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Wills, Trusts, and Estates
University of North Carolina School of Law
Brophy, Alfred L.

Brophy – TRUSTS AND ESTATES – Fall 2011
 
I. Planning for Death
A. Planning for incapacity:
1. When nearing the end of life, individuals often want to prepare documents that give family and caretakers an understanding of his or her wishes for medical and financial decisions
                a. Often want to plan for when they will become incapacitated/incompetency.
2. Popular methods of providing such direction are:
                a. durable powers of attorney
i. financial (designate who can make financial decisions or conduct financial business in the event of your incapacity)
ii. medical (designate who can make decisions about your medical care when you become incompetent)
                b. advanced directives
i. living wills – give (usually broad) statement about the executor’s instructions regarding medical care and disposition of body on death
3. During the 1980s and 1990s, courts underwent a dispute about the extent to which people have constitutional authorization to control health care decisions, including at a time when they’ve passed capacity and have failed to leave advanced instructions for their care.
a. Cruzan v. Director, MO Department of Health and Bush v. Schiavo both deal with circumstances in which the incapacitated hospital patients had failed to leave written documents expressing their wishes regarding care.
b. In Cruzan, SCOTUS recognizes the constitutional right of individuals to determine health care decisions up to the point of refusing care which will lead to otherwise preventable death.
i. Court engages in a balancing test between the state’s interest in preserving life and the individual’s liberty interest in refusing treatment
                1) Court recognizes a common law power to refuse medical treatment (based on In re Quinlan)
ii. Because state has a compelling interest, may require certain formalities – MO SCt required clear and convincing evidence standard to be met before the patient’s wishes would be honored.
1) Party petitioning for removal must show by C+C evidence that the patient would have wanted support terminated.
iii. Nancy Beth Cruzan’s family was unable to show clearly and convincingly that she would have wanted her support terminated, so they lose.
1) only available evidence is her roommate’s testimony from college that she wouldn’t want to be on life support and be a “vegetable”
                2) lack of written statement was probably fatal here
c. In Schiavo, court (SCt FL) reaches somewhat opposite result – finds unconstitutional a law allowing the governor to issue a stay to prevent the withholding of nutrition and hydration if the patient has no written advanced directive and a member of the patient’s family challenges the withholding of nutrition and hydration.
i. Husband was appointed legal guardian, attempts to argue (against parents) that Terry’s clear intent was to be removed from life support. Trial court found by clear and convincing evidence that she was in persistent vegetative state and would elect to cease life-sustaining procedures.
ii. Court held statute unconstitutional because allowing governor to encroach into the powers delegated to the legislative branch AND the judiciary (separation of powers issues).
iii. Thus, court held in favor of trial court and allowed removal of life support.
B. Durable power of attorney – individual grants power to attorney-in-fact to make financial or medical decisions for him or her in the event he or she is not able to make those decisions him or herself, even after her or she has lost capacity
1. As opposed to other powers of attorney, the power does not terminate when the person granting the power loses capacity.
a. Gives the same power to the attorney in fact that the principal (grantor of the power) would have him or herself
                                b. All powers of attorney terminate on the death of the principal’s death.
2. UPC 5-501 through 5-505 provides for durable powers of attorney:
a. Prefatory Note explains that it was adopted to provide a form of “senility insurance” comparable to that available to more wealthy individuals able to use funded, revocable trusts to prepare for incapacity
b. 5-501 defines durable power of attorney – must be created:
                i. in writing
ii. with words showing intend of principal that authority should be exercisable notwithstanding subsequent disability or incapacity AND notwithstanding the lapse of time, such as:
1) “This power of attorney shall not be affected by subsequent disability or incapacity of the principal, or lapse or time,” OR
2) “This power of attorney shall become effective on the disability or incapacity of the principal”
c. 5-502 explains that actions of attorneys in fact of a durable power of attorney during incapacity or disability of principal have same effect and inure to the benefit and bind the principal (and his successors in interest) exactly as if the principal were not incapacitated and as if no time had elapsed.
d. 5-503 provides that if a court appoints conservator or other fiduciary to manage the principal’s estate, the attorney in fact is accountable to BOTH the fiduciary and the principal.
i. Fiduciary has same powers to revoke or amend power of attorney as the principal would have had barring his incapacity
ii. Principal can nominate a particular fiduciary by a durable power of attorney in the event that protective proceedings are commenced, and court must follow the principal’s most recent nomination in a durable power of attorney except for good cause or disqualification.
e. 5-504 provides that the power of attorney is not revoked until the attorney in fact has notice that a condition has occurred to revoke it.
i. Actions of an attorney in fact who acts in good faith under a written power of attorney, without actual knowledge that the principal has died, will be honored unless otherwise valid or unenforceable.
ii. Principal’s incapacity or disability will not terminate the agency of the attorney in fact of a written (not durable) power of appointment if the attorney lacked actual knowledge of the disability and acts in good faith under the power. This action will continue to bind the principal and successors in not otherwise unenforceable.
f. 5-505 provides that in the case of 5-504, conclusive proof of nonrevocation of the power will be recognized by an affidavit executed by attorney in fact that he did not at the time of the exercise of the power of appointment have actual knowledge of the power’s termination by death or disability of the principal.
g. 5-105 provides that a minor’s (or incapacitated person’s) parent or guardian may delegate his power regarding care, custody, or property of the minor or ward.
                i. Delegation period may NOT exceed 6 months
                ii. May NOT delegate the power to consent to marriage or adoption
3. Other statutory forms (not on exam?)
a. Uniform Durable Power of Attorney Act  
b. Uniform Healthcare Decision Act provides durable powers of attorney for healthcare decisions
c. North Carolina requires witnesses and a notary signature for creation of durable health care power of attorney – statutory form approved by legislature which includes fill-in-the-blank form
                i. benefit is that it allows principal who uses it to be sure it will be accepted
C. Living will – (aka advanced directive) written and signed statement expressing the individual’s desire not to be kept alive through the use of medical technology if the person enters a terminal condition and is unable to communicate his wishes to decline further treatment
1. Living will tends to be much less flexible means of achieving post-capacity healthcare decisions than durable power of attorney.
a. Durable power of attorney authorizes another person to make all the same decisions you are authorized to make – allows the attorney in fact to react to the specific circumstances of your care.
b. Living will gives only broad directions for the termination of specific health care treatments at incapacity. Even if detailed and complex, they continue to be rigid documents which cannot be modified after their execution.
i. If testator of living will experiences a healthcare scenario he or she didn’t anticipate or provide for in the living will, the document will have no effect.
                                c. Rights begin on incapacity of the testator/principal.
2. However, living will may be safer because not as easy to abuse as a durable power of attorney (because doesn’t delegate absolute decision-making power to someone else at a point when the principal doesn’t have any ability to contest the attorney in fact’s decisions).
                a. In re Kurrelmeyer provides a cautionary tale regarding financial powers of attorney
i. Lewis K’s will left life estate in his estate “Clearwater” to his wife with a remainder in her children.  (Specific instruction regarding this particular property). Then he gives durable power of attorney for financial matters to his wife and daughter.
ii. Wife puts property in trust so that it’s not part of his probate estate. Trust instrument provides that the wife can live there as long as she wishes, trust will pay for upkeep if she doesn’t, and on her request, Clearwater will be sold with the proceeds to go to another home or be added to trust principal. Can take all income from the trust as necessary for her support.
                1) Essentially converts life estate into outright ownership
iii. Children sue to preserve the value of the estate (i.e., prevent her from consuming the entire value).
                1) argue that the power of attorney does not authorize to create a trust
2) also argue that she has violated her duties as an agent by self-dealing (violates fiduciary duties of care, loyalty, obedience)
iv. Court rules in favor of the wife:
1) her actions in creating the trust were entirely consistent with the POA – expressly authorized attorney to execute deeds of trust – as well as state law
2) remanded for findings of fact on violation of agent’s fiduciary duties – trial court found that she had not violated these duties because there were many reasons why the principal might have wanted to put Clearwater in trust, and therefore her actions may have been in keeping with the principal’s will.
v. Court cannot (or does not) take into account that Lewis K probably would not have wanted the property to be distributed in this way – significantly undermines original intent.
i. Court likely willing to give extra leeway because of the agent’s familial relationship with the principal.
ii. She also seems to be using the trust to expand the property left to her under the will.
 
II. Introduction to Estate Planning, Transfer of Decedent’s Estate
        A. Competing policy arguments
                1. Often, laws establishing a particular estate plan will balance competing interests:
                                a. right of decedent to leave his hard-earned money to whomever he wishes
                                                i. tends to focus on the interests of the one who made and owns the wealth
                                b. right of the family and those the decedent supported to have continued support
                                                i. tends to focus on the interests of those who need the wealth
        ii. also need to balance interests among those who need the support – should surviving spouse take all or should minor children take some as well?
        iii. Want to uphold decedents’ familial or ethical responsibilities and society’s interest in preserving the family unit (particular nuclear family)
                2. Which of these policy arguments is most compelling will depend upon circumstances
a. Head of household with small children more likely to justify providing for his children than providing for his girlfriend
b. Quite commonly the surviving spouse will get all of the decedent spouse’s estate per the will anyway.
i. Intestacy statute usually gives much closer to half to the wife and half to surviving children
c. Intestacy status usually are intended to follow what the legislature believes decedents would chose to do with their property under a will. Doesn’t always work.
i. Often the law reflects inherent prejudices (misogyny, homophobia) of those who wrote it
ii. No

le for formal probate at any time if unexpected problems arise requiring litigation
3) Probate is closed by filing a sworn statement that he has followed the normal procedure outside of court.
vii. Probate can typically be avoided for small estates when the parties are amicable – survivors are able to come to an agreement about what should be done with the property
1) if they can’t agree, probate court must step in and make the determination for them
viii. probate procedure becomes more important when real property is involved – necessary to transfer title if no right of survivorship
1) mortgages will be more problematic – typically have a provision that upon the death of the mortgagor, the property must immediately be sold off to pay the value of the mortgage.
2) Personal property tends to be non-probate property, except bank accounts or other similar funds (e.g., mutual funds, stocks, retirement account with no POD provision)
ix. If sufficient time passes and probate has not been entered, an irrebuttable presumption will arise that the decedent died intestate, even if they had a will.
e. A number of states allow modified, uncontested, simplified probate method (“summary administration”)
i. jurisdictions typically allow distribution of a modest estate without opening formal probate
ii. trigger is usually around $20k.
iii. Survivors are able to file and affidavit with the bank or mutual fund companies  to receive the stock as testate or intestate heirs when say that they are lawful heirs and the estate is less than the capped amount.
iv. Usually the DMV has a statute to expedite the procedure for changing car title – typically bring in death certificate and proof that you are entitled to the car (e.g., will), and the DMV will automatically issue a new title.
1) considered a favor of sorts for grieving family – make it easier for them to avoid probate
f. Typically, a homestead and family exemptions pass portions of the estate free of creditors even when estate.
                i. These claims get precedence over creditors’ claims.
ii. family property exemption often grants spouse and minor children the right to retain certain personal property free from creditors’ claims, such as home furnishing, food, clothes, cars, etc.
1) UPC 2-403 limits value of exempt personal property at $10k.
iii. Homestead exception allows the residence used by the decedent and his family to be protected from creditors, and often gives these family members a superior right to occupy the home
1) some states provide only small amounts (e.g., $15k under UPC 2-402) while others protect the entire home regardless of its value
iv. family allowance may often be granted under the court’s authority to support surviving spouse and minor children for statutory period – amount necessary to keep them in the style of living of which they were accustomed for a year (or until administration is closed)
C. Right to pass property at death
1. SCOTUS recognizes a constitutional right to pass on property at death, both by intestacy and by will.
Hodel v. Irving – SCOTUS strikes down as unconstitutional the Indian Land Consolidation Act as effective “taking” of decedents’ property without compensation – upholds right to pass property (either by will or by intestacy) at death.
a. Congress is trying to reverse the long-term effects of granting reservation estates to American Indians – over time, estates splinter into multiple undivided interests as they are left (via intestacy or will) to multiple members of successive generations. Splintering makes management of the estate difficult – hard to clear title or effectuate sale or distribution of the entire parcel, huge administration costs.
i. Congress passes law that prevents fractional interest in any tract of restricted land within a reservation from descending by intestacy or devise if less than 2% of total acreage of the tract and has earned owner less than $100 in the preceding year. ESCHEATS to the tribe; no compensation to the would-be owner.
b. Court finds this law unconstitutional because it effects a total abrogation of ability of a decedent to pass property by descent or devise without adequate compensation. Taking away the right to pass on property in death is still a taking.
i. Fact that Mr. Pumpkin Seed could have could have effectively transferred the property during his life doesn’t change the analysis.
c. In a related case, Babbit v. Youpee – held unconstitutional a law allowing American Indians to only devise your interest to someone with a current interest in the same tract already – too much interference with the right to inheritance because permitted devise only among a limited group and prevented for many lineal descent.
d. American Indian Probate Reform Act – current statute – trust land may be conveyed to other American Indians or to the tribe. Introduces primogeniture-like intestate scheme if intestate decedent owns less than 5% interest in the parcel.