Wills, Trusts & Estates PDF

Wills, Trusts & Estates BACKGROUND A. **Freedom of Disposition --** The organizing principle of the American Law of Donative Transfers. Dead-Hand Control a. *General Rule*: Property owners have the unrestricted right to dispose of their property as they please b. *Exceptio...

Wills, Trusts & Estates BACKGROUND A. **Freedom of Disposition --** The organizing principle of the American Law of Donative Transfers. Dead-Hand Control a. *General Rule*: Property owners have the unrestricted right to dispose of their property as they please b. *Exceptions*: i. Protection of a surviving spouse - Cannot cut spouse of the estate ii. Intentional Omission of a child - Children have no protection in any state against intentionally being omitted by a parent. - "The right to receive property by will is a creature of the law and not a natural right." *Shapira v. Union National Bank* iii. Protection against unintentional omission iv. Transfer Taxation v. Creditors - [North Carolina: §28A-14-1] -- valid notice to creditors must be sent within 75 days of the probate court granting letters of administration B. **Mechanics of Succession** c. Personal Property - Primary vi. Domicile at death will govern d. Real Property - Ancillary vii. State in which the real property is located will govern e. Ways in which property is passed at death viii. Will -- carried out by: - The executor (named in the will) ix. Will Substitute -- non-probate (More common today than a will) - Inter-vivos trust -- passes per the terms of the trust - Testamentary trust -- created under the decedents will; passed through probate - POD/TOD - Life insurance - Joint tenancy x. Intestacy -- died without a will - Administrator (unnamed -- no will) Intestacy A. **Intestacy** -- When one dies without a will a. *General Rule:* The default law for intestate decedents: i. First, a decedent's spouse; then decedent's descendant, then the decedent's parents, then collateral and remote kindred. 1. Property passes to descendants either by: a. Per Capita -- each takes an equal share b. Per Stirpes -- each grandchild by a predeceasing child will step up and take that child's share. - Default 2. Table of Consanguinity -- Blood only c. First to take are child, or parents (we add spouse) but it's not actually on the table because they are not blood. 3. **Escheat** -- if the decedent has no heirs, the property will escheat (be given) to the state B. **North Carolina General Intestate Statutes** b. [§ 29-6.] *Lineal Succession Unlimited* -- directly related c. [§ 29-7.] *Collateral Succession Limited* -- those who are less directly related ii. No right of succession by collateral kin who are more than 5 degrees kinship removed from an intestate. iii. If there is no collateral relative within 5 degrees, then collateral succession shall be unlimited to prevent any property from escheating. d. [§ 29-8.] *Partial Intestacy* iv. If not all of the estate is properly disposed of in the will, the part not disposed shall be distributed as intestate property. e. [§ 29-9.] *Inheritance by unborn Infant* v. Lineal descendants and other relatives of an intestate born within 10 months after the death of the intestate, shall inherit as if they had been born in the lifetime of the intestate and had survived him. f. [§ 29-11]. *Aliens* vi. Being an alien does not bar intestate succession. g. [§ 29-23.] *Advancements In General* vii. If a person dies intestate, all property the person gave in his lifetime as an advancement shall be counted toward the advancee's intestate share to the extent that it does not exceed the intestate share. -- Hotchpot? viii. Evidence: (1) Acknowledgement by a testator; (2) Acknowledgement by the beneficiary C. **Shares of Persons who Take upon Intestacy** h. [§29-13.] *Simultaneous Death Act* ix. 120 Hour survivorship requirement x. If the act applies, it is treated as if they predeceased the other i. [§ 29-14.] *Share of Surviving Spouse.* xi. Real Property 4. Survived by one child or any lineal descendant = ½ undivided interest goes to Spouse and the other ½ goes to child. 5. Survived by 2+ children, = 1/3 undivided interest goes to S 6. No children but the intestate has one or more parents, ½ undivided property goes to S 7. If no children or parents, all of the property goes to S xii. Personal Property 8. One child and personal net does not exceed \$60,000 = all personal property goes to S. d. If exceeds 60k, S gets 60k + half of the remaining balance. 9. 2+ children, and does not exceed \$60k, all to S e. If exceeds 60k, S gets 60k + 1/3 of the remaining balance 10. No children, but one or more parents and does not exceed \$100k -- all goes to S f. If exceeds 100k, S gets 100k + half of the remaining balance 11. No children or parents -- S gets everything. j. [§ 29-16.] *Distribution among classes* -- xiii. To decedent's children -- per capita xiv. To decedent's brothers and sisters -- Per Stirpes xv. To decedent's Aunts and uncles -- Per stirpes D. **North Carolina Children and Intestacy** k. [§ 29-17.] *Adopted Children* xvi. An adopted child is entitled to any property from the child's adoptive parents as if the child were a natural legitimate child of the parents. xvii. Adopted child cannot take from natural parents xviii. If a natural parent marries (adoptive parent) the child is considered the child of the natural parent for all purposes of intestate succession. l. [§ 29-19.] *Child born out of wedlock* xix. Treated as if the child of the mother xx. Can take by, through and from 12. Any person found to be the father by court 13. Any person who acknowledged himself - via writing - as the child's father during his lifetime 14. If the person died before, or within one year of the birth of the child -- DNA testing E. **Bars to Succession** m. [§29-13.] *Simultaneous Death Act* xxi. 120 Hour survivorship requirement -- otherwise the spouse is barred. n. [§ 28A-14-1]. *Notice for Claims.* xxii. Every personal representative and collector shall notify all persons, firms and corporations at least three months from the day of the first publication or posting of the notice. 15. Shall be published once a week for four weeks in a newspaper qualified to publish legal advertisements. o. [§ 28A-19-3(f).] *Limitations on Presentation of claims* xxiii. Creditors are barred from bringing a claim against a debtor after **three years** from the last activity on the debtor's account p. [§ 31A-4.] *Slayer Rule.* xxiv. The slayer viewed to have died immediately before the death of the decedent 16. Slayer will not acquire any property or receive any benefit 17. If the slayer has children (issues) that would have been entitled to an interest in the property, the property will be distributed per stirpes. If no issue, the property will be distributed as if the slayer died before the decedent. 18. If decedent died with a will, and property was going to pass to the slayer accordingly, the property will be governed by 31-42(a). 19. NC includes a *[constructive trust]* for the slayer rule in cases where a person is murdered by an heir or next of kin. q. [§ 31B] - *Disclaimer of Inheritance* xxv. Beneficiary can disclaim and the gift would pass as if they predeceased the grantor. May disclose in part or in whole xxvi. Must be filed within nine months of the transferor\'s death, or of the disclaimant\'s 21st birthday if they are a minor. xxvii. The disclaimer must be in writing and delivered to the transferor\'s legal representative, such as the executor of the estate, and to the probate court r. [§31A-1]. *Abandonment, Divorce, Adultery, etc.* xxviii. A spouse can be barred from succession if absolute divorce or annulment happened xxix. Voluntarily separates and lives in adultery that has not been condoned xxx. Bigamous marriage. Wills A. **General Definitions** a. [Will] -- A written instrument prepared by or at the direction of the testator directing what to do with her property upon death. b. [Probate] -- Legal process establishing the validity of the will and administering the decedent's estate. c. [Codicil] -- a means by which a testator can revoke or amend her will during her lifetime. d. [Executor] -- one appointed by the testator to handle the administration of the will and disposition of the testator's property e. [Bequest] -- The giving of personal property i. Specific -- "I give my jewelry to..." ii. General -- "I give \$10,000 from my estate" f. [Devise] -- The giving of real property iii. Land is always specific (my house) g. [Self-Proving Affidavit] -- To validate a will B. **Core Will Formalities**: [(§ 31-3.3.] Attested Wills in North Carolina) "I make public and Declare" h. Writing i. Signature by the testator -- with the intention to sign j. Attestation by two disinterested witnesses in the presence of a testator iv. *[Function of the Formalities]* - *Evidentiary -* The attestation requirement assures the actual signing is witnessed and sworn by disinterested parties - *Channeling -* Results in organization, language and content of most wills - *Cautionary or Ritual -* Making sure the testator is not merely making a statement but a true intent of dispositions with adequate finality of intention. - *Protective-* Protecting the testator against imposition at the time of execution C. **Execution of Will in North Carolina.** k. *[§ 31-1. Who may make a will]* v. Any person of sound mind vi. 18 years or older l. *[§ 31-3.1. Strict Compliance ]* vii. No will is valid unless it complies with the requirements prescribed by this article. - NC does not recognize the harmless error rule m. *[§ 31.3.2. Kinds of wills]* viii. Personal property and real property may be devised by: - An attested written will - A holographic will ix. Personal property may also be devised by a **[nuncupative will (oral will)]** n. *[§ 31-3.4. Holographic Will]* x. Written entirely in the testator\'s handwriting. If other printed words appear on the will that are not in the handwriting of the testator, the will is still valid as long as it does not affect the meaning of the will. xi. Subscribed by the testator, or with the testator's name written in or on the will in the testator's own handwriting. o. *[§ 31-3.5. Nuncupative Will]* xii. Made orally by a person who is in that person's last sickness or in imminent peril of death and who does not survive such sickness or imminent peril; and xiii. Declared to be that person's will before two competent witnesses simultaneously present at the making thereof and specially requested by the person to bear witness. p. *[Electronic wills]* -- Not currently recognized in NC but may be recognized starting 1/1/2025. D. **Revocation** -- In General. q. A will is subject to amendment or revocation by the testator at any time prior to death. - All States permit revocation xiv. Partial Revocation is allowed in NC r. [Three Ways to revoke a will] xv. Writing -- executed with Wills Act Formalities - Republication by codicil xvi. Physical -- Destroying, obliterating or Burning (intentionality) xvii. Operation of Law -- something outside the will happened that alters the will (marriage or divorce, death/birth of a child - Oral is NOT enough to revoke a will s. Express and Implied Revocation xviii. *[Express]* -- it is in the writing that any prior will is revoked xix. *[Implied]* or inconsistent - If the new will makes a [***complete*** disposition] of property, it is presumed that the testator intended to revoke the prior will - If the new will makes a [***partial*** disposition], it is considered a codicil. a. Extrinsic evidence is inadmissible if the plain language gives the meaning in the will itself. b. If there is any ambiguity, extrinsic evidence is allowed in. t. Contracts not to revoke a will xx. [Mutual wills (Joint Will)] = one instrument executed by two persons as the will of both - A contract -- (should not be used) xxi. [Reciprocal (Mirror-image wills)] = separate wills of two persons that contain mirror-image provisions E. **Revocation in North Carolina** u. *[§ 31- 5.1. Revocation of Written Will.]* xxii. In Writing - with the Wills Act Formalities xxiii. Physical -- burnt torn, canceled, obliterated or destroyed v. *[§ 31-5.8. Revival of a revoked will]* -- Only through subsequent writing xxiv. A will that has been revoked, cannot be revived unless they re-execute the current will, or by the execution of another will in which the revoked will or part of it is incorporated by reference. - Divorce or annulment is a revocation of the spousal shares w. *[§ 31-51. Incorporation by Reference]* xxv. A writing in existence, when a will is executed, may be incorporated by reference if the language of the will manifests this intent and describes the writing sufficiently to permit its identification. x. *[§ 31-52. Acts and events of independent significance]* xxvi. A will may dispose of property by reference to acts and events that have significance apart from their effect upon the disposition made by the will, whether they occur before or after the execution of the will or before/after the testator's death. May include the execution or revocation of another individual's will and the safekeeping of items in a secured depository. y. *[Dependent Relative Revocation]* (DRR) xxvii. It is recognized in NC but no court has invoked it yet. - If a testator revokes her will upon a mistaken assumption of law or fact, the revocation is ineffective if the testator would not have revoked the will but for the mistaken belief. z. *[Lost wills]* -- Presumed revoked F. **Capacity and Contests --** Mental Capacity to make a will is minimal a. [Elements of Testamentary Capacity] xxviii. A testator must be capable of knowing and understanding in a general manner: ([Cunningham Test]) - The nature and extent of his property - The natural objects of his bounty (The people they care about) - Consequences of disposing of that property - Must be capable of relating those elements to one another and forming an orderly desire regarding the disposition of property xxix. Test is of capability, not actual capacity b. [What Constitutes a "Sound Mind" to make a will?] xxx. *[The Insane Delusions Test]* - Persistent belief that has no existence in fact and is adhered to against all evidence - Causal relationship between insane delusions and the ability to contract xxxi. *[Undue Influence]* - If the wrongdoer exerted such influence over the donor; and the donor's free will was overcome, and caused the donor to make a donative transfer that she would not otherwise have made. - A contestant has the burden of proving the UI. However, the trier of fact may infer undue influence from circumstantial evidence: c. The donor was *susceptible* to UI d. The wrongdoer had an *opportunity* to exert UI e. A *result* appeared to be the effect of the UI - Confidential relationship or suspicious circumstances? xxxii. *[Duress]* -- When UI crosses the line into coercion, it becomes duress. - When the wrongdoer threatened to perform or did perform a wrongful act that coerced the donor into making a donative transfer. xxxiii. *[Fraud]* - When the wrongdoer knowingly or recklessly made a false representation to the donor about a material fact that was intended to and did lead the donor to make a donative transfer they would not otherwise have made f. Fraud in ***Execution*** -- When a person intentionally misrepresents the character/contents of the instrument signed by the testator -- which does not carry out the testator's intent -- (wrongfully signs) g. Fraud in ***Inducement*** -- When a misrepresentation causes the testator to execute or revoke a will (or refrain from,) or to include particular provisions in the wrongdoer's favor - In UI- the testator makes a new estate plan bc of influence that overcomes the testator's free will - In Fraud -- the testator retrains her free agency and makes a new estate plan, but does so as a result of being misled. c. North Carolina does not recognize a claim for tortious interference with an expected inheritance during the lifetime of the testator because a will has no legal effect until the testator's death. xxxiv. Does recognize "malicious and wrongful interference with the making of a will." G. **Construction of a Will -** d. Mistaken or Ambiguous Language in Will xxxv. Plain Meaning/No Extrinsic Evidence Rule - Extrinsic evidence may be admitted to resolve ambiguity; however, the plain meaning of the words in a will cannot be disturbed by evidence that the testator intended another meaning. INTENT h. Patent Ambiguity -- evident from the face of the will i. Latent Ambiguity -- manifests itself only when the terms of a will are applied to the facts. xxxvi. *[§ 31-61. Reformation to Correct Mistakes ]* - Courts may reform the terms if the terms are ambiguous, to conform the terms to the testator's intent if it is proved by clear and convincing evidence what the testator's intent was and what the terms of the will were affected by a mistake of fact or law, whether in expression or inducement. e. *[§ 31-42 Residuary, Anti-Lapse, 120-hour Survivorship Requirement]*, xxxvii. Unless the will indicates otherwise, if a devisee predeceases the testator, whether before or after the execution of the will, then the issue of the predeceased devisee shall take in place of the deceased devisee. - Applies if the beneficiary is a grandparent or a descendant of a grandparent of the testator. - Applies whether the devise is to an individual, to a class or is a residuary devise. xxxviii. Anti-Lapse statutes do not prevent a lapse; rather, they substitute other beneficiaries if certain requirements are met. -- Looks to the presumed intent of the testator. - Must be blood-related to the testator f. Class Gift xxxix. If a devise is to a class of persons, and one member dies before the testator, the surviving members of the class divide the gift. - Presumed to have survived an individual by at least 120 hours g. Changes in Property after the Execution of a Will xl. *Ademption by Extinction* -- Specific Devises (My Toyota) - A specific devise of real or personal property, but the testator no longer owns that property when they die, so the devise fails. j. *[Identity Theory]* (generally followed in NC) - If the specific item is not in the testator's estate, the gift fails k. *[Intent Theory ]* - If the specific item is not in the testator's estate, the beneficiary may be entitled to the replacement or cash value of the original item -- if the beneficiary can show that was the testator's intent. xli. *Ademption by Satisfaction* -- General bequests; (\$10,000 from my estate) - Testator gives the gift to the donee during their life-time - May be applicable if the testator makes an inter vivos transfer to a devisee after executing the will; depending on the testator's intent. xlii. Exoneration of Liens -- "releasing someone from the obligation" - [General Rule]: Beneficiary should receive the property free of debt unless the will explicitly states otherwise. - If a will makes a specific disposition of real or personal property that is subject to a mortgage to secure a debt which the testator is personally liable, it is presumed that the testator wanted the debt to be paid out of the residuary estate. (Followed in NC) xliii. Abatement - Arises if an estate lacks sufficient assets to pay the decedents debt as well as all the devisees - Devises will normally abate in the following order: l. Residuary devises are reduced first; m. General devises are reduced second; n. Specific and demonstrative devises are last - Reduced pro rata (reduced to what is left over and proportioned) xliv. Stock Splits: Unless there is a specific bequest, all stock left to one person will be given to that person, even if the stock splits. - Modern courts: The devisee would be entitled to additional stock shares resulting from a stock split. Will Substitutes A. **Definition**: Non-Probate Transfers: The transfer of assets from a deceased person to their heirs without going through probate court. AKA -- Will Substitutes a. **[\*\* Will Substitute will always win over a will\*\*]** i. Revocable Trusts: - Created by *[deed of trust]* where the settlor transfers to the trustee the property to be held in the trust. Upon settlor's death, the trust property is distributed according to the terms of the trust. - *[Revocable]* -- Settlor may revoke and take back the trust property - While revocable, the rights of the beneficiaries are subject to the control of and the duties of the trustee are owed exclusively to the settlor. - *[Creditors]* -- may reach the trust assets to satisfy the settlor's debts to the extent that the settlor -- during his lifetime -- would have had access to those assets for his benefit. - To avoid creditors, make the trust irrevocable - (know the consequences) - *[Modern General Rule]*: A trust is presumed revocable - *[Pour Over Will]:* Transfers any remaining assets to a living trust after the death of a testator. The purpose is to ensure that assets are distributed according to the testator's wishes and not by the court. - Only controls the disposition if the settlor first sets up the trust and [THEN] executes a later will substitute - *Example*: "I give my residuary estate to the then-acting trustee under the trust agreement. ii. Life Insurance- Recommended to buy 6x-30x the insured's annual income - *Term Life* -- simple and most common - Obligates the insurance company to pay the named beneficiary if the insured dies within the policy's term. - *Whole Life* -- (most expensive) - Combines life insurance w/ savings plan - Certain to result in a payment by the insurer iii. Payable-on-Death & Transfer-on-Death Accounts - May avoid probate by creating PODs and TODs - *[POD]*: Used for bank accounts: checking, savings, certificates of deposit and money market accounts - *[TOD]*: Used for investment accounts: Individual retirement accounts, 401(k) and other security holdings. - *[§54-109.57A- POD]* - Any owner of a POD account may change the designated beneficiary - If there are 2+ owners, the owners will be joint tenants with the right of survivorship - Any owner may withdraw funds in any way the contract lays out. TOD Security Accounts - *[§54-109.57A(a)(4)(a-b)-POD]* - Beneficiaries -- must be of legal age to be an owner of the account, If not of legal age, the funds are transferred to the general guardian. If no guardian, the credit union holds the funds until beneficiary reaches age of majority. - *[§41-45]* - The designation of a TOD beneficiary does not affect the ownership of the security until the owner's death. The registration of a security in beneficiary form may be cancelled or changed at any time by the sole owner or all then-living owners without consent of the beneficiary. - North Carolina does not recognize TOD deeds for real property iv. Pension Accounts - *[Defined Benefit Plan]* -- Common among Government employees - Retired employee receives a regular pension check for life or the joint and several lives of the employee/employee's spouse - *[Defined Contribution Plan]* -- - The employer or employee or both make contributions to a specific account for employee - *[Individual Retirement Account]* -- mostly used by self-employed - Similar to Defined Contribution plan, but IRA is not established by an employer. - Common for participate in the defined contribution plan to transfer account balance to IRA after retiring. b. **[Planning for Incapacity ]** v. *[Conservatorship]* -- default plan for managing the property of an incapacitated person who does not provide otherwise (through a will) - Can be avoided through revocable trusts and Power of Attorney. - [Incapacitated]: elderly, mental illness, coma, minor, under the influence - *[Plenary Guardianship]* - Total responsibility - *[Limited Guardianship]* - Responsibility is specified by court decree - *[Court-appointed Conservator]* - Needs clear and convincing evidence that the incapacitated cannot manage property, and finances, and communicate/ evaluate/ receive decisions. - *[§35A-1241]* - Guardians of a person must provide care, comfort and maintenance. Must arrange for training, education, employment, rehabilitation or habilitation. Reasonable care of the ward's clothes, furniture, vehicles, etc. - May establish a place of abode within or outside the state -- with preference within the state. - May give consent or approval to enable the ward to receive medical, legal psychological or other professional care. vi. *[Power of Attorney]* - *[§32C-1-102]* -- Definition of POA - A written record that gives an agent the authority to act on behalf of a principal. - Unlike Ordinary, Durable POA remains effective during the incapacity of the principal and until the principal dies - *[§32C-1-104]* - All POAs are presumed to be durable unless stated otherwise - Standing Power -- majority preferred - Springing Power - *[§32C-1-105]* -- Execution of POA - Must be **signed** by the principal, in their conscious presence or by another directed by the principal to sign the principal's name on the POA - Must be **acknowledged** -- before a notary public or other authorized by law vii. *[Health Care]* - SCOTUS ruled that each person has a constitutional right to make health care decisions for themselves - **[Advance Directive]**: - Three basic types i. Instructional Directives (living will) ii. Proxy Directives iii. Hybrid/combined directives - Function: to control post-death wishes: Organ donation, post-mortem remains, funeral wishes - In the absence of an Advance Directive, Decisions are made for person in following order: - Spouse (unless legally separated) - Adult child - Parent - Adult Sibling - *[§90-320]* -- Right to Natural Death; Brain Death Form - Physician Assisted Suicide is **[not]** allowed in NC - If person dies by violence or in suspicious circumstances, an autopsy is required regardless of the wishes of the deceased person. - Organ donation Spouse & Child Rights A. Limits on Freedom of Disposition: a. *[Spousal Limitations]* i. A surviving spouse is entitled to an **elective or forced share**. (Typically 1/3 of the decedent spouse's estate - Elective share Justification: - Partnership theory -- economic partnership - Support Obligation - *[§ 30-3.1, § 30-3.2]* -- Elective Share Distribution - Less than 5 years: 15% of the total net assets - At least 5 but less than 10: 25% of the total net assets - At least 10 but less than 15: 33% of the total net assets - 15 or more: 50% of the total net assets - *[Augmented Estate Formula]* - Net Probate Estate **+** Non-Probate transfer to Others **-** Non-Probate Transfers to surviving Spouse **+** Transfers to Others from Surviving Spouse **=** Marital Property Portion of Augmented Estate - \"TOTAL ASSETS\" = the total asset reduced by year\'s allowances to persons other than the surviving spouse and claims. ii. *[§50-20]*; NC as **[an equitable distribution]** state: - The judge considers factors to determine a fair division of assets and debts. - [Marital Property] -- all property acquired during marriage - Factors for separation: Length of marriage, spousal contributions, value of separate property, financial situations, support obligations - [Separate Property] -- all property acquired before marriage, inherited property, gifts. iii. *[Intentionally Omitted Spouse]* 1. Can only take the elective share iv. *[Pretermitted Spouse]* -- married after a validly executed will - They get an intestate share - Can also get their elective share b. *[Waive the Elective Share:]* v. *[§31A-1]* -- Abandon the spouse vi. Premarital or Postnuptial Agreement vii. Slayer Rule -- Is not waivable because the Slayer Rule [automatically disqualifies] an inheritance from any part of the deceased spouse's estate c. [Homestead Exemption] -- *[NC Constitution Article X. Section 2]* viii. "Homestead allowance" ix. Exemption of \$25,000 or 50% of your home's value. -- whichever provides the most benefit x. If the owner of a homestead dies and leaves a surviving spouse but no minor children, the homestead shall be exempt from the debts of the owner, and the rents and profits thereof shall inure to the benefit of the surviving spouse until remarried or unless they are the owner of a separate homestead d. Intentional Omission of a Child xi. A testator is not required to leave any property to a child. However, a parent should think twice about doing this because it invites contested wills. e. Unintentional Omission of a Child xii. *[§31-5.5-]* Pretermitted Child -- (born after the execution of the will) takes an intestacy share (2/3?) xiii. *[Posthumous Children]*- Must be born within 10 months of death to be eligible to inherit. Trusts A. **[Trusts: Overview]** a. *[Definition]*: A legal arrangement in which a settlor conveys property to a trustee to hold as a fiduciary for one or more beneficiaries i. Trustee takes legal title to the trust property - Allows the trustee to deal with third parties as if they were the owner of the property ii. Beneficiaries have equitable title. b. *[Choice of Law]* iii. *Real property* - governed by the law of the state where real property is located iv. *Personal property* -- the settlor can designate the law to govern c. *[Trust Creation: ]* v. **By will** - Testamentary Trust - Automatically irrevocable vi. By **Will-substitute**/ Inter-vivos - Created by declaration of trust/ deed of trust - Declaration -- may be created without a transfer of property - Deed -- does require a transfer of property - Created during a person's life - Revocable or Irrevocable vii. **Totten** Trust - POD account viii. **Requirements**: - Intent - Ascertainable beneficiaries - Specific Property - Trustee - A trust will not fail for lack of trustee, the court will appoint someone - However, without "active duties" the trust is "passive" or "dry" and it then fails. d. *[Vocabulary]*: ix. [Settlor/ Grantor/ Trustor] - The person who created the Trust - Created by Declaration or deed of trust x. [Trustee] -- (legal title)The person given the duties to which they are legally bound by: - Custodial -- takes custody of the property and safeguards it - Administrative -- accounts, keeps records, files taxes - Investment -- reviews assets and implements investment program - Distribution -- makes distribution of the principal to the beneficiaries. xi. [Beneficiaries] -- (equitable title) those who benefit from the trust; ascertainable xii. [Corpus/Res] -- the assets in the trust B. **[North Carolina Trust Statutes Generally]**: e. *[§36C-1-102]*. ***Scope***: Applies to any express trust, private or charitable, wherever and however created. "Express" trust includes both testamentary and inter-vivos trusts. f. *[§36C-1-112.]* ***Construction***: The rules of construction that apply to the interpretation and disposition of property by will, will also apply as appropriate to the interpretation of terms and disposition of the trust property g. *[§36C-4-404]*. ***Purpose***: A trust may be created so long as it is lawful and not contrary to public policy and possible to achieve. A trust and its terms must be for the benefit of its beneficiaries. h. *[§36C-10-1013.]* ***Certification of Trust***: Instead of providing an actual copy of the trust to someone other than a beneficiary, the trustee may provide a certification with the following information: xiii. Existence of the trust with date executed xiv. Settlor's identity (unless otherwise stated in trust) xv. Trustee's identity and address xvi. Powers of Trustee xvii. Trust Revocability & identity of anyone with power to revoke xviii. Authority of co-trustees xix. Trusts taxpayer ID number; and xx. Manner of taking title to trust property C. **[Fiduciary Administrations]** i. ***General Purpose:*** to induce the trustee to adhere to the terms of the trust and to act prudently and in good faith in the best interests of the beneficiaries. xxi. A trustee cannot purchase from himself at his own sale, and that his wife is subject to the same disability unless allowed under an order of the court or by direction of the trustee. j. ***General Functions***: xxii. Custodial xxiii. Administrative xxiv. Investment xxv. Distribution k. ***Trustee's Powers***: xxvi. Prescribed in the trust document -- Trust terms trump state law unless the terms are contrary to law or public policy - *[§36C-8-815]*. General Powers -- Powers given by the terms of the trust - *[§36C-8-816.]* Specific Powers -- 33 Specific powers including collecting & controlling, investing trust property, etc. l. ***Trustee's Duties*** -- fundamentally honest, good faith and prudence -- judged against the degree of care a reasonably prudent person would exercise their personal affairs xxvii. **Duty of Loyalty-** *[§36C-8-802.]* - No Self-Dealing - Co-Trustees are responsible for the other co-trustees - No-Further-Inquiry Rule -- if a trustee undertakes a transaction that involves a conflict between the trustee's fiduciary capacity and personal interest -- the good faith and fairness of the transaction are irrelevant - Compensatory damages - Trustee must give up any profits made from breach xxviii. **Duty of Prudence** - *[§36C8-804]* - Trustee shall administer as a prudent person would - Objective standard - Prudent Investor Rule: i. Risk tolerance ii. Diversification iii. Rebalancing iv. Monitoring xxix. ***Custodial and Administrative Functions/Duties*** - *[Custodial]* - taking title and custody of the trust property and properly safeguarding it - **Duty to collect and protect trust property** v. Trustee must collect and protect property without unnecessary delay - **Duty to Earmark Trust property** vi. To designate it as trust property distinct from trustee's own property - **Duty Not to Mingle Trust Property with Trustee's Own Property** - *[Administrative]* - recordkeeping, bringing and defending claims held in trust, accounting and giving information to the beneficiaries, making tax and other required filings. - **Duty to keep Adequate Records of Administration** vii. Trustee must document important decisions and actions and the reason for those decisions and actions - **Duty to Bring and Defend Claims** D. **[Types of Trusts]**: m. *[Spendthrift]* -- Limits how much money a beneficiary can access and how they can use it. Beneficiary of a spendthrift cannot voluntarily alienate her interest in the trust; nor can her creditors attach her interest; unlike a discretionary trust beneficiary xxx. A trust is not spendthrift unless the settlor includes a spendthrift clause xxxi. Can always be invaded by spousal and child support n. *[Discretionary]* §36C-5-504. Gives the trustee the power to decide when, how and if to distribute assets to the beneficiaries. Limited by fiduciary duties xxxii. Two types of Discretionary Trusts - [1. Pure Discretionary Trust] -- trustee has absolute discretion over distributions. -- NC -- Creditors generally cannot reach these - [2. Support Trust] -- Trustee is required to make distributions as necessary for the beneficiary's education or support - [Protective Trust] -- (example) Trustee is directed to pay income to A, but if A's creditors attach A's interest, it automatically changed to a discretionary Interest. Once A's interest is discretionary, the creditors of A cannot demand any part of it. o. *[Self-Settled Asset Protection (APT)]* -- a person cannot shield assets from credits by placing them in a trust for her own benefit. xxxiii. APTs are NOT recognized in North Carolina p. *[Trusts for State-Supported]* -- to make a trust that shields from state support, make the trust irrevocable (remember the 5 year lookback period) q. *[Pet Trust.]* §36C-4-408 -- Alive at the time of the creation of the trust; terminates at the death of the animal or last surviving animal r. *[Charitable Trusts]*: For the purposes of: **Poverty, Education, Religion, Health, Community, Governmental or Municipal Purposes** xxxiv. Beneficiary cannot be a named ascertainable - [Modern Law] -- relies on state AGs, donors, federal tax authorities to enforce the trust - [Traditional Law]- AG had primary responsibility xxxv. "For the students of Regent Law" -- This is okay. xxxvi. *[§36C-4-413 -]* **Cy Pres** -- If a charitable Trust's specific purpose becomes Illegal, Impossible, Impracticable, or wasteful; - The trust does not fail, in whole or in part - The trust property does not revert to the settlor or the settlor's successors in interest; and - The court may apply cy pres to modify or terminate the trust by directing the application of the property to another purpose that is within the settlor's general charitable intent. s. **Limits of Freedom of Disposition**: xxxvii. Cannot compel Distribution xxxviii. Cannot be modified xxxix. Removal of Trustee t. **Trust Modification** xl. To modify a trust, either: - *[Consent by all beneficiaries]*; or - *[§ 36C-4-411]* -- They may compel the modification or termination of a noncharitable irrevocable trust without the court\'s approval -- even if the modification or termination is inconsistent with a material purpose of the trust. - *[Circumstances changed]* that were not anticipated by the settlor which would defeat/substantially impair the trust\'s purpose. - *[§ 36C-4-410]* -- If the purposes of the trust have become unlawful, contrary to public policy, or impossible to achieve - *[§ 36C-4-412]* -- Modification or termination because of unanticipated circumstances or inability to administer trust effectively. - *[§36C-4-414]*- Modification or termination of uneconomic trust - *[§36C-4-416]* -- Modification to achieve settlor's tax objectives u. **Trust Termination** xli. ***Deviation*** -- a trustee can deviate from the trust's terms if compliance with the terms would defeat or substantially impair the settlor's accomplishment xlii. *[§36C-8B-2(3)]* -- ***Decanting Power*** -- Ability to distribute property from the first trust to one or more second trusts, or to modify the terms of the first trust v. **Trustee Removal** xliii. *[§36C-7-706.]* xliv. The court may remove a trustee if: - A serious breach of trust; - Lack of cooperation among co-trustees that substantially impairs trust administration - Unfit, unwilling or persistent failure of the trustee - Substantial change of circumstances E. **[Powers of Appointment]** w. *[Generally]* -- a nonfiduciary power, typically a person other than the trustee, to distribute trust property xlv. The holder of a power of appointment, known as he donee (powerholder), may appoint the property to one or more persons (known as objects of the power) in accordance with the terms of the power. xlvi. Factors to exercise power of appointment - Intent - Manner of expression must satisfy any formal requirements imposed by donor - A permissible exercise of the power - Disclaimer or release of a power of appointment and contracts to exercise a power xlvii. **[General power]**: A power which is exercisable in favor of the donee, his estate and his creditors - For tax purposes, is treated as the owner of the appointive property - *If failure to exercise* -- the appointive property passes to the takers in default of appointment - EXCEPTIONS: viii. ***Ascertainable standard***: A power to consume, invade or appropriate property for the benefit of himself which is limited by an ascertainable standard relating to the health, education, support, or maintenance of the donee, it shall not be deemed a general power of appointment. ix. ***Five or five power of withdraw***: if a donee has a power to appoint property to himself, a lapse of the power (a failure to exercise it) will not be taxed as a general power to the extent of \$5,000 or 5% of the trust corpus, which ever is greater. xlviii. **[Non-General Power:]** Not exercisable in favor of the done, his estate or his creditors - *If failure to exercise* -- (no default of appointment) the appointive property may pass the objects of the power if the objects are defined and limited Estate Planning & Wealth Transfer Tax - Wealth Transfer - Gift tax - Annually Allowed 2024 **[\$18,000]** - Federal Estate Tax - Exemption Amounts 2024 **[\$13.61million]** - Marital Deduction - Unlimited (no federal estate tax) - **Marital Credit shelter trust** - for each spouse = \$13.61 X 2 = **[\$27.22]** Million - Allows each spouse to \"save\" their 13.61 mil. And that can transfer tax free to their heirs. - **Charitable Trust** - Federal Estate Tax Rate = **18% - 40%** (if over 13.61 mil) **Tax rate** **Taxable amount** **Tax owed** -------------- -------------------------- --------------------------------------------------- 18% \$0 to \$10,000 18% of taxable amount 20% \$10,001 to \$20,000 \$1,800 plus 20% of the amount over \$10,000 22% \$20,001 to \$40,000 \$3,800 plus 22% of the amount over \$20,000 24% \$40,001 to \$60,000 \$8,200 plus 24% of the amount over \$40,000 26% \$60,001 to \$80,000 \$13,000 plus 26% of the amount over \$60,000 28% \$80,001 to \$100,000 \$18,200 plus 28% of the amount over \$80,000 30% \$100,001 to \$150,000 \$23,800 plus 30% of the amount over \$100,000 32% \$150,001 to \$250,000 \$38,800 plus 32% of the amount over \$150,000 34% \$250,001 to \$500,000 \$70,800 plus 34% of the amount over \$250,000 37% \$500,001 to \$750,000 \$155,800 plus 37% of the amount over \$500,000 39% \$750,001 to \$1,000,000 \$248,300 plus 39% of the amount over \$750,000 40% \$1,000,001 and up \$345,800 plus 40% of the amount over \$1,000,000   - [IRS Form 706](https://www.irs.gov/forms-pubs/about-form-706) - details exactly which assets count in the calculations, how to find their value and how to figure the tax; must be filed for each taxable estate - 2025 Sunset of Tax Cut and Jobs Act - **[Dec. 31 2025]** - The TCJA provisions related to the estate tax exemption will sunset barring Congressional action, on December 31, 2025 - causing the exemption limits to revert to approximate \$7 Million (individuals) and \$14 million (married couples). The gift tax exclusion, will also revert to prior limits at the end of 2025. - State Estate Taxes - State estate Tax - State Inheritance Tax - No state estate or state inheritance tax in NC - Everyone pays federal estate tax, gift tax Construction and Future Interest A. The core concept underlying the law of future interests is that a future interest is itself a form of property a. The owner of a future interest may transfer it, creditors may size it, and at the owner's death, it passes in probate or by will substitute. b. What distinguishes a future interest from a present interest, is that the owner of a future interest does not have a current right to possession or enjoyment of the property B. **North Carolina does not recognize RAP** -- So essentially, a perpetual trust (irrevocable) is permitted and can continue beyond the lifetimes of the grantor and the initial beneficiaries and the assets are protected from creditors and taxes