When the will is signed by another person ( proxy signature): such person must also her name, cannot be counted as one of the two needed attesting witnesses and shall affix her address
Testator’s signature must be at the end of the will.
words after the signature are ignored.
any mark intended as testator’s mark satisfies the signature requirement
T must sign the will ( or acknowledge earlier signature) in presence of each witness.
he must bring to the attention of the witnesses that he has already signed the will, as by proffering the will for their signatures with his signature showing
Will publication: testator must publish the will: must communicate to the witnesses that they are witnessing a will.
Two attesting witnesses.
they need not sign in each other’s presence
they do not need to sign in the testator’s presence
Execution ceremony must be completed within 30 days
the period starts when the first witness signs.
Proof of wills in probate
Probate refers ti surrogate’s court proceeding in which it is judicially determined that the decedent left a validly executed will and a personal representative is appointed to administer the decedent’s estate
The burden of proof as to the due execution of the will is on the will proponent. If the will is not self-proved, both attesting witnesses must testify as to the facts necessary to show due execution. If one witness is dead, absent from state, incompetent or cannot with due diligence be found, testimony of other witness suffices. If none of the witnesses is able to testify, proof of signature of testator and one witness.
Attestation clause
Which appears below the T’s signature line and above witnesses’ signature line, recites all the elements of due execution:
"on the above date, testator declared to us that the foregoing instrument was her will and she asked us to serve as witnesses thereto. She then signed the will in our presence, we being present at the same time. We then signed the will as attesting in testator’s presence and in the presence of each other"
It is not a validity requirement, BUT it IS prima facie evidence of the facts recited.
It is useful when
the witness as a bad memory
If the witness is hostile.
Self-proving affidavit procedure recognizes that most probates are harmonious and no on is contesting the will’s validity. Witness sign sworn affidavit that recites all statements they would make if called to testify under oath. It can be signed at any time after the will is executed, it is usually signed at the same time. Unlike attestation clause, self-proving affidavit serves the same function as deposition or interrogatory. The will is admissible to probate on strength of affidavit unless interested party objects, in which case the formal rules of proof of due execution apply.
Interested party statute- beneficiary is an attesting witness
The interested witness situation never affects the validity of the will. The only consequence is that the gift to the witness is void.
Exception: the bequest to the witness is not voided if:
Supernumerary rule: there were three witnesses and the other two were disinterested.
Witness would be an intestate distributee if testator had died without a will: in which case a whichever is least rule applies: take lesser if amount given in the will and intestate share
Being an executor is a compensation not a gift, thus not a beneficiary.
Will executed in another state:
Foreign wills Act:
The will is admissible to probate in NY if validly executed under
New York Law or
laws of place where it was executed, regardless of testator’s domicile at the time or
laws of the place where testator was domiciled, wither when will was executed or at death.
Then if the will is admissible to probate, the law of NY of construction apply.
Holographic ( written and signed but unwitnessed ) wills are invalid except
Holographic is a term of art that refers to handwritten unwitnessed wills.
for armed forces
declared/ undeclared war.
Marines at sea.
If it is handwritten but witnessed, it is valid
A lawyer’s duty is only to the client who contracted for the attorney’s services:
NY follows the rule of privity of contract.
The decedent.
Thus no negligence action can be made by beneficiaries
Revocation of wills
What constitutes a valid revocation: a will can be revoked only
By a subsequent testamentary instrument, executed with the appropriate formalities or
By physical act.
Burning, tearing, cutting, canceling, obliteration, or other act of mutilation)
If two instruments:
To the extent possible you read the two instruments together. The second last will is treated as a codicil to the first will, and revokes the first will only to the extent of inconsistent provisions. But it second will is wholly inconsistent with first, the first will is revoked by implication
Revocation by physical act by another person ( revocation by proxy) must be:
At the testator’s request
In his presence
And must be 2 witnesses to the act.
Presumptions regarding revocation of wills
Where will was last seen in T’s possession or control is not found after death, presumption: T revoked the will by physical act
Where the will was last seen in T’s possession or control is found mutilated after T’s death: t revoked the will by physical act.
Neither presumption arises if the will was last seen in the possession adversely affected by its contents
Evidence is admissible to rebut the presumption of revocation where will cannot be found or is found in damaged condition.
Changes on the face of will after it has been signed and witnessed.
Words added to will after the will is signed are disregarded as unattested words
Partial revocation by physical act is not recognized in NY.
There is only way to change a will validly, properly executed will.
No revival of revoked wills; dependent relative revocation
Will 1 revoked will 2 was executed.
General rule is that a will is an ambulatory document that has no legal effect during the testator’s lifetime, ad is effective only at his death. This is the one exception to the general rule, a will can revoke an earlier will made by the testator.
No revival of revoked wills
It can only be revived on one of two ways
if it was reexecuted
signed again by the testator and two witnesses
the doctrine of republication by codicil applies.
Dependent relative revocation might be applied by the NY courts in this case
This CL doctrine permits a revocation to be disregarded when premised upon, conditioned upon, dependent upon, a mistake of law as to the validity of another disposition. Effect would be to disregard the revocation of the second will and permit its probate. This doctrine.
if given a question on this, argue both ways.`
Application of DRR is sometimes called the second best solution doctrine. The doctrine should never be applied unless disposition that results from disregarding the revocation comes closer to doing what the testator tried to do than an intestate distribution.
Proof of loss will statute
Due execution must be proved as in any case
Must be established that the will was not revoked.
All provisions of the will must be clearly and distinctly proved by each of at least two credible witnesses or by a copy or draft of the will proved to be true and complete
The no revival rule applies to codicils as well as they are part of the will.
Death of beneficiary during testator’s lifetime
NY anti-lapse statute
When a will beneficiary predeceases the testator, the gift lapses because you can’t make a gift to a dead person.
Unless the gift is saved by the state’s anti-lapse statute.
It only applies when the decedent was the testator’s issue or broth or sister and leaves issue who survive the testator.
The statute preempts the will because it names the substitute takers.
If the gift was conditioned upon the survival of the beneficiary. Then the gift fails, the anti-lapse statute does not apply.
The gift falls into the residuary estate.
Lapse in residuary estate: surviving residuary beneficiaries rule
Who takes the residuary estate?
Only a relative
If residuary estate is devised to two or more persons and the gift to one fails for any reason, the other residuary devisees take the entire residuary estate, in proportion to their interests in the residue
Anti-lapse statute preempts the surviving residuary beneficiaries rule.
Simultaneous deaths
Uniform simultaneous death Act
If two persons die under circumstances such that there is no sufficient evidence that they have died otherwise than simultaneously, the property of each is distributed as though he or she survived.
The anti-lapse statute will apply.
If joint tenants or tenants by the entirety die simultaneously, one half passes under H’s will as though H survived W, one half passes as though W survived H. simultaneous deaths prevent operation of the right of survivorship. In effect, the property passes as though a tenancy in common is involved.
There is no time requirement for survival after the death of the first person.
Class gifts
The rule:
If a will makes a gift to a roup of persons generically described as a class and some class members predeceases the testator, the class member s who survive the testator take.
Rationale: testator was group minded in making the gift, and wanted this class of persons - no one else- to share ownership of the property.
Contrast result when the beneficiaries are named individually, it is not a class gift anymore, the share fells into the residuary estate.
When the gift is made to issue, the anti-lapse statute applies.
The anti-lapse trumps the class gift rule
Rule of convenience
The class is closed when the distribution is made.
after born don’t take
Intestate succession:
The statute of descent and distribution apply when
Decedent left no will
Will does not make a complete disposition of the estate
An heir successfully contests the will, and the will is denied probate
Surviving spouse gets $50000 + half of the balance
Parents and collateral kin never inherit if survived by one spouse.
Issue take per capita at each generation
Make initial division of shares ( with one share per line of issue) at first generation level at which there are living takers
Shares of deceased persons at that level are combined and then divided equally among the takers at next generation level
Persons in the same degree of kinship to the decedent always take equal shares.
Intestate decedent not survived by spouse or issue
All parents or surviving spouse
If the intestate decedent is not survived by parents
Issue of parents take per capita at each generation
brother, sister, issue of deceased brothers and sisters
If not survived by parents or issue of parents: ½ to maternal grandparents or surviving grandparent or to their children and grandchildren, who take per capita at each generation. ½ to paternal grandparents or grandparent in the same manner. If no maternal grandparents or issue, all to all paternal grandparents or their issue ( vice versa)
If none of the above, great grandchildren of grandparents. If none of the above persons - if decedent’s nearest kin are great-grandchildren, ½ in equal shares to maternal side, and the same for the paternal side, if no great-children one side, all to the other side.
No inheritance beyond great-grandchildren of grandparents. The estate will escheat to the State of NY.
Inheritance rights of adopted children and their issue.
Adopted children and their issue have full inheritance from adopting family.
Child adopted by a new family has no inheritance rights from natural parents or their kin..
Exception:
where child is adopted by spouse of a natural parent, the child and its issue can inherit from adopting parent and either natural parent
If child adopted by a relative: if the adopted child is related to the decedent by both a natural relationship and adoption, the child inherits under the natural relationship unless the decedent was the adopting parent, in which case the child inherits under the adoptive relationship
Construction of class gifts: the adopted out child
The adopted out child does not get gift made to natural family because he shouldn’t get two bites of the apple
Inheritance rights of non marital child
Child born out of wedlock has full inheritance rights from the mother and vice versa.
A non marital child inherits from the natural father only if:
Legitimated by marriage or
Order of filiation in a paternity suit, entered during the father’s lifetime, adjudicating the man to be the child’s father or
Father files affidavit of paternity, it is filed with the putative father registry. Or
Paternity established in probate proceeding by clear and convincing evidence plus other evidence.
You can’t exhume a body but you can use blood samples taken before death.
Lifetime gift by ancestor to intestate distributee: advancements
At CL, a lifetime gift to a child was presumptively an advancement of his intestate share, to be taken into account in distributing the estate at death.
NY:
No advancement unless
proved by simultaneous writing signed by donor or donee.
Lifetime gift by testator to beneficiary: satisfaction of legacies
A lifetime gift results in No partial satisfaction of legacy unless
proved by contemporaneous writing signed by donor or donee.
Disclaimer ( renunciation) by intestate distributee or beneficiary
No one can be compelled to be a beneficiary or heir against his will. A will beneficiary or intestate heir can disclaim her interest in the decedent’s estate. The be a valid disclaimer
Must be in writing, signed and acknowledged ( before a notary public)
Must be accompanied by separate sworn affidavit that she received no consideration for making the disclaimer ( unless court authorizes receipt of consideration for the disclaimer)
Must be irrevocable, must be filed with the surrogate within 9 months after decedent’s death
Distribution is made as though the disclaimant predeceased the decedent.
The anti-lapse statute will apply.
These parties can also disclaim
Beneficiaries of life insurance
Employee benefit plans, inter vivos trusts, totten trusts, other non testamentary transfers, surviving joint tenant or tenant by its entirety. With court approval, disclaimer can be made on a person’s behalf by guardian, holder of durable power, or decedent’s personal representative.
Changes in testator’s family after will is executed.
Testator marries after wills is executed.
Has no effect on the will because of the elective share to the remaining spouse
Testator is divorced after will executed
All gifts and fiduciary appointments in favor of former spouse are revoked by operation of law. You read the will as though former spouse predeceased the testator.
Exceptions:
Appointment of former spouse as guardian of couple’s children is not affected
If couple reconcile and remarry, all provisions in favor of the former spouse are restored. Statute applies only if they are divorced or the marriage is annulled as of the testator’s death.
You need a final decree of divorce for the statute to apply.
A decree of separation does not operate as well.
it is different when there is intestacy
The rule only applies to wills
Pretermitted child- child born or adopted after will executed.
It gives no protection to children alive when the will was executed. The statute only applies to after-born, after adopted children.
Testator had other children when the will was executed
The child is pretermitted IF
child is born or adopted after will is executed
child is unprovided for by any settlement
child is not provided for or mentioned in the will
the child will take the same share as the other siblings.
the share comes out of gifts to other children. Nobody else’s gift loses.
treat as a class gift: 1/3 of the remainder.
If the will gives different amount to children:
the statute does answer this question, but the logical answer is that the child gets 1/3 of each gift
If the children get nothing through the will, the pretermitted child gets the same: nothing.
exception
if will makes limited provision for testator’s children, after born child takes amount equal to intestate share.
Testator had no children when will was executed
Same requirements as 2a but the result is different, the child takes intestate share.
Reference to facts and events outside the will
Incorporation by reference: extrinsic document
The doctrine of incorporation by reference is not recognized in NY. All wills have to be signed T and 2 witnesses except armed forces and mariners at sea.
Acts of independent significance: nontestamentary acts
There is a lifetime act with a lifetime purpose
It’s independently significant.
It covers only tangible property and cash
excludes title documents: deeds, stock certificates, bank passbook
Non probate assets
These are interests in property that are not subject to disposition by will or inheritance, and are not part of the probate estate for purposes of administration. Major types: nontestamentary assets
Property passing by right of survivorship
Property passing by contract: life insurance, employee death benefits paid to beneficiary other than insured’s executor or estate
exception:
if the insurance company waives compliance with the contract and pays policy proceeds to court
it waives the rule.
Property held in trust, including a revocable trust
Property over which the decedent held a power of appointment
Problems associated with testamentary gifts
Classification of gifts that can be made by will.
NY has abolished the distinction between real property and personal properrt
Specific gift
Demonstrative gift
General amount from a specific source
General legacy
"I give the sum of $5000 to X"
Residuary disposition
" i give the rest, residue and remainder of my estate to X"
Intestate property
If a partial intestacy because will, poorly drafted, has no residuary clause.
Abatement of legacies to satisfy creditors’ claim
Absent provision in the will, what is the order of abatement of testator’s property to pay debts and claims?
You start at the bottom of the above list and work your way up to the top
Debts, expenses are paid first out of the intestacy property, then out of the residuary estate. If there are still debts, general legacies are sacrificed first ( on a pro rata basis), then demonstrative and specific gifts. Last to be abated: dispositions that qualify for the estate tax marital deduction.
Pro rata apportionment rule governs estate taxes.
Absent contrary provisions, death taxes are apportioned pro rata among all persons interested in the estate ( beneficiaries of both probate and non probate transfers)
Exception
interest that qualifies for charitable or marital deduction get benefit of that deduction
Formula
value of each testamentary and non testamentary gift
total value of taxable estate
Specific gift of encumbered property : no exoneration of liens
NY has abolished the exoneration of liens doctrine. Thus you have to pay the debts.
A general provision in thw ill for the payment of debts is not such an indication that liens are to be exonerated.
In NY, the beneficiary takes what the testator had, a property with a lien.
Specific gift or property not in estate at death: ademption
Ademption: means that gift fails, thus the beneficiary takes nothing
The testator cannot devise what e doesn’t own anymore
The three statutory exceptions to the ademption doctrine
Casualty insurance proceeds for loss, damages or destroyed property: beneficiary takes insurance proceeds to the extent paid after death.
Executory contract:
Beneficiary gets sales proceeds paid after death
Sale by guardian or conservator of specifically bequeathed property.
Those exceptions apply only if after death, if everything occurred before death, ademption will apply.
If the property is taken by eminent domain before death, ademption applies
The reason why the property is not in the estate anymore is irrelevant.
Bequests of shares of stock and other securities
Ademption does not apply to demonstrative gifts, only to specific gifts.
Closely held corporation: treat it as a specific gift not a general legacy or a demonstrative gift.
When the issue is stock split, the bequest is treated as a specific gift whether or not the possessive pronoun " my" was used, whether or not publicly traded or closed held stock is involved
A specific gift includes stock split but not stock dividends declared after the will is executed
A change of form is not a change in substance, thus the ademption doctrine does not apply.
Mistake, ambiguity
Mistake:
Plain meaning rule. Extrinsic evidence is not admissible because there is no ambiguity.
Absent suspicious circumstances, it is conclusively presumed that the testator read the will and intended its contents
Ambiguity
Latent ambiguity: there is a misdescription
extrinsic evidence is admissible
if the extrinsic evidence doesn’t cure the ambiguity, the gift fails because there is no ascertainable beneficiary.
Patent ambiguity, the mistake appears on the face of the will
extrinsic evidence is admissible
exception
T’s statement to third persons are excluded.
Conditional gifts
Always argue both ways.
The fact that a person kept a will even though made in case accident occurs during a trip may swing the court in deciding that the will was not conditional.
If there is a condition and it failed:
no will
If no condition
will.
Contracts relating to wills
By statute, a contract to make a will or not to revoke a will, can be established by an express statement in the will that the provisions are intended to constitute a contract between the parties
Usually a joint will
If a will is contractual and the survivor breaches the contract by writing a will with inconsistent provisions, enforcement in favor of the contractual will beneficiary is by imposing a constructive trust.
Negative bequest rule:
CL:
When a will does not make a complete disposition of the estate , words of disinheritance in the will are ineffective
NY
Words of disinheritance are given full effect
the disinherited person is treated as though he predeceased the testator.
Elective share statute
Purpose:
To protect surviving spouse against disinheritance, by giving spouse entitlement to minimum share of decedent’s estate:
Amount of elective share
1/3 of the net estate or $50000.
plus interest at 6% beginning 7 months after issuance of letters testamentary to the executor
Elective share applies to the net estate after payment of debts but before payment of estate tax.
If the decedent died without a will, the surviving spouse’s intestate share is always going to be larger than his or her elective share unless the testamentary substitutes are involved.
Exempt personal property set-aside: gives extra point.
Car ( up to $15.000 in value)
Furniture, appliances, computers, etc.. ( up to $10000)
$15000 cash allowance
cash allowance is not subject to creditors’ claim except funeral expenses.
Animals, farm machinery, tractor, lawn tractor ( up to $15000)
Books, pictures, videotapes, software ( up to $1000)
The total value of exempt personal property can be as high as $56000, DO NOT subtract them at the top.
Theses items come off the top over and above property passing to the spouse by will, intestate share or elective share.
Multistate problems
As to real property situated in NY, only NY domiciliaries can use the NY elective share statute, thus, if domiciliary of another state, the elective share of that other statute governs.
Exception
if the will expressly states that the disposition of his real property in NY is to be governed by NW law.
If a real property is in another state, and the decedent is a NY domiciliary by a recent statute, it will be included in the elective share.
Elective share trusts no longer satisfy spouse’s right of election
Death before September 1, 1994
If there is a trust, the spouse cannot elect a share.
the right to an elective share could be wholly eliminated through the use of an elective share trust that gave the surviving spouse an unrestricted income interest for life, as long as at least $50000 was given outright to the spouse. If the sum of
outright disposition of at least $50000 plus
the corpus of the trust, equaled or exceeded the one third elective share amount,, the spouse had no right of election
Death on or after September 1, 1994
She has a right to the elective share
terminable interests no longer satisfies the elective share entitlement.
as for the trust, you treat as if she predeceased the testator, and the remainder is accelerated.
in making up the elective share, all other beneficiaries participate pro rata.
Testamentary substitutes
If the elective share applied only to probate assets, a person intent on disinheriting his or her spouse could make non probate transfers in favor of others, and thereby defeat the policy and protection of the elective share.
To prevent this result, the elective share applies to property owned at death and testamentary substitutes
A disposition ( other than an irrevocable disposition) is a testamentary substitute whether created before or after marriage.
Because the probate estate is augmented by theses testamentary substitutes, they are usually referred as the augmented estate.
List: Testamentary Substitutes LEG UP
Totten trust bank account
Survivorship estates:
join tenancies, tenancies by the entirety, joint and survivor bank accounts but only if created on or after September 1, 1966.
Lifetime transfers with stings attached: transfers with retained power to revoke, invade, consume or dispose of principal or name a new beneficiary And irrevocable transfers with retained life estate made on or after 1992, September 1.
Employee transfers, profit sharing, deferred compensation plan IF employee designated the beneficiary on or after Sept 1, 1992. In any case, only one half of a qualified plan is a testamentary substitute
Gifts ( in excess of $10000 gift tax annual exclusions) made within one year of death. Also gifts causa mortis even within the $10000 exclusion are testamentary substitutes- gifts in fear of impending death, automatically revoked if donor survives apprehended peril. But if gift made to a friend was not causa mortis when the deceased died suddenly four weeks after the gift.
United States government bonds and other POD ( pay on death) arrangements.
Powers of appointment - property over which decedent held a presently exercisable general power of appointment
The following are not testamentary substitutes LOGPIT
Life insurance whether payable to surviving spouse of a third party
One half of qualified pension and profit sharing benefits
benefits in qualified pension plans are not testamentary substitutes if the employee named a beneficiary before Sept 1, 1992, and did not change the beneficiary designation thereafter.
Gifts within $10000 annual exclusion, even made within one year of death.
Pre-marriage irrevocable transfers
Irrevocable transfers made more than one year before death - transfers in which grantor did not retain power to revoke, invade, consume or dispose of principal.
Transfers with retained life estate before Sept 1, 1992.
What amount of any survivorship estate is a testamentary substitute
Survivorship estates with deceased spouse and third party:
surviving spouse has burden of proof as to amount of decedent’s contributions to property’s acquisition
surviving estates with surviving spouse
state raises conclusive presumption that decedent furnished one half of he consideration for the property acquisition.
thus one half and only one half is always a testamentary substitute
Added complications:
survivorship estates with deceased spouse and third party created before marriage: although the consideration furnished test applies to such estates, an added complication is raised by the rule that irrevocable dispositions before marriage are not testamentary substitutes
thus, if surviving spouse prove full consideration pay by decedent, only one half is a testamentary substitute
it is irrevocable as a gift of one half.
In making up the net elective share all other beneficiaries contribute pro rata
Beneficiaries under the will, beneficiaries of testamentary substitutes, intestate distributees.
Procedural rules governing election
Must be filed within 6 months after letters are issued by surrogate at commencement of probate proceedings, but in no event more than 2 years after the decedent’s death.
Right of election is personal to the surviving spouse.
But the guardian or committee of an incapacitated spouse may elect with court approval.
Can be waived with or without consideration, before or after marriage, as to particular will or testamentary substitute, or as to all wills and testamentary substitutes generally. Waiver must be in writing, signed and acknowledged before a notary public.
general waiver of all rights in spouse’s estate waives right to elective share and intestate share, but does not waive right to gifts made by the spouse’s will.
When spouse disqualified from taking elective share
It applies the same way for heir in an intestate distribution, wrongful death recovery, and exempt personal property set aside
DISMAL
Divorce
Invalid divorce: surviving spouse procured, outside of NY, divorce or annulment not recognized in NY. Doesn’t apply if it was the deceased spouse who procured it.
Separation decree: final decree of separation rendered against surviving spouse
Separation agreement does not amount to a decree.
Marriage void:
Incestuous or bigamous
Abandonment, lack of support
Wills contest
Testamentary capacity
What is capacity
Understand the nature of the act he was doing
Know the nature and approximate value of his property
Know the natural objects of his bounty
Understand the disposition he was making
It is a different test than the one applied to adjudicate capacity
Insane delusion
T is of sound mind on other subjects, but has a persistent belief in supposed facts which have no real existence except in T’s perverted imagination, and are against all evidence and probability, and which control and produce the exercise of the testamentary act.
Undue influence
Contestant must prove
Existence and exertion of an influence
Effect of such influence was to overpower the mind and the will of the testator
Product is will that would not have been executed but for the influence
The following alone are not enough
opportunity to exert influence
susceptibility to influence due to illness, age.
unnatural disposition
Where a will make a gift to one in a confidential relationship and that person was active in procuring the will there is an inference of undue influence which, if not rebutted, satisfies the contestant’s burden of proof.
If will make a bequest to the drafting attorney, the surrogate makes a Putnam scrutiny even if no objection is filed ( an automatic inquiry) to determine whether the gift was voluntarily made
If the will names the drafting attorney as executor, the drafting attorney must given written disclosure to the client
Any person, not just attorneys, can be named executor
Executors receive statutory commissions
Attorney will also be entitled to legal fees for representing the estate.
Client must sign the acknowledgment with 2 witnesses
effect of failure not to comply:
executory commissions are reduced by 50%
No-contest clauses
Majority rule
They are given full effect unless the court finds the contest was brought in good faith and with probable cause
NY
The person who contest will forfeit automatically even if there was probable cause
Exception
grounds of contest is forgery or that the will was revoked by a later will IF surrogate finds that there was probable cause for the contest.
contest is filed on behalf of an infant or incompetent
construction suit to determine what interests are created by will.
objection to jurisdiction of court.
Federal and New York Estate tax
The federal estate tax grants a $625000 exemption
NY exemption: $108000
What interests are includible in the gross estate?
Life insurance
If the deceased owned the policy
If assigned to someone within three before death, it is still includible
it only applies to life insurance policies.
Life insurance is excluded from income tax
Revocable trust
Totten trust bank account
Qualified pension plan benefits
Joint tenancy between H and W
Joint tenancy between spouse and third party
Consideration test applies
Irrevocable trust with retained life estate
If created during marriage on or after Sept 1, 1992.
By pass trust
A beneficiary can be given a life income interest and limited powers over trust principal, all without causing the property to be taxed in the beneficiary’s estate on her subsequent death
Health, education, maintenance and support
It is a valid by pass trust
HEMS ascertainable standard
It will not be included in the gross estate
however if the standard is not satisfied it will be included.
If the person is a trustee, she can’t distribute to herself by statute.
if co-trustee, only the other trustee can make the distribution to her.
Estate tax charitable deduction
For a remainder interest passing to a charity, there is no charitable deduction under the income tax, gift tax or income tax, unless the gift takes the form of
Annuity trust: under which a stated dollar amount which can be no less than 5% of the initial trust corpus is payable to the individual beneficiary for life
Unitrust
under which a stated percentage of the trust corpus, valued annually, is payable to the individual beneficiary for life
The marital deduction
What forms of transfer qualify for the unlimited marital deduction under the estate tax?
General test
must be an interest that
is includible in the decedent’s gross estate
will be included in the surviving spouse’s gross estate to the extent not given away, consumed or disposed of during the surviving spouse’s lifetime
outright disposition: marital deduction
Qtip trusts and the QTIP (qualified terminable interest property ) election.
you have to make the Qtip election
it depends if person dies before 1982 or after.
if before, there is no marital deduction
and it’s not includible in the gross’s estate of the surviving spouse
if after, there is a marital deduction if Qtip election made
it will be includible in the gross estate of the surviving spouse if Qtip election
To be eligible for a qtip election as a qualified terminable interest trust
Income must be payable to spouse at least annually for life
During the spouse’s lifetime, no other person can be a permissible beneficiary of the trust
Executor must make a QTIP election on the estate tax return.
Marital deduction power of appointment trust : requirement
Income must be payable to spouse at least annually fir life
During the spouse’s lifetime, no other person can be a permissible beneficiary of the trust
Spouse must be given a general power of appointment under which he can appoint himself or his estate. Can be either inter vivos power o r a testamentary power
New basis at death rule
Date of death value
You get the entire value
If bequeath inter vivos, you must apply the capital gain rule
TRUSTS
Definition
A trust is an arrangement for making gifts of property and for the management of assets, under which the trustee holds legal title for the benefit of beneficiaries. Trustee has the burdens of ownership; beneficiaries have equitable title and all benefits of ownership
Requirements for a valid trust
To have a valid trust, creator ( settlor) delivers legal title to the Res ( trust property to a trustee for the benefit of beneficiaries with intent to create a trust for a lawful purpose. No consideration is required for the creation of a trust. A trust can be created during the creator’s lifetime or by will. All trusts must be evidenced by a writing.
It is no longer possible to create an oral trust of personal property.
Creator ( settlor)
Must be over age 18, and have capacity to transfer title, enter into contracts.
Deliver of legal title:
The mere intent to create a trust, or a gratuitous written promise to create a trust, is not sufficient. For titled assets ( title evidenced by a document) legal title must be formally transferred to the trustee ( whether the trustee is a third party or the settlor). For other assets, transfer must be a written assignment to the trustee.
Res ( corpus ) ( principal) ( subject matter of the trust)
Too have a trust, legal title to specific property must be formally transferred to the trustee. The subject matter of the trust must be certain and identifiable. If there is no trust property, there is no trust.
if written promisee to create trust of property ( to be received in the future) is supported by consideration, under contract principles trust automatically arises upon receipt of the property,
Trustee
By statute, the following persons cannot serve as testamentary trustee:
Infant, incompetent, convicted felon, person incompetent because of drunkenness, dishonesty, improvidence and want of understanding
Non resident alien can serve as fiduciary ( testamentary trustee or executor of administrator of a decedent estate) if:
related to the decedent
NY resident serves as a co-trustee
it does not apply to life time trusts because they are non court trust.
No trust fails for lack of trustee, the court will appoint the trustee.
Beneficiaries
For a private ( noncharitable) trust, beneficiaries must be definite and ascertainable and their interests must vest, if at all, within LIB + 21 years.
" i bequeath $ 100000 to my good friend Hobie Gates as trustee, to pay income therefrom to my best friends. I bequeath my residuary estate to my brother.
it is not a valid trust because thy are not ascertainable beneficiaries.
Hobie will hold a resulting trust for the brother, the residuary beneficiary.
a resulting trust is not a trust. It is a term the court used when a trust fails for some reason. The court will order that the sum be distributed to the brother.
" to my family or my wife’s next of hin for the next twenty years"
it is a valid class gift to the group.
" $200000 left to bank as trustee to pay the income to train spiritualistic mediums"
argue both ways, if it’s a charity, valid, if not invalid.
You can have a trust for unborn beneficiaries, provided their interests vets if at all, within LIB + 21 years.
If they are no beneficiaries, appoint a guardian ad litem to represent their interests.
Intention to create a trust
Is the language precatory or did the settlor intend to impose an enforceable obligation
" income to sister S for life, remainder to Sue’s issue. The trust provides: " it is my wish and desire, that the sue use a portion of the income to pay educational expenses of my favorite nephew, N N"
wish and desire: only suggestion:
other precatory words
request hope
Check with notation " for the use and benefit of G" given to S"
it’s not because the words trust and trustee are not used that a trust is not created.
it’s a question of intent.
Trust must be for lawful purpose
A trust that calls for commission of a crime or destruction of property is void as against public property. Also, conditions that are against public policy are unenforceable
" to pay income to my daughter W until she divorces her husband H, at which time the trust shall terminate and all trust principal shall be distributed to W. If W does not divorce , on her death the trustee shall distribute the principal to N O for W."
it’s an invalid condition and against public policy
three conditions
encourage divorce.
total restraint on marriage.
discourage having children.
Effect:
W get the property now free of condition, free of trusts.
" to my son provided he marries a Jewish woman within 7 years after my death. If he does not, the property will go to the state of Israel"
Valid condition because partial restraints are permitted.
Revocable trusts; other arrangements
Pourover gift by will to inter vivos trust
1995, W transfers securities worth $500000 to Acme Bank as trustee of a revocable inter vivos trust that provides " income to W for life, and on W’s death in further trust for her children" on the same date, W executes a will that bequeaths her residuary estate to Acme Bank, as trustee, to be added to and administered under the terms of the trust created at acme.
This is a valid trust, and can be useful arrangement to provide for management in event of settlor’s future incapacity, avoiding expenses and restrictions of a guardianship. As long as there are on or more trust beneficiaries besides the settlor, a trust is not void as an attempted testamentary disposition even though settlor retains any one or more of the following rights and powers:
income for life
power to revoke, alter, amend and terminate
power to control trustee in the administration of the trust
power to cause life insurance proceeds or employee benefits to be paid to the trust
‘settlor can name herself as trustee, to serve as long as she has capacity to do so.
the testamentary gift is called a pourover gift by will to an existing trust
to be a valid receptacle for such a gift, the inter vivos trust must be:
in existence before or executed concurrently with he will and
in writing signed and acknowledged before a notary public. Any amendments to the trust also have to be acknowledged.
Trust settlement of life insurance proceeds
You can create an unfunded revocable insurance trust and name the trustee of the trust as policy beneficiary. Unfunded insurance trusts are validated by statute ( and can be the recipient of a pourover gift) even though there is no res until after the insured settlor dies and the insurance proceeds are paid to the trustee,
You can create a testamentary trust for the beneficiary’s benefit, you could name the trustee named in my will as beneficiary. Such an insurance beneficiary designation is validated by statute
Bank accounts arrangements
The signature card for which provides : Ann Downs, trustee for Ann’s nephew BB" over the years Ann makes deposits and withdrawals. On her death without a will, the account balance is $15.000. BB did not know about the account until Ann’s death. Ann’s intestate heirs lay a claim to the amount on deposit as does BB.
BB wins because this is a valid totten trust bank account
Ann continued to have all rights over the account
if beneficiary predeceases depositor, the trust is automatically revoked,
if beneficiary survives, amount on deposit belongs to him ( subject to claims of depositor’s creditors, and subject to surviving spouse elective share as a testamentary substitute.
By statute, mere passbook delivery is not a valid gift. To make a gift, she has to withdraw the money and give it to him.
By statute, the totten trust can be revoked by will and the funds on deposit can be bequeathed to another person, but the rules are very specific
the will must make an express reference to account in named institution and the named beneficiary on the account.
The statute does only apply to totten trust not to joint accounts.
A joint account:
it’s a gift of one half, thus the executor of the decedent who received the gift can only recover one half.
a person can challenge the validity of the right of survivorship saying it was a mere convenience account. But the person has the burden of proof that no right of survivorship was intended.
there is a presumption that a right of survivorship exist.
Uniform transfers to minors ACT ( UTMA)
Provides a means of making gifts to minors that avoid guardianship ( or the need for creating a trust) and that qualify for the $10000 per donee annual exclusion under the fed and NY gift tax.
J buys securities and has them registered in the name of J, custodian for S, under NY UTMA" the securities are worth $35000 at his death
It is includible in J’s gross estate.
because made lifetime transfer in which he retained a power to revoke, alter, amend or terminate.
While UTMA custodial gifts are irrevocable, UTMA authorizes the custodian to pay to or on behalf of the donee so much or all the property as is deemed advisable for the donee’s benefit.
this is a power to alter, or amend or to terminate.
If the mother bought the securities, and J was named custodian, it would not be includible because J would be a grantee.
A UTMA custodianship terminates when the donee is 21 unless the gift is made in the form, " a, custodian for B until the age 18" this is the new statute, the old was the opposite, the custodianship terminated at 18 unless provided until 21. It only applies for trusts after 1997
Charitable trusts, honorary trust
Charitable trusts are not subject to the rule against perpetuities.
To qualify as a charitable trust, it must be made for a charitable purpose
A charitable trust may be in favor of a reasonable large class of unidentifiable members of the public at large and cannot benefit identifiable individuals.
Charitable trusts are subject to the equitable doctrine of Cy Pres: if stated charitable purpose can no longer be accomplished, trust can be reformed in judicial proceedings and the funds diverted to a related charitable purpose as near as possible to the stated purpose
You don’t need to name the charity.
The attorney general is in charge of supervision and enforcement of the charitable trusts
If the purpose cannot be accomplished, the AG is participating to find if:
General charitable intent that can still be accomplished,
Specific direction that no longer can be accomplished but it is no reason to frustrate the general charitable intent and reform the trust to carry on its specific direction as near as possible.
" to the Buffalo Lighthouse for the blind" which goes out of existence a little later.
The cy pres doctrine applies to outright gift
general charitable intent
to provide assessments to blind people in he Buffalo area, through he agency of light house for the blind
specific direction: no effect because the light house doesn’t exist. The money will be given to some other agency providing assistance to the blind.
" to use income to care for her beloved cat, F.
Valid trust in NY for 21 years
Trusts for pets are valid for 21 years
The trust can be enforced by a person designated by the settlor or by the court
By statute, trusts for the perpetual care and maintenance of cemeteries and burial plots are classified as charitable trusts, and thus are valid notwithstanding indefiniteness of beneficiaries, and are exempt from the rule against perpetuities.
Honorary trusts
" to T as trustee, to use income for a weekly polish and wax on his beloved Porsche, which is to be parked as a headstone over his grave at the cemetery ( or to use the income to maintain his rose garden"
It is a honorary trust
The trustee is on her honor in deciding whether to perform the trust. In several states, the gift is valid in the sense that T will be allowed to perform if he chooses to do so.
In NY honorary trusts are not enforceable because the trustee does not owe any fiduciary duty to anyone.
The gift will fall in the residuary estate.
Constructive trusts, resulting trusts
Constructive trusts is NOT a trust.
It is the name given a flexible equitable remedy designed to disgorge unjust enrichment that results from wrongful conduct. Trustee’s only duty is to convey the property to the person who, in equity, should have the property.
You first apply the law and
then you apply equity with wrongful conduct
They can be imposed when there is fraud in the inducement
Grantee-trustee served in a confidential relationship to grantor-settlor
Proof: clear and convincing evidence.
If not proved, then quantum meruit: value of the services rendered.
Testimony is admissible to show the existence of the promise.
T’s will devises land " to S, as trustee, for purposes i have communicated to him" and his residuary estate to hobie gates, S is willing to identify T’s trust purpose and beneficiaries, and is willing to serve as trustee. Hobie objects,
No trusts arises, because there was no named beneficiaries thus it violate Wills law.
Resulting trusts are NOT a trust
It is the label courts employ when a trust fails for some reason
A pays the purchase price for land , and has title taken in B’s name. A and B are not related. A later brings a law suit seeking to impress a resulting trust in his favor, contending that he did not intend to make a gift of beneficial ownership to B but had some other reason for taking title in this manner.
Majority rule:
presumption
B holds on a purchase money resulting trust for A, meaning that A can compel a reconveyance at any time.
NYR:
purchase money resulting trust are not recognized in NY.
parol evidence is barred.
B takes title.
H takes title to land in W’s name. H pays the entire purchase price. H has innocent motive in handling the transaction in this manner. W promises to reconvey on H’s bequest. H pays all taxes, insurance etc..... on W’s death, H seeks a reconveyance of the property, W’s executor refuses
Impose a constructive trust
Requirements
confidential requirements
promise to reconvey
clear and convincing evidence
Creditors’ claims and spendthrift rule
NY statute spendthrift rule
It protects a trust beneficiary’s interest from creditors by prohibiting voluntary or involuntary transfer of the beneficiary’s interest
An irrevocable inter vivos trust " to pay the trust income to my daughter D during her lifetime; and on D’s death to distribute principal to D’s descendants" the trust does not contain a spendthrift clause. C obtains a judgment against D for $25000.
The spendthrift rule applies, it’s an automatic protection
The creditor can reach the income in one of the following exception
creditor who furnishes necessaries
child support, alimony
federal tax liens
excess income beyond that needed for support and education
based on beneficiary’s station in life, income from other sources
is a last resort remedy: creditor must show he has exhausted all other remedies
10% levy under CPLR 5205(e): available to judgment creditors in all cases. All creditors share than 10%.
Creates an irrevocable inter vivos trust as settlor " the trustee shall pay the income to the settlor during his lifetime, and on the settlor’s death, the trustee shall distributee the trust principal to the Settlor’s daughter Mary.
Creditor can reach by garnishment or attachment the retained income interest even if there is an express spendthrift clause.
The creditor cannot reach the principal because it has been irrevocably transferred.
exception
fraudulent conveyance.
If it was a revocable trust, the creditor can reach the entire trust property.
If a creditor gets a judgment against the beneficiary, the spendthrift rule does not apply, it only protects the interest not the remainder interest unless there is an express spendthrift clause to protect the remainder.
However the creditor cannot the trustee to get the money from the principal because that would impair the beneficiary’s income. The creditor has a lien and wait until the remainder to vest in possession.
Judicial modification and termination of trusts:
Judicial modification- changed circumstances
Cy pres analysis:
Primary purpose of the trust was to provide for the family: while the settlor gave specific direction that the stock should never be sold, to continue to adhere to the specific intent would frustrate the primary purpose of the trust.
Testamentary trust provided that T’s house should never be sold, and that his widow W be allowed to occupy the house rent-free for life; upon W’s death the trustees are to convey the house to T’s daughter D. some years later, the house becomes the center of a manufacturing district and is no longer suitable as a residence. Trustee petitions the surrogate to have restriction on sale removed..
The petition should be granted
primary purpose is to provide a house rent-free for life
specific direction: that it be this house, no longer suitable for residential purposes
T dies in 85, leaving a will creating a trust " income to his wife M for life, remainder to his son J. M, 80, and suffering from various maladies wants to move into a retirement home that will cost $ 3000 month. Trust is producing only $15000 of income per year, and that together with SS benefits won’t cover the retirement home. Mary petitions the surrogate court to make annual distribution of the principal to supplement the income.
The court will grant the petition because the primary purpose of the trust is to provide for his widow.
this is by statute
Termination of trust by settlor
All NY trusts are irrevocable and unamendable unless the power to revoke and amend is expressly reserved in the trust instrument. However, the settlor can terminate an irrevocable trust if ALL beneficiaries in being consent
BUT committee or guardian of an incompetent or minor cannot give consent. Thus if any of the trust beneficiary is a minor or an incompetent, trust cannot be terminated
if the remainder interest is in children but there is no child yet and she’s only pregnant you can terminate because a fetus is not a being.
Remainder to the grantor’s heirs: Multistate answers
In 1670 in England, O conveys land " to A for life, and A’s death to my heirs at law": that only applies if it is CL conveyance or if the question states that the following events take place in a jurisdiction that applies the CL property law rules and has not enacted a statute affecting the question.
A life estate
O’s heirs nothing
O reversion in fee simple
CL doctrine of worthier title:
in an inter vivos conveyance, a grantor cannot create a remainder in his own heirs. Instead the grantor takes a reversion
Remainder to the grantor’s heirs: NY answers
In 1985, S created an irrevocable trust " the trustee shall pay the income to me for life, and on my death the trustee shall distribute the trust principal to my heirs at law" S wants to terminate the trust even though it is irrevocable
He can terminate the trust. He does not need their consent.
Trust termination statute 1951: for purposes of rule authorizing settlor to terminate the trust with the consent of all beneficiaries, a disposition in favor of heirs, next of kin etc of the settlor does not create a beneficial interest in the trust.
If he did not want to terminate and he has two son when he dies, they take the principal by remainder.
EPTL: the doctrine of worthier title is abolished.
Administration of trusts
Trustee’s powers given by NY Fiduciary Powers Act are exercisable by a trustee without court order, and without express authorization in trust or will. The fiduciary Powers Act automatically applies to all trusts and estates.
The can DO powers: it is expressly authorized by the statute UNLESS
Self- dealing transaction
Imprudent investment
If it’s on the CANNOT DO list
Major CAN DO:
Sell real or personal property at public sale or private sale ( unless the property was specifically devised by the will)
Mortgage property
Lease: by trustee for up to 10 years, by executor administrator up to 3 years
Make ordinary repairs
Contest, compromise, settle claims
Where up to $ 10000 distributable to minor, can distribute to parent or adult who has custody
Make distribution on behalf of minor beneficiary to custodian for minor under UTMA
The CANNOT DO list unless expressly authorized or court approval:
Borrow money
Continue a business
Make extraordinary repairs or improvements
Abandon, demolish real property
Employ agents, delegate authority
Keep funds uninvested
Pay debts barred by statute of limitations or discharged in bankruptcy
Lend personal funds to estate, or advance funds to beneficiary.
Exculpatory clause" the trustee shall not be liable fr any acts or omissions or itself or its agents except for gross negligence, bad faith or fraud"
Clauses that remove liability for ordinary negligence are void in a testamentary trust BUT they are valid for lifetime trusts
Self-dealing
Trustee cannot buy or sell trusts assets to himself
Trustee cannot borrow trust funds
Self dealing rules apply to loans or sales to a relative or to a business entity to which the trustee is an officer, employee, partner or principal shareholder.
It can be waived by the settlor
Trustee cannot loan funds to the trust, and any interest earned on such a loan must be returned to the trust. Also, any security interest in connection with such a loan is invalid.
Trust cannot profit from serving as trustee ( except for being compensated) as by taking advantage of confidential information received in his capacity as trustee
Corporate trustee cannot buy its own stock as a trust investment
Duty to segregate: trustee cannot commingle trust funds with her own. If commingled funds used to purchase assets and the asset goes down in value, conclusive presumption that personal funds were used. If the asset goes up in value, conclusive presumption that trusts were used.
If trustee breaches any fiduciary duty, self- dealing, speculative investment, or exercises a power not given to trustee, in addition to bringing an action to remove the trustee, the beneficiaries has option:
She can ratify the transaction and waive the breach of trust
She ca sue for the resulting loss. Name of the action is surcharge,
for self-dealing, it is an automatic wrong: good faith, reasonableness is no defense.
the statute of limitations does not begin to run on any action against a fiduciary unless
the trustee repudiates the trust by denying existence of trust as to the particular asset in issue,
dies or resigns
gives an accounting that shows fact on which action would be based.
If the purchaser is a BFP, the beneficiary cannot retake the property, the only action lies against the trustee.
Trustee is personally liable on contracts entered into on behalf of trust unless provision in the contract relieves him of personal liability
Even tough liable, the trustee is entitled to reimbursement from trust if
Contract within his powers
Was acting in course of proper administration of the trust.
Trustee personally liable on all torts of itself and its employees
The trustee can be reimbursed from trust estate if
Trustee was acting within his powers when the tort was committed
Trustee was not personally liable.
Rules as to contract and tort liability are the exact opposite for personal representatives of decedent’s estates. PR is not liable for torts unless she was personally at fault.
PR is not liable on estate’s contracts unless
contract provides for personal liability or
she failed to disclose his representative capacity and the estate he is representing.
Trustee’s investment power - prudent investor rule
Trustee may make investments as would be acquired by prudent men of discretion and intelligence seeking reasonable income and preservation of their capital.
Permissible: securities listed on national or regional exchange or regularly traded over the counter, mortgages, bonds
He cannot invest in mutual funds BEFORE 1995
Unless trust contained language granting the power
He can invest in mutual funds AFTER 1995
Under productive property rule
Involves a duty of fairness, trustee owes to both classes of beneficiaries. Income would prefer investment in high yield bonds, who cares of they go down in value? Remaindermen would prefer growth stocks, who cares about income? Obviously, it would be unfair to invest in assets that do not produce income, regardless of their potential for growth.
Trust is Under productive if it produces as income, less than 1% of its inventory value for more than a year. When the property is sold, income beneficiary is entitled to portion of the sale proceeds as delayed income, to compensate him for what the property would have yielded had it been more suitably invested.
Amount of delayed income is difference between
net sale proceeds and amount which, invested at 5% would have grown to the net sale proceeds in the number of years.
This rule does not apply to
Securities listed on national or regional exchange or regularly traded over the counter
If trust instrument authorizes investments in Under productive property.
Principal and income issues
" income to A for life; and on A’s death, principal to B"
Principal and Income Act contains trust accounting rules that apply unless the trust instrument makes contrary provisions
cash dividends, interest on corporate bonds, net rental income are all income
sales of stock: principal
difference between regular dividend income and capital gain income
