Will 27-2 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. Learning Outcome 27-1: Identify the purpose of a will. Page: 450

The Language of Wills Testator: The person who makes the will. 27-3 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. Learning Outcome 27-2: Recognize the language used to describe the various people, and the court, involved with a will. Page: 450

The Language of Wills (cont.) 27-4 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. Learning Outcome 27-2: Recognize the language used to describe the various people, and the court, involved with a will. Page: 450

Types of Gifts under Wills 27-5 Legacy: A legacy is a gift of money under a will. Bequest: A gift of personal property. The two terms are often used synonymously. A legacy or bequest is specific, when it identifies the personal 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. Ademption: When a specific bequest of personal property is made, but the personal property is disposed of before the death of the testator. Devise: A gift of real property. Learning Outcome 27-3: Describe the types of gifts covered by a will. Page: 450

Requirement of a Valid Will 27-6 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 Learning Outcome 27-4: Identify the requirements for a valid will. Page: 451

Requirement of Writing 27-7 In most cases, a will must be in writing, dated, and signed to be effective. Holographic will: A will that is completely handwritten. Holographic wills have been challenged because they included some words that were not handwritten, such as the letterhead on stationery. Like other wills, a holographic will must be signed and dated. Nuncupative will: The term used for an oral will; might be valid in only the most unusual circumstances (for example, where the testator was under the imminent danger of death). A tape recording of a decedent’s voice, offered as a nuncupative will, would be invalid. Learning Outcome 27-4: Identify the requirements for a valid will. Page: 451

Requirement of Witness 27-8 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. The witnesses must see the testator sign the document, because they may be called upon later to attest that they actually saw the testator sign. Learning Outcome 27-4: Identify the requirements for a valid will. Page: 451

Testamentary Capacity 27-9 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. Learning Outcome 27-4: Identify the requirements for a valid will. Page: 452

Testamentary Capacity (cont.) 27-10 From a legal perspective, a testator is considered of sound mind if he or she: Is adequately rational to understand the act of making a will, Realizes the nature and disposition of his or her property, and Recognizes his or her heirs. A person who suffers from mental illness can still be considered of testamentary capacity if he or she makes a will during a lucid period. Learning Outcome 27-4: Identify the requirements for a valid will. Page: 452

Undue Influence 27-11 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. Learning Outcome 27-4: Identify the requirements for a valid will. Page: 452

Example: Undue Influence 27-12 Facts: David was employed as Suzanne’s assistant 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 argued that David exerted undue influence on Suzanne to induce her to execute a new will. David denied this claim and insisted that the will was based on the relationship he had shared with Suzanne. This is a case of undue influence because Suzanne wrote the will in David’s favor due to his threat. Learning Outcome 27-4: Identify the requirements for a valid will. Page: 452

Revising and Revoking Wills 27-13 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. There is no limit on the number of codicils that can be made. Learning Outcome 27-5: Explain how a will is revised or revoked. Page: 453

Revising and Revoking Wills (cont.) 27-14 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. Learning Outcome 27-5: Explain how a will is revised or revoked. Page: 453

Intestacy 27-15 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. Generally, a surviving spouse and children receive the entire estate. Learning Outcome 27-6: Explain the way the court distributes the estate of someone who dies intestate. Page: 453

Example: Intestacy Facts: 27-16 Facts: Mathew died intestate, leaving behind his wife and two children. His real property was valued at $500,000, and his personal property was valued at $250,000. Mathew’s siblings argued that they were entitled to half of the property; however, Mathew’s spouse and two children refused to part with any share of the property. Mathew’s siblings are wrong in claiming a share, since state laws on intestacy generally provide that when a person dies intestate (without writing a will), the entire property belongs to the spouse and children of the deceased. Learning Outcome 27-6: Explain the way the court distributes the estate of someone who dies intestate. Page: 454

Advanced Health Care Directives 27-17 An advanced directive is a device that documents an individual’s expressed wishes regarding his or her health care in the event that the individual is incapacitated without hope of recovery. The two most commonly used advanced directives are: The living will, and The durable power of attorney for health care. Learning Outcome 27-7: Discuss advanced health care directives. Page: 454

Living Wills 27-18 A living will is a document in which a person directs his or her physician and/or health proxy to forgo certain heroic medical procedures in especially dire circumstances. Example: A patient executes a living will prior to his car accident, which renders him permanently unconscious. Adhering to the provisions of the living will, the patient’s doctor removes life support, allowing the patient to die in accordance with his requests. Living wills shield the physician or hospital from liability for sustaining or withdrawing life support. Learning Outcome 27-7: Discuss advanced health care directives. Page: 454

Durable Power of Attorney for Health Care 27-19 A durable power of attorney for health care is a document that appoints an individual as an agent with authority to make health care decisions on behalf of a principal in the event that the principal becomes incompetent. A principal should take care to appoint a capable and trustworthy individual as his or her attorney in fact. Learning Outcome 27-7: Discuss advanced health care directives. Page: 455

Trusts 27-20 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. Learning Outcome 27-8: Discuss trusts, including the major types of trusts and the role of a trustee. Page: 455

Types of Trusts Testamentary Trust Living Trust 27-21 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. Learning Outcome 27-8: Discuss trusts, including the major types of trusts and the role of a trustee. Page: 455

Role of the Trustee 27-22 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. Learning Outcome 27-8: Discuss trusts, including the major types of trusts and the role of a trustee. Page: 456

Role of the Trustee (cont.) 27-23 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. Learning Outcome 27-8: Discuss trusts, including the major types of trusts and the role of a trustee. Page: 456

Role of the Trustee (cont.) 27-24 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. Learning Outcome 27-8: Discuss trusts, including the major types of trusts and the role of a trustee. Page: 456