Wills, Trusts and Estates

Topics Covered


 

 

Class Notes

 

Mental Capacity to Transfer

Testamentary Capacity

To make a valid will one must be of sound mind though s/he need not possess superior or even average mentality. One is of sound mind for testamentary purposes only when s/he can understand and carry out in his or her mind in a general way:

(1) The nature and extent of his property

(2) The persons who are the natural objects of his bounty, and

(3) The disposition which he is making of his property.

As shown above, testamentary capacity is determined according to one's mental ability to make a will; one may have testamentary capacity though he is under guardianship or lacks the ability to make a contract or transact other business.

The fact that a person has been judged incapable of managing his or her affairs and that a conservator or guardian has been appointed to administer his or her property does not compel a finding that that person lacks testamentary capacity. See e.g., Matter of Maynard (adjudication of incompetency and appointment of guardian created a presumption against testamentary capacity but presumption rebutted by evidence that testator understood what she was doing)

For example, the wills in the following cases were held valid despite vigorous attack:

a. Use of Alcohol and Drugs.

b. Old Age and Weakened Physical Condition.

c. Attending Physician.

d. Attorney.

e. Attesting Witnesses.

f. Psychiatrist.

The traditional test for capacity requires the testator to be able to identify the natural objects of his or her bounty. It need only be shown that the testator has the capacity to know who these objects of his bounty are and not whether in fact the testator appreciates his moral obligations and duties toward such heirs in accordance with some standard fixed by society, the courts or psychiatrists. In re Estate of Weil.

Although no constitutional right to trial by jury exists in a proceeding) probate or contest a will, some form of jury trial is now almost universally authorized by statute. There is considerable variation among the statutes as to whether the verdict controls or is advisory only and as to the circumstances under which a jury may be claimed.

The party with the burden bears the risk of losing if the jury is not persuaded by a preponderance of the evidence. The burden is on the contestant to prove lack of intent or capacity, undue influence, fraud, duress, mistake or revocation.

Inter vivos transfers presuppose the existence of donative intent.

Certain types of delusions recur, e.g., a spouse's infidelity, belief that testator had not sired one or more of the children, belief that testator was married and father of a child, that a person intends to kill or do bodily harm to testator.

Undue Influence

Undue influence invalidates such part of a will as is affected by it. If the whole will is procured through undue influence, it is entirely void. J Where, however, part of the will is caused by undue influence, and the remainder is not affected by it, and the latter can be so separated as to leave it intelligible and complete in itself, such part of the will is valid and enforceable.

"Whatever may be the particular form, however, in all cases of this character three factors are implied: (1) A person who can be influenced, (2) the fact of deception practiced or improper influence exerted, (3) submission to the overmastering effect of such unlawful conduct." Neill v. Brackett

"Undue influence" has been defined as "mental, moral or physical" exertion which has destroyed the free agency of a testator" by preventing the testator from following the dictates of his own mind and will and accepting instead the domination and influence of another." In re Neuman

In this jurisdiction, once a presumption of undue influence has been established the burden of proof shifts to the proponent of the will, who must, under normal circumstances, overcome that presumption by a preponderance of the evidence. In re Week's Estate

It has been often recognized that a conflict on the part of an attorney In a testimonial situation is fraught with a high potential for undue influence, generating a strong presumption that there was such improper influence and warranting a greater quantum of proof to dispel the presumption. Court has required evidence that was convincing or impeccable. Courts have continually emphasized the need for a lawyer of independence and undivided loyalty, owing professional allegiance to no one but the testator. In re Rittenhouse's Will.

Rule 1.7 Conflict of Interest: General Rule

(a) A lawyer shall not represent a client if the representation of that client will be directly adverse to another client. Unless:

(1) the lawyer reasonably believes the representation will not adversely affect the relationship with the other client, and

(2) the client consents after consultation

(b) A lawyer shall not represent a client if the representation of that client may be materially limited by the lawyer's responsibilities to another client or to a third person, or by the lawyer's own interests, unless:

(1) the lawyer reasonably believes the representation will not be adversely affected; and

(2) the client consents after consultation. When representation of multiple clients in a single matter is undertaken, the consultation shall include explanation of the implications of the common representation and the advantages and risks involved.

This ethical rule prohibits an attorney from engaging in professional relationships that may impair his independent and untrammeled judgment with respect to his client. The attorney who drafts a will that contains a bequest in his or her favor not only has little or no chance to receive the bequest but may also be subject to disciplinary proceedings for unethical conduct. See e.g. In re Anderson

In terrorem clauses

A provision in a will purporting to penalize any interested person for contesting the will or instituting other proceedings relating to the estate is unenforceable if probable cause exists for instituting proceedings. We therefore decline to enforce an in terrorem clause in a will or trust agreement where there is probable cause to challenge the instrument. Haynes.

The statute, enacted in 1977 as described in the principal opinion, brought New Jersey Into line with the majority of jurisdictions, holding that an in terrorem clause is unenforceable if probable cause exists for initiating the proceedings. 3. The court in the principal case applies the traditional rule which assigns the burden in cases involving undue influence and fraud to the contestant with the obligation of going forward with the production of evidence shifted to the proponent after it has been shown that a confidential relationship existed between the proponent and the testator.

What relationships have the potential for control that justifies a characterization of "confidential" and the creation of a presumption of undue influence?

a. Testator's attorney

b. A guardian or conservator, a financial adviser or business associate.

c. A clergyman

d. A spouse may be guilty of influence, but a court is not likely to classify it as "undue."

e. The position of the lover

f. The owner or operator of a nursing or foster home

g. Friendship is not a sufficient basis to raise a presumption of undue influence without a showing that the testator was particularly dependent on the friend, that the will was executed under suspicious circumstances, or that the disposition was unnatural or unjust. See e.g. Matter of Ferrill,

h. psychiatrist.

Fraud requires proof that a person has made a false representation, knowing it to be false, with the intention that the testator rely on it, which in fact the testator has done, with the result that the will does not truly represent the testator's intent.

Mistake

The "settled principles" to which the majority opinion refers are embodied in the traditional rule holding that there is no remedy to reform mistakes of law or fact made by a testator in the execution of a will or in the drafting of its provisions. See e.g. Gifford v. Dyer

Courts refuse to reform wills on the ground that they cannot accept extrinsic statements of testator' s intent which have not been formally attested in accordance with the requirements of the Statute of W ills. Of course it is essential to the validity of a will that the testator was possessed of testamentary intent. Matter of May

Restatement of the Law of Restitution:

"Preventing revocation of will and making new will. Where a devisee or legatee under a will already executed prevents the testator by fraud, duress or undue influence from revoking the will and executing a new will in favor of another or from making a codicil, so that the testator dies leaving the original will in force, the devisee or legatee holds the property thus acquired upon a constructive trust for the intended devisee or legatee."

A wrongdoer may, however, be required to hold the property as constructive trustee for an intended beneficiary. The Latham opinion cites in this regard the so-called secret trust cases: " * * * where a legatee has taken property under a will, after agreeing outside the will, to devote that property to a purpose intended and declared by the testator, equity will enforce a constructive trust to effectuate that purpose, lest there be a fraud on the testator."

 

Wills

The Function of the Statute of Wills

Ritual Function. The ritual function is also specifically emphasized in individual requirements. It furnishes one justification for the provision that the will be signed by the testator him- self or for him by some other person. The signature tends to show that the instrument was finally adopted by the testator as his will and to militate against the influence that the writing was merely a preliminary draft, an incomplete disposition, or a haphazard scribbling. The occasional provisions that the testator publish the will or that he request the witnesses to sign also seem chiefly attributable to this purpose, since such actions indicate finality of intention.

Evidentiary Function. First, as has already been stated, the testator will inevitably be dead and therefore unable to testify when the issue is tried. Secondly, an extended lapse of time, during which the recollection of witnesses may fade considerably, may occur between a statement of testamentary intent and the probate proceedings. A written statement of intention may be ambiguous, but, if it is genuine and can be produced, it has the advantage of preserving in permanent form the language chosen by the testator to show his intent. There is judicial support for the theory that the requirement that the will be signed at the end has an evidentiary purpose of preventing unauthenticated or fraudulent additions to the will made after its execution by either the testator or other parties. The provision existing in some states that the will be signed or acknowledged by the testator in the presence of the attesting witnesses may be justified as having sorrie evidentiary purpose in requiring a definitive act of the testator to be done before the witnesses, thus enabling them to testify with greater assurance that the will was intended to be operative.

Protective Function. Some of the requirements of the statutes of wills have the objective, according to judicial interpretation, of protecting the testator against imposition at the time of execution. His powers of normal judgment and of resistance to improper influences may be seriously affected by a decrepit physical condition, a weakened mentality, or a morbid or unbalanced state of mind.

Substantial Compliance. The substantial compliance doctrine must necessarily impair something of the channeling function, because it permits the proponents of noncomplying instruments to litigate the question of functional compliance. (As opposed to the rule of literal compliance). The substantial compliance doctrine would pertain not to every will, but to that fraction of wills where the testator, acting without counsel or with incompetent counsel, has failed to comply fully with the Wills Act formalities. Two important factors would operate to diminish the incidence and the difficulty of such litigation. First, by no means would every defectively executed instrument result in a contest. Second, the litigation which would occur would for the most part raise familiar issues which the courts have demonstrated their ability to handle well.

The Uniform Probate Code represents a significant attempt to make the state statutes setting out the formalities for the execution of wills less rigid. As is under the Code, witnesses need not forfeit fail to sign at the end, witnesses need not sign in the presence of the testator and each other, and more. "to discover and make effective the intent of a decedent in distribution of his property."

As yet no American states have followed the lead of two Australian states and Israel in adopting the "substantial compliance" approach, i.e. the court may admit an instrument to probate if it is in substantial compliance with the required formalities. Without similar enabling acts in this country, most courts continue to set as the test against which the facts are to be analyzed the necessity for strict compliance with the statutes. In the United States, the law of wills is based entirely on statute.

If a will is declared invalid for failure to satisfy all the statutory requirements, the attorney who supervised its execution may be held liable for damages in negligence.

Comment The formalities for execution of a witnessed will have been reduced to a minimum. Execution under this section normally would be accomplished by signature of the testator and of two witnesses; each of the persons signing as witnesses must, "witness" any of the following: the signing of the will by the testator, an acknowledgment by the testator that the signature is his, or an acknowledgment by the testator that the document is his will. Signing by the testator may be by mark under general rules relating to what constitutes a signature; or the will may be signed on behalf of the testator by another person signing the testator's name at his direction and in his presence. There is no requirement that the testator publish the document as his will, or that he request the witnesses to sign, or that the witnesses sign in the presence of the testator or of each other. The testator may sign the will outside the presence of the witnesses if he later acknowledges to the witnesses that the signature is his or that the document is his will, and they sign as witnesses. There is no requirement that the testator's signature be at the end of the will; thus, if he writes his name in the body of the will and intends it to be his signature, this would satisfy the statute. The intent is to validate wills which meet the minimal formalities of the statute.

Witnesses

Courts have described the objective of the process as giving the witnesses an opportunity to observe the attestation so that at a later probate proceeding they can "give testimony as to the essential elements of the two statutory issues of due execution and testamentary capacity sufficient, if credited by the jury, to prove both issues." Wheat v Wheat

The typical statute states that a person eighteen or over may make a will.

A mark or an abbreviated name will suffice if the will can be identified as the testator's.

Statutes exist in all but a handful of states permitting someone else to sign for the testator with an almost universal requirement that the third person be under the direction and in the presence of the testator

"Substituted judgment" doctrine: whereby the guardian or conservator of an incompetent person is authorized to make gifts of the ward's property to persons whom the ward is legally, morally, or equitably obligated to support or to charities, it' it is likely that the ward would make such gifts if legally competent to do so.

A number of statutes require that the testator sign the will "at the end." A misplaced signature may, however, still render a will invalid.

Many jurisdictions require that the witnesses sign in the presence of the testator. See a few states the witnesses are required to sign in the presence of each other. The Massachusetts Supreme Judicial Court, held that the will was invalid where the witnesses signed before the testator. The Massachusetts statute (which has been carried forward as Mass.Gen.Laws Ann. C. 191 §1 (l978)) required that the will must be "signed by him [the testator or by a person in his presence and by his express direction, and attested and subscribed in his presence by two or more competent witnesses.

Two types of "presence" may be required: (a) the testator signs in the presence of the witnesses; (b) the witnesses sign in the presence of the testator. The first of these two types is not universally required. The Uniform Probate Code does not require the witnesses to sign the will in the presence of the testator. The presence of the testator is to prevent the witnesses from substituting some other paper for the will executed by the testator. The usual test of presence is stated in terms of whether the testator could have seen the witnesses attest the will or not and how much effort was required to enable him to do so.

These elements must be present:

(1) the witnesses must sign within the testator's hearing,

(2) the testator must know what is being done, and

(3) the signing by the witnesses and the testator must constitute one continuous transaction." In re Tracy's Estate.

Competency of Witnesses

Except in the special cases where holographic or nuncupative wills are permitted attestation is an almost universal requirement for the validity of a will in this country. The first "purging" statute in 1752, removed the interest of the witness by providing that, if any beneficiary under a will also attested it, the gift to him in the will should be void and be should be a competent witness. The Uniform Probate Code §2-505 and the laws of a few states no longer require that a witness be financially disinterested in the will.

In practical effect, the competency doctrine creates an irrebuttable presumption that a legatee or the spouse of a legatee, who witnesses a will, is dishonest.

§2-505 of the Uniform Probate Code: This section simplifies the law relating to interested witnesses. Interest no longer disqualifies a person as a witness, nor does it invalidate or forfeit a gift under the will. The rule disqualifies a witness who receives a legacy that is of direct pecuniary benefit, i.e., the type of benefit for which a person would commit fraud. A testamentary direction to the executor to employ a named person as the attorney for the estate is not deemed to be binding on the executor and therefore the attorney is not disqualified as an attesting witness. Pavletich

Financial interest is not the only basis on which a witness' competency may be challenged. As in other areas of the law, a witness to a will must have sufficient capacity and maturity to observe, recall, and narrate the events that took place at the attestation of the will.

Neither the statutes not the common law hold that a parent, who witnesses a will in which his or her child is a beneficiary, is an incompetent witness. Some purging statutes do not disqualify the spouse who acts as a witness to a will in which the other spouse is a beneficiary. Massachusetts does disqualify.

If one of three witnesses is a beneficiary and the local statute only requires two witnesses, the interested witness, being superfluous, need not forfeit his or her legacy. There appears to be no escape from the purging statute when two of three witnesses are beneficiaries.

Holographic Will

Such are considered in a class by themselves, exempted from the statutory requirements for formal wills (the most important of which is attestation), and only required to comply with the statute expressly applicable to holographic wills alone. Not admitted in Massachusetts, except for sailors and soldiers. The absence of any ritual value, may account for the fact that holographic wills are not recognized in the majority of the states, and for some decisions, in states recognizing them, requiring the most precise compliance with specified formalities. The statutory requirement that the material provisions be drawn in the testator's own handwriting requires that the handwritten portion clearly express a testamentary intent.

An instrument may not be probated as a holographic will where it contains words not in the handwriting of the testator if such words are essential to the testamentary disposition.

Recall that the requirement that a holographic will be in the handwriting of the testator is to insure that the document is authentic. A court must find that the instrument was intended by the testator to be a will, or, as it is frequently postulated in the cases, that the testator possessed animus testandi at the time of writing the document. Writings may be accepted as wills even though words are misspelled, the syntax confused, the handwriting illegible, and the disposition set out in a few words, 3. Informal letters are often upheld as holographic wills if they manifest the necessary testamentary intent. A first name, nickname or initials are held sufficient if they identify the testator. A holographic will may be admitted to probate in a state which does not allow such wills if the will was validly executed in another state. In re Robinson's Estate. A holographic will need not be entirely signed by the full name of the testator nor does a complete date that is incorrect invalidate the will if extrinsic evidence is available to establish the time of execution.

Date

It has long been recognized that the statutory requirement of a date serves two purposes:

(1) it allows evaluation of testamentary capacity of the specific time the instrument was executed, and

(2) in situations where more than one document is offered for probate, it permits determination of which is in fact the last will.

Noncupative Will

The oral will is generally only effective to pass personal property, and the statutes in many states impose a maximum limit, ranging from $200 to several thousand dollars, on the amount of property that can be transferred. The nuncupative device is usually useable only in situations of extreme emergency such as an automobile accident followed by death within a few hours.

"Living Wills"

Such advance directives take two forms:

1. The instruction directive (so-called living will) in which persons specify the type of care they do or do not want should they become incompetent; and

2. The proxy directive (so-called durable power of attorney) in which persons designate surrogates to make decisions should they ever be unable to do so.

The document is intended to become operative while the declarant is still alive, it need not be probated, and it does not pertain to the disposition of property. The statutes do, however, typically require that the document be attested by two disinterested witnesses and be executed in much the same manner as a testamentary instrument.

Although differing somewhat in details, these statutes have several characteristics in common:

1. They purport to bind the physician (in California and several other states the physician is only bound if the document is executed two weeks after the patient has notice o~ the terminal diagnosis) to the terms of the directive, although only five states specify penalties, usually "professional discipline," for failing to implement the directive or transferring the patient to a doctor who will implement it;

2. Medical personnel and institutions are protected from civil and criminal liability acting within the terms of the directive;

3. The directive becomes operative when the patient's condition is diagnosed as terminal and death is imminent regardless of treatment and in a number of the statutes this may be revoked at any time. May be revoked at any time.

Durable Power of Attorney

All fifty states have statutes authorizing durable powers of attorney under which the agent's authority continues even when his or her principal has become incompetent. This is an agency relationship. There is also a durable power of attorney for health care.

Self-Proved Will

By the self-proved will procedure, the witnesses' (and testator's) sworn testimony is taken at the time of execution, thereby relieving the witnesses of the obligation to appear at the probate proceeding, unless called to testify on some issue in dispute by one of the parties. It has been held that a self-proved will may not be contested in regard to signature requirements and makes conclusive the presumption of proper execution that arises from the presence of an attestation clause.

Choice of Law

Over half the jurisdictions in the United States have statutes providing that a will is valid if executed according to the law either of the testator's domicile or of the place where the will was executed. In the absence of a statute, the traditional choice of laws approach offers the same alternative.

Documents with the Will

Challenges are sometimes made to the validity of material that has not been signed by the testator or attested by witnesses but which is arguably intended to be a part of the will. Three doctrines relate to this issue.

Integration. In the case of a formal, witnessed will, the rule requires that a set of unconnected papers must have been intended by the testator to constitute a single will and the papers must have been in existence and present as a will at the time of execution. Proof of intent may consist of evidence that the papers were at one time attached; there is also the practice of initialing each page on the bottom.

Incorporation by reference. A will may direct that the estate, or a port ion thereof, be distributed in accordance with the terms of an inter vivos trust, deed, letter, or other memorandum. Only an existing document may be incorporated by reference, and a letter, written after the will was executed, would not qualify. The pour-over will is a popular and useful device whereby the testator directs that the distributable probate estate, in whole or in part, be added to a trust which the testator or someone else (a spouse, for instance) has previously established.

Facts of Independent Significance. Contents of a will may change because of acts by the testator or others which occur after the execution of the will. The events which may occur to change the will are not done with exclusively testamentary purpose and are not, therefore, treated as invalid amendments to or revocations of the will.

Revocation

Joint and Mutual Wills

A joint will is an instrument that when viewed solely as a will is revocable at pleasure, but when considered as a contract, if supported by adequate consideration, may be enforceable in equity.

Physical Destruction or Mutilation

Actions which destroy a will are burning, tearing, canceling, or obliterating. The courts usually require a complete elimination of the name. An attempt to write in a new name will not be effective unless independently signed and witnessed. The statutes permit a third person to destroy the will if under the direction and in the presence of the testator. In. There is a presumption that a mutilated will has been revoked. The presumption is rebuttable.

Subsequent Written Instrument

A will or any part thereof is revoked

1. By a subsequent will which revokes the prior will or part expressly or by inconsistency; or

2. By being burned, torn, canceled, obliterated, or destroyed, with the intent and for the purpose of revoking it by the testator or by another person in his presence and by his direction.

If the statute permits revocation by "some other writing" or is silent on the point, nontestamentary writings have sometimes been accepted as a revocation of the will.

A codicil duly executed becomes a valid, integral part of the testamentary disposition; it modifies or changes in part the will, and with the will is to be read and executed as one entire instrument. A codicil should refer to the will in explicit terms, identify the parts to be changed, set forth the new (substituted or additional) provisions, and reaffirm and republish the will except as so modified.

"If, after the making of any will, the testator shall duly make and execute a second will, the destruction, canceling or revocation of such second will shall not revive the first will, unless it appear by the terms of such revocation, that it was his intention to revive and give effect to his first will; or unless after such destruction, canceling or revocation, he shall duly republish his first will." Decedent Estate Law §41

The rule in the English common law courts was that a first will which had not been physically destroyed but had been revoked by a second will was revived by the revocation of the second will. The ecclesiastical courts held that a will of personal property was only revived if the testator's intent, as gleaned from all the circumstances, favored revival. The matter is now governed in England by a statute. The cases from jurisdictions without statutes in this country follow one or the other of the two original English rules.

Dependent Relative Revocation

The gist of the doctrine is that if a testator cancels or destroys a will with a present intention of making a new one immediately and as a substitute and the new will is not made or, if made, fails of effect for any reason, it will be presumed that the testator preferred the old will to intestacy, and the old one will be admitted to probate in the absence of evidence overcoming the presumption. "Where the intention to revoke is conditional and where the condition is not fulfilled, the revocation is not effective." Matter of Macomher's Will. The doctrine of dependent relative revocation is most frequently used in instances where the revocation was induced by some mistaken assumption of law or fact on the part of the testator.

In like manner the will itself may be subject to a condition precedent before it becomes operative. If the will uses conditional language, the court must determine whether the language represents the inducement or occasion for making the will or whether it was intended as a condition precedent to the operation of the document.

Operation of Law: Change in Family Situation

The statutes of a number of jurisdictions present a variety of provisions calling for revocation of the will, in whole or in part, when the composition of the immediate family changes after execution such as divorce, annulment, dissolution, birth or adoption of a minor child.

For example, "For purposes of this section, divorce annulment means any divorce or annulment which would exclude the spouse as a surviving spouse within the meaning of Section 2-so2(b). A decree of separation which does not terminate the status of husband and wife is not a divorce for purposes of this section." In the absence of statute, the courts are divided on the effect of divorce on an existing will.

Operation of Law: Ademption

In declaring that testator's intent is not relevant, the court is applying the "identity" theory of ademption. This approach is followed in the majority of jurisdictions. It takes place, as the term imports, when the thing which is the subject of the legacy, is taken away, so that when the testator dies, though the will purports to bestow the legacy, the thing given is not to be found to answer the bequest.. Ademption is a conclusion of law, and does not depend upon the intention of the testator.

Satisfaction

Satisfaction takes place when the testator, in his lifetime, becomes his own executor, and gives to his legatee what he had intended to give by his will. And this, unlike that of ademption, is purely a question of intention.

The traditional view holds that if the testator is the parent of the legatee, the subsequent gift to the legatee is presumed to be in satisfaction of the legacy. As is true in the case of advancements, the trend in recently amended statutes abolishes the presumption and reduces the general applicability of the doctrine by ruling that there is no satisfaction unless the testator or legatee has recognized it as such in a contemporaneous, signed document.

Abatement

Dispositions under a will are classed as specific, demonstrative, general or residuary. They are defined as follows:

(1) A specific devise or bequest is a gift of some particular item of property that is capable of being designated and identified.

(2) A demonstrative bequest is one of a certain amount or quantity to be satisfied primarily out of a certain fund or particular property, hut, if this is impossible, payable generally from the estate.

(3) A general bequest is one which is payable out of general assets of the estate and which does not require the delivery of any specific thing or satisfaction from any designated portion of testator's property.

(4) A residuary gift is a gift of whatever is left after the satisfaction of other dispositions.

The classification of testamentary dispositions is important for purposes of ademption (supra p. 354) and abatement:

(a) If a testamentary gift is specific, a disposition of the property prior to death will adeem it. Demonstrative and general bequests are not adeemed.

(b) Unless a different order is prescribed in the will, property in the estate will be applied to the payment of debts, taxes and expenses in the following order:

1. Intestate property, if any.

2. Residuary gifts.

3. General bequests and demonstrative bequests (if the designated source is not available)

4. Demonstrative bequests (if the designated source is available), specific bequests and specific devises.

 

Gifts

Real Property

The normal way of making a gift of land today is by statutory deed. The absence of consideration will not usually affect the validity of the deed as between the parties to it.

Personal Property

"There cannot be a 'gift' without a giving and taking. The giving and taking are the two contemporaneous reciprocal acts which constitute a 'gift.'"

Inter vivos: The typical American law may therefore be stated as follows: To succeed in establishing a gift inter vivos of personalty, the claimant must prove (1) the alleged donor's intent to give and (2) delivery of either (a) the subject-matter of the gift or (b) an instrument of gift.

Causa mortis: a gift causa mortis is a gift made in contemplation of death, for the purpose of effectuating a final disposition of the property involved if death occurs. This form of transfer resembles a will in objectives and general effect, but is classified as a transfer inter vivos for the purpose of the requirements of transfer.

Characteristics of a gift causa mortis:

1. only applicable to transfers made in apprehension of death.

2. will become inoperative if the donor recovers

3. is revocable by the donor

4. become inoperative if the donee fails to survive the donor.

5. is automatically subject to the claims of the donor's creditors, if the property passing by will and intestacy is not sufficient to satisfy them

6. is effectuated by delivery, and for this and other purposes of formal ties of transfer is treated as an inter vivos and not a testamentary disposition.

7. passes title to the donee at the time of the gift

There are three types of delivery:

1. manual delivery of the subject-matter of the gift;

2. delivery of an instrument of gift and

3. constructive delivery, which contemplates the handing over of some object which will open up access to the subject-matter of the gift.

Because courts see the doctrine of causa mortis gifts as a threat to the integrity of the statute of wills a number of rather arbitrary limitations have sometimes been imposed upon such gifts:

(a) If the donee is already in possession of the subject-matter of the gift there must nonetheless be a redelivery to effect a valid causa mortis gift.

(b) It is generally held that an attempted gift causa mortis of real property is void.

(c) courts have shown a reluctance to accept delivery of an informal written instrument as sufficient to effectuate a gift causa mortis.

He motivation for making a gift causa mortis is frequently the same as for making a will. Traditional doctrine requires that title pass to the donee at delivery. If the transfer is classified as a gift causa mortis the title is subject to divestment if the donor revokes or recovers.

The apprehension of death requirement would seem to serve the benevolent purpose of establishing a foundation for the implication of the conditions of revocability during life and by recovery which are justified as being what the donor would desire under the circumstances. Donative intent is intent to surrender dominion and control over the property and may be present for any type of gift even when the donor harbors hostile feelings toward the donee. The only other event in a person's life which is considered sufficiently analogous to death to warrant the implication of a condition of divestment if the event does not occur is marriage.

Choses in Action

The proposition that a gift of a choses in action may be effectuated by handing over written evidence of the obligation is illustrated with the following:

(a) Stocks and bonds, bills of exchange, promissory notes, checks and certificates of deposit payable to the donor, may be effectuated by handing over the written instrument, whether or not it is indorsed by the donor.

(b) a written life insurance policy handed over

(c) delivery of a savings bank book will effectuate a gift of a deposit in a savings bank.

The Code continues the requirement that a transfer of a security requires delivery of the certificate although:

An indorsement of a certificated security, whether special or in blank, does not constitute a transfer until delivery of the certificated security on which it appears or, if the endorsement is on a separate document, until delivery of both the document and the certificated security. UCC §8-309

It is held that delivery of an unindorsed certificate effects a gift if a transfer was really intended.

The signing of a joint signature card is prima facie evidence of a gift to the survivor, placing the burden on the contestant to rebut the presumption of gift by convincing evidence.

The effect of making delivery to a third person rather than to the donee: The situation arises when the donor hands the object to a friend with instructions to deliver it to the donee. Complications arise when the donor gives further instructions to give it to the donee only when the donor dies. If the third person is "trustee" (alter-ego) for the donee, the delivery was effective and the gift valid. If an "agent" of the donee, there was no delivery and the agency was revoked by the principal's death.

 

 

TRUSTS

The trust concept as such is essentially quite simple. It merely involves the idea of one person (the trustee) holding the legal title to certain property (the res or subject-matter) for the benefit of another person (the cestui or beneficiary) whose interest is equitable.

The effect of the division of title is to allocate the burdens of property ownership to the trustee, and to allocate its benefits (except for the commission paid to the trustee for his services) to the beneficiary.

Trusts have traditionally been classified as express, constructive, and resulting.

Theoretically the express trust, like the express contract, is an intent-enforcing mechanism; that is, the court acts on the theory that the defendant has previously manifested an intention to assume the obligation for the breach of which he is held responsible.

The constructive trust, however, like the quasi-contract, is theoretically a remedial device in no way dependent upon the defendant's intention to assume the obligation imposed. The constructive trust is an equitable device utilized for the purpose of preventing unjust enrichment.

It is extremely difficult, even on a conceptual plane, to define the idea of the resulting trust in terms of its essential nature. There are three situations in which it has been employed:

(1) The resulting trust on a gratuitous conveyance (now largely obsolete) was formerly imposed, under certain circumstances, for the benefit of the grantor, on the grantee of land gratuitously transferred.

(2) The purchase money resulting trust exists where A conveys to B, C paying A the purchase price; under certain circumstances, B is said to hold on a resulting trust for C.

(3) The resulting trust on failure or termination of an express trust exists for the benefit of the creator of the trust, or his transferees, in the event of entire or partial failure of the express trust, or its termination before the expiration of the trustee's legal title.

The Common Law Conveyances

Methods of conveying land (include a change in physical possession and the insistence on publicity): the feoffment, the fine, the common recovery, and the lease and release.

The vital operative fact was the delivery of possession, i.e., the feoffee entering upon the land and the feoffor leaving it, often including the symbolic ceremony of handing over a twig or piece of turf; "they are the land in miniature, and thus the land passes from hand to hand." The witnesses to it attest to the transfer of ownership.

The term "fine" was an abbreviation of "finalis concordia" (final settlement), and this type of conveyance employed the form of the compromise of a lawsuit (usually fictitious) for the real purpose of transferring title to land, the terms of the compromise containing an admission by the transferor of the transferee's ownership of the land.

The lease and release was, as the name indicates, a double conveyance. If A wished to transfer a fee simple to B, A could first lease to B for one year. There was no requirement of writing for a lease for years prior to the Statute of Frauds.

There is nothing at all complicated or unique about the basic idea of the original use device, which simply involved a transfer of property from A to B for certain purposes, A trusting B to carry out those purposes.

If A wished C to have the benefit of the use device, A would enfeoff B, B agreeing to hold the land to the use (i.e., for the benefit) of C. A would be called the "feoffor to uses" (corresponding to the settlor of the modern trust); B the "feoffee to uses" (corresponding to the trustee of the modern trust); and C the "cestui que use" (corresponding to the cestui que trust, or beneficiary, of the modern trust).

The conception of bargain is now flexible enough to cover a conveyance made in reliance on the transferee's promise, even though the transferee received no benefit. The Chancellor's progressive liberality furnished means of escape from the rigidity of the common law. The use agreement was informal and could be informally created, either orally or in writing.

Obligations of the feoffee to uses may be summarized as three:

  1. he was obliged to allow the cestui que use to enjoy the land;
  2. he was under the duty of transferring the legal title to such persons and for such estates as the cestui might orally or in writing direct;
  3. he was required to take all necessary proceedings to protect the legal title against de-seisors or other adverse claimants. The feoffee to uses was in reality a dummy depository of the legal title, and this typical arrangement was the prototype of what was subsequently described as the passive trust.

There is a subtle distinction between ownership and use. Thus the dual system of law and equity made possible the convenient though curious situation in which one person, in reality only a dummy, was recognized in the law courts as sole owner with all the legal consequences which the accumulated doctrines of the common law had attached to ownership, while the beneficiary enjoyed protection in Chancery free and clear of those consequences except in so far as the Chancellor might wish to follow the previous doctrines of the common law. Of all the causes of the widespread employment of uses, the most important and influential was the desire to make a will of land. From the thirteenth century until 1540, the law courts adhered to the rule that no will of real property could be made, despite the widespread desire to avoid the doctrine of primogeniture, to provide adequately for daughters and sons, charitable uses and to escape the onerous feudal incidents which attached on the death

The only dispositions of the legal title were two inter vivos transfers, the first by the feoffor to the feoffees and the second by the feoffees to the ultimate cestui que use. There was no rule against a man conveying land inter vivos to whomever he might desire.

  1. testamentary dispositions of personalty were permissible
  2. the law of personal property of this period was in a considerably more fluid state and afforded adequate legal remedies
  3. chattels at the early period were a comparatively unimportant form of wealth, consisting chiefly of perishable articles, and therefore not likely either to be the subject of the rather permanent use arrangement.

Reasons for Refusal of Law Courts to Recognize Uses

  • the law courts did not recognize the use as an estate in land.
  • the law courts did not enforce the obligation of the feoffee to uses on a contractual theory,
  • one of the major advantages of ownership is the power to transfer one's interest, and the Chancellor favored this end by holding the interest of the cestui freely and informally assignable.
  • if the use had been considered a contract, only the feoffor, the promisee, could have enforced the arrangement,
  • the cestui que use would not want damages for breach of contract, but specific enjoyment of the land.

The Statute of Uses

Widespread employment of uses resulted in serious diminution of the revenue of the crown:

"Hereditaments of this Realm have been conveyed from one to another by fraudulent Feoffments, Fines, Recoveries and other Assurances craftily made to secret Uses, Intents and Trusts;

[18] That where any Person or Persons stand or be seised, to the Use, (of any other Person or Persons, or of every such Case, all and every such Person and Persons, and Bodi, that have or hereafter shall have any such Use, Confidence or Trust it shall from henceforth stand and be seised, of and in such like Estates as they had or shall have in Use, Trust or Confidence

(19) and that the estate, Title, Right and Possession that was in such Person or Persons that were, or hereafter shall be seised of any, to the Use, Confidence, or Trust of any such Person or Persons, or of any Body Politick, be from henceforth clearly deemed and adjudged to be in him or them that have, or hereafter shall have, such Use.

Its basic purpose was to extinguish the seisin or legal estate of the feoffees to uses and give it to the cestui que use instead, and thereby to abolish the former dual ownership and prevent evasion of the common law by making the cestui the legal owner and thus subjecting him to the liabilities of legal ownership.

In other words, the system of uses was not abolished as such, but use interests were "executed" by the statute and turned into legal estates.

Uses Not Executed by Statute of Uses

  1. In the first place, the statute did not apply to uses of personal property.
  2. The second exception to the statute was the active use or trust. The active trust is the normal trust today, the trustee having active duties to perform, and the retention by him of the "legal" title being essential to carry out the purposes of the trust. The statute was aimed primarily at the typical use arrangement, the passive use, under which the feoffee to uses was a dummy holding the legal title and the cestui was in possession and enjoying all the practical benefits of ownership. Whatever the reasons, the courts excepted active trusts from the operation of the statute.
  3. The third exception to the statute was the use on a use, which was a limitation of two successive use interests, and known as a "shifting use" or "springing" use.

The covenant to stand seised: There was in fact no consideration in the usual sense of the word, but the requirement of consideration in a bargain and sale was departed from probably because it seemed reasonable to permit gifts of land by this method to members of the family of the donor, and to recognize the already existing employment of uses in the creation of family settlements.

The lease and release conveyance operating under the Statute of Uses This operated in the same way as the common law lease and release with one exception, namely, that the term of years was created by a bargain and sale deed instead of the common law method.

Methods of Creating Trusts

Two general methods of creating trusts inter vivos:

  1. The first is a transfer in trust, the expression used to describe a case where A (settlor) transfers to B (trustee) in trust for C (cestui); this is similar to the creation of a use on a feoffment or other common law conveyance.
  2. The second is a declaration of trust, which describes a case where A, the owner of the property, instead of transferring it to B, another person as trustee, declares himself trustee of that property for the benefit of C, the cestui; this is similar to the creation of a use by bargain and sale or covenant to land seised.

The creation of a trust by will is similar to a transfer in trust inter vivos.

Active and Passive Trusts

A trust is passive if the trustee has no active duties to perform, and where the trust instrument stated the beneficiaries should have the management and control of the property, and the trustee was to have no duties to perform.

Courts have stated the rule or standard to be: "* * If there are any active duties for the [trustee to perform with respect to administering the property, and the primary use be expressly or impliedly, by reason of such active duty, vested in the trustee, the trust is necessarily active.

Express Trust

Restatement, Second, Trusts §2-Definition of Trust:

A trust, as the term is used in the Restatement, when not qualified by the word "charitable," "resulting" or "constructive," is a fiduciary relationship with respect to property, subjecting the person by whom the title to the property is held to equitable duties to deal with the property for the benefit of another person, which arises as a result of a manifestation of an intention to create it.

Trusts Created by Precatory Words

We begin with the proposition that the word "wish" (or, in this case, "wishes") is generally classified as precatory. Stinson's Estate (No. 1), 232 Pa. 218, 221, 81 A. 207, 208, 36 L.R.A.,N.S., 504 (1911), perhaps the leading case in this area, enunciates this rule:

[W]hen precatory words are used merely for the purpose of advising or influencing, or as expressive of a will or desire that the legatee make a certain use of the testator's bounty, they are not obligatory upon those to whom they are addressed; but when used to express his manifest intention to control or direct, they are mandatory, and will be so construed in saying what effect is to be given to them...

A trust, charitable or otherwise, cannot be created unless the purported settlor manifests an intention to impose enforceable duties, otherwise an intestacy results. A layman's will is to be construed as if written by a layman. Ziegler Estate. Rules of construction are not employed unless the will is ambiguous or testator's intent uncertain.

The anti-lapse statute: the intention of the testator to render the statute inoperative must be plainly indicated. This intention need not manifest itself by a specific provision in the will dealing expressly with the question of lapse, for testator's intention can be deduced by implication from other aspects of the will.

The word "desire" in its ordinary and primary meaning is precatory, but is often construed when used in a will as directive or mandatory when it clearly appears that such was the intention of the testator from a consideration of the instrument as a whole and the surrounding circumstances. It is clearly precatory in nature and not mandatory, and amounts only to a wish on the part of the testator/trix and does not express a mandatory bequest.

Cases show that words such as "trust" and "trustee" need not be used in order to create a trust. Likewise, the use of such words does not guarantee that a trust will be found if other characteristics of the arrangement are not present. Restatement 2d Trusts, §25

The recent cases tend strongly away from the older view that precatory words such as "wish" and "desire" are preemptively mandatory, and instead inquire whether the words and the factual context reveal an intention to impose legally enforceable obligations on the transferee.

Declaration of Trust

The words, "I hereby declare to be held in trust," show an intention to give the beneficial interest in praesenti. If the res is land, the Statute of Frauds requires that the trust be in writing. A declaration of trust of personalty is ordinarily not required to be in writing but may well be put in writing to secure more enduring evidence of the terms of the trust.

The practice of the English courts, in Richards v. Delbridge, LR. 18 Eq. 11, 14-15 (Chancery, 1874) in which the court said:

" The principle is a very simple one. A man may transfer his property without valuable consideration, in one of two ways: he may either do such acts as amount in law to a conveyance or assignment of the property, and thus completely divest himself of the legal ownership, in which case the person who by those acts acquires the property takes it beneficially, or on test, as the case may be; or the legal owner of the property may, by one or other of the modes recognized as amounting to a valid declaration of trust, constitute himself a trustee, and, without an actual transfer of the legal title, may so deal with the property as to deprive himself of its beneficial ownership, and declare that he will hold it from that time forward on trust for the other person. It is true he need not use the words, "I declare myself a trustee!" but he must do something which is equivalent to it, and use expressions which have that meaning; for, however anxious the Court may be to carry out a man's intention, it is not at liberty to construe words otherwise than according to their proper meaning."

Restatement of Trusts:

§28. Consideration for Declaration of Trust

The owner of property can create a trust of the property by declaring himself trustee of it although he receives no consideration for the declaration of trust.

§31. Conveyance Inter Vivos to a Person for His Own Benefit

If the owner of property makes a conveyance inter vivos of the property to another person to be held by him for his own benefit and the conveyance is not effective to transfer the property, no trust is created.

Comment

If the owner of property wishes to give to another the beneficial interest in the property, he can do so in any one of three ways:

  1. he can transfer the property to the other as an outright gift;
  2. he can transfer the property to a trustee in trust for the other;
  3. he can declare himself trustee for the other.

An ineffective gift, therefore, will not be upheld as a declaration of trust.

Totten Trusts

A deposit by one person of his own money in his own name as trustee for another, standing alone, does not establish an irrevocable trust during the lifetime of the depositor. It is a tentative trust merely, revocable at will, until the depositor dies or completes the gift in his lifetime by some unequivocal act or declaration, such as delivery of the passbook or notice to the beneficiary. In case the depositor dies before the beneficiary without revocation, or some decisive act or declaration of disaffirmance, the presumption arises that an absolute trust was created as to the balance on hand at the death of the depositor." In re Totten, 179 N.Y. 112 [1904]:

"A tentative trust of a savings deposit can be revoked by the depositor by his will. It is so revoked where by will he makes a disposition of the bank deposit in favor of anyone other than the beneficiary. It is also revoked where by will he makes a disposition of his property which cannot be carried out except by using the deposit, as for example where he leaves no other property than the deposit." Restatement of Trusts comment to §68.

A [Totten] trust can be revoked, terminated or modified by the depositor's will only by means of, and to the extent of, an express direction concerning such trust account, which must be described in the will as being in trust for a named beneficiary in a named financial institution. A testamentary revocation, termination or modification under this paragraph can be effected by express words of revocation, or by a specific bequest of the trust account, or any part of it, to someone other than the beneficiary. A bequest of part of a trust account shall operate as a pro tanto revocation to the extent of the bequest.

All states except Ohio, however, have now adopted the Totten rule by statute.

In the absence of special circumstances, a Totten trust terminates, and the depositor holds the deposit free of the trust, if he survives the beneficiary. (164 A.L.R.3d 221(1975).

Generally the beneficial interest in a Totten trust does not vest until the death of the settlor. The general rule developed in some is that if the beneficiary predeceases the settlor, the trust fails and the corpus of the trust reverts to the estate of the settlor. [Citations omitted.] If the beneficiary of a revocable inter vivos savings account trust predeceases the settlor, upon death of the settlor, the corpus of the trust will pass to the estate of the beneficiary.

In the case of a savings account trust that does not qualify as a Totten trust, a provision for revocation only by withdrawal or by written notice to the bank is fully effective. And contrariwise, in the case of a Totten trust such a provision is quite generally held to be for the protection of the bank only; only the bank can invoke it.

Trusts to Begin in the Future - The Trust Res

The Restatement, Second, Trusts declares:

§74. The Necessity of Trust Property. A trust cannot be created unless there is trust property.

§75. Non-existent Interests. An interest which has not come into existence or which has ceased to exist cannot be held in trust.

§76. Indefinite Subject Matter. A trust cannot be created unless the subject matter is definite or definitely ascertainable.

§78. Transferable Property. Any property which can be voluntarily transferred by the owner can be held in trust.

§79. Non-transferable Property. [With two narrow exceptions,] property which the owner cannot transfer cannot be held in trust.

§82. Intangible Things. Interests in intangible things, if transferable, can be held in trust.

That an assignment of an expectancy to a trustee was a mere promise to create a trust, which, made without consideration, cannot be enforced. In re Gurlitz. A promise made for consideration to create a trust in the future is enforceable even if the res in not yet in existence. Penney v. White.

Insurance Trusts

Insurance trusts are held nontestamentary (almost as a matter of course) on either or both of two theories.

Often the court declares that the execution of the trust agreement, and the performance of present duties under it, results in transfer of an interest to the insurance beneficiary then. In re Estate of Herron.

Broadly speaking, they may be classified in two categories. One category includes life insurance policies with agreements purporting to make the insurance company issuing the policy a trustee of the proceeds thereof. The other category includes the cases where a trust company or other third party, named by the insured as the beneficiary of the policy, agrees to hold the proceeds in trust.

Insurance trusts of the latter type are classified on the basis of the method of payment of premiums as "funded" or "unfunded." In the funded life insurance trust, the insured settlor not only names the trust company or other trustee as trustee to hold the proceeds in trust after his death, but also delivers property to the trustee in trust to use the same or the income thereof to pay the insurance premiums during his life.

Even if the insurance contract refers to the company as trustee of the proceeds, the fine print in the contract will remove practically all the traditional fiduciary duties by establishing a fixed rate of return and payment schedule, permitting commingling with general assets, waiving additional compensation as trustee and the like.

ALIENABILITY OF THE BENEFICIARY'S INTEREST

"Spendthrift" Trusts

In the absence of a restriction in the trust instrument or an applicable statute, the interest of a trust beneficiary is as transferable as any other property. Except in a few states, the settlor may, however, make the beneficiary's income interest inalienable, in which case the interest is not only not subject to voluntary transfer by the beneficiary but may be unreachable in whole or part by the beneficiary's creditors.

First, for the law to appropriate a gift to a person not intended would be an invasion of the donor's private dominion. It is always to be remembered that consideration for the beneficiary does not even in the remotest way enter into the policy of the law; it has regard solely to the rights of the donor

The second philosophy, which is in conflict with the rule that a settlor or testator should be permitted to dispose of his property as he sees fit so long as he violates no rule of law or public policy.

A spendthrift trust has been defined as one which permits the life beneficiary to live at the same time in luxury and in debt.

"Station-in-life" Rule

To the extent that it can be proved that such income exceeds that which the beneficiary needs to continue living in the manner to which s/he is accustomed, trusts of this type are usually created by persons of substantial wealth for the benefit of a wife or of children, all of whom have been accustomed to relatively luxurious living.. No provable surplus above that needed to continue the accustomed mode of life is to be expected.

Even though the beneficiary's interest is non-assignable, an assignment by him is effective "as a revocable authorization to the trustee to make the payments." And of course, once the payment is received by the beneficiary, it is free of restrictions.

Involuntary Alienability

This is one which attempted to reach the bankrupt's interest in the assets of a spendthrift trust. Although unreasonable restraints on the alienation of real property are invalid, reasonable restraints on alienation have been upheld where justified by the legitimate interests of the parties.

The essential idea of a spendthrift trust is that the beneficiary cannot deprive himself of the right to future income under the trust. The intention of the settlor that the beneficiary should receive the trust property free and clear of liens and other charges, should be given effect.

The owner and donor of the property should be free to select the trust beneficiary who will enjoy his bounty, and should be able to put enforceable provisions in the trust which will prevent his trust beneficiary from voluntarily conveying or assigning his interest, thus precluding any creditor from taking that interest away from the beneficiary.

The interest of the beneficiary in a spendthrift trust may be reached by a trustee in bankruptcy. As a hypothetical lien creditor, the trustee in bankruptcy may "step into the shoes" of any creditor who could (but not necessarily does) exist under the terms of the trust. He may therefore invade the spendthrift trust in the place of the creditors who furnished "necessities."

Restatement of the Law of Trusts, vol. 1, §157, p.38

"Although a trust is a spendthrift trust or a trust for support, the interest of the beneficiary can be reached in satisfaction of an enforceable claim against the beneficiary,

  1. by the wife or child of the beneficiary for support, or by the wife for alimony;
  2. for necessary services rendered to the beneficiary or necessary supplies furnished to him;
  3. for services rendered and material furnished which preserve or benefit the interest of the beneficiary.

."..the court did not err in subjecting the income from this trust fund to the support of the minor children of the beneficiary," The Griswold Spendthrift Trusts.

Whether the court erred in decreeing that the spendthrift trust could be reached to satisfy the decree for support. Although a trust is a spendthrift trust or a trust for support, the interest of the beneficiary can be reached in satisfaction of an enforceable claim against the beneficiary, (a) by the wife or child of the beneficiary for support, or by the wife for alimony. We find then that the agreement by a parent to support a child, declared to be reasonable and proper, and so, enforceable by a court, constitutes an obligation which justifies the invasion of a spendthrift trust for its fulfillment.

Discretionary and Support Trusts

The discretion which a trustee may exercise in discharging his or her duties is clearly distinguishable from the virtually unlimited grant of discretion which characterizes a purely discretionary trust. In so doing, we acknowledged the power of the donor to limit or place conditions on the disbursement of trust funds. Here the trust was one expressly for the support of the beneficiary which left much less discretion to the trustee than had been granted to the trustee in either Bucklin or Roorda.

"Here the instrument requires use of the trust income for the maintenance of the beneficiary and permits invasion of the trust corpus to achieve that end. If the payment of the claim is consistent with the donor's discernible intent and the discretion granted the trustee is not such that payment could properly be withheld, enforcement of the claim has generally been allowed despite the existence of a support trust or spendthrift clause. We continue to give primary attention to the language of the trust instrument and the intent of the testator or settlor expressed therein."

Even where the trustee is given "absolute discretion" he is subject to judicial control to prevent abuse of his discretion since the discretionary power is held in a fiduciary capacity. In some circumstances the court will even order a distribution. In re Chusid's Estate

A trust can be both discretionary and spendthrift.

Support trusts involve a restriction of the trustee's power, whereas discretionary trusts involve its expansion.

Self-settled Trusts

Public policy does not permit one to create a spendthrift trust with his own property for his own benefit.

In the case of "reciprocal trusts," each is deemed to be the consideration for the other, and the nominal creator of one is deemed to be the real settlor of the other.

The reciprocal trust theory which treats the beneficiary as the settlor of the trust of which he is beneficiary, is confined to tax cases and is not applicable to situations involving general trust law.

This court has ruled that a settlor-beneficiary of a spendthrift trust in which no other party is interested may terminate it at will. This is true even though the trust agreement contains a prohibition against termination. A settlor-beneficiary of a life estate in a trust containing a prohibition against assignment may, nevertheless, assign his interest. This rule is based on public policy which does not permit one to create a spendthrift trust with his own property for his own benefit. This appears to be justified on the theory that one should not be permitted to have the substantial benefits of ownership without its burdens. Since the law does not permit him to use the trust to escape the burdens of ownership, the courts do not hold him to his self-imposed restraint on his own property.

"The settlor-beneficiary of a life estate may assign his interest even though the trust instrument contains a prohibition against assignment of income. I see no reason to differentiate between his right to terminate his interest and his right to assign it. The language of the statute is not circumscribed in terms and might be said to impliedly embrace settlor-beneficiary interests. I think it would be highly inequitable to insist that be be bound by what are in reality self-imposed restraints on the alienability of his interest."

Termination of Trusts Pursuant to the Instrument

Where no method of revocation is specified in the instrument creating an inter vivos trust, it may be revoked by any method which sufficiently proves the intention of the settlor to revoke it.

"Under a concept of "equal dignify," a written instrument should not be permitted to be revoked unless the revocation is in writing also. However, there is no general prohibition against parol revocation of an agreement in writing. In order to insure to the greatest extent possible against a fabricated claim of revocation, we adopt a burden of proof "commensurate with the dimensions of fraud perceived in the particular case or situation." Merenoff v. Merenoff.

Since a will does not take effect until after a testator's death, it is not the proper instrument to revoke a trust when the power to do so is an inter vivos power.

  1. A trust is ordinarily passive if there is no separation of the equitable and legal interest. In order that there may be a valid trust created by a will, there must be a trustee, an estate devised to him, and the trustee and beneficiary must be separate and distinct entities. However, this exception does not apply if there is more than one trustee and the trustees and the beneficiaries are identical.
  2. Although no formality is required unless called for by the terms of the trust, the revocatory intent must be manifested; the mere execution of an unwitnessed will is not a sufficient revocation. Gamage v. Liberty National Bank & Trust Co.

Restatement, Second, Trusts

§331. Modification of Trust by Settlor

(1) The settlor has power to modify the trust if and to the extent that by the terms of the trust be reserved such a power.

(2) Except as stated in §§332 [reformation for mistake] and 333 [rescission for fraud, illegality, etc., the settlor cannot modify the trust if by the terms of the trust he did not reserve a power of modification.

Comment:
Ordinarily a general power to revoke the trust will be interpreted as authorizing the settlor not only to revoke the trust in part by withdrawing a part of the trust property from the trust (see §330, Comment n), but also to modify the terms of the trust, and it will be unnecessary for the settlor first to revoke the trust and then to create a new trust. If, however, the effect of the modification is to add to or vary the duties of the trustee, this is a ground for permitting the trustee to resign as trustee. 5 See §106. If the settlor reserves power to revoke the trust "as an entirety," he cannot modify the trust, although he can revoke the trust and if he so desires create a new trust.

Termination by Completion of Purpose

If the main object of a trust has been attained, the trust will not be continued in order to achieve an incidental or minor purpose. Equity will decree its termination.

Termination by Supervening Impossibility or Illegality

Restatement, Second, Trusts §335.

Accomplishment of Purposes Becoming Impossible or Illegal

If the purposes for which a trust is created become impossible of accomplishment or illegal, the trust will be terminated.

When, however, the purpose for which a trust is created has been accomplished or has become impossible of accomplishment, or if continuance of the trust is unnecessary to carry out the purpose of the trust, termination may be ordered before the period fixed by the creator.

Termination by Consent

Restatement, Second, Trusts

§337. Consent of Beneficiaries

(1) Except as stated in Subsection (2), if all of the beneficiaries of a trust consent and none of them is under an incapacity, they can compel the termination of the trust.

(2) If the continuance of the trust is necessary to carry out a material purpose of the trust, the beneficiaries cannot compel its termination.

The beneficiaries of a trust, if all consent and none is under an incapacity, can compel its termination if the continuance of the trust is not necessary to carry out a material purpose of the trust, although the period fixed by the terms of the trust for its duration has not expired. On the other hand, even though they all consent, they cannot compel the termination of the trust if its continuance is necessary to carry out a material purpose of the trust.

If a trust is created for successive beneficiaries, in the absence of circumstances indicating a further purpose, the inference is that the only purpose of the trust is to give the beneficial interest in the trust property to one beneficiary for a designated period and to preserve the principal for the other beneficiary, and if each of the beneficiaries is under no incapacity, and both of them consent to the termination of the trust, they can compel the termination of the trust.

Similarly, if the beneficiary who is entitled to the income acquires the interest of the remainderman, or the remainderman acquires the interest of the beneficiary entitled to the income, or the beneficiary entitled to the income disclaims with the result that the interest of the remainderman is accelerated, or if a third person acquires the interests of both, the beneficiary who thus becomes the sole beneficiary can compel the termination of the trust.

§338. Consent of Beneficiaries and Settlor

(l) If the settlor and all of the beneficiaries of a trust consent and none of them is under an incapacity, they can compel the termination or modification of the trust, although the purposes of the trust have not been accomplished.

(2) Although one or more of the beneficiaries of a trust do not consent to its modification or termination or are under an incapacity, the other beneficiaries with the consent of the settlor can compel a modification or a partial termination of the trust if the interests of the beneficiaries who do not consent or are under an incapacity are not prejudiced thereby.

Comment:
If the settlor is dead, the consent of his heirs or personal representatives is not sufficient to justify the termination of the trust under the rule stated in this Section. The rule is not applicable to trusts created by will, or to trusts created inter vivos if the settlor has died.

Spendthrift trust. Although by the terms of the trust or by statute the interest of one or more of the beneficiaries is made inalienable by him, if all of the beneficiaries and the settlor, none of them being under an incapacity, consent to terminate the trust, the trust will be terminated, although the beneficiaries without the consent of the settlor could not compel the termination of the trust. See §337

The requirement that beneficiaries consent is not satisfied by their mere passive acquiescence. Sundquist v. Sundquist.

Courts of probate have plenary and exclusive jurisdiction in the settlement of the estates of deceased persons which continues until the estate is fully administered. Murray v. Cartmell's Executor, they have general equity powers to hear and determine matters relating to testamentary trusts that develop in the settlement of estates. The tribunal had the legal authority to accelerate the operation of the residuary clause in the manner provided by the agreement of all the beneficiaries. When all the beneficiaries of a trust desire to terminate it in part they can compel that result unless the continuation of the entire trust estate is necessary to carry out a material purpose of the trust. Davis v. Goodmar.

Doctrine of Worthier Title

The doctrine of worthier title states that a grant of trust corpus to the heirs of the settlor creates a reversion in the settlor rather than a remainder in his heirs.

The doctrine of worthier title-whereby descent is deemed "worthier" than purchase:

It is said that where a person creates a life estate in himself with a gift over to his heirs he ordinarily intends the same thing as if he had given the property to his estate; that he does not intend to make a gift to any particular person but indicates only that upon his death the residue of the trust property shall be distributed according to the general laws governing succession; and that he does not intend to create in any persons an interest which would prevent him from exercising control over the beneficial interest. * * * Moreover, this rule of construction is in accord with the general policy in favor of the free alienability of property, since its operation tends to make property more readily transferable. Bixby v. California Trust Co.

Most courts have reasoned that the retention of the testamentary power of appointment confirms the intent to create a remainder in the heirs, since the settlor would not have retained the power had he not thought he was creating a remainder interest in the heirs.

It is hornbook law that any trust, no matter how "irrevocable" by its terms, may be revoked with the consent of the settlor and all beneficiaries.

While the interests of unborn beneficiaries are contingent, id. §§152, 153, they may not be disregarded.

It is a "general rule" that a settlor who is the sole beneficiary of a trust may have the trust revoked and set aside even though it was initially set up in the form of an irrevocable trust.

A sole beneficiary of a trust, who is not under an incapacity, may compel its termination before the period fixed for its duration has expired, if continuance of the trust is not necessary to carry out a material purpose. A trust which does not provide for the support and maintenance of the beneficiary may not qualify as a spendthrift trust under ch. 166 and is subject to general law regarding early termination. Claflin v. Claflin, 149 Mass. 19, 20 N.E. 454 (1889). That case announced the principle that a court will not direct termination prior to the time fixed therefor, even though the beneficiary desires to terminate, since this would be contrary to the purpose of the settlor.

Spendthrift Trust Act (NRS Chapter 166), NRS 166.020 defines a "spendthrift trust" as a trust in which by the terms thereof a valid restraint on the voluntary and involuntary transfer of the interest of the beneficiary is imposed." A spendthrift trust is "special," one that is established usually to prevent the beneficiary from becoming impoverished.

Statute of Frauds, Constructive and Resulting Trusts

For the creation of trusts inter vivos, statutes in the majority of the states follow the English Statute of Frauds in requiring express trusts of land to be in writing, but express trusts of personal property may be created orally. There is no requirement that the evidence giving rise to either a constructive or a resulting trust be in writing.

In approximately one-quarter of the American jurisdictions, there is no statute expressly requiring a writing for the validity of a trust.

Restatement, Second, Trusts

§41. When and by Whom the Memorandum Should Be Signed-Declaration of Trust

Where the owner of an interest in land declares himself trustee of the interest, a memorandum properly evidencing the trust is sufficient to satisfy the requirements of the Statute of Frauds, if it is signed by him

(a) prior to or at the time of the declaration; or

(b) subsequent to the time of the declaration but before he has transferred the interest.

§42. When and by Whom the Memorandum Should Be Signed-Transfer in Trust

Where the owner of an interest in land transfers it inter vivos to another person in trust, a memorandum properly evidencing the trust is sufficient to satisfy the requirements of the Statute of Frauds, if it is signed

(a) by the transferor prior to or at the time of the transfer; or

(b) by the transferee

(i) prior to or at the time of the transfer; or

(ii) subsequent to the transfer to him but before he has transferred the interest to a third person,

§43. Performance of an Oral Trust

Where an oral trust of an interest in land is created inter vivos, the trustee can properly perform the trust if he has not transferred the interest, although he cannot be compelled to do so.

§46. What Memorandum Must Contain

A memorandum properly signed is sufficient to satisfy the requirements of the Statute of Frauds if, but only if, it sets forth with reasonable definiteness the trust property, the beneficiaries and the purposes of the trust.

§50. Part Performance

Although a trust of an interest in land is orally declared and no memorandum is signed, the trust is enforceable if, with the consent of the trustee, the beneficiary as such enters into possession of the land or makes valuable improvements thereon or irrevocably changes his position in reliance upon the trust.

§51. Who Can Take Advantage of Failure to Comply with Statute

Although a trust of an interest in land is orally declared and no memorandum is signed, no one except the trustee or persons succeeding to his interest can take advantage of the unenforceability of the trust.

Even if the title holder becomes insolvent and the property has been attached or is subject to a tax lien, his recognition of the oral trust in writing makes the trust effective from the date of the original transfer and immunizes the property from the claims of his creditors. Zwaska v. Irwin

Parol evidence cannot be admitted to establish the trust, for the purpose of enforcing it, directly as a trust; parol evidence would have been admissible to show such fraud or mistake.

The Rasdall case poses starkly the flat conflict between the policy of the Statute of Frauds and the policy against dishonesty. In most cases, the only evidence of unfair dealing is the oral promise to hold the property in trust. Courts have had little trouble dealing with that conflict and decree a reconveyance from the grantee to the grantor if the grantee fails to keep his oral promise to hold the land for, or reconvey to, the grantor without more, on the theory that the grantee is a constructive (not express) trustee for the grantor and the Statute of Frauds expressly excludes constructive trusts from its operation.

In the United States, the courts are less ready--at least in theory--to bypass the Statute of Frauds. If there is fraud in the procurement of the title to the land or a confidential relationship between the transferor and the transferee a constructive trust will be imposed. There must be proof that the transferee agreed to hold the land for the transferor, before the fraud in the procurement or a confidential relationship will be made the basis for a remedy.

Restatement, Second, Trusts summarizes the rule:

§44. Effect of Failure of Oral Trust for the Settlor

(1) Where the owner of an interest in land transfers it inter vivos to another in trust for the transferor, but no memorandum properly evidencing the intention to create a trust is signed, as required by the Statute of Frauds, and the transferee refuses to perform the trust the transferee holds the interest upon constructive trust for the transferor, if mistake, or

(a) the transfer was procured by fraud, duress, undue influence of mistake, or

(b) the transferee at the time of the transfer was in a confidential relation to the transferor, or

(c) the transfer was made as security for an indebtedness of the transferor.

(2) Where the owner of an interest in land transfers it inter vivos to another in trust for the transferor, and the transferor's intention to create a trust but not the identity of the beneficiary is properly manifested, and the transferee refuses to perform the trust, the transferee holds the interest upon a resulting trust for the transferor.

§45. Effect of Failure of Oral Trust for a Third Person

(1) Where the owner of an interest in land transfers it inter vivos to another in trust for a third person, but no memorandum properly evidencing the intention to create a trust is signed, as required by the Statute of Frauds, and the transferee refuses to perform the trust, the transferee holds the interest upon a constructive trust for the third person, if, but only if,

(a) the transferee by fraud, duress or undue influence prevented the transferor from creating an enforceable interest in the third person, or

(b) the transferee at the time of the transfer was in a confidential relation to the transferor, or

(c) the transfer was made by the transferor in anticipation of death.

(2) Except under the circumstances stated in Subsection (1, a, b, c), in trust for a third person, and the transferor's intention to create a trust but not the identity of the beneficiary is properly manifested, and the transferee refused to perform the trust, the transferee holds the interest upon a resulting trust for the transferor.

Constructive Trusts

The constructive trust is not a true trust but a remedial device available to prevent unjust enrichment in a wide variety of situations most of which do not involve express trusts.

Restatement, Second, Restitution

Tentative Draft No. 2 (1984)

§30. Constructive Trust and Equitable Lien

(11 A constructive trust or an equitable lien as described in this Chapter is a right to restitution from property, conferred as a means of preventing unjust enrichment. Such a trust or lien attaches only to the extent that the property is held by a person who owes restitution to the claimant,

Comment:

A principal use of constructive trust is to award to a claimant a gain produced by an investment of property that was acquired from him by wrongdoing such as fraud; another is to charge a fiduciary for gain he acquired by breach of loyalty to the claimant. The claimant can get a judgment for the amount acquired by the wrongdoer (with interest as appropriate) and an order that the money remaining with the wrongdoer be applied to the judgment.

Asserting a constructive trust on property of a wrongdoer (or of a successor in interest) will give the claimant more complete relief only when the value of the property includes a gain by investment, appreciation, or natural increase. * *

Both constructive trusts and equitable liens are means of redressing unjust enrichment. * * * They are based on the ground that unless a person is held to account for property, or an Interest in property, either he or someone claiming under him will be unjustly enriched.

Where original property has been sold and the proceeds invested in other property a difficult problem of "tracing" may be encountered. Ayers v. Fay, 187

It has long been a fundamental concept of English law that a change in the form of a thing which is owned does not change the ownership. Derived from and based upon this concept is the rule that the equitable owner of trust property is entitled to that which arises out of such property by sale, exchange or otherwise. This rule is, in many instances, effectuated by a device known as "tracing," meaning nothing more nor less than identification, by the cestui, of the trust or its avails in the hands of the trustee or a third person not a bona fide purchaser. A majority of the courts require the cestui, seeking to follow trust property, to convince the court that the fund or property in the hands of the trustee or another not a bona fide purchaser is either all of, part of, or was produced by the original trust res.

But the more modern and certainly the more practical view is that trust funds have been sufficiently traced when it is shown they entered a mass of cash and have remained there. As stated "It is sufficient to trace it into the bank's vaults, such as as an individual bank account of the trustee." And where a trustee has commingled trust funds with his own, the cestui may recover, to the extent of the trust fund. The lowest balance to which the mass has been depleted. The trustee is presumed to have used his own funds first, so that the remainder is sufficiently identified as the trust fund, 65 CJ, 975.

The constructive trust is implied in law, i.e. imposed on a transaction regardless of the intent of the parties. The resulting trust is implied in fact in three types of situations:

(1) where a trust (private or charitable) has become impossible of fulfillment, e.g. Evans. V. Abney

(2) where a (private or charitable) trust is fully performed without exhausting the trust property;

(3) where one person pays the consideration for property and directs that title be transferred to another.

The Restatement, Second, Trusts outlines the doctrine as follows:

§440, General rule

Where a transfer of property is made to one person and the Purchase price is paid by another, a resulting trust arises in favor of the person by whom the purchase price is paid, except as stated in §§441, 442 and 444 illegal purpose

§441, Rebutting the resulting trust

A resulting trust does not arise where a transfer of property is made to one person and the purchase price is paid by another, if the person by whom the purchase price is paid manifests an intention that no resulting trust should arise.

§442. Purchase in the name of a relative

Where a transfer of property is made to one person and the purchase price is paid by another and the transferee is a wife, child or other natural object of bounty of the person by whom the purchase price is paid, a resulting trust does not arise unless the latter manifests an intention that the transferee should not have the beneficial interest in the property.

§443. Rebutting the presumption of a gift to a relative

Where a transfer of property is made to one person and the purchase price is paid by another, and the transferee is a wife, child or other natural object of bounty of the person by whom the purchase price is paid, and the latter manifests an intention that the transferee should not have the beneficial interest in the property, a resulting trust arises.

The proper assumption, in the absence of evidence to the contrary, was that the grantee was intended to take absolutely.

Charitable and Honorary Trusts

Every other trust must have a definite object. There must be somebody, in whose favor the Court can decree performance. And to some such purpose every bequest to charity generally shall be applied.

In In re Ralston's Estate, 1 Cal.2d 724, 37 P.2d 16, 96 AL.R 953 (1934), the will gave the entire estate to the executor "in trust" with "absolute authority to dispose of this my entire estate as he may see fit." The court held that the property passed by intestacy, the dissenting judge expressing the opinion that the will made an absolute gift to the executor.

In Chichester Diocesan Fund v. Simpson, [L944] A.C. 341, the House of Lords affirmed the view that the word "benevolent" is not synonymous with "charitable." Not all American courts, however, have agreed.

Statute of Elizabeth (43 Eliz. c. 4, (1601)).

The preamble to that statute listed a number of typical charities:

"some for relief of aged, impotent and poor people, some for maintenance of sick and maimed soldiers and mariners, schools of learning, free, and scholars in universities, some for repair of bridges, ports, havens, causeways, churches, sea-banks and highways, some for education and preferment of orphans, some for or towards relief, stock or maintenance for houses of correction, some for marriages of poor maids, some for supportation, aid and help of young tradesmen, handicraftsmen and persons decayed, and others for relief or redemption of prisoners or captives, and for aid or ease of any poor inhabitants concerning payments of fifteens, setting out of soldiers and other taxes."

The Restatement of Trusts

§374, Promotion of Other Purposes Beneficial to the Community

A trust for the promotion of purposes which are of a character sufficiently beneficial to the community to justify permitting property to be devoted forever to their accomplishment is charitable.

A distinction must be drawn between the "purpose" of the gift and the motivation of the giver. The charitability of the purpose is determined not on the subjective basis ordinarily connoted by the term, but by the objective standard of benefit to the community or a sizable part of it.

The limitation of benefits to a small class will render a gift noncharitable even though the nature of the benefits fits into an accepted charitable category.

Two limitations on charitable purposes find some support in the earlier law but no longer have much significance. First, decisions can be found denying charitable status to trusts supporting good works in another state or nation. Second, it has occasionally been held that trusts to promote changes in existing law are not charitable.

Where a gift is made to a charitable corporation subject to the restriction that it be used for a specific purpose which is one of its corporate purposes, no trust is created in the technical sense. St. Joseph's Hospital v. Bennett,

Cy Pres

"When a valid charitable bequest is incapable for some reason of execution in the exact manner provided by the testator, donor, or founder, a court of equity will carry it into effect in such a way as will as nearly as possible effectuate his intention."

Courts will commonly apply cy pres when the particular charitable purpose indicated by the testator cannot be accomplished because of:

a. Insufficient or surplus funds;

b. Prior accomplishment of the charitable purpose;

c. Impossibility;

d. Refusal of a trustee or third person to cooperate;

e. Nonexistence of named charitable corporation or association;

f. Unsuitability of premises devised for charitable purpose.

"Honorary" Trusts

Restatement, Second, Trusts:

§124. Specific Non-charitable Purposes

Where the owner of property transfers it in trust for a specific noncharitable purpose, and there is no definite or definitely ascertainable beneficiary designated, no enforceable trust is created; but the transferee has power to apply the property to the designated purpose, unless such application is authorized or directed to be made at a time beyond the period of the rule against perpetuities, or the purpose is capricious.

Comment:

Where property is transferred to a person upon an intended trust for a specific non-charitable purpose, and there is no definite or definitely ascertainable beneficiary, the transferee is not under a duty and cannot be compelled to apply the property to the designated purpose, since there is no beneficiary to enforce the intended trust.

The devisee or legatee can properly apply the property to the designated purpose, if the purpose is not capricious and there is no violation of the principle of the rule against perpetuities. If he refuses to apply it to the designated purpose, he will be compelled to hold it upon a resulting trust for the settlor or his estate. He can either apply the property to the designated purpose or surrender it to the settlor or his estate; in no event will be be permitted to keep it.

"Honorary trust": Since an intended trust for a specific non-charitable purpose is not enforceable because there is no beneficiary to enforce it, it is not a trust, as the term is used in the Restatement. Where the transferee has power to apply the property for such a purpose, the intended trust is sometimes called an "honorary trust." Since, however, the transferee has only a power and not a duty to apply the property, and since in the Restatement of this Subject the term "trust" connotes the existence of duties which will be enforced in the courts, it is more accurate to state that the trustee has a power, than it is to state that he holds upon trust, whether honorary or otherwise.

Rule against Perpetuities

If by the terms of the intended trust the devisee or legatee is authorized to apply the property to the designated purpose for a period longer than the period or the rule against perpetuities, the devisee or legatee cannot properly apply the property to the designated purpose even though he is willing so to apply it.

The period of the rule against perpetuities is, in the absence of a statute otherwise providing (in Massachusetts it is 90 years), a period of the lives of designated persons in being at the time of the transfer and twenty-one years. Thus, if a testator bequeaths property to a person to apply the income forever for the maintenance of a tomb or grave, the legatee cannot properly apply the income for the purpose, but he holds the property upon a resulting trust for the estate of the testator.

By statute in many States dispositions of property for the perpetual maintenance of graves, tombs and monuments are permitted.

 

 

Administration of
Decedent and Trust Estates

Jurisdiction - Domicile

Restatement, Second, Conflict of Laws (1971) §314.
Where Will May Be Probated and Representative Appointed

The will of a decedent will customarily be admitted to probate and an executor or administrator appointed in a state:
(a) where the decedent was domiciled at the time of his death; or
(b) where there are assets of the estate at the time of the decedent's death or at the time of the appointment of the executor or administrator; or
(c) where there is jurisdiction over the person or property of one who is alleged to have killed the decedent by his wrongful act, if the statute under which recovery is sought permits suit by an executor or administrator appointed in that state.

§315. Where Administrator May Be Appointed in Case of Intestacy

An administrator will customarily be appointed in the case of intestacy 1 any state in which a will would have been admitted to probate.

§11. Domicile
(1) Domicile is a place, usually a person's home, to which the rules of Conflict of Laws sometimes accord determinative significance because of the person's identification with that place.

(2) Every person has a domicile at all times and, at least for the same purpose, no person has more than one domicile at a time.

A number of significant privileges accrue to the domiciliary state, so that the determination is of great importance to the executor of a substantial estate of a decedent who during life had contacts with several different states. The Supreme Court takes the view that the Constitution only requires it to guarantee a fair trial on the issue of domicile, not consistent results. In one case, Texas v. Florida, the Supreme Court did make a determination of domicile under its power to resolve a controversy among the states as authorized in 28 U.S.C. §2151(a).

The Uniform Probate Code §3-202 vests responsibility for making the determination in the first court to take jurisdiction:

If conflicting claims as to the domicile of a decedent are made in a formal testacy or appointment proceeding commenced in this state, and in a testacy or appointment proceeding after notice pending at the same time in another state, the Court of this state must stay, dismiss, or permit suitable amendment in, the proceeding here unless it is determined that the local proceeding was commenced before the proceeding elsewhere. The determination of domicile in the proceeding first commenced must be accepted as determinative in the proceeding in this state.

The tax authorities of the original domicile are understandably reluctant to concede domicile to another state when these people die in a few years. For wealthy persons to change their domicile they must sever all connections with their original homes.

Ancillary Administration

The more frequent situation involves the decedent who was domiciled in one state but who owned property situated in other states. Separate administrations are sometimes necessary in the states of situs as well as in the domiciliary state. This duplication of administrations means inconvenience, delay and additional expense. It does not, however, add up to anarchy as in the cases of multiple domicile. A fair measure of cooperation is achieved among the various jurisdictions. The state of domicile is recognized as the administration-in-chief, the states where property is located being but ancillary to it.

Professor Beale employs the words "administration" and "distribution," the former as meaning the collection of assets, particularly personal assets, and with them paying debts, including taxes and costs of administration, until all are paid or the assets exhausted, then, "If after full administration a balance remains, the payment of the balance to those entitled to it is here called distribution."

The rule in the majority of jurisdictions is stated in 21 Am.Jur., Executors and Administrators, Sec. 52, p.403:

"The general rule appears to be well settled that regardless of the place where the certificates happen to be, the state in which a corporation has been organized is the situs of its shares of stock, for purposes of administration, rather than the state of the decedent's domicile, and particularly so if the corporation also conducts its business in the state where it has been organized."

To distinguish between two types of "conflicts" questions which arise. The first involves the basis for jurisdiction and the extraterritorial effect of out-of-state probate decrees; the second deals with the choice-of-law problem as to which of two state laws is to govern. The law of the domiciliary state controls questions involving personal estate which may be said to have a situs elsewhere.

The situs of land takes priority over the decedent's domicile in controlling questions of both jurisdiction and choice of law involving the land. In addition, the law of the situs will govern all problems of devolution even though the situs has only minimal contacts with the people involved.

The necessity for ancillary proceedings stems from the notion that a personal representative's authority is coextensive with the jurisdiction which appointed him and goes no farther. He does not then, as a general proposition, have the capacity to sue or to give valid discharge in any other state.

Adherence is justified in two ways:

(a) "The dominant policy of the forum is to protect local creditors (and perhaps local distributees) whenever it is within the power of the courts of the forum to do so."

(b) various kinds of personal property have, in the development of Conflict of Laws principles, come to be recognized as 'localized' in some one appropriate jurisdiction.

If an ancillary administration is to be avoided, then a way must be found for fiduciaries to marshal the assets of estates which have a situs outside the state of their appointment. There are a number of situations where the case law has permitted a foreign representative to sue without qualifying in the state of suit:

(a) action on a negotiable instrument payable to bearer which is in his possession;
(b) suit on a judgment previously rendered in favor of the representative in another jurisdiction;
(c) action on a contract made by the representative on behalf of the estate;
(d) action to recover property reduced to his possession in the state of his appointment but subsequently removed to another jurisdiction;
(d) actions for the wrongful death of the decedent where the recovery goes exclusively to the decedent's family.

It has been repeatedly observed that the reason for insisting that a foreign administrator obtain ancillary letters before suing in another State is to assure that the decedent's domestic creditors shall have their claims paid out of any fund recovered for the benefit of the debtor's estate. In such a case, the amount recovered truly constitutes a special fund for their exclusive benefit, and, since it is not subject to the claims of others, no danger exists that failure to require local qualification may harm or prejudice domestic creditors.

Note should be made that the common law rule of incapacity to sue has been modified by statute as to certain particulars in many states. McDowell. Persuasive argument has been made for the appointment of a universal administrator with nationwide powers. Other fiduciaries, such as a statutory successor to a corporation, have standing to sue throughout the country.

The Uniform Probate Code allows a domiciliary foreign representative to file copies of his appointment in the ancillary state, if no local administration is pending, UPC §4-204. By so doing, the domiciliary foreign personal representative may exercise as to assets in this state all powers of a local personal representative and may maintain actions and proceedings in this state subject to any conditions imposed upon nonresident parties generally." UPC §4-205. Thus, it may be possible to avoid administration in any state other than that in which the decedent was domiciled, although an "application or petition for local administration of the estate terminates the power of the foreign personal representative to act under §4-205. UPC §4-206.

5. As the personal representative does not have standing to sue outside the state of his appointment, it is the usual rule that he is likewise immune from out-of-state suits brought by others to recover on an obligation of the decedent unless he is subject to the other state's in personam jurisdiction. The States have expanded the reach of their in personam jurisdiction by the enactment of long-arm statutes. N.Y. SCPA §210 is representative of statutes designed to secure personal jurisdiction over foreign fiduciaries.

The Uniform Probate Code similarly establishes jurisdiction over a foreign personal representative in a state where the representative files a certificate of M s or her appointment, receives payment of money or receives delivery of personal property (the extent of the jurisdiction is limited to the value of the money or property), or does an act that would have given the state jurisdiction over the representative as an individual. UPC §4-301. §4-302 states in addition that a foreign fiduciary is subject to the jurisdiction of the state "to the same extent that his decedent was subject to jurisdiction immediately prior to death."

Under these rules, a domiciliary executor may be subject to in personam jurisdiction if the cause of action arose out of an act done or transaction consummated in the forum state or if the executor had regular and substantial contacts in that state. Personal service on an ancillary administrator in one state does not constitute service on the domiciliary executor in the state of domicile. Service by publication is used frequently in the administration of estates. It now appears that this method of service is likely to be declared constitutionally deficient when applied to a party in a proceeding that affects that party's property interests, because the party is entitled to actual notice as long as his or her identity and location are reasonably ascertainable.

Primarily the object of ancillary administration is to secure to local creditors their just proportion of payment from the estate of the deceased without being subjected to the inconvenience and expense of presenting their claims to a court of foreign jurisdiction. But the great weight of authority is to the effect that resident creditors of insolvent estates are entitled to receive only pro rata payment of their claims, the same as other creditors. In Blake v. McClung, 172 U.S. 239, 19 S.Ct. 165, 43 L.Ed. 432, it was declared that a state statute giving to residents of that state a priority over nonresidents in the distribution of the assets of a foreign corporation is violative of article 4 of the Constitution of the United States, giving equal privileges and immunities to the citizens of the several states, and as denying to every person within its jurisdiction the equal protection of the law.

The ancillary administrator applies the laws of the state of his appointment including the allowance of any priorities granted by such laws. After local claims, taxes and expenses have been discharged, the ancillary fiduciary disposes of the remaining estate; the balance of local assets are transferred to domiciliary representative.

Jurisdiction to Tax

1. Tangible personal property and real property are subject to death taxation by the state where the property has its situs, and only by that state. The Supreme Court held that the state of domicile could not constitutionally tax tangible property which had an actual situs in another state. The jurisdiction possessed by the States of the situs was not partial but plenary, and included power to regulate the transfer both inter vivos and on the death of the owner, and power to tax both the property and the transfer. Frick v. Pennsylvania.

2. Intangible personal property was at one time held immune from taxation in every state except that of the decedent's domicile. This was abolished in Curry v. McCanless; it was held that, because the state of incorporation extends benefits and protection, it, as well as the state of the decedent's domicile, can impose a death tax on the value of corporate stock owned by the decedent. Cooperative action by the states has, however, eliminated for the most part multiple taxation of a decedent's intangible personal property, except in the rare case where several states claim to be the decedent's domicile.

In spite of these statutes, the possibility of double taxation of intangibles arises in three areas.

(1) Conflicting categorization of assets. The situs state may classify an asset as realty or tangible personalty and thereby subject to its tax, while the state of domicile calls the same asset intangible personalty.
(2) Dissimilar provisions in reciprocal exemption statutes. The exemption in many statutes is conditioned on the domiciliary state affording nonresidents a "similar, reciprocal exemption."
(3) Double domicile. The state of domicile has jurisdiction to impose a death tax on the intangible estate wherever those assets may be said to be located; several states have agreed to compromise their claims by sharing a single tax and have adopted the Uniform Interstate Compromise of Death Taxes Act.

3. Trust property may be taxed by any state providing protection or benefits to the trust. A minimum listing of such states would include the domicile of a trustee or of a beneficiary and the state in which the evidences of the trust are located.

Today, however, practically all the states have enacted statutes (or have case law to the same effect) making it no longer necessary to obtain a judgment in the taxing state before filing a claim in another state. All that is required in the second state is proof that the tax was lawfully imposed.

Statutory Jurisdiction of the Probate Court

A probate court's jurisdiction is derived usually from statute and therein lies another type of limitation on its powers. Unless the court is acting within the scope of its express powers or those which can be implied from specific grants of power, its actions are in effect ultra vires. Because a probate court has only been granted by statute the authority to administer decedents' estates, its mistaken assumption of jurisdiction over a living person's estate is ineffective, and titles which have resulted from the administration have been held void even as to bona fide purchasers for value without notice. This dubious and unsatisfactory result has caused many states to vest jurisdiction in the probate court to administer absentees' as well as decedents' estates.

In general terms there are three categories of courts: first, a group of states, of which New York is one, have established separate probate courts with a place in the overall court system more or less equal to that of the court of general jurisdiction second, there is the system typified by California where the court of general jurisdiction embodies both the trial and probate courts; third, in a number of states, the probate court is a separate court but relegated to an inferior position in the hierarchy of courts. The probate court system within a state is typically organized on a county or district basis. The venue for the probate of a will and for administration is in the county or district where the decedent had his domicile at the time of is death or, if he had no domicile in the state, where his property was located.

ESTABLISHING THE VALIDITY OF THE WILL

Necessity and Effect of Probate

The first step in the administration of a testate estate is the presentation of the will for probate and a request for authorization to serve as executor or administrator. Typically, the executor makes the offer of the will. This is not a fixed requirement; any person interested in having the will probated may initiate the proceedings. The probate proceedings are an inquiry into the validity of the instrument and are not adversary in the manner of a usual civil action. The probate proceeding establishes the external validity of the will, including its due execution in accordance with the statutory formalities, the capacity of the testator, and the fact that it is the genuine and the last formal expression of the testator's intent. Inquiry into the validity and meaning of the language in the will must await a construction proceeding after the will has been probated.

It is fundamental law that a will speaks from the death of the testator, and the rights of the parties hereto accrued at that time. Proof of the probate of that will may be necessary in establishing those rights, but such proof was not a condition precedent to the commencement of the suit. Probate of a will is the statutory method of establishing the proper execution of the instrument, but it is, nevertheless, a valid instrument before and independent of such proof, and while the probate of a will is necessary to perfect it as an instrument of title, yet without probate it is capable of conveying an interest in land. Hausen v. Dahlquist.

1. Probating a will "is essentially a formal validation of the property interests which came into existence upon the death of the testator...probate is title-accommodating rather than interest-creating." Jenkins. It is a generally accepted principle that an unprobated will does not constitute evidence of title. If the will is not probated within a time limit fixed by a local statute, the title cannot be established. Under the theory that title passes at death, the devisee or heir rather than the executor is the party in interest to bring or defend actions pertaining to real property. The devisee's title is subject to the executor's lawful power to sell the property to satisfy debts or to make a sale under a discretionary power set out in the will. Title to personal property at the death of the owner passes to his or her personal representative, to be available for the purposes of administration.

1. The traditional view holds that probate and administration are necessary to establish title to personal property. An administration proceeding is also required to discharge debts owed by or to the estate.

2. If the will is uncontested, the probate hearing is a simple affair. The proponent submits proof of death, jurisdiction, proper notice, due execution and testamentary capacity. The latter two points are ordinarily proved on the testimony of one or more of the attesting witnesses, if available. Statutes exist in most jurisdictions which may make the physical presence of a witness or witnesses unnecessary. For instance, their appearance may be avoided if there are no issues in dispute upon submission of an affidavit executed by them. If the witnesses are dead or cannot be found, the will may be probated on proof of the genuineness of their signatures. Procedures are available to probate a lost or destroyed will.

3. Except in states which permit probate in the common form, notice of the proceedings must be given to interested persons, (legatees, devisees, intestate successors, trustees, guardians, the state attorney-general if the will contains a charitable trust). Probate proceedings being essentially in rem, notice by publication is frequently used. Notice requirements under the Code differ depending on the nature of the proceeding. For a formal testacy proceeding, the petitioner must give notice to interested parties in advance of the hearing as prescribed in §1-401, supra. In contrast, the moving parties in an informal probate proceeding or in a proceeding for a declaration of universal succession are only required to give notice to other persons with an interest in the estate within thirty days after the informal probate or universal succession order has been issued. UPC §§319., UPC §3-1101 takes the position that compromises are to be encouraged and provides that after formal court approval such agreements are binding on all the parties including those who are unborn, are unascertained or cannot be located. In terrorem or no-contest clauses are inserted into wills. These clauses direct that any person who contests the will is to receive no benefits under it or by intestacy.

 

ADMINISTRATION OF ESTATES WITH A MINIMUM OF COURT SUPERVISION

See paperback by Norman F. Dacey, entitled How to Avoid Probate, published in 1965, sold 670,000 copies by mid-1967 and was first on the nonfiction best-seller list in late 1966.

Procedures that either eliminate the necessity of administration or effect a simplification of it may be summarized under five headings:

Administration of Family Property and Small Estates

States typically authorize the immediate distribution to spouse and children, without court intervention, of certain kinds of property, including, for example, wages, bank deposits, savings and loan shares, insurance and other death benefits, and motor vehicles.

Probate in the Common Form

The English ecclesiastical courts (jurisdiction over wills of personal property only) allowed two types of probate-probate in the common form and probate in the solemn form. The former was a summary proceeding without notice to anyone, the will often being proved on the oath of the executor alone. The procedure was administrative rather than judicial, and, as a consequence, it was open to contest by any interested party at any time. Some authorities suggest that there was a thirty-year limitation. Probably in the solemn form required notice to interested parties, was a formal judicial proceeding in which questions of validity were litigated, and was final in the manner of any judicial decree.

A number of non-Code states authorize the use of the common form procedure whereby the will is admitted to probate without notice to the parties or a formal hearing. The validity of the will remains subject to challenge after the initial probate, however, by an aggrieved party (disinherited intestate successor, taker under an earlier will, and, if the state has an interest, the attorney-general) during a contest period that runs typically six months to a year in duration.

The Uniform Code's informal probate proceedings represent an adaptation of the common form approach, expanded to eliminate any need during the administration for court intervention.

Pre-Code Systems for Non-Intervention Administration

Prior to the promulgation of the Uniform Probate Code, Arizona, Idaho, Texas, and Washington permitted the personal representative to administer the estate without court supervision if the testator in his or her will authorized the procedure. The fiduciary then had the option of using the procedure or following the traditional course of formal administration. The court, at the request of a beneficiary or creditor, could for cause withhold permission for a non-intervention administration.

Uniform Probate Code

Despite this disclaimer, the Code does break radically with the American tradition by making non-intervention probate and administration the norm rather than the infrequently used exception. True to this concept, the parties only turn to the courts when a dispute arises that requires resolution by adjudication.

Richard V. Wellman, 1977) describes six options by which the parties may obtain an estate settlement: Uniform Probate Code Practice Manual,]

1. Survivors Take No Action of Any Sort. The members of the family or others, who are entitled to the estate by will or intestacy, may take possession of the estate assets, UPC §3-101 vesting title in them at decedent's death subject to administration, and do nothing else. The three-year limitation period is, however, specifically made inapplicable to a proceeding to determine heirs under intestacy statutes.

2. Informal Probate Only. The parties may submit decedent's will to the registrar for probate, but not seek the appointment of a personal representative. Advance notice to interested parties is not required, but the registrar has the discretion to deny probate, for example, jurisdiction is lacking or the document does not satisfy statutory formalities. In addition, an informally probated will may be challenged in a formal probate proceeding brought to the court within three years of decedent's death or one year after the informal probate was granted whichever period is the longer.

3. Informal Probate with Administration, or Administration in Intestacy Without Formal Testacy Proceeding.

Under this option, the parties petition the registrar for an informal probate of the will (or file a statement that there is no will) and request the appointment of a personal representative. The personal representative has full control of the estate assets and the authority to settle creditors' claims.

4 and 5. offer the parties an opportunity to get a judicial adjudication of the will's validity (or a determination of heirs in intestacy) and/or a formal proceeding for the appointment of the personal representative. The Code puts the responsibility for the administration on the personal representative. The Code, however, imposes criminal and civil penalties for intentional misrepresentations, and liabilities attach to misuse of assets, including procedures for accountability to the decedent's creditors and successors.

6. entitled Supervised Administration, sets out the procedures for a formal administration of the traditional sort, including a court adjudication, following prior notice to interested parties of the will's validity, court orders to authorize distribution, and judicial review of accounts.

Universal Succession

Universal Succession enables the intestate successors or residuary devisees under a will to become universal successors, with the authority to settle and distribute the estate without court supervision, unless they need to invoke the jurisdiction of the court to resolve a specific issue. Application to become successors must be directed to the registrar who shall issue a "statement of universal succession" if the simple conditions set out in §3-314 are met.

Post-Code Legislation to Achieve Probate Simplification

Opposition has also come from two commercial groups: surety companies and newspapers, Several states, including Delaware, Massachusetts, Nevada, and Wyoming, have new probate laws that do little to improve probate procedures.

Finality of Probate Decrees

A court order, following notice to interested parties and a hearing, is a final judgment subject only to appeal. No such finality attaches to the actions of a personal representative who administers the estate without referring any matters to the court. Statutes of a few states set time limits ranging from three to twenty years for the probate of a will, but some of these statutes are to be applied in the discretion of the probate court and therefore do not operate as an absolute bar. Decrees of the probate court may be set aside if procured by fraud. The action against the wrongdoer must be brought within two years after the discovery of the fraud and against all others within five years after the time of the fraud's commission.

Note on Construction: The rule that direct statements of intent by the testator are excluded is sometimes said to be based on the parol evidence rule, and is sometimes ascribed to the Statute of Wills prohibition against giving effect to unexecuted wills. In particular cases this rule may exclude the evidence that is most relevant to the issue involved, A latent ambiguity may be resolved by introducing direct statements of the testator's intent. Using extrinsic evidence is an action to reform a will for mistake. A common motive today for bringing a construction proceeding is to obtain an interpretation of the language which will make the property disposition eligible for favorable tax treatment. The courts cannot be placed in the position of estate planners, charged with the task of reinterpreting deeds of trust and testamentary dispositions so as to generate the most favorable possible tax consequences for the estate").

 

THE FIDUCIARY

There is statutory control in every jurisdiction.

Appointment and Qualification

The instrument which effects the transfer of property, whether a will or an inter vivos trust, may specify the individual or corporate person or persons on whom the testator or settlor wishes to place the responsibility of administering the estate as executor, or the trust as trustee. Multiple fiduciaries may raise problems involving the division of responsibility and the possibility of disagreement as to policy. In addition, the testator must be advised to name successor fiduciaries in the event that the primary nominee predeceases the testator or dies before the responsibilities are completed, and also to nominate a guardian of the person and property of minor children.

The traditional view holds that courts may not deny appointment except on grounds specified in the statute. The statutes establishing priorities for appointment as administrator have also been held to be mandatory. If the beneficiaries under a will join together and veto the appointment of the executor nominated in the will for reasons other than the nominee's competency and capacity to serve, such as personal animus or the desire to save fees. The usual response, stressing the necessity of honoring testators' intent, has been in the negative. How much intelligence is required of the nominee:

Where the ties of kindred and long acquaintanceship lead the testator to choose the innocent wife or friend rather than the modern trust company the relative advantage to the beneficiaries will not justify a judicial veto on such choice.

The statutes of some states deny appointment to a nominee who is a nonresident. The statutes vary as to their coverage: some apply only to foreign corporations, even those that are authorized to do business in the state; some release from the prohibition close relatives of the decedent who are domiciled out of state; and some make nonresidence a ground for the exercise of discretion by the probate judge in whether to approve the appointment.

Removal and Resignation

A fiduciary may be removed by the court which appointed him for malfeasance in his office, breach of his duties, or if, because of dishonesty, drunkenness, improvidence or want of understanding, he is unfit for the execution of his office. It is, however, recognized that the decision to remove a fiduciary is a "drastic action" which should only be taken when the estate is endangered. In addition, procedures are available for fiduciaries to petition to resign before the work of their office is completed. Before a resignation will be accepted fiduciaries must account and turn over all the property and papers of the estate or trust to their successors. The courts are not receptive to the request for the resignation of a trustee who pleads personal inconvenience or overwork. Petitions relying on old age and physical infirmities are usually granted, as are those alleging strained relationships between the trustee and the beneficiaries. It has also been held that a corporate trustee, which was bound by the instrument to receive less than one half the compensation to which it was by law entitled, could resign.

The fact that the primary beneficiaries of a trust have moved out of the state in which the trust was originally located and in which the trustee was appointed may be ground for removing the trust assets to the new domicile and terminating the original appointment.

The appointment of a successor fiduciary may follow any one of a number of courses:

(a) The will nominates a successor;
(b) the surviving fiduciary or fiduciaries continue without any new appointment;
(c) the will names a person or persons who are to nominate a successor;
(d) the court fills the vacancy.

Compensation

A number of states have enacted statutory fee schedules. Other jurisdictions provide in general terms that fiduciaries shall be given reasonable compensation for their services. In actual fact, customary rates have developed in many of these latter jurisdictions which tend to become almost as fixed as in states with statutory schedules. It The Supreme Court decided that there could no longer be uniform adherence to a set fiduciary fee schedule which had been established by bar groups or lawyers acting in concert. This Goldfarb decision did not, however, proscribe use by individual lawyers of their own percentage fee schedules (rather than charging at their hourly rate) so long as they did not arrive at the percentages by concerted action with other lawyers. A fiduciary having special investment skills shall exercise such diligence in investing the funds for which the fiduciary is responsible, as would customarily be exercised by a prudent man of discretion and intelligence having such special investment skills. Where no instrument provides a "specific compensation" the trustee is not entitled to any additional compensation.

1. In reasonable compensation jurisdictions, all assets, including those that are not included in the probate estate such as insurance, survivorship property, Totten trusts, employee benefit plans and the like, are considered in arriving at a "reasonable" fee. In most statutory fee schedule jurisdictions, additional fees are allowed upon a showing that "extraordinary services," necessary to the proper administration of the estate, were rendered. Examples of such services include managing decedent's business and litigating contested creditor or tax claims.

2. The Uniform Probate Code has adopted the reasonable compensation approach. §3-719 states:

A personal representative is entitled to reasonable compensation for his services. If a will provides for compensation of the personal representative and there is no contract with the decedent regarding compensation, he may renounce the provision before qualifying and be entitled to reasonable compensation. A personal representative also may renounce his right to all or any part of the compensation. A written renunciation of fee may be filed with the Court.

3. In a number of states, statutes set out a fee schedule for attorneys representing estates, but, in the majority, attorneys are compensated for the reasonable value of the services they render. In the determination of reasonableness, variables include time spent, size of the estate, difficulty of issues, degree of skill required, extent of responsibilities assumed, and results obtained. Bar schedules may be used as some evidence of customary practice in the community.

It was the rule at common law, predicated on the policy against self-dealing, that fiduciaries could not compensate themselves for any legal service rendered by them to the estate. The modern rule existing in most jurisdictions allows an attorney-fiduciary to receive separate compensation for each function performed.

 

CREDITORS

Inventory

The requirement of an inventory tends to serve the purpose of having the fiduciary pull together and organize the estate at the beginning of the administration. Two reasons have been cited for requiring an inventory. The first is to serve as a basis of computation for the representative's intermediate and final accounts. The second is to furnish information for the benefit of the beneficiaries, creditors and others interested in the estate.UPC §3-706 requires the personal representative to mail an inventory of decedent's property, with market values, to "interested persons who request it," but does not require that it be filed in court. The fiduciary is under a duty to clear up disputes as to title to property and may, if necessary, resort to court processes to do so. Litigation of this type is almost always conducted in the courts of general jurisdiction.

Pre-death Creditors

All but a few states have non-claim statutes barring absolutely claims which are not filed within the requisite time. In a few states the claim is not finally barred, but the statute creates an order of priority for payment. The personal representative may allow or disallow a claim depending on his evaluation of its validity. If the claim is disallowed the claimant may bring an action to have its validity established within a further time period set out by the statute. Generally, such litigation is administered in the court of general jurisdiction.

Post-death Creditors

An executor or administrator is liable on contracts he makes for the benefit of the estate, if at all, individually and not in his representative capacity. The executor or administrator, of course, is entitled to reimbursement for expenses reasonably and necessarily incurred. But whether he can obtain such reimbursement is a question to be answered by the Probate Court in the settlement of his account.

The Uniform Trusts Act provides that the trustee may be sued in his representative capacity and collection may be had directly from the trust assets if the tort was a common incident of the kind of business activity in which the trustee or his predecessor was properly engaged for the trust. This provision has been adopted in several states. The basic rule is that an administrator, executor, or trustee may be sued in his representative capacity, and collection may he had from the trust assets, for a tort committed in the course of administration, if it is determined by the court that the tort was a common incident of the kind of business activity in which the administrator, executor, or trustee was properly engaged on behalf of the estate.

Most courts still verbally concur in the rule that claimants, whether their claims are founded in tort or contract, must sue the executor, administrator, guardian, or trustee in their personal capacities rather than as fiduciary.

Professor Scott suggests that the modern tendency is to make the trust estate responsible for contracts and torts incurred during the administration and describes four situations in which the courts have allowed a third party claimant to bring a direct action against the trust:

(a) If the trustee is insolvent or is absent from the state
(b) When a third party has conferred a benefit on the estate
(c) where the testator has indicated in his will that the estate is to bear the liability.
(d) The cases generally give effect to a provision in a contract that the fiduciary is to be liable in his representative capacity and not personally.

The Uniform Probate Code continues in the tradition of the Uniform Trusts Act and makes the estate initially responsible for torts and contracts.

Decedents' contracts generally are held to survive their deaths unless they involve a type of personal service that can only be performed by the promissor. His executor faces a difficult dilemma. If he breaches the contracts and allows the estate to be held liable for damages he may find himself held surchargeable for failure to protect the assets of the estate. If on the other hand he completes the contracts, he will be personally liable for the labor and material expenses and may find the estate insufficient to reimburse him.

 

FIDUCIARY

Fiduciary and Beneficiaries

"If discretion is conferred upon the trustee in the exercise of a power, the court will not interfere unless the trustee in exercising or failing to exercise the power acts dishonestly, or with an improper even though not a dishonest motive, or fails to use his judgment, or acts beyond the bounds of a reasonable judgment." (Restatement, Trusts 2d, §187, Comment e.

Where discretion is conferred upon the trustee with respect to the exercise of a power, its exercise is not subject to control by the court, except to prevent an abuse by the trustee of his discretion.

Factors in determining whether there is an abuse of discretion. In determining the question whether the trustee is guilty of an abuse of discretion In exercising or failing to exercise a power, the following circumstances may be relevant:

(1) the extent of the discretion conferred upon the trustee by the terms of the trust;
(2) the purposes of the trust;
(3) the nature of the power;
(4) the existence or non-existence, the definiteness or indefiniteness, of an external standard by which the reasonableness of the trustee's conduct can be judged;
(5) the motives of the trustee in exercising or refraining from exercising the power;
(6) the existence or nonexistence of an interest in the trustee conflicting with that of the beneficiaries.

Cases abound in which courts describe their function as policing, not usurping, the discretion of the trustee.

"As a general rule, a testator has the right to impose such conditions as he pleases upon a beneficiary as conditions precedent to the vesting of an estate in him, or to the enjoyment of a trust estate by him as cestui que trust. He may not, however, impose one that is uncertain, unlawful or opposed to public policy." Holmes v. Connecticut Trust & Safe Deposit Co.

So it may be said of the directions and restrictions which a testator may impose upon the management of property which he places in a trust, that they are obligatory upon the trustee unless they are uncertain, unlawful or opposed to pubic policy.

The courts are particularly reluctant to authorize a deviation from the course of events also to receive the principal some time in the future, the courts have sometimes allowed an anticipation of principal payments to meet particular needs of the beneficiary. The court will not authorize such an invasion in favor of a person other than the designated remainderman, at least unless all the other beneficiaries consent. Petition of Wolcott.

"Suggestions that a trustee is the settlor's agent are out of line with traditional understanding of the trustee's obligation to the public. A trustee does not lose his personal identity by assuming his fiduciary office. He is neither an agent of the settlor nor of the trust estate. Thus his torts and contracts are his own, and his liability must be met initially out of his own pocket. That he is acting pursuant to the trust terms or that the settlor attempted to excuse his conduct in advance is no defense against an innocent outsider, even though both are arguments to be made in his action for reimbursement out of the trust estate. Although the rule of personal liability originated in the refusal of the law courts to admit a trust's existence, its modern continuance has been justified as the fairest procedure for allocating responsibility. The law recognizes that no trust is self-executing. It exists only through the acts of living persons who must assume responsibility for those acts. A few statutory alterations of the rule have been made, but they are designed for the most part, to augment the claimant's remedies and not to relieve the trustee of liability."

Elias Clark, Charitable Trusts, The Fourteenth Amendment and the Will of Stephen Girard, 66 Yale Law Journal 979 (1954) at 988.

Fiduciary's Duties and Liability

Fiduciaries derive their powers to manage the property from the terms of the instrument, statutes, and principles which can be fairly implied from the purposes for which they are holding the property. In the exercise of those powers there are certain duties that they cannot violate without rendering themselves liable for any resulting loss. The traditional duties include: the duty to make no profit (except for their fees) and to take no personal advantage of their position (the duty of loyalty); not to delegate; to keep and render accounts; to exercise reasonable care and skill; to retain control of and preserve the property; to enforce claims; to keep the property earmarked and separate from their own and others' property; to make the property productive; and to deal impartially with the beneficiaries. 2 Scott on Trusts, §§169 through 185.

Comment d under Restatement, Trusts 2d (§205): "d. Sale for less than value."

If the trustee is authorized to sell trust property, but in breach of trust he sells it for less than he should receive, he is liable for the value of the property at the time of the sale less the amount which he received. If the breach of trust consists only in selling it for too little, he is not chargeable with the amount of any subsequent increase in value of the property under the rule stated in Clause (c), as he would be if he were not authorized to sea the property.

The Restatement, Second, Trust §203. Accountability for Profits in the Absence of a Breach of Trust

The trustee is accountable for any profit made by him through or arising out of the administration of the trust, although the profit does not result from a breach of trust.

Comment:
a. Scope of the rule. If the trustee enters into a transaction in connection with the administration of the trust for the purpose of acquiring a profit for himself in violation of his duty of loyalty to the beneficiary, he commits a breach of rust under the rule stated in §170, and is liable under the rule stated in §206. intending to make a profit for himself and commits no breach of trust in so doing, nevertheless is not permitted to retain the profit.

On the standard of fiduciary responsibility to be applied, the Court recognizes that the trustees owes a general duty of undivided loyalty to the trust beneficiaries and this should be measured by the higher standard of undivided loyalty rather than the standard of good faith.

It is true that even a trustee's duty of "utmost loyalty" can be reduced by means of language in the trust instrument permitting certain transactions involving self-interest. Courts have ruled in favor of trustees when the testator has put them in positions of conflict between self-interest and obligation to the trust.

Duty to Earmark and the Prohibition Against Commingling
Restatement of the Law of Trusts 2d §179.
Duty to Keep Trust Property Separate

The trustee is under a duty to the beneficiary to keep the trust property separate from his individual property, and, so far as it is reasonable that he should do so, to keep it separate from other property not subject to the trust, and to see that the property is designated as property of the trust.

Comment:
a. Extent of duty. It is ordinarily the duty of the trustee (1) to keep the trust property separate from his own property; (2) to keep the trust property separate from property held upon other trusts; (3) to earmark the trust property as property of the trust.

b. Duty not to mingle trust funds with his own. It is the duty of the trustee not to mingle trust funds with his own funds. Thus, it is improper for the trustee to deposit trust money in his individual account in a bank.

c. Duty not to mingle funds of separate trusts. It is ordinarily the duty of the trustee not to mingle property held upon one trust with property held upon another trust, whether the two trusts are created by separate settlors or by the same settlor.

The common law prohibition against commingling has been partially abrogated in practically every jurisdiction to permit a corporate fiduciary to hold property of trusts of which it is trustee in a common trust fund. State statutes set out the conditions under which a common trust fund is to be administered. National banks are subject to federal regulations.

It is the usual rule that a corporate trustee cannot properly invest trust funds in the purchase of its own stock. There is divided opinion as to whether a corporate executor or trustee may properly deposit cash, temporarily in its possession, in its own commercial banking department.

Duty to Treat Beneficiaries Impartially
Restatement of the Law of Trusts 2d §183.
Duty to Deal impartially with Beneficiaries

When there are two or more beneficiaries of a trust, the trustee is under a duty to deal impartially with them.

If a trustee may have difficulty balancing the competing claims of the income beneficiaries who want a maximum income return and the remaindermen who want the real value of the corpus preserved. The tax laws, federal and state, impose major responsibilities on fiduciaries during the administration of an estate. On the federal level, personal representatives must file income and gift tax returns that the decedent would have been required to file if living, an estate tax return within nine months of death to the extent that the gross estate exceeds the amount of the unified credit available to the estate, and fiduciary income tax returns for each year the administration is open.

Tax codes contain numerous provisions requiring executors, administrators, and trustees to make elections that affect such crucial issues as the identification of the beneficiaries, the size of deductions and the tax against which they are to be taken, the valuation of assets, the time when the tax is to be paid, etc. Fiduciaries have the duty to conserve the assets of the estate, which presumably includes minimizing its overall tax burden, to treat all beneficiaries impartially, and to refrain from self-dealing, but the exercise of any one of these elections almost invariably results in a benefit to one set of beneficiaries to the detriment of other beneficiaries. Thus, an election may put the fiduciary, particularly one who is also a beneficiary, in breach of basic fiduciary duties.

Two famous cases are often cited as the source of today's rules on trust investments. The first is Harvard College v. Amory, (Mass), the second is King v. Talbot (NY). Out of these similar cases emerged two different rules. The first spawned the Massachusetts "prudent man rule," a rule which even today is often cast in the language of the court's opinion. The New York case served as prologue to adoption of the statutory legal list of permissible investments. The legalist approach, which seeks preservation of the principal at its initial dollar level, has been unsatisfactory in meeting inflation and, to the extent that it prohibited any investment in common stocks, has been abandoned almost entirely throughout the country in favor of the more flexible rule. The original prudent man rule, as set out in Harvard College v. Amory, envisioned a man of prudence managing his own affairs, and this language appears in many of the statutes.

It is not to be assumed from the imprecision of the prudent man rule that the law does not impose substantial controls on trustees. There are five basic principles that influence a trustee's investment strategy:

1. Prudent man rule
2. Diversification of trust portfolio
3. Accountability for each investment; gains not to be balanced against losses
4. Duty to deal impartially with beneficiaries
5. Practice of treating cash receipts such as dividends, rents, and interest as income and capital gains and stock dividends as principal

It is rare today to find a trust instrument that does not contain a discretionary investment clause establishing the scope of the trustee's investment powers. The above principles remain, nonetheless, influential as they set the general standards against which investment clauses are construed and tested.

Pension funds are to be administered "with the care, skill, prudence, and allegiance under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims." The Employee Retirement Income Security Act.

Primarily, we observe that most of the trust beneficiaries have so limited an economic interest in a common trust fund that it is unrealistic to place practical reliance on the disposition of a any of them carefully to scrutinize a trustee's account. Thus the role of the guardian takes on a special significance, for the trust beneficiaries must be assured that the trustee's accounts will receive careful and thorough review. The guardians ad litem are appointed not only to protect the interests of infants, incompetents and unknowns, as in the usual case, but also to represent all others who do not appear in the proceeding.

If trustees have acted with prudence in acquiring an investment, they will not be held liable because the investment later depreciates in value due to a depression in the economy. Continuous supervision is, however, required and the trustee may be held liable for losses if the economic decline was foreseeable.

Executors may have an obligation to invest estate funds during the period of administration. Because the period will be short, their obligations and objectives differ from those of a trustee and the prudent man rule must be adjusted accordingly.

Variables Affecting the Imposition of Liability

1. A question with regard to a fiduciary's conduct may come up in the following ways:

(a) request by the fiduciary for instructions,
(b) injunction against a threatened breach of trust,
(c) request by the beneficiaries for specific performance of some obligation imposed by the trust,
(d) action, usually on the accounts, to surcharge the fiduciary for damages occasioned by a breach,
(e) removal of the fiduciary,
(f) request for the appointment of a receiver,
(g) action to reduce or dispense with the fiduciary's compensation.

If there is an obligation to pay money or convey property to a beneficiary there may be an action for damages against the fiduciary as well. The court will view the trustee's conduct from a different perspective under each of these headings and, as a result, its judgment as to the propriety of that conduct will vary with the context. Where loss is determined, another variable may be the rate of interest imposed. Fiduciaries need not be charged interest at all, or they may be charged at the rate earned by the average trust in the community.

2. Identification of the Fiduciary; Multiple Fiduciaries: The stated rule with regard to several cotrustees of private trusts is that they must act with unanimity. It is common, in trusts which are to be administered by more than two trustees, for the draftsman to provide that a majority will control. The unanimity rule does not apply to co-executors or co-administrators. Each of them is ordinarily competent to act for the estate. A trustee who has special skills or makes representations of special skills is under a duty to use those special skills. Under this principle, a corporate fiduciary is judged by a higher standard than is an individual who, although prudent, possesses no particular expertise or skills as a trustee.

3. Consent of the Beneficiaries:  Knowledge and approval of the fiduciary's conduct by the beneficiaries may be held to constitute a ratification of that conduct which estops the beneficiaries from making a challenge. It appears that the knowledge must be complete and that mere silence does not constitute acquiescence. Under the doctrine of virtual representation, ratification by adult beneficiaries may bind contingent beneficiaries, who are not yet ascertained or are minors, so long as the adults have no conflict of interest or other hostility toward those whom they represent.

4. Advice of Counsel: Case law shows that acting on the advice of their counsel did not immunize the fiduciaries from the consequences of their defaults. Reliance on advice of counsel is a factor in determining good faith and due diligence, even though it does not give blanket immunity.

5. Exculpatory Clauses: Frequently, a will or trust instrument will contain a paragraph that purports to immunize the fiduciaries from liability for breaches of their duties. It is a contradiction in terms to suggest that fiduciaries may be rendered totally exempt from accountability; they would then own the property in fee simple. Exculpatory clauses may, however, reduce the degree of care and prudence required of the fiduciary Exculpatory provisions should be distinguished from grants of discretionary power. These provisions are generally strictly construed.

6. Court Approval: Fiduciaries need not act at their peril but are entitled to the instructions of a court as protection.

Income and Principal

Successive Beneficiaries The Revised Uniform Principal and Income Act (1962 Act) provides in §4, When Right to Income Arises: Apportionment of Income: a) An income beneficiary is entitled to income from the date specified in the trust instrument, or, if none is specified, from the date an asset becomes subject to the trust. In the case of an asset becoming subject to a trust by reason of a will, it becomes subject to the trust as of the date of the death of the testator even though there is an intervening period of administration of the testator's estate.

Apportionment of stock dividends between the life tenant and remaindermen under a devise creating a life estate in corporate stock: The three divergent views have been frequently designated as the Kentucky rule, the Massachusetts rule, and the Pennsylvania rule.

  • The Kentucky rule awards all extraordinary corporate dividends in their entirety to the life tenant without regard to whether it is a stock dividend or a cash dividend, or whether it represents earnings that accumulated wholly before or wholly after, or partly before or partly after, the commencement of the life estate. The Kentucky rule is not followed by the courts of any other state.
  • The Massachusetts rule, which is followed by a majority of the states, awards to the corpus (remaindermen) the entire extraordinary dividend from earnings, if essentially a stock dividend, and to income (life estate) if essentially a cash dividend, without inquiry in either case as to the time covered by the accumulation of earnings which the dividend represents, and without undertaking to apportion the benefit in the event the earnings accrued partly before and partly after the stock became subject to the life interest.
  • The Pennsylvania rule occupies a medium position between the extremes of the other two rules and inquires as to the time covered by the accumulation of earnings embraced by the extraordinary distribution. If earned before the commencement of the life estate, it goes to the corpus; if earned after that time, then to the life estate as income; if earned partly before and partly after the beginning of the life estate, it is apportioned on proper basis between the corpus and the income.

The basic argument in favor of the Massachusetts rule is the fact that a stock dividend is not in any true sense a dividend at all, since it involves no division or severance from the corporate assets of the subject of the dividend. A stock dividend does not distribute property but simply dilutes the shares as they existed before. There is no more reason in principle and justice for giving the life beneficiary any part of the new shares represented by the stock dividends, although declared wholly or in part from earnings accumulated during the life interest, or in denying him benefits therefrom (other than cash dividends which may be declared thereon during the continuance of the life interest), than there is in the case of accumulation of earnings by the corporation during the life interest without the declaration of any dividends at all.

The Uniform Principal and Income Act (1962) provides: §6. [Corporate Distributions]:

(a) Corporate distributions of shares of the distributing corporation, including distributions in the form of a stock spilt or stock dividend, are principal.

The Uniform Management of Institutional Funds Act grants trustees and boards, who are managing educational, religious, or charitable organizations, more flexible authority. They may adopt a "total return' investment policy and invest in securities that offer the potential of capital appreciation, while maintaining current income by treating some of the appreciation in endowment as income.

The competing claims to receipts from natural resources, wasting assets and unproductive property are resolved by apportionment.

Accounting

At the termination of a trust or completion of the administration of an estate, fiduciaries must file an account with the court before they can be discharged from office. The account is a summary of the conduct of their administration, describing items of property received, income earned, disbursements for taxes, claims, and administration expenses made, and the distribution of remaining property required by the governing instrument or law. Notice is given to all persons who have an interest in the estate or trust, and they may challenge the account. Upon settlement of the final account, distribution to the beneficiaries is made, and the fiduciaries are discharged. Courts have regularly allowed a waiver of an accounting on the agreement of all interested parties.

The protections which result from an accounting have been described as follows by Scott on Trusts §220 (3d ed. 1967):

In general the settlement of an account renders res judicata all matters in dispute and determined by the court in the settlement of the account, and all matters which were open to dispute although not actually disputed, and this although the account was an intermediate and not a final account. On the other hand, although an account is settled and approved, it may be reopened where the trustee was guilty of fraudulent concealment or misrepresentation in presenting his account or in obtaining the approval of the court

 

 

Glossary of Essential Terms

Administration
The process of collecting, managing, and distributing the property of a decedent in accordance with the terms of the decedent' s will or the intestacy statutes. It includes all aspects of management of the estate, such as (and most importantly) payment of taxes and creditors' claims and distribution of the remaining assets to those entitled to them.

Administrative Deviation
The power of a court of equity to permit some change in the method of administration of a trust from that which the trust instrument directs.

Administrator
A person appointed by the probate court as personal representative to administer (collect, manage, and distribute) the estate of a person who dies intestate. There are many different types of administrators. 

If a will exists but no executor is nominated or available, the court will appoint an administrator c.t.a. 

If an administrator dies, resigns, or is removed before completing the administration, an administrator d.b.n. must be appointed to administer the remainder of the estate.

And if a will exists and the executor does not complete administration, the court will appoint an administrator d.b.n.c.t.a.

Special administrators may be appointed for specific, usually temporary purposes. An administrator pendente lite might be appointed while a will contest is in progress, especially one involving the nominated executor. If a person is needed to act in behalf of the estate in a lawsuit, an administrator ad litem can be appointed for that limited purpose.

Beneficiary
The person who is entitled to the benefit of property held in trust and to whom the duties of the trustee are owed. A trust may have one or more beneficiaries. Another common term for a trust beneficiary is cestui que.

Blended Trust
A trust, the beneficiaries of which are described as a group (such as "all of Charles' children") and are intended to benefit as a group, not as individuals.

Charitable Trust
A trust whose purpose primarily benefits the general public or a segment of the public (and thus is a charitable purpose). A charitable trust also may be called a public trust. It is in contrast to a private trust, the primary purpose of which is to benefit specific persons.

Claflin Doctrine
A rule prohibiting termination of a trust by the beneficiaries in advance of the time for termination under its terms if such termination would defeat a material purpose of the settlor.

Constructive Trust
A constructive trust is an equitable device used to avoid unjust enrichment of a person who receives property from another under circumstances that would make retention unconscionable.

Custodianship
A custodianship for a minor bears a strong resemblance to a trust. It is a relationship governed by statute that allows a gift to be made to a minor with broad management powers retained by the donor or given to another adult. See two custodianship statutes: either the Uniform Gifts to Minors Act or the more recent Uniform Transfers to Minors Act. The Uniform Custodial Trust Act provides for creation of a custodial trust.

Cy Pres
The power of a court to vary the dispositive terms of a charitable trust to prevent the trust's failure.

Discretionary Trust
A trust that leaves to the trustee's discretion whether, and in what amounts, to pay income or principal (or both) to the beneficiaries. If the trust is not discretionary, it is mandatory.

Durable Power of Attorney
A durable power of attorney resembles a trust in that one person (the attorney-in-fact) has the power to act in the place of another, often with respect to the latter's property interests. A power of attorney, however, is an agency relationship. And unlike a trust, a power of attorney does not survive the principal' s death

Durable Power of Attorney for Healthcare
A durable power of attorney for health care, as the name implies, is limited to the making of health care decisions after the principal has become incompetent.

Equitable Charge
An equitable charge arises when property is transferred subject to an obligation to make some payment to another person.

Equitable Title
The interest in trust property held by a beneficiary of a trust. It is in contrast to the legal title held by the trustee.

Express Trust
The most common type of trust is an express trust, sometimes called a direct trust, which arises by virtue of the intentional act of its creator. A trust may be active or passive, depending on whether the trustee has any duties to perform.

Fiduciary
As an adjective, founded on the utmost trust and confidence; as a noun, a person (such as a trustee) who stands in a position of great trust and confidence toward another, with a duty to act in good faith for the benefit of that person.

Guardian
One who is appointed to protect the person or property of an infant (that is, a minor) or of a person who is mentally incompetent or physically incapacitated. A guardian ad litem,  another form of special guardian, is appointed to protect the interests of a minor, incompetent, or even unborn person in litigation and is given no powers or duties beyond that role.

Honorary Trust
A term applied to a class of trust-like gifts that neither are intended to benefit the transferee nor have specific beneficiaries who can enjoy the gift as a trust.

Illusory Trust
A purported trust under which the settlor retains such extensive powers that no interest is really passed to the beneficiary and thus no trust exists at all.

Implied Trust
A trust that arises by operation of law, implied from the circumstances, and not through the express intent of a settlor.

Indefinite Beneficiaries
Beneficiaries of a trust who are not specifically identified or identifiable as those to whom the benefits of the trust must pass.

Inventory and Appraisement
The collection and evaluation of the property in a decedent's estate by the personal representative appointed for that purpose.

Letters of Administration
The formal documentation issued by a probate court to signify that a person has been appointed the administrator of an estate and giving the administrator the powers that accompany that office.

Letters Testamentary
Letters testamentary are the equivalent documentation issued to the executor under a will (There are also, among others, letters of guardianship and conservatorship.)

Merger
The combining of the legal and equitable, or all the equitable, interests in a trust into one interest held by one person. The result generally is termination of the trust.

Mixed Trust
A trust whose purposes are both charitable and noncharitable.

Mortmain Statutes
Statutes prohibiting testamentary gifts to charity (including charitable trusts) that exceed a certain percentage of the testator's estate or that are executed within a certain period before the testator's death.

Passive Trust
One form of seemingly passive trust that is nevertheless valid is the life insurance trust, a trust of which the res consists of the proceeds of a life insurance policy, or the policy itself. Its most common use is as the vehicle established inter vivos (during the settlor's lifetime) to receive life insurance proceeds upon the settlor's death.

Personal Representative
The person appointed by the probate court to administer the estate of a decedent: the executor of a will or administrator of an intestate estate.

Pour-over Trust
Sometimes a testator's will directs that property in the estate be transferred to an existing inter vivos trust. The trust is then termed a pour-over trust, and the will a pour-over will. The Uniform Testamentary Additions to Trusts Act permits pour-over wills and trusts.

Precatory Trust
A trust, or purported trust, employing words of request ("precatory language") rather than of direction.

Probate
The process of "proving" a will, or having it declared valid and effective following the death of the testator. 

Protective Trust
An ordinary express trust that automatically converts to a type of discretionary trust if the beneficiary should attempt to alienate it or creditors attempt to reach the beneficiary.

Purchase Money Resulting Trust
The purchase money resulting trust arises in a very narrow circumstance: The consideration for the purchase of property is paid by one person, but title is taken in the name of another.

Resulting Trust
The most common form of resulting trust arises, by operation of law, when an express trust fails.

Revocable, Irrevocable, Mandatory  Trust
Trusts may be revocable (if the settlor can choose to terminate them) or irrevocable, mandatory (if the trustee must act in a certain way, particularly must distribute all the income) or discretionary.

Rule Against Perpetuities
A rule of law that prohibits the creation of future interests that possibly may vest beyond the period of those lives in being at the date of its creation plus 21 years.

Secret, Semi-secret Trust
A trust that is created when a will purports to make an absolute gift, but there is an undisclosed ("secret") agreement between the testator and the legatee that the latter will hold the property in trust for another.

A related concept is the semi-secret trust. As its name implies, this arrangement is only "half-secret": the will states that the gift is in trust and the legatee holds only as trustee, but it does not reveal the terms (or at least the beneficiaries) of the trust, which presumably are known only to the trustee.

Settlor
The person who creates a trust. The settlor is also called the trustor. A trust under which the settlor, or "grantor" (since by definition it cannot be a testamentary trust), is a beneficiary may be called a grantor trust.

Spendthrift Trust
A trust that includes a provision--a disabling restraint -- prohibiting voluntary or involuntary alienation of the beneficial interests.

Sprinkle (Spray) Trust
A sprinkle trust is a form of discretionary trust under which the trustee is directed to distribute the income but has discretion as to the amount (if any) to be given to each beneficiary. It is also known as a spray trust.

Public policy places certain limitations on the control that can be exercised by the trustor's so-called dead hand.

Supplemental Needs Trust
A type of discretionary trust designed to benefit a disabled person without affecting the beneficiary's eligibility for public assistance. It is also commonly called a special needs trust.

Support Trust
A trust that directs the trustee to use income (and not principal) as needed for the support of the beneficiary. If the trust has both support and discretionary language it is sometimes called a hybrid trust.

Termination
Bringing a trust to an end in one of several ways. A trust may terminate by its terms, accomplishment, illegality, impossibility, reserved power to revoke, etc.

Testamentary Trust
A trust is testamentary if created by will, inter vivos. The latter is also called a living trust.

Trust
A fiduciary relationship with respect to property, in which one person (the trustee) holds property (the trust res) for the benefit of another person (the beneficiary), with specific duties attaching to the manner in which the trustee deals with the property.

Trustee
The person who, in a trust relationship, hold and deals with trust property for the benefit of another. There may be one trustee or several co-trustees.

Trust Instrument
The document that embodies the terms of a trust. A trust need not be in writing unless it is testamentary or it concerns real property. One form of trust instrument is a deed of trust ("trust deed"), which generally refers to an instrument giving to a lender a security interest in real property (comparable to a mortgage) but also is used to refer to any written document of transfer in trust. (If the transfer is gratuitous, the instrument is technically a deed of gift). The term trust indenture also may be used to refer to a document of transfer in trust, especially in reference to corporate finance documents.

Trust Property
The property that is held by the trustee in trust for the benefit of the trust's beneficiaries. It is also commonly referred to as the trust res, the trust corpus, the trust estate, the subject matter of the trust, the trust fund, the trust assets, or the trust principal.

Universal Succession
A system of distribution of a decedent's property under which beneficiaries of a will or intestate successors take title to the property directly, without the need for administration or appointment of a personal representative but subject to the claims of creditors and others with prior rights.

Use
An early antecedent of the trust was the use, which was really a passive trust employed for feudal purposes.