978-0077733711 Chapter 26 Lecture Note

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Chapter 26 – Estates and Trusts

CHAPTER 26

ESTATES AND TRUSTS

I. OBJECTIVES

This chapter is designed to acquaint students with legal rules and procedures regarding the

transfer of property at death, planning for disability, and planning devices that can be used to

direct the transfer of property both at death and during life. After reading the chapter and

attending class, a student should be able to:

A. List and explain the requirements for a valid will.

B. Explain how wills can be changed and revoked.

C. Identify and explain the legal tools (“advance directives”) available for planning for

possible future disability

D. Explain and provide examples of how property is disposed of when a person dies without

leaving a will

E. Identify the steps in process of administering an estate and explain the responsibilities of

the personal representative for the estate

F. Explain the concept of trust, identify various types of trusts, and explain the powers and

responsibilities of a trustee.

G. List the requirements for the formation of a trust and describe how trusts can be revoked

or modified.

II. ANSWER TO INTRODUCTORY PROBLEM

A. If he dies without a will, his property will distributed according to the rules of the state’s

intestacy statute.

B. The requirements for executing a will are discussed on page 724.

C. Among the causes for invalidity are lack of testamentary capacity, failure to satisfy the

formalities required for a will, and revocation of the will.

D. The probate process is described on pages 734-735.

E. The requirements for creation of a trust and duties of the trustee are discussed on pages 736-

740. The fiduciary duty of a trustee under the law seems to track pretty closely what we

would expect of a trustee ethically.

III. SUGGESTIONS FOR LECTURE PREPARATION

A. Introduction

1. The lecture will focus on what happens to a person’s property when he dies, and the ways

in which he can direct that property and control the manner in which it is distributed

through legal transactions that he makes during his life. Point out the importance of

understanding how property is passed at death and taking steps to control the distribution

of one’s property. (For example, most students have probably heard of an acquaintance or

family member’s failing to make or update a will, with the result that his property did not

end up going to his or her intended beneficiary).

a. Describe the nature and applicability of the Uniform Probate Code.

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Chapter 26 – Estates and Trusts

2. Note that a competent estate planning professional may be able to formulate a plan for

passing property to others at death and/or during life that will result in a tax savings to the

estate (and increase the amount of money that will flow to the people one is trying to

benefit). Emphasize, however, that estate planning is a complex field that is highly

dependent on a thorough knowledge of both the law of estates and trusts and tax law.

Point out that it is definitely not a do-it-yourself activity, and that a specialist in estate

planning is probably necessary for a person who has an appreciable estate.

B. Wills

1. In determining how a person’s property is to be distributed when he dies, the law looks

first to see if he had a will. The “back up” system developed by state intestacy statutes

will kick in only if the decedent left no valid will or if he left a valid will that did not

dispose of all of his property. Log On (p. 723) lists several good resources explaining

why it is a good idea to have a will.

2. Review the terminology that is used with regard to wills. Explain the distinction between

per capita and per stirpes by using the example on p. 724 of the text or making up one of

your own.

Example: Problem Case #3.

3. Discuss the fact that a will can only direct property owned by the testator at the time of

his death and which does not pass through another planning device (such as a life

insurance policy) or by operation of law (such as property owned in joint tenancy). You

might want to list and briefly describe some of the other devices that are commonly used

to direct property at death that would fall outside a will.

4. Describe the concept of testamentary capacity. Why do courts say that it takes less

capacity to make a will than to make a contract? Discuss also the doctrine of undue

influence as it is used to challenge the validity of a will.

Zimmerman v. Allen (p. 725): Waterloo was in a hospice facility and dictated to Mrs.

Zimmerman, her rabbi’s wife, a will, stating that she wanted to leave $3 million to “Rabbi

Jack.” The will recited that a list of final instructions was attached but in fact it was not

attached. After Waterloo died, Rabbi Zimmerman petitioned the court to probate the will

and Waterloo’s heirs petitioned for a declaration that Waterloo died intestate. Their

argument is that the absence of the “final instructions” recited in the will meant that the

will did not represent Waterloo’s full testamentary intent. The court found that the will

was valid, even without inclusion of the final instructions. Waterloo signed the will

knowing that she had not created the list, so she must have been satisfied with what had

been written there. The court admitted the will to probate, stating that a will that is vague

or incomplete in some respects, as long as there is part of the will that is certain in

character.

Points for Discussion: Why did the heirs prefer that Waterloo die intestate? Would there

have been grounds for a will challenge (e.g., undue influence or lack of capacity) here?

5. Discuss the formal requirements for a valid will. Explain the function of such

requirements. You might use your state’s statutory requirements as an example of formal

requirements. Explain what happens if a testator fails to comply with the formal

requirements.

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Chapter 26 – Estates and Trusts

a. Explain holographic and nuncupative wills. Note the difference between the two.

Explain the requirements for a valid holographic will in the states that recognize

them. You might check to see if your state recognizes holographic or nuncupative

wills, and work that into the discussion.

Examples: Problem Cases #1 and 2.

b. Mention that there is sometimes difficulty in interpreting wills. The Estate of Shelly

case illustrates this fact. Discuss courts’ approaches in these situations.

Examples: Problem Cases #1, 2, and 4.

6. Discuss the limitations on disposition by will, especially the rights of surviving spouses.

Explain the concept of dower rights at common law, and note that many states have

abrogated dower rights. (If you want to go into more depth, explain curtesy, too, and

contrast it with dower). Discuss the more modern type of statutory share for surviving

spouses under the UPC and other probate statutes.

7. Ethics in Action (p. 727): One of the ethical considerations is whether to respect the

testator’s freedom to confer benefits on the beneficiaries that he has chosen. However, a

conflicting consideration is the exclusion of people from a benefit solely on the basis of

race. If you would like to see the legal analysis of this problem, see Home for Incurables

of Baltimore City v. University of Maryland Medical System Corp., 746 A.2d 746 (Md.

2002).

8. Describe the ways in which wills may be revoked. Emphasize that a will confers no

interest on its named beneficiaries during the life of the testator, and that it is revocable

up to the moment of the testator’s death.

9. Explain how a codicil may be used to change a provision in a will. Emphasize, however,

that codicils must be executed with the same formalities one uses to execute wills.

C. Advance Directives: Planning for Disability

1. Discuss the reasons why people are becoming more concerned with planning for

disability. Explain the meaning of the term advance directive. Give examples of advance

directives.

2. Explain the function of a living will. It would be helpful to look up the living will statute

in your state and discuss its provisions and find out from a local medical professional

how such wills are handled in your locality. Point out the age for executing a living will

in your state (probably 18).

3. Explain and discuss the utility of the durable power of attorney.

4. Discuss durable powers of attorney for health care. If your state has a statute providing

for such powers of attorney, you might discuss its provisions.

5. Discuss durable powers of attorney for health care. If your state has a statute providing

for such powers of attorney, you might discuss its provisions.

6. Discuss the federal statute concerning advance directives.

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Chapter 26 – Estates and Trusts

D. Intestacy

1. Note that if a person fails to make a valid will, the law will make one for him through

state intestacy statutes. Naturally, the scheme of property distribution specified in such

statutes may not be what the individual would have desired. They are designed to

effectuate the presumed intent of the deceased person, and the assumption is that he

would have wanted his property to go to his surviving spouse and/or closest blood

relatives. They do not take into account the quality of the relationship that the decedent

actually had with his heirs. E.g., you may despise one brother and adore another, but

intestacy statutes would give them the equal right to inherit from you.

2. One good technique for illustrating the operation of intestacy statutes is to make a flow

chart of the distributional scheme of your state’s intestacy statute, and have your students

trace how their property would be distributed.

3. Note that real property will pass according to the intestacy statute of the state in which it

is located, while personal property will pass according to the state in which the deceased

was domiciled. Explain the concept of domicile and note that domicile is also important

for determining the venue of administration proceedings.

4. Point out some of the rules regarding inheritance by adopted children, illegitimate

children, siblings related by one parent, and afterborn heirs.

Hill v. Nakai (In re Estate of Hannifin) (p.731): Hannifin treated Nakai as his adopted

son, though there was never a legal adoption. Hannifin died intestate, and Nakai

petitioned to be the Personal Representative of Hannifin’s estate. Hill contested Nakai’s

claim on behalf of himself and 19 other collateral relatives of Hannifin. The trial court

held that the doctrine of equitable adoption—a doctrine of equity that allows a minor to

be treated as a child for legal purposes, as long as there was an agreement to adopt and

the adoption works to the benefit of the child (as opposed to the parent)—entitled Nakai

to inherit from Hannifin as though her were legally adopted. The appeals court, however,

disagreed, finding that the Probate Code preempted the equitable adoption doctrine.

Points for Discussion: What about the doctrine of equitable adoption conflicted with the

Probate Code? What could Hannifin have done prior to his death to avoid this situation?

While the court focuses on simplicity, clarity, and efficiency that results from abandoning

equitable adoption and complying strictly with the language of the Probate code, ask the

students whether they find the outcome here to be just. Was it ethical for Hill and the

other collateral relatives to intervene?

Additional Examples: Problem Case #7; Estate of Kirkpatrick v. Rogers, 77 P.3d 404

(Wyo. S. Ct. 2003).

5. Note the purpose and effect of simultaneous death statutes.

Example: Problem Case #8.

E. Administration of Estates

F. Discuss the need for an organized procedure to collect the assets of an individual who has

died, to satisfy his debts, to pay any taxes and administrative expenses, and to distribute the

remaining assets.

1. Discuss the nature of the probate estate.

2. Note that the administration of an estate is usually carried out under the supervision of a

specialized court, the probate court.

3. Describe the personal representative and his or her responsibilities.

4. Describe the steps in the probate process.

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Chapter 26 – Estates and Trusts

G. Trusts

1. Define trust, and give a simple example of a trust, indicating who the trustee, settlor, and

beneficiary are. Make it clear that while the trustee has legal title to the trust property, he

has the responsibility to hold and manage it for the benefit of the beneficiaries.

2. Discuss the reasons for creating a trust.

3. Explain the requirements for a valid express trust.

a. Discuss the special treatment of charitable trusts, emphasizing the cy pres doctrine.

Citizens National Bank of Paris v. Kids Hope United, Inc. (p. 737): Blackman’s will

provided that after her sisters death, the Bank would hold her farmland in trust and

pay 75 % of the income to the Edgar County Children’s Home (ECCH). The will

provided that if either organization should cease to exist, the bank could distribute the

money to such charitable organization it deemed worthy. In 2003, ECCH merged

with the Hudelson Baptist Children’s Home and ECCH dissolved and merged its

assets and programs into Hudelson. In 2005, Hudelson changed its name to Kids

Hope and the Children’s Home that ECCH had built in 1900 closed and was later

sold. The bank filed a petition asking the court to determine if ECCH had ceased to

exist. The court stated that its goal was to effectuate the settlor’s intent. Here, ECCH

did not survive as a separate entity but merged. If Kids Hope is adequate to carry out

the purposes of the trust, then EECH has not ceased to operate and the bequest should

not lapse If Kids Hope cannot carry out the purposes of the bequest, then it will lapse.

The court found that Kids Hope was suited to carry out the purposes of the bequest

and that that it should continue to receive the bequest.

Points for Discussion: What facts persuaded the court that Kids Hope can carry out

EECH’s purpose?

Example: Problem Case #6.

4. Discuss the powers and duties of the trustee. You may want to bring in a sample trust or

your state’s trust code and use the relevant provisions as examples.

5. Discuss the liabilities of a trustee.

6. Discuss how trusts can be modified or revoked.

7. Explain spendthrift trusts. Make it clear that they are designed to protect the beneficiary

of the trust, and that they are an exception to the general rule that the beneficiary can

assign his interest in the trust. Discuss the exceptions to the enforceability of spendthrift

clauses.

Example: Problem Case #5.

8. Explain implied and constructive trusts, and give examples of each.

IV. RECOMMENDED REFERENCES

A. R. MENNELL, WILLS AND TRUSTS IN A NUTSHELL (2d ed. 1994).

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Chapter 26 – Estates and Trusts

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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.