Trusts & Estates Essentials Power Point Slides Class #12

1. Trusts & Estates EssentialsPower Point Slides Class #12 2-28-19: NATIONAL TOOTH FAIRY DAY

2. Trusts & Estates Essentials: Logistics • Sorry about last minute cancellation Tuesday  • Fri 3/22: Exam (See posted “Midterm” Exam schedule) • Over the Weekend I will post: • Revised Syllabus/Assignments for rest of Course • Info on Office Hours & E-Mail Qs March 4-21 • Exam Syllabus for Chapter 2 (indicating depth of test coverage) • Sample Multiple Choice Qs for Chapter 2 • By Wednesday March 13, I will Post • Complete Exam Syllabus (indicating depth of test coverage) • Sample Multiple Choice Qs for All Chapters Covered

3. UNIT THREE: TRUSTS CHAPTER 8: TRUST FORMATION & ELEMENTS §8.3 Elements of Private Trusts Settlor (Check for Capacity & Intent) Trust Property (corpus or res) Creation/Instructions: Deeds of Trust (3d Party = T’ee) Declaration of Trust (Settlor = T’ee) Beneficiaries (Equitable Title) Trustees (Legal Title/Fiduciary Duties to Bfry)

4. UNIT TWO: WILLS CHAPTER 6: WILL DRAFTING PRINCIPLES & DEFAULT RULES Addressing the Death of a Beneficiary 6.2 Lapse (Last Class) 6.3 Simultaneous Death (Last Class) 6.4 Anti-Lapse

5. Addressing the Death of a BeneficiaryAnti-Lapse Statutes (Vary by State) • Antilapse statutes provide alternative rule of disposition when a beneficiary closely related to the testator predeceases. • Rather than treating such gifts as lapsed, antilapse statutes send the lapsed interest to the predeceased beneficiary’s descendants [not heirs or devisees]. • Antilapse applies only when the predeceased beneficiary satisfies the statutorily defined family relationship to the testator. • E.g., FL Stat 632.603(1): grandparent or descendant of g-parent. • The purpose is to prevent unintentionally cutting off a branch of the testator’s own family.

6. Addressing the Death of a BeneficiaryAnti-Lapse Statutes (Vary by State) • Antilapse statutes are default rules, so Ts may opt out. • Example: alternative contingent devise • However, under UPC § 2-603(b)(3) (a minority rule), mere words of survivorship (“To A if A survives me.”) are not sufficient to override the antilapse default. • Majority rule is that using this language indicates an opt out (e.g., Fl Stat. 732.603(3)).

7. Lorenzo v. Medina47 So. 3d 927 (Fla. Dist. Ct. App. 2010)

8. Addressing the Death of a BeneficiaryAnti-Lapse: Lorenzo v. Medina • Gift to Sibling, but if sibling pre-deceases T, to sibling’s spouse. Both sibling & spouse pre-decease T. • FL court says anti-lapse doesn’t apply to sibling (b/c gift over) and doesn’t apply to spouse b/c not a close enough relative (descendant of T’s grandparents in FL). • NOTE: likely intent of T was to split betw 2 families, so result probably defeats intent.,

9. Matter of Edwards

10. Addressing the Death of a BeneficiaryAnti-Lapse: Matter of Edwards • Involves residuary devises using following language: “[To X] per capita, absolutely and forever,” • Should anti-lapse apply if X is close relative who pre-deceases T? Could “per capita” mean just to this person & no other? • Court says no and applies anti-lapse, finding “per capita” meaningless in gift to an individual and not a group (normal use: to divide among a group of kin).

11. Addressing the Death of a BeneficiaryAnti-Lapse: Problem 6.5 (Last Names A-DI) In Edwards: Residue divided as follows A.  a twenty-five (25%) percent share to my brother, robert edwards, per capita, absolutely and forever; B. a twenty-five (25%) percent share to my brother, john edwards, per capita, absolutely and forever; C. a twenty-five (25%) percent share to my niece, ann kaufman, per capita, absolutely and forever; D. a twenty-five (25%) percent share to my nieces and nephews, robert m. edwards, suzanne ingrasia, patricia purrman, fred koestlich, pamela heidtmann and john v. edwards, share and share alike, per capita, absolutely and forever. How redraft to achieve anti-lapse as clear result?

12. Addressing the Death of a BeneficiaryAnti-Lapse: Problem 6.5 (Author’s Drafting Suggestions) A.  a twenty-five (25%) percent share to my brother, robert edwards, per capita, absolutely and forever;  • 25% to my brother Robert if he survives me [define “survive” elsewhere in the will] and if he does not survive me to his descendants who survive me by representation [define representation elsewhere in the will]; New Provision explaining what happens to share of A, B , C if pre-decease & no surviving descendants New provision explaining same thing for takers in paragraph D.

13. Problem 6.6: Which provisions manifest intent to opt out of antilapse under the majority rule? The UPC? [You can ignore #3] 2. “…one-half of the residue of my property to my step-daughter, Hazel Brennan of Guilford, Connecticut, if she survives me.” This language separates minority rule/UPC from majority/FL.] 1. “All the rest, residue and remainder of my estate, of all kind and description and wheresoever situate, I give, devise, and bequeath to be divided equally among my three (3) sisters, Anna Harmath Kovacs, Mary Harmath Kish, and Helen Harmath Laitos, share and share alike, to the express exclusion of any other person or persons.” Authors say anti-lapse applies under either rule. No reference to predeceasing or surviving T, so “express exclusion” not read as precluding descendants from taking.

14. UNIT TWO: WILLS CHAPTER 6: WILL DRAFTING PRINCIPLES & DEFAULT RULES §6.6 Discrepancies Between Dispositive Provisions and the Probate Estate: 6.6.1 & 6.6.2 Ademption 6.6.3 Abatement 6.4 Accession

15. Discrepancies between Will & EstateGenerally Wills often describe specific items of property owned at the time of execution. • But what happens when specifically described property in the will cannot be found in the probate estate? Wills often contain gifts of money expressed as a particular dollar amount. • But what happens when there are insufficient funds to pay all legacies? The testator’s ownership of property inevitably changes over time, so failure to update an estate plan can create discrepancies between property described in the will and property contained in the probate estate at death.

16. Classification of Devises from Chapter 5 Specific Devises: Gifts of specifically identified property. General Devises: Gifts paid out of the general assets of the estate; typically an amount of money but potentially a gift of stock or land. Demonstrative Devises: Gifts of a particular amount of money payable from a specified source. Residuary Devises: Gifts of anything that is not given away elsewhere in the will.

17. Classification of Devises Problem 6.7 Last Names DO-LE Specific; General; Demonstrative; Residuary • 1. I give my car to my son, Ricardo. • 2. I give my gold wedding ring inscribed OF and SH 12/2/90 to my daughter, Maria. • 3. I give $2,000 to my mother. • 4. I give $1,000 from my teachers’ credit union account to my father.

18. Classification of Devises Problem 6.7 Last Names DO-LE Specific; General; Demonstrative; Residuary • 5. I give 200 shares of the Westinghouse Corporation to my good friend, Salvador. • 6. I give $1,000 to be divided up equally for my nieces and nephews. • 7. I give $500 to my poodle, Happy (Maria is to take this money and use it for Happy). • 8. I give EVERYTHING else I have to Ricardo and Maria to split up evenly between them.

19. Discrepancies between Will & EstateAdemption Ademption refers to the nullification of a dispositive testamentary provision. • The term/verb Adeem means to nullify a testamentary gift. • Ademption by Extinction applies when property described in a specific devise is not found in the testator’s estate at death. • Ademption by Satisfaction treats an inter vivos gift as “satisfying” a testamentary gift. It is the wills law analogue to advancements under intestacy law.

20. Discrepancies between Will & EstateAdemption by Extinction • Ademption by Extinction applies when property described in a specific devise is not found in the testator’s estate at death. • The common law applied what is called identity theory, meaning if the precise specific devise is unavailable at T’s death, the gift fails, and the devisee gets nothing. • This remains the majority rule (for specific devises only).

21. Discrepancies between Will & EstateAdemption by Extinction • Ademption by Extinction applies when property described in a specific devise is not found in the testator’s estate at death. • By contrast, UPC § 2-606(a)(6) employs an Intent Theory of ademption, whereby if a specific devise would otherwise adeem by extinction, the devisee receives any remaining property plus the monetary value of the part of the gift that had been disposed of IF • “ademption would be inconsistent with the testator's manifested plan of distribution” or • “the testator did not intend ademption of the devise.”

22. Discrepancies between Will & EstateAdemption by Extinction: Estate of Sagel T died in an air crash while piloting his personal aircraft and wearing a Rolex watch. • Both the aircraft and watch were insured and T’s estate recovered insurance proceeds for the loss of both items. • T’s will devised all tangible personal property to his son, Gregory, and the residue to other beneficiaries. Does the devise of tangible personal property to Gregory entitled him to collect the insurance proceeds or did the insurance proceeds fall into the residuary estate?

23. Discrepancies between Will & EstateAdemption by Extinction: Estate of Sagel Does the devise of tangible personal property to Gregory entitled him to collect the insurance proceeds or did the insurance proceeds fall into the residuary estate? • Under the intent theory, G would likely take the insurance proceeds as monetary equivalents of the lost watch and aircraft (especially if evidence that personal property was supoposed to balance out residuary property in estate plan.

24. Discrepancies between Will & EstateAdemption by Extinction: Estate of Sagel Does the devise of tangible personal property to Gregory entitled him to collect the insurance proceeds or did the insurance proceeds fall into the residuary estate? • Under the identity theory (used in Penn.), G should get nothing because exact property devised is no longer in the estate. • BUT Penn. Statute makes an exception to identity theory for insurance proceeds, so G will take the proceeds in lieu of the lost items. • You can ignore the Q of whether T “still owned” the lost items after their destruction.

25. Ademption by Extinction Problem 6.8 Last Names LO-P • T 1992 will leaves “the sum of 15,000 shares of OPM Corp.” to B. • T dies in 2017, survived by B. T’s estate contains no shares of OPM Corp. • What result under Identity Theory? • What result under Intent Theory?

26. Ademption by Extinction Problem 6.8 Last Names LO-P • T 1992 will leaves “the sum of 15,000 shares of OPM Corp.” to B. = General Devise = No Ademption = Executor generally must pay value. • By contrast “My 15,000 shares of OPM Corp.” Treated as a specific devise.

27. Ademption by Extinction Problem 6.8 Last Names LO-P • 1995 T gives B a pin made of precious stones but then realizes that she had previously promised the same pin to G. B returns the pin and T promises to leave jewelry of equal value to B in her will. • 1996 Codicil to 1992 will: T gives “my multi-diamond ring to B.” • T dies in 2017, survived by B. T’s estate contains no multi-diamond ring. • What result under Identity Theory? • What result under Intent Theory?

28. Ademption by Extinction Problem 6.8 Last Names LO-P • 1995 T gives B a pin made of precious stones but then realizes that she had previously promised the same pin to G. B returns the pin and T promises to leave jewelry of equal value to B in her will. • 1996 Codicil to 1992 will: T gives “my multi-diamond ring to B.” • T dies in 2017, survived by B. T’s estate contains no multi-diamond ring. • What outcome under the identity or intent theory if there were found in Beatrice’s estate a large, multi-sapphire dinner ring?

29. Ademption by Extinction Problem 6.9 Last Names DO-LE • T 2006 will: “Blackacre to my son, S; residue of my estate to my daughter, D.” • 2008, T is declared incompetent; D becomes T’s legal guardian. • 2009, to pay T’s expenses, D sells Blackacre with court approval , receiving $500K in net proceeds, which D puts in T’s bank account • 2012, D withdraws $100K from T’s bank account to pay for T’s care. • 2017, T dies leaving a net estate worth $700K. What, if anything, does S take under: (a) the identity theory? (b) the intent theory? (c) UPC § 2-606(b)?

30. Ademption by Extinction Problem 6.9 Last Names DO-LE What, if anything, does S take under: (a) the identity theory? Zero (b) the intent theory? Probably value of Blackacre, (less $$ for T’s care in some states) (c) UPC § 2-606(b)?: Specifically addresses value of Blackacre, but NOTIO for this statute.

31. Ademption by Extinction Problem 6.10 Last Names LO-P • A promises daughter (D) his art/book collection (ABC). • Fire kills A & destroys ABC. A survived by D & 4 other children. • Insurance proceeds of $10M for ABC. • State uses Intent Theory. What does D get if… a. A dies intestate leaving no surviving spouse?

32. Ademption by Extinction Problem 6.10 Last Names LO-P • A promises daughter (D) his art/book collection (ABC). • Fire kills A & destroys ABC. A survived by D & 4 other children. • Insurance proceeds of $10M for ABC. • State uses Intent Theory. What does D get if… • A dies intestate leaving no surviving spouse: Ademption & Intent irrelevant to Intestacy. D gets 1/5 of estate. • A’s will says: “I leave ABC to D.”

33. Ademption by Extinction Problem 6.10 Last Names LO-P • A promises daughter (D) his art/book collection (ABC). • Fire kills A & destroys ABC. A survived by D & 4 other children. • Insurance proceeds of $10M for ABC. • State uses Intent Theory. What does D get if… b. A’s will says: “I leave ABC to D.”: Ad-by-Ext applies. No reason toi think A intended gift to adeem since destroyed and not disposed of by A, so likely D gets pecuniary valeue (probably ins proceeds). c. A’s will says: “I leave ABC to S.”

34. Ademption by Extinction Problem 6.10 Last Names LO-P • A promises daughter (D) his art/book collection (ABC). • Fire kills A & destroys ABC. A survived by D & 4 other children. • Insurance proceeds of $10M for ABC. • State uses Intent Theory. What does D get if… c. A’s will says: “I leave ABC to dealer S.”: Ad-by-Ext applies and S takes $$ under intent theory (like D in last version). Can’t use intent theory to use oral promise to disturb terms of will.

35. Ademption by Extinction Problem 6.10 Last Names LO-P • A promises daughter (D) his art/book collection (ABC). • Fire kills A & destroys ABC. A survived by D & 4 other children. • Insurance proceeds of $10M for ABC. • State uses Intent Theory. What does D get if… d. A’s will says, “I devise ABC to D for her lifetime, so long as she maintains the collections in her home. Otherwise, I direct my executor to sell ABC and distribute the proceeds to my other four children.”

36. Ademption by Extinction Problem 6.10 Last Names LO-P • A promises daughter (D) his art/book collection (ABC). Fire kills A & destroys ABC. A survived by D & 4 other children. Insurance proceeds of $10M for ABC. State uses Intent Theory. What does D get if… • A’s will says, “I devise ABC to D for her lifetime, so long as she maintains the collections in her home. Otherwise, I direct my executor to sell ABC and distribute the proceeds to my other four children.” Authors: Underlined phrase suggests A wanted D “to have [ABC] so long as she was able to take care of and enjoy them.” Requirement of “in her home” not consistent with D receiving “proceeds from the sale or insured loss of” ABC. Thus, D will likely take nothing.

37. Discrepancies between Will & EstateAdemption by Satisfaction Ademption by Satisfaction treats an inter vivos gift as “satisfying” a testamentary gift. It is the wills law analogue to advancements under intestacy law. • Like the modern doctrine of advancements, intent to treat an inter vivos gift as satisfying a devise by will must be manifested by the testator in a contemporaneous writing. • Unlike the identity theory of ademption by extinction, satisfaction exists solely to implement the testator’s intent. • In some jurisdictions, satisfaction is presumed where the T makes a gift during T’s lifetime to the T’s own child. In such cases, no contemporaneous writing is required. gift

38. Discrepancies between Will & EstateAdemption by Satisfaction Intent to treat an inter vivos gift as satisfying a devise by will must be manifested by the T in a contemporaneous writing. • UPC § 2-609(a) Ademption by Satisfaction. Property a T gave in his [or her] lifetime to a person is treated as a satisfaction of a devise in whole or in part, only if • (i) the will provides for deduction of the gift, • (ii) the T declared in a contemporaneous writing that the gift is in satisfaction of the devise or that its value is to be deducted from the value of the devise, OR • (iii) the devisee acknowledged in writing that the gift is in satisfaction of the devise or that its value is to be deducted from the value of the devise.

39. Discrepancies between Will & EstateAdemption by Satisfaction Intent to treat an inter vivos gift as satisfying a devise by will must be manifested by the T in a contemporaneous writing. Rstmt (Third) of Property: (WODT) §5.4. Post-Execution Events Affecting Wills. An inter vivos gift made by a testator to a devisee or to a member of the devisee's familyadeems the devise by satisfaction, in whole or in part, if the testator indicated in a contemporaneous writing, or if the devisee acknowledged in writing, that the gift was so to operate. [Emphasis added]

40. Discrepancies between Will & EstateAdemption by Satisfaction: Estate of Condon • [Leaving out pre-deceased nephew, case boils down to:] • T executed a will containing • a legacy of $5,000 to her niece. • the residue of her estate to her son. • Several years later, T wrote a $5,000 check to the niece with “will payment” written on the check memo line. • Was the niece’s devise satisfied by the inter vivos gift?

41. Discrepancies between Will & EstateAdemption by Satisfaction: Estate of Condon • T executed a will containing a legacy of $5,000 to her niece. Several years later, T wrote a $5,000 check to the niece with “will payment” written on the check memo line. Was the niece’s devise satisfied by the inter vivos gift? • Iowa law says satisfaction presumptively applies to: (1) any gift by the testator to a child; and (2) any gift that is of the same kind or identical in character to the devise. • Iowa also permits extrinsic evidence of the testator’s intent to satisfy.

42. Discrepancies between Will & EstateAdemption by Satisfaction: Estate of Condon • Here 2d Iowa presumption applies: (2) any gift that is of the same kind or identical in character to the devise. (same amt of $$$ = $5000) • Extrinsic evidence of the testator’s intent to satisfy from notation on check.

43. Ademption by Satisfaction Problem 6.11 Ursula executes a will devising $50,000 to her best friend, Harold. Two years after executing the will, Ursula gives Harold’s daughter a check for $50,000 with “inheritance satisfaction” written on the check. When Ursula dies, to what, if anything, is Harold entitled? • UPC requires satisfaction be made only to devisee, so gift to daughter does not satisfy the gift to H regardless of evidence of intent. • Restatement allows payment to family member’s to satisfy, so this gift should result in ademption of vH’s gift.

44. Ademption by Satisfaction Problem 6.12 I’ll add slides writing this up.

45. Discrepancies between Will & EstateAbatement Abatement provides a default system to reallocate the estate when the total amount of creditor claims and bequests exceed the property contained in the probate estate. [The word “abate” means to “reduce in amount.”] Two common variants: • 1. The net estate has been reduced by creditor claims. Since creditors are always paid before beneficiaries, such claims reduce property available to beneficiaries.

46. Discrepancies between Will & EstateAbatement Two common variants of Abatement: • 1. The net estate has been reduced by creditor claims. • 2. The will devises more property than the estate contains. Under the default doctrine, devises abate in the following order (proportionately within each category): • property not disposed of by the will; • residuary devises; • general devises; and • specific devises.

47. Discrepancies between Will & EstateAbatement • Because these are default rules, T can direct otherwise in will. • UPC 3-902 also provides that “if the testamentary plan or the express or implied purpose of the devise would be defeated by the order of abatement stated [above], the shares of the distributees abate as may be found necessary to give effect to the intention of the testator.”

48. Discrepancies between Will & EstateAbatement: Problem 6.13 I’ll add slides writing this up.

49. Discrepancies between Will & EstateAbatement: Problem 6.14 In 2017, S dies leaving • $100,000 in cash and marketable securities; and • Summer home in East Hampton (worth $1.2 million on the date of death). [Not ademption b/c S still owened at time of death.] • S’s funeral and burial cost $50,000, • Creditors’ valid claims against the estate for $1.2 million Creditors get paid before beneficiaries, thus Net Estate = $50,000

50. Discrepancies between Will & EstateAbatement: Problem 6.14 Net Estate = $50K. S’s Will grants: • $50,000 to nurse N (General) • $50,000 to son, S (General) • Summer home to daughter, D (Specific) • Residue to companion, C (Residuary) List of order of abatement is inverse of order of payment. Specific devises abate last, so get paid first. D gets $50,000 (where she would be entitled to 1.2M if estate had it). Nothing left to give anyone else.