July 2000 NY Bar Exam
Questions & Sample Answers

Question Two

I just had a meeting with Tess and Rob. Tess is the surviving spouse of Sam, who died last week. Sam and Tess had three sons. Rob is their only surviving son, and he has a son, Tot. Another son, Sol, predeceased Sam, survived by one child, Joe. Jim, the oldest child, also predeceased Sam, and is survived by two children, Jack and Jill.

Tess gave me an original will, duly executed by Sam two years ago, before Sol and Jim died, and a life insurance policy on Sam's life for $50,000, owned by Sam, and payable to Tess as beneficiary. Sam's will contains the following dispositive provisions:

First: I give my wife, Tess, $75,000, and the $50,000 I have maintained in an account at Big Bank in the name "Sam, in trust for Rob". This, together with the life insurance policy for $50,000, payable to Tess as beneficiary, should be sufficient for Tess.

Second: I give the rest of my estate to my issue.

At his death, Sam had a net distributable estate of $900,000, including the account at Big Bank, plus the life insurance policy payable to Tess. Tess has expressed disappointment at the extent of her inheritance, and she wants to know if she has any legal remedies. Rob shares his mother's disappointment, and he is willing to renounce his inheritance if that will benefit her.

Prepare a memorandum for me which identifies the issues, resolves them, and advises me how Sam's assets should be distributed.

ANSWER TO QUESTION TWO

Identification of Issues:

1. The totten trust and its revocability

2. Tess' option under the elective share statute

3. The distribution to Sam's issue

4. The consequences of a renunciation by Rob

1. The Totten Trust

The account in Big Bank is validly revoked by Sam's will and would go to Tess under the will. The issue is whether a totten trust is revocable by will, and whether the identification is sufficient. When an account is made "in trust for" someone, it is a totten trust and will generally be excluded from probate and go directly to the beneficiary. However, totten trusts are revocable by will if properly identified therein. The identification requirements are quite strict, and the account must then be specifically identified.

In the present case, the account was a valid totten trust, but by identifying the account at Big Bank in the name "Sam, in trust for Rob", Sam validly revoked the totten trust by properly identifying the account. The totten trust would thus go to Tess under the will.

2. Tess' option under the elective share statute

Tess would be able to receive $300,000 plus the life insurance by the elective share statute. The issue is how much Tess would be entitled to under her elective share.

A surviving spouse is always entitled to take $50,000, or 1/3 of the elective share estate, whatever is greater, no matter what the decedent spouse intended. The elective share estate is the probate estate plus any testamentary substitute, which includes totten trust but not life insurances. When 1/3 of this amount is found, all bequests (excluding life insurance) is subtracted and the spouse is entitled to this amount on top of the bequests to her. The other grantees of the estate must contribute proportionately.

In this case, the elective share estate would equal $900,000, since the totten trust (no matter if it was validly revoked) would have been included. One third hereof is $300,000. What Tess gets through the will ($125,000) should be subtracted from $300,000. As a result, Tess is entitled to $175,000 extra contributed by Sam's issue proportionately. The life insurance is neither included in the elective share estate as testamentary supplement nor subtracted in calculating Tess' entitlement. Tess is thus entitled to a total of $350,000; $125,000 by will, $175,000 by elective share and $50,000 by the life insurance. It should be noted that the reason the life insurance goes to Tess is that a life insurance policy cannot be changed by will.

3. Distribution to Sam's issue

Rob gets $200,000, and Joe, Jack and Jill will each get $133,000. The issue is how distribution of the residue to Sam's issue is done.

A general legacy to "my issue" is distributed to decedent's descendants as a matter of representation just as if it went by intestate. The amount is first distributed to decedent's children equally. In this case, the residuary equals $600,000 after Tess has taken her elective share of $300,000 plus the life insurance. Divided among children alive or leaving living descendants this gives $200,000 to each. Thus, Rob takes $200,000. The $200,000 reserved for Sol and Jim are however "gathered" and distributed equally among Sol's and Jim's living children. Thus, Joe, Jack and Jill each takes $133,333. Rob gets $200,000 and Joe, Jack and Jill each get $133,333.

4. The consequence of Rob's renunciation

Rob could validly renounce his bequest, but it would go to Tot and not benefit Tess. The issue is what the consequences of a renunciation by Rob would be.

Anybody entitled under a will can renounce their entitlement by writing and signed within nine months for testator's death. In such case, the renouncing person is treated as a predeceasing testator. For bequests, the anti-lapse statute would result in a distribution to the renouncing party's descendants if he is a sibling or descendant of testator. If Rob renounced his entitlement, the $200,000 would thus go to Tot and it would not help his efforts to benefit Tess, since Rob is a descendant of Sam and has living descendants qualifying under the anti-lapse statute (Tot).

Rob should not renounce his entitlement, but rather take his $200,000 and support Tess by gift or otherwise.

ANSWER TO QUESTION TWO

1. Totten Trust

Sam's bequest to Tess of the totten trust of $50,000 is valid. The issue is whether a testator may change the beneficiary of a totten trust in his will.

Under the EPTL, a testator may change the beneficiary of a totten trust in his will if he identifies the specific account and bank in his will and names the new beneficiary.

Here, Sam's bequest of the totten trust is valid and Tess can take because Sam named the bank "Big Bank", and because Sam specified the account, the totten trust in which Rob was the named beneficiary. Tess can therefore take the $50,000.

2. Tess' Elective Share

Tess can elect for her elective share under Sam's will and will take $300,000 plus the $50,000 life insurance policy. The issue is how much of a decedent's estate a surviving spouse is entitled to under the elective share statute.

The EPTL provides that a surviving spouse is entitled to $50,000 or 1/3 of the decedent spouse's estate; whichever amount is greater. The net elective amount of the estate includes the net probate assets plus certain testamentary substitutes. These testamentary substitutes include totten trusts, revocable lifetime gifts, general presently exercisable powers of appointment, monies from joint accounts, deferred compensation amounts, and gifts made within one year of death. Life insurance proceeds are not included as a testamentary substitute.

Once the net elective share is calculated, the electing spouse must subtract any amounts given to her under the will and any testamentary substitutes she will receive. This final amount is what the spouse will take under her elective share, and all other takers under the will contribute proportionately from their bequests to satisfy this amount.

Here, the net elective share is $900,000, which includes the totten trust bequeathed to Tess because such account is a testamentary substitute. Tess is entitled to 1/3 of this amount, $300,000, minus the assets Sam gave to her outright in the will. The amount to be subtracted is $125,000 because it is the sum of the outright gift of $75,000 and the totten trust gift of $50,000. The life insurance proceeds are not subtracted because they are not a testamentary substitute.

Tess' elective share is $175,000, which she will take pro rata from the other beneficiaries, plus the $75,000 gift, the $50,000 totten trust and the $50,000 life insurance policy. Tess will take $300,000 from the estate, and $50,000 from life insurance for a total of $350,000.

3. Distribution of Sam's Estate

The remaining $600,000 will be distributed to Sam's issue according to the law of intestacy. The issue is how a residual amount is distributed to the testator's issue.

A residual bequest, under the EPTL, to the testator's issue is distributed by the laws of intestacy. Any issue who have predeceased the testator will not take, but if they died leaving issue, such issue will take by representation. The total assets in residual are distributed as follows. At the first generational level, each surviving issue or deceased issue who died leaving issue take one share. The surviving issue takes this share outright. The shares of deceased issue are added together and distributed at the second generational level, where the issue take by representation.

Here, there is $600,000 in residual assets after Tess takes. At the first generational level, there are three shares because Rob is alive, Sol died leaving issue and Jim died leaving issue. Rob takes $200,000 outright, and Sol's and Jim's shares are combined and distributed at the second generational level to their issue; Joe, Jack and Jill. Joe, Jack and Jill each take $133,333 by representation which is Sol's and Jim's shares divided by three.

4. If Rob Renounces His Gift

Rob should not renounce his gift to benefit his mother. The issue is whether a child, taking by intestacy, can renounce his gift as to increase the amount his mother will take.

As explained above, Tess can take under the elective share and receive $300,000. The remaining $600,000 is distributed by intestacy. Under the EPTL, a beneficiary may renounce a bequeath to him by notifying the surrogate and signing an affidavit stating he received no consideration in exchange for his renouncement. By renouncing, the beneficiary is treated as though he predeceased the testator. By the laws of intestacy, the next generation would take the renouncer's share by representation.

Here, if Rob renounces his gift, he will be treated as though he predeceased Sam. Rob's son, Tot, will then take by representation and Jill, Joe, Jack and Tot would divide the $600,000, each receiving $150,000.

5. Estate Tax

It should be noted there are no federal estate tax issues, as Sam's net probate estate minus what Tess will take ($900,000 - $300,000 = $600,000) is less than the federal estate credit of $675,000.