Wills

Property Owned at Death

(3) Property owned at death - Section 2033 reaches the value of all property owned at death: interests in property that pass by will or intestacy and are subject to administration in the decedent's "probate" or "testamentary" estate. However, for assets that are classified as community property under a state's community property laws, only the deceased spouse's ½ community interest is includible in his or her gross estate.

Lifetime Transfers for Estates

(4) Lifetime transfers—In general - If the estate tax applied only to property owned or passing at death, it might be possible for a person to make lifetime transfers of property w/ retained benefits or controls, and thereby retain some of the economic benefits of ownership w/out incurring an estate tax. It also be possible to make a gift of (e.g.) a life insurance policy shortly b/f death, w/ the policy value at its lifetime value ("cash surrender value") for gift tax purposes, and thereby remove the policy proceeds from the insured's gross estate. Sections 2035-2038 operate to prevent estate tax avoidance through such lifetime transfers. (5) Lifetime transfers w/in three years of death - Section 2035 reaches certain gifts made w/in three years of death plus any gift taxes paid thereon. Under current law, most transfers made w/in the three-year period are not includible in the gross estate. Instead, they are subject to the "adjusted taxable gifts" rule (discussed infra). However, § 2035 does apply if the insured transfers a life insurance policy w/in three years of death. (see example 3 on Supp. VI-37) (6) Lifetime transfers w/ retained benefits and controls - Sections 2036 to 2038 cause taxation of transfers in which the decedent retained either an economic interest in, or a power to control, beneficial enjoyment of the transferred property. Transfers w/ a retained life estate - Under § 2036(a)(1) the gross estate includes transfers w/ a retained life estate. In addition to catching transfers in which a life estate is expressly retained, the statute reaches transfers in which retention of a life estate is implied from the circumstances or from the conduct of the parties. Transfers w/ a retained power to control beneficial enjoyment - Section 2036(a)(2) applies to transfers w/ a retained power to control beneficial enjoyment: the power to "designate the persons who shall enjoy the property or the income therefrom." The fact that the transferor can exercise the distribution power only as a trustee (i.e., in a fiduciary capacity), and only w/ the consent of another trustee (if any), does not avoid the gross estate inclusion. Transfers w/ a retained power to revoke, alter, amend, or terminate - Section 2038 reaches transfers w/ a retained power to revoke, alter, amend, or terminate the transfer. Thus, the value of assets settled in a revocable trust is includible in the transferor's gross estate. Also, a discretionary power over income or principal is considered to be a power to "alter or amend." As a consequence, many transfers governed by § 2036(a)(2) are also caught by § 2038; there is considerable overlap b/t these two provisions. Sections 2036(a)(2) and 2038 must be consulted in any case in which the grantor of an irrevocable trust wishes to name himself as a trustee. If one of the objectives of the trust is to remove the transferred property from the grantor's gross estate for estate tax purposes, care must be taken to ensure that the trustee distribution and administration powers do not result in the inadvertent retention of a power that triggers either of these Code provisions.

Non-testamentary Transfers

(7) Nontestamentary transfers—In general - Sections 2039 to 2042, the nontestamentary transfer sections of the estate tax Code, reach interests that pass at death other than by will or intestacy. These sections apply to interests that pass by right of survivorship, interests that pass pursuant to a beneficiary designation under a K (life insurance proceeds and employee death benefits), and property over which the decedent held a general power of appointment. (8) Annuities; employee death benefits - Section 2039 has as its primary purpose the estate taxation of death benefits under "qualified" employee retirement plans and individual retirement accounts. In general, death benefits paid under a qualified retirement plan or IRA are includible in the employee's gross estate. (9) Property passing by right of survivorship - Section 2040 reaches interests passing by right of survivorship. In the case of joint tenancies b/t spouses, the qualified joint interest rule of § 2040(b) requires inclusion of ½ of the property's value in the decedent's gross estate, regardless of which spouse furnished the consideration for the property's acquisition. (However, inclusion of the ½ interest in the gross estate does not lead to additional taxes, b/c the interest passing to the spouse qualifies for the unlimited marital deduction.) (see Supp. VI-39, example 9) If the survivorship estate was b/t the decedent and some other person (e.g., a parent and child), under § 2040(a) a consideration furnished test applies. The value includible in the decedent's gross estate is in proportion to the consideration furnished by the decedent for the property's acquisition. (see Supp. VI-39, example 9)

SPECIAL CLASSIFICATION RULES

(A) GENERAL RULE: INCOME FROM SEPARATE PROPERTY IS COMMUNITY PROPERTY (1) Corporate distributions. (a) Cash dividends—community property. (b) All other corporate distributions (e.g., stock splits and stock dividends)—separate property. Stock dividends is not "income" (the company is just exchanging pieces of paper) and t/f if the underlying stock was separate property, the dividend shares are separate property too. (c) Capital gains—separate property. (2) Exception: Spouses may agree that income from separate property shall be separate property. Must be by written agreement signed by both spouses. Tex. Const. art. 16, § 15. (3) Exception: Interspousal gifts—income presumed to be donee spouse's separate property. Tex. Const. art. 16, § 15. (B) LIFE INSURANCE POLICIES—INCEPTION OF TITLE RULE APPLIES (1) First premium payment determines ownership. (2) Policy acquired after marriage but while domiciled in separate property state. Under conflict of laws principles, in determining the right to the proceeds at death and the federal estate tax consequences, the policy is separate property. However, for purposes of division on divorce, the policy is quasi-community property. (3) Equitable claim for reimbursement. There is no claim for economic contribution b/c the payment of premiums on a life insurance policy does not involve discharging a debt (the insured is not legally obligated to pay each year's premiums). However, a number of Texas cases have granted claims for equitable reimbursement where community funds are used to pay the premiums on a separately-owned insurance policy w/ no offsetting benefit. (C) CLOSELY HELD BUSINESS INTERESTS (1) Stock in closely held business is separate property if owned b/f marriage. (2) Jensen reimbursement claim recognized by statute. Statutes enacted in 2001 recognize a claim for economic contribution only where community funds are used to discharge secured debt or make capital improvements on one spouse's separate property. Texas Family Code § 3.408 states that an equitable claim for reimbursement can arise in other fact settings The statute specifically refers to reimbursement claims for payments that reduce unsecured debt and claims based on inadequate compensation for the "time, toil, talent, and effort" of one of the spouses. The reference to one spouse's "time, toil, talent, and effort" amounts to statutory recognition of Jensen v. Jensen. Under Jensen, the community estate is entitled to: (a) Reimbursement for value of time, toil, and talent expended by a spouse to enhance her separate estate; (b) Beyond that reasonably necessary to manage and preserve the separate estate; and (c) Reduced by compensation received for the spouse's time, toil, and talent in the form of salary, bonus, dividends, and other fringe benefits. (3) Business incorporated during marriage. The community presumption applies to a business that is incorporated during marriage. However, separate ownership can be established through tracing.

Remainder

A remainder is vested if: (1) it is given to a presently ascertainable person and (2) it is not subject to a condition precedent (other than the termination of the preceding estates). A remainder is contingent if: (1) it is not given to a presently ascertained person or (2) it is subject to a condition precedent. Case 2 - O conveys a fund in trust "for A for life, then to B." B has a remainder which will certainly become possessory upon the expiration of A's life estate. B/c it is certain to become possessory, we call it an indefeasibly vested remainder. If B dies during A's life, B's remainder, like B's other property, passes under B's will or by intestacy to B's heirs. Case 3 - O conveys a fund in trust "for A for life, then to B if B survives A." B has a remainder, for it is possible (but not certain) that B will take the property upon A's death. If B is then alive, B will take, and if B is then dead, the property will revert to O. B has a contingent remainder.

Adult Adoptions

Adult adoptions Johanson: Argues that the factual scenario in Lehman is distinguishable from the situation where the adoptor and adoptee are spouses or lovers. The will in Lehman defined "children" to include adopted children. In Minary v. Citizens Fidelity Bank & Trust Co., the KY ct held that adoption of an adult for the purpose of bringing that person under the provisions of a preexisting testamentary instrument (i.e., to give the adoptee inheritance rights) does not allow the adoptee to inherit through the adoptive parent (but the adoptee can still inherit from the adoptive parent). Sanctioning this act of subterfuge would thwart the will of the testator. Under Texas law, you can adopt anyone, child or adult, but the adoption is irrevocable. UPC § 2-705(c) requires that an adoptee live w/ the adoptive parent while a minor in order to inherit from one other than the adoptive parent. Drafting tip - Use of the phrases "children of the body," "natural children," and "children born to . . ." excludes adopted children.

Consequences of Revocable T During Life

Advantages and Disadvantages of Revocable Trusts - While the revocable trust has advantages for many clients, for some it will be unsuitable. Consequences During Life of Settlor (1) Property Management by Fiduciary - A TP trustee may be selected to manage a funded revocable trust. The settlor may want to be relieved of the burdens of financial management. On the other hand, when property is put in trust, some inconveniences may arise upon sale or mortgage of the property. TPs such as banks and transfer agents may want to see copies of the trust instrument to determine whether the trustee has power to engage in the transaction. It is not as easy to conduct some transactions when title to the property is in a trustee as it is when title is in a private individual. (2) Keeping Title Clear - A revocable trust is useful in keeping separate and apart property that husband or wife or both want not to be commingled w/ their other assets. • Ex: A husband and wife may want to establish separate revocable trusts of property that each brings to the marriage or acquires by inheritance. (3) Income and Gift Taxes - Under the federal income, gift, and estate taxes, assets in a revocable trust are treated as still owned by the settlor. When the revocable trust is created, it is not treated as a completed gift to the beneficiaries under the federal gift tax. B/c of the retained power to revoke, trust income is taxable to the settlor regardless of to whom it is paid. There are no federal tax advantages in creating a revocable trust. (4) Dealing with Incapacity - One of the major uses of revocable trusts. Normally, only net income can be spent unless you get prior permission. A revocable trust can be used in planning for the contingency of incapacity. The settlor may be co-trustee, w/ the trust instrument providing that either trustee alone may act on behalf of the trust. Or the trust instrument may provide that the other co-trustee shall act as sole trustee if the settlor becomes incapacitated. A revocable trust is a preferable alternative to guardianship for dealing w/ incapacity.

Bypass Trust

Bypass Trusts: Section 2041 serves a very important function in estate planning. This provision sets the outer limits on the interests and powers that can be given to a trust beneficiary w/out causing the property to be taxed in the beneficiary's estate. As long as the interests and powers given to the beneficiary do not reach the level of a general power of appointment, the trust property will not be includible in the beneficiary's gross estate. As indicated above, the beneficiary can be given: (i) the right to income for life, (ii) a power to appoint trust principal to herself so long as the power is limited by a "health, education, support or maintenance" ascertainable standard, (iii) a power to appoint up to $5,000 or 5% of the trust principal to herself in any year, and (iv) a special or limited power to appoint the trust principal either during lifetime or by her will—all w/out estate tax cost. In addition, (v) the beneficiary can serve as trustee of the trust, so long as the trust's distribution or administration powers do not have the effect of giving her a general power of appointment. A trust containing some or all of these provisions is sometimes referred to as a "bypass trust," b/c the trust provides substantial economic benefits to the beneficiary during lifetime and yet "bypasses" the beneficiary's estate for estate tax purposes.

Consequences of Revocable Ts at Death

Consequences at Death of Settlor: Avoidance of Probate (1) Costs - Assets transferred during life to a revocable trust avoid probate b/c legal title to the assets passes to the trustee, and there is no need to change title to the trust assets by probate administration at the settlor's death. Although trustee's fees may be payable if a TP trustee is named, these fees will be considerably smaller than ct costs, attorney's fees, and executor's commissions incurred in probate. Against the savings in probate fees, certain other costs must be offset. Lawyers charge more to draft a revocable trust than a will, particularly when there are related pour-over documents. (2) Delays - In an estate administration, the assets may be in the executor's possession and control for a substantial period of time. Under a revocable trust, income and principal can be dispersed to the beneficiaries much more quickly. (3) Creditors - In probate a short-term S/L is applicable to creditors. There is no short-term S/L applicable to revocable trusts; the limitations period is the normal one applicable to the particular claim. T/f, where it is important to cut off the rights of creditors (as might be true w/ professionals such as doctors or lawyers where the S/L on malpractice runs from discovery) probate holds an advantage over the revocable trust. (4) Publicity - A will is a public record, open to disappointed heirs and the general public. An inter vivos trust is private. Hence, revocable trusts are especially attractive to persons desiring secrecy. (5) Ancillary Probate - If the settlor owns real property located outside the domiciliary state, any will passing title to that property must be probated in the state where the land is located. To avoid ancillary probate, which may be cumbersome and expensive, land in another state can be transferred to a revocable inter vivos trust. Through this device, title to the land is changed to the trustee during the settlor's life. (6) Avoiding Restrictions Protecting Family Members - In many states the surviving spouse is given by statute an elective share in the decedent's probate estate only. In these states, the elective share does not extend by statute to revocable trusts created by the decedent spouse. Cts in most of these jurisdictions, however, have permitted the surviving spouse to reach the assets in a revocable trust created by the decedent spouse. Nonetheless, a disgruntled spouse might be able to create a funded revocable trust in another state not recognizing the spouse's right to reach the trust and thereby defeat a spouse's elective share. Furthermore, pretermission statutes apply only to probate property. (7) Avoiding Restrictions on Testamentary Trusts • A testamentary trust is a trust created by a will. A testamentary trust comes into being by an order of the probate ct that supervises the administration of the estate, and in many states this ct continues to supervise the administration of the testamentary trust after the estate is closed. An inter vivos trust, on the other hand, comes into being w/out any ct order. It is not subject to any ct supervision unless the beneficiary or the trustee comes into ct to settle some trust matter. • Inasmuch as a testamentary trust is created by a ct order, the trustee may have the duty to account to the ct. To avoid judicial accounting, the settlor may create a revocable inter vivos trust. • In some states, a nondomiciliary bank or a nonresident person cannot serve as testamentary trustee under the will of a T who was a domiciliary of the state. By contrast, the settlor of an inter vivos trust can name as trustee a person or bank in another state. Where the beneficiaries reside in another state, the settlor may wish to appoint a trustee in their state. (8) Choosing the Law of Another Jurisdiction to Govern - As a general rule, the settlor of an inter vivos trust of personal property may choose the state law that is to govern the trust. The settlor may choose the law of the domicile of the settlor or of the beneficiaries, or the law of the state where the trust is administered. A testator may not have this freedom of choice. (9) Lack of Certainty in the Law - Where a revocable trust is used as a substitute for a will, the law may be more uncertain in solving a problem that arises than it would be in the case of a will. Wills rules that have developed over the centuries may or may not apply to revocable trusts. (10) Avoiding Will Contests - If a will contest is foreseen, creating a revocable trust of the client's assets may be advisable. A revocable trust, like a will, can be contested for lack of mental capacity and undue influence. In practice, however, it is more difficult to set aside a funded revocable trust on these grounds. (11) Estate Taxation - There are no federal tax advantages to a revocable trust. (12) Controlling Surviving Spouse's Disposition - When one spouse wants some assurance that the surviving spouse's property will be disposed of in accordance w/ a mutual estate plan, both spouses can create a revocable trust of their property—to become irrevocable upon the death of one spouse. This use of the revocable trust may be especially attractive in second marriage situations

Vested Remainder Subject to Divestment vs Contingent Remainder

Difference between a vested remainder subject to divestment and a contingent remainder - A vested remainder subject to divestment is a remainder given to an ascertained person, w/ a proviso that the remainder will be divested if a condition subsequent happens. It is not subject to a condition precedent. Whether a remainder is contingent or vested subject to divestment depends solely upon the language of the instrument, i.e., the sequence of words used in the instrument. Interests are classified in sequence as they are written in the instrument. If a condition is incorporated into the gift of the remainder, the condition is a condition precedent. But if the remainder is given, and then words of divestment are added, the condition is subsequent. Case 5 - O conveys a fund in trust "for A for life, then to B if B survives A, and if B does not survive A, to C." b has a contingent remainder b/c the words "if B survives A" are incorporated into B's gift; they come b/t the commas. The essential idea to grasp is that the words "if B survives A" are part of the gift to B. C has an alternative contingent remainder. Case 6 - O conveys a fund in trust "for A for life, then to B, but if B does not survive A, to C." B has a vested remainder subject to divestment by C's executory interest. Between the commas setting off B's gifts there are no words of condition. There is a condition subsequent to B's gift introducing the divesting gift over to C.

More Elective Share

Dissatisfied w/ vague tests laid down by cts, many state legislatures have enacted statutes providing objective criteria for determining what nonprobate transfers are subject to the elective share. These statutes eschew the judicially crafted illusory transfer and other like tests, favoring instead a clear list of nonprobate transfers that are added to the probate estate to constitute a net estate or an elective estate against which the surviving spouse may elect to take his or her statutory estate. UPC (1969) § 2-202 - (THIS IS THE "LAW OF THIS JURISDICTION" FOR EXAM PURPOSES) - applies in separate (common law) property states (e.g., Illinois and a number of other states). The surviving spouse is entitled to an elective share of ⅓ of the net augmented estate. The augmented estate includes (1) the probate estate, and the following nonprobate and inter vivos transfers made w/out consideration at any time during the marriage: (2) any transfer under which the decedent retains the right to possession or income from the property; (3) any transfer which the decedent can revoke or invade or dispose of the principal for his own benefit (revocable trust); (4) any transfer in joint tenancy w/ someone other than the spouse (to the extent of the consideration contributed by the decedent); The presumption is that the transfer was made w/ the decedent's funds. Only the portion of the transfer for which the decedent furnished consideration is included in the decedent's gross estate. (5) any transfer (except for transfers to the surviving spouses) made w/in 2 years b/f death exceeding $3,000 per donee per year; and (6) property given to the surviving spouse during life, including a life estate in a trust, and property received by the spouse at death derived from the decedent, including life insurance or pensions. The augmented estate expressly excludes life insurance payable to a person other than the surviving spouse from the augmented estate. The purpose of including in the augmented estate property given to the surviving spouse by the decedent during life or through nonprobate transfer at death (item 6 above) is to prevent a spouse who has been well provided for by lifetime or nonprobate transfers from electing against the will and claiming more than a fair share. To be equitable, the 1969 UPC includes gifts to the spouse in the decedent's augmented estate, gifts that are credited against the elective share to which the surviving spouse is entitled. Should life insurance owned by the decedent be subject to the elective share? The 1969 UPC exempted it. The 1990 UPC included it. The life insurance industry has fought this, just as it has fought allowing the policy beneficiary to be changed by will. What is the reason for the opposition? The insurance industry wants life insurance to provide a loophole that insureds who desire to do so can use to deplete the probate estate and avoid the elective share. To the extent life insurance policies can be used to avoid the elective share and/or probate generally, the policies are more marketable. (1990)...not the law of this jurisdiction because it has not been well received.

Standby Revocable Trusts

Funding the Trust: Standby Revocable Trusts (Supp. IV 59-61) In order to establish an inter vivos trust, legal title to the trust assets must be transferred to and titled in the name of the trustee. In situations in which a primary motive for creating a revocable trust is to avoid probate, the trust must be funded during the settlor's lifetime so as to put the assets in "nonprobate asset" status. This requires that the assets—securities, real estate, etc.—must be retitled in the name of the trustee by an appropriate instrument of conveyance. It may be, however, that avoidance of probate is not a material concern but, instead, the concern is the client's possible incapacity. In this situation, it may be more appropriate to create a standby revocable trust by funding the trust w/ a nominal amount (e.g., $10). The trust would then be placed in a standby mode until such time as it is needed upon the settlor's incapacity. The successor trustee provision would then kick in, and the settlor's assets would be transferred to the trustee, avoiding an adjudication of incapacity and avoiding a guardianship administration. Transferring the client's assets to the trust after the client has lost his capacity requires the client to have executed a durable power of attorney authorizing someone else to transfer assets into the trust. The client still will need a backup will. (see forms on Supp. IV 60-61) The standby revocable trust is an insurance policy to cover the contingency that issues may arise that cannot be dealt w/ through a durable power of attorney but rather need a trustee. Some TPs raise more questions/concerns when dealing w/ an agent acting under a durable power of attorney than when dealing w/ the trustee of a trust (b/c the trustee has legal title to the property). Some transactions require a trustee's power; an agent under a durable power may not have authority to execute a particular transaction

More on Durable Powers of Attorney

Durable Powers of Attorney - Notes and Problems (Supp. IV-42) (1a) Note (top of Supp. IV-39) that the client has a choice. She can have the power operative immediately, by crossing out option B. Alternatively, she can have what is called a "springing" durable power by crossing out option A. After the options are explained, most clients prefer the "springing" power under option B. And yet attorneys invariably recommend that the client cross out option B, making the durable power presently operative. Why is this so? Under the "springing" option, in order to obtain authority to act on behalf of the principal, the agent must sign a statement certifying the principal's incapacity. This (the questionability of the agent's authority under a springing durable power of attorney) gives third parties another excuse for refusing to deal w/ purported agents attempting to act under a durable power of attorney. (This is why attorneys recommend that clients make their durable powers presently operative.) (1b) Is there a way to make the durable power a springing power as a practical matter, even though the client crosses out option B? A power of attorney does not have to be delivered to the agent or recorded in order to be effective. You can wait to give the durable power to the specified agent until the principal becomes incapacitated. (2) While statutory durable powers of attorney are widely employed, more than a few attorneys and law firms continue to use their own handcrafted durable power form (e.g., Supp. IV-35), which they have found (from experience) to be more useful. (3) Note paragraph (e) of the hand-tailored form (i.e., long-form power of attorney), which authorizes the agent to transfer assets to a revocable management trust, and even to create such a trust. (4) Suppose that the client owns real estate, and it is contemplated that sale or mortgage of real property may be warranted if the client becomes incapacitated. Rather than relying on general language giving the agent a power of sale, the durable power should expressly authorize the sale or mortgage by making specific reference to the property in question. It's also a good idea to incorporate by reference a legal description of the property (via an attached Xerox copy of the deed). (5) Note that if the principal initials the box at the bottom of the first page of the statutory form (Supp. IV-38), the agent can be given the authority to make gifts up to the amount of annual exclusions, which currently is $12,000 per donee. From an elder law standpoint, this may be too restrictive. The IRC also authorizes an unlimited exclusion (over and above annual exclusions) for tuition and medical payments made directly to the service provider. Moreover, it may be appropriate to give the agent the authority to make gifts over and above annual exclusions, as a means of "gifting down" so as to enable the client to qualify for custodial care under Medicaid.

EGTRRA of 2001

Economic Growth and Tax Relief Reconciliation Act of 2001 EGTRRA) - Perhaps the most cogent rationale for estate tax reform advanced in the 1990s was that the wealth of the middle class had increased so substantially that significant numbers of estates of middle class decedents dying the next decade or two would begin to exceed the exemption amount of $600,000. In 2001, President G.W. Bush signed the EGTRRA, which repealed the federal estate tax, effective January 1, 2010. Under the EGTRRA, effective January 1, 2002, the maximum estate tax and gift ax rate was lowered from 55% to 50%, and the exemption equivalent was increased to $1 million. In 2005, the estate and gift tax rates in excess of 47% are repealed, and the exemption equivalent for estate tax purposes (but not for gift tax purposes) is $1.5 million. Rate reductions and increases in the exemption equivalent continue through 2009, as reflected in the table set out below:

Economic Recovery Tax Act Of 1981

Economic Recovery Tax Act of 1981 - During the presidency of Ronald Reagan, the federal estate and gift tax system was completely revised. The Economic Recovery Tax Act of 1981, enacted at the urging of President Reagan, provided considerable tax relief at both the lower and upper ends of the economic scale. The tax exemption (transformed into a credit) was increased to $600,000, thus eliminating estate tax worries for the vast majority of citizens. At the same time, the top rate was lowered to 55%, and an unlimited marital deduction was introduced. A husband or wife could now transfer unlimited amounts of property to his or her spouse tax free. Transfer taxes were not levied until the spouses' property was transferred outside the marital unit. W/ the unlimited marital deduction and the exemption of estates under $600,000, estate tax planning was necessary only for the rich. The middle class was effectively removed from the estate taxation system.

Executor vs Administrator

Executor - the personal representative designated in the decedent's will. One of the advantages of writing a will is that the testator can designate who is to administer the estate. Another reason for writing a will is that the expense of a fiduciary bond can be eliminated if that is desirable. Administrator - the personal representative appointed by the probate ct. If a person dies intestate or leaves a will that fails to name an executor who qualifies, the administrator is selected from a statutory list of persons who are to be given preference, typically in the following order: surviving spouse, children, parents, siblings, creditors. The personal representative is required to pay bond unless the will waives the bond requirement.

Executory Interest

Executory Interests - any future interest in a grantee that isn't a remainder. An executory interest differs from a remainder in that it is a divesting interest. A remainder never divests a preceding estate prior to its expiration; that is the job of an executory interest. An executory interest that may divest another transferee if a specified event happens is called a shifting executory interest b/c, if the event happens, the executory interest will shift the property from one transferee to another transferee. In Case 6 above, C has a shifting executory interest. An executory interest that may divest the transferor in the future if a specified event happens is called a springing executory interest b/c, if the event happens, the property will spring out from the transferor to the transferee. An old example of a springing executory interest at early common law was a marriage arrangement whereby the father of the bride would convey land "to my daughter A when she marries B." Springing executory interests are rare today. Executory interests are almost always created in of two basic forms, which are illustrated by Cases 7 and 8. Case 7: Executory interest divesting a possessory fee simple upon an uncertain event - O conveys Blackacre "to A, but if A dies at any time w/out issue surviving her, to B." A has a fee simple subject to divestment by B's shifting executory interest. B's executory interest is subject to a condition precedent (A's death w/out surviving issue) and is not certain to become possessory. Case 8: Executory interest divesting a vested remainder - O conveys a fund in trust "for A for life, and on A's death to B, but if B is not then living, to C." B has a vested remainder in fee simple subject to divestment by C's shifting executory interest. C's executory interest is subject to a condition precedent (B dying b/f A dies) and is not certain to become possessory.

Gifts of Future Interests

Gifts of future interests - The annual exclusion is for gifts of present interests (e.g., an outright gift to the donee) but not for gifts of future interests. The denial of an exclusion for a gift of a future interest rests upon the apprehended difficulty, in many instances, of determining the number of eventual donees and their respective gifts. Ex 1: Suppose that a donor transfers securities to the trustee of an irrevocable trust, to pay the income to A for life, and on A's death to pay the principal to A's descendants. The donor is entitled to an exclusion for the present income interest given to A, but not for the remainder interest given to A's descendants. Ex. 2: O creates a trust to pay the income among O's three children in such shares as the trustee in her uncontrolled discretion deems advisable. Even though all the net income must be distributed, since no beneficiary has a right to any ascertainable portion of the income, no beneficiary has a present interest. No exclusions are allowable w/ respect to the transfers in trust. Section 2053(c) trusts for minors - Until 1954, the denial of an exclusion for gifts of future interests created problems for a donor who wished to make a gift to a minor child or grandchild. If the property is income-producing or requires management, ordinarily the child is not given possession; the child takes possession only upon reaching majority. Is, then, any gift of income-producing property to a child a gift of a future interest? The answer is No, with qualifications. To permit some flexibility in making gifts to minors that qualify for the exclusion, Congress has provided in § 2053(c) a way to avoid having a gift classified as a future interest. Under this provision, a disposition on behalf of a beneficiary under age 21 qualifies for the annual exclusion "if the property and the income therefrom— (1) may be expended by, or the benefit of, the donee b/f his attaining the age of 21 years, and (2) will to the extent not so expended— (A) pass to the donee on his attaining the age of 21 years, and (B) in the event the donee dies b/f attaining the age of 21 years, be payable to the estate of the donee or as he may appoint under a general power of appointment." To create a § 2053(c) trust for a minor qualifying for the annual exclusion, the donor must give the trustee power to expend all the income and principal on the donee b/f the donee reaches 21. No person other than the minor can have a beneficial interest in the property. Section 2053 is not limited to transfers in trust. Any transfer that satisfies the statute's requirements qualifies for an exclusion. To provide a convenient form for making gifts to minors, every state has enacted the Uniform Transfers to Minors Act (UTMA). Under. Under the act, property can be transferred to a person (including the donor) as custodian for the benefit of a minor. The terms of the UTMA have been drafted so as to satisfy § 2503(c): The custodian has the power to apply the property for the benefit of the beneficiary, the custodianship terminates when the beneficiary reaches age 21, and if the beneficiary dies b/f ages 21 the custodial property is distributed to his estate.

HEMS Ascertainable Standard

HEMS Ascertainable Standard Invasion Power Exception Valid Exception - Section 2041 contains several important exceptions to the "general power of appointment" rule. Under § 2041(b)(1)(A), "a power to consumer, invade, or appropriate property for the benefit of the decedent which is limited by an ascertainable standard relating to the health, education, support, or maintenance" of the donee. No Exception - However, a power given a beneficiary to invade the trust "for her health, support and comfort" would give the beneficiary a general power of appointment, leading to taxation in the power-holder's gross estate, since "comfort" is not w/in the HEMS ascertainable standard. Other no-no words are welfare, benefit, and well-being. Hybrids: Suppose the trust gives the beneficiary the power to invade the trust "for her comfortable health and support." This is w/in the HEMS ascertainable standard b/c "comfortable" is an adjective that modifies the permissible standard of health and support. Suppose that the trustee (who is someone other than the beneficiary) has the power to distribute principal to the beneficiary for her support, maintenance, comfort and welfare." Although "comfort" and "welfare" are not on the ascertainable standard list, no taxable general power of appointment exists b/c the beneficiary does not have a power to appoint to herself for her comfort and welfare; the trustee has the power. But if the trust named the beneficiary as trustee or co-trustee, the beneficiary would hold a general power of appointment not limited by an ascertainable standard. The fact that the power is exercisable only in a fiduciary capacity is irrelevant for this purpose. The fact that the beneficiary was a co-trustee, and could only exercise the power w/ the consent of the other co-trustee, is also irrelevant. Why is it not necessarily a smart thing for the beneficiary to exercise the power to reach principal? Suppose the beneficiary owes property taxes and wants to exercise the power to withdraw trust principal to pay the property taxes. This purpose is clearly w/in the ascertainable standard related to the beneficiary's HEMS. So it's OK to give the beneficiary a power to invade principal that is limited by an ascertainable standard related to the beneficiary's HEMS. However, it would not be a smart thing from an economic/tax planning perspective for her to use the power. The trust is there for emergencies when the beneficiary doesn't have her own assets to pay the bill. The trust isn't includible in her gross estate when she dies. The trust assets will pass to her children free of estate tax when she dies. She should be trying to reduce her gross estate. Thus, if she has other liquid assets that would be includible in her gross estate, she should sell those and use the proceeds to pay the property tax bill, thereby keeping the residuary trust intact.

Illusory Transfer Test

Illusory Transfer Test - In Sullivan the ct rejected the illusory transfer test laid down by Newman v. Dore (N.Y. 1937) for determining what nonprobate transfers are subject to the surviving spouse's election. Cts following that test hold that an "illusory" revocable trust counts as part of the decedent's assets subject to the elective share; the trustee may have to contribute some of the trust assets to make up the elective share. What kind of ownership rights retained by the decedent make a transfer illusory under the illusory transfer test is unclear. The key is said to be the amount of control retained by the decedent spouse. But how much is too much? They thought he retained such broad discretion over his non-probate transfer that it was illusory. He gave all but $120 into a revocable trust and clearly indicated he wanted to disinherit his wife. This test has been discredited everywhere, except in Texas

Intent To Defraud and Present Donative Interest

Intent to Defraud Test - Some states found the illusory transfer test illusory and adopted instead an intent to defraud test. In determining whether the decedent intended to defraud his surviving spouse of her elective share, some look for subjective intent. This subjective test breeds litigation. Others look for objective evidence of intent: the control retained by the transferor, the amount of time b/t the transfer and death, the degree to which the surviving spouse is left w/out an interest in the decedent's property or other means of support. Present Donative Intent Test - Another test, slightly different from the intent-to-defraud test, is whether the decedent had a present donative intent to transfer a present interest in the property. This test focuses not on what the transferor retained, but on whether the transfer intended to make a present gift

Possibility of Reverter

Possibility of Reverter - A possibility of reverter is the future interest that remains in the grantor who conveys a fee simple determinable. Ex - O conveys "to School Board so long as used for a school." The School Board has a fee simple determinable; O has a possibility of reverter, which becomes possessory automatically upon expiration of the determinable fee.

Pour Over Wills

Pour-Over Wills TPC § 58A and UPC § 2-511 recognize pour-over wills. Even if the revocable trust is fully funded by the client, it is literally impossible to place all of the client's property into the trust during his or her lifetime. This would require additions to the trust every time the client acquired some new asset. As a result, the client may own at death some assets that are not in the trust but for which a trust settlement is desired. Enter the pour-over will, under which the will, after making various bequests, devises the client's residuary estate to the client's revocable trust. This will provide a unified and integrated trust disposition for all of the client's assets—those placed in the trust during the client's lifetime, and those added to the trust by will at the client's death. A devise or bequest is not invalid b/c the trust is amendable or revocable or b/c the trust was amended after the execution of the will or the T's death. TPC § 58A(c). This is so even though this permits the settlor of the revocable trust to indirectly amend his will to the extent of the pour-over gift into the trust w/out the testamentary formalities. But what if the client revokes the trust after signing her will, meaning that no trust is in existence at the client's death? The devise would lapse (i.e., fail). TPC § 58A(d). If this was a gift of the residuary estate and the will made no alternate gift to cover this contingency, the residuary estate would "fall out of the will," and would pass by intestate succession. Two theories were found useful in validating a pour-over of probate assets into an inter vivos trust when pour-overs first developed. (1) Incorporation by Reference - A will can incorporate by reference a trust instrument in existence at the time the will is executed, but it cannot incorporate trust amendments made after the will is executed. Hence, if the trust is amended after the will is executed, the probate assets will either be disposed of in accordance w/ the terms of the trust instrument as it stood at the time of execution of the will and not as subsequently amended, or, if this would not be in accordance w/ T's intent, pass by intestacy. (2) Independent Significance - Under this doctrine a will may dispose of property by referring to some act that has significance apart from disposing of probate assets—in this context by reference to an inter vivos trust that disposes of assets transferred to the trust during life. Under this doctrine the trust instrument does not have to be in existence when the will is executed, but the trust must have some assets in it b/f the time of the T's death. The difference b/t independent significance and incorporation by reference - Independent significance requires that the inter vivos trust have some property transferred to it during life, which the trust disposes of; incorporation by reference requires that the trust instrument be in existence at the time the will is executed. B/c of the limitations and uncertainties of these doctrines and frequent embarrassing errors by lawyers, estate planners sought the enactment of legislation permitting a will to pour over probate assets into an inter vivos trust as amended on the date of death, even if that trust had not otherwise been funded. The Uniform Testamentary Additions to Trusts Act (UTATA), providing a blueprint for such legislation, was revised in 1990 and incorporated into the UPC as UPC § 2-511. The UTATA permits the trust instrument to be executed after the will. Thus, T's will can pour over the T's probate assets to "a trust w/ the First National Bank as trustee, which I will execute," if the T thereafter executes the trust instrument.

Presumption of Paternity

Presumption of Paternity - Tex. Family Code § 160.204 (NOTE: The first four situations in which a presumption of paternity arises involve marriage or attempted marriage; only the fifth situation does not involve marriage or attempted marriage.) (a) A man is presumed to be the father of a child if: (1) the man is married to the mother of the child and the child is born during the marriage; or (2) the man is married to the mother of the child and the child is born w/in 300 days after the date the marriage is terminated by death, annulment, declaration of invalidity, or divorce; or (3) the man married the mother of the child b/f the birth of the child in apparent compliance w/ law, even if the attempted marriage is or could be declared invalid, and the child is born during the invalid marriage or w/in 300 days after the date the marriage is terminated by death, annulment, declaration of invalidity, or divorce; or (4) the man married the mother of the child after the birth of the child in apparent compliance w/ law, regardless of whether the marriage is or could be declared invalid, he voluntarily asserted his paternity of the child, and: (A) the assertion is in a record filed w/ the bureau of vital statistics; (B) he is voluntarily named as the child's father on the child's birth certificate; or (C) he promised in a record to support the child as his own; or (5) during the first two years of the child's life, he continuously resided in the household in which the child resided and he represented to others that the child was his own. (b) A presumption of paternity established under this section may be rebutted only by an adjudication under Subchapter G [paternity testing]. See also Tex. Family Code §§ 160.201 (Establishment of Parent-Child Relationship).

Duties of Personal Rep

Principal Duties of the Personal Representative (1) Take possession and control of decedent's assets and inventory them - The personal representative has 90 days from the date of his appointment to file an inventory of the probate estate w/ the probate ct, unless the ct grants the personal representative an extension (which, if granted, is typically 9 months). One of the benefits of getting an extension is that, since the personal representative must file a federal estate tax return (which is due 9 months after the decedent's death), getting an extension on the filing deadline for the inventory would allow the personal representative to kill two birds w/ one stone. (2) Manage the estate assets during administration - The personal representative must collect income due to the estate. B/c the personal representative is personally liable for any deficiency in the estate tax, he will want to get a closing letter from the IRS b/f he will be willing to close the estate and distribute the assets. 3) Give notice to creditors and pay creditors' (including tax collectors') claims - The personal representative may need to file as many as three tax returns: one for the estate, one for the decedent during his last year, and one for the decedent's previous year if he died before he filed his tax return. (4) Clear title to assets in the successor's name. This comes into play only when the assets are titled and proof of title is needed to transfer the assets. (5) Distribute the remaining assets to will beneficiaries or heirs.

Right of Reentry

Right of Entry - A right of entry for condition broken is the future interest that is retained by the grantor who conveys a fee simple subject to a condition subsequent. Ex - O conveys "to School Board, but if the land ceases to be used for school purposes, O has a right to reenter." The School Board has a fee simple subject to condition subsequent; O has a right of entry, which O has the option to exercise or not.

Challenging Lifetime Transfers

Standing to Challenge Lifetime Transfers While Transferor Is Alive - The only person who has standing to challenge a lifetime transfer (e.g., deed, durable power of attorney, deed of trust) is the transferor or his court-appointed guardian! Disappointed heirs apparent do not have standing to challenge a trust while T is still alive b/c all they have is an expectancy. Once Transferor is Dead - Once T is dead, only his executor can challenge the validity of the lifetime transfer; disappointed would-be heirs still lack standing. Caution - If T designates a person as his guardian through a Designation of Guardian Before Need Arises under TPC § 679 and also grants that same person a durable power of attorney, the guardian/agent is accountable to no one if T becomes incapacitated! Thus, it is inadvisable to name the same person both as guardian and agent under a durable power of attorney.

Lifetime Ownership of Multi Party Account

TPC § 438. Multiple Party Accounts—Ownership During Lifetime (a) A joint account belongs, during the lifetime of all parties, to the parties in proportion to the net contributions by each to the sums on deposit, unless there is clear and convincing evidence of a different intent. (b) A P.O.D. account belongs to the original payee during his lifetime and not to the P.O.D. payee or payees. If two or more parties are named as original payees, during their lifetimes rights as b/t them are governed by Subsection (a).

Contents of Real/Personal Property

TPC § 58. Contents (c) A legacy of personal property does not include any contents of the property unless the will directs that the contents are included in the legacy. A devise of real property does not include any personal property located on or associated w/ the real property or any contents of personal property located on the real property unless the will directs that the personal property or contents are included in the devise. (d) In this section: (1) "Contents" means tangible personal property, other than titled personal property, found inside of or on a specifically bequeathed or devised item. (2) "Titled personal property" includes all tangible personal property represented by a certificate of title . . . . The term includes a motor vehicle, motor home, motorboat, or other similar property that requires a formal transfer of title. ○ 5(b) Suppose, instead, that Tammy's will gives "the contents of my safe deposit box at First Federal Savings & Loan in Dallas to my sister Agnes." After Tammy's death the following items are found in the safe deposit box: Two pair of leather gloves, a pearl necklace, the family Bible, a certificate for 1,000 shares of IBM stock, and the deed to Tammy's ranch in Burnet County. What, if anything, does Agnes take? TPC § 58(c)-(d) does not address this situation. The statute covers only: (1) the gift of a receptacle and (2) the gift of a receptacle and its contents. The statute does not cover gifts of only the contents of a receptacle but not the receptacle itself. Under Texas law, Agnes will probably get everything in the safe deposit box except the title documents (i.e., the ranch and the stock). A ct would probably look to the statutory definition of "contents" in TPC § 58(d). But some cts have held that the beneficiary gets everything in the safe deposit box including the title documents. Agnes does not get the safe deposit box itself. Tammy had no power to give the safe deposit box b/c the box is the bank's personal property, not T's personal property.

Signature Counting in Texas

TPC § 59(b) - A will w/ a self-proving affidavit subscribed and sworn by the T and witnesses attached or annexed to the will is a "self-proved will." . . . A signature on a self-proving affidavit is considered a signature to the will if necessary to prove that the will was signed by the T or witnesses, or both, but in that case, the will shall not be considered a self-proved will. (That is, you can only use the signatures once. If you have to use the T's or witnesses' signatures on the self-proving affidavit to validate the will, you can do so. But, if you do so, you have to revert to one of the methods of proving the will under TPC § 84(b).) Wich v. Fleming (Tex. 1983, Supp. IV-6) - Prior to the enactment of TPC § 59(b), Texas cts, beginning w/ Boren v. Boren, consistently refused to count the signatures of the witnesses on a self-proving affidavit as signatures for purposes of will execution under TPC § 59(a). TPC § 59(b) overruled Wich v. Fleming and Boren v. Boren. Ironically, the courts were strict here...Texas is one of the least strict states for will preparation and formalities. Is Boren and Wich still the law? No—see TPC §59(b)

Tax Reform Act of 1986

Tax Reform Act of 1986 - This Act struck the rich a body blow. It closed the great loophole—the exemption of the life estate from taxation. This tax act did more damage to dynastic wealth in this country than any previous tax act. The TRA of 1986 imposed a generation-skipping transfer (GST) tax, at the highest rate of the estate tax, upon any generation-skipping transfer (i.e., a transfer that skips the estate tax for a generation). Hence, in the trust created by O above, a GST tax is payable at the death of A, at the death of B, and at the death of C. Because Congress decided that a wealth transfer tax must be exacted once every generation, the tax-saving possibilities of the dynasty trust have been severely curtailed.

Parties to a trust

The Parties to a Trust - A trust ordinarily involves at least three parties: the settlor, the trustee, and one or more beneficiaries. But three different persons are not necessary for a trust. One person can wear two, or even all three, hats. The Settlor - the person who creates a trust. The trust may be created during the settlor's life, in which case it is an inter vivos trust. • An inter vivos trust may be created either by a declaration of trust (in which the settlor declares that he holds certain property in trust) or by a deed of trust (in which the settlor transfers property to another person as trustee). The trust may be created by will, in which case it is a testamentary trust. The settlor may be both a trustee and a beneficiary. • Ex: O executes a written declaration of trust declaring herself trustee of Whiteacre, to pay the income therefrom to herself for life, and upon her death Whiteacre is to pass to A. This is a valid trust. (Note: In order to have a valid trust, the trustee must owe equitable duties to someone other than herself. In this case, O owes equitable duties to A. If the settlor is not the trustee of an inter vivos trust, a deed of trust is necessary. In order to bring the trust into being, the deed of trust or the trust property must be delivered to the trustee. Thus, in the example above, if O wanted to maker her lawyer, C, trustee, O would have to deliver a deed of trust to C. The Trustee The trustee may be an individual or a corporation. Anyone who has capacity to manage property, enter into contracts, etc. can be the trustee. The trustee may be the settlor or a TP, or the trustee may be a beneficiary. • Ex: By will, H devises property to W in trust to pay the income to W for life, and upon W's death the property is to pass to H's children free of trust. This is a valid trust. Although W is both trustee and beneficiary, W is not the sole beneficiary. H's children have a remainder interest and can bring an action against W to enforce her duties as trustee. A trust will not fail for want of a trustee: If the settlor intends to create a trust but fails to name a trustee, a ct will appoint a trustee to carry out the trust. The trustee holds legal title to the trust property; the beneficiaries have equitable, beneficial interests. To safeguard the beneficiary against mismanagement or misappropriation by the trustee, the trustee is held to a fiduciary standard of conduct. • If the trustee improperly manages the trust estate, the trustee may be denied compensation, subjected to personal liability, and/or removed as trustee by a ct. • B/c a trustee has onerous duties and is thus exposed to significant potential liability, the law does not impose upon a person the office of trustee unless the person accepts. The Beneficiaries The beneficiaries hold equitable interests. Remedies Against the Trustee: • The beneficiaries have a personal claim against the trustee for breach of trust. However, this personal claim has no higher priority than the claim of other creditors of the trustee and might not protect the beneficiaries if it were their only remedy. • Therefore, equity gives the beneficiaries additional remedies relating to the trust property itself. • Personal creditors of the trustee, other than the trust beneficiaries, cannot reach the trust property. • If the trustee wrongfully disposes of the trust property, the beneficiaries can recover the trust property unless it has come into the hands of a BFP for value. • If the trustee disposes of trust property and acquires other property w/ the proceeds of sale, the beneficiaries can enforce the trust on the newly acquired property. The trustee can be one of the beneficiaries of the trust. If, however, the trustee is the sole beneficiary, there is no trust, b/c the trustee owes no duties to anyone except himself. The law rejects this idea by saying that, where one person is the sole beneficiary and the trustee, the equitable and legal titles merge, leaving that one person w/ absolute legal

Harmless Error/Dispensing Power

The dispensing power (authorized by UPC § 2-503 and applied in Hall) gives a ct the power to dispense w/ formalities if there is clear and convincing evidence that the decedent intended the document to be his will. The first thing we look at is the testator's intent. Professor Langbein, the architect of both substantial compliance and the dispensing power, concluded that the dispensing power was preferable to the substantial compliance doctrine b/c "courts read into their substantial compliance doctrine a near-miss standard, ignoring the central issue of whether the T's conduct evidenced testamentary intent." Under UPC § 2-503, cts are directed to look not at whether the purposes of formalities were served (as in substantial compliance), but at whether "the decedent intended the document or writing to constitute . . . the decedent's will." ■ UPC 2-503 - Harmless Error/Dispensing Power - Gives a ct the power to dispense w/ formalities and validate a document if there is clear and convincing evidence that the decedent intended the document to be his will. ○ Has UPC § 2-503 proven to be very popular? No, only 5 of the 18 UPC states have adopted it. (See table at UPC-8 of Supplement). Thus, despite the appeal of the dispensing power, it has not been all that well received.

How Elective Share is Paid

UPC § 2-209. Sources from Which Elective Share Payable. An elective share is payable: (a) first, from amounts that pass or have passed to the surviving spouse by testate or intestate succession or by nonprobate transfer; and (b) if after applying subsection (a), the elective share is not fully satisfied, second, the recipients of the decedent's probate estate and the decedent's nonprobate transfers to others contribute pro rata, according to the following formula: Numerator Net elective share of surviving spouse = Denominator Augmented estate - Property to surviving spouse This is equal to the pro rata share that each recipient of the decedent's probate estate and the decedent's nonprobate transfers to others must kick in order to satisfy the surviving spouse's elective share. The amount that each such recipient must contribute is equal to this fraction times the amount received from the decedent.

Revocable Trusts In Texas

Use of Revocable Trusts in Texas - B/c of independent administration, revocable trusts are not used in Texas very often. However, they are still useful if T owns real estate in another jurisdiction and wants to avoid ancillary administration (necessitated by the situs rule), and/or to avoid publicity. The use of a revocable inter vivos trust clears legal title to the real property during the T's lifetime and thereby avoids the necessity for probate.

Valuing Future Interests

Valuation of a future interest (CB 637, note 2) - If a future interest is subject to estate taxation, the value of the future interest depends upon the life tenant's life expectancy and the mkt rate of interest. We have to discount the value of the future interest to present value. The federal gov't publishes life expectancy tables for future interests that must be used. See IRC § 7520. Note on valuing future interests (Supp. VII 5-7) - When it becomes necessary to value a future interest for tax purposes, the governing rules are set out in IRC § 7520 and the Treasury regulations under IRC § 2031. [One page from the § 2031 regulations is reproduced on Supp. VII-7.] The tables give the various factors that are to be used to value future interests, based on the age of the life tenant and an appropriate rate for the month in which the valuation event occurs. The interest factors, which are tied to mkt interest rates, change monthly. Illustration - "To A for life, and on A's death to B and his heirs." A has a life estate, and B has an indefeasibly vested remainder in fee simple. Assume that A is 62 years old, and that the property is worth $600,000 at the time the remainder is to be valued. If the § 7520 interest rate is 8% in the month in which B dies, the table from the § 2031 regulations tells us that the factor to be used in valuing a remainder following a life estate in a 62-year-old is .29255. Thus, the value of B's remainder is approximately (.3 x $600,000 =) $180,000. It doesn't matter what kind of property we're dealing with. IRC § 7520 mandates this valuation approach regardless of the nature of the property involved. In all cases, we determine the FMV of the property, and then apply the appropriate factor to determine the value of the future interest. In effect, all forms of property are valued as though they were a fund of money (or were converted into a fund of money). But what if the life tenant has a health problem that shortens his or her life expectancy? Shouldn't we use mortality data relevant to the particular case, rather than relying on the general mortality data built into the tables? Answer: The cases on this issue have come out strongly in support of using the tables in virtually all cases on the ground of administrative convenience. Valuing Life Estates - It is sometimes necessary to value life estates for federal tax purposes. Valuation of life estates is the flip side of the approach to valuing future interests. Illustration - Let us return to the example "to A for life, and on A's death to B and his heirs." Assume, once again, that A is 62 years old when the life estate must be valued and we are in a month in which the § 7520 interest rate is 8%. The Treasury tables tell us that the factor used to value a remainder following a life estate in a 62-year-old is .29255. Therefore, the factor to be used in valuing the life estate is .70745. Thus the value of A's life estate is approximately (.7 x $600,000 =) $420,000.

General Powers and Tax

When General Powers May Be Useful for Tax Planning Although general powers should not be created if the donor is seeking favorable tax treatment, there are exceptions. Marital Deduction - First, property that passes to the surviving spouse in such a manner as to qualify for the marital deduction is not taxable under the estate tax. A life estate coupled w/ a general testamentary power in the surviving spouse qualifies for the marital deduction and is a common estate planning tool. Ex: H devises property to X in trust to pay the income to W and on W's death to distribute the principal to such person or persons as W by her will appoints. H's devise qualifies for the marital deduction; no federal estate taxes are payable on the property at H's death. However, since W has a general power, the property is subject to estate taxation on W's death. In effect, the marital deduction permits taxation to be postponed until the death of the surviving spouse. Gift Tax Annual Exclusion - Second, the donor is entitled to exclude $11,000 of gifts to a donee each year as long as the gift qualifies as a present interest. If the donor transfers property into trust, the gift will be treated as a present interest if the donee has a general power of appointment. In this situation, the donee's general power is usually limited to the amount that will qualify for the gift tax annual exclusion. ○ Property Over Which the Decedent Held a General Power of Appointment Is Includible in the Gross Estate Section 2041 taxes property over which the decedent held at death a general power of appointment. In contrast to §§ 2036 and 2038, which tax property in the transferor's gross estate b/c of retained benefits or controls, § 2041 deals w/ powers of appointment that the decedent received from someone else. The statute operates to tax property in the estate of a decedent who never owned the property and who never transferred it, but who was given and held a power to appoint the property to: (1) himself, (2) his estate, (3) his creditors, or (4) the creditors of his estate. The assets subject to the general power are taxed in the decedent's estate regardless of whether the power was exercisable during lifetime or by will and whether or not the decedent actually exercised the power. Ex: 1: A trust provides for the payment of income to T's daughter Fannie for life, and further provides that "on Fannie's death the trustee shall distribute the trust principal to such persons as Fannie shall appoint by her last will." Fannie has been given a general testamentary power of appointment, since by her will she has the power to appoint the property to her estate or the creditors of her estate. On Fannie's death, the value of the trust property is includible in Fannie's gross estate under § 2041 even though her life income interest ends at death. Ex 2: If, in contrast, the trust gave Fannie the power to appoint the principal "to such one or more of Fannie's descendants as she shall appoint by her last will," Fannie would hold a special or limited power of appointment, not a general power, and the trust property would not be taxed in her estate.

Texas Intestate Community

(a) On the intestate death of one of the spouses to a marriage, the community property estate of the deceased spouse passes to the surviving spouse if: (1) no child or other descendant of the deceased spouse survives the deceased spouse; or (2) all surviving children and descendants of the deceased spouse are also children or descendants of the surviving spouse. (b) On the intestate death of one of the spouses to a marriage, if a child or other descendant of the deceased spouse survives the deceased spouse and the child or descendant is not a child or descendant of the surviving spouse, one-half of the community estate is retained by the surviving spouse and the other one-half passes to the children or descendants of the deceased spouse. The descendants shall inherit only such portion of said property to which they would be entitled under Section 43 of this code. In every case, the community estate passes charged with the debts against it.

Texas Intestate Separate

(b) Intestate Leaving Husband or Wife. Where any person having title to any estate, real, personal or mixed, other than a community estate, shall die intestate as to such estate, and shall leave a surviving husband or wife, such estate of such intestate shall descend and pass as follows: 1. If the deceased have a child or children, or their descendants, the surviving husband or wife shall take one-third of the personal estate, and the balance of such personal estate shall go to the child or children of the deceased and their descendants. The surviving husband or wife shall also be entitled to an estate for life, in one-third of the land of the intestate, with remainder to the child or children of the intestate and their descendants. 2. If the deceased have no child or children, or their descendants, then the surviving husband or wife shall be entitled to all the personal estate, and to one-half of the lands of the intestate, without remainder to any person, and the other half shall pass and be inherited according to the rules of descent and distribution; provided, however, that if the deceased has neither surviving father nor mother nor surviving brothers or sisters, or their descendants, then the surviving husband or wife shall be entitled to the whole of the estate of such intestate.

Probate Process

- The will should first be probated, or letters of administration should first be sought, in the jurisdiction where the decedent was domiciled at the time of death (i.e., the primary or domiciliary jurisdiction). If real property is located in another jurisdiction, ancillary administration in that jurisdiction is required (b/c of the situs rule - one state cannot adjudicate title claims for real property located in another state). The purpose of requiring ancillary administration is to prove title to real property in the situs state's recording system and to subject those assets to probate for the protection of local creditors. Each state has a detailed statutory procedure for issuance of letters testamentary to an executor or letters of administration to an administrator authorizing the person to act on behalf of the estate.

Professional Responsibility

...■ Duty of Referral - It is the duty of general practitioners to refer the client to a specialist if the lawyer can't handle the matter w/ reasonable skill and care. If the lawyer fails to refer the client to, or consult with, a specialist when one is needed, the lawyer may be held to the standard of skill ordinarily possessed by a specialist. ■ Conflicts of Interest - If representing a husband and wife, it is important to advise them of the potential for conflicts to arise and of the necessity for the lawyer to withdraw if that happens. One spouse can always hire separate counsel to represent her own interests. ■ Wise Precaution - Advise the client that your professional relationship with him has terminated when you finish drafting his will, but that a change in circumstances (e.g., divorce, marriage, etc.) may necessitate revisions to his will (e.g., Bourland letters - Supp. I-8). ■ Additional Notes and Problems—Supp. I-4 ○ (3) Social setting hypo: Children's (P's) argument - Just as in Heyer v. Flaig, the attorney owed a continuing duty to the client. Attorney's (D's) argument - This case is distinguishable from Heyer v. Flaig b/c the attorney drafted the will correctly and then learned of Mrs. Jones' plans to marry in a social setting, arguably after the attorney-client relationship w/ respect to the transaction (i.e., the attorney's drafting of the will for Mrs. Jones) had terminated. We shouldn't hold the attorney liable for not responding to info obtained from a (former) client in a social setting. To protect himself from this sort of suit, the attorney should have sent a transmission letter telling the client that the will covers only the client's current circumstances and advising the client that, if the client's circumstances change, the client should consult an attorney to see if changes to the will are necessary. If the attorney did anything wrong, it was failing to mention to the client that the will covers only the client's current circumstances and that significant life events may affect the will. Whether this is negligence or merely "failure to follow best practice" is debatable.

Conversion Agreements

AGREEMENTS BY SPOUSES TO ALTER THE CHARACTER OF ASSETS (1) Spouses can partition community property into separate property. Partitions must be via a written partition agreement voluntarily entered into and signed by both spouses. (2) Spouse can make gift of interest in community property to other spouse. Such a gift makes the property the separate property of the donee spouse. (3) Spouses can agree to convert separate property into community property. (a) Must be a written agreement and signed by both spouses. Tex. Family Code § 4.202(a). (b) Must be made during marriage w/ respect to existing property. B/c a conversion agreement can be entered into only by "spouses," it is not possible to effect a conversion in a premarital agreement. Also, the agreement can apply only to existing property specified in the agreement; spouses cannot agree that all gifts and inheritances acquired in the future shall be community property. (c) Defenses to enforcement. The spouse against whom enforcement is sought: (i) did not execute the agreement voluntarily, or (ii) did not receive fair and reasonable disclosure of the agreement's legal effect. Tex. Family Code § 4.205(a). (d) Third parties protected. A conversion to community property does not affect the rights of a preexisting creditor of the spouse whose separate property is being converted. If RP, notice is only given if filed in the county in which the land is located. Tex. Family Code § 4.206. (e) Tax reasons for entering into a conversion agreement. The entire community estate receives a stepped-up basis (to the date-of-death value) on one spouse's death, even though only ½ of the community property is includible in the decedent's gross estate. A conversion of separate property to community property tends to insure that each spouse will have sufficient assets to utilize his or her estate tax exemption equivalent of $1.55.4 million (in 201005). While a conversion will result in a gift to the other spouse, there are no gift tax consequences b/c of the unlimited gift tax marital deduction. (f) Disadvantages of a conversion agreement. 1) Community property is subject to just and right division on divorce. A divorce ct cannot divest the title of one spouse's separate property and award it to the other spouse, but all community property is subject to a just and right division. 2) Loss of protection from creditors. Community property is subject to the tort liability of either spouse, whereas a tort j/m creditor can reach only the separate property of the spouse who committed the tort. 3) Loss of power of disposition. The spouse whose separate property is the subject of the agreement will lose the power of disposition over ½ of the property. (4) Gifts "to the community" are separate property. One cannot make a gift to the community and impress the donated property w/ community status. Property acquired by gift is separate property, regardless of the grantor's intent (i.e., grantor has no control over legal character of gift). Absent a written conversion agreement signed by both spouses, H and W hold the asset as TICs, each with an undivided ½ share of separate property. (F) COMMUNITY PROPERTY SURVIVORSHIP AGREEMENTS In Hilley v. Hilley (Tex. 1961), the TSC held that a husband and wife could not create a valid survivorship estate as to community property unless they first partitioned the community into separate property. (1) 1980 constitutional amendment expanded the scope of permissible agreements. (a) Spouses and persons about to marry now can partition community property to be acquired in the future as well as existing community property. (b) Spouses can agree that the income from each's separate property shall remain that spouse's separate property. (c) If one spouse makes a gift to the other spouse, the gift is presumed to include the income from the donated property. This provision carves out an important exception to the general rule that the income from separate property is community property. (2) 1987 constitutional amendment: community property w/ right of survivorship. Community property survivorship estates now can be created w/ respect to bank accounts, securities, etc. (a) Joint tenancies of real property are rarely encountered in Texas. Joint tenancies of real property: • NO in Texas. • YES everywhere else. ○ (III) SPECIAL CLASSIFICATION RULES

Gift Tax Annual Exclusion

Annual exclusion - Under § 2053(b), a taxpayer is allowed an exclusion for the first $14,000 given to any one donee during the calendar year. If a donor makes gifts to a dozen persons during the year, but none of the gifts exceeds $11,000 in value, no gift tax return need be filed. A donor must file a gift tax return only if gifts (other than marital deduction gifts) to any donee during the year exceed the annual exclusion and must report on the return only gifts in excess of $14,000 to any one person. Ex: If a donor gives $15,000 each to A and B and gives $5,000 to C, a gift tax return must be field that reports the gifts to A and B, deducts the two annual exclusions, and reports $8,000 in taxable gifts for the year. The gift to C is not reported on the gift tax return b/c it is covered by the annual exclusion.

Reimbursement Claims

B) CLAIMS FOR ECONOMIC CONTRIBUTION OR EQUITABLE REIMBURSEMENT Common law right of equitable reimbursement Historically, the Texas cts addressed this problem by granting the community estate an equitable claim for reimbursement in appropriate cases. Under § 2.402, a claim for reimbursement includes the (i) payment of unsecured debt and liabilities, (ii) the reduction of principal on secured debt, (iii) expenditures for improvements (limited to "the enhancement in value to the benefited marital estate"), and (iv) "inadequate compensation for the time, toil, talent, and effort of a spouse by a business entity under control and direction of that spouse.) Statutory claim for economic contribution - No longer the law Equitable claim for reimbursement. An equitable claim for reimbursement can arise: (i) where community funds are used to pay premiums on a separately owned life insurance policy, and (ii) where the uncompensated toil, time, and talent of one spouse enhances the value of that spouse's separately owned business. (a) Offsetting benefits can be considered. An equitable claim for reimbursement can be offset, and perhaps even eliminated entirely, by reason of the use and enjoyment of the property by the contributing estate. Benefits for the use and enjoyment of property may be offset if community funds were expended to expend mortgage debt on a residence that was one spouse's SP. Wide latitude in granting these however! The reimbursement claim may be offset by the community benefit of living in the house rent-free Tex. Family Code §3.402(c). (b) Non-reimbursable claims. Under Tex. Family Code § 3.409, a ct may not recognize a claim for reimbursement for: (i) payment of child support, alimony, or spousal maintenance; (ii) contributions of property of nominal value; (iii) payment of a liability of a nominal amount; (iv) payment of a student loan owed by a spouse; or (v) living expenses of a spouse or child.

Basis for Property Acquired by Gift or Trust

Basis of Property Acquired by Gifts and Transfers in Trust § 1015(a) - If the property was acquired by gift, the basis shall be the same as it would be in the hands of the donor (the carryover basis rule), except that if the basis is greater than the FMV of the property at the time of the gift, then for purposes of determining loss the basis shall be the FMV. What is the reason for this rule limiting, in the lifetime gift situation, the donee's basis (for purposes of loss) to FMV if the donor's basis is greater than the property's FMV? If it weren't for this rule, a low-bracket taxpayer to whom capital losses are of little value could give the property (e.g., stock) to a high-bracket taxpayer. If the carryover basis rule applied in this situation, the donee could then sell the stock and use the loss to offset gain. • Ex: Father, whose marginal tax bracket is 15%, owns stock w/ a basis of $100/share and a FMV of $10/share. Daughter, a 35% bracket taxpayer, has realized substantial gain from the sale of assets; she would like to offset that gain w/ capital losses. The concept of the "gross estate" for federal estate tax purposes is much broader than the concept of the "probate estate" for estate administration purposes. Indeed, the definition of a decedent's gross estate is global.

Computing Gift Tax

Computation of the gift tax - The federal gift tax rates are progressive on the basis of cumulative lifetime transfers. Because of the gift tax exemption equivalent, a donor does not have to pay any gift tax until cumulative lifetime taxable gifts exceed $1 million. As a consequence, except for the very wealthy the federal gift tax is not a revenue-raising measure at all. Instead, it establishes a gift-reporting system under which a donor must report taxable gifts that, on the donor's death, are added to the estate tax base as adjusted taxable gifts (see table supra at p. 146). Except for the mega-wealthy, taxes on taxable gifts are paid in the form of estate tax at death, and not during the donor's lifetime. One of the advantages of lifetime gifts of assets that are expected to increase in value is that all of the post-transfer appreciation escapes taxation in the donor's estate.

Divorce or Marriage Effect After Will Is Executed

Divorce or Marriage After Will is Executed ■ Divorce After Will Is Executed - In almost all states, statutes provide that a divorce revokes any provision (both gifts and fiduciary appointments) in the decedent's will for the divorced spouse. These revocation statutes ordinarily apply only to wills, not to life insurance policies, pension plans, or other nonprobate transfers. ○ UPC § 2-804 (CB 269) - Divorce revokes all revocable testamentary and nontestamentary transfers (including life insurance policies) made by the divorced person to his/her ex-spouse spouse or those who are relatives of only the ex-spouse. ○ TPC § 69. Voidness Arising From Divorce - Divorce revokes all testamentary transfers to the ex-spouse, but does not revoke testamentary transfers to the ex-spouse's relatives. ○ TPC § 472. Revocation of Certain Non-Testamentary Transfers - Divorce revokes all revocable dispositions made by a divorced individual to his/her ex-spouse in a "trust instrument" executed b/f the dissolution of the marriage. Does not apply to life insurance policies (b/c they're not "trust instruments"); Tex. Family Code § 9.301 applies to life insurance policies. ○ TPC § 485A. Effect of Principal's Divorce if Former Spouse is Agent [under a durable power of attorney] - If, after execution of a durable power of attorney, the principal is divorced from a person who has been appointed the principal's agent, the agency powers granted to the principal's former spouse shall terminate on the date on which the divorce is granted, unless otherwise expressly provided by the durable power of attorney. ○ Tex. Family Code § 9.301. Pre-decree Designation of Ex-Spouse as Beneficiary of Life Insurance (a) If a divorce decree is rendered after an insured has designated the insured's spouse as a beneficiary under a life insurance policy in force at the time of rendition of the decree, a provision in the policy in favor of the insured's former spouse is not effective unless: (1) the decree designates the insured's former spouse as the beneficiary; (2) the insured redesignates the former spouse as the beneficiary after rendition of the decree; OR (3) the former spouse is designated to receive the proceeds in trust for, on behalf of, or for the benefit of a child or a dependent of either former spouse. (b) If a designation is not effective under Subsection (a), the proceeds of the policy are payable to the named alternative beneficiary, or, if there is not a named alternative beneficiary, to the estate of the insured. Note: This statute speaks only to the ex-spouse's interest as beneficiary of a life insurance policy. However, Texas is a community property state. The ex-spouse may have an ownership interest in the insurance policy if it is community property. The statute does not speak to the ex-spouse's status as co-owner of the policy as community property.

Gift Tax

F) Federal Gift Tax (Supp. VI-50) - Under § 2051(c), the federal gift tax applies to "the transfer of property by gift during each calendar year by any individual." A donor must file a gift tax return for any year in which cumulative gifts to any donee (other than gifts that qualify for a martial or charitable deduction) exceed the $14,000 per donee annual exclusion and the exclusion for medical expenses and tuition payments. Only two deductions are granted under the gift tax: a martial deduction for qualifying gifts to the donor's spouse, and a charitable deduction for gifts to charity. ○ (1) Donative intent not required - Donative intent on the part of the transferor is not an essential element in the application of the gift tax to the transfer. The application of the tax is based on the objective facts of the transfer and the circumstances under which it is made, rather than on the subjective motives of the donor. All that is required is a transfer for less than a full and adequate consideration in money or money's worth. If O sells land worth $100,000 to her son for $50,000, the transfer is treated as part sale and part gift. The statute taxes direct as well as indirect gifts (e.g., O pays a debt of A, or forgive a debt owed to him by A). ○ (2) Incomplete gifts - The gift tax does not apply to "incomplete" gifts—gifts in which the donor retains either to power to revoke or the power to name new beneficiaries. Accordingly, a transfer in trust is a taxable gift only if it is a "completed" gift—i.e., if the trust is irrevocable and the grantor does not retain any powers over beneficial enjoyment. If a transfer is incomplete, the grantor does not have to file a gift tax return. The fact that a transfer is incomplete and not subject to gift tax does not make the transfer advantageous from a tax standpoint, however. Any of the above retained powers would cause the trust property to be includible in the grantor's gross estate for estate tax purposes under § 2036 or § 2038 (see assignment #41-42 above). (see also Supp. VI-50, examples 18 & 19) ○ (3) Valuation—the willing buyer - willing seller test - A gift is valued at the property's fair market value at the gift, under the "willing buyer - willing seller" test. (see supra p. 143) As was the case in the estate tax context, in the gift tax context, the willing buyer - willing seller test has some interesting (and very useful) ramifications when the subject of the gift is a fractional interest in real property (fractional interest discount) or a minority interest in closely held stock (minority discount and lack of marketability discount). (see Supp. VI-51, examples 20 & 21)

Living Probate

Living Probate" - Statutes in Arkansas, North Dakota, and Ohio permit probate of a will during the T's life. These statutes authorize a person to institute during life an adversary proceeding to declare the validity of a will and the testamentary capacity and freedom from undue influence of the person executing the will. All beneficiaries named in the will and all T's heirs apparent must be made parties to the action. This procedure is known as "living probate" or "ante-mortem probate." The positive thing about living probate is that it "smokes out" disgruntled heirs b/f the T dies. The negative thing about living probate is that it's not particularly practical—it is a lawsuit. Further, if the T decides to change his will after a living probate suit has been decided, then there will have to be another lawsuit—w/ notice to interested parties, etc. Texas cts have held that, under the Declaratory Judgment Act, someone who wants to challenge a will cannot get a declaratory judgment invalidating the will while the T is still alive. There is no litigable issue under the will until the T dies (the T could change his will while still living); therefore, the challenge is premature. Only two states (Ohio, Arkansas) have ante-mortem probate...why? Because every time someone changes your will, you don't want them to be hauled off to court.

New Basis at Death Rule

New basis at death rule: § 1014. Basis of Property Acquired from a Decedent § 1014(a), (b)(1) - Valuation of assets for federal estate tax purposes also has important consequences for purposes of computing capital gain under the FIT. Interests includible in a decedent's gross estate are given a new "basis" (for income tax purposes) equal to their date-of-death value. The "new basis at death" rule applies whether or not an estate tax return must be filed. (see examples on Supp. VI-36 ¶ 2) § 1014(b)(6) - To provide parity in the tax treatment of marital property in community property states (a.k.a., common law jurisdictions), under § 1014(b)(6) the entire interest in community property is given a new basis on the death of one spouse, even though only the deceased spouse's ½ community interest is includible in his or her gross estate for estate tax purposes. (see example on Supp. VI-36 ¶ 2) § 1014(e) - Certain gifts received by a decedent w/in one year prior to death will be denied a stepped-up basis at the donee's death. In the case of "appreciated property" (i.e., FMV on the date of the gift exceeded the property's adjusted basis) that passes at death from the decedent to the donor of such property (or the donor's spouse). The tax basis of the property is the decedent's adjusted basis immediately b/f his death. Section 1014(e) says that if you inherit stuff that you used to own w/in one year of the inheritance, then you are not entitled to take advantage of the new-basis-at-death rule and are left w/ your decedent's basis, which was, after all, your basis.

Turnover Orders and Spendthrift Thrusts

TCPRC § 31.002 is the turnover statute. The turnover statute is a purely procedural device by which creditors may reach nonexempt assets of debtors that are otherwise difficult to attach or levy on by ordinary legal process. Under the statute, a judgment creditor can apply to a ct for an injunction or other means to satisfy a judgment debt through a judgment debtor's property, including present or future property rights. The turnover statute provides that a trial ct cannot order the turnover of property that is "exempt" for attachment, execution, or seizure. TCPRC § 31.002(a)(2). The effect of the spendthrift trust statute is that spendthrift trusts are exempt from attachment, execution, garnishment, or other seizure. Once a trustee pays or delivers trust assets out of a spendthrift trust, they are no longer exempt under the spendthrift trust statute. Thus, they are no longer considered exempt property under the turnover statute. TCPRC § 31.002 provides that a ct may not enter or enforce an order that requires the turnover of "the proceeds of, or the disbursement of, property exempt under any statute." Thus, even when property is no longer exempt under any other statute, if it represents proceeds or disbursements of exempt property, it is not subject to a turnover order. Allowing the turnover of spendthrift trust distributions would not thwart the trust code or the historical purpose of protecting spendthrift trusts (a limited concession to the right of a trust settlor to control his property by making it inalienable while it remains in the trust). Nevertheless, the plain language of TCPRC § 31.002(f) provides that the proceeds or disbursements of property exempt under "any statute" are not subject to a turnover order. Therefore, b/c spendthrift trust assets are exempt under the trust code, we are constrained to conclude that proceeds and disbursements from such trusts are not subject to turnover orders.

Gross Estate

The Gross Estate (Supp. VI-35) A federal estate tax form (a "Form 706") must be filed by the decedent's personal representative only if the value of the decedent's gross estate exceeds the exemption equivalent amount for the year of death. In computing the federal estate tax upon a decedent's death, the first step is to determine the value of all assets includible in the decedent's gross estate. The gross estate includes the value of all interests owned or passing at death which are made subject to tax by statute. (1) Valuation—the "willing buyer - willing seller" test - Interests includible in the gross estate are valued at their fair mkt value at the time of the decedent's death. Under the "willing buyer - willing seller" test, the fair mkt value is the price at which the property would change hands b/t a hypothetical willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts. This test can produce favorable valuations (e.g., fractional interest discount for TIC interests, minority discount and lack of marketability discount for minority interests in closely held corporations) or sometimes unfavorable valuations (e.g., control premium for majority interests in closely help corporations) for transfer tax purposes. (see Supp. VI-35 ¶ 1)

UPC Intestacy

UPC intestacy Surviving spouse gets the whole intestate estate 1) if there are no descendants or parents. 2) All of the decedent's surviving kids are also the kids of the surviving spouse and there is no other kid of the surviving spouse who survives the decedent. The surviving spouse gets the 1st 300,000 plus ¾ the rest if No child of the decedent survives the decedent but a parent of the decedent does. Which means the decedent's parents get ¼ of the rest and the spouse gets 3/4ths The surviving spouse gets the first 225,000 plus one half of the rest if All of the decedents surviving kids are also kids of the surviving spouse and the surviving spouse has one or more kids that aren't also the decedent's kids. So if the decedent's kids get half after 225k and the SS gets half. This is when the surviving spouse has other kids. The surviving spouse gets the first 150,000 plus one half of the rest if One or more of the decedent's surviving kids isn't also the surviving spouse's kid. This is when the decedent has other kids. So the decedent's kids get half and the surviving spouse gets half after 150k. Other heirs. Any part not belonging to surviving spouse goes to. 1) Decedent's kids/grandkids by representation. 2) If no descendants, to the Decedent's parents equally if both alive or totally to the lone surviving parent. 3) If no descendant or parents, to the descendants of the decedent's parents (decedent's bros and sis and their kids) by representation. 4) If none of those, and the decedent has living grandparents on both maternal and paternal side, or descendants of grandparent (cousins) ,then half to the decedents paternal GPs equally if both alive, otherwise to one GP if only one alive, otherwise to paternal cousins by representation. Half to maternal GPs equally if alive, whole thing to one GP if only one alive, otherwise to maternal cousins by representation. 5) If only the paternal or maternal side of the family has living GPs or cousins, give the whole thing to them. 6) If none of the above and the decedent has one deceased spouse with a surviving descendant that also survives the decedent(stepkid), then to the descendants of that deceased spouse by representation 7) If there is more than one deceased spouse with surviving descendants that survive the decedent(stepkid), an equal share of the estate to each set of descendants of the surviving spouses by representation. 8) If none of these apply, it escheats to the state.

Intestacy and Adopted Kids in Texas

■ Inheritance Rights of Adopted Children Under Texas Law: ○ Under TPC § 40, an adopted child is treated the same as a natural child for inheritance purposes: The adopted child and his descendants can inherit from and through the adoptive parents, and the adoptive parents and their kin can inherit from and through the adopted child. The statute goes on to provide that "the natural parent or parents of the adopted child and their kin shall not inherit from or through said child, but said child shall inherit from and through its natural parent or parents." TPC § 40.

Trust Formation

■ Intent to Create a Trust - No particular form of words is necessary to create a trust. The words trust or trustee need not be used. The sole question is whether the grantor manifested an intention to create a trust relationship. Where the grantor conveys property to a grantee to hold "for the use and benefit" of another, this is a sufficient manifestation of an intention to create a trust. ■ Failure to Name a Trustee - A trust never fails for lack of a trustee. If the settlor intends to create a trust but fails to name a trustee, a ct will appoint a suitable person—often the executor if one is named—as trustee to carry out the trust.

Acts of Independent Significance

■ Acts of Independent Significance - If the beneficiary or property designations are identified by acts or events that have a lifetime motive and significance apart from their effect on the will, the gift will be upheld under the doctrine of acts of independent significance (a.k.a., the doctrine of nontestamentary acts). This is true even if the phrasing of the will leaves it in the T's power to alter the beneficiaries or the property by a nontestamentary act. In other words, the acts of independent significance doctrine permits extrinsic evidence to identify will beneficiaries (e.g., "my employees") or property passing under the will (e.g., "my car"). ○ UPC § 2-512. Events of Independent Significance - A will may dispose or property by reference to acts and events that have significance apart from their effect upon the dispositions made by the will, whether they occur b/f or after the execution of the will . . . . ○ Hypo - T's will devises "the automobile that I own at my death" to her nephew N, and gives $1,000 "to each person who shall be in my employ at my death." At the time the will is executed, T owns an old Toyota. Shortly b/f her death, T trades the Toyota in for a new Cadillac, w/ the result that T dies owning a $40,000 automobile rather than one worth $4,000. In the year b/f her death, T fires two long-time employees and hires three new ones. The gifts are valid. While T's act in buying the Cadillac had the practical effect of increasing the value of her gift to N, it is unlikely that this is what motivated her purchase. It is more probable that she bought the car b/c she wanted to drive a Cadillac. Similarly, T's acts in hiring and firing various employees were doubtless prompted by business needs rather than a desire to make or unmake legatees under the will. Independent significance—buying a car because you want one, decorating your living room as you want. There are very few cases on this doctrine. The reason people do things is sometimes for lifestyle purposes.

Addition After Signature

■ Addition after signature ○ Statutes in several states have adopted the Wills Act requirement that the T sign the will "at the foot or end thereof," a requirement that is often called subscription. ○ Suppose that a typewritten will is found on which is written in the T's handwriting, below the T's signature and above the witnesses' signatures, the following line: "I give Karen my diamond ring." Is the will entitled to probate? Initially, the answer depends upon whether the line was on the will when it was signed by the T. If the handwritten line was added after the T signed the will, the will would be admitted to probate, and the line would be ineffective as a subsequent unexecuted codicil. Only the words present when the will was signed constitute the T's will. If added before the T signed her name, would the will be admitted to probate? Clark v. Nat'l Bank of Commerce (Ark. 1991) - No, the will would not be admitted to probate, since the line purported to make a disposition of T's property. If the matter following the T's signature is non-dispositive (e.g., appointing an executor), the will would be admitted to probate but the handwritten line would be ignored. Under Texas Law - There is no language in TPC § 59 stating that the will must be signed by the T "at the end thereof," or that it must be "subscribed." Thus, under Texas law, even if the handwritten line containing the gift to Karen was added before the T signed her name, the will would be admitted to probate, and the gift would be valid. The Texas courts, like most, haven't read stuff into the statutes that aren't there.

Non-Probate Methods

■ Alternatives to Formal Probate Administration in Texas: **The following procedures are rarely used b/c Texas has independent administration, which simplifies and expedites formal probate administration.** ○ (1) Informal family settlement - Probably okay for modest estates (< $1 million) w/ no titled assets in the decedent's name. The surviving spouse has to pay the decedent's bills, but in many circumstances, the surviving spouse was doing so anyway (b/c of the nature of community property). This is not an option if letters testamentary are required. Stringfellow v. Early (Tex. Civ. App. 1897) is frequently cited for the proposition that agreements not to probate a will and family settlements "are favored by the law and the courts, and are not deemed to be an unwarranted interference w/ the jurisdiction of the courts, or against public policy. On the contrary, public policy favors them." ○ (2) Special affidavit procedures: The surviving spouse (only) can collect the decedent's last paycheck by presenting an affidavit stating that the affiant is the surviving spouse and that no one has qualified as executor or administrator of the estate. TPC § 160(b) (drafted by Johanson). Affidavit of heirship for a motor vehicle (to transfer title from the decedent to his heir(s)). (Supp. III 27-28) Special affidavit procedures for transferring control over the decedent's bank account exist in many states, but not in Texas. ○ (3) Small estate administration by affidavit - TPC § 137 [no will] (a) The distributees of the estate of a decedent who dies intestate shall be entitled thereto, to the extent that the estate's assets (excluding homestead and exempt property) exceed its liabilities (excluding liabilities secured by homestead and exempt property), w/out awaiting the appointment of a personal representative when: *** (3) The value of the entire assets of the estate, not including homestead and exempt property, does not exceed $50,000. (Thus, potentially very large estates can qualify as "small" estates b/c of the exclusion of the homestead from the valuation.) *** (b) Only the estates of intestate decedents qualify for the collection (of small estates) upon affidavit procedure. (c) Title to a decedent's homestead that is the only real property in a decedent's estate may be transferred on an affidavit that meets the requirements of this section. If the real property does not qualify as a homestead, clearing title to this real property (probably worth more than $50,000) would preclude us from using small estate administration under TPC § 137. Instead, we would need to have a statutory proceeding to determine heirship under TPC §§ 48, 54, and 55 (see below). Effect of affidavit - TPC § 138 - The person making payment or transfer pursuant to the affidavit described in TPC § 137 shall be released to the same extent as if made to a personal representative of the decedent, and shall not be required to see to the application thereof or to inquire into the truth of any statement in the affidavit, but the distributees to whom payment or transfer is made shall be answerable therefor to any person having a priority right and be accountable to any personal representative thereafter appointed. ○ (4A) Probate of wills as muniments of title [will] - TPC § 89C - Have will probated only to clear title (III 29-30 example); no formal administration. An application for the probate of a will as a muniment of title does not require appointment of an executor and does not require the filing of an inventory for the estate. This procedure is available only if all the estate's debts, except for debts secured by liens on real estate (e.g., the mortgage on the homestead), have been paid. Those who pay money owed to the estate to the persons named in a will probated as a muniment of title are fully protected against any liability to TPs for so doing. TPC §89(c). Probating a will as a muniment of title fills the missing link in the chain of title (i.e., the will itself and the order probating it as a muniment of title together serve exactly the same function as a warranty deed signed by the decedent). ○ (4B) Statutory proceeding to determine heirship [no will] - TPC §§ 48, 54, 55 - Special proceedings to declare a person's heirship have been authorized by the TPC. These provisions apply only to property which passes intestate, or if a probated will omits any of the testator's real or personal property (i.e., a partial intestacy). They do not apply to show a person's entitlement to a share of a decedent's estate when the decedent disposes of all of his property by a valid will. Use a statutory proceeding to determine heirship when the decedent dies intestate but does not qualify for small estate administration by affidavit under TPC § 137 (e.g., b/c the value of the estate, excluding homestead and exempt property, exceeds the $50K limit). For a court to have jurisdiction to determine heirship, the estate must own real property, or if there is none, personal property, in that county. TPC § 48(a). The judgment of the court in a proceeding to declare heirship must declare the names and places of residence of the heirs of the decedent, and their respective shares and interests in the real and personal property of the decedent. TPC § 54. A decree by a court of competent jurisdiction determining the heirs is final. TPC § 55(a). A statutory proceeding to determine heirship serves exactly the same function as a will probated as a muniment of title—it clears the missing link in the chain of title (serves the same function as a warranty deed signed by the decedent). Although a judgment declaring heirship may later be modified, set aside, or nullified, it is nevertheless conclusive in any suit between any heir omitted from the judgment and a bona fide purchaser for value who has purchased real or personal property after entry of the judgment without actual notice of the claim of the omitted heir. Similarly, any person who has delivered funds or property of the decedent to the persons declared to be heirs in the judgment, or has engaged in any other transaction with them, in good faith, after entry of the judgment, is not liable for those acts to any person (including an heir omitted from the j/m determining heirship). TPC § 55(b). A recital in the court's judgment that there is no necessity for administration of the estate constitutes authorization to: (1) all persons owing any money to the estate of the decedent; (2) persons having custody of any property of the estate; (3) persons acting as registrar or transfer agent of any evidence of interest, indebtedness, property, or right belonging to the estate; and (4) persons purchasing from or otherwise dealing with the heirs as determined in the judgment, to pay, deliver, or transfer such property or evidence of property rights to the heirs, or to purchase property from the heirs, without liability to any creditor of the estate or other person (including an heir omitted from j/m). The heirs are entitled to enforce their right to payment, delivery, or transfer by suit. TPC § 55(c). ○ (5) Nonstatutory affidavit of heirship (Supp. III 33-40) [no will; only for clearing title to real estate] If the decedent's devisees are to have marketable title, they must have some way to clear title. An affidavit of heirship is the most expeditious and least costly way of clearing title to real estate when someone dies w/out a will. An affidavit of heirship is generally accepted in Texas. The vast majority of title companies appear to be willing to rely on a nonstatutory affidavit of heirship, provided there are not any suspicious circumstances surrounding that affidavit. The nonstatutory affidavit of heirship procedure works b/c the title insurance industry wants it to work. The statutes and rules (indirectly) supporting affidavits of heirship in Texas have waived any time requirement concerning how long an affidavit must have been filed in the public records. It is generally concluded that the time b/t the death of the decedent, the filing of an affidavit, and the attempted transfer of real estate is irrelevant. However, some lawyers and title companies say that the longer an affidavit is on file, the better for the applicant seeking to clear title to the decedent's real estate. Ideally, affidavits should be obtained from two disinterested witnesses, who attest to the facts of the case, the family tree, etc. However, since it is well recognized in the practice that it is often difficult to find two disinterested parties w/ sufficient knowledge of the family history to attest to the facts of the case, exceptions will often be made for this requirement. The best sources for attesting witnesses are longtime neighbors, or someone from the decedent's family b/c anyone from the beneficiary's family may be seen as having benefited indirectly from the transfer. The affidavit should state that there was no need for administration in the decedent's estate, that all debts were paid, and that no taxes were due on the estate.

Ambiguity

■ Ambiguity - "It is only where testamentary language is not clear in its application that evidence may be introduced as to the circumstances under which T used that language in order to throw light upon its meaning." (CB 337) ○ Patent ambiguities - A patent ambiguity is an ambiguity that appears on the face of the will. Ex: One clause in T's will left the "disposable portion of my estate" to T's daughter A, while the very next clause left "my entire estate" to T's daughters A and B. The ct allowed extrinsic evidence to aid it in interpreting this patent ambiguity. Succession of Neff (CB 340). Modern view - Extrinsic evidence is allowed to aid in interpreting a patent ambiguity. Minority view - In some states, extrinsic evidence is not admissible to clarify even a patent ambiguity and the will or the devise fails. Alternative approach - Another approach is to construe the language of the will w/out the aid of extrinsic evidence in a manner that saves the devise. Ex: T, purporting to devise her entire estate, gave 25% to each of three charities. The ct construed the clause to give ⅓ shares to each charity on the theory that T intended to devise her entire estate. Estate of Akeley (CB 369 n.4). ○ Latent ambiguities - A latent ambiguity is an ambiguity that does not appear on the face of the will but manifests itself when the terms of the will are applied to the T's property or designated beneficiaries. In most jurisdictions, oral declarations of intent to the scrivener are admitted in cases of latent ambiguity. There are two types of latent ambiguity: Equivocation - When a will clearly describes a person or thing, and two or more persons or things exactly fit that description (e.g., a devise "to my niece Alicia," when in fact T has two nieces named Alicia). Where there is an equivocation, direct expressions of the T's intent are admissible in evidence. Second Type - When no person or thing exactly fits the description, but two or more persons partially fit. This is the more common type of latent ambiguity. This second type of latent ambiguity may also be resolved by resort to extrinsic evidence. ○ In cases of ambiguity, what type of extrinsic evidence is admissible? (1) T's direct statements to the scrivener of the will. (2) T's direct statements to a TP (e.g., T told a friend that he had bequeathed $10K to his nephew James Peter Jones). Modern cases allow this evidence if the testimony is from a disinterested TP. (3) Facts and circumstances evidence - evidence about the T, his family, the claimants under the will and their relationship to the T, T's habits and thoughts, etc. Facts and circumstances evidence is favored by the cts b/c it is based on objectively verifiable facts. Even in the minority of jurisdictions that will not admit evidence of alleged direct statements to TPs, facts and circumstances will be allowed. Texas allows all three types of extrinsic evidence to be admitted in cases of ambiguity. ○ What evidence is admissible to cure latent & patent ambiguities in Texas? Facts and circumstances (courts like this because no oral testimony involved) Testator's statement to scrivener ○ Testator's statements to 3rd parties - not usually allowed, but allowed (not preferred) in Texas. concerned about perjury.

Revocation of Wills

■ Ambulatory - A will is an ambulatory document, which means that it is subject to modification or revocation by the T during his or her lifetime. ■ Revocation - UPC § 2-507, TPC § 63. ○ All states permit revocation by a will in one of two ways: By a subsequent testamentary instrument (writing) executed w/ testamentary formalities; OR By a physical act such as destroying, obliterating, or burning the will. Destruction of a will revokes the will and also revokes any codicils, but destruction of a codicil revokes only the codicil but not the will. To be effective, the physical act must be performed on the will itself, not just on a copy of the will. If codicil is destroyed, underlying will survives (republication by codicil still applies). If will is destroyed, codicil is invalid. (some cts disagree if codicil is indep.) THIRD WAY: revocation by inconsistency (but read the wills together to the extent possible). ○ A will cannot be orally revoked! On the assumption that oral revocations would open the door for fraud, an oral declaration that a will is revoked, w/out more, is inoperative in all states. ○ If a duly executed will is not revoked in a manner permitted by statute, the will is admitted to probate. Mere intent to revoke is not enough; T's revocation must comply w/ the statutory formalities! ○ Revocation by Inconsistency - A subsequent will revokes the prior will by inconsistency if the T intends the subsequent will to replace rather than supplement the previous will. Common sense usually points to the way courts will decide in these cases—but not all the time (see the reading assignment) A subsequent will that does not expressly revoke the prior will but makes a complete disposition of the T's estate is presumed to replace the prior will and revoke it by inconsistency. If the subsequent will (which does not expressly revoke the prior will) does not make a complete disposition of the T's estate, it is not presumed to revoke the prior will but is viewed as a codicil, which supplements, rather than replaces, the prior will...only to the extent of inconsistent provisions.

Anti-Lapse Statute

■ Antilapse Statutes - Antilapse statutes substitute other beneficiaries (usually issue) for the dead beneficiary if certain requirements are met. The typical antilapse statute provides that if a devisee is of a specified relationship to the T and is survived by issue who survive the T, the issue are substituted for the predeceased devisee. The statute changes the common law rule so as to give the predeceased devisee's gift to his issue. An antilapse statute applies to a lapsed devise only if the devisee bears the particular relationship to the T specified in the statute. TPC § 68(a) - applies only to devises to a descendant of T's parent (narrower than the UPC); UPC § 2-605 - applies only to devises to T's grandparent or a lineal descendant of T's grandparent. ○ Ex: T devises her home to her niece, A, and the residue of her estate to B. A predeceases T, leaving a child C who survives T. Under the UPC § 2-605, C takes T's home b/c A is a descendant of T's grandparent and hence comes w/in the required relationship. Under TPC § 68(a), however, C does not take T's home b/c A is not a descendant of T's parent and hence does not come w/in the required relationship. Under TPC § 68(a), the devise lapses and falls into the residue given to B. ○ The antilapse statute, which supersedes the common law where applicable, is also a default rule. It applies unless the T indicates that it not apply. If the T manifests an intent that the antilapse statute not apply (e.g., T conditions the devise on the devisee "surviving" T or uses other words of survivorship), and T does not include an alternative gift when a devisee predeceases the T, the common law default rules apply. ○ In-laws are almost universally excluded under antilapse statutes. Thus, the antilapse statute does not apply to a spouse or a relative of the spouse who predeceases the T. ○ Allen v. Talley (CB 393) Facts - Lewis Jr. (P) challenges his aunt's will, which left her estate to her living brothers and sisters, making no provision for him since his father is dead. T's will: "I give, devise and bequeath [all of my property] unto my living brothers and sisters: John, Claude, Lewis, Lera and Juanita, to share and share alike." Issue - Do the words "living brothers and sisters" used in a will constitute words of survivorship such that application of the antilapse statute is precluded? Decision - Yes. The words "living brothers and sisters" used in a will constitute words of survivorship such that application of the antilapse statute is precluded. T's entire estate goes to Claude and Lera, T's living brothers and sisters alive at T's death. As to what T's probable intent was, regrettably she's not around to ask. Analysis - T's attorney should have asked T what she wanted to happen if any of the siblings were to predecease her. If T had said in her will "I leave my property to only those siblings who survive me at my death," the nephews and nieces would still probably be hacked off, but they'd be hacked off at T, not at Uncle Claude and Aunt Lera.

Attestation Clause

■ Attestation clause - An attestation clause recites that the will was duly executed. (see example on CB 217 ¶ 7) ○ Example: "On the ____ day of ____, 20___, Wendy brown declared to us, the undersigned, that the foregoing instrument was her last Will, and she requested us to act as witnesses to it and her signature thereon. She then signed the will in our presence, we being present at the same time. We now, at her request, in her presence, and in the presence of each other, hereunto subscribe our names as witnesses, and each of us declares that in his or her opinion this testator is of sound mind." ○ No state's statute requires the use of an attestation clause. The requirement of due execution can be satisfied merely by having the witnesses sign below the T's signature as "witnesses." ○ However, an attestation clause is very important. Indeed, it is professional malpractice not to include one. The attestation clause makes out a prima facie case that the will was duly executed. Thus, the will may be admitted to probate even though the witnesses predecease the T, cannot recall the events of execution, or are hostile. Where attestation clause can be very useful: (1) Witness w/ bad memory Attestation clause is a substitute for the poor memory of the attesting witness. (2) Hostile witness Can cross-examine the hostile witness w/ the attestation clause. Cases in Texas have upheld jury findings that the attestation clause signed by the witness accurately recited the execution ceremony despite the witness's hostile testimony (i.e., the jury believed what the witnessed testified to in the attestation clause and not his current contradictory testimony). (3) Witnesses are dead or cannot be located. It may be easier to probate a will when both witnesses are dead than when one or both witnesses are located far away. If the witness is alive but far away, the proponent of the will must get the testimony, affidavit, or deposition of the witness. TPC § 84(b)(2). If both witnesses are dead, the will can be proved by two witnesses (or, if two can't be found, then one witness) to the handwriting of one or both witnesses or of the T. TPC § 84(b)(3). TPC § 59 - Requisites of a Will (2 step-approach to self-proving affidavits): ○ (1) Attestation clause - appears immediately below the T's signature and above the signatures of the two witnesses, recites the elements required for due execution of a will. While an attestation clause is prima facie evidence of the facts recited therein, a will that is not self-proved cannot be admitted to probate on the strength of an attestation clause alone. This is b/c TPC § 84(b) sets out the proof required for proving due execution, and the procedures outlined in the statute must be complied with.

Other Intestacy Stuff

■ Laughing Heirs - UPC § 2-103(4) does not permit inheritance by intestate succession beyond grandparents and their descendants. Under UPC § 2-105, if the intestate is not survived by a grandparent or descendant of a grandparent, the entire estate escheats to the state. Texas has no laughing heir statute. The only way an estate will escheat to the state of Texas is if we find no living relative on either the maternal or the paternal side. ■ Escheat - If the decedent leaves no survivors entitled to take under his state's intestacy statute, the intestate's property escheats to the state. See, e.g., UPC § 2-105. ■ Half-bloods - UPC § 2-107 treats half-bloods (e.g., a half-sister) and whole-bloods the same. TPC § 41(b) says that each half-blood shall inherit only ½ as much as each whole-blood, but this only applies to situations where the inheritance passes to the intestate's collateral kindred and there are whole blood collaterals/siblings.

Pretermitted Child Statute

■ Birth of Children - Almost all states have pretermitted child statutes, giving a child born after execution of the parent's will, and not provided for in the will, a share in the parent's estate. See UPC § 2-302. Sometimes, pretermitted child statutes include children born b/f the execution of the will as well as children born thereafter. A pretermitted child statute, if applicable to the T's will, results in a revocation of the will to the extent of the child's share. ■ (No) Protection from Intentional Omission ○ A child or other descendant has no statutory protection against intentional disinheritance by a parent. There is no requirement that a T leave any property to a child. ○ However, the law frowns on cutting children out of the parent's estate when there is no surviving spouse. To this end, a number of doctrines (e.g., lack of testamentary capacity, undue influence, and fraud) have been flexibly used to protect children, w/ the consequence that disinheritance is almost always a risky affair. A will disinheriting a child almost invites a will contest. ■ Protection from Unintentional Omission ○ Pretermission statutes are designed to prevent the unintentional disinheritance of descendants. ○ Azcunce v. Estate of Azcunce (CB 475) - A child born at the time a codicil is executed is not a pretermitted child. Facts - T executed a will and a later codicil. The T then had another daughter and executed another codicil. The second codicil made no provisions for the daughter. Issue - Is a child born after the execution of her father's will but b/f the execution of a codicil to the will a pretermitted child when the will and codicil fail to provide for such child? Decision - No. A child born after the execution of her father's will but b/f the execution of a codicil to the will is not a pretermitted child when the will and codicil fail to provide for such child. The T's second codicil republished the original will and first codicil b/c the second codicil expressly so stated. This being so, the omitted child's status as a pretermitted child was destroyed b/c the child was alive when the second codicil was executed and was not, as required by Florida's pretermitted child statute, born after such codicil was made. A child must be born after the making of a will and the last codicil (if any) in order to be a pretermitted child. Extrinsic evidence that the T intended to include the child in the will, which existed in this case, is not admissible in Florida (and most states). The child was caught by a Catch 22. She would appear to have a claim against the draftsman of the second codicil for not either advising her father of the legal consequences of signing the second codicil (i.e., the child would lose her status as a pretermitted child) or providing for her in the second codicil, or some other such document, so as to give effect to her father's (the T's) wishes. However, according to Florida law, she cannot sue the draftsman of the second codicil for leaving her name out of the second codicil b/c, wonder of wonders, her name is not mentioned in the second codicil.

Class Gift

■ Class Gifts ○ Under the common law of lapse, a class gift is treated differently from a gift to individuals. If a class member predeceases the T, the surviving members of the class divide the total gift, including the deceased member's share. ○ Thus the crucial question is: What is a class? The test is often said to be whether the T is "group minded." The T is thought to be group minded if he uses a class label in describing the beneficiaries, such as "to A's children" or "to my nephews and nieces." Beneficiaries described by their individual names, but forming a natural class, may be deemed a class gift if the ct decides, after admitting extrinsic evidence, that the T would want the survivors to divide the property. ○ Dawson v. Yucus (CB 400) - Generally, naming an individual in a bequest prevents the gift from becoming a class gift. In Illinois... Facts - T devised an interest in land to two of her husband's nephews (meaning that the antilapse does not apply), one of whom was deceased, and other nephew is challenging the bequest. Issue - Does a bequest to two named individuals who are both nephews of the T constitute a class gift? Decision - No. The language of a devise, naming two individual persons, does not come w/in the designation of a class but is to the individuals distributively. On the other hand, T clearly wanted the gift to go to "her husband's side of the house." The lapsed gift falls into the residuary estate and goes to the wife's side of the house, contrary to the T's probable intent. Johanson is critical of the verbally focused myopia (the verbal characteristics of the language) of the ct here, given that the fundamental objective in construing a will is to carry out the T's intent (or probable intent).

Rule of Convenience/Class Closing

■ Class-Closing Rule (Rule of Convenience) - A class will close whenever any member of the class is entitled to possession and enjoyment of his or her share. ○ The key point in time is when one member is entitled to demand payment. The fact that actual payment be delayed b/c of administrative problems does not keep the class open; it closes when the right to payment arises. ○ When a class is open, persons not yet born can come into the class. When a class is closed, no more members can be added to the class. ○ Immediate Gifts - Where there is an immediate gift to a class, the class closes as soon as any member can demand possession, either at the T's death or later. Case 19 - T bequeaths $10,000 "to the children of B." B is alive and has two children, C and D. C and D can demand immediate possession of their shares. The class closes. C is paid $5,000 and D is paid $5,000. A year later, E is born to B. E does not share in the bequest. There is an exception to this rule if no members of the class have been born b/f the T's death. Since the T must have known there were no class members alive at his death, it is assumed the T intended all class members, whenever born, to share. Hence, in this case, the class does not close until the death of the designated ancestor of the class. In the above Illustration, if B had no children born b/f the T's death, the class would not close until B's death.

Common Law Lapsed Devises

■ Common Law Rules Regarding Lapsed Devises (apply only in the absence of an anti-lapse statute) - These are the default rules that apply only if the will does not provide what happens when a devisee predeceases the T. ○ (1) Specific or general devise - If a specific devise (e.g., a watch) or general devise (e.g., $10,000) lapses, the devise falls into the residue (i.e., goes to the residuary beneficiary). ○ (2) Residuary devise - If the devise of the entire residue lapses, b/c the sole residuary devisee or all the residuary devisees predecease the T, the heirs of the T take by intestacy. If a share of the residue lapses, such as when one of two residuary devisees predeceases the T, at common law the lapsed residuary share passes by intestacy to the T's heirs rather than to the remaining residuary devisees (no-residue-of-a-residue rule, applied in Estate of Russell below). The no-residue-of-a-residue rule does not carry out the average T's intent and has been roundly criticized by cts and commentators. Note that TPC § 68(c) and UPC § 2-604(b) reject this rule; instead, these statutes provide that, if a share to a residuary devisee lapses, that share is divided among the other residuary devisees in proportion to the residuary devisee's interest in the residuary estate. ○ (3) Class gift - If the devise is to a class of persons, and one member of the class predeceases the T, the surviving members of the class divide the gift. ○ (4) Void devise - Where a devisee is dead at the time the will is executed, or the devisee is a dog or cat or some other ineligible taker, the devise is void. The same general default rules govern the disposition of void devises as govern lapsed devises. ○ Estate of Russell (CB 388) Facts - Thelma's niece challenged the will after Thelma attempted to leave her estate in equal shares to her dog and a boyfriend, thereby excluding the niece. Issue - Does a void gift to a residuary beneficiary cause the property that is the subject thereof to pass under the laws of intestate succession? Decision - Yes. The portion of any residuary estate that is the subject of a void gift to one of the residuary beneficiaries remains undisposed of by the will and passes to the heirs-at-law (no-residue-of-a-residue rule). Analysis - The no-residue-of-a-residue rule is not sound. If T devises her entire estate to A and B, but B predeceases T, what result is more likely to be consistent w/ T's probable intent: that A receive T's entire estate, or that A receive ½ of T's estate w/ the other half passing by intestacy? The no-residue-of-a-residue rule assumes the latter. In rejecting the rule, modern authorities such as TPC § 68(c) and UPC § 2-604(b) assume the former (known as the surviving residuary beneficiary rule).

Presence Requirement

■ Presence requirement - T must sign (or acknowledge) the will in the "presence" of the witnesses. ○ "Line of sight" test (minority rule) (Illinois) - The requirement that the witnesses sign in the presence of the testator is satisfied only if the testator is capable of seeing the witnesses in the act of signing. The testator does not actually have to see the witnesses sign but must be able to see them were he to look. Illinois "swivel chair" case—a guy didn't swivel around and look at the people sign the will. The court ruled he could have seen him so they were in his line of sight. ○ "Conscious presence" test (majority rule) (Texas) - The witness is in the presence of the testator if the testator, through sight, hearing, or general consciousness of events, comprehends that the witness is in the act of signing. ○ No presence requirement (UPC) - UPC § 2-502(a) dispenses altogether w/ the requirement that the witnesses sign in the testator's presence.

Future Interests and Trusts

■ Construction of Trust Instruments ○ Preference for Vested Interests - The common law had a strong preference for construing ambiguous instruments as creating a vested rather than a contingent remainder. ○ In many states, upon divorce, a ct makes an equitable distribution of a couple's "property," including inherited property. The question thus arises, is a vested remainder or a contingent remainder in a trust created by the husband's mother property of the husband that is subject to equitable division? The cts appear to agree that an indefeasibly vested remainder is the husband's property and can be valued in accordance w/ life expectancy tables. On the other hand, a vested remainder subject to divestment if the husband does not survive the life tenant or a remainder contingent upon surviving the life tenant is not the husband's property for purposes of equitable distribution. Thus, if your client wants to set up a trust w/ a remainder in a child, you should draft a remainder contingent upon the child surviving to the time of possession so that the child's remainder will be insulated from the claims of the child's spouse upon divorce. An additional benefit to making the remainder a contingent remainder is that if the child dies b/f the life tenant the child's interest in the trust is excluded from his gross estate for estate tax purposes. If the child's remainder is vested, it must be included in his gross estate if he dies b/f the life tenant

Constructive Trust

■ Constructive Trust (not really a "trust"!) - Application of the constructive trust doctrine is a two-step process: (1) Apply the law: Is there a will that can be probated? If so, admit the will to probate. (2) Equity demands that the unintended beneficiaries not be unjustly enriched. If there is: (A) wrongful conduct (must be intentional, not negligent) by the beneficiaries who prevented T from revoking his will, that (B) leads to unjust enrichment of these beneficiaries, equity will convert the legal titleholder into a constructive trustee, who must turn the property over to the intended beneficiaries. See Pope v. Garrett (Tex. 1948) (note 3 on CB 193), where the ct imposed a constructive trust in favor of the intended beneficiary, not only on the heirs who had participated in the wrongdoing but also on the innocent heirs. The ct reasoned that the innocent heirs would be unjustly enriched if they were permitted to keep the property since, but for the wrongful acts, they would have inherited nothing. ○ Once converted into a constructive trustee, the holder of the property must transfer it to the constructive beneficiary. Thus, the constructive trust is a remedy that employs the language of trusteeship. It is not itself a trust in which property is managed by a trustee for a beneficiary subject to a fiduciary obligation. ○ REMEMBER: a constructive trust is just language for an equitable remedy. Wrongdoers don't get to serve as trustees. ○ Latham v. Father Divine (CB 210) - The remedy of constructive trust is available where fraud prevents the T from revoking his old will. Facts - Deceased's relatives, Latham (P), sued Father Divine (D) for constructive trust based upon fraudulent nonrevocation of will. Latham wanted to create a new will, but she was murdered by a doctor in a hospital room. Issue - Where a devisee under a will already executed prevents the T by fraud, duress, or undue influence from revoking the will and executing a new will in favor of another, so that the T dies leaving the original will in force, does the devisee hold the property thus acquired upon a constructive trust for the intended devisee? Decision - Yes. Under the Restatement of the Law of Restitution, where a devisee or legatee under a will already executed prevents the T by fraud, duress, or undue influence from revoking the will and executing a new will in favor of another or from making a codicil, so that the T dies leaving the original will in force, the devisee or legatee holds the property thus acquired upon a constructive trust for the intended devisee or legatee. Does this bother us that oral testimony may overturn entire will? A lot of courts keep this exception for wrongful conduct leading to unjust enrichment. BUT higher standard applies: clear and convincing. Step 1: Admit to probate: valid under probate code. Step 2: Equity intervenes to prevent unjust enrichment.

Creditor's Claims

■ Creditors' Claims (Supp. III 15-19) ○ Historically, most states had so-called nonclaim statutes along the lines of the current UPC §3-801(a). ○ Under these statutes, all claims of unsecured creditors had to be presented w/in a certain period (e.g., Oklahoma, 2 months; UPC, 4 months; Illinois, 6 months) from the triggering event, which is publication of the notice of administration. ○ The constitutionality of Oklahoma's nonclaim statute was at issue in Tulsa Professional Collection Services, Inc. v. Pope (U.S. 1978), where a Tulsa hospital sought to collect its bill for the decedent's care for the last four months of his life. The hospital's claim was not presented w/in the two-month period after the first publication of notice of administration. The S Ct held that the Oklahoma nonclaim statute (publication by notice only) was unconstitutional as applied to creditors who were either known to the estate or whose identities were reasonably ascertainable. Under the 14th Amendment's Due Process Clause, such creditors were entitled to actual notice b/f their claims could be barred. ○ While Pope by its terms applied only to the Oklahoma nonclaim statute, by clear implication all nonclaim statutes based solely on notice by publication were in jeopardy. This led most states to revise their statutes in one of two ways. Some states (e.g., Illinois) amended their statute to require personal notice to known or ascertainable creditors. Other states, borrowing from the S Ct's dictum regarding self-executing statutes of limitations, enacted limitation statutes that apply to all claims against a decedent's estate w/out regard to notice. See, e.g., UPC §§ 3-801, 3-803. ○ Texas has never had a nonclaim statute. The effect of Pope on the constitutionality of the Texas statute (former TPC § 298) was not as direct, or as clear. It was possible, however, that a known creditor of an insolvent estate, who received notice by publication only (which as a practical matter means no notice at all), could be harmed by its failure to file w/in the 6-month period prescribed in former § 298. Addressing this concern, in 1995 the Texas Legislature amended § 298 and added subsection (d) of § 294, which allows for permissive personal notice to general creditors. Any creditor who receives notice by registered or certified mail must present its claim w/in four months after the date of receipt of the notice; otherwise the claim is barred. In effect, Texas now has a "permissive" nonclaim statute.

Dependent Relative Revocation

■ Dependent Relative Revocation and Revival - If the T purports to revoke his will upon a mistaken assumption of law or fact, the revocation is ineffective if the T would not have revoked his will had he known the truth. ○ The usual case involves a situation where the T destroys his will under a belief that a new will is valid but for some reason the new will is invalid. If the ct finds that the T would not have destroyed his old will had he known that the new will was ineffective, the ct, applying the doctrine of dependent relative revocation, will cancel the revocation and probate the destroyed prior will. The doctrine is one of presumptive intent, not actual intent. ○ Cts have held that DRR applies only (1) where there is an alternative plan of disposition that fails, or (2) where the mistake is recited in the terms of the revoking instrument. The alternative plan of disposition is usually in the form of another will, which is defectively executed. ○ It invariably brings up the proof of lost will statute (infra)

Disclaimers

■ Disclaimer ○ Sometimes an heir or a devisee will decline to take the property, a refusal that is called a disclaimer. Disclaimers allow for post-mortem estate planning. The most common motivations for disclaimer are to reduce taxes or to keep property from creditors. ○ To eliminate the difference b/t disclaiming an intestate share and a devise, almost all states have enacted disclaimer legislation that provides that the disclaimant is treated as having predeceased the decedent. Thus the decedent's property does not pass to the disclaimant, and under state law the disclaimant makes no transfer of it. ○ The fiction that a disclaimant is treated as having predeceased the decedent can be used to the disclaimant's advantage. Saving estate taxes - Suppose that O dies intestate, survived by one sister, A. If A disclaims, A is treated as having predeceased O, and O's estate will pass under the intestacy law to A's child, B, who is O's niece. Thus, to pass the property on to A's child w/out a gift or estate tax being levied on it when it leaves A's hands, A may decide to disclaim the inheritance. Moreover, if B is taxed at a lower income tax rate than A, then A's disclaiming the inheritance will also save income taxes b/c any returns on the property will be taxable at B's lower rate. Most state disclaimer statutes require that a disclaimer be made w/in 9 months of the creation of the interest being disclaimed. The origin of the nine-month time limit was a reaction to the passage of IRC § 2518. Under § 2518, only "qualified disclaimers" will avoid gift tax liability by the disclaimant. (see text of § 2518 on Supp. VI-72) Section 2518 requires a qualified disclaimer to be made w/in 9 months after the interest is created or after the donee reaches 21, whichever is later. Hence, in the above example, if A disclaims a year after O's death, A is treated under the tax laws as having accepted the property and having made a taxable gift to B. Avoiding creditors - Most disclaimer statutes provide that a disclaimer relates back for all purposes to the date of the decedent's death. Majority rule (TPC § 37A) - In the above example, if A disclaims, most cases have held that A's ordinary creditors cannot reach her share in O's estate b/c the statute provides that the disclaimer relates back for all purposes to the date of death of the decedent. Minority rule - In a minority of states, however, an insolvent debtor may not disclaim to avoid creditors.

Exceptions to Non-Deductible Interest

■ Exceptions to the Nondeductible Terminable Interest Rule ○ To permit some flexibility in estate planning for spouses, Congress has engrafted four important exceptions onto the nondeductible terminable interest rule, thereby allowing certain transfers in trust to qualify for the deduction. (1) Estate Trust Exception: The estate trust exception to the nondeductible terminable interest rule is included w/in the statement of the rule. An interest is a nondeductible terminable interest only if, on termination of the spouse's interest, the property passes to someone other than the surviving spouse or the spouse's estate. Consequently, a disposition of property "to my husband for life, and on his death to his estate" qualifies for the marital deduction. Estate trusts are rarely used as a means of qualifying for the marital deduction. We don't need to know this for this class... (2) Limited Survivorship Exception - Section 2056(b)(3) provides that a devise w/ a limited survival requirement is deductible if: (a) the condition of survival is for a period not exceeding 6 months, and (b) the contingency (the spouse's death w/in the period) does in fact occur. In short, a requirement of survival for up to 6 months can be attached to the interest passing to the spouse w/out disqualifying it for the marital deduction. (If the spouse does not survive for the stated period, no marital deduction will be available since no interest will actually pass from the decedent to the surviving spouse.) (3) Marital Deduction Power of Appointment Trust Exception: Until 1982, the "marital deduction power of appointment trust" was often employed. Out of concern over a spouse's ability to manage money or to resist "predators" (such as greedy children, persistent charities, creditors, or hopeful suitors), many clients preferred not to leave property outright to their spouse. Recognizing this, Congress authorized in § 2056(b)(5) the use of a trust that contains the following provisions: (1) All trust income must be paid to the spouse at least annually for life. (2) The spouse must be given a general power of appointment under which she can appoint the trust property to herself or her estate. The power may be either an inter vivos or a testamentary power. (3) the power must be exercisable by the spouse "alone and in all events." This means that there must be no conditions or restrictions on the spouse's ability to exercise the general power. A general testamentary power of appointment satisfies the "all events" requirement even though it cannot be exercised by the spouse during lifetime. (4) The spouse's interest must not be subject to a power in anyone else to divert the property to someone other than the spouse. Thus, the trustee cannot be given a discretionary power to distribute trust corpus to, for example, the couple's children. Ex: "The trustee shall pay the income to my wife, in convenient installments at least annually, for life. On my wife's death the trustee shall distribute the trust principal to such persons, including my wife's estate, as she appoints by will. If or to the extent that my wife does not exercise this testamentary power, on my wife's death the trustee shall distribute the trust principal per stirpes to my descendants then living." B/c the spouse has been given a general power of appointment that is exercisable by the spouse alone and in all events, the trust assets will be includible in the spouse's gross estate at his or her death, thereby satisfying the "deferral" objective of the marital deduction. Treas. Reg. § 20.2056(b)-5(g)(3): "If there are any restrictions, either by the terms of the instrument or under applicable local law, on the exercise of a power to consume property (whether or not held in trust) for the benefit of the spouse, the power is not exercisable in all events. Thus, if a power of invasion is exercisable only for the spouse's support, or only for her limited use, the power is not exercisable in all events. In order for a power of invasion to be exercisable in all events, the surviving spouse must have the unrestricted power exercisable at any time during her life to use all or any part of the property subject to the power, or to dispose of it in any manner, including the power to dispose of it by gift (whether or not she has the power to dispose of it by will)." In Estate of Hatchett v. Commissioner (Tax Ct 1989) (Supp. VI-83), the testator left his wife his real property for her lifetime w/ power to invade principal "as she may find necessary for her comfort, maintenance, or convenience," w/ remainder over to the children. The ct held that the bequest did not qualify for the marital deduction b/c the power was not exercisable by the wife in all events. "A power of appointment exercisable as necessary for the surviving spouse's comfort, maintenance, or convenience is a restricted power. A restricted power is not exercisable in all events." In Estate of Foster v. Commissioner (2d Cir. 1984), the testator, a dairy farmer, left his wife his property for her lifetime w/ power to invade principal "for her needs and the needs of my children as she in her discretion may deem necessary," w/ remainder over to the children. The ct held that the bequest did not qualify for the marital deduction b/c the wife's power to consume was not equivalent to a power to appoint "in all events." A power to consume is limited by a standard of good faith on the part of the donee of the power.

Independent Admin in Texas

■ Texas Independent Administration Procedures (Supp. III 42-47) ○ Overview - By appointing an independent executor in his will, a testator may dispense w/ judicial supervision of the administration. If this is done, typically there will be no resort to the ct for authority to perform acts or for subsequent approval of them. The result is much greater convenience and flexibility in the management of the estate, and appreciable savings in ct costs and attorneys' fees. Nearly all Texas administrations are independent administrations; it is difficult to imagine any set of circumstances under which a Texas will should not provide for an independent administration. However, an independent administration is still an administration, w/ all of the effects of one under ct control, and not a method for dispensing w/ administration. An independent administration differs from a common-law administration only in the degree of ct supervision required. The probate ct does not interfere w/ the settlement of the estate so long as the independent executor continues to be active and faithful in the performance of his duties. Independent administration works reasonably well unless the personal representative misbehaves. ○ What is involved in an independent administration? TPC § 145(b) - Independent Administration - The testator's will may manifest the requisite intent that no action shall be had in the probate ct in order to settle the estate other than the probating of the will and the return of an inventory and list of claims. What happens in an independent administration? Two trips to the court house. And then they say bye to the probate court. TPC § 146 - Payment of Claims and Delivery of Exemptions and Allowances - directs the independent executor to administer the estate as prescribed in the TPC in exactly the same manner as if his actions had been accomplished under orders of the probate ct. If he does not think the creditor has a valid claim, he writes a letter saying he doesn't think it is valid...and then the creditor sues—but not in probate court. ○ What does a creditor who has a complaint against the independent executor do? TPC § 147 - Enforcement of Claims by Suit - Any person having a debt or claim against the estate can file suit against the independent executor at any time during the administration of the estate, but the independent executor is not required to answer until six months from the date of the order creating the independent administration. This suit is filed in the ct of general jurisdiction, not the probate ct. *Note—roughly 200 of the codes on the TPC apply only to independent executor. ○ Closing the Independent Administration TPC § 151 - Closing Independent Administration by Affidavit - Once the independent executor has paid all the debts of the estate (or so much of them as the estate's assets will permit), and distributed to the persons entitled thereto all the estate's assets, if any, remaining after the payment of debts, the independent executor can close the estate by filing a final account verified by affidavit with the probate ct. TPC § 152 - Closing Independent Administration Upon Application by Distributee -authorizes a distributee who feels that the independent executor is holding onto the assets too long to bring suit seeking judicial termination of the administration. ○ Independent administration is potentially available in all estates. - TPC § 145 provides that an independent administration can be authorized by the probate ct (i) where the decedent died intestate, (ii) where the decedent's will named an executor but did not provide for independent administration, or (iii) where no executor was named in the will. If the will does not name an independent executor, three conditions must be satisfied b/f an independent administration can be granted. (1) All of the distributees of the estate must so agree, and must collectively designate an independent executor in the application for administration. (2) An independent administration will be granted "unless the county ct finds that it would not be in the best interest of the estate to do so." (3) The will must not expressly prohibit independent administration.

Estate Taxation of Life Insurance

■ Federal Estate Taxation of Life Insurance: § 2042 ○ Life insurance is sometimes included in a gross estate and sometimes not. With proper pre-death estate planning, it is often excludible. ○ IRC § 2042 provides that the gross estate includes the value of insurance proceeds on the life of the decedent: (1) if the decedent possessed at death any of the incidents of ownership under the policy, or (2) if the policy proceeds were paid to the insured's executor or estate. The incidents of ownership include such policy rights as the right to change the beneficiary, to surrender, cancel, or assign the policy, or to borrow against the cash surrender value in the policy. Where a person takes out a policy on his own life and names some member of the family as beneficiary, the proceeds will be taxed in the insured's estate if he holds any incidents of ownership over the policy. This is true even of a term insurance policy that has no investment features and hence no cash surrender value, for the insured has the right to change the beneficiary designation and also the right to assign or cancel the policy. The retention of only one incident of ownership causes the full value of the insurance proceeds to be taxed under § 2042. ○ If an insurance policy owned by a decedent spouse (and t/f includible in the decedent's gross estate) is payable to the surviving spouse in a lump sum, the policy proceeds qualify for the unlimited marital deduction. No estate taxes result from the inclusion of the policy in the decedent's gross estate. However, if the policy is payable to someone other than the surviving spouse, then to minimize estate taxes the beneficiary should, if possible, purchase and pay the premiums on the policy.

Income Tax of Life Insurance

■ Federal Income Taxation of Life Insurance: § 101(a) ○ General Rule [§ 101(a)(1)] - "Gross income does not include amounts received under a life insurance K, if such amounts are paid by reason of the death of the insured." ○ Exception [§ 101(a)(2)] - Section 101(a)(2) carves out an exception to the general rule if an existing life insurance K is transferred for a consideration. Under this "transfer for value" rule, if B purchases from A an existing life insurance policy on A's life for a consideration, on A's death the proceeds received by B (over and above B's basis in the policy) is ordinary income to B. However, the "transfer for value" rule, while devastating in its consequences, is rarely invoked. It is somewhat unusual for one party to purchase an existing life insurance policy that insures someone else's life.

Intestacy for Descendants and Collaterals

■ In all jurisdictions in this country, after the spouse's share is set aside, children and issue of deceased children take the remainder of the (intestate) property to the exclusion of everyone else. When one of several children has died b/f the decedent, leaving descendants, all states provide that the child's descendants shall represent the dead child and divide the child's share among themselves. ■ In-laws (i.e., sons-in-law and daughters-in-law) are excluded as intestate successors in virtually every state. In-laws are not treated as descendants. ■ Different views about what taking by representation means - The fundamental issue is whether the division into shares should begin at the generational level immediately below the decedent or at the closest generational level w/ a living descendant of the decedent. To see this, take this case: A has two children, B and C. B predeceases A, leaving a child D. C predeceases A, leaving two children, E and F. A dies intestate leaving no surviving spouse, and survived by D, E, and F. Thus:

Meretricious Relationships

■ In re Will of Moses (CB 170) ○ Facts - An older-woman younger-man sexual relationship existed b/t a female businesswoman and her attorney, and she had another attorney draft a will leaving property to her lover. ○ Issue - Does a confidential relationship b/t the T and devisee, which creates suspicious circumstances, raise a presumption of undue influence? ○ Decision - Yes. Where a confidential relationship b/t the T and devisee creates suspicious circumstances, a presumption of undue influence arises. They thought the independent counsel should have probed more as to why she was giving her estate to this man...not very convincing. Court indicates that a relationship of "utmost intimacy" gives rise to a presumption of undue influence. ○ Analysis The ct's treatment of Mrs. Moses in this case is nothing less than vicious. Subliminally, the ct is asking, how could any young man be attracted to an older, disfigured woman? The ct was clearly biased. The ct simply could not believe that the man could have any true motive other than to get Mrs. Moses's money. And the fact that they put it in there that it wasn't an issue was indicative that it might have been...("Me think he doth protest too much"—Shakespeare) What if the genders had been reversed? The result would almost certainly have been different. Adult Adoption - If T adopts another as her child, the adoptee becomes the intestate heir, thus depriving potential contestants of standing to contest the will. Why not recommend to Mrs. Moses that she adopt Clarence? That would shoot down the standing of the sister of Mrs. Moses to challenge the will (b/c Clarence would be Mrs. Moses's child, and thus her nearest heir). Marriage - Marriage is another means of depriving would be contestants of standing to contest the will. Will Preparation—How should the lawyer, even in these biased circumstances, have prepared the will to avoid this successful will contest? Jaworski approach, videotape (but the court thinks she's ugly), audiotape (might be best because she is strong willed and the court wouldn't have to see her). Revocable Trust is the way to handle this because these are much harder to challenge for undue influence than wills. ■ In re Kaufman's Will (CB 174) ○ In the case of a homosexual relationship, every living relative of Robert would have standing to challenge the will. This makes it more difficult to anticipate contests to the will and take adequate precautions. ○ What should Robert Kaufman's lawyer have done to protect against the potential contest? Have Kaufman make inter vivos gifts to Walter, which would be more difficult to challenge.

Incorporation By Reference

■ Incorporation by Reference ○ UPC § 2-510. Incorporation by Reference - A writing in existence when a will is executed may be incorporated by reference if the language of the will manifests this intent and describes the writing sufficiently to permit its identification. UPC § 2-513 carves out an exception to the rule that a document incorporated by reference must be in existence at the time the will is executed for items of tangible personal property (but not money and not titled personal property). ○ Texas has no statute providing for incorporation by reference. In Texas we recognize incorporation by reference but we don't have a statute that carves out the exception for tangible personal property that the UPC does ○ Clark v. Greenhalge (CB 310) Facts - A woman who was due to receive a painting under a friend's will filed suit when the executor, who liked the painting himself, refused to give it to her. She had a notebook titled, "List of things given by Helen Nesmith (1979)". She signed the will in 1977, how can we incorporate it by reference? There were two codicils to the will in 1980...one which mentioned that the painting be given to Jenny Clark. Issue - Can specific, written bequests of personal property contained in a notebook that was maintained by a decedent be incorporated by reference into the terms of that person's will? Decision - Yes, a properly executed will may incorporate by reference into its provisions any document or paper not so executed and witnessed, even if the paper referred to be in the form of a mere list or memorandum, if it was in existence at the time of the execution of the will and is identified by clear and satisfactory proof as the paper referred to therein. Policy rationale - The notebook was in existence at the time the will was executed. The execution of the will itself, w/ proper formalities, sanctifies the incorporated documents. If the document is not in existence at the time the will was executed, it's not incorporated by reference (not clearly identified in will and t/f not sanctified by the executed will's formalities). Otherwise, people could change their wills w/out following the statutory formalities by simply inserting a clause referring to a document not in existence at the time of the will's execution in which "I may later amend my will." This is not allowed. But see UPC § 2-513 (above), which provides a limited exception to this rule. Analysis - Generous stretch of incorporation doctrine. But those two codicils opened the door for the possible argument of incorporation—and the court didn't like Greenhalge. Clark is an interesting application of the incorporation by reference and republication by codicil doctrines. The codicil executed by the T in Clark was not the document that incorporated the notebook into the will; the will itself made the incorporation. What the republication by codicil doctrine did in Clark was make all of the changes made in the notebook subsequent to the execution of the will valid. W/out the republication, the changes would not have been incorporated by reference as they were not themselves in existence prior to the execution of the will, and the ct likely would have made only those dispositions in the notebook clearly made before the execution of the will.

Community Property States

■ The 9 community property states are: ○ Arizona; ○ California; ○ Idaho; ○ Louisiana; ○ Nevada; ○ New Mexico; ○ Texas; ○ Washington; and ○ Wisconsin (by statute, called "marital property").

More on Marital Deduction

■ Interests that qualify for the marital deduction—in general -The marital deduction does not necessarily eliminate any estate tax on marital assets. Rather, the deduction permits deferral of the tax until the death of the surviving spouse. Through the marital deduction Congress has in effect said: "We won't tax these assets in your estate, provided that you leave them to your spouse in a form that exposes them to taxation in your spouse's estate, to the extent that they are not consumed, sold, or disposed of by your spouse during your lifetime." Thus, a requisite to qualification for the marital deduction is that the interest passing to the spouse must be in a form that will lead to a gross estate inclusion at his death, to the extent of the interest's value at his death. ○ Outright ("fee simple") transfers - An outright transfer to the spouse is one of the forms of transfer that qualify for the marital deduction. An outright transfer to the spouse clearly qualifies for the deduction, whether the interest passes to the spouse by will, by intestate succession, or under some other arrangement. Under any of these arrangements, the transferred assets will be taxed in the spouse's estate (to the extent not consumed, sold, or otherwise disposed of during the spouse's lifetime).

Unlimited Marital Deduction

■ Introduction ○ Until 1982, there was a quantitative limit on the maximum allowable marital deduction, and the primary purpose of the deduction was to provide parity in the tax treatment of married couples in community property and common law jurisdictions. ○ The marital deduction provisions of the Economic Recovery Tax Act of 1981 were based on an altogether different policy: Qualifying transfers from one spouse to the other spouse should not be taxed at all, regardless of the amount transferred. Instead, the tax on such transfers should be deferred until the death of the surviving spouse. The 1981 Act adopted an unlimited marital deduction rule under both the estate tax and the gift tax. Under current law, unlimited amounts of property can be transferred b/t spouses w/out the imposition of either a gift tax or an estate tax. ○ For many couples, the changes made by the 1981 Act eliminated any concerns about transfer taxes in the estate of either spouse. B/c of the unlimited marital deduction, a husband or wife can leave his or her entire estate to the other spouse w/out the imposition of an estate tax. Taxes in the estate of the surviving spouse are not a concern unless the projected value of the survivor's estate is greater than $1.5 million in 2005, $2 million in 2006-2008, or $3.5 million in 2009.

Lapsed Devised

■ Introduction - If a devisee does not survive the T, the devise lapses (i.e., fails). All gifts made by will are subject to a requirement that the devisee survive the T, unless the T specifies otherwise. This is based on a simple proposition: you can't make a gift to a dead person. In nearly all states, however, antilapse statutes have been enacted that, under certain specified circumstances, substitute another beneficiary for the predeceased devisee.

Components of Wills

■ Introduction - It is possible for documents and acts not executed w/ testamentary formalities to have the effect of determining who takes what property belonging to the T. ■ Integration - Under the doctrine of integration, all papers present at the time of execution, intended to be part of the will, are integrated into the will. Very rarely litigated. No pages were added or substituted after the will was executed. This is why clients will often have to initial each page.

Problems In Lux

■ Issues Raised by Lux v. Lux (Supp. V-21) ○ In Lux, when will the trust created by Philomena's will terminate? In its opinion, the ct lists four possibilities. Let's discuss them: #1: When the youngest grandchild alive when the will was executed attains age 21. This construction can be dismissed b/c T didn't name the grandchildren individually. The fact that she referred to "my grandchildren" (rather than the individual grandchildren living when she executed her will) indicates that she did not intend for only those grandchildren then living when the will was executed to take. #2: When the youngest grandchild alive when the T died attains age 21. An argument can be made for this construction. The grandchild alive when the T dies are the only grandchildren that she will have ever known. However, T used the generic term grandchildren; she didn't name any grandchild individually. In a class gift, there is a strong preference to include every one of the class members (T's grandchildren) in the class as long as there is no inconvenience in doing so. #3: When the youngest of all living grandchildren in being at any one time attains age 21. This is the alternative the ct adopted. The first day that every living grandchild is age 21 or older, the class will close. On Eddie's 21st birthday (the youngest then living grandchild), the class will close unless Anthony Jr. has more children b/f Eddie turns 21. This construction adopted by the ct leaves open the possibility for inconvenience, as illustrated by the following two hypos. Hypo 1 - Assume there was no Freddie (a grandchild born after Eddie, the youngest grandchild alive when T died). 18 years after T's death, Eddie (the youngest grandchild) dies at age 20. All the other grandchildren are 21 years old at this time. The class closes now. Hypo 2 - Assume there was no Freddie. 18 years later, when Eddie (the youngest grandchild) is 20 years old, Anthony Jr. announces to the family that his wife is pregnant and that the baby will be born next year. Does the class close when Eddie turns 21 even though another grandchild of T is then in gestation? The answer to this question is unclear. If it does not, the bequest will be delayed by another 21 years, resulting in inconvenience to the adult grandchildren. #4: When the youngest grandchild whenever born attains age 21. The first thing the ct did was dismiss option #4. If the ct had adopted #4, that would have left the class open until it was biologically closed (when Anthony Jr. died). That would defer a distribution to the living grandchildren until Anthony Jr. dies on the possibility that Anthony Jr. could have another child (i.e., a grandchild of T) in his old age.

Judicial Modification of Trusts

■ Judicial Modification and Termination of Trusts ○ Administrative Deviation and Changed Circumstances - Courts have been much more liberal in permitting trustees to deviate from administrative directions in the trust, b/c of changed circumstances, than they have been in permitting modification of distributive provisions. Courts will usually allow for judicial reformation so that a trustee can sell property constituting the trust corpus if the property is declining in value. Should the settlor be permitted to make the trust's terms immutable, i.e., to opt out of the law of modification and termination? Under the Uniform Trust Code, the answer is No. ○ Equitable Deviation From Dispositive Terms and Changed Circumstances - Should changes in circumstances justify a modification to, or deviation from, a distributive provision? Cal. Prob. Code § 15409 authorizes the ct to "modify the administrative or dispositive provisions of the trust or terminate the trust if, owing to circumstances not known to the settlor and not anticipated by the settlor, the continuation of the trust under its terms would defeat or substantially impair the accomplishment of the purposes of the trust." ○ Tex. Property Code § 112.054. Judicial Modification or Termination of Trusts (a) On the petition of a trustee or a beneficiary, a ct may order that the trustee be changed, that the terms of the trust be modified, that the trustee be directed or permitted to do acts that are not authorized or that are forbidden by the terms of the trust, that the trustee be prohibited from performing acts required by the terms of the trust, or that the trust be terminated in whole or in part, if: (1) the purposes of the trust have been fulfilled or have become illegal or impossible to fulfill; or (2) b/c of circumstances not known to or anticipated by the settlor, the order will further the purposes of the trust; or (3) modification of administrative, nondispostive terms of the trust is necessary or appropriate to prevent waste or avoid impairment of the trust's administration; or (4) the order is necessary or appropriate to achieve the settlor's tax objectives and is not contrary to the settlor's intentions; or (5) subject to Subsection (d), (A) continuance of the trust is not necessary to achieve any material purpose of the trust; or (B) the order is not inconsistent w/ a material purpose of the trust and compliance w/ the terms of the trust would defeat or substantially impair the accomplishment of the purposes of the trust. (b) The ct shall exercise its discretion to order a modification or termination under Subsection (a) in the manner that conforms as nearly as possible to the probable intention of the settlor. The ct shall consider spendthrift provisions as a factor in making its decision whether to modify or terminate, but the ct is not precluded from exercising its discretion to modify or terminate solely b/c the trust is a spendthrift trust. (d) The ct may not [terminate the trust as] permitted by Subsection (a)(5) unless all beneficiaries of the trust have consented to the order or [in the case of minors or incapacitated persons] are deemed to have consented to the order.

Lux v. Lux

■ Lux v. Lux (CB 666) ○ Facts - T left her real estate in trust for the benefit of her grandchildren as a class, the corpus of the trust to be distributed when the youngest of her grandchildren reached the age of 21. ○ Issue - Will a class made up of T's grandchildren close b/f all of T's children died? ○ Decision - Yes. Generally a T who leaves a gift to a group, rather than the named individuals, has in mind all those persons, whenever born, who fall w/in the group. However, there is a competing presumption that Ts usually would not intend to keep the class open at the expense of an indefinite delay in the distribution of the estate. The real question is whether or not we should delay distribution until it is impossible for any more grandchildren to be born. While the law presumes that a person is capable of having children for as long as he is alive, we believe that the average T would endorse the view expressed in the Restatement (Third) of Property: When all existing members of a class reach a stated age, considerations of convenience require a distribution, rather than to wait for the highly improbable conception of further class members; the infrequency w/ which a parent has further children after all living children have reached maturity justifies the rule of convenience and causes it to frustrate the unexpressed desires of a T in few, if any, cases. We hold that when the youngest of the then-living grandchildren reaches 21, the trust corpus shall be distributed.

Minor's Property

■ Managing a Minor's Property ○ A guardian of the person has responsibility for the minor child's (ward's) custody and care. See TPC § 767. ○ A minor does not have legal capacity to manage property. Four property management alternatives: (1) Guardianship of the property (TPC § 676; 768) The guardian does not have title to the ward's property. The guardian can only use income from the property to support the ward. Not principal Extensive judicial supervision. The guardianship will terminate when the ward reaches 18; this is undesirable in most cases. (2) Conservatorship More flexible than guardianship. The conservator holds title to the ward's property as a trustee. The conservatorship will terminate when the ward reaches the age of majority; this is undesirable in most cases. (3) Custodianship under the Uniform Transfers to Minors Act (UTMA) The conservator holds title to the ward's property as a trustee. A custodianship must be created during the parent's lifetime. The custodian has discretionary authority to expend custodial property for the minor's benefit w/out getting a ct order. Custodianships are simple to create. Title is held by the custodian "as custodian for (name of minor) under the (name of state) Uniform Transfers to Minors Act." Terminates when minor reaches 21. Useful for modest gifts to minors (under $10,000). (Payments to custodians over $10,000 require ct approval.) (4) Trusts Can be created either by deed (inter vivos trust) or will (testamentary trust). Most flexible arrangement for managing a minor's property - can continue past when minor reaches 21 years of age; terminates when donor believes the child is competent to manage trust assets.

Marriage Effect on Will

■ Marriage After Will Is Executed - If the T executes his will and subsequently marries, a large majority of states have statutes giving the spouse her intestate share, unless it appears from the will that the omission was intentional or the spouse is provided for in the will or by a will substitute w/ the intent that the transfer be in lieu of a testamentary provision. Where the spouse omitted from a premarital will does not take an intestate share b/c mentioned in the will, the spouse may take a "forced share" of the decedent's estate, which is given to all spouses whether intentionally or unintentionally disinherited. ○ UPC § 2-301. Entitlement of Spouse; Premarital Will - If a T's surviving spouse married the T after the executed his [or her] will, the surviving spouse is entitled to receive, as an intestate share, no less than the value of the share of the estate he [or she] would have received if the T had died intestate, as to that portion of the T's estate, if any, that is neither devised to a child of the T who was born b/f the T married the surviving spouse and who is not a child of the surviving spouse, unless: (1) it appears from the will or other evidence that the will was made in contemplation of the T's marriage to the surviving spouse; OR (2) the will expresses the intention that it is to be effective notwithstanding any subsequent marriage; OR (3) the T provided for the spouse outside the will and the intent that the transfer be in lieu of a testamentary provision is shown by the T's statements or is reasonably inferred from the amount of the transfer or other evidence. Johanson: This is the important exception! ○ This statute effectively revokes the will to the extent of the spouse's intestate share. The pretermitted spouse is entitled to her intestate share of the deceased spouse's probate estate only, not of his nonprobate asset. ○ Texas does not have a pretermitted spouse statute b/c it is a community property state, which means that the surviving spouse will keep at least his/her community share upon the death of the other spouse.

Mental/Testamentary Capacity

■ Mental Capacity ○ To execute a valid will, a testator must have mental capacity. Mental capacity is a legal, not a psychiatric, concept. The requirements to show mental capacity are minimal. To establish mental capacity, T need only be capable of knowing and understanding in a general way: (1) the nature and extent of his property, (2) the natural objects of his bounty, (3) the disposition that he is making of that property, AND (4) how these elements relate to one another so that he can form an orderly plan for the disposition of the property. In other words, T must be capable of understanding the significance of the act of executing the will. But when you read the cases, you get the sense that something else might be going on than the four point test. ○ The test is one of capability, not one of actual knowledge. The T need not be of average intelligence, but the T must have mind and memory relevant to the four elements of capacity. ○ It may be malpractice for a lawyer to fail to document mental capacity in circumstances where a challenge to the will could reasonably be anticipated.

Mistake of Contents

■ Mistake as to Contents of Will - Suppose it is contended that a provision was mistakenly omitted from the will, or that a provision contained in the will is not what the T intended. Is parol testimony admissible to show the existence of the mistake and what the T intended to provide had the mistake not been made? ○ In general, the answer is no, for two reasons. First, this was the will that T signed, and there is a strong presumption that T read the will and knew and understood all of its contents, including each provision thereof. Second, the cts are understandably reluctant to allow property to pass, not pursuant to the terms of the duly executed will, but on the basis of oral testimony. A proceeding to correct a mistake in a will "cannot be allowed or sustained. Admit this doctrine and you might as well repeal the statute requiring wills to be in writing. Witnesses would then make wills, and not testators." Goode v. Goode (Mo. 1856).

Negative Disinheritance in Texas

■ Negative Disinheritance - TPC § 58(b) provides that a T can (1) disinherit an heir and (2) direct the disposition of property or an interest passing under the will or by intestacy. See also assignment #8 supra; CB 77-78.

No-Contest Clauses

■ No-Contest/In Terrorem Clauses - provide that a beneficiary who contests the will shall take nothing, or a token amount, in lieu of the provisions made for the beneficiary in the will. ○ A no-contest clause is designed to discourage will contests. ○ For a no contest clause to be effective, the will must make a "think about it" gift to potential contestants. Otherwise, the no-contest clause provides no disincentive to discourage potential contestants from challenging the will. The T must put enough money at risk so that the potential contestants have something to lose if they challenge the will. ○ Conflicting policies implicated by no-contest clauses: On the one hand, enforcement of a no-contest clause discourages unmeritorious litigation, family quarrels, and defaming the reputation of the T. On the other hand, enforcement of a no-contest clause could inhibit a lawsuit proving fraud, forgery, or undue influence, and nullify the safeguards built around the testamentary disposition of property. ○ Majority position - Texas, UPC § 2-517 - enforce a no-contest clause unless there is probable cause for the contest. "No Texas case has ruled directly on the probable cause exception to enforcement of no-contest clauses, but the exception has been mentioned favorably in dictum, and Texas cts probably would adopt the exception." Gunter v. Pogue (Tex. App. 1984). ○ Minority position - (NY) enforce a no-contest clause unless the contestant alleges forgery or subsequent revocation by a later will or codicil, or the beneficiary is contesting a provision benefiting the drafter of the will or any witness thereto. These jurisdictions believe a probable cause exception encourages litigation and shifts the balance unduly in favor of contestants. ○ Florida—No-contest clauses are unenforceable. Why is this the case when there are so many wills drafted in Florida? It is fairly clear that they want judges and juries to decide if they have a meritorious claim

Non-marital children

■ Nonmarital Children (rights under Texas law) ○ The parent-child relationship extends to every parent and child, regardless of the marital status of the parents. ○ Under the Uniform Parentage Act (UPA), the parent-child relationship extends to every parent and child, regardless of the marital status of the parents. When the father and mother do not marry or attempt to marry, a parent-child relationship is presumed to exist between a father and a child if (1) while the child is less than age two, the father lives in the same household as the child and openly holds out the child as his natural child, or (2) the father acknowledges his paternity in a writing that is filed w/ an appropriate ct or administrative agency. UPA §§ 204, 301-05. ○ Inheritance from Mother and Maternal Kindred - TPC § 42(a) - For the purpose of inheritance, a child is considered the child of his biological or adopted mother. The child and the child's issue may inherit from his mother and from his maternal kindred, both descendants, ascendants, and collaterals in all degrees, and likewise the mother and maternal kindred may inherit from the child and child's issue. See also Tex. Family Code §§ 160.201 (Establishment of Parent-Child Relationship). ○ Inheritance from Father and Paternal Kindred - TPC § 42(b) - For the purpose of inheritance, a child is the child of his biological father if: (1) the child is born under circumstances described by Family Code § 160.201 (see below); or (2) the child is adjudicated to be the child of the father by ct decree; or (3) the child was adopted by his father; or (4) the father executed an acknowledgement of paternity. (5) As a fifth way of establishing paternity, a person claiming to be a biological child of the decedent, who is not otherwise presumed to be a child of the decedent, or a person claiming inheritance through a biological child of the decedent, who is not otherwise presumed to be a child of the decedent, may petition the probate ct for a determination of paternity. If the ct finds by clear and convincing evidence that the purported father was the biological father of the child, then the child is treated as a child of the decedent for inheritance purposes, and the child and his issue may inherit from the child's paternal kindred, both descendants, ascendants, and collaterals in all degrees, and they likewise they may inherit from the child and his issue.

Order of Signing

■ Order of signing (note 5, p.208 - 209) ○ In re Colling and other cases have held that the testator must sign first. (Connecticut) Attesting witnesses must sign after the testator signed. Otherwise, the witness would not be attesting to anything. ○ Johanson: Most cts today apply the "contemporaneous transaction doctrine," under which the precise order of signing does not matter so long as the parties' signings together can reasonably be viewed as constituting a single contemporaneous transaction. See Waldrep v. Goodwin (Ga. 1973) (upholding a will if the testator and the witnesses all sign while assembled in the same room, regardless of the order of signing). However, this is not the standard practice—you should always get the testator to sign the will first. However, if the witnesses sign and then the testator signs two days later, a ct would not view the signings as part of a contemporaneous transaction, and the will would be invalid.

Partial Revocation by Physical Act

■ Partial Revocation by Physical Act - UPC § 2-507 authorizes partial revocation by physical act. Texas does not recognize partial revocation by physical act. TPC § 63, Leatherwood v. Stephens (Supp. IV-30). If partial revocation is not recognized, the will must be probated in the form in which it was originally executed if the original language can be ascertained. if we are in Texas? See TPC § 63; Leatherwood v. Stephens (Supp. IV-30). No. Texas does not allow partial revocation by physical act. TPC § 63 states: "No will in writing, and no clause thereof or devise therein, shall be revoked, except by a subsequent will, codicil, or declaration in writing, executed w/ like formalities, or by the T destroying or canceling the same [i.e., the will as a whole], or causing it to be done in his presence." The Leatherwood ct interpreted the phrase "the same" to refer only to the will as whole, and not to a "clause thereof or devise therein." If the ct gave effect to the crossouts as partial revocations, the T would in effect be making a new gift, and the only way a T can make a new will or a new gift is by duly executing a new will or codicil. Under Texas law, cts interpret the will as it was originally written. We do not give effect to the crossouts, and we do not give effect to the interlineations

Posthumous Children

■ Posthumous children - Where, for purposes of inheritance or of determining property rights, it is to a child's advantage to be treated as in being from the time of conception rather than from the time of birth, the child will be so treated if born alive. ○ Most states' cts have established a rebuttable presumption that the normal period of gestation is 280 days. If the child claims that conception dated more than 280 days b/f birth, the B/P is usually upon the child. The Texas Family Code establishes a rebuttable presumption that a child born to a woman w/in 300 (rather than 280) days after the death of her husband is a child of the deceased husband. ○ TPC § 41(a) provides that an heir must be "in being" (not merely in gestation) at the time of the intestate's death in order to inherit from him unless the person is a child or lineal descendant of the intestate (in which case the child / lineal descendant can inherit if it was conceived b/f the intestate's death). Compare UPC § 2-108, which provides that "[a]n individual in gestation at a particular time is treated as living at that time if the individual lives 120 hours or more after birth." Unlike TPC § 41(a), UPC § 2-108 draws no distinction based on whether or not the person is a child/lineal descendant of the intestate.

Precatory Language

■ Precatory Language - In a surprisingly large number of cases, the T expresses a "wish," "hope," or "recommendation" that the property devised should be disposed of by the devisee in some particular manner, but this language does not clearly indicate whether the T intends to create a trust (w/ a legal duty to so dispose of the property) or merely a moral obligation unenforceable in ct. If the language indicates the latter, it is called precatory language. And sometimes cts speak of precatory trusts, meaning unenforceable dispositions of this sort. Typical language raising this issue is a bequest "to A w/ the hope that A will care for B" or a devise of land "to C and it is my wish and desire that D should be able to live on the land during her life." ○ To fathom the T's intent, each will must be construed in accordance w/ the language used in each particular case in light of all the circumstances. The result: much litigation. ○ Drafting Lesson - Do not put recitals in testamentary instruments or, if you must, be clear in drafting: "I wish, but do not legally require, that C permit D to live on the land."

More on Pretermitted Children

■ Pretermitted Child Statutes ○ Pretermitted child statutes, which have been enacted in almost all states, follow one of two patterns. Some statutes protect only children born (or adopted) after execution of the will. E.g., UPC § 2-302. Other statutes operate in favor of children alive when the will was executed as well as afterborns. E.g., TPC § 67. Under these latter statutes, the failure to name all of the T's living children in the will invites a challenge under the pretermitted child statute. ○ Will-Drafting Problems Raised by Statutes that Apply to Afterborns and Existing Children In a jurisdiction where the pretermission statute includes children born b/f the execution of the will, what provision should be included in a will so as to cut out a child born out of wedlock w/out mentioning the child by name or suggesting his existence? Ct have been sticklers in requiring the T to indicate clearly an intention to disinherit such a child, either by express words or necessary implication. A person who wants to disinherit a child born out of wedlock would be wise to transfer his assets into a revocable inter vivos trust that does not provide for, or mention, the child. Since Texas's pretermission statute applies only to afterborn children, this is not an issue here. ○ TPC § 67. Pretermitted Child (S 7) The pretermitted child statute is actually three separate statutes: TPC § 67(a)(1)(A) applies if the T had one or more children living when he executed his last will and did not provide for them. In this case, the pretermitted child takes his intestate share (pursuant to TPC § 38) of the portion of the T's separate and community estate that the child would have been entitled to if the T had died intestate w/out a surviving spouse owning only that portion of his estate not devised to the parent of the pretermitted child. Thus, the pretermitted child statute does not apply if the T devises his entire estate to the pretermitted child's parent. See also TPC § 67(a)(2) infra. TPC § 67(a)(1)(B) applies if the T had one or more children living when he executed his last will and did provide for them. In this case, the portion of the T's estate to which the pretermitted child is entitled is limited to the disposition that the T made to his children. TPC § 67(a)(1)(B)(i). The pretermitted child receives the share of the T's estate, as limited by TPC § 67(a)(1)(B)(i), as he would have received if the T had included him w/ the other children who were provided for, and given an equal share of benefits as to each such child. TPC § 67(a)(1)(B)(ii). Only the gifts to the children who were provided for get reduced to make up for the share to which the pretermitted child is entitled. No other beneficiary's gift is reduced. TPC § 67(a)(2) applies if the T had no child living when he executed his last will. In this case, the pretermitted child takes his intestate share (pursuant to TPC § 38) of the portion of the T's separate and community estate that the child would have been entitled to if the T had died intestate w/out a surviving spouse owning only that portion of his estate not devised to the parent of the pretermitted child. Thus, the pretermitted child statute does not apply if the T devises his entire estate to the pretermitted child's parent. See also TPC § 67(a)(1)(A).

Privity of K/Prof Responsibility

■ Privity of Contract as a Defense ○ If privity of K applies, the attorney's duty runs only to the party who contracted for the lawyer's services. ○ Majority approach - Simpson v. Calivas (N.H., CB 49-54) - Lack of contractual privity is no defense: The lawyer drafting T's will owes a duty to T's intended beneficiaries and can be liable to them in malpractice (tort). Reasoning - Harm to the intended beneficiaries caused by the attorney's errors is foreseeable. The S/L within which the intended beneficiaries may bring a malpractice action against T's attorney does not begin to run until T's death. (Heyer v. Flaig, Supp. I-3). ○ Minority approach - Noble v. Bruce (Md.) (Supp. I-5) and Barcelo v. Elliott (Tex.) (Note 2 on Supp. I-4) - P's lack of contractual privity w/ the attorney is a good defense to a malpractice action. 3 Reasons: Rule protects duty of loyalty to the client Privity of K requirement reduces the danger of conflicting duties (i.e., to clients and potential beneficiaries). The majority rule (that privity of K is no defense) imposes potentially limitless obligation/risk on the lawyer. Note that the estate has suffered no economic loss b/c of the lawyer's error, so it has no standing to sue. Bypass trust first introduced. Tax shelter that one spouse can fund to avoid estate stacking ○ Note: Privity defense NOT upheld when it is executor making claim against lawyer for damage to the estate. Executor has cause outside that of the beneficiaries In the states that have repudiated the privity rule, the question arises, who qualifies as an intended beneficiary? Majority Rule - In most states the answer is anyone who can show by competent evidence that he or she was an intended beneficiary of the T. Minority Rule - In a minority of states that includes Florida, however, the P's status as an intended beneficiary must be clear from the face of the will.

Probate of Lost Wills

■ Probate of Lost Wills: ○ In the absence of statute, a will that is lost, or is destroyed w/out the consent of the T, or is destroyed w/ the consent of the T but not in compliance w/ the revocation statute, can be admitted into probate if its contents are proved. A lost will can be proved by a copy in the lawyer-drafter's office or by other clear and convincing evidence. Ex: A Xerox copy of the lost will probate the lost will, and use the Xerox copy as evidence of the contents of the lost will. ○ If we have duplicate wills (i.e., not a single will and copies), one kept by the lawyer and one given to the client, and if after the client dies we can't locate the will that was in the client's possession, the presumption that the will was revoked by physical act is operative. If the facts are reversed, where we find the duplicate in the client's possession but we can't find the one in the lawyer's possession, again there is no presumption of revocation by physical act. ○ TPC § 85 - Proof of Written Will Not Produced in Court - The proponent of the will must prove: (1) due execution of the will (as in any other case); How do you prove this? In TX, you only need one attesting witness. (2) the cause of non-production (must overcome the presumption of revocation that may have arisen); AND (3) the contents of the will (must be substantially proved by the testimony of a credible witness who has read it or heard it read). *Note—every state has a statute governing the probate of wills not there. But you always have to meet a fairly stringent test.

Property Subject To Elective Share

■ Property Subject to the Elective Share ○ The original elective share statutes gave the surviving spouse a fractional share (now usually ⅓) of the decedent's estate, which implicitly meant the probate estate. With the proliferation of nonprobate transfers (see assignments #27-29 above), should the elective share be extended to some or all nonprobate transfers? In certain cases, unless the surviving spouse's (W's) forced share reaches the decedent spouse's (H's) nonprobate transfers, it is possible for H to achieve a near disinheritance of the W while still leaving her all of his probate estate. ○ In this "jurisdiction"—we will go by the original UPC elective share statute (1969). ○ Judicial Responses to Whether Nonprobate Transfers May Be Reached by the Elective Share Sullivan v. Burkin (Mass. 1984, CB 439) Facts - During his lifetime, H created a trust under which he transferred real estate to himself as sole trustee. When H died, he left a will intentionally disinheriting his estranged W. W invoked her right to take an elective share. Issue - Should the assets held in H's inter vivos trust be considered as part of H's estate in determining W's elective share of the estate? Decision - No. In this case, the assets held in H's inter vivos trust should not be considered as part of his estate in determining W's elective share of the estate. W obtained no right to share in the assets of the trust when she made her election. However, for any inter vivos trust created or amended after the date of this opinion, the estate of the decedent, for purposes of the surviving spouse's elective share, shall include the assets of an inter vivos trust created by the deceased spouse during the marriage over which the deceased spouse alone had a general power of appointment, exercisable by deed or by will. Bongaards v. Millen (Mass. 2003, CB 439) Facts - In 2003, the Supreme Judicial Ct of Massachusetts faced some of the questions left open by its decision in Sullivan. W was the life tenant of a trust established by her mother. Under the terms of the trust, W had a limited power of appointment over the remainder, and during her life she could have terminated the trust, whereupon the entire corpus would have been paid to her. W never exercised her right to terminate. Instead, 10 days b/f her death, W appointed the trust to her sister Nina. Having been left out of W's will, H claimed an elective share against her estate. Inasmuch as the trust corpus would have been treated as marital property subject to equitable division on divorce, H argued that it should be included w/in W's estate for purposes of calculating his elective share. Issue - Should assets held in an inter vivos trust created by a third party for the benefit of the (now) deceased spouse be considered as part of the deceased spouse's estate in determining the surviving spouse's elective share of the estate? Decision - No. The trust property at issue here is not subject to H's elective share for the simple reason that the trust was created by a third party, W's mother, and not by W. The rule announced in Sullivan applies only to assets of a trust created during the marriage by the deceased spouse. A TP has no obligation to support someone else's spouse, and property owned by a TP has never been part of someone else's spouse's elective share "estate." Thus, when a TP places that property in a trust, the property is not being removed—artificially or otherwise—from that elective share "estate." The property was never in that "estate" in the first place.

Purpose of Formalities

■ Purpose of Formalities ○ Ritual function - The formal requirements of transfer help the ct determine whether the T's statements were deliberately intended to effectuate a transfer. Dispositive effect should not be given to statements that were not intended to have that effect. The formalities of transfer t/f generally require the performance of some ceremonial for the purpose of impressing the T w/ the significance of his statements and thus justifying the ct in reaching the conclusion, if the ceremonial is performed, that they were deliberately intended to be operative. ○ Evidentiary function - The formal requirements of transfer may increase the reliability of the proof presented to the ct. Evidentiary difficulties are entitled to especially serious consideration in prescribing requirements for testamentary transfers b/c the issue of the validity of the transfer is almost always raised after the T is dead, and t/f the main actor is unavailable to testify, or to clarify or contradict other evidence concerning his all-important intention. The requirements of transfer emphasize the purpose of supplying satisfactory evidence to the ct. ○ Protective function - Some of the formal requirements have the prophylactic purpose of safeguarding the T, at the time of the execution of the will, against undue influence or other forms of imposition. This protective function is difficult to justify under modern conditions. In the period prior to the Statute of Frauds, wills were usually executed on the death bed. Ts in this unfortunate situation may need special protection against undue influence. However, under modern conditions wills are executed by most Ts in the prime of life and in the presence of attorneys, and t/f the Ts do not need protection. ○ Channeling function - Will formalities create a safe harbor that assures the T that his wishes will be carried out if he complies w/ the formalities. Much as it is easier to determine whether a coin is a quarter if every quarter is the same size and has the same markings on it, it is easier to determine a person's wishes at death if they are channeled into a will w/ standardized formalities. ■ The most basic formalities for an attested will are: (1) writing, (2) signature by the T, (3) attestation by witnesses.

Recommended Will Execution

■ Recommended Method of Executing a Will - In executing a will, a lawyer should not rely on the formalities required in the client's home state. The client's will may be offered for probate in another state. Under the usual conflict of laws rules, the law of the decedent's domicile at death determines the validity of the will insofar as it disposes of personal property. Under the situs rule, law of the state where real property is located determines the validity of a disposition of real property. ○ Most states have statutes recognizing as valid a will executed w/ the formalities required by: (1) the state where the T was domiciled at death, (2) the state where the will was executed, or (3) the state where the T was domiciled when the will was executed. See, e.g., UPC § 2-506. However, theses statutes, where enacted, are not all uniform, and sometimes contain ambiguities and internal conflicts. Thus, a lawyer should draft wills so that there is no need to resort to such an act. Hence, the careful lawyer in our highly mobile society drafts a will and has it executed in a manner that satisfies the formal requirements in all states. ○ For the recommended steps to executing a will, see CB 216-18, S 9. If this procedure is followed, the instrument will be valid in all states, no matter in which state the T signed the will, or is domiciled at the date of the will's execution or at death, or where the real property is located. If all these steps are not followed to the letter, in one or more states the will may be either invalid or extremely difficult to prove as a properly executed will.

Republication By Codicil

■ Republication by Codicil - Under the doctrine of republication by codicil, a will is treated as re-executed (republished) as of the date of the most recent codicil, whether or not the codicil expressly republishes the prior will. (unless the effect of so treating it would be inconsistent with the testator's intent) ○ Updating the original will in this manner can have important consequences. For example, suppose that the T revokes a first will by a second will and then executes a codicil to the first will. The first will is republished, and thus the second will is revoked by implication. ("squeezed out") ○ A codicil can republish and thereby give testamentary effect to a will that was invalidated because of mental incapacity or undue influence, but a codicil cannot republish an instrument never duly executed with the required formalities. ○ The fundamental difference b/t republication by codicil and the doctrine of incorporation by reference (see below) is that republication applies only to a prior validly executed will, whereas incorporation by reference can apply to incorporate into a will language or instruments that have never been validly executed.

Self Settled Asset Protection Trusts

■ Self-Settled Asset Protection Trusts - In most states (including Texas), you cannot shield your assets from creditors by placing them in a trust for your own benefit. Your creditors always have recourse against your entire interest in a self-settled trust, even if the trust is spendthrift. Creditors can reach the maximum amount that the trustee could pay the settlor or apply for the settlor's benefit. ○ Why is protection from creditors available only to recipients of inherited wealth and not also to persons who earn wealth and then create a self-settled trust? The traditional answer is that protective justification for allowing a donor to insulate a gift from the claims of the donee's creditors collapses when the donor and the donee are one in the same. ○ Suppose that state were to authorize a self-settled trust that insulated the trust fund from the settlor's creditors. Would not such an innovation attract trust funds to the state? Believing that the answer is Yes, a number of jurisdictions—both offshore and now a handful of domestic states too—have enacted statutes that validate self-settled asset protection trusts. Such trusts can be created in these jurisdictions by people who live elsewhere, but to increase the likelihood that the settlor receives the desired choice of law, settlors are advised to appoint as trustee a bank or trust company located in the state whose law is being invoked. But whether the choice of law clause will be given effect by a ct in a state that does not recognize self-settled asset protection trusts is still unclear. The fear of ruinous liability drives the competition over self-settled asset protection trusts

Ascendants and Collaterals

■ Shares of Ascendants and Collaterals - When the intestate decedent is survived by at least one descendant, the decedent's ascendants and collaterals do not take. ○ In the case where one parent but no collateral kindred survive the decedent, after deducting the surviving spouse's share, the rest of the estate passes to the surviving parent under both the UPC and the TPC. UPC § 2-103(2); TPC § 38(a)(2). ○ In the case where the intestate decedent is survived by (1) one or both of his parents and (2) by one or more sibling(s), the disposition of the decedent's property differs under the UPC and the TPC. Under the UPC, after deducting the surviving spouse's share (if any), all of the intestate decedent's property goes to the surviving parent, UPC § 2-103(2). In Texas, the surviving parent takes ½ of the estate, and the other ½ passes to the brothers and sisters of the decedent and their descendants by representation. TPC § 38(a). ○ If there is no surviving spouse and no surviving parent, the decedent's heirs will be either more remote ancestors (e.g., grandparents) or collateral kindred (e.g., siblings, cousins). In this situation, the descendants of any deceased remote ancestors or collateral kindred take by representation in the manner discussed above. See, e.g., UPC § 2-106(c), which is substantially identical to UPC § 2-106(b) and calls for representation per capita at each generation; see also TPC § 43 (setting out modern per stirpes distribution scheme).

Simultaneous Death

■ Simultaneous death - When a person dies simultaneously w/ his heir or devisee, does the heir or devisee succeed to the person's property? ○ The original Uniform Simultaneous Death Act (USDA), drafted to deal w/ this problem, provided that if "there is no sufficient evidence" of the order of deaths, the beneficiary is deemed to have predeceased the donor. Thus, neither inherits from the other. Although the USDA was at first thought to offer an elegant solution to the simultaneous death problem, the cts were soon faced w/ the ghastly interpretive question of what constitutes "sufficient evidence" of the order of deaths. B/c of the unseemingliness of this question, and the difficulty inherent in trying to answer it, the USDA was amended in 1991 to require survivorship by 120 hours (5 days). This approach parallels the approach taken by both the UPC (UPC §§ 2-104 and 2-702) and Texas (TPC § 47), which provide that an heir or devisee or life insurance beneficiary who fails to survive by 120 hours is deemed to have predeceased the decedent. Under UPC §§ 2-104 and 2-702, a claimant must establish survivorship by 120 hours by clear and convincing evidence, not merely by some "sufficient evidence" as provided in the original USDA. TPC § 47 does not require proof of survival to be by "clear and convincing" evidence. TPC § 47: Requirement of Survival by 120 Hours (a) Survival of Heirs (b) Disposal of Community Property • The purpose of TPC § 47(b) is to insure that, if H and W die w/in 120 hours of each other, in an intestacy situation H's ½ community share will pass to his natural kin, and W's ½ community share will pass to her natural kin. • Of course, if H and W have the same natural kin (i.e., children by their marriage), the 120-hour rule produces the same result as the old USDA—the entire community estate passes to the children. • If, however, the spouses have different natural kin, the USDA produces an almost lottery-like result, depending on which spouse died first. • TPC § 47(b) treats the situation (H and W dying w/in 120 hours of each other) as though the community property is partitioned into separate property, making TPC § 38(a), not TPC § 45, the statute that controls determination of the intestate shares. • The purpose of TPC § 47(b) is to insure that, if H and W die w/in 120 hours of each other, in an intestacy situation H's ½ community share will pass to his natural kin, and W's ½ community share will pass to her natural kin.

Spendthrift Trust

■ Spendthrift Trusts - The spendthrift trust provides a means of making property available to the beneficiary, but not the beneficiary's creditors. A beneficiary of a spendthrift trust cannot voluntarily alienate her interest. Nor can her creditors reach it in the trust. This is true even if the trust provides for mandatory payments to the beneficiary. A spendthrift trust is created by imposing a disabling restraint upon the beneficiaries and their creditors. ○ Illustration - T devises property to X in trust to pay the income to A for life and upon A's death to distribute the property to A's children. A clause in the trust provides that A may not transfer her life estate, and it may not be reached by A's creditors. By this trust A is given a stream of income that A cannot alienate and that her creditors cannot reach. ○ Policy Issue: Restraint on Alienation and Control by the Dead Hand of the Past - The spendthrift trust is a stark exception to American cts' general policy against restraints on the alienation of property. Said another way, the spendthrift trust does not comport w/ the policy in favor of free transferability. The restraint on the beneficiary's right to alienate arises from the settlor's right to condition the terms of her transfer. Accordingly, the underlying policy issues are whether to allow the reach of the dead hand, and if so, how far. Not surprisingly, the spendthrift trust—and its endorsement of the dead hand's reach—has been sharply criticized. ○ The spendthrift trust is today recognized throughout the U.S.

Standing to challenge will/Drafter Gifts

■ Standing - TPC § 10 - Any person w/ an economic interest in the will may contest the will. ○ Only parties adversely affected by the will (e.g., intestate heirs or beneficiaries under a previous will) have standing to contest the will. ○ A creditor cannot contest a will b/c the creditor has a claim against the estate regardless of whether or not the will is probated (i.e., whether the decedent's property passes by will or by intestacy). ■ Devises to Attorney-Drafters - TPC § 58B - A devise in a will to an attorney who prepares, or supervises the preparation of, the will, or an employee of such attorney, is void, unless the attorney is: (1) the T's spouse, (2) an ascendant or descendant of the T, or (3) related w/in the third degree of consanguinity or affinity to the T. ○ In other words, a devise to the drafter of a will is void unless the drafter and the T are related w/in the third degree.

Statute of Limitations of Will Contests

■ Statute of Limitations on Will Contests - TPC § 93 - Any interested person may contest a will w/in 2 years after such will has been admitted to probate, except that any interested person may sue to cancel a will for forgery or fraud w/in 2 years after the discovery of such forgery or fraud.

Tax Consequences of Powers

■ Tax Considerations for Powers ○ Introduction Powers of appointment are extensively employed in trusts not only to provide flexibility or give the donee control over the trust property, but also to obtain tax benefits. The federal tax laws provide that the holder of a general power of appointment is treated as the owner of the property. The income from the property is taxable to the donee. If the donee exercises the power during life, the property transferred to others by exercise is subject to gift taxation. If the donee exercises or releases the power under circumstances that would have resulted in taxability if the property had been the donee's own (such as releasing a general power and reserving a life estate), estate tax liability results. If the donee dies holding a general power, the property is included in the donee's gross estate for FET purposes. A donee of a general power of appointment is treated as owner under the GST tax. On the other hand, property subject to a special power of appointment is not treated as owned by the donee. To avoid estate taxation at the death of the donee, while giving the donee significant control over the trust property, you should create a special power of appointment and not a general power

Texas Community Prop

■ Texas Community Property (Supp. II-4) ○ (I) INTRODUCTION - Texas is a community property state. (A) SEPARATE PROPERTY - A spouse's separate property includes: (i) property owned by the spouse b/f marriage; (ii) property acquired by the spouse during marriage by gift, devise, or descent; and (iii) the recovery for personal injuries sustained by the spouse during marriage (but not any recovery for medical expenses, lost wages, or loss of earning capacity, as these compensate the community estate). (1) Community property can be partitioned into separate property. By a written agreement signed by both parties, spouses can partition existing community property, and also community property to be acquired in the future, into equal or unequal shares of separate property. (2) Tracing principle - Assets purchased w/ separate funds (or w/ the proceeds from the sale of separate assets) are themselves separate property. (3) Conflict of laws separate property Marital ownership of an asset is determined under the laws of the state in which the couple was domiciled at the time the asset was acquired. Ownership is not altered when the couple thereafter moves to another jurisdiction. The result is that devising this property in a will is not subject to the new domiciled state but the old acquired state (4) "Quasi-community property" - In a divorce proceeding, property acquired in another state, which would have been classified as community property if acquired under the same circumstances while the owner was domiciled in Texas, is treated the same as community property for purposes of equitable division. (B) COMMUNITY PROPERTY - Community property consists of all property, other than separate property, acquired by either spouse during marriage. (1) In Texas, income from separate property is community property. Sometimes called the "Spanish rule," this is also the rule in ID and LA. The other community property states (NM, AZ, CA, NV, WA, and WI) apply the "American rule," under which the income from separate property is separate property. (2) The community presumption. All property is presumed to be community property. The burden of proving that a particular asset is separate property is on the party so contending. Separate ownership must be established by clear and convincing evidence. Kyles - if a claim is made of SP then the claiming party must show exactly what assets are SP and which are CP otherwise the assumption is that all property is CP

Texas Homestead

■ Texas Homestead Laws (Supp. II 26-28) ○ (1) Constitutional definitions of homestead. The basic rules governing the homestead right are set forth in Tex. Const. art. 16, §§ 50-52. (a) Rural homestead: 200 Acres. There is no dollar limit on the value of the rural homestead, only the acreage limit. (b) Urban homestead: 10 Acres. ○ (2) Consequences of classification as homestead. (a) Freedom from creditors' claims during lifetime. (b) Both spouses must join in a lifetime conveyance of the homestead. (c) Homestead passes at death free of creditors' claims in some cases. (d) "Probate homestead": right to occupy the homestead. (This is the most important right given by homestead classification.) If the decedent was survived by his or her spouse or by minor children, the spouse and/or children have the exclusive right to occupy the homestead for as long as they choose to occupy it. When the children are no longer minors, their homestead right of occupancy ceases. The right to occupy given by the probate homestead is independent of title. Even if the property has been devised to some other person, such other person takes title subject to the surviving spouse's homestead right of occupancy. Also, the homestead right is not extinguished by remarriage. TPC §§ 283-284. (e) Exemption from real property ad valorem taxes. By legislative enactment, property that qualifies as a homestead is partially exempt from local ad valorem taxes. ○ (3) Homestead protection attaches when land is "designated" as homestead. However, this does not mean that the owner must make a formal declaration; rather, it is a question of intent. ○ Hill v. Hill (Tex. App. 1981, Supp. II-31) - The homesteader (analogous to life tenant) must pay real property taxes and mortgage interest. The fee simple owner(s) (analogous to remaindermen) are responsible for casualty insurance premiums and mortgage principal.

Elective Share

■ The Elective Share and Its Rationale ○ All but one (Georgia) of the separate property states give the surviving spouse, in addition to support rights (see assignments #5-7 above), an elective share (sometimes called a forced share) of the decedent's property. Traditional statutes provide the surviving spouse w/ an election: (1) The spouse can take under the decedent's will, or (2) the spouse can renounce the will and take a fractional share of the decedent's estate. ○ The primary policy justification for the elective share is that the surviving spouse contributed to the decedent's acquisition of wealth and deserves to have a portion of it. On this account, the elective share implements the partnership model of marriage. A second but narrower policy justification is to provide the surviving spouse w/ adequate support. ○ Although both the partnership and support theories justify the existence of an elective share, they are often in tension when it comes to designating the elective share that is to be implemented in practice. Ex: The partnership theory militates toward awarding the surviving spouse ½ of the decedent's property acquired during the marriage, whereas in many cases the support theory justifies a smaller share but would apply it to all the decedent's property. Ex: Suppose H dies leaving a will that excludes W. Then, b/f W exercises her right of election, but b/f the period for doing so runs out, W dies. Should W's personal representative be allowed to renounce H's will and take a forced share? Under the support theory, the answer should be No; after her death W no longer needs support. In most states, and under the UPC, the answer is No. Under the partnership theory, however, the answer should be Yes; W is entitled to direct the disposition of her share of the property accumulated in the marital partnership. Ex: Can the elective share be satisfied w/ a life interest in property held in trust? Under the support theory, the answer should be Yes. Under the partnership theory, the answer should be No. The law is trending toward answering No in this situation, but for many years the answer was Yes, and in some jurisdictions the answer is still Yes. ○ To the extent that the primary contemporary policy underlying the elective share is to reward the surviving spouse's contribution to the economic partnership that is the marriage, in most states the elective share only roughly implements that policy. The traditional elective share gives the surviving spouse a fixed fractional share (usually ⅓) of the decedent's estate regardless of the length of the marriage.

Non-Deductible Terminable Interest Rule

■ The Nondeductible Terminable Interest Rule ○ For an interest to qualify for the marital deduction, five requirements must be met. (1) The decedent must have been survived by his or her spouse. (2) The surviving spouse must be a citizen of the U.S. or the property must pass to a qualified domestic trust. (3) The value of the interest deducted must be includible in the decedent's gross estate. (4) The interest must pass from the decedent to the surviving spouse. (5) The interest must be a deductible interest. More precisely, it must not be a "nondeductible terminable interest" w/in the meaning of § 2056(b). ○ From this it does not follow that any interest that will be taxed in the surviving spouse's estate qualifies for the marital deduction. To qualify, the interest must not run afoul of the nondeductible terminable interest rule: Where, on the lapse of time, on the occurrence of an event or contingency, or on the failure of an event or contingency to occur, an interest passing to the surviving spouse will terminate or fail, no deduction shall be allowed under this section w/ respect to such interest— (A) if an interest in such property passes or has passed from the decedent to any person other than such surviving spouse (or the estate of such spouse); and (B) if by reason of such passing such person (or his heirs or assigns) may possess or enjoy any part of such property after such termination or failure of such interest so passing to the surviving spouse. [IRC § 2056(b)(1)]. Absent special exception, the clearest example of a terminable interest is a life estate given to a surviving spouse, w/ the remainder to pass to other persons on the spouse's death. On the occurrence of an event or contingency—the spouse's death—the interest will terminate or fail. Upon such termination, an interest in the property—the remainder interest—will pass from the decedent to persons other than the surviving spouse or her estate. By reason of such passing, the remaindermen may possess or enjoy the property on the termination of the spouse's life estate.

Cancellation

■ Thompson v. Royall (CB 255) - A will cannot be revoked simply by writing words purporting cancellation on the back of the will. ○ Facts - A will w/ words written on the back of the manuscript cover purporting cancellation of the will was challenged when it was admitted to probate. ○ Issue - Is writing words of cancellation on the back of the manuscript cover sufficient to truly effect a revocation of that will? ○ Decision - No. If written words are to be used for the purpose of revoking a will, they must be so placed on the will as to physically affect the written portion; merely writing on blank parts of the paper is not enough. It also must be done in the testator's handwriting. Policies served by the court's decision: Slippery slope argument ○ Court is concerned about precedent with rule loosening. UPC § 2-507 would change the result in Thompson v. Royall. It provides: "A burning, tearing, or canceling is a 'revocatory act on the will,' whether or not the burn, tear, or cancellation touched any words on the will." Words of cancellation must, however, be written on the will, whether or not they touch the words of the will. They cannot be written on another document. Only a few states have adopted this provision.

Powers and Trusts

■ Types of Powers ○ Reasons Powers are Created - The settlor of a trust cannot foresee all of the problems or opportunities that her family might face after the trust is created. Accordingly, trusts often contain powers of appointment in trust beneficiaries, powers that give the beneficiaries the ability to choose who next will take the beneficial interest in the property subject to the power. Tax considerations aside (tax considerations are discussed below), powers of appointment are routinely found in well-drafted trusts b/c through them the settlor is able to postpone or delegate decisions about who should receive a future interest in the trust. Powers of appointment thus allow the settlor to leave it to the beneficiaries to deal flexibly w/ changing circumstances in the future. ○ Terminology and Relationships: The person who creates the power of appointment is the donor of the power. The person who holds the power is the donee. The persons in whose favor the power may be exercised are the objects of the power. When a power is exercised in favor of a person, such person becomes an appointee. The instrument creating the power may provide for takers in default of appointment if the donee fails to exercise the power. General vs. Special Powers: A general power is "a power which is exercisable in favor of the decedent [donee], his estate, his creditors, or the creditors of his estate." A special power is a power to appoint among a class of persons or institutions that cannot include any of the following: the donee, his estate, his creditors, or the creditors of his estate. Powers of appointment may be created so as to be exercisable either by deed or by will, by deed alone, or by will alone. When exercisable only by will, the power is called a testamentary power; when exerciseable during life, the power is called a lifetime power. A power can be created in anyone. Almost all powers of appointment are created in trustees or in beneficiaries of trusts, however.

Execution of Wills

■ UPC § 2-502(a) - Execution of Witnessed Wills ○ Except as provided in § 2-502(b) (holographic wills) and certain other sections, a will must be: (1) in writing; (2) signed by the T, or in the T's name by some other individual in the T's conscious presence and by the T's direction; AND (3) signed by at least two witnesses, each of whom signed w/in a reasonable time after he witnessed either T's signing of the will, or T's acknowledgement of that signature or acknowledgement of the will. Witnesses need not necessarily see T sign the will, but if they don't, T must somehow "acknowledge" the will in their presence. "Reasonable time after " - having the witness sign a few minutes after T's signing and death would be okay under the UPC. ■ TPC § 59(a) - Requisites of a (Written/Nonholographic) Will ○ A will must be: (1) in writing; (2) signed by the T, or by another person for him by his direction and in his presence; AND (3) attested by 2 or more credible witnesses (above 14 years of age) in the T's presence. ○ May be made self-proved (making the testimony of the witnesses in the probate of the will unnecessary) by the affidavits of the T and the attesting witnesses, made b/f a notary public. See § 59(a) (form of self-proving affidavit); see also § 59(b) and (c) (effect of self-proving affidavit).

Computing Estate Tax

○ (D) Computation of the Estate Tax (1) Credits against the tax - Gross estate minus allowable deductions equals taxable estate. To the taxable estate is added the date-of-gift value of adjusted taxable gifts. Adjusted taxable gifts (discussed more fully infra) are defined in § 2001(b) as "the total amount of the taxable gifts . . . made by the decedent after December 31, 1976, other than gifts which are includible in the gross estate of the decedent." (Because the federal gift tax allows an annual exclusion of $14,000 per donee, the rules governing adjusted taxable gifts don't come into play unless the donor's gifts to any donee in one year exceed $14,000.) Taxable estate plus adjusted taxable gifts equals the tentative estate tax base, against which the tax rate schedule under § 2001 is applied to produce a tentative estate tax. From the tentative tax as thus computed are deducted various credits to which the estate may be entitled (the only credit we are concerned w/ in this course is the estate tax credit). After these credits are applied to the tentative tax, the final result is the federal estate tax for the decedent's estate.

Undue Influence

■ Undue Influence ○ It is difficult to precisely define undue influence. "To be undue influence in the eye of the law there must be coercion. It is only when the will of the person who becomes a testator is coerced into doing that which he or she does not desire to do, that it is undue influence. Even very immoral considerations either on the part of the T, or of someone else offering them, do not amount to undue influence unless the T is in such a condition, that if he could speak his wishes to the last, he would say, 'this is not my wish, but I must do it.'" (CB 158) ○ In more recent times judges have tried to cabin the unruly concept of undue influence by saying that, to establish undue influence, it must be proved (1) that the T was susceptible to undue influence, (2) that the influencer had the disposition or motive to exercise undue influence, (3) that the influencer had the opportunity to exercise undue influence, and (4) that the disposition is the result of the influence: i.e., a gift that would not have been made but for the existence of the undue influence. But this formulation begs the question b/c it does not tell us what influence is "undue." ○ Restatement (Third) of Property: Wills and Other Donative Transfers § 8.3. Undue Influence, Duress, or Fraud (a) A donative transfer is invalid to the extent that it was procured by undue influence, duress, or fraud. (b) A donative transfer is procured by undue influence if the wrongdoer exerted such influence over the donor that it overcame the donor's free will and caused the donor to make a donative transfer that the donor would not otherwise have made. Comment h to § 8.3: Suspicious Circumstances The existence of a confidential relationship is not sufficient to raise a presumption of undue influence. There must also be suspicious circumstances surrounding the preparation, execution, or formulation of the donative transfer. Suspicious circumstances raise an inference of an abuse of the confidential relationship b/t the alleged wrongdoer and the donor. In evaluating whether suspicious circumstances are present, all relevant factors may be considered, including: (1) the extent to which the donor was in a weakened condition, physically, mentally, or both, and therefore susceptible to undue influence; (2) the extent to which the alleged wrongdoer participated in the preparation or procurement of the will or will substitute; (3) whether the donor received independent advice from an attorney or from other competent and disinterested advisers in preparing the will or will substitute; (4) whether the will or will substitute was prepared in secrecy or in haste; (5) whether the donor's attitude toward others had changed by reason of his or her relationship w/ the alleged wrongdoer; (6) whether there is a decided discrepancy b/t a new will and previous wills or will substitutes of the donor; (7) whether there was a continuity of purpose running through former wills or will substitutes indicating a settled intent in the mind of the T as to the disposition of his or her property; and (8) whether the disposition of the property is such that a reasonable person would regard it as unnatural, unjust, or unfair, for example whether the disposition abruptly and w/out apparent reason disinherited a faithful and deserving family member.

Will Construction/Ambiguity

■ When the will/trust is ambiguous and the testator's intent is unclear, we can't rely on the language of the will or the testator's intent; instead, we have to fall back on rules of construction based on presumed intent. ■ "Children" vs. "descendants" - The law presumes that the word children means only the immediate offspring of the parent and does not include grandchildren. Sometimes the T's probable intent is not carried out by this presumption. It is unclear whether T intends "children" to include grandchildren and other descendants. "Descendants" is a better term. ○ Sometimes cts have held that other language in the will or extrinsic circumstances indicates that T in fact meant descendants even though he said "children." ■ Where T makes a gift in trust "to the issue of A," do the issue of A take per capita or per stirpes? ○ If the issue take per capita, all issue who are born b/f the period of distribution take an equal share. Descendants w/ living parents share equally w/ their parents. Ex 1: A leaves three surviving children (B, C, and D), two surviving grandchildren (E and F). The property is divided into five equal shares—1/5 each to B, C, D, E, and F. ○ If the issue take per stirpes (i.e., by right of representation), the children of a descendant of the designated ancestor take nothing if their parent is alive. If the parent is dead, the children take by representation. Ex 2: A had three children (B, C, and D). B had two children (E and F). B predeceases A, leaving E and F, who survive A. The property is divided at the child level—⅓ to C, ⅓ to D. E and F take B's ⅓ share by representation (i.e., 1/6 to E and 1/6 to F). ○ Most jurisdictions start w/ a presumption that a gift to "issue" or "descendants" implies some form of representation (not a per capita distribution), but cts vary on what language is sufficient to overcome the presumption. ■ Where a will or trust explicitly uses the phrase "per stirpes" or "by right of representation," which version of representation is intended: (1) English per stirpes, (2) modern per stirpres, or (3) per capita w/ representation? ○ Majority rule - Texas - The phrase "per stirpes" or "by right of representation," used in a will or trust, is to be given the same meaning as representation has under the local intestacy statute. Thus, since the intestacy laws of nearly half the states provide for modern per stirpes distribution, in most states trust distributions to the settlor's "issue" or "issue per stirpes" will be interpreted as providing for modern per stirpes representation. ○ Minority rule - UPC §§ 2-708, 2-709 - A second approach is to treat gifts to "issue" or "issue by representation" in the same way as the majority approach (i.e., according to the local intestacy law's system of representation), but to distribute gifts to "issue per stirpres" according to the English (strict) per stirpes system regardless of the system of representation employed in the local intestacy law. The rationale for this approach is to reflect what is thought to be the probable expectation of drafters who use the phrase "per stirpes," many of whom might have had the traditional English per stirpes system in mind rather than their state's intestacy statute. ■ Adopted children - Are adopted individuals to be included in a gift to "children," "issue," or "descendants?" ○ Today almost all states presumptively include adopted individuals (and children born out of wedlock) in gifts to these classes. But problems can still arise w/ adult adoptions and w/ older wills and trusts drafted b/f the presumption of equal treatment for adopted children evolved. ○ Can an adopted child inherit from a "stranger to the adoption" (i.e., anyone other than the adoptor)? No general statement of the law is possible in this area. Some states have a "stranger to the adoption rule," which bars an adoptee from inheriting from a stranger to the adoption (i.e., anyone other than the adoptor). Texas does not have a "stranger to the adoption" rule. Lehman v. Corpus Christi Nat'l Bank (Supp. II-38). In Lehman, a husband adopted his step-son (son of husband's spouse from her first marriage). The ct allowed the adopted step-son to inherit through his adoptive father (from his adoptive father's father).

Will Contests and Prevention

■ Will Contests: When to Expect Them and How to Avoid Them (Supp. IV 11) ○ (A) The Predicate: The Time to "Win" a Will Contest Is When the Will Is Prepared ○ (B) The Concern: Homilies on Human Nature ○ (C) The Reality: Will Contests Provide an Opportunity for Reordering the Dispositive Plan More to the Jury's Liking ○ (D) The Attorney's Duty: Securing the Testator's Dispositive Plan, and His Reputation, from Challenge ○ (E) The Premise: Cases in Which a Will Contest Should Be Anticipated Are Readily Identifiable ○ (F) All Will Contests Arise in One of the Following Facts Settings: (1) "Unnatural will" that disinherits child or spouse. (2) Second marriage, children by first marriage. (3) Client has no close relations; heirs would be more distant relatives. (4) Alternative lifestyles: Client wants to leave property to his or her lover, who may be of a different sex or the same sex. ○ (G) What Steps Might Be Taken at the Time the Will is Prepared (1) The Leon Jaworski Approach The attorney requests the client to write, in the client's handwriting, a letter to the attorney setting forth in detail the disposition the client wishes to make. Upon receipt of the letter, the attorney replies, detailing the consequences of the disposition on the client's heirs and emphasizing the disinheritance of one or more of them, and asks for a letter setting forth the reasons for the disposition. After receipt of this letter, the will is drafted as the client wants. The letters are kept in the attorney's files to show any prospective contestant or to enter into evidence at trial, if necessary. (2) Statement in will as to why the T is making no provision for a disinherited heir. (a) Caveat: The "parting shot" or "final insult" concern. (b) Caveat: Any such statement must be absolutely, positively correct. (c) Caveat: Beware of testamentary libel! (Example of testamentary libel in NY court—"I disinherit my ex-wife because she was difficult...") (3) No-contest (in terrorem) clause. (a) Caveat: Of no effect unless the will makes a "think about it" gift to the potential contestants. (4) If testamentary capacity is the likely ground of potential challenge, have the client examined by a psychiatrist, or use a psychiatrist as an attesting witness. Trial lawyers almost universally say this is a bad idea! By doing this, the will proponent is feeding ammunition to the will contestant ("They were so uncertain about the testator's mental capacity that they got a psychiatrist to examine him b/f letting him sign his will.") (5) Videotape the will execution proceeding. (a) Caveat: Old people may look frail on videotape, adding fuel to the fire of the contestant's case for undue influence or lack of testamentary capacity. (6) If the T and his/her lover are unmarried, they should get married.

Self Proving/Attestation

○ (2) Self-proving affidavit - TPC § 59(a) authorizes a self-proving affidavit to be affixed to a will already signed and attested, an affidavit that must be signed by the T and witnesses in front of a notary public after the T has signed the will and the witnesses have signed the attestation clause. If there is a self-proving affidavit, no further proof of the will's execution w/ the required formalities shall be necessary. TPC § 84(a). ■ TPC § 84 - Proof of Written Will Produced in Court (see also "Attestation Clauses and Self-Proving Affidavits Compared - Supp. IV-9) ○ If the will is not self-proved, the will may be proved (1) by the ct testimony or affidavit of one of the attesting witnesses, (2) if the witness is a non-resident of the county, by the deposition or interrogatory of an attesting witness, or, (3) if no opposition is filed, then by the testimony of two persons (or, failing that, one person) as to the signature of either the T or one of the attesting witnesses. One of these modes of proof must be satisfied b/f the will can be admitted to probate. Thus, if both witnesses are dead or cannot be located, and no one can be found to testify as to signature, the will cannot be probated even if the will contains an attestation clause. The existence of an attestation clause, w/out one of the modes of proof outlined in the statute, does not satisfy the statutory requirements. Once one of those modes of proof is met, however, the attestation clause can enter the picture. The attestation clause is prima facie evidence that the events occurred as described in that clause. If the witnesses are dead, cannot recall the execution ceremony, give hostile testimony, cannot be located, or have moved far away, the attestation clause is useful. If the will is uncontested, the attestation clause will permit it to be probated. If the will is contested, both the witness's hostile testimony and the recitals in the attestation clause go the jury, which must decide whether the witness or the attestation clause tells the truth. ○ In contrast, a self-proving affidavit affords a means of securing the witnesses' testimony during the T's lifetime, in lieu of their sworn testimony in open ct. In effect, the self-proving affidavit serves the same function as a deposition or interrogatory. "If a will is self-proved, no further proof of its execution w/ the formalities and solemnities and under the circumstances required to make it a valid will shall be necessary." TPC § 84(a). ■ Delayed attestation ○ Suppose that the witnesses do not get around to signing the will until after the T dies. Must the witnesses sign while the T is alive? Under Texas law, the witnesses must sign while the T is alive. The witnesses must sign the will b/f the T dies. For the witnesses to sign in the "conscious presence" of the T requires that the T be alive when the witnesses sign. Under UPC § 2-502(a)(3), the witnesses must sign w/in a "reasonable time." Thus, having the witness sign a few minutes after testator's signing and death would be okay under the UPC.

Gifts of Medical Bills and Tuition

○ (5) Unlimited exclusion for medical expense and tuition payments - In addition to the annual exclusion, § 2053(e) grants an unlimited exclusion for tuition payments and medical expenses paid on behalf of any person. Congress has taken the view that such payments should be exempt from gift taxes w/out regard to the amounts paid for such purposes or to the relationship b/t the donor and the donee. This exclusion applies only to payments made directly to the service provider, and does not cover payments to reimburse expenses incurred by the donee. Also, the exclusion for education expenses covers only "tuition paid to an educational institution," and does not include payments for related expenses such as dormitory bills, books, or living expenses.

Split Gifts/Gift tax marital deduction

○ (6) Split gifts; the gift tax marital deduction - As part of the general plan to equalize the tax treatment of couples residing in common law states and community property states, Congress in 1948 authorized couples to split their gifts for gift tax purposes and provided for a gift tax martial deduction. A gift of community property worth $22,000 is treated as a gift of $11,000 by each spouse, and each spouse can claim an $11,000 annual exclusion. Because the gift is covered by the donors' annual exclusions, a gift tax return does not have to be filed. Section 2513 places the owner of separate property on an equal footing: "A gift made by one spouse to any person other than his spouse shall . . . be considered as made one-half by him and one-half by his spouse," if the other spouse consents to splitting the gift. The consent is given by having the spouse sign at the appropriate point on the gift tax return filed by the donor. While (unlike in a community property state) the donor has to file a gift tax return, the effect of § 2513 is to double the number of annual exclusions available to a married couple. Example - Howard, a resident of Iowa (a separate property state), give stock worth $80,000 to his son Sam. Howard's wife Helen agrees to split the gift for gift tax purposes. Since the split gift will exceed both parties' annual exclusions, Howard and Helen both have to file gift tax returns, w/ each return reporting a gift of $40,000 and a taxable gift (after taking the $11,000 exclusion) of $29,000. Helen must file a gift tax return b/c, by agreeing to split the gift, she will be treated as having made a taxable gift that (on Helen's death) will come into the estate tax computation as an adjusted taxable gift. As w/ the estate tax marital deduction under § 2056, § 2523 grants an unlimited an unlimited marital deduction for qualifying gifts to the donor's spouse.

Designation of Guardian

○ Designation of Guardian Before Need Arises - TPC § 679 (example on Supp. IV 44-45) This gives the client the opportunity to decide who would be her guardian should the need arise. A Designation of Guardian Before Need Arises emphasizes custody, control, and "care" of the client in the event of incapacity, but it does not frontally address medical decisions. A medical power of attorney or living will goes into more detail in addressing these questions. (b): you can blackball someone from being appointed as guardian of your estate.

Directives

○ Directives Regarding Health Care and Disposition of the Body Advance Directives: Living Wills, Health Care Proxies, and Hybrids The S Ct has held that each person has a constitutional right to make health care decisions, including the right to refuse medical treatment. If state law requirements are met, a person may state her wishes about terminating medical treatment or appointing an agent to make the decision for her. But where a person's wishes are not clearly expressed, the state may assert an interest in favor of preserving life and preventing the withdrawal of treatment. (Cruzan—she was 29 years old and lost control of here car. Her brain was without oxygen for some time and she got into a persistent vegetative state. U.S. Supreme Court said it was constitutionally permissible to have a "clear and convincing" element to the statute. They found that clear and convincing evidence that she didn't want to be kept alive and they took her off.) In resolving a conflict over the wishes of an incompetent individual, the law relies on advance directives and default rules in the absence of such directives. Advance directives are of three basic types: (1) Instructional Directives - Instructional directives, such as a living will or a commonly used form known as a Medical Directive, which specify how one wants to be treated in end-of-life situations or in the event of incompetence; This is not a mandated form. The medical directive may be in the form on Supp. IV-46, but it can also be oral. This has to do only w/ making bodily health decisions. (2) Proxy Directives (Supp. IV 49-52) - Proxy directives, such as a health care proxy or durable power of attorney for health care (i.e., medical power of attorney), which designate an agent to make health care decisions for the patient (the power of the agent does not expire w/ the principal's incompetency); OR (3) Hybrid or Combined Directives (Supp. IV 46-48) - Hybrid or combined directives incorporating both of the first two approaches: directing treatment preferences and designating an agent to make substituted decisions. Rebecca Dressor, Precommitment: A Misguided Strategy for Securing Death with Dignity (CB 352) In making health care decisions for an incompetent patient, an agent for health care decisions is held to a substituted judgment standard: what the patient has chosen or would have chosen in that situation. In the absence of an advance directive designating an agent, responsibility for an incompetent patient's decisions regarding health care usually falls to the patient's spouse or next of kin, subject to the state's interest in preserving life. To give a clear order of priority among potential decision makers, many states have enacted a statutory hierarchy. Bush v. Schiavo (CB 354) Michael Schiavo's treatment choices took precedent over those of Terri's parents, the Schindlers, b/c Michael was appointed her guardian. Even w/out such an appointment, as her husband his directions would govern her care. In Florida, as in most states, spouses have priority over parents. We had clear conflict b/t the wishes of the parents (wanting to keep her alive for religious reasons) and the husband (w/ mixed motives). The point is that if the wishes of the incapacitated person are known, these heart-wrenching conflicts can be avoided. Disposition of the Body, Anatomical Gifts (Supp. IV 53-54) Historically, a person has had little say about what is done to his body after death. The body was not considered to be property, so it was not disposable by will; nor was it owned by the decedent's estate or by his family. With the rise of secularism, cts began to exercise a "benevolent discretion" to carry out the wishes of the deceased person, provided these wishes do not conflict unreasonably w/ the desires of the living. This power has been exercised in such a way that a person now has something more than hope, but far less than assurance, that his wishes will be carried out at death if the family objects. With the advent first of dissection, then of cadaver organ transplantation, the first principle of law, medicine, and ethics—saving human life—became a relevant consideration in the disposition of the dead. To increase the quantity of cadaver organs for transplantation, all states have enacted some version of the Uniform Anatomical Gift Act (UAGA). This act permits a person to give her body to any hospital, physician, medical school, or body bank for research or transplantation. (see Supp. IV 53-54) It also permits a gift of a body, or parts thereof, to any specified individual for therapy or transplantation needed by the individual. The gift can be made by a duly executed will or by a card carried on the person if the card is signed by the donor. UAGA § 2(b). Some clients will say "yes" to this and some will say "no"...and regardless of age or condition, it is up to the medics to decide if your organs are okay. There were eight years where you couldn't put it on your license, but Texas legislature just voted to put it back on the license.

Classification of Assets

○ (II) CLASSIFICATION OF ASSETS AS SEPARATE OR COMMUNITY PROPERTY (A) INCEPTION OF TITLE RULE - The separate or community character of an asset is always determined at the time the asset is acquired. If title to an asset is acquired b/f marriage, it is the acquiring spouse's separate property. Subsequent expenditures of community funds, as by paying off secured debt or making improvements on the property, do not affect the property's separate economic character, but go only to a claim for reimbursement. (I) Installment purchases begun b/f marriage—separate property. The inception of title rule applies, whether the credit purchase b/f marriage is by mortgage or by installment K. (TX) - can still make equitable claim reimbursement? against the SP estate In CA, courts prorate the portion of property paid for with SP before marriage and the portion paid for with CP after marriage (II) Assets purchased during marriage—CP presumption. However, the separate or community character of an asset acquired by purchase during the marriage is determined by the source of the funds or credit used in its purchase. If both separate and community funds are expended to acquire the asset, the asset is subject to mixed ownership (part separate, part community). One spouse's separate estate and the community estate are TICs. To rebut the CP presumption a party must affirmatively show either (1) that the property was acquired by gift, devise, or descent, or (2) that it was acquired with separate funds (or separate credit) (III) Assets acquired on credit during marriage—CP presumption. Inception of title rule applies. The asset is classified as CP or SP (or perhaps part community and part separate) depending on (i) the source of funds, community or separate, used in making the down payment, and (ii) the source of credit, community or separate, used to finance the balance of the purchase price. An asset acquired on credit is presumptively acquired on community credit. Under this rule, the source of funds later used to pay off the credit is irrelevant. Ownership is determined at the time the asset is purchased on credit. What does it take to rebut the presumption of community credit? Separate credit can be established by showing that, in extending the credit, the lender agreed to look solely to the estate of the borrowing spouse for satisfaction of the obligation. Note: For W to make a credit purchase on her separate credit, the note must contain the magic words "W, for her separate estate." (C) EFFECT OF HOW TITLE IS TAKEN (1) Common-law states—how title is taken determines ownership. (2) Community property states—community presumption applies. The general rule is that the manner in which title to property is taken (e.g., the deed recital) is not controlling. Rather, the time of the acquisition and the source of funds (or credit) used in the asset's acquisition determines whether the asset belongs to the CP or is SP of one of the spouses. (3) Exception—title in spouse's name "as her sole and separate property." If it is shown that community funds were used, but that both spouses participated in the transaction in which title was taken in one spouse's name "as her sole and separate property" (or words of like effect), the asset conclusively belongs to the spouse's separate estate.

Classification Consequences

○ (IV) CONSEQUENCES OF CLASSIFICATION AS SEPARATE OR COMMUNITY PROPERTY (A) DIVORCE (1) "Just and right" division of community property. The "just and right" division power applies only to community property. The ct cannot award the separate property of one ex-spouse to the other ex-spouse. (C) DEATH OF SPOUSE (1) Intestate succession. As is true of all of the community property states, in Texas different statutes govern the intestate distribution of separate and community assets. The rules governing intestate distribution are found in TPC §§ 38 (SP - thirds) and 45 (CP - halves, conditioned by direct descendants). (2) Testamentary disposition. Each spouse has the unrestricted power of disposition over his separate property and his ½ interest in community property - but all is included in the estate for taxation purposes. In some cases, however, the surviving spouse's homestead or exempt property claim or family allowance may be satisfied out of the deceased's separate property or out of the community property. (3) Federal estate taxation. Suppose that W predeceases H, leaving a will that devises "all my property" to her sister. To the extent that assets are classified as W's separate property, they pass under W's will to the sister, and their value is includible in W's gross estate for federal estate tax purposes. To the extent that assets are classified as community property, W's ½ interest passes under her will and is includible in her gross estate. ○ (V) LIFETIME GIFTS OF COMMUNITY PROPERTY Texas law allows one spouse to make "reasonable" gifts of community property w/out the other spouse's consent or participation, subject to the following doctrines. (A) FRAUD ON THE SPOUSE While a showing that the donor intended to defeat the spouse's community rights will enable the spouse to challenge the transfer, proof of actual intent to defraud need not be established. The circumstances surrounding the transfer and the amount of the gift may support a finding of "constructive fraud." (1) Relationship of donee to spouse. If the gift is to someone not related to the husband or wife, this factor favors finding actual or constructive fraud, unless the amount of the gift is small in relation to the entire community estate and the donee bears some special affinity to the donor (e.g., a long-time employee). (2) Amount of gift in relation to entire community estate. If the gift is small in relation to the entire community estate, this tends to support a finding of no constructive fraud. (3) Whether surviving spouse is "made whole" out of remaining community assets. If W receives at least as much from H's separate property or H's ½ interest in the remaining community property as she would have absent the challenged gift, this affirmatively establishes that there was no fraud on W's rights, actual or constructive. Spouse's remedy for fraudulent gifts. If the spouse successfully challenges the gift during the donor's lifetime, the transfer can be set aside in its entirety. In most of the cases involving challenges after the donor's death, the transfer has been set aside as to W's ½ community interest but the beneficiary has been allowed to keep H's ½ interest. (B) ILLUSORY TRUSTS When creator of trust retains substantial control (for more than just standard provisions) over the trust then the presumption is that the trust is illusory and may be set aside upon death of creator - Land v. Marshall. (C) LIFE INSURANCE TRANSFERS SUBJECT TO LIFETIME TRANSFER RULES Life insurance beneficiary designations and joint tenancy dispositions are governed by the "lifetime transfer rules" rather than testamentary rules. Can challenge under the (3) doctrines set out under fraud (D) CURRENT PRACTICE—GET SPOUES'S SPOUSE'S JOINDER OR CONSENT The fraud-on-the-spouse doctrine is brought into play only when the challenging spouse did not join in the transfer as co-donor, or did not manifest her consent to the transfer in writing or by her conduct. B/c of the uncertain scope of the fraud-on-the-spouse doctrine, and to avoid one's client being the test case for refinements of this doctrine, in any donative transfer of community property it is strongly advisable to secure both spouses' joinder or consent to the transfer.

Holographic Wills

○ A holographic will is a will written by the T's hand and signed by the T; attesting witnesses are not required. Holographic wills are permitted in about half the states, including Texas (TPC § 60) and UPC § 2-502(b). States that accept holographic wills: Texas, Oklahoma, Arkansas, Louisiana, Mississippi, Tennessee, Kentucky, West Virginia, Virginia, North Carolina, Pennsylvania, Maine, Michigan, Nebraska, South Dakota, North Dakota, Montana, Wyoming, Colorado, Idaho, Utah, Nevada, Arizona, California, Alaska. ○ To be valid, a holographic writing must be written w/ testamentary intent. T must intend that the writing itself be offered for probate (but see Estate of Kuralt below). Testamentary intent is almost always an issue when an attempt to probate a holographic will is made.

Anti-Lapse and Class Gifts

○ Application of antilapse statutes to class gifts Almost all states apply their antilapse statutes to class gifts and most statutes expressly so provide. See, e.g., old UPC § 2-605. In states where the statute is unclear, cts reason that antilapse statutes are designed to carry out the average T's intent and that the average T would prefer for the deceased beneficiary's share to go to the beneficiary's descendants rather than to the surviving members of the class. However, in some states, antilapse statutes do not apply to dispositions to class members who die b/f execution of the will. See, e.g., TPC § 68(a). In these states it is assumed that the T did not have the dead class member in mind and did not want him to take.

Burden Of Proof In Undue Influence Cases

○ Burden of Proof in Undue Influence Cases The proponent of a will has the initial burden of proving its validity. This is easily done in most cases by showing due execution. The person contesting the will then has the burden of proving undue influence directly or by proving facts that would give rise to a presumption of undue influence. To trigger this presumption, the contestant must establish the existence of a confidential relationship b/t the influencer and the T—plus something more. In some jurisdictions, the other element that is necessary for a presumption of undue influence is that the influencer procured the will. In other jurisdictions, to trigger the presumption the contestant must show both a confidential relationship and suspicious circumstances such as the one listed in Comment h, supra, to the Restatement (Third). In still other jurisdictions (e.g., PA in the Lakatosh case, CB 159), the extra elements are that the person in the confidential relationship received the bulk of the estate and that the decedent had a weakened intellect. If the presumption of undue influence is triggered, the burden shifts back to the proponent to negate undue influence. ○ If part of a will is the product of undue influence, those portions of the will that are the product of such influence may be stricken and the remainder of the will allowed to stand, if the invalid portions of the will can be separated w/out defeating the T's intent or destroying the testamentary scheme.

Class Closing and Posthumously Conceived Kids

○ Class-Closing Rules and Posthumously Conceived Children - Are posthumously conceived children cut out of participation in class gifts that would otherwise have closed b/f their conception? No case has yet to answer this question. Restatement (Third) of Property proposes the following approach: In cases in which the distribution date is the deceased parent's death, a child produced posthumously by assisted reproduction is treated as in being at the decedent's death, for purposes of the class closing rules, if the child was born w/in a reasonable time after the decedent's death.

Conditional Wills

○ Conditional Wills Eaton v. Brown (CB p. 272) - testator wrote a holographic will saying "I am going on a journey and may not return. If I do not, I leave everything to my adopted son." The testator returned from her journey and died some months later. SCOTUS ordered the will probated. The language of condition does not mean that the will is to be probated only if the states event happens but is, instead, merely a statement of the inducement for execution of the will, which can be probated upon death from any cause. In re Estate of Kuralt (CB 245) Facts - Two weeks b/f Charles Kuralt died, he wrote his mistress a letter assuring her that he would see to it that she would inherit his property in Montana. The letter stated, "I'll have the lawyer visit the hospital to be sure you inherit the rest of the place in Montana if it comes to that." The opinion concerned whether that letter was a valid holographic codicil. Charles Kuralt seemed to contemplate the preparation of a separate formal document. Did Kuralt contemplate that the letter to his lover would itself be a codicil? No. Maybe this case is explainable by the fact that Montana is one of the 5 states that has enacted the harmless error/dispensing power provided by UPC § 2-503. But the dispensing power dispenses w/ the formalities of the will statute. There appears to be no problem w/ the formalities here; so the dispensing power doesn't really support the ct's decision in Kuralt. The dispensing power requires clear and convincing evidence of testamentary intent, which is the issue in the case. The Kuralt case is interesting b/c it's an example of an extraordinarily compliant ct attempting to give effect to the T's wishes. Once one admits extrinsic evidence and goes searching for the T's dispositive intent, are there any limits on where we might search? Kuralt presents a case in which there is excellent written evidence of whom Kuralt intended to benefit, but a serious question whether he intended the 1997 letter itself to be a will. The safe harbor of a will may be jeopardized by giving effect to letters not intended to be wills but that contain good evidence of the decedent's intended beneficiaries. ■ Conditional wills ○ Suppose the will is written to become operative if death from a stated event occurs, such as death from a surgical operation or death while on a journey. Does the T want the will to be effective only if the event happens or to be effective at the T's death regardless of whether his death is related to the event? There seems little reason to suppose that the T would want to favor one set of family members if he dies on a trip but another set of family members if he returns and then dies. Most of the cases on conditional wills presume the language of condition does not mean that the will is to be probated only if the stated event happens but is, instead, merely a statement of the inducement for execution of the will, which can be probated upon death from any cause.

Pro Uses of Holographic Wills

○ Do holographic wills have any place in the practice of law, or are they just for lay people? Under what circumstances might a holographic instrument be used to advantage in the estate practice? (1) A short-term emergency where the lawyer doesn't have time to write out the will for the client. Ex: An intestate client w/ a large estate. Use a holographic will until a printed one can be signed and witnessed. Ex: Client is going out of town but wants to make changes to his will b/f leaving. Have the client write a holographic codicil. (2) A short-term solution while a more complex, well thought-out will is being drafted. (3) Clients who are more concerned w/ disposition of items of sentimental value. Have the client write holographic codicils disposing of these items as suits his fancy. (Instruct the client to write, "This codicil is an amendment to my will. I give the items of tangible personal property listed below as follows.") Problem: A yellow legal pad and a felt-tipped pin may be a dangerous instrumentality in the hands of a client. Ex: The client doesn't know that stocks and real estate aren't tangible personal property. If he attempts to devise the stocks and real estate in the codicil, that would screw up the will and the tax planning that went into it. To avoid these potential problems, some law firms use the clauses at the top of Supp. IV-21 in their will forms. These clauses provide for the client writing precatory letters to the executor, expressing the T's desires as to the division of certain items of personal property.

Durable Power of Attorney

○ Durable Power of Attorney (a.k.a., "poor man's revocable trust" or "legal dynamite") - TPC §§ 482-489B; Supp. IV 33-43. An ordinary power of attorney creates an agency relationship whereby the agent (a.k.a., attorney-in-fact) is given a written authorization to act on behalf of the principal. However, a simple power of attorney is limited by the traditional principle of agency law that the agent's authority terminates on the principal's incapacity. For this reason an ordinary power of attorney is of little use in planning for incapacity. Unlike an ordinary power of attorney, a durable power of attorney continues throughout the incapacity of the principal until the principal dies. Purpose—if close relative dies, the person with durable power of attorney can distribute the estate without the use of courts, lawyers, or probate. Under Texas law, durable powers must be created by a written instrument and be notarized. TPC § 482. (every state has a statute allowing for durable power of attorney) The holder of a durable power is somewhat like a trustee, but there are important differences. The upshot of these differences is that durable powers are useful as a way for dealing w/ incompetency without creating a trust, but trusts are more flexible and satisfactory for most clients. First, a durable power ceases when the principle dies; the holder of the power can make no transfers after the principal's death. A durable power does not avoid probate. A trust continues after the settlor's death, transferring property w/out probate. Moreover, the trustee can be given authority to take action after the settlor's death to cure defects in the estate plan that surface for the first time when all the relevant facts are known. Second, if an agent dies, the power terminates unless a successor agent is named by the principal. If a trustee dies, a successor trustee is appointed by a ct. Third, an agent does not legally own the property, and agency law sparingly implies powers and strictly construes powers. In contrast, a trustee has legal title to the trust assets and generally has all the power an owner has. The trustee can sell and reinvest the property. Fourth, in most states, the only statutes dealing w/ durable powers concern how you can create one. Until recently, there were no statutes dealing w/ the scope of the agent's powers and duties. Third parties are cautious about dealing w/ agents. Some banks and other financial institutions, uncertain of an agent's authority and unfamiliar w/ a durable power, may refuse to accept a durable power of attorney. The law of trustees' powers and duties is well-developed and well-known. Third parties readily deal w/ trustees. There are two types of durable powers of attorney. Hand-tailored (long form) durable power of attorney. (Supp. IV-35) Statutory (short form) durable power of attorney. (Supp. IV- 38) Execution of a statutory durable power of attorney incorporates by reference the statutory powers of the agent w/ respect to the particular transaction, set out in numbing detail in the Probate Code. (see example on Supp. IV -40 of the scope and breadth of the agent's powers in the statute relating to real estate transactions) Despite their shortcomings, durable powers of attorney have become an extremely popular device for dealing w/ incapacity among persons of modest means. Durable powers of attorney can be a useful way of dealing w/ transactions for incapacitated clients of modest means. If the estate is a substantial one, the revocable trust is clearly the superior management arrangement. If the client does not have a revocable trust, a durable power may authorize the holder of the power to create a revocable trust for the client upon the client's incompetency. It is doubtful, however, whether the holder of the power can be authorized to make, amend, or revoke (after the client has become incompetent) a will of the client, as the Wills Act may be construed to require personal knowing action of the T. Basic Point—there is not much law on this. The great concern is that bankers, stock people, etc, will say that they don't know and they don't know if this hasn't been revoked. But they are very willing to work with revocable trusts because they have been around for ages.

English/Strict Per Stirpes

○ English (strict) per stirpes - A's property is divided into two shares at the level of A's children. D takes B's ½ share by representation, and E and F split C's ½ share by representation. The English distribution per stirpes is to divide the property into as many shares as there are living children of the designated person and deceased children who have descendants living. The children of each descendant represent their deceased parent and are moved into their parent's position. This system treats each line of descendants equally. Under strict per stirpes, the cut is always made at the first level (child level) whether there is a live child or not.

Special Powers and Estate Taxes

○ Estate Tax Advantages of Special Powers By carefully tailoring the powers given to a donee to fit the IRC, a donee can be given power to do almost anything an owner of property can do while not being treated as owner for FET purposes. Ex: Suppose that T wishes to pass property to her daughter, A, for A's life and then to A's children. At the same time, T wishes to give A as much power over the property as possible w/out causing A to be treated as owner for estate tax purposes. Although T cannot escape taxation at her own death, T wishes to avoid estate taxation on A's death. To accomplish this, T might do the following: (1) T's will transfers the legal title to the property to A as trustee. As trustee, A can manage the property, deciding when to sell and in what to reinvest. If the trustee's powers are broadly drafted, A can manage the property almost as if she owned it herself. (2) T's will gives to A, not as trustee but as beneficiary: (a) the right to receive all the income; (b) a special power of appointment exercisable by deed or will to appoint the trust property to anyone A desires except herself, her creditors, her estate, or the creditors of her estate; (c) a power to consume the trust property measured "by an ascertainable standard relating to the health, education, support or maintenance" of A; and (d) a power to withdraw each year $5,000 or 5% of the corpus, whichever is greater. (3) If T desires to make sure that A will be able to use the entire property if she needs it, T can appoint an independent co-trustee and give this co-trustee the power to pay A the entire principal or to terminate the trust. None of the above powers given A, individually or collectively, causes A to be treated as owner of the trust fund under the FET. Yet these powers give A almost as much control over the trust fund as she would have had if she had been bequeathed the property outright.

Undue Influence Cases

○ Estate of Lakatosh (Pa. Super 1994, CB 182) - testator gave a younger man all but $1,000 of her $268,000 estate only a few months after they met. It was found that Roger unlawfully converted $128,565.29 in assets from Rose's estate for his own benefit, that Rose was living in squalor, and that it was Roger himself who suggested someone get a power of attorney over her because of Rose's susceptibility to being taken advantage of... The court affirmed the order of the trial court, revoking probate of Rose's will and imposing a constructive trust on Roger in the amount of $128,565.29. ○ Lipper v. Weslow (Tex. 1963, CB 162) - Undue influence requires that the T be overcome by the desires of another. Facts - Grandchildren, Weslow (P), contested grandmother's will, alleging undue influence by the grandmother's lawyer son, Lipper (D), who drafted the will. *The only person who has standing to contest a will is someone who the will has an adverse effect on...it can't be an old friend or neighbor Issue - Will proof of a confidential relationship, an opportunity, and a motive for undue influence be sufficient to establish undue influence to invalidate a will? Decision - No...reversed. The test of undue influence is whether such control was exercised over T's mind as to overcome her free agency and substitute the will of another so as to cause T to do what she would not otherwise have done but for such control. In other words, in order to invalidate a will based upon undue influence, there must be proof of facts showing a plan of testamentary disposition by another as the will of the T. They found there was no evidence of probative force to warrant submission of this case to a jury. She had said to other people several times that she was gonna disinherit them, and the will explains exactly why she did it. Analysis and Notes - The will in Lipper v. Weslow was drafted by the T's son, an attorney and a principal beneficiary under the will (who received more under the will than he would have under intestacy law). Many cts, concerned w/ the appearance of impropriety, hold that a presumption of undue influence arises when an attorney-drafter receives a legacy, except when the attorney-drafter is related to the T. Frank Lipper did a poor job writing his mother's will. Obviously, he (not his mother the T) wrote the explanation why T was disinheriting her grandchildren. Why did Frank Lipper write a bad will? Any recitation of facts, like why they were disinherited, must be completely accurate...or a jury will be more likely to find in favor of the others. Anything that comes close to an insult is not a good idea. If there is a statement to be in the will...it has to be conversational and appear to be written by the Testator. No-contest clause—He did not bait the trap...he should have given the grandchildren a little something so they had something to lose when they challenged the no-contest clause. *Lesson...if you put in a no-contest clause, you must put in enough to convince those that might challenge it to back off.

Exceptions To Spendthrift Trust

○ Exceptions to the Protection of Spendthrift Trusts Child Support and Alimony - Judgments for child or spousal support can be enforced against the debtor's interest in a spendthrift trust in the majority of states, including Texas. In a minority of states, a spouse or child cannot reach a spendthrift trust to satisfy judgments for support. Tort Creditors - Although CB 555, note 4(a) suggests that whether a spendthrift clause prevents tort victims of a trust beneficiary from reaching the beneficiary's interest in the trust is not entirely settled, virtually every state (including Texas) recognizes spendthrift clauses as giving protection against both contract and tort creditors' claims. Furnishing Necessary Support - The traditional rule is that a person who has furnished necessary services or support (e.g., physicians and grocers) can reach the beneficiary's interest in a spendthrift trust. This is so b/c w/out this exception to spendthrift trusts, furnishers of necessary services or support might refuse to deal w/ the beneficiary of the spendthrift trust. Federal Tax Lien - The federal gov't can reach the beneficiary's interest to satisfy a tax claim against the beneficiary. Federal tax law trumps state spendthrift trust rules. Whether a state can reach the beneficiary's interest to satisfy a state tax claim depends upon the applicable state statute. Excess Over Amount Needed for Support - In NY, the beneficiary's creditors can reach that part of spendthrift trust income in excess of the amount needed for the support and education of the beneficiary. Several states have copied NY's statute. In determining what is necessary for the support of the beneficiary and what is excess (reachable by creditors), cts have developed a station-in-life rule. Creditors can reach only the amount in excess of what is needed to maintain the beneficiary in his station in life. The station-in-life rule rendered these excess-income statutes relatively useless to creditors. Spendthrift trusts are often created by persons of considerable wealth who have raised their children in substantial luxury. The accustomed manner of living of such a beneficiary is likely to require the full income from the trust. Percentage Levy, Spendthrift Caps - In a few states a creditor is permitted to reach a certain percentage (usually b/t 10% and 30%) of the income of the spendthrift trust beneficiary in a garnishment proceeding ordinarily applicable to wage earners. In addition, a handful of states cap the amount of income or principal that can be shielded by a spendthrift provision. Pension Trusts - ERISA requires that "Each pension plan [covered by the act] shall provide that benefits provided under the plan may not be assigned or alienated." ERISA also provides that such benefits may be reached for child support, alimony, or marital property rights. The principle underlying ERISA is that the employee's future retirement security should be protected even at the expense of current creditors. Bankruptcy - A beneficial interest in a spendthrift trust cannot be reached by creditors in bankruptcy. The BC also excludes from the bankrupt's estate any interest in a pension trust covered by ERISA, inasmuch as such interests are made nonassignable by ERISA.

Exoneration of Liens

○ Exoneration of Liens Doctrine - Under this doctrine, when a will makes a specific disposition of real or personal property that is subject to a mortgage to secure a note on which the T is personally liable, it is presumed (absent contrary language in the will) that the T wanted the debt, like other debts, to be paid out of the residuary estate. Dissatisfaction w/ the exoneration doctrine has led to the enactment, in a number of states, of statutes abrogating the exoneration of liens doctrine, as does UPC § 2-607: "A specific devise passes subject to any mortgage interest existing at the date of death, w/out right of exoneration, regardless of a general directive in the will to pay debts." Texas has also abolished the exoneration of liens doctrine. TPC § 71A (overturns the exoneration of liens doctrine only w/ respect to wills executed on or after Sep. 1, 2005 - i.e., the new rule applies prospectively only, not retroactively). ○ "Just Debts" Clause - Does not expand the scope of the executor's duty but may create unintended mischief (e.g., a claim barred by a S/L might be considered a "just debt" and t/f payable if there is a just debts clause). Johanson: Do not put a "just debts" clause in wills that you draft.

Family Allowance

○ Family Allowance - Every state has a statute authorizing the probate ct to award a family allowance for maintenance and support of the surviving spouse (and often of dependent children). The allowance may be limited by the state to a fixed period (typically one year), or it may continue as long as the will is being contested or for the entire period of administration. The allowance, as w/ the homestead and personal property set-aside, is in addition to whatever other interests pass to the surviving spouse. In some states, the maximum allowance that can be awarded is fixed by statute. Other states (including Texas and UPC § 2-404) allow a "reasonable" allowance tied to the spouse's standard of living, which cannot continue beyond one year if the estate is inadequate to pay creditors. Maintenance of the decedent's spouse and dependent children is not allowed after the estate is closed. Theory: The point of the family allowance is to provide for the support of the surviving spouse and descendants while the estate is tied up in the probate ct. UPC § 2-404; TPC § 286-288. Operation of Family Allowance under Texas law: Amount of Family Allowance—TPC § 287. Allowance "fixed w/ regard to the facts or circumstances then existing and those anticipated to exist during the first year" after the decedent's death. When Family Allowance Not Made—TPC § 288. "No such allowance shall be made for the surviving spouse when the survivor has separate property adequate to the survivor's maintenance." • We are only looking at the probate estate here. DS (Deceased spouse) life insurance may not be counted as SS SP depending on if it is CP or SP • SS income is not counted as SP In Texas, surviving spouses often don't petition for the exempt property set-aside or the family allowance b/c they don't need to do so. In most reasonably solid marriages, the surviving spouse will get the estate at the conclusion of the probate administration anyway (b/c the deceased spouse bequeathed the estate to the surviving spouse in the will). Situations where surviving spouse will petition for the personal property set-aside and family allowance: • Decedent spouse's estate was insolvent; or • Decedent spouse willed his estate to someone other than the surviving spouse. Personal Prop Exemption is 15k under UPC. Colorado has a higher one. Allowance instead of homestead is 45k and instead of personal property is 30,000. For personal property, everything on the list and then enough to add up to 30k.

Reversion

○ Future Interests in the Transferor: Reversion - A reversion is the interest remaining the grantor, or in the successor in interest of a testator, who transfers a vested estate of a lesser quantum than that of the vested estate which he has. A reversion is by far the most important of the three types of future interests that may be retained by the transferor. A reversion is never created; it is a retained interest that arises by operation of law when the transferor has conveyed away a lesser estate than the transferor had. If a reversion is retained in an inter vivos conveyance, it is retained by the grantor. If a reversion is retained by a will, it is retained in the T's heirs who are substituted by law for the dead transferor. Reversions are thought of as part of the transferor's old estate: what the transferor retained when he conveyed away less than he had. Hence, all reversions are vested interests. However, the fact that all reversions are vested does not mean that all reversions will become possessory. A reversion following a contingent remainder, for instance, may not become possessory. Case 1 - O conveys property in trust "for A for life, then to A's children who survive A." A's children have a contingent remainder. O has a vested reversion, which will be divested if A leaves surviving children. To determine when a transfer has a reversion, follow the Rule of Reversions: O, owner of a fee simple, will not have a reversion in fee simple if O transfers a possessory fee simple or a vested remainder in fee simple; in all other cases where O transfers a present possessory interest, O will have a reversion in fee simple. Consider a reversion a shorthand way of saying that when a vested estate of the same duration is not transferred, "there is either a certainty or a possibility that the right to possession will return to the grantor." Thus, when the owner of a fee simple carves out a lesser estate and does not add a vested remainder in fee simple, there is a possibility that the property will be his again.

Mental Capacity Analysis

○ In re Estate of Wright (CB 141) Assume it was tried to a jury...lower court denied probate because they said he lacked testamentary power. He was nuts. *Note on procedure—what does it take to reverse and remand? The "no evidence" standard. When you set aside all the evidence of T's eccentricity and apply the legal test for capacity, it is clear that T had mental capacity to make a will. The jury thought he was too weird to have testamentary capacity. The appellate court applied the test and found that despite his eccentricities, he passed the test. Common evidentiary tactic - The disgruntled heirs were trying to recover more than they would under the will by showing T's lack of testamentary capacity, through seizing on all of T's bad habits and eccentricities. ○ Lee v. Lee: (p. 145, n. 2) The fact that a person has been declared incompetent and put under a conservator does not necessarily mean the person lacks capacity to execute a will. Capacity to make a will is governed by a different legal test and requires less mental ability than to make a K or gift. One ct held that a person whose property is under a conservatorship may write a valid will if the trial ct finds that the will was written during a lucid interval...he met the four-point test for capacity. However, legal capacity to make a will requires greater mental capacity than is required for marriage. (Marriage alone will give the surviving spouse a share of the senile spouse's estate, even though he has no capacity to devise it to her!) It will not get a directed verdict; it is for a jury to decide.

Mistakes in execution

○ In re Pavlinko's Estate (CB 220) Facts - Difficulties arose when a husband signed his wife's will, she signed his, and one was taken to probate after both of their deaths. Issue - When a husband signs a wife's will and a wife signs a husband's will, and one of the wills is taken to probate following the death of both husband and wife, can the will be probated? Decisions - No. A will must be signed by the T. Analysis When you have a husband and wife signing wills at the same time, make sure each client signs the correct will. Don't expect the cts to bail you out! The In re Pavlinko case demonstrates the traditional view that cts will not correct mistakes made in wills offered for probate. However, in recent years, some cts and commentators have moved away from this view. For instance, in In re Snide (CB 223), a 1981 NY case, the ct faced the same issue as that addressed in Pavlinko. In Snide, the NY Ct App ordered that the will be reformed such that the husband's name was substituted for the wife's name in the will that he had signed. In the same vein, UPC § 2-503 adopts the dispensing power, which allows cts to ignore lack of adherence to the required formalities if there is clear and convincing evidence that a document is intended as a decedent's will. ■ The Traditional Approach: No Extrinsic Evidence, No Reformation - In construing wills, a majority of jurisdictions still follow (or purport to follow) two traditional rules that, operating in tandem, bar the admission of evidence to vary the terms of the will. ○ Plain Meaning Rule - Extrinsic evidence may be admitted to resolve some ambiguities, but the plain meaning of the words of the will cannot be disturbed by evidence that another meaning was intended. (subject to the personal usage exception, infra) Courts have different degrees of severity as to the plain meaning rule. ○ No Reformation Rule - Refusing to reform a will - Reformation is an equitable remedy that, if applied to a will, would correct a mistaken term in the will to reflect what T intended the will to say. Wills cannot be reformed to correct a mistake! Under current law, the rule against reformation is a total outlier when compared to other will defects (undue influence, duress, fraud, lack of capacity, insane delusion) When the instrument has been proved and allowed as a will, oral testimony as to the meaning and purpose of a T in using language must be rigidly excluded ■ The Personal Usage Exception (an exception to the plain meaning rule) - If the extrinsic evidence shows that the T always referred to a person in an idiosyncratic manner, the evidence is admissible to show that the T meant someone other than the person w/ the legal name of the legatee. "To Mrs. Moseley"—the Tennessee court didn't give it to the actual Mrs. Moseley but to a woman that he continually called Mrs. Moseley (even though that wasn't her name).

Substantial Compliance

○ In re Will of Ranney (CB 226) - Stands for the proposition that it is foolish to insist on literal compliance w/ statutory formalities when that insistence serves to invalidate a will that represents the deliberate and voluntary act of the testator. Facts - The executor of a will void of witness signatures but accompanied by a self-proving affidavit signed by two witnesses petitioned the ct to allow probate of the will. Issue - Should an instrument purporting to be a last will and testament that includes the signature of two witnesses on an attached self-proving affidavit, but not on the will itself, be admitted to probate? Decision - Yes. A will may be admitted to probate so long as it substantially complies w/ the applicable statutory requirements and formalities. Analysis - Ranney introduces the "substantial compliance doctrine." The NJ ct adopted the substantial compliance doctrine by judicial fiat. Could a ct adopt the "dispensing power" or "harmless error" (see below) by judicial fiat? Probably not. If a ct were to do this, it would be completely ignoring the legislature's statute, which cts aren't supposed to do. In adopting the substantial compliance doctrine the NJ ct was at least partially upholding the statute. Relied on UPC §2-503—"substantial compliance" and "harmless error"...but UPC §2-503 is a different ("harmless error") and more liberal standard. Only case in U.S. that has adopted this approach. Difference between "substantial compliance" and "harmless error" We look to the statute in SC to see how close we were...but with HE, we say screw the statute and look to see if the writing and circumstances indicate testamentary intent. ○ What's the difference b/t "substantial compliance" and UPC § 2-503's "dispensing power"? Under substantial compliance (applied in Ranney), if there is clear and convincing evidence that the purposes of the formalities (i.e., the ritual, evidentiary, protective, and channeling functions) were served despite a defective execution (attempted to meet the formal requirements, but slightly failed to do so), the will is admitted to probate. The first thing we do is look at the statute. How close did the T come to meeting the formalities? Did he come close enough (i.e., near-miss standard)?

Insane Delusion

○ Insane Delusion - A person may have sufficient mental capacity generally to execute a will but may be suffering from an insane delusion so as to cause a particular provision in a will (or perhaps the entire will) to fail for lack of testamentary capacity. Only the part of the will caused by the insane delusion fails; if the entire will was caused by the insane delusion, the entire will fails. If insane delusions are shown, but they do not affect the dispositions, then the entire will stands. An insane delusions is a legal, not a psychiatric, concept. An insane delusion—which impairs testamentary capacity—is one to which the T adheres against all evidence and reason to the contrary. Majority rule - A delusion is insane, even if there is some factual basis for it, if a rational person in the T's situation could not have drawn the conclusion reached by the T. Minority rule - If there is any factual basis at all for the T's delusion, it is not deemed insane. Insane delusion cases often involve some false belief about a member of the T's family. ○ In re Honigman (CB 150) - An insane delusion, which affects the will, results in the will being invalid. Jury finds insane delusion, Intermediate Appellate court reverses and judgment is rendered in favor of probate, and now the NY Ct. of Appeals remands under an evidentiary point and the jury verdict is reinstated. Facts - Mrs. Honigman objected to probate of her husband's will, which left the bulk of his estate to relatives, contending that he had an insane delusion that she was being unfaithful. NY had an elective share statute and he gave the minimum amount to his wife. She was obviously disappointed and she would take a greater share in intestacy. Issue - Is a will invalid when an insane delusion might have caused the disposition of the property? Decision - Yes. A will is invalid if the insane delusion caused or affected, or might have caused or affected, the disposition of the property. Dissent—it's a free country...his wife was independently wealthy. And he had a basis for these suspicions. Analysis: Is it the role of the appellate court to decide if he was operating under an insane delusion? Don't we have juries that are supposed to make this decision...and didn't they make his decision? What's going on beneath the surface in testamentary capacity and undue influence cases? A study of California cases some years ago indicated that when mental capacity or undue influence was in issue, the jury found for the contestant in 77% of the cases, and over one-half of the verdicts for contestants were reversed by the supreme ct upon appeal on grounds of insufficient evidence. The ct in Estate of Fritschi (Cal. 1963) complained that a "legion" of appellate decisions have been necessary to reverse juries who invalidate wills based on nothing more than "their own concepts of how testators should have disposed of their properties." Perhaps juries are finding for will contestants in testamentary capacity and undue influence cases, not b/c they actually believe that the T lacked capacity or was subjected to undue influence, but rather b/c they believe the T did not fairly dispose of his property.

Modern Per Stirpes

○ Modern per stirpes (per capita with representation) - TPC § 43 - One looks first to see whether any children survived the decedent. If so, the distribution is identical to that under English per stirpes. However, where no children survive the decedent, as in the above example, then the estate is divided equally (per capita) at the first generation in which there are living takers, which is usually the generation of the decedent's grandchildren. In other words, modern per stirpes provides for: (1) the division of the decedent's estate at the generational level nearest to the decedent in which one or more descendants of the decedent are alive and (2) representation of any deceased descendant on that level by his or her descendants. In the above example, where all of A's children (i.e., B and C) predecease A, A's estate is divided equally among his grandchildren—D (⅓), E (⅓), and F (⅓). If F had predeceased A, leaving descendants, F's descendants would represent F and take F's one-third share. Thus, under modern per stirpes, representation is used only to bring the surviving descendants of deceased descendants up to the level where at least one descendant is alive. This system treats each line beginning at the closest living generation equally. Under modern per stirpes, the cut is made at the first level in which there is at least one living taker.

Non-Claim Statutes

○ Nonclaim (Bar) Statutes UPC § 3-803 (three-pronged approach to notice and barring of claims): (a) All claims against a decedent's estate which arose b/f the death of the decedent are barred unless presented w/in the earlier of the following: (1) 1 year after the decedent's death; or (This 1-year S/L is generally applicable to all creditors, whether known or unknown, and whether or not they received personal notice.) (2) the time provided by UPC § 3-801(b) for creditors who are given actual notice (i.e., the later of 4 months after the publication of notice or 60 days after the delivery of the individualized notice), and w/in the time provided in UPC § 3-801(a) for all creditors barred by publication (i.e., 4 months after the publication of notice). (The claim of an unknown, unascertainable creditor is barred if the claim is not presented w/in 4 months of the publication of notice.) (The claim of a creditor who received personal notice from the personal representative is barred if the claim is not presented w/in the later of 60 days after receipt of the personal notice from the personal representative or w/in 4 months after the publication of notice by the personal representative.) Texas has never had, and still does not have, a nonclaim statute. The general S/L applicable to a particular claim continues to apply after the decedent's death, TPC §298(a), and the S/L does not begin to run until the claim becomes due. Moreover, the death of the obligor tolls the S/L for 1 year or until the appointment of a personal representative, whichever is sooner (b/c, until a personal representative is appointed, there is no one to sue). TCPRC § 16.062. The general S/L is 2 years for tort claims, TCPRC § 16.003, and 4 years for contract claims, TCPRC § 16.004. If permissive (personal) notice is given to an unsecured creditor, the unsecured creditor must present its claim w/in 4 months after the date of receipt of the notice or else the claim is barred. TPC § 294(d); 298(a). Note: In Texas, an estate is not a legal entity: it cannot sue and be sued. Only the personal representative, in his capacity as representative of the estate, can be sued. That is why the S/L is tolled for one year or until the appointment of a personal representative, whichever is sooner, under TCPRC § 16.062.

Non-Probate Prop

○ Nonprobate property passes under an instrument other than a will. Nonprobate property includes: Property passing by right of survivorship (joint tenancies, joint bank accounts) - The decedent's interest vanishes at death. The survivor has the whole property, relieved of the decedent's participation. In order for the survivor to perfect title to real estate held in joint tenancy, all the survivor needs do is file a death certificate of the decedent. Hypo: Suppose that Howard and Wendy Brown owned 200 shares of AT&T stock; the stock certificate names as owners: Howard and Wendy Brown, JTWROS. An attempt by Howard to devise his interest in the AT&T stock to a neighbor would be invalid. JTWROSANATIC - JTWROS and not a tenancy in common Property passing by contract Life insurance - Life insurance proceeds of a policy on the decedent's life are paid by the insurance company to the beneficiary named in the insurance K upon the company's receipt of a death certificate confirming the insured's death. Contracts w/ payable-on-death provisions (e.g., pension plans, IRAs, 401K's) - To collect property held under a payable-on-death K, all the beneficiary need do is file a death certificate w/ the custodian holding the property. Property held in trust - The terms of the trust govern disposition of the property. Property subject to a power of appointment - If the decedent has a testamentary power of appointment over assets in the trust, the decedent's will must be admitted to probate, but the trust assets are distributed directly by the trustee to the beneficiaries named in the will and do not go through probate. ○ Key is to always consider probate and nonprobate assets FIRST before approaching testate and intestate divestitures

Notice To Creditors

○ Notice Statutes for General Unsecured Creditors UPC § 3-801 (a) Personal representative shall publish notice to creditors . . . and notify creditors to present their claims w/in four months after the date of the first publication of the notice or be forever barred. (b) Personal representative may give written notice to an individual creditor, notifying the creditor to present his claim w/in four months after the published notice, if given as provided in subsection (a), or w/in 60 days after the delivery of the notice, whichever is later, or be forever barred. (c) Personal representative is not liable to a creditor or to a successor of the decedent for giving or failing to give notice. TPC § 294 (a) Personal representative shall publish notice to creditors. (d) Personal representative may give personal notice by CRMRRR to an unsecured creditor; if such notice is given, the unsecured creditor has four months to present a claim or the claim will be barred. ○ Notice Statutes for Secured Creditors UPC (not reproduced in supplement) - Personal representative shall give notice to known secured creditors. TPC § 295 - W/in two months after receiving letters, the personal representative shall give notice to known secured creditors. Upon receiving notice a secured creditor has two options for treatment of its claim: (1) Preferred Debt and Lien (default option) - TPC § 306(d) - The secured debt remains in place as before, secured by a preferred lien on the collateral; creditor waives any claim against other assets of the estate based on the decedent's personal liability on the debt; OR • If the secured creditor does not present its claim w/in the time prescribed by TPC § 306(b) (i.e., w/in 6 months after the date letters are granted or w/in 4 months after the date the creditor received personal notice, whichever is later) or if the secured creditor presents the claim w/in this period but w/out specifying how it is to be paid, the claim is given preferred debt and lien status by default. TPC § 306(b); Cessna Fin. Corp. v. Morrison (Supp. III-20). (2) Matured Secured Claim - TPC § 306(c) - The note is accelerated and paid in full now (i.e., after the debtor dies the secured creditor takes advantage of this final opportunity to realize on the personal liability of the decedent). • The secured creditor must make a specific election for matured debt status w/in 6 months after the date letters are granted (or w/in four months after the date the creditor received notice under TPC § 295, if that date is later) or the secured creditor will automatically be relegated to preferred debt and lien status by default. TPC § 306(b); Cessna Fin. Corp. v. Morrison (Supp. III-20). Situations where preferred debt and lien status is preferable to matured secured claim status: The debt carries an interest rate that is higher than the current mkt rate. Hopelessly insolvent estate and the debt is undersecured: A preferred debt and lien claim is preferred over every claim, including Class 1 (funeral expenses and family allowance) and Class 2 (expenses of administration) claims. A matured secured claim is a Class 3 claim, subordinate to funeral expenses, the family allowance, and the expenses of administration. Ex: $180K mortgage, $150K collateral. • In this example, if the creditor elects preferred debt and lien status, the creditor would get the entire $150K value of its collateral if the house is sold in a foreclosure. If the creditor had elected matured secured claim status in these circumstances, funeral expenses, the family allowance, and the expenses of administration would have been taken from the $150K proceeds of the foreclosure sale of the house, leaving the creditor w/ significantly less than the $150K value of its collateral.

Per Capita at Each Generation

○ Per capita at each generation - UPC § 2-106(b) - The initial division of shares is made at the level where one or more descendants are alive (as under modern per stirpes / per capita with representation), but the shares of deceased persons on that level are returned to a single pot which is divided equally among the representatives at the next generational level. Thus, in the situation pictured below, D takes a ⅓ share; the two-thirds that would have passed to B and C had they been living is divided equally among all the children of B and C. Thus, E, F, and G each take 2/9 shares. This system treats each taker at each generation equally w/ the other takers at that generation. That is, each taker on the same generational level takes the same share. The premise of this approach is that those equally related to the decedent should take equal shares: "Equally near, equally dear." The per capita at each generation system is applied to descendants of parents and grandparents of the decedent, when they are entitled to take, as well as to descendants of the decedent. UPC § 2-106(c).

Postponed Gifts

○ Postponed Gifts - If the gift is postponed in possession until a life tenant dies, the class will not close under the class-closing rule until the time for taking possession. Thus, a gift to a class of remaindermen will not close until the life tenant is dead, and it will not then close under the rule of convenience unless one remainderman is entitled to possession. This rule applies only to distribution of principal, not to gifts of income. In a trust to pay income to the children of B, the class closes for the payment of income periodically as the income is accrued. Case 22 - T bequeaths $10,000 "to A for life, then to the children of my daughter B." The class will not close in any event, under the rule of convenience, until the death of A. Suppose that B survives A. The class will close at A's death if: (a) a child of B is then alive, (b) a child of B predeceased T and the gift did not lapse but went to such child's issue under an antilapse statute, or (c) a child of B was alive at T's death or was born after T's death and such child predeceased A. In each of these cases, a child or the child's representative can demand payment at A's death. Suppose that, in the above Illustration, at the death of A, B has not yet had any children born to her. Will the class be left open until the death of B, as in the case of an immediate gift to a class where no one has yet been born at the time of taking possession? Restatement (Third) of Property states that the answer is Yes, but there are few cases on the matter.

Presumption of Revocation

○ Presumption of Revocation - If the evidence establishes that T had possession of her will prior to her death, but the will is not found among her personal effects after her death, there is a rebuttable presumption that T destroyed the will. (Harrison). In some states, however, if after T's death a disinherited heir goes in T's house looking for the will, reports that it cannot be found, and no will is found, this destroys the presumption of revocation. ○ Harrison v. Bird (CB 287) - If a person destroys a copy of his or her will, a presumption arises that the will and all duplicates, whether in or out of the person's possession, have been revoked. BETTER if testator had the will and its not found or its found destroyed, testator did it with intent to revoke. But when a lawyer keeps the will and can't find the will @ time of death, there's no presumption of revocation because testator never had it to revoke it. ○ ALSO a disinherited relative having access to a will before it's missing - and after testator's death - is enough to rebut the presumption that the testator destroyed it.

Pre-Printed Form Wills

○ Problems Arising from Using a Pre-printed Form Will - A recurring problem under the heading of whether the entirety, or if not, how much, of the holograph must be in the T's handwriting is the T who writes her will on a preprinted will form but fails to have the form properly witnessed. If the instrument t/f fails as an attested will, can it be probated as a holograph. On this question cts have reached surprisingly inconsistent conclusions, even w/in the same jurisdiction. Two Arizona cases involving fill-in-the-blank form wills (CB 242): Estate of Mulkins (Ariz. App. 1972, CB 242) - This case was decided under a first generation holographic will statute requiring that the will be entirely in the handwriting of the T. Although the ct found that the printed portions of the will were intended to be part of the will, it rejected using an "intent theory." Instead, the ct treated the preprinted language as "mere surplusage" to be ignored. W/out the printed language, the handwritten portion is hard to follow. Nonetheless, the ct held that the "important thing is that the testamentary part of the will be wholly written and signed by the T." Applying this standard, the ct found that the printed words of the will were not essential to the meaning of the handwritten words and thus the holograph was upheld. The surplusage rule ("plastic overlay sheet") that the Mulkins ct applied provides that if the typewritten or mechanically reproduced words are not necessary to complete the meaning of the will—i.e., if the handwritten provisions made sense and form a complete will w/out the typewritten portions—the typewritten or printed words will be disregarded as "surplusage" and the instrument may be probated. Estate of Johnson (Ariz. 1981, CB 242) - The T wrote his will on a stationer's form, filling in certain blanks in his own handwriting and then signing it. The will was also notarized, but it did not qualify as an attested will for lack of the required two witnesses. B/c this case arose after Arizona adopted the 1969 UPC, the question was whether the "material provisions" of the will were in the T's handwriting. Despite working from a more permissive statute than was in force when Mulkins was decided, the ct held that the will could not be admitted to probate on the ground that the printed words of the will were essential to establish testamentary intent and hence were material provisions. The ct was not convinced by the argument that "To John M. Johnson 1/8 of my Estate" expressed testamentary intent. UPC § 2-502(c) addresses this issue by establishing that testamentary intent may be established by looking to extrinsic evidence. The comment says that holographs may be written on a printed will form if the material portions of the document are handwritten.

Firing Independent Executor

○ Remedies Against the Wrongdoing Independent Executor TPC § 152 - Closing Independent Administration Upon Application by Distributee - The problem was that this cause of action went to the duration of the administration, and not to the executor's conduct. The burden is on the distributee to establish that there is no longer a need for administration. Compare to the action to petition for distribution under TPC § 149B (below), which does go to the executor's conduct but only becomes available to distributees 2 years after the independent administration went into effect. TPC § 149 - Requiring Independent Executor to Give Bond - If a distributee shows that the independent executor is mismanaging the property, or has betrayed or is about to betray his trust, the independent executor may be required to give bond. Incredibly, if it was established in such a proceeding that the independent executor was acting improperly, the ct could not remove him. All the ct could require was that the executor give bond! As a practical matter, though, this afforded a satisfactory remedy in most cases. If the executor could not come up w/ the amount of the bond on his own, no surety company would touch him in the face of serious allegations of misconduct. And if the executor did not furnish bond when so ordered, he could be removed. O'Connor v. O'Connor - Receivership for the Estate - authorized the appointment of a receiver for the estate upon findings of misappropriation of funds and other wrongful conduct by the executor. B/c the authority for this remedy is the district ct's general equity jurisdiction over fiduciaries, this type of suit must be filed in the district ct (not the probate ct). TPC § 149A - Right to an Accounting - Any interested party (i.e., distributee, creditor) can demand an accounting from the independent executor at any time after the expiration of 15 months from the date of the order appointing the executor. The independent executor has 60 days in which to make the accounting. If he fails to do so, he can be removed. TPC § 149B - Right to Petition for Distribution - In addition to or in lieu of the right to an accounting under § 149A, an interested person can petition for an accounting and final distribution of the estate 2 years after the independent administration was created. Compare to TPC § 152 (above), which authorizes a distributee to file an application to close an administration. Under § 152, no time period is set out in the statute, and the burden is on the distributee to establish that there is no longer a need for administration. Section 149B shifts the burden of persuasion to the independent executor. The statute provides that the ct may close the administration and order a final distribution "unless the ct finds a continued necessity for administration of the estate." TPC § 149C - Removal of Independent Executor for Cause - The statute lists the specific grounds for removal in subsection (a): (1) The independent executor failed to file an inventory and list of claims of the estate w/in 90 days after qualification. (2) Sufficient grounds appear to support belief that he has misapplied or embezzled, or that he is about to misapply or embezzle, all or any part of the property committed to his care. (3) The independent executor fails to make a required accounting. . . . (5) He is proved to have been guilty of gross misconduct or mismanagement in the performance of his duties. (6) The executor becomes incompetent, is sentenced to the penitentiary, or for any other cause becomes legally incapacitated from properly performing his duties. (c) An independent executor who defends an action for his removal in good faith, whether successful or not, shall be allowed out of the estate his necessary expenses and disbursements, including reasonable attorney's fees, in the removal proceedings. (d) Costs and expenses incurred by the party seeking removal of an independent executor appointed w/out bond, including reasonable attorney's fees and expenses, may be paid out of the estate.

Requirements of Holographic Wills

○ Requirements for a Valid Holographic Will To be valid, a holographic will must be written by the T's hand and signed by the T. Out of this simple formulation, however, arises two important interpretive problems: (a) the nature of the requirement that the T sign the holograph, and (b) whether the entirety, or if not, how much, of the holograph must be in the T's handwriting. (a) Signature - In almost all states permitting holographs, a holograph may be signed at the end, at the beginning, or anywhere on the will, but if not signed at the end there may be doubt about whether the decedent intended his name to be a signature. "Signature" includes any mark intended as T's mark. See, e.g., Estate of Kimmel ("Father" can be a valid signature). (b) Extent written in the T's own handwriting - On the issue of how much of the holograph must be written by the T's hand, the statutes fall into three categories: (1) First generation statutes: "entirely, written, signed, and dated." The first generation of holographic will statutes required that the holographs be "entirely, written, signed, and dated" in the handwriting of the T. Under these statutes holographs were sometimes struck down even when they included only one or two printed words. Texas still requires that a holograph be entirely in the handwriting of the T. See TPC § 60. Such a holographic will may be made self-proved at any time during the T's lifetime by the attachment of an affidavit by the T to the effect that the instrument is his last will; that he was at least 18 years of age when he executed it; that he was of sound mind; and that he has not revoked such instrument. TPC § 60. If a holographic will is not made self-proved, it shall be proved by two witnesses who can attest to the T's handwriting. TPC § 84(c). (2) Second generation statute (1969 UPC): "material provisions." The inconsistent and harsh results under statutes requiring that the entire holograph be handwritten led the drafters of the original 1969 UPC to require only that "the signature and the material provisions" of the holograph be in the T's handwriting. Still, cts struggled w/ wills that were partially typed and partially handwritten b/c sometimes the language that indicated testamentary intent was printed rather than written out by the T. Although some cts were willing to look to the printed words to establish testamentary intent, others were not. Five states still have holographic will statutes based on the 1969 UPC. (3) Third generation statutes (1990 UPC): "material portions" and extrinsic evidence allowed. Unhappy w/ cts continuing to strike down seemingly reliable holographs, the drafters of the 1990 UPC tried yet again to make it easier to make a valid holograph. The requirements that the "material provisions" be handwritten was changed to "material portions." See UPC §2-502(b). Although this would seem like a trivial change, it was intended to allow the probate of a holograph even if "immaterial" parts such as the date or introductory wording are printed. As an example, the comment to § 2-502(b) states that language such as "I give, devise and bequeath to" in a preprinted will form should not disqualify the instrument as a valid holograph if the T fills in the rest by hand. The 1990 UPC also explicitly allows extrinsic evidence to be used to establish testamentary intent, thus further encouraging cts to look at the printed words in addition to the handwritten ones. UPC § 2-502(c).

Revocable Management/Living Trust

○ Revocable Management Trust ("Living Trust") Trusts: Creation and Characteristics Background A trust is a device whereby a trustee manages property as a fiduciary for one or more beneficiaries. The central feature is the separation of legal title from beneficial enjoyment. The trustee holds legal title to the property and, in the usual trust, can sell the property and replace it w/ property thought more desirable. The trustee bears burdens of ownership. The purposes for which trusts can be created are virtually unlimited. The beneficiaries hold equitable title and, in the usual trust, are entitled to payments from the trust income and sometimes from the trust corpus too. No consideration is required to create a trust. Beneficiaries receive benefits of ownership. The trust provides managerial intermediation. B/c the trustee manages the property on behalf of the beneficiary, the trust separates the benefits of ownership from the burdens of ownership. The primary focus of this course is on the private express trust created gratuitously for the benefit of individual beneficiaries. The private express trust can be used to effect numerous forms of gratuitous wealth transfer. Here are 5 common uses of trusts in estate planning: • (1) Revocable trust - O declares herself trustee of property to pay the income to O for life, then on O's death to pay the principal to O's children. O retains the power to revoke the trust. A revocable trust avoids the delays, costs, and publicity of probate. • (2) Testamentary marital trust - The federal estate tax law permits a marital deduction for property given to the surviving spouse. The deduction is allowed for a life estate given to a spouse. To get the deduction, H devises property to X in trust to pay the income to W for her life, and on her death to pay the principal to H's children. This trust qualifies for the marital deduction. No estate taxes are payable at H's death; they are postponed until W's death. • (3) Trust for incompetent person - O's son A is mentally or physically impaired and is unable to manage his property. O transfers property to X in trust to pay the income to A for life, remainder to A's issues, and if A dies w/out issue to his sister B. • (4) Trust for minor - The federal gift tax law allows a tax-free gift of $11,000 per year to a donee. A gift to a minor creates special problems inasmuch as the minor is legally unable to manage her property. To permit annual tax-free gifts of $11,000 to his minor daughter A, O creates a trust to use the income and principal for the benefit of A b/f she reaches 21, and to pay A the principal when she reaches 21. Every year O can make a tax-free gift of $11,000 to the trustee for A. • (5) Discretionary trust - T devises property to X in trust. The trust provides that X (trustee) in its sole and absolute discretion may pay the income or principal to A, or for A's benefit, as X may see fit. Or X may be given discretion to pay income to any one or more of a class of persons, such as A and her issue. Discretionary trusts are useful in lessening the tax burden on family wealth by distributing income to the members of the family in the lowest tax brackets. Discretionary trusts are also useful in preventing creditors of the beneficiary from reaching the income or principal of the trust.

Reasons for Mental Capacity

○ Why Require Mental Capacity? - Commonly cited explanations include the following: A will should be given effect only if it represents the T's true desires. Under such a theory, it might make sense to deny probate to an "irrational" will that does not represent the T's rational desires. The law requires mental capacity to protect the decedent's family. Giving effect to the expectations of inheritance tends to preserve the family as a unit for mutual support. The institution of inheritance, through the principle of reciprocity, functions as a system for providing care and support for the aged. The requirement of mental capacity assures a sane person that the disposition the person desires will be carried out even if the person later becomes insane and makes another will. Requiring mental capacity may protect a senile or incompetent T from exploitation by cunning persons. If the incompetent could make wills, then many institutionalized people would be subject to imposition by the unscrupulous. However, what may look like exploitation to some may give the T much pleasure. Also, exploitation may be adequately remedied by setting aside transfers on the ground of undue influence.