 kids.  10 by first marriage, 2 by second. First husband had a sheep ranch. Ten kids inherited shares along with Mrs. Lanning. She then gave her widow's share to the two kids from the second marriage. 

          Mrs. Lanning executes will, then living trust, giving $1000 to the ten, and the rest to the two from the second marriage.

          Conservator then appointed. She then executes another will, $1000 to the second-two, rest to the first ten.  Then she does yet another will, dividing everything equally.

          Issue: Which controls? Holding: Lanning lacked capacity to make the trust or subsequent wills.  She could not remember how many children she had. She did not know what property she had. She could not identify the trust or what it did.

            2. Formal requirements. Writing, signature, witnesses

            3. Revoking a will. Destruction,

          Golini v. Bolton, p. 1117. Facts: Decedent executed a will. The original was lost, and executor admitted a copy. The copy of the will was challenged.  It looks like the will should have been at the attorney's office, but not clear what happened to it. Lawyer's notes indicated decedent had the will. Copies were found where everyone thought the original was.

          Issue: Can court rely on copy of will?

          Holding: Copy is good enough. The evidence showed that the testator loved the beneficiaries, and did not like the plaintiff. In addition, evidence indicated will was misplaced, not destroyed.

          Reasoning: Lost will is presumed destroyed. However, that presumption can be rebutted. Heirs under will did so in this case.

          4. Subsequent will.  Does not automatically revoke earlier will, but most professionally drafted ones will.

          5. Codicil.  Amendment to will.

          6. Operation of law. Effect of marriage and divorce.

          7. Holographic wills. Handwritten wills, usually subjected to different formality requirements.

 

          B. Intestate Succession

          1. What happens to property if no will or trust?

          2. Goes to family, statute defines who is most closely related.

          3. Per stirpes v. per capita (see chart on p. 1120)

          4. Problems: stepchildren, adopted children, no relatives at all (escheats to state)

 

          C. Administration of Estate

          1. Probate proceeding. Process of naming manager of estate, marshaling assets, paying creditors, and distributing estate. Court supervises the entire process. Downside is expense and public nature of proceeding.

          2. Executor/executrix, manager of estate with a will; administrator/administratrix, manager of estate without will

          3. Executor must pay off creditors, pay taxes, and then distribute the assets.

          4. Trustee does same thing with living trust, except no court supervision is necessary.