GOLDEN GATE UNIVERSITY LAW SCHOOL
FINAL EXAMINATION
COURSE: WILLS AND TRUSTS
INSTRUCTOR: Adjunct Professor Jack F. Bonanno
DATE: July 24, 2002
TIME: Three Hours
This is a closed book examination. Answer all questions according to California law. All questions are
weighted equally. Spend one hour of time on each question. Read the call of the question carefully before
you start writing your answer. Also, if the question states that a particular instrument is valid or is validly
filed or executed, do not spend any time writing on the issue of such validity. Do not preface your answer
with a long restatement of the facts in the question or with a long statement of all the rules of law that
could apply in the question. Start addressing specific issues from the outset of your answer, and organize
your answer before you start writing. Remember to write your examination number, and not your name,
on your examination paper.
Question 1:
On May 28, 1998, Curtis Mayfield, a widower, validly executed a will whose sole dispositive
provisions were as follows:
"1. I devise my entire estate in trust to my longtime friend and confidante, Marion Turner, to
be allocated to four separate trusts to be held, administered, and distributed by Marion Turner as
Trustee as hereinafter provided:
"A. 25% of my estate shall be held in trust to make distributions for the care and
support of the minor children of any person who may be convicted and incarcerated for engaging in
terrorist activities in the United States;
"B. 25% of my estate shall be held in trust to make distributions to any of my many
friends as my Trustee may determine may be or become impoverished and in need of financial
assistance to avoid becoming homeless or a charge on the community;
"C. 25% of my estate shall be held in trust to make contributions to the various
programs of the Sunshine City Chapter of the Volunteers of America that provide exclusively for needy
persons in Sunshine City.
"D. 25% of my estate shall be held in trust to invest the principal and accumulate the
income until the death of my Sister, Bonnie Mayfield, when the principal and accumulated income of the
trust shall be distributed in equal shares to those of her children, if any, who are alive at her death."
"2. Except as hereinbefore set forth, I have deliberately made no provision for any other
person, regardless of whether or not such a person would be an heir of mine."
On January 24, 2001, Curtis Mayfield, in a proceeding in Court which had jurisdiction over him,
was validly adjudicated to be the father of Sally Mayfield, a minor who was born out of wedlock on April
7, 2000, and he was ordered to pay $1,000 per month for the support of the child during the child's
minority. At all times he denied that he was the father of the child.
Curtis Mayfield died suddenly on March 15, 2002, and was survived by the following persons:
Marion Turner; Sally Mayfield; his Sister, Bonnie Mayfield, who has no children; Donna Little, who is
Curtis Mayfield's only child of his marriage to his predeceased wife; and many persons whom Marion
Turner has identified as Curtis Mayfield's friends.
After Curtis Mayfield executed his will, but prior to his death, the Sunshine City Chapter of the
Volunteers of America moved to the neighboring community of Surf City and now has only programs to
provide assistance only to needy persons in Surf City.
Assuming an estate of $1,000,000 will remain after payment of taxes and administration
expenses, who will be entitled to receive what from Curtis Mayfield's estate and/or from the trusts
created under his will?
Question 2:
On September 1, 1999, T, as Settlor, and X, as Trustee, validly executed a Trust Agreement
which reserved to T the power to amend or to revoke the Trust and provided that until T's death,
distributions would be made solely to, or for the benefit of, T. It further provided that upon T's death,
the Trust would become irrevocable, and the Trustee was to hold and distribute the income and
principal of the Trust for the benefit of T's brother, B. The Trust Agreement also contained the following
language: "T recognizes that X has no prior experience in administering Trusts and is agreeing to act
as the Trustee of this Trust as a favor to T. For that reason X shall not be liable to any beneficiary for
any act or omission of X as Trustee, so long as X, at the time of such act or omission, honestly believed
that X was doing the right thing." On that same September 1, 1999, date, T deposited $200,000.00 in
funds in a securities account which X opened in X's name as the Trustee of T's Trust.
On October 15, 1999, X, without making any inquiry or investigation or reviewing any financial
statements, but with the knowledge and consent of T, invested $100,000.00 of the Trust funds in
10,000 shares, at $10.00 a share, of a very speculative stock of a corporation known as End Run
Corporation and invested the other $100,000.00 of the funds in 1,000 shares, at $100.00 per share, of
the equally speculative stock of a corporation known as Double Crossing Corporation. On December
28, 1999, T suffered a massive stroke and became mentally incompetent. On January 24, 2000, X sold
5,000 of the shares of End Run Corporation, at $20.00 a share, for $100,000.00, thereby making a
profit of $50,000.00 for the Trust on those shares. On February 27, 2000, X borrowed from the Trust
the entire $100,000 proceeds of sale of the End Run Corporation stock and promised to pay 15%
interest per year, which was far above then prevailing loan interest rates. X used the loan amount to
purchase a parcel of vacant real property, known as Locationacre, for $100,000.00 and took title in X's
name as an individual.
Thereafter, despite frequent warnings from X's stockbroker and other financial advisers, X
persisted in retaining the Trust's remaining holdings of End Run Corporation and Double Crossing
Corporation stock until both of those corporations collapsed financially and filed for bankruptcy in
October 2001. On December 8, 2001, X sold the remaining 5,000 shares of End Run Corporation at
$1.00 a share for a total of $5,000.00, with a loss to the Trust of $45,000.00 from the original
$50,000.00 paid for the shares. On that same date X also sold the 1,000 shares of the stock of Double
Crossing Corporation at $1.00 a share for a total of $1,000.00, with a loss to the Trust of $99,000.00
from the original $100,000.00 paid for those shares. T died on February 1, 2002. Because the Trust
had no funds to distribute after X borrowed the $100,000.00, T's estate has debts of $80,000.00 for T's
unpaid medical and home care bills.
On February 27, 2002, X sold Locationacre for $300,000.00 and, out of the proceeds of sale,
deposited $130,000.00, consisting of the original loan amount of $100,000.00 plus 15% annual interest
on that amount for two years, in the Trust's bank account. X otherwise retained the remaining
$170,000.00 profit on that sale for X's own personal account. T's probate estate consists only of T's
home, which is worth $325,000.00 and is subject to a $200,000.00 mortgage. A valid claim of
$80,000.00 for T's unpaid medical and home care bills has been filed with the executor of T's valid will,
which leaves T's entire probate estate to T's sister, S.
Assuming that all evidence clearly shows that because of lack of knowledge as to fiduciary
matters, X honestly believed that X had "always done the right thing" as far as the Trust was
concerned, determine what liabilities X may have to T's estate or to B.
Question 3:
On November 2, 1999, Adam Smith validly executed a will which provided in pertinent part as follows;
"I direct my executor to pay all my debts as soon as practicable.
"I give, bequeath, and devise my estate as follows:
"A. My apartment building at 23 Utopian Way in Sunny, California, to Thomas Malthus.
"B. 10 gold Kruggerand coins to David Ricardo.
"C. All my government bonds to John Keynes.
"D. All securities and funds in my Merrill Lynch securities account to John Mill.
"E. My Jaguar automobile to Henry Ford.
"F. The rest and residue of my estate to the United States Government to help pay off the national
debt."
At the time Adam Smith executed the will, he had already sold his apartment building at 23 Utopian Way to
Thomas More and had used the proceeds to purchase another apartment building at 2370 Dismal Drive in Foggy Coast,
California. The Dismal Drive property was the only apartment building that he ever owned from the time he signed the will
until his death. However, the lawyer who drafted the will had erroneously inserted the Utopian Way address, and Adam
Smith had failed to notice the mistake when he signed the will. Also, at the time Adam Smith executed the will he had in his
name a Merrill Lynch securities account which held 1,000 shares of General Motors common stock. In addition, at that
time he also owned the following: a. A $100,000.00 face value U.S. Government bond which was registered in his name
and held outside of his Merrill Lynch securities account; b. 10 gold Kruggerand coins; c. A 1999 Jaguar automobile; and d.
A $75,000 face value Bank of America certificate of deposit.
On May 17, 2000, Adam Smith closed his securities account at Merrill Lynch and transferred his securities
holdings in that Merrill Lynch account to a new securities account in his name with Morgan Stanley Dean Witter Company.
In addition, he also deposited the $100,000 U.S. Government bond in his new securities account, and that bond was reregistered in the name of Morgan Stanley Dean Witter Company as Adam Smith's nominee.
On August 1, 2001, Adam Smith died in an automobile accident in which his Jaguar automobile was totally
demolished. His automobile insurer paid cash in the amount of $30,000, which was the fair market value of the Jaguar, to
the executor of Adam Smith's will.
All taxes and expenses of administration of Adam Smith's estate have been paid from appropriate sources, and
the following assets now remain in his estate for final distribution: (1) His apartment building at 2370 Dismal Drive; (2) A
separate apartment bank account which the executor set up to receive all the post death apartment rents and to pay all the
expenses of the building. It currently has a balance of $20,000; (3) The Morgan Stanley Dean Witter securities account
holding the General Motors stock, the U.S. Government bond, $3,000 in General Motors cash dividends declared and
received since Adam Smith's death, and $5,000 in U.S. Government bond interest accrued and received since Adam
Smith's death; (4) 5 gold Kruggerand coins, which are each worth $300.00; and (5) $50,000 in cash in the general bank
account of the estate. The apartment building has a mortgage against it to secure the balance of $100,000 owed by Adam
Smith on the loan he received to enable him to buy the apartment building.
How should these remaining assets of the estate be distributed?