Wills, Trusts, and Living Wills Business Law

Will A declaration of how a person wants his or her property distributed after death.

Key Terms Will – declaration of how one wants property distributed after their death. Testator – the person who makes a will. Beneficiary – a person or organization designated in the will that receives all or a portion of the testator’s property at the time of the testator’s death.

Requirements for Making a Will Statute of Wills – a state statute that establishes the requirements for making a valid will. Testamentary Capacity Writing Testator’s (mark) Signature Witnesses (Calif.)

Attestation by Witnesses Wills must be attested to by mentally competent witnesses. Most states require two or three witnesses. Most jurisdictions stipulate that interested parties (beneficiaries) cannot be witnesses.

Codicil A separate document that must be executed to amend a will. It must be executed with the same formalities as a will. The codicil must incorporate by reference the will it is amending.

Revoking a Will A will may be revoked by acts of the testator. A will is revoked if the testator intentionally burns, tears, obliterates, or otherwise destroys it. A properly executed subsequent will revokes a prior will if it specifically states that it is the testator’s intention to do so.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Joint and Mutual Wills Joint Will A will that is executed by two or more testators. Mutual Wills Occur where two or more testators execute separate wills that leave their property to each other on the condition that the survivor leave the remaining property at the time of death as agreed by the testators. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

Special Types of Wills Holographic Will Noncupative Will Will that is entirely handwritten and signed by the testator. Noncupative Will Oral will that is made before a witness during the testator’s last illness.

Simultaneous Deaths Uniform Simultaneous Death Act provides that if people who would inherit property from each other die simultaneously, each person’s property is distributed as though he or she survived.

Undue Influence Occurs where one person takes advantage of another person’s mental, emotional, or physical weakness and unduly persuades that person to make a will. The persuasion by the wrongdoer must overcome the free will of the testator.

Probate The process of a deceased’s property being collected, debts and taxes being paid, and the remainder of the estate being distributed. Probate Court supervises the administration and settlement of an estate. State (Superior) court Appoints personal representative to administer estate Executor named in will Administrator appointed if died intestate

Types of Testamentary Gifts Devise Bequest Specific Gift Residuary Gift General Gift © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

Per Stripes Distribution A distribution of the estate that makes grandchildren and great-grandchildren of the deceased inherit by representation of their parent. They split what their deceased parent would have received. If their parent is not deceased, they receive nothing.

Example of Per Stripes Distribution 1st DEGREE Bart (1/3) 2nd DEGREE Anne Beth Carla ( 0 ) (1/3) (deceased) 3rd DEGREE Clayton (1/6) Bruce Deborah 1/12 (deceased) Cathy Dominic 1/12 (deceased) © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

Per Capita Distribution A distribution of the estate that makes each grandchild and great-grandchild of the deceased inherit equally with the children of the deceased.

Example of Per Capita Distribution 1st DEGREE Bart (1/6) 2nd DEGREE Anne Beth Carla (1/6) (1/6) (deceased) Clayton 3rd DEGREE (1/6) Bruce Deborah (1/6) (deceased) Cathy Dominic (1/6) (deceased) © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

Ademption and Abatement If a testator leaves a specific devise of property to a beneficiary, but the property is no longer in the estate when the testator dies, the beneficiary receives nothing. Abatement If the property the testator leaves is not sufficient to satisfy all the beneficiaries named in a will and there are both general and residuary bequests, the residuary bequest is abated first. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Intestate Succession Situation Parties Who Receive Deceased’s Property Deceased dies with a valid will Beneficiaries named in the will. Deceased dies without a valid will Heirs set forth in the applicable intestacy statute. If there are no heirs, the deceased’s property escheats (goes) to the state. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

Trust A legal arrangement established when one person transfers title of property to another person to be held and used for the benefit of a third person. Trust Corpus – the property held in trust.

Parties to a Trust Settlor or Trustor – person who creates a trust Trustee – person who hold legal title to the trust corpus and manages the trust for the benefit of the beneficiary or beneficiaries. Beneficiary – person for whose benefit a trust is created.

Example of Parties to a Trust Legal title to the trust corpus Settlor Trustee Manages the trust for the benefit of the beneficiary or beneficiaries Equitable title to the trust corpus Beneficiary or Beneficiaries © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

Express Trusts A trust created voluntarily by the settlor. Inter Vivos Trust (Living Trust) – a trust that is created while the settlor is alive. Testamentary Trust – a trust created by will: the trust comes into existence when the settlor dies.

Implied Trusts A trust that is implied by law or from the conduct of the parties. Constructive Trust – an equitable trust that is imposed by law to avoid fraud, unjust enrichment, and injustice. (Minor who receives settlement/law suit.) Resulting Trust – a trust that is created by the conduct of the parties.

Special Types of Trusts Charitable Trusts – created for the benefit of a segment of society or society in general. Spendthrift Trusts – designed to prevent a beneficiary’s personal creditors from reaching his or her trust interest. All control over the trust is removed from the beneficiary.

Special Types of Trusts (continued) Totten Trusts – created when a person deposits money in a bank account in his or her own name and holds it as a trustee for the benefit of another person. i.e. Education Funds Christmas Club

Termination of a Trust A trust is irrevocable unless the settlor reserves the right to revoke it. A trust either: Contains a specific termination date , or Provides that it will terminate upon the happening of an event Upon termination, the trust corpus is distributed as provided in the trust agreement.

Living Trusts A method for holding property during a person’s lifetime and distributing the property upon that person’s death. Also called a grantor’s trust and revocable trust. The grantor is the person who creates a living trust. Also called a trustor.

Living Trusts (continued) Trustee-Person named in a living will to administer the trust assets. This is usually the grantor. Used to avoid probate.

Funding and Operation Grantor transfers title of property to trust. Trust revocable during grantor’s lifetime. Names trustee, normally grantor. Should also name successor trustee.

Beneficiaries Income Beneficiary: Person who receives the income from the living trust during his or her life. Usually the grantor. Remainder Beneficiary: Person who receives the assets of the living trust upon the death of the grantor. (Churches / Colleges)

Pour-Over Will A will that distributes the grantor’s property that is not in the living will upon the grantors death.