TRUSTS AND ESTATES
PROFESSOR VALLARIO
FALL 2012
Day 1
INTRODUCTION
· Chapter 1-Overview
o The common theme between Wills, Trusts, and Estates is the gratuitous transfer of wealth.
o An “inter vivos” transfer is a gift.
o The course is broken up in three components:
(1) Intestacy: An individual who dies without a Will. This category, along with the Testate category, only control probate assets. Probate assets are assets in the name of only one individual, as opposed to assets in the name of more than one, which are called joint assets. The Intestacy category has statutes that direct how to determine who gets the probate assets. Trusts and Estates are state-specific, so it depends where the intestate person dies in order to determine what happens with his probate assets. We only care about MD code and the UPC (Universal Probate Code);
(2) Testate: An individual who dies with a valid Will, which has specific statutory formalities (e.g., must be in writing, signed by a testator or proxy, and witnessed in some form or fashion).
(3) Non-probate transfers: For example, joint accounts, life insurance, gifts, retirement accounts, trusts (which is a non-probate arrangement inter vivos, as opposed to a testamentary trust, which is embedded within the Will), PODs (Paid-on-death).
o A living trust is an inter vivos that is revocable.
o The Estate Administration Process: This occurs with respect to the probate assets. Some jurisdictions have Probate Courts, but MD has a court called the Orphan’s Court. These courts administer probate assets.
I. The Documents
A. The Will
o A Will speaks by death, in the sense that it only becomes effective at the time of death.
o A person who inherits from an intestacy is called a heir, and a heir is called such only when there is a death. Heirs are mostly blood relatives, and they must survive the deceased. In MD, heirs need to survive the deceased by 30 days, as opposed to a spouse who needs to survive by an instant. The UPC states, however, that the heirs only need to survive the deceased by 5 days.
B. Trusts
o Trusts are created either in a Will (testamentary) or during lifetime (inter vivos).
o A testamentary trust is embedded within the terms of the testator’s Will and speaks at death, life all other provisions of a Will. The testamentary trust is funded with probate asset, based on the provisions in the testator’s Will. The testamentary trust is irrevocable, because it comes into existence at the testator’s death.
o The inter vivos trust is generally a separate written document with trust terms dealing with the management and disposition of trust assets. It doesn’t need to be in writing, but it’s still advisable. It can be revocable or irrevocable. If it’s revocable, it must expressly permit revocation by the settlor (the one making the inter vivos trust). Unless otherwise stated, the default rule results in the creation of an irrevocable trust. The funding of the inter vivos trust could occur during the settlor’s lifetime by re-titling assets into the named trust, upon death when the trust or trustee is the designated beneficiary under a Will, or by a non-probate asset.
o Problem (p. 7): From the estate-planning interview, Attorney learns that Client has concerns about his 27-year-old son, who has difficulties keeping a job and typically spends beyond his means. If Client decideds to incorporate a trust into his estate plan, how should Attorney advise Client with respect to his choice between an inter vivos trust and a testamentary trust. One of the ways to handle this problem is to first determine whether the Client desires for his son to benefit now or later. You can also work it out as a “test” and start the process of paying the son from the inter vivos trust, but keep it revocable in case the son doesn’t use the trust money properly.
C. Power of Attorney: A principal-agent relationship whereby the principal gives power to the agent to act on the principal’s behalf. POAs only apply while the principal is alive. A durable POA is automatic in MD, and that means it will survive a principal’s disability. This means a guardianship does not need to be created, and this saves a lot of time and money. The agent is called the “attorney-in-fact.” A POA can also have co-agents or an agent with a substitute . In 2010, a statutory POA form was enacted. So if you need to draft a POA, you go to the MD code and simply fill it out or draft one that is substantially the same as the statutory form. That way, banks and other institutions cannot ignore the document. You can also have a supplemental form to go along with the statutory form. In case the supplemental form isn’t accepted, you at least know the statutory form remains effective.
1. Agent or Agents
2. Effective Date
3. Durable Power of Attorney
4. Gift-Giving Power
5. Revocable Trust Power
6. Enforceability
7. Advantages and Disadvantages
D. Advance Medical Directives: If you’ve been in a hospital, even just for toe-surgery, the hospital will make you sign a AMD (Advanced Medical Directive). The first part of the form is appointing someone or a numer of people as the agent(s) for the purpose of making medical decisions for you if the declarant (you) is unable to make the decisions for himself. The second part is declarant stating his or her wishes regarding the withholding of and/or withdrawing of life-sustaining procedures in circumstances where the declarant is in a terminal condition, persistent vegetative state or end-state condition.
1. Appointment of Agent
2. Nutrition and Hydration
3. Organ Donation
4. Pregnancy
5. HIPAA Provision
II. Will Substitutes
A. Life Insurance: The best thing about life insurance that no other asset provides is that it’s not reported on the income tax return (as well as inheritance). Life insurance is a non-probate arragement with a beneficiary designation. To collect the proceeds, the designated beneficiary simply sends a certified copy of the insured’s death certificate along with the original life insurance policy to the insurance company.
1. Policy Ownership
o Problem (p. 19): If Spouse owns a policy on Decedent’s life, are the proceeds taxed in Decedent’s estate? Life insurance is includable in the decenent’s gross federal estate if the policy is payable to the decendent’s personal representative or if the decedent’s retained incidents of ownership in the policy.
2. Insurance Products
3. Liquidity
B. Joint Accounts
C. Retirement Arrangements
D. Gifts
1. Annual Exclusion, Educational, and/or Medical Gifts
2. Gift Basis
3. Implementing Gift-Giving Program
· Chapter 3 (pp. 49-54)-Establishing the Attorney-Client Relationship
I. The Role of an Estates and Trusts Attorney
A. Estate Planner
B. Estate Administration
C. Estate Litigation
II. The Plan
A. The Client
B. Assets and Liabilities
C. Valuation
D. Family
Day 2
· Review: Understand the difference between probate and non-probate, and between dying with a will and without a will (intestacy). A Will allows you to incorporate a testimentary trust that allows the person to give away assets not all at the same time.
· Ancillary Documents
A. Power of
ng: (1) Who is the client, (2) conflicts, and (3) third-party liability.
o Always insist on meeting with the client, without anyone else “helping” the client.
I. Ethical Rules Relevant to Estate Planning
A. Rule 1.1
1. Estate Planner’s Level of Skill
2. Reliance on Client-Provided Information
3. Execution of Estate-Planning Documents
B. Rule 1.2(a)
1. Educating the Client
2. Limiting Scope of Representation
C. Rule 1.3
1. Timetable
2. Avoiding Misunderstandings as to Scope of Representation
D. Rule 1.4
1. Means of Communication
E. Rule 1.5(a)
1. Communication of Fee
2. Contingency Fee in Estate Planning
F. Rule 1.6
1. Legal Assistants, Secretaries, and Office Staff
2. Consultants and Associated Counsel
3. Obligations after the Death of Client
G. Rule 1.7
1. Existing Client Asks Attorney to Prepare Will or Trust for Another Person
H. Rule 1.8(c) and (f)
1. Gifts to Attorney
I. Rule 1.14(a) and (b)
1. Discussing Options in the Event of Diminished Capacity
J. Rule 1.18(b)-(d)
1. Conflicts Check
II. Identifying the Client
A. The Elderly Client
B. Multiple Clients
o The attorney is not prohibited from representing more than one member of the same family, even though the clients aren’t entirely consistent, since the related clients have consistent with their interests and the attorney’s traditional role as the “attorney for the family.” They want to obtain cost-effective representation and achieve common objectives, so this often predominates over their limited inconsistent interests.
1. The Married Couple
o In representing the married couple in estate planning there are inherent conflicts concerning the spouse’s statutory right to the deceased spouse’s estate. This potential conflict should be expressly documented in the retainer agreement.
o The joint representation of a husband and wife requires the attorney
2. The Family Attorney
III. Liability to Third Parties
1. Hotz v. Minyard
– Daughter of testator sued her brother, testator’s lawyer, a law firm and an accounting firm, raising various allegations regarding her inheritance and her position within family held businesses. The Circuit Court denied defendants’ motion for summary judgment as to certain counts, and granted motion as to others. Appeal was taken. The held that: (1) material issue of fact existed as to whether attorney breached fiduciary duty to testator’s daughter by misrepresenting terms of testator’s will; (2) material issues of fact, precluding summary judgment, existed as to whether the law firm was vicariously liable for actions of attorney; and (3) corporation could be named as party defendant, as nonconsenting real party in interest to shareholder’s derivative action.
A. Strict Privity
B. Balancing of Factors
C. Third-Party Beneficiary
