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Flashcards in Wills and Trusts Deck (27):
1

Wills - Intent

  1. Capacity
    1. at time of execution testator must
      1. be at least 18 years old
      2. be able to understand the extent her property
      3. know the natural objects of her bounty
      4. know the nature of her act (that she is executing a will
    2. without proper intent the entire wil is invalid and propery passes intestate, unless new will revoked old will.  in that case, old will rules bc revocation was invalid
  2. insane delusion
    1. elements -
      1. Testator had a false belief
      2. that false beleif was a prdocut of sick mind
      3. there is no evidence to support the beleif
      4. delusion must have affecte T's will
    2. consequence - only part of the will which was affected bny del¨sion is invalid.  as to that part, it will go to the residuary devisee, or if none, or if the residue itself was delusions, then intestate succession
  3. Fraud - misrepresentation of a material fact known to be false by wrongdoer for the prupose of inducing action and does it does induce that action/inaction
    1. fraud in the execution - someone forges T's signature or T signs will thinking it is something else.
      1. will is then invalid
    2. Fraud in the inducement - the wrongdoers misrepresentation affects the contents of T's will.
      1. consequence - only that part of the will that is affected by the fraud is invalid.  as to that part, the court has three options
        1. givepropertytoresiduardevisees,or
        2. toheirsatlawbyintestate,or
        3. maketheheirsaconstructivetrustee
    3. Fraud in preventing testator from revoking
      1. court will not probate the iwll, thus the porperty goes to heirs.  courr will also declar the heir a constructive trustee who has a duty to transfer the preprty to the intended beneficary.
  4. Undue Influence - established in three ways
    1. Prima Facie Case -
      1. T has weakness such that he is susceptible,
      2. the wrongdoerhas access to T,
      3. it is wrongful act that gets the gift,
      4. unnatual results.  
      5. only part of will that is subject to undue influence is invalid
    2. Presumptin - a
      1. condificential relationship exists between t and the wrongdoer,
      2. the wrongful act gets the gift,
      3. an unnatural result
      4. consequences same as above
    3. statutory undue influence
      1. California genearlly invalidatesa donative transfer from T to:
        1. apersonwhodraftedtheinstrument
        2. apersonwhoisrelatedto,cohabitates,oremployerofdrafter
        3. apersonwhoisinafiduciaryrelationshipwiththeTandwhotransrbesthetestatmentaryinstrument
      2. These rules do not apply if
        1. TheTisrelatedtodrafter
        2. iftheinstrumentisreviewedbyanindependantattywhocunselsT
        3. consequence-deviseedoesnottakegift,butonlytotheextentthatthegiftexceedsthatpersopns'sintestateshare.restofgiftpassestoresidarydevisee

2

Wills  - Mistake

  1. Mistake in content - the wrong beneficiary is named
    1. if words are accidentyly left out, no relief is given
    2. if words are accdiently added, remedy may be given.  court can reduce, not add words
  2. mistake in execution - T signs the wrong document
    1. If T sings the will believing it is a nontestamentary instrument, the will is not probated bc T did not intend document to be a will
    2. if H+W hav reciprocal wills and each mistakenly signs the wrong one, court may reform the will and substitute the correct names in the name of equity
  3. Mistake in inducement - a particular gift is made/nt made on basis of T's erroneous belief
    1. no relief is given
    2. except, when both the mistake and what T would hav done but for the mistake appear on the face of the will
    3. need testator intent in will
  4. mistake in the description - no one or nothing fits the ddescription OR two or more persons or things fit the description
    1. coiurt will introduction of parol evidence for any ambiguity, latent or patent, to determine T's intent
  5. Dependant Relative Revocation - allows the court to ignore the revocation of WIll #1 on the grounds that T revoked will #1 bc mistakenly belived Will #2 effectuated his intent
    1. RULE - if T revokes her will, in the mistaken belief that a substantially identical will or codicil effectuates her intent, then by operaton of law, the revocation of the first will be deemed conditional, dependant, and relative to the second effectuating T's intent.  if second does not effectuate T's intent, then first was never revoked.
    2. Applies where will # 1 revoked by subsequent instrument or by physical act.  atty who drafted will #1 can testify as to terms of the will)
  6. Mistake involving living children - accidenta omission of a child from a will
    1. Rule - a child is pretermitted if born or adopted after all testamentary instruments are executed and not provided for in any testamentary instrument
      1. a pretermitted child an intestate share of thee state(which includes asses in testator inter-vivos trust)
      2. if after the child is born, there is a subsequent repiblication of thew ill by codicil, the omitted child may not take bc codicil republished the will and in the alternative, the codicil itself is a testamentary instrument, thus the brth took place bf codicil was executed
    2. a child born or adopted before all testamentary instruments are executed and not provided for in any instrument is not pretermitted.  child takes nothing
      1. exception if T erroneously believed that child was dead or non-existent at the time of  will

3

Components of the Will

  1. Integration - refers to which papers make up the will.  two elements required
    1. intent - T must have intended for papers in question to be part of the will
    2. presence - the paper must have been actually present at the time of execution
  2. incorporation by reference - allows a non-integrated writing tobecome part of the will, IF
    1. document must been in existence when will was executed
    2. document must be clearly identified in will
    3. T must ahve intended to incorporate the doc into will
  3. facts of independant significance - who a beneficiary is, what gift is given, may be given meaning by facts of significance independent from T's will.  Allows the court to fill in the blanks in T's will with parol evidence that is trustworthy
  4. Pour-over wills - where part or all of T's estate is devised to the trustee of an inter-vivos trust, that trust instrument may be admitted into probate and the pour over provision effectuated via
    1. incorporation by reference
    2. independant significance or
    3. uniform testamentary additions to trusts act - as long as you have a valid trust, which was executed before or concurrently w/ the exevution of T's will, the pour-over provision is valid by statute. 

4

Requirement for Execution of Attested Wills

Elements 

  1. the will must be in writing
  2. the will must be signed by T, a person appointed by T if T is incapacitated, or a conservator appointed by the court. 
  3. signing must be done in teh presense of 2 witnesses
  4. the witness must sign the will and understand that the instrument they sign is T's will
    1. witnesses do not have to sign in teh presence of T
    2. T does not have to declar to witnesses "this is my will"
    3. there is no order of signing
    4. signing anywhere on teh will is ok
    5. split in Cal, re whetehr witness may sign after T dies.  recently the Cal Supreme Court held that W must sign during T's lifetime. 

Interested Witnesses - those who are beneficiaries under the will

  1. not automatically invalid.  but unless there are two other disinterested W's, a presumption arises that the W/beneficiary suecred the gift by wrongdooing.
    1. If W/beneficiary rebuts the presumption of wrongdoing, she takes the gift. 
    2. if W/beneficiary fails to rebut, then she takes an amount not to exceed intestacy

Conditional will - one whose validity is made conditional by its own terms.

  1. the will is to be probated only if condition is satisfied

5

Requirements for Execution of Holographic Wills

  1. Elements
    1. must be signed by the testator, anywhere on the will
    2. the material provision must be in the T's own handwriting
  2. Extrinsic evidence is admissible to determine T's testamentary intent
  3. a series of letters can constitute a will under integration
  4. a date is not requried but lack of a date can create problems
    1. if undated holograph will is inconsistent wih the provisions of another will, the undated holograph is invalid to the extent of inconsistency, unless the undated holograph's date is established to be after the date of execution of the otehr will
      1. if two undated holographs, and unable to establish which is later, neither is valid to the extent of the inconsistency
    2. If a holograph is undated, and it is established that T lacked capacity at any time during which the will might have been executed, the holograph is invalid, unless it established that  it was executed a time when T had capacity. 

6

Choice of Law

a will can be admited to probate in california if any of the following 3 rules is satisfied
  1. the will complies with california's formalites of execution
  2. the will complies with the formalities of the place where the will was executed
  3. the will complies with the formalities of the place where T was domiciled at the time of execution

7

Codicils

  1. defined - a testamentary instrument executed in compliance with the cal probate code
  2. a codicil republishes the will, so that the will speaks from the date of the codicial execution
  3. revocation of codicils
    1. if T executes a will, then executes a codicil, and subsequently revokes the codicil.  there is a rebuttable presumption that T intended to revoke only his codicil
    2. but if T excutes a will, then executes a codicil, and subsequently revokes the will, tehre is a rebuttable presumption that T intended to revoke the will AND codicil

8

Revocation by physical act

  1. Elements
    1. will must be burned, torn, cancelled, destroyed or oblitereated
    2. t must have the simltaneious intent to revoke (act and intent must coincide)
    3. the act must be done by T, or by someone in T's presence and at his direction
  2. cancellations and interlineations generally cancels the changed provision if the material provision are not in T's own handwriting.  but a cancellation or interlining may be saved by DRR(as long as the new gift is greater than the cancelled gift, cant use DRR to save a interlineation that reduces a gfit or increases a co-beneficiaries gift
  3. duplicate wills - if T, or someone in T's presence and at his direction revokes by physical act on the duplicate originals, then the other duplicate original is also revoked as a matter of law
  4. mutliated wills - if a will is gound in a mutilated condition at T's death and when last seen it was in T's possession, tehre is a rebuttable presement that T intended to revoke it

 

9

revocation by subsequent written instrument

  1. Can be express (statement in will #2 or implied (will #2 totally disposes of T's estate)
  2. revival - not automatic, byut may occur if T manifests an intent to revive WIll #1 (oral statements where will #2 is revoked by physica act or terms o fthe codicil indacated the T wanted will #1 revivied where will #2 is revoked by subsequent instrument. 

10

Revocation by Operation of Law

Omitted Child - a will exdcuted prior to the birth or adoption of a child which omits that child is revoked as to that child, unless

  1. T's failure to provide for thec hild was intentional, and that intention appears from the testamentary instrument
  2. T evidenced a plan that child's other parent would take financial car of all children that they have together
  3. T provided for the child outside the testamentary insturment with intent that the transfer is in lieu of any testamentary provision

Omitted Spouse - a will executed prior to marriage, and which omits the surviving spouse is revoked as to that spouse,

  1. unless
    1. failure to provide was intentional, and intent appears on the instrument
    2. T provided for the spouse by some other transfer
    3. omitted spouse signed a valid waiver of her right to share in T's estate
  2. Omitted spouse receives a statutory share of assets decedent owned at death plus any assets held in any intervivos trust.  statutory share includes:
    1. 1/2 of the community property and 1/2 of the quasi community property
    2. 1/3 to 1/2 of the separate property equal to that what she would have received if the decedent had died without a will, but never more than 1/2 of the separate property estate

Omitted domestic partner - same as omitted spouse

Final dissolution of marriage or domestic partnership - disposition of property to a former spouse in a will executed before divroce/annulment is revoked by dissolution unless the will provides otherwise

11

Revocation by change in property holdings

Ademption

  1. Where T has devised specifically described property and that item is not owned by T at death, the specific gift is deemed revoked and beneficiary takes nothing unless there is evidence that T intended the beneficiary to take a substitute gift.  there is a constructional prefernce for viewing such gifts as general gifts (which are not adeemed)
  2. Stock problems
    1. if stock was never owned, then executor buys it
    2. if stock was owned and language is specific (100% of shares of stock), then gift is specific, ademption arises
    3. if stock splits after execution of will, then gift is specific and beneficiary takes all
    4. stock dividends are treated the same as stock shares
  3. court may use acts of independent significance to fill in the blanks in T's will
  4. even were T no longer owns property, devisee has right to received unpaid insurance benefit in properyt, condemnation award for taking property, net sale price where property is sold by conservatory, foreclosure proceedings

12

Revocation by Satisfaction

Revocation by advancement

  1. an intervivos gift to the beneficiary is deducted from the devise, where the T expressed in a written document that she intended the gift to be in satisfaction of the devise
  2. an intervivos gift to an heir apparant is deducted from the donee's intestate share if the donee's intent is express in a written documents executd by donor and donee

13

Contracts concerning wills

T can contract to make, not to make, to revoke or not revoke a will - testamentary formalities are not required.  contract law controls, not probate law.

  1. K must be established by
    1. provisions in will stating material terms of K
    2. an express refernced in the will to the K and extrinsic evidence
    3. a writing signed by T evidencing the K
    4. clear and convincing evidence of an agreement or promise between the D and another person for claimaints benefit
  2. requirements and rules
    1. K must be in writing
    2. K is always revocable
    3. oral k enforceable if part performance
  3. Joint & Mutual Wills
    1. joint wills - wills of 2 or more persons executed on the same piece of paper and intended to be the will of each
    2. mutual wills - separate wills by 2 or more persons containing provisions for reciprocal benefits
    3. CA holds, that the execution of a joint or mutual will does not create a presumption of a K not to revoke the will

14

Intestate Succession

Surviving Spouse/Domestic Partner

  1. Community property - SS inherits the D's 1/2 of community property and 1/2 of the quasi CP (so SS ends up with 100% of CP and quasi-CP)
  2. Separate property
    1. if D leaves no issue, parents, siblings, etc, then all to SS
    2. if D is survived by one child, or issue of a predecased child, then 1/2 to SS and 1/2 to Child or child's issue
    3. If D is survivied by 2 or more children or issue of predeceased children, then 1/3 to SS and 2/3 to the child or their issue
    4. If D is survived by parents or siblings, 1/2 to SS and 1/2 to parent or siblings

If Spouse does not Survive (or the remaining share not passing to spouse) passes as follows:

  1. to issue
  2. to parents
  3. to issue of parents (siiblings)
  4. grandparents or issue of grandparents (aunts uncles)
  5. issue of predeceased spouse (step-children)
  6. next of kin
  7. parents of predeceased spouse (in-laws) or issue of parents of predecased spouse (siblings in law)
  8. escheats to the state

General principles

  1. Issue of same degree take per capita, or equally in their own right
  2. issue of more remote degrees take per capital with representation (issue of predeceased child take parents share per capita.  however, if all issue are of same generation, then they get equal shares)
  3. 240 of the probate code distribution - at the 1st level, give shares to all living person.  at the 2nd level, gives shares to all livings person and deceased members of that generation who leave issue.  (codifying per capita by generation)
  4. per stirpes - make the distribution at the first generation, even if everuone is dead.  the issue then steps into the shoes of their predeceased ancestor

Children

  1. adopted childre always treated as natural child of adopting parent
  2. stepchildren or foster childre are treated as adopted childre if it is established that the paretn would have adopted but for a legal barrier
  3. non-marital children may inhereint from mother when there is a parent-child relationship and from father only if father acknowledges child, marriage to mother or by court decree of paternity

15

Distribution of the Estate

  1. lapse
    1. rule of lapse, if the beneficiary does not survive T, beneficiaries' gift lapses or fails unless T expresses a contrary intent in the will.  passes by residual, if none then by intestacy
      1. if the devise is a class gift, only surviving class members take because the will speaks at the time of T's death.  deceased class members share will be deemed to have lapsed
    2. California anti-lapse statute.  a deceased lgatee who is a blood relative of the T or T's spouse takes by representation.  issue of a predeceased devisee may step into shoes of devisee unless will provides otherwise
  2. Simultaneous Death - when two people die at same time, and order of death cannot be established ,property of each decedent is treated as if he predeceased the otehr
    1. beneficiary who does not survivve by 120 hours is treated as if he predeceased T
  3. After-acquired proeprty - will passes all property T owned at death, including after acquired property.  so residuar gets all after acquired property
  4. increase during t's lifetime.  stock dividends or splits paid during t's lifetime go to the beneficeary if the stock is owned by T at death
  5. increase after T's death and during probate
    1. specific devisees - all increases go to beneficiary
    2. general devisees - do not receive the increase.  except beneficiary may recieeved interest paid on beneificeiars gift during the interim between T's death and idstribution of estate
  6. abatement - the process by which certain gifts are decreased
    1. order of abatement if omitted spouse/child/domestic partner
      1. first abte property not passing by T's will or revocable inter-vivos trust
      2. then abate from all beneficiaries of T's will and revocable inter-vivos trust pro rate to the value of the gift received
    2. order to pay off general debts of the decedent
      1. intestate property
      2. residuary gifts
      3. general gifts to non-relative
      4. general gifts to relatives
      5. specific gifts to non-relatives
      6. specific gifts to relatives
  7. exoneration - not automatic in california.  property given by will passes subject to all encumbrances unless to provides otherwise in will

16

Will Substitutes

  1. gifts causa mortis - gifts of personal property perfected by delivery, but motivated by fear of impending death
    1. revocable - subject to claims of creditors/widows
    2. effective as non-probate transfer if unrevoked at death
    3. automatically terminates if T lives
  2. Totten Trusts - see trusts outline

17

Private Express Trust

a fiduciary relationship with respect to property whereby one person, the trustee, holds legal title for the benefit of another, the beneficiary, and which arises out of a manifestation of intent to create it for a legal purpose

  1. trust property - any presently existing interest in property that can be transferred can be corpus of trust
  2. the beneficiary - any ascertainable person or group of people can be the beneficiary including a corporation, or unicorporated assn.  but watch out for the Rule against Perpetuities RAP
  3. trustee - a trust must have a trustee, but the court will not allow the trust to fail solely bx there is no trustee.  when necessary, the court will appont a trustee
  4. intent - settlor must manifest an intention to create a trust
    1. must use mandatory words, rather than words of mere hope or desire. but if precatory words + parol evidence are insufficient to creat a trust, then B takes in fee simple
    2. oral trust ok for personal property, but writing required if land involved SOF
    3. creation
      1. trust to take effect at Settlor's death, must comply with local probate code
      2. trust to take effect during S's lifetime, two methods
        1. transfer in trust - 3rd party as trustee.  for a trust ofreal property, the S must execute and deliver a deed transferring title to the trustee.  for trust of PP, S must deliver trust prperty to trustee
        2. Decalration in trust - S as trustee- for a trust of real prperty, there myst  be a writing satisfying the SOF which indicates the S is also the trustee.  for PP, look for present manifestation of intent.
  5. Purpose - trust must have a valid purpose not contrary to public policy or illegal
    1. if illegality at creation, try to excise the illicit condition.  if you can, the trust will stand, if not, the court will either
      1. invalidate the trust at its inception, or
      2. all the trustee will keep property for himself
    2. if illegality after creation, a resulting trust is decreed (trust must transfer the property back to S if alive, if not, to the S's estate)

18

Charitable Trust

Trust created for public benefit

  1. charitable purpose required.  look to the effect of the gift to determine charitable purpose
  2. beneficiary - there is no ascertainable person or group.  society is the B.  Note: if trust beenfits a small group of people (trust to alleviate poverty among poor relatives) - split in authority re whether it is a private or charitable trust.  must argue both ways.
  3. RAP - does not apply to charitable trusts.  thus a charitable trust can endure forever.
  4. Cy Pres - if S manifests a general charitble intent, but the mechanism for effecting that intent is not possible or practicable, the court, acting in equity, may modify the mechanism cy pres, as nearly as possible, to effectuate S's general charitable intent.
    1. court will admit both intrinsic evidence (the trust instrument) and extrinsic evidence to ascertain S's intent.  But if specific charitable intent, no cy pres resulting from trust
    2. only the court invokes cy pres, not the trustee.  but trustee may petition the court. 

19

Miscellaneous Trusts

  1. Honorary Trusts - a trust which has no ascertainable B and confers no substantial benefit on society - i.e. a trust to further fox hunting or to take care of pet
    1. trustee is not required to carry out S's goal, but has the power to carry it out.  the trustee is on his honor.
    2. if trustee refuses to carry out S's intent, the trust fails(ct will not appoint a new TT)
    3. RAP applies - so these trusts often fail b/c there is no measuring life.  some courts strike the trust at its inception creating a resulting trust.  other courts allow the honary trust to endure for 21 years, then turn it into resulting trust. 
  2. Totten Trust - a tentative bank account, whereby the named B takes whatever is left in the bank account at the death of the owner of the account
    1. the depositor/trustee owns the account during his lifetime, and owes the named B no fiduciary duties whatsoever
    2. may be elevated to a private express trust if S manifests an intent to create a trust

20

Restraints on Alienation

  1. Spendthrift Trust - a trust which by its terms prevents the B from transferring his right to future payments of income or principal, and creditors cannot attach the B's right to future payments
    1. Voluntary alienation - generally, the B cannot ever voluntarily transfer his rights to future payments, as that would defeeat the terms of teh trust
      1. but sometimes a court will recognize the assignemnt on the grounds that the B merely has given the trustee a direction or order to pay the B's agent or representative
      2. prior to payment, the B would have the right to revoke the order or direction
    2. Involuntary alienation - generally creditors cannot attach B's right to future payments
      1. but at common law, preferred creditors can attach the B's right to future payments (IRS, Child Support, etc)
      2. Plus there is a rule in many jurisdictions that any creditor has the right to attach surplus as measured by the B's station in life.  
    3. If S creates a spendthrift trust for himsel.
      1. as to involuntary alienation, in every jurisdiction.  the trust itself is valid, but the spendthrift provisions are not recognized.  can't create a spendthift trust to insulate oneself from creditors
      2. as to voluntary alienation, there is a split in authorty. most jurisdictions ignore the provision and allow the S to voluntarily alienate interest.  but some JX will not allow S to transfer her right to future payment
  2. Support Trust: a trust, which by its terms, allows the trustee to pay only so much income or principal as necessary for the B's health, support, maintenance or education
    1. voluntary alienation - the B cannot voluntarily transfer his right to future payment
    2. involuntary alienation - generally, creditors cannot attach the B's right to future payments, but there are preferred creditors who can attach
    3. if S creates a support trust for himself, same rsult as above
  3. Discretionary Trust - a trust, which by its terms, gives the trustee sole and absolute discretion in determining how much to pay the B if anything, and when to pay the B if ever.
    1. Voluntary alienation - on the one hand B cannot voluntarily transfer his right to future payments b/c B may not get anythign.  On the other hand, if in fact there was an assignemnt, then the assignee steps into the shoes of the B, and if the trustee decides to pay, he must pay the assignee or be held personally liable
    2. involuntary alienation - on the one hand creditors cannot attach B's right to future payments bc there may be nothing to attach.. on the other, if the trustee has notice of the debt and the creditors judgment against the B, if he decides to pay, he must pay thec reditors or be held personally liable.  
    3. if words indicated both discretionary trust and support trust, argue both  ways

21

Resulting Trusts

  1. an implied in fact trust baed upon the presumed intent of the parties
  2. if a resulting trust is decreed by the court, the resulting trustee will transfer the property to the S if alive and if not to the S's estate.  ie. to the residuary  devisees if any, and then to intestate. 
  3. Arises when
    1. private express trust (PET) ends by its own terms and no provision for what happens to the corpus thereafter
    2. a PET fails because there is no B
    3. a charitable trust ends b/c of impossibility or impractivability and cy pres won't work
    4. a PET fails because of illegality
    5. there is an excess corpus in a PET
    6. purchase money resulting trust
    7. there is a semi-secret trust (gift made to somehone to hold as trustee, but no named B)

22

Constructive Trusts

an equitable remedy to prevent fraud or unjust enrichment

  1. the wrongdoer will be deemed a constructive trustee and must transfer the property to the intended B
  2. arises when
    1. a trsutee of a PET or charitable trust makes a profit from self-dealing
    2. there is fraud in the inducement or undue influence in a will
    3. there is a secret trust (the will on its face makes gift to A, but figt is given on the basis of an oral promise to A to use the property for the benefit of B - parol evidnce admissible to show that B was the intended B
    4. oral real estate trusts

23

Trustee Powers

  1. Trustee powers - trustee has those powers expressly conferred by the trust instrument, state law, and court decree and all powers implied as necessary to accomplish the trust purpose.
    1. trustee may sell trust property, incur expenses, lease, and borrow money as necessary to carry out the trust purpose.  poewr subject to review for abose of discretion
    2. trustee may not borrow money, mortgage or otherwise encumber trust proeprty
    3. trustee may sue thrid parties who damage the trust property
    4. joint trustees must exercise their power by unanimous agreement

24

Trustee Duties

  1. Duty of loyalty - trustee must administer the trust for benefit of B, having no other consideration in mind. no self-dealing.  must turn over profits from self-dealing
  2. duty of due care - TT must act as a reasonably prudent person dealing with his own affairs
  3. Duty to invest - split of authority, 3 alternative, speak to all three, but under all three standards, the trustee has a duty to diversify so if there is a loss, the entire portfolio is not destroyed
    1. state lists - in certain JX, in the absence of directions in the trust, the trustee must follow a list of good investments, such as
      1. federal bonds, federal CDS, first deeds of trust in RE, sometimes stock of publicly traded corps
      2. never invest in a new business or second deeds of trust
    2. Common law prudent person test - duty to invest requries the trustee to act as a reasonably prudent person investing his own property, tryting to maximize income while preserving corpus.  grater skill, then higher standard
      1. each investment scrutinized
      2. good investments include: same as above, except only blue chip stock, and maybe mutual funds
      3. never invest in a new business or second deeds of trust
    3. Uniform Prudent investor act -adopted by most states. must invest as prudent investor
      1. each investment not scrutinzed as above, but performance is measured in the context of the entire trust portfolio
      2. any investment not per se invalid
    4. if breach of duty, TT must made good on the loss
  4. Duty to earmark - requires the trustee to label trust property as trust property.  if breach and there is a loss,
    1. at common law the trustee is held personally liable regardless of weheter there is a causal relationship between the failure and the loss
    2. under modern approach, the trustee is held personally liable only if the loss was caused by failure to earmark
  5. Duty to segregate - trustee cannot commingle his own funds with trust funds.  if breach, the TT can be removed and held personally liable for loss
  6. Duty not to delegate - TT can rely on professional advisors in reaching a decision, but TT cannot delegate decision making authority to these advisors
    1. but modernly, TT can delegate the duty to invest in a professional money manager
  7. Duty to account - requies the TT to give B a statement of trust income and expenses on a regular basis
  8. Remedies for breach of duty -
    1. damages
    2. constructive trust
    3. tracing and equitable lien on property
    4. ratify the transcation if good to the B
    5. remove trustee

25

Liability of TT to third person

  1. Contract Liability
    1. common law - TT sued in her personal capacity, so her personal assets are at state.  But trustee can get indemnifiation from trust assets if actino w/in her power and not personally at fault
    2. modern law - if other pwerson to the K knows that TT is entering into the K as agent, then TT must be sued in her agent capacity, and her personal assets are not at stake
  2. Tort liability
    1. common law - TT sued in her personal capacity.  if without fault, may seek indemnification
    2. modern law - TT sued in individual capacity and is personally liable for torts only if TT is personally at fault.  otherwise sued as agent

26

Modification and termination of Trusts

  1. Modification by settlor - S can modify the trust if the S expressly reserves the power to modify the trust.  S also has power to modify if S has power to revoke
  2. Modification by Court -
    1. there can be modificaiton by court regarding charitable trusts and cy press powers.  changing the mechanism to further settlors own charitable intent.  
    2. court may also modify pursuant to its deviation power to change the administrative or managment provisions of the trust.  requires
      1. unforeseen circumstances on part of settlor
      2. necessity (to preserve the trust)
  3. Termination of revocable trusts
    1. majority rule - to retain power to revoke the S must expressly reserve poewr in the trust instrument
    2. minority rule - S has power to revoke, unless the trust is expressly made irrevocable
  4. Termination of irrevocable trusts - 3 methods
    1. settlor and all beneficiaries agree to terminate
    2. all the beneficiaries agree to terminate and all the material purposes have been accomplished
    3. By operation of law - passive truts and statute of uses
      1. PET of RE and the TT has only passive duties.  T terminates under the Statute of USes and B gets legal title by operation of law
      2. Not recognized in all jurisdictions
      3. Generally only applies to a trust of real property.  but should apply by analogy to trusts of personal property because equity should not see a useless act done.

27

Income v. Principal problems

  1. Life Tenant..
    1. gets
      1. cash dividends,
      2. interest income
      3. net business incoime
    2. pays
      1. interest on loan indebtedness
      2. taxes
      3. minor repairs
  2. Remaindermen
    1. gets
      1. stock dividends
      2. stock splits
      3. net proceeds on teh sale of trust assets
    2. pays
      1. principal part on loan indebtedness
      2. major repairs or improvements
  3. adjustment power of trustee - TT can disregard above stateed rules regarding allocation of income to life tenant and remaindermen if differecnt allocation is necssary to adminster the trust fairly