1. Finance 553
Estate
Documents

2. Estate Documents Estate Documents
Three Minimum Documents for All Clients
Will (Last Will and Testament)
Handles Distribution of Assets at Death
Power Of Attorney
Handles Financial Issues Prior to Death
Health Directives
Handles Health Wishes when Incapacitated

3. Estate Documents Learning Objectives -- Wills
Describe a Will and its essential parts
Define: testate and intestate
Explain advantages and disadvantages of a will
Identify the three types of wills
Distinguish between per capita and per stirpes
Explain side letters and their uses
Identify issues affecting wills
Why is a Will considered a basic (essential) document for estate planning?

4. Estate Documents Definition of Will and Essential Parts
A will gives the testator (originator of the will) the legal means to control the distribution of his or her assets after death
To Die with a valid Will is to die “testate”
To Die without a valid Will is to die “intestate”
The laws of the state are used to distribute the assets of the deceased
The laws are different in different states
The laws may distribute the assets in a way that is contrary to the wishes of the deceased
To Die with a valid Will that does not cover all the assets of the deceased is to die in “partial intestate”
Named assets are distributed according to the Will
Unnamed assets are distributed according to the laws of the state

5. Estate Documents Definition of Will and Essential Parts
Introductory Clause
Identifies the testator and state of domicile
Identifies the next of kin
Example of opening statement
“I, Thomas Parry Monroe, living at 1010 South Union Street, Houston, Texas do hereby declare this my last will and testament.“
Will also typically include
Revocation of all previous wills
Name of spouse (current)
Name of children from marriage
May include previous marriages, adopted children, etc.

6. Estate Documents Definition of Will and Essential Parts Example
Bequest Clause
Identifies specific assets and or amounts to be distributed to a specific individual
Example
“ I leave my 1972 Datsun 240 to my oldest son Patrick.”
Residual Clause
Transfers unnamed assets to specific individuals
Failure to have a residual clause may leave the deceased in “partial intestate” on the unnamed assets.
“I leave all remaining property owned by me and not previously mentioned in this will to my residuary estate. I leave my residuary state in the following manner, 50% to my wife and 25% each to my two children.”

7. Estate Documents Definition of Will and Essential Parts
Appointment of Executor (Executrix) Clause
Names executor and succession of executors if first named executor refuses or is incapable of performing duties of the executor
States the powers granted to the executor in fulfilling the instructions of the will
May wave the surety bond for the executor
May provide specific compensation for the executor (executor may elect to forego compensation that is a taxable distribution to the executor)
Guardianship Clause
Identifies individual(s) to raise minor children (and typically will have provisions for the cost of raising the minors)
Can also name successor for guardianship if original refuses or is not capable of fulfilling the duties of the guardian
Absent this clause, the court will appoint the guardian for surviving minors

8. Estate Documents Definition of Will and Essential Parts
Tax Appointment Clause
If specific assets are to be used for paying estate and gift taxes
Can reduce the overall taxes against the estate and increase total distribution of assets to heirs, legatees, and devisees
Attestation Clause
Statement at the end of the will attesting to the document as the will of the testator
Usually signed by two or three qualified witnesses
Can be notarized
Legatees typically should not be witnesses as it may jeopardize the validity of the will
Example
“On this day of January 7, 2016, the testator declares this as his last will and testament and signed in our joint presence and by us in his presence.”

9. Estate Documents Definition of Will and Essential Parts
Self Proving Clause
If notarized, the statement of the notary
Example
“In witness whereof, I have hereto subscribed my name and affixed my seal on this 7th day of January 2016 in the presence of the subscribing witnesses.”
Other Clauses
Simultaneous Death Clause
Survivorship Clause
Disclaimer Clause
Contingent Legatee Clause
No Contest Clause

10. Estate Documents The Contingent Legatee Clause
When a non blood line recipient of the will precedes the testator in death and the will has not been revised this clause provides a process for the disposal of the property originally assigned to the legatee
Typically the clause lets the heirs of the legatee receive the assets
By per capita means all receive an equal amount and impacts the amount to a surviving legatee
By per stirpes means the asset is divided by the original legatee(s) and heirs of the non surviving legatee get only that portion originally to that legatee
SEE FIGURES ON PAGES 34 and 35
May stipulate living heirs of legatee or other distribution when legatee precedes testator in death

11. Estate Documents Legal Capacity to Execute a Will Sound Mind Test
Age Requirement: Testator has reached age of majority in domiciled state or is an emancipated minor
Mental Capacity: Has understanding concerning
The consequences of the Will
The nature and extent of the property being disposed of in the Will
The natural objections of individuals that would seem to have a claim to the property of the testator
Sound Mind Test
Standard that the testator meets the above mental capacity requirement
Not as strict as contract requirements
Recipients of Property fall into three classes
Heir (blood line) – Relative that receives property under a will
Legatee – One who receives property under a will
Devisee – One who receives real property under a will

12. Estate Documents Types of Wills Statutory Holographic Wills
Drafted by an attorney
Complies with the statutory laws of the state of domicile
Generally must be witnessed
Filed as a public document with the county clerk
Holographic Wills
Handwritten by testator (or agent of testator)
Must be signed by testator but not always required to be witnessed
Noncupative
Verbal Will – Oral dying declaration
Must be made in front of witnesses that must sign affidavits
Usually limited in types of property and not always valid in all states

13. Estate Documents Revoking or Changing Will
To Revoke a Will the testator can
Destroy the Will (difficult if filed with county clerk)
Create a new Will with a clause revoking all previous wills
Changing Will – Events after initial draft of Will may change the desires of the testator
Life events – Births, Death, Marriages, Divorce
Material change in Assets and Property – acquire or dispose of assets
Codicil – Legal Document that changes provisions of a Will
Amendment or Supplement to the Will
Must meet standards for creating a will (statutory or holographic)
Is attached to the Will and becomes part of the Will
Can add, delete, or alter the heirs, legatees or devisees of the will

14. Estate Documents Side Instruction Letter(s) of a Will
Provides additional information or instructions of the deceased for
Burial Rights and Funeral – Burial must be completed before probate so this provides instructions outside the Will so burial can take place prior to probate and the authentication of the Will
Decease’s wishes on distribution of specific household goods – generally avoids cluttering of the will and is instructions to executor for completing the distribution of household goods
Can provide information to the executor – information on safe deposit boxes, location of other important papers or assets, account numbers for assets, outstanding debt contracts, insurance contracts, or other items that will help executor complete the probate process
The letter has no legal standing – but is an aide to executor

15. Estate Documents Statues Affecting Wills
Forced Heirship – States can mandate that children are entitled to a minimum of assets for their
Well Being
Health and Safety
Avoids children becoming wards of the state when the testator has sufficient assets to care for children
Marital Share – Like forced heirship for spouse
Felonious Homicide Statues
Heirs, legatees, or devisees that have been convicted of killing the deceased cannot inherit through the will of the deceased
Divorcee Statues – removed from will unless specifically named
Anti-Lapse Statues – Children of deceased heir receive assets

16. Estate Documents Avoiding Will Contests
Even though a Will meets all the requirements to be a Valid Will individuals may contest the will
Heirs that are not named in Will can make claims against the estate
Substantial fortunes left to nontraditional individuals or groups
Caregivers – Undue Influence on the testator in state of weakness
Churches – Undue influence on the testator in state of weakness
Pets – Unreasonable amounts for surviving pets
Court must “entertain” what appears to be legitimate claims
Testator can name potential heirs in will and
Provide a specific amount if and only if they do not contest will
Provide specific disclaimer of an heir
Pre-validate will prior to death

17. Estate Documents So, What are the benefits and limitations of a Will
Wishes of Deceased can be carried out
Can appoint desired Executor
Can designate choice for Guardianship of minor children
Can disinherit specific heirs
Can provide provisions that minimize estate and gift taxes
Can designate specific charities and assets (to minimize taxes)
Other issues of importance can be annotated
LIMITS
Assets that pass outside of probate cannot be changed (insurance, retirement accounts, etc.)
Could cause delay in probate if poorly written, contested, etc.

18. Estate Documents
Learning Objectives of Powers of Attorney and Powers of Appointment
Distinguish the difference between a Power of Attorney and Power of Appointment
Describe the basic intent of a Power of Attorney
Describe the basic intent of a Power of Appointment
Distinguish between durable powers and springing powers
Power of Attorney
The ability of an individual to select an agent to act in the interest of the principal
Typically a trusted individual is granted the power to make decisions that the principal would chose to make on his own
Power ends at the death of the principal

19. Estate Documents What Does the Agent in a Power of Attorney Do?
In general it allows the agent to maintain the estate of the principal
Pay bills of the principal
Maintain property of the principal
A General Power of Attorney gives wide discretion over all decisions that the principal would normally make for himself or herself
Some states limit the Power of Attorney such that the Agent
Cannot make gifts for the principal
Cannot self-deal, that is use the assets of the principal for his or her personal gain
Pay agent’s debts
Transfer assets to agent’s estate
Transfer assets to agent’s creditors

20. Estate Documents What Does an Agent in a Power of Appointment Do?
In general the agent has the power to direct assets of the principal
Transfer assets to self
Transfer assets to others
May extend past death of principal
General versus Limited
Both Power of Attorney and Power of Appointment may be general or limited
Limited means that the scope of decision making or time frame may be specifically stated and the power expires outside of the time frame
Durable versus Springing
Durable Powers of Attorney stay in effect even if principal becomes incapacitated
Springing only begins once a specific named event happens

21. Estate Documents Advantages and Disadvantages of a Power of Attorney
Enables trusted individual to maintain the estate of a principal in absence
Enables trusted individual to maintain the estate of a principal who has become incapacitated
Disadvantages
If agent acts in own self interest the estate of the principal may be diminished
If agent is also holding a Power of Appointment over the assets of the principal and the agent precedes the principal in death
The assets of the principal are included in the estate of the agent
This may cause gifting issues and taxes

22. Estate Documents Health Care Directives
Three basic types of Health Care Directives
Durable Power of Attorney for Health Care
Living Wills and Advanced Medical Directives
Do Not Resuscitate Orders
Typically a Springing Power of Attorney – Event is incapacitation of principal
Allows third party to make decisions on health care for principal
Disclosure of medical records
Blood transfusions
Resuscitation (Cardiac)
Organ transplants
But not generally to removing life sustaining support - separate

23. Estate Documents Living Wills and Advanced Medical Directives
Advanced directive on life-sustaining measures allowed by principal
Resuscitation of heart
Assisted breathing (ventilation via mechanical means)
Feeding tubes
Kidney Dialysis
Can specify circumstances when these wishes are applied
Can specify individual to make these decisions when principal is incapacitated
States suspend these directives if principal is pregnant
Avoids court appointments or lawsuits (Terry Shiavo Case – 2005)
Do Not Resuscitate Orders
Typically prepared when an individual is near death
Only apply to CPR and not other medical issues

24. Estate Documents Other Estate Documents Documents for owned businesses
LLC – Limited Liability Corporations and the passing of ownership
Proprietorships – passing of ownership
Documents for Insurance
Property Insurance contracts
Life Insurance contracts
Documents for Pensions
Company pensions
IRAs
Etc.

25. Estate Documents What are the implications for Financial Planning?
Estate Planning is an essential part of the financial plan and poor estate documents can hurt clients
Clients need to have thorough evaluation of estate documents and see that it matches their wishes
Legal documents provide insurance against decisions that are in conflict with desires of client
Legal documents can prevent a extended probate process that delays the distribution of assets to heirs
Legal documents can appoint the appropriate individuals to serve as agents, executors, guardians, and health care directors
Other issues?