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Trusts and Estates
University of Toledo School of Law
Moore, Kelly

Prof. Moore, Trusts & Estates, Fall 2012

I. Defining Family

a. Is Bloodline/Spouse Established?

i. Look for state law regarding spouse

ii. There are presumptions for bloodline

b. Bloodline Plus

i. Complete Adoption

1. A complete adoption is any adoption that is not a stepparent adoption.

2. If a biological parent dies, the adopted child is OUT of their bloodline.

3. Once there is a complete adoption, the child is in the family bloodline for all relatives. This is the presumption that the legislature and UPC make.

ii. Stepparent Adoption

1. There is not complete severance of ties from the biological parent.

iii. Equitable Adoption

1. Rare

iv. Foster & Stepchildren

1. Generally not included in the term “child” for purposes of intestacy or construction of wills and trusts. A foster child is a child who is unrelated to either husband or a wife but for whom they provide care, typically as the result of a formal placement by a state social services agency.

c. Parentelic System—(most states follow this)—if a decedent dies intestate and leaves no surviving spouse or descendants, the estate passes to the closest “parentela” to the decedent—an ancestor and that ancestor’s surviving descendents.

i. If no parents, usually to the decedent’s siblings or siblings heirs—first line collaterals

ii. If no first line collaterals, then second-line collaterals—descendant’s of the decedent’s grandparents.

iii. If no second line collaterals, then to third line collaterals

d. Limited Parentelic System (UPC Approach)

i. if no first or second line collaterals, property escheats to the state to avoid laughing heirs.

e. UPC

i. Draws no distinction to children born inside and outside of the marriage

II. Intestacy (Key—Define Family at the Moment of Death and Apply Statute)

a. General: Intestate succession is a legal default rule

i. Statutes of “Intestate Succession”—statutes that will determine who receives a deceased property owner’s real and personal property if the owner dies without having executed a valid will or provided for disposition through some form of will substitute…

1. Applies only to probate property—assets subject to administration in a decedent’s probate estate.

2. If a decedent has created valid will substitutes during life, the property involved will be non-probate property passing automatically to the successor owner’s at decedent’s death.

3. State attempt to create new law that they believe is the normal course

a. takes no account of the wishes, of the deceased or the heirs

b. if you do not like this process then write a will

ii. Partially Intestate—decedent dies leaving a valid will but the will disposes of only part of the decedent’s probate property, the will governs the disposition of the property described in the will, but any remaining probate property passes by intestate succession

b. Ways to Enter Intestacy

i. Decedent did NOT make a will

ii. Decedent executed a “valid” will BUT the document “omits/neglects” to deal with certain property.

1. Property purchased AFTER will was created + executed

iii. Decedent has a “signed” will but “potential heir challenges the will” due to “incapacity OR some other ground for contestation” AND will is “invalidated”

c. Intestate Share of Decedent’s SPOUSE

i. Must be official marriage—not common law marriage

1. This is not a determination by probate courts, it is a question for the family courts.

ii. Mistaken marriages (putative spouse)—people who think they are married, but they are not legally

1. Definition

a. Innocently and reasonably believed that they were legally married…still allowed to inherit

i. Innocent is not burying head in the sand

ii. You should have at least looked into the matter

b. Limited to inheritance

c. UPC § 2-101(b)- permits a testator to disinherit intestate heirs by means of a “negative devise” (a statement in the will that they will take nothing). This subsection reverses the usual common law rule that an heir can be disinherited only by making an effective devise of the testator’s entire probate estate to other beneficiaries.

III. Intestacy Approach

a. Step 1: Figure out Share of Spouse

i. UPC 2-102

1. The intestate share of a decedent’s surviving spouse is:

a. The entire intestate estate if:

i. No descendent or parent of the decedent survives the decedent; or

ii. All of the decedent’s surviving descendents are also descendants of the surviving spouse and there is no other descendent of the surviving spouse who survives the decedent;

b. The first $300,000 [+COLA] plus three-fourths of any balance of the intestate estate, if no descendant of the decedent survives the decedent, but a parent of the decedent survives the decedent.

c. The first $225,000 [+COLA] plus one-half of any balance of the intestate estate, if all of the decedent’s surviving descendants are also descendants of the surviving spouse and the surviving spouse has one or more surviving descendants who are not descendants of the decedent

d. The first $150,000 [+COLA), plus one half of any balance of the intestate estate, if one or more of the decedent’s surviving descendants are not descendants of the surviving spouse

b. Step 2: Figure out Others

i. UPC §2-103 Share of Heirs Other Than Surviving Spouse

1. Any part of the intestate estate not passing to a decedent’s surviving spouse under Section 2-102, or the entire intestate estate if there is no surviving spouse, passes in the following order to the individuals who survive the decedent

a. To the decedent’s descendants by representation;

b. If there is no surviving descendant, to the descendant’s parents equally if both survive, or to the surviving parent if only one survives;

c. If there is no surviving descendant or parent, to the descendants of the decedent’s parents or either of them by representation

d. If there is no surviving descendant, parent, or descendant of a parent, but the decedent is survived on bother the paternal and maternal sides by one or more grandparents or descendants of grandparents:

i. Half to the decedent’s paternal grandparents equally if both survive, to the surviving paternal grandparent if only one survives, or to the descendants of the decedent’s paternal grandparents or either of them if both are deceased, the descendants taking by representation; and

ii. Half to the decedent’s maternal grandparents equally if both survive, to the surviving maternal grandparent if only one survives, or to the descendants of the decedent’s maternal grandparents or either of them if both are deceased, the descendants taking by representation;

e. If there is no surviving descendant, parent, or descendant of a parent, but the decedent is survived by one or more grandparents or descendants of grandparents on the paternal but not the maternal side, or on the maternal but not the paternal side, to the decedent’s relatives on the side with one or more surviving members in the manner described in paragraph (4).

i. If there is no taker under subsection (a), but the decedent has:

1. One deceased spouse who has one or more descendants who survive the decedent, the estate or part thereof passes to that spouse’s descendents by representation; or:

2. More than one deceased spouse who has one or more descendants who survive the decedent, an equal share of the estate or part thereof passes to each set of descendants by representation.

IV. Models of Representation

a. Strict Per Stirpes– Distributes the decedent’s property based on bloodlines rather than based on generations

i. Procedure for Determining Per Stirpes Share

1. Determine the number of shares by dividing the estate into as many equal shares as there are

a. Living children of the decedent, if any, and

b. Deceased children with descendants then living who will represent them

2. Distribute one share to each living member of the highest generation

3. For the children who were not alive but whose bloodlines were entitled to a share because they were represented by their descendants, determine the portion allocated to that bloodline in the same manner as step one above and distribute the probate property in the same manner as step two. Repeat this generation by generation, putting each descendant who is represented at the top of the chart.

b. Per Capita

i. Same as per stirpes, but the difference is where you make the first division. If there is a living child, the result is the exact same.

c. Per Capita by Generation (New UPC)

i. Makes one more presumption, that not only do you want to make the first division at the generation with living people but also to make sure that each generation receives the same amount.

V. Is an Inter Vivos Transfer a Gift, Advancement, or a Loan?

a. Advancements

i. Advancements are gifts that are an advance payment of a portion of one’s expected inheritance.

ii. INTESTACY ONLY

iii. Approach of most statute statutes

1. Rebuttable presumption that a lifetime transfer is an absolute gift

2. Applies only to:

a. Wholly intestate descendents and

b. Children

3. Looks at value of property when transfer was made

4. Silent on whether advancements apply to will substitutes

5. Determine by intent

6. If advancement: hotchpotch calculation à add amount to estate and then grantee is credited for gift.

iv. UPC Approach: only an advancement if

1. The decedent declared in a contemporaneous writing or the her acknowledged in writing that the gift is an advancement or

2. The dec

ounts

ix. Transfer on Death Deeds for Real Estate

d. Gifting—Not Exactly a Will Substitute

i. What distinguishes a gift from other property transfers?

1. The principle distinction between other transactions and a gift is the element of consideration—a gift is a gratuitous transfer while the others all have a quid pro quo element to them.

ii. Methods of Gifting

iii. Was the gift successfully made?

e. Developing a Comprehensive Estate Plan Incorporating Will Substitutes

i. Selecting the Beneficiary

ii. What if the Beneficiary Predeceases the Descendent?

f. Failed Will Substitutes

g. Can a Will or Other Document or Provision of Law Override a Will Substitute’s Designation of a Beneficiary?

VII. Creation of Trusts (p. 221)

a. What is a Trust?

i. A fiduciary relationship that involves a settlor (who creates the trust), a trustee (who manages the trust) and a beneficiary (who benefits from the trust).

b. Terminology of Trusts

i. Settlor

1. The person who creates a trust by transferring legal title to property to the trustee to hold for the benefit of the beneficiaries.

ii. Trustee

1. Person who holds legal title to the property. Can be an individual or corporation authorized to act as a trustee (often a bank is used as a corporate trustee).

2. Trustee manages the property, not for the trustee’s own benefit but for the benefit of the beneficiary.

3. The law imposes strict fiduciary duties on the trustee to protect the beneficiary.

iii. Beneficiary

1. Person with the beneficial or equitable title to the trust property. A trust may have many beneficiaries holding beneficial interests in the trust at the same time or at different times.

iv. Qualified Beneficiary

1. The UTC uses this term for a subset of beneficiaries who have certain rights under the UTC.

a. “Qualified beneficiary” means a beneficiary who, on the date of the beneficiary’s qualification is determined

i. A distributee or permissible distributee of trust income or principal;

ii. Would be a distributee or permissible distributee of trust income or principal if the interest of the distributees described in subparagraph (a) terminated on that date without causing the trust to terminate;

iii. Would be a distributee or permissible distributee of trust income or principal if the trust terminated on that date.

v. Corpus (Property or Res)

1. Property held and managed by the trustee.

vi. Private Express Trusts

1. A private express trust is a trust created intentionally by the owner of property for private beneficiaries. Most of the trusts we discuss in this course are private express trusts.

vii. Charitable Trusts

1. A trust that has a charitable purpose or a charity as its beneficiary. Most trust law rules apply to charitable trusts, but some of the requirements and rules are different.

viii. Inter Vivos and Testamentary Trusts

1. Inter Vivos Trusts

a. Trusts created by the settlor while the settlor is alive.

2. Testamentary Trusts

a. A settlor can provide for one or more trusts in her will, and any trust created under a will is referred to as a testamentary trust.

ix. Revocable and Irrevocable Trusts

1. Revocable Trusts

a. If the settlor retains the power to modify or revoke the trust, the trust is revocable.

2. Revocable (Living) Trusts

a. A revocable living trust is created to hold the settlor’s assets during the settlor’s life, distribute to the settlor whatever income or corpus he needs and then distribute the remaining assets to others at the settlor’s death.

b. A revocable living trust provides a way to manage assets for the settlor, if the settlor becomes incapable of doing so, and also serves as a will substitute so that probate of the trust property is not necessary on the settlor’s death.