WILLS AND TRUSTS Copyright February 1999 State Bar of California. In 1990 Harry and Wanda, husband and wife, properly executed wills, each stating:

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1 Copyright February 1999 State Bar of California In 1990 Harry and Wanda, husband and wife, properly executed wills, each stating: All my property goes to my surviving spouse, and if my spouse does not survive me, then to the children of Harry by Fran, his former wife. While signing the wills in the presence of Wanda s siblings, Sis and Buddy, Harry and Wanda orally promised never to revoke the 1990 wills. At Harry s death in 1991, he was survived by Wanda and by Abby, Carl and Dan, all children of Harry and Fran. Abby died in 1992, while visiting Wanda, and was survived by Abby s three young In 1995 Wanda, having become angry with Harry s surviving children, revoked her 1990 will and signed a new will. Her new will left all her property to Sis and Buddy, as trustees of a trust for the children of Harry and Fran, to last until the death of the last surviving child of Harry and Fran. The trustees were given total discretion over distribution of any income to trust beneficiaries prior to trust termination. Wanda died in After Sis and Buddy accepted the job as trustees, Buddy let Sis handle everything. For the next three years Sis distrubuted all trust income to Abby s three young In 1998 Sis died, insolvent. Carl and Dan then sued Buddy as surviving trustee, asserting that: 1. Based on Wanda s promise never to revoke her 1990 will, the trust should be terminated, and 2. Buddy should be ordered personally to repay the total of $1 million in trust income which Sis had distributed from the trust to Abby s How should the court rule on each of these assertions? Discuss. Answer according to California law.

2 Outline Copyright February 1999 Scott F. Pearce, Esq. I. Carl and Dan will fail to terminate Wanda s trust. A. Wanda s 1995 will is valid B. Wanda s promise never to revoke the 1990 will was unenforceable. C. The testamentary trust established in Wanda s 1995 will was valid. D. Sis distributed $1 million to Abby s 1. Wanda granted total discretion to the trustees. 2. Sis s distribution of trust income to Abby s sons was proper. 3. Buddy will be liable for any breach by Sis. E. Conclusion II Carl and Dan will fail to get Buddy ordered to repay the $1 million paid by Sis to Abby s A. Buddy and Sis were co-trustees of Wanda s testamentary trust. B. Buddy and Sis owed the trust and beneficiaries duties of loyalty and care. C. Conclusion

3 Copyright February 1999 Scott F. Pearce Answer I. Carl and Dan will fail to terminate Wanda s trust. Carl and Dan are the surviving children of Harry and his first wife Fran. They have sued Buddy, trustee of the trust established by Harry s surviving second spouse, Wanda. Carl and Dan s first assertion is that Wanda s trust should be terminated. A. Wanda s 1995 will is valid. No facts are present that suggest Wanda lacked testamentary capacity in Her intent is clear: Wanda was angry with Carl and Dan, so she revoked her 1990 will and signed a new one. The facts are silent as to whether this new will was a formal, witnessed will or a holograph, but in either case the 1995 will appears to be valid. B. Wanda s oral promise never to revoke the 1990 will was unenforceable. The statute of frauds requires that testamentary dispositions be in writing. Harry and Wanda s oral promises never to revoke their wills had no legal effect, because they were not in writing. C. The testamentary trust established in Wanda s 1995 will was valid. Wanda s 1995 will left all her property to Wanda s siblings, Sis and Buddy, as trustees for a trust for the children of Harry and Fran. To be valid a trust must have a valid writing, a corpus, a valid purpose, and one or more trustees or beneficiaries. As discussed above, the writing was valid. Wanda s property is the corpus. The trustees and beneficiaries are identified, and providing for the children of Harry and Fran is a valid purpose. Wanda s testamentary trust gave the trustees total discretion over distribution of trust income to beneficiaries. This provision is valid; Wanda was angry with Carl and Dan, and Wanda had the power to set up a discretionary trust with strong trustees. D. Conclusion Wanda s 1995 will is valid. Her 1990 oral promise not to revoke her 1990 will was unenforceable. The testamentary trust Wanda established in her 1995 will is valid. Carl and Dan will fail in their efforts to terminate the trust.

4 II Carl and Dan will fail to get Buddy ordered to repay the $1 million Sis distributed to Abby s A. Buddy and Sis were co-trustees of Wanda s testamentary trust. Sis and Buddy were Wanda s siblings. They witnessed her 1990 will and were named trustees of her estate in the 1995 will. B. Buddy an Sis owed the trust and beneficiaries duties of loyalty and care. As fiduciaries, Buddy and Sis were obligated to exercise reasonable business judgment in their management of trust assets. They were obligated not to self-deal or otherwise place their personal interests ahead of those of the trust. C. Sis distributed $1 million to Abby s Sis handled everything related to the trust. During the three years she acted as sole trustee, she distributed all income from the trust to the three young sons who survived Abby, one of Harry s children by Fran. 1. Wanda granted total discretion to the trustees. As discussed above, Wanda s testamentary trust was discretionary in nature. This provision was valid, so wide latitude will be given to Sis in her distribution of trust income. 2. Sis s distribution of trust income to Abby s sons was proper. The express terms of Wanda s testamentary trust were that it was designed to benefit the children of Harry and Fran. Abby was one of these children, however, she died in three years prior to the execution of Wanda s second will. California allows for the surviving children of a deceased beneficiary of a will to take a share by right of representation. Given the total discretion given to the trustees by Wanda, and given Wanda s anger with Carl and Dan, it seems reasonable to consider Abby s three young sons eligible to receive discretionary disbursements from the trust income. This is a close call. Certainly it would be reasonable to find this distribution to be a breach of the duty of care, but that would require a narrow reading of the trust that would appear to contradict Wanda s intent to vest Sis and Buddy with total discretion. 3. Buddy will be liable for any breach by Sis. Buddy decided to let Sis do all the work as trustee. He agreed to serve as co-trustee, so he will be

5 jointly and severally liable with Sis for any breaches of trustee duties. Sis died, insolvent, in Her estate cannot repay any money to the trust. This means that Buddy would be personally liable for any judgment arising out of the conduct of Sis as trustee of Wanda s testamentary trust. D. Conclusion Sis was acting within her broad discretionary authority when she distributed trust income to the sons of Abby. Thus, Buddy will not face any liability. In the event that the court reached the opposite conclusion about Sis s conduct, and ruled that Sis breached her fiduciary duties, Buddy would be ordered to personally repay the $1 million to the trust.