Trusts and Estates

10 February

• Finishing wills today.
• To revoke a will, you need the same capacity as you did to make the will; intent, and formalities, too. (it's not sufficient just to observe the formalities).
• It is possible to have more than 1 original copy. A proper revocation of one original copy revokes them all, in theory. In practice, who would know? So that would be ad dumb idea.
• Problem 10a: § 854.11(1m) [trivia: note that 1m comes between 1 and 2]. We have intent, we have tearing of the will. Was this conscious presence, though... You can argue either side of this, of course. The actual outcome will depend on "legal culture" and the way the decisionmaker feels. The modern trend is probably to allow this (as opposed to letting a technical violation take over), but traditionalists may not be comfortable to do anying not strictly in the statute. The decisionmaker might be a judge, of course, or it might be the lawyer for the other side. How a lawyer views the situation and tells the client might be very influential, in other words.

  Risk of undue influence: the lawyer doesn't know the circumstances of the caller-- is there a gun to his head? Also, lawyer should maybe return the ripped-up pieces to the client, just for the sake of closure.

  Law in action: a decisionmaker might revive the will if it seems closer to the testator's intentions than intestacy. That's the sort of factor that might make telecommunication seem like a bad idea. Of course, if the will is gone, then it's gone, and maybe nobody knows what was in it-- it could be revoked just de facto, regardless of whether the revocation was properly done.

• "Revocation by inconsistency:" a new will trumps an old one.
• § 856.17: lost will statute. If you can show what's in a lost will, you might be able to revive it.
• Problem 10b: UPC § 2-503 is the harmless error statute. If an instrument is intended to be an instrument of testamentary transfer, then errors in the formalities of execution are forgiven. Well, at the very least, this doesn't make the revocation less likely.
• Revocation by physical act is a strange doctrine. How does anyone know who tore up a document? Or who crossed a piece out? Legal systems can have rules that are contradictory in principle, if not in technical detail. So lots of hocus-pocus to create a will, but many ways to get rid of one.
• Problem 11a: Additional facts: the kids were cussing at dinner. This could not be put in the problem set, nor could the father's response.

  Maybe-leaning-towards-yes is a credible answer. Under § 853.11(1m), partial revocation is OK (not all states allow this, by the way, nor do all allow revocation by physical act). And there's complex law about canceling, but these lines go right through the words (that's what is required).

  But what is the difference between tearing up a page and tearing out a page?

  And does someone, in a fit of rage, have capacity to revoke a will?

  So those are possible issues, and they might influence the outcome, depending on where the decisionmaker wants to go.

  Anyway, if the will is revoked, the whole estate goes to the charity. This means the charity is kind of a big decisionmaker here-- maybe they don't want to be the source of acrimony. Of course, the size of the estate might also be a consideration. In general, charities don't like to get into spats with donors and their families. Every rule has an exception, though, so you never really know.

• Problem 11b: yes, the charity would get 50%, and there are no statements about the remainder. That means it goes through intestacy (he's a single parent), so it goes to the children. § 852.01(1)(b). Note here that the decisionmaker is no longer the charity, it's the buardian ad litem.
• Revival and Dependant Relative Revocation are nice topics, but rarely invoked in real life.
• Revival: this is mostly for people who tend to make lots of wills. When you revoke one will, you can revive an old one. This is not a recommended plan, though. Just make a new one.
• Dependent Relative Revocation: when revocation was made dependent on some fact that wasn't really in effect. We had Will1, then we made Will2, and tore up Will1. But then we realize that there was only one witness for Will2, and it's therefore invalid. But Will1 is all ripped up! What to do? Well, revocation of Will1 was dependent on the belief that Will2 was valid. Of course, getting Will1 back depends on knowing what was in it, having a copy, or some such. But Will1 is considered not to have been really revoked, and so people can allege what was in it, and have lots of fun that way, in an effort to avoid intestacy.
• Safeguarding of wills: states vary. WI is pretty strict-- the Supreme Court says that telling clients to leave their will with their lawyer is an ethical violation because it amounts to solicitation of business.

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• Problem 12: the big will
  • Simpler terms would be nice. Plain English (although many would disagree: a lawyer should speak like a lawyer, and clients expect it).
  • It is important-- in any legal document-- to work off of a form, but only if you have a full understanding of what's in the form and why it's there. You want annotated will forms. Boilerplate accumulates, though.
  • It probably makes sense to say explicitly that you revoke all previous wills (this makes it clear to the testator, even if it's redundant with the statute).
  • "All of my property" covers everything, but then it goes on and on. Maybe "real and personal" is OK, but everything after that just creates confusion. "Wherever located" might be relevant, just to make sure that the will gets admitted in jurisdictions where there's real estate. And maybe "entitled to" is OK, just to make it clear that rights to things are included.
  • Ought to leave to children in trust, not directly to children, if wife doesn't survive. This means that the guardian will have discretion over it, which may or may not be a problem (administering this much money could be a chore). Also, as a guardian, the court has supervision over how the money gets spent, and might deny legitimate things.
  • What about the gap in ages between the kids? Should we apportion the money differently between them, given that one is going to be under guardianship for so much longer than the other.
  • One nice things: it's got nice short sections. You might want to use headings and sub-headings.
  • Uh-oh: it says it consists of two pages, but it doesn't. That's a problem. Might be a good practice not to say the number of pages, just because it leads to accidental error. Same with initialing every page.
  • And the date wasn't filled in.
  • Backup guardians: have as many as you can think of. You can even name people who aren't guardians but who are empowered to nominate guardians if none of the guardians will/can serve.
  • Law-in-action point: you might want to write a letter that makes the family feel OK and get them to do what you want them to do.
  • Note a difference between trust and guardianship. Under a trust, you can send the grandparents to visit the kids; under guardianship you could send the kids to visit the grandparents, but not vice-versa because that would be spending money on the grandparents and not the kids.
  • In the FOURTH clause, we encounter confusion about personal property-- does that include the household equipment?
  • Also see the FIRST clause, about the "just debts." This is probably not a good idea, and maybe you don't want to pay all your debts right away. Say, for example, a long-term mortgage at a favorable interest rate.

12 February

• Trusts are often considered to be the most confusing part of the course.
• It's a bunch of rules or instructions about some property, where somebody has agreed to carry out those instructions. It can look like a bailment (you put your car "in trust" with a parking garage, e.g.). It looks sort of like agency, except that the principal is gone.
• Trusts generally involve active management without supervision.
• Corpus = principal = trust-estate. This is required (if there's nothing to take care of, there's no trust).
• Terms of the trust = instructions. This is also required-- if the trustee isn't given anything to do, there's no trust.
• Trustee. Also required. But you can always find one of these if needed.
• Beneficiary. Required, too. Doi.
• Intent is required, too. You can't create a trust without intent.
• Three reasons to set up a trust
  1. Control (usually of the beneficiary). This isn't a negative thing, necessarily.
  2. Avoidance of legal rules (evasion, even; avoidance is not illegal, but evasion might be). Tax rules, creditor rules, spousal rights. Trusts come out of equity, not common-law origins, and they are generally thought of as more flexible.
  3. Management. Someone doesn't want to have to manage their property, so they name a trustee to take care of it.
• There is no way to answer a specific question about a trust without reading a document. The name tells you pretty much nothing specific.
• The four common times trusts are used:
  1. Support for minors/orphans. This should be the most commonly drafted trust, but it doesn't often get used, just statistically speaking.
  2. Revocable living trust. A living trust just means any non testamentary trust (i.e., created when you are alive). Revocable just means it can be revoked. So, obviously, any revocable trust must be a living trust, because the dead cannot revoke.
  3. Credit shelter trust. You can pass any amount to your spouse tax free, but only $3.5M to another. So suppose you'ge got joint assets of $4M; one spouse probably only owns 50% of that. But when the first spouse dies, the estates "stack," and the second spouse's estate will be taxed on death. Spouse 1 puts $3.5M into a credit shelter trust for the spouse.
  4. Marital trust. Instead of leaving property outright to your spouse, you leave it in trust to your spouse. This is like the Credit Shelter Trust, except that that one is mostly a tax shelter. This is just to put limits on your spouse's use of the property (i.e., if loyalties are divided: you have children from a previous relationship, etc.).
• Some common trusts:
  • 401(k): this is heavily regulated, and in the context of business. Lots of businesses are organized as trusts outside the US. But anyway, we're not really talking about this in terms of estate planning. This is mostly a "management" type trust.
  • Charitable trusts: this is mostly an "avoidance" thing: the IRS even has regs specifying how to set up charitable trusts to minimize tax burdens. This is also a "control" thing, though, because you could just give the property to the charity outright.
  • Education trust: this seems like a control thing-- set funds aside for the specific purpose of education. Maybe there's some avoidance of tax/creditors.
  • Support trust: for minors or orphans.
  • Credit Shelter Trust (B trust, family trust, bypass). This is avoidance, and maybe also control of the spouse.
  • Dynastic trusts (a big deal among wealthy people). This is for avoidance of taxes (there are limits to what you can do with this) and also control (the grandchild can have $1M per year, but only if they have a job, don't do drugs, marry a nice person of $TYPE_X, etc.).
  • RLT (Revocable Living Trust): management of property during life, and avoidance of probate at death. Avoidance of probate is a worthy goal.
  • Marital trust. Control. "Use a trust if you don't trust somebody."
• There are a number of FAQs for this chapter on the web site. We're not going to go into insane detail here.
• Problem 1: Lee is OR Supreme Court justice Lee, who is being sued by his daughter. And Lee was not a popular justice, so the others are kind of dumping on him. These are pretty extreme facts, and there's a lot of law in action at work here. We should not assume that all similar cases would be resolved the same way.

  Part A: There's property, a settlor, some terms, intent, and a trustee, so the short answer is yes. § 701.01 : all the elements are there. Trusts do get created orally, and can "arise out of a manifestation of intent. § 701.01(7). And we've got that, if the decisionmaker is willing to say so. Not all decisionmakers might read the Jimenez facts the same way. Note that the court could well have entertained dispute about the terms, but they just sort of accept that it's for education.

  Part B: We assume the settlor is still alive. In WI, we assume it's irrevocable unless explicitly said otherwise. The default is irrevocable here, but that's in caselaw, not in the statute. So when you make a trust, say explicitly what you want-- maybe even in the title of the trust. You don't want ambiguity.

  Part C: Taxing authorities might care; college financial aid people would want to know if she had this asset or not; creditors might like to know. We don't need to know in detail what their interests are, or what the implications are, but we do need to know that it matters what assets people have.

  Part D: Statue of frogs- no oral transfers of land. You might get a constructive trust as a result (if unjust enrichment would result otherwise).

• Constructive trust: there's not a trust, but were going to grant this remedy because the alternative would be worse.
• With trusts, technical violations are less and less of interest-- there's a strong trend in favor of accomodation. Basically, if there's no reason to deny a trust, we'll allow it.
• Problem 2
  • A: Merger is a risk here-- this looks like merger. There's no reason to talk about this in terms of a trust: the trustee's interests and the beneficiaries are identical. There's no particular case law in WI on this, however, but there's no strong reason to say this isn't a trust. We wouldn't let him avoid creditors this way, but if he becomes incapacitated, the trust makes sense. So a good practice would be to name another beneficiary, and also to name T as having power of attorney, just in case. Still, this would only be a merger problem if someone objected, and the objection was sustained. The first is unlikely, and the second is disfavored.
  • B: This is a resulting trust. This isn't a technical violation. It's a planning problem, but it's basically just a trust that ran out of terms: they didn't cover all contingencies. So it could either stay with C or go back to the Donor, and the general rule is that the resulting trust goes back into D's estate.
  • C: Problem is that C is the trustee, and something is supposed to get done with the trust after C dies. But the logical outcome is simple, because there's a practical resolution. A trust shall not fail for want of a trustee. When a trust has a problem, we just try to solve it.
  • D: Secret and semi-secret trusts. From a drafting point of view, NEVER do this. It always causes problems. This is going to be court supervized, because it's testamentary, but how are they going to know if the trustee is doing what they're supposed to? So one solution is to declare this invalid: give it to the residue or to intestacy. Another: just trust the trustee, and ask what the terms of the trust are, and then monitor those. Really could go either way. And if you have a secret trust, and a creditor comes after you, well, you can't prove that the assets are in trust. This just isn't practical. Nor is it necessary. There's almost never a reason to keep a trust secret, and it causes all kinds of practical problems: how will the secret trustee actually operate?
• Testamentary trusts are a great thing if you don't expect to use them (i.e., as a standby in case your kids get orphaned). Revocable living trusts are a bit more complex to set up: every asset you want covered by the trust has to be transferred to the trust.