Chapter 25 Wills, Intestacy, and Trusts

Transcription

1 Chapter 25 Wills, Intestacy, and Trusts McGraw-Hill 2010 The McGraw-Hill Companies, Inc. All rights reserved.

2 Will Will: Sometimes referred to as a testament, it is a person s declaration of how he or she wishes property to be distributed upon his or her death. The primary purpose of a will is to allow an individual to designate what will happen to his or her property after death. This intention of the decedent is known as testamentary intent. PO: 1; Page: 377 Chapter 25-2

3 The Language of Wills PO: 2; Pages: Testator: The person who makes the will. Probate court: The court responsible for accepting a will that meets all statutory requirements and for supervising the operation of a will. Personal representative: The person responsible for settling the affairs of the decedent. Executor: If the personal representative has been named in the will, he or she is known as the executor. Chapter 25-3

4 The Language of Wills (cont.) PO: 2; Pages: Administrator: If the executor is deceased, declines to serve, or is lacking in capacity or if the decedent dies without making a will, the court will appoint a personal representative. Intestate: When a person dies without a will, he or she is said to have died intestate. Heir: The term heir is a broad term that refers to a person who inherits property either under a will or from someone who dies intestate. Beneficiary: An individual who receives gifts of personal or real property pursuant to a will. Chapter 25-4

5 Types of Gifts under Wills Legacy: A legacy is a gift of money under a will. Bequest: A legacy A is a gift of money personal under property. a will. Bequest: The two terms are often used synonymously. A gift of personal property. Devise: A gift of real property. PO: 3; Page: 378 A legacy or bequest is specific, when it identifies the personal property given, or general, when it does not identify such property. The A legacy two terms or bequest are can often be residuary, used when synonymously. it provides for the A disposition of the balance of the estate. legacy or bequest is specific, when it identifies the Devise: personal A gift of property real property. given, or general, when it does not identify such property. A legacy or bequest can be residuary, when it provides for the disposition of the balance of the estate. Chapter 25-5

6 Requirement of a Valid Will PO: 4; Page: 378 A will must comply with legal requirements that are intended to ensure that the wishes of the testator are met and that there are no obstacles to the smooth transfer of the property. Requirement of writing Requirement of witnesses Testamentary capacity Undue influence Living wills Chapter 25-6

7 Requirement of Writing In most cases, a will must be in writing, dated, and PO: 4; Page: 378 In most cases, a will must be in writing, dated, and signed signed to be effective. to be effective. Holographic will: will: A A that will is that completely is completely handwritten. handwritten. Holographic wills have been challenged because they included some words that were not handwritten, such as the letterhead on Holographic wills have been challenged because they included some words stationery. that were not handwritten, such as the letterhead on stationery. Like other wills, a holographic will must be signed and dated. Like other wills, a holographic will must be signed and dated. Noncupative will: The term used for an oral will, valid might in only be the valid most unusual in only circumstances the most unusual (for circumstances example, where the (for testator example, was under where the the imminent testator was under the imminent danger of death). Noncupative will: The term used for an oral will; might be danger of death). A tape recording of a decedent s voice, offered as a noncupative will, would be invalid. A tape recording of a decedent s voice, offered as a noncupative will, would be invalid. Chapter 25-7

8 Requirement of Witness PO: 4; Page: 379 A formal, printed will must be signed by the testator and witnessed. There are no age requirements for witnesses, but they must be legally competent. Minors may witness a will as long as they have an adequate understanding of what they are signing and could testify regarding the facts related to the execution of the will if such becomes necessary. The number of witnesses required varies depending upon state law. It is necessary that the witnesses see the testator sign the document, because they may be called upon later to attest that they actually saw the testator sign. Chapter 25-8

9 Testamentary Capacity PO: 4; Page: 379 Testamentary Capacity: A testator must be of sound mind and legal age. There is some variation among the states as to the minimum age. It is essential that the testator be of sound mind when the will is made, even though, as often happens, mental capacity may deteriorate with the passing years. If it can be established that the testator lacked testamentary capacity, the will is void. Chapter 25-9

10 Undue Influence PO: 4; Page: 379 Undue Influence: Describes the pressure that might be applied to a testator to change his or her true wishes for the disposition of property. Undue influence can take many forms, from threats of harm to more subtle suggestions. In many cases, it is difficult for a court to decide whether the attention given to an elderly relative is undue influence or is simply loving concern shown by one of the parties named in the will. Chapter 25-10

11 Example: Undue Influence PO: 4; Page: 379 David had worked as an assistant for Suzanne for 20 years. When Suzanne turned 65 years old, David threatened to reveal her trade secrets if she failed to execute a will in his favor. When Suzanne passed away, her grown children realized they were disinherited by her will. They challenged the will with the use of evidence, and stated that because of David s undue influence, Suzanne had executed the new will. David denied this and insisted that the will was based on the relationship he had shared with Suzanne, but this is a case of undue influence because Suzanne wrote the will in David s favor due to his threat. Chapter 25-11

12 Living Wills PO: 4; Page: 380 Many are opposed to their and their loved ones lives being prolonged by artificial life support. In response to these concerns, a number of states have enacted legislation allowing an individual to execute a living will. Living will: A document in which a person directs his or her physician and/or health proxy to forgo certain extraordinary medical procedures if the person is dying or permanently unconscious. The purpose of a valid living will is to permit a terminally ill patient to live or die with dignity and to protect the physician or hospital from liability for sustaining or withdrawing life support. Chapter 25-12

13 Revising and Revoking Wills Revisions Revisions: Any alterations to a will, such as erasures, words crossed out, or handwritten insertions, usually invalidate the document. To make legal changes in a will, a separate document, called a codicil, is prepared to revoke, alter, or revise the will. The execution of a codicil has formal requirements and is very much like writing a new will. It must be witnessed and dated. PO: 5; Page: 380 There is no limit on the number of codicils that can be made. Chapter 25-13

14 Revising and Revoking Wills (cont.) PO: 5; Page: 380 Revocations Many wills include a statement that the testator is revoking all previous wills. Even without such a statement, the most recent will, if valid, automatically revokes all prior wills made by the testator. Revocations by operation of law, all of which can change the disposition of gifts, can include those that result from: Marriage or remarriage of the testator. Divorce or annulment of a marriage. Birth or adoption of children after the will was made. Chapter 25-14

15 Intestacy When a person dies without a will, or had a will that failed to meet the requirements of the law, he or she is said to have died intestate. In such a case, the law of the state in which the deceased person was domiciled (where he or she lived) governs the disposition of his or her property, even though the death may have occurred elsewhere. Laws vary by state. PO: 6; Page: 381 Generally, a surviving spouse and children receive the entire estate. Chapter 25-15

16 Specific Example: Performance Example Intestacy PO: 6; Page: 381 Add Mathew Special died Performance intestate, leaving leaving behind content behind a spouse here his. wife. and. two children. and two His children. real property His real valued property worth was $50,000 valued and at personal $500,000, property and his valued personal worth property $ Mathew s was valued siblings argued that they wanted half of the property of at $250,000. Mathew s siblings argued that they Mathew s. Mathew s spouse and two children refused the were same. entitled Mathew s to half siblings of the are property; wrong in however, claiming share Mathew s in the spouse property and because two children as per the refused intestacy to law part if a with person any dies share intestate of the that property. is without Mathew s writing a siblings will then the are entire wrong property in claiming belongs a share, to the spouse since the and intestacy the children law states of the that deceased. when a person dies intestate (without writing a will), then the entire property belongs to the spouse and the children of the deceased. Chapter 25-16

17 Trusts PO: 7; Pages: Trust: A device or mechanism that permits personal or real property to be held by one party, the trustee, for the benefit of another, the beneficiary. Some trusts have characteristics of a will. One of the benefits of a trust is that it allows the legal title of property to be separated from the benefits of ownership. In addition, the creation of the trust under these circumstances could result in favorable tax treatment for the parents. Chapter 25-17

18 Types of Trusts PO: 7; Page: 382 Testamentary Trust This type of a trust is created by a will. It only becomes effective upon the death of the testator. The names of the parties beneficiaries and trustee are specified in the will. Living Trust This trust is established while the person (the settlor) who wishes to set up the trust is still alive (also known as an inter vivos trust). The settlor transfers the legal title of the property to the trust to be held for the benefit of either a beneficiary or the settlor himself or herself, possibly providing tax advantages to the settlor. Chapter 25-18

19 Role of the Trustee PO: 7; Pages: The responsibility of the trustee is that of a fiduciary and is one of great responsibility. He or she must manage the property according to the wishes of the settlor, who may be deceased. Appointment as a trustee should not be accepted unless one has the temperament, knowledge, and skills necessary to minimize the risks inherent in the position of trustee. Typically, banks, trust companies, attorneys, and other fiduciary organizations offer professional skills in the administration of trusts. Like all other fiduciaries, a trustee has a duty of loyalty and a duty of care. Chapter 25-19

20 Role of the Trustee (cont.) PO: 7; Pages: Trustee s powers: Powers usually granted by law include the authority and responsibility to: Invest trust property. Sell, exchange, or rent property. Contract with others in matters relating to the trust. Borrow funds using trust property as security. Distribute income to beneficiaries. Chapter 25-20

21 Role of the Trustee (cont.) PO: 7; Pages: Trustee s duties: The trustee has the duty to maintain appropriate records and to: Provide a full accounting of the trust property. Pay taxes. Use good judgment in managing the property, including making good investment decisions. The trustee may purchase securities that are of very low risk and that appear on a document referred to as a legal list. Trustee s accountability: A trustee whose performance of duty in managing the trust property is called into question can be held liable unless a court rules that the trustee exercised sound judgment. Chapter 25-21