1. Slides developed by Les Wiletzky Wiletzky and Associates Copyright © 2006 by Pearson Prentice-Hall. All rights reserved. PowerPoint Slides to Accompany CONTEMPORARY BUSINESS AND ONLINE COMMERCE LAW 5 th Edition by Henry R. Cheeseman Chapter 38 Insurance, Wills, and Estates

2. 38 - 2Copyright © 2006 by Pearson Prentice-Hall. All rights reserved. Insurance (1 of 3) Insurance is defined as a contract whereby one undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event It is a means of transferring and distributing risk of loss The risk of loss is pooled

3. 38 - 3Copyright © 2006 by Pearson Prentice-Hall. All rights reserved. Insurance (2 of 3) Insured Insured – the party who pays a premium to a particular insurance company for insurance coverage nsurer Insurer – the insurance company that underwrites the insurance coverage Policy Policy – the insurance contract Premium Premium – the money paid to the insurance company

4. 38 - 4Copyright © 2006 by Pearson Prentice-Hall. All rights reserved. Insurance (3 of 3) McCarran-Ferguson Act of 1945 McCarran-Ferguson Act of 1945 – gave regulation of insurance to the states and exempted insurance companies from the federal antitrust laws Each state has enacted statutes that regulate the operation of domestic insurance companies and out-of-state insurance companies that wish to do business in that state

5. 38 - 5Copyright © 2006 by Pearson Prentice-Hall. All rights reserved. Insurable Interest (1 of 2) A person who purchases insurance must have a personal interest in the insured item or person insurable interest If the insured does not have an insurable interest in the property being insured, the contract is treated as a wager and cannot be enforced Ownership creates an insurable interest

6. 38 - 6Copyright © 2006 by Pearson Prentice-Hall. All rights reserved. Insurable Interest (2 of 2) Beneficiary Beneficiary – a person or organization who will receive money from the insurer at the time of the insured’s death The beneficiary does not have to have an insurable interest in the insured’s life

7. 38 - 7Copyright © 2006 by Pearson Prentice-Hall. All rights reserved. Types of Insurance (1 of 3) Life Insurance Whole life Term Universal life Double indemnity Key person Annuity Life Insurance Whole life Term Universal life Double indemnity Key person Annuity Health and Disability Insurance Health Disability Dental Health and Disability Insurance Health Disability Dental

8. 38 - 8Copyright © 2006 by Pearson Prentice-Hall. All rights reserved. Types of Insurance (2 of 3) Fire and Homeowners Insurance Standard fire insurance policy Homeowners policy Personal articles Renters insurance Fire and Homeowners Insurance Standard fire insurance policy Homeowners policy Personal articles Renters insurance Automobile Insurance Collision Comprehensive Liability Medical payment Uninsured motorist Automobile Insurance Collision Comprehensive Liability Medical payment Uninsured motorist

9. 38 - 9Copyright © 2006 by Pearson Prentice-Hall. All rights reserved. Types of Insurance (3 of 3) Other Types of Insurance Credit Title Marine Umbrella Other Types of Insurance Credit Title Marine Umbrella Business Insurance Business Interruption Insurance Workers’ Compensation Insurance Fidelity Insurance Key-Person Life Insurance Liability Insurance Business Insurance Business Interruption Insurance Workers’ Compensation Insurance Fidelity Insurance Key-Person Life Insurance Liability Insurance

10. 38 - 10Copyright © 2006 by Pearson Prentice-Hall. All rights reserved. No-Fault Automobile Insurance An automobile insurance system where the driver’s insurance company pays for any injuries or death the driver and other covered persons suffer in an accident, no matter who caused the accident Provides coverage for medical expenses and lost wages Provides coverage for pain and suffering

11. 38 - 11Copyright © 2006 by Pearson Prentice-Hall. All rights reserved. The Insurance Contract Deductible clause Coinsurance clause Exclusions from coverage clause Suicide clause Endorsements Rider Grace Period

12. 38 - 12Copyright © 2006 by Pearson Prentice-Hall. All rights reserved. Duty to Defend An insurance company owes a duty to defend an insured against a lawsuit This includes: Expenses for a lawyer Court costs Deposition fees

13. 38 - 13Copyright © 2006 by Pearson Prentice-Hall. All rights reserved. Subrogation If an insurance company pays a claim to an insured for liability or property damage caused by a third party, the insurer succeeds to the right of the insured to recover from the third party Subrogation does not apply to life insurance policies An insurer has no right of subrogation against his or her own insured

14. 38 - 14Copyright © 2006 by Pearson Prentice-Hall. All rights reserved. Warranty warranty A warranty is a representation of the insured that is expressly incorporated in the insurance contract: Affirmative warranty Affirmative warranty – a statement asserting that certain facts are true Promissory warranty Promissory warranty – stipulates that facts will continue to be true throughout the duration of the policy An insurer may avoid liability caused by a breach of warranty

15. 38 - 15Copyright © 2006 by Pearson Prentice-Hall. All rights reserved. Incontestability Clause Prevents insurers from contesting statements made by insureds in applications for insurance after the passage of a stipulated number of years The typical length of time is two to five years

16. 38 - 16Copyright © 2006 by Pearson Prentice-Hall. All rights reserved. Will A declaration of how a person wants his or her property distributed after death.

17. 38 - 17Copyright © 2006 by Pearson Prentice-Hall. All rights reserved. Wills: Key Terms Testator Testator – the person who makes a will Beneficiary 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

18. 38 - 18Copyright © 2006 by Pearson Prentice-Hall. All rights reserved. Requirements for Making a Will Statute of Wills Statute of Wills – a state statute that establishes the requirements for making a valid will Testamentary Capacity Writing Testator’s Signature

19. 38 - 19Copyright © 2006 by Pearson Prentice-Hall. All rights reserved. Attestation by Witnesses attested Wills must be attested to by mentally competent witnesses Most states require two or three witnesses Most jurisdictions stipulate that interested parties cannot be witnesses

20. 38 - 20Copyright © 2006 by Pearson Prentice-Hall. All rights reserved. Changing a Will Codicil 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

21. 38 - 21Copyright © 2006 by Pearson Prentice-Hall. All rights reserved. Revoking a Will revoked 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 subsequent will A properly executed subsequent will revokes a prior will if it specifically states that it is the testator’s intention to do so

22. 38 - 22Copyright © 2006 by Pearson Prentice-Hall. All rights reserved. Simultaneous Deaths Uniform Simultaneous Death Act Uniform Simultaneous Death Act An act that 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

23. 38 - 23Copyright © 2006 by Pearson Prentice-Hall. All rights reserved. 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

24. 38 - 24Copyright © 2006 by Pearson Prentice-Hall. All rights reserved. Types of Testamentary Gifts Devise Devise – a gift of real estate by will Bequest Bequest – a gift of personal property by will Specific gift Specific gift – a gift of a specifically named piece of property General gift General gift – a gift that does not identify the specific property from which the gift is to be made Residuary gift Residuary gift – a gift of the estate left after the debts, taxes, and specific and general gifts have been paid Devise Devise – a gift of real estate by will Bequest Bequest – a gift of personal property by will Specific gift Specific gift – a gift of a specifically named piece of property General gift General gift – a gift that does not identify the specific property from which the gift is to be made Residuary gift Residuary gift – a gift of the estate left after the debts, taxes, and specific and general gifts have been paid

25. 38 - 25Copyright © 2006 by Pearson Prentice-Hall. All rights reserved. Ademption and Abatement Ademption 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 nothingAdemption 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 firstAbatement

26. 38 - 26Copyright © 2006 by Pearson Prentice-Hall. All rights reserved. Per Stripes Distribution A distribution of the estate that makes grandchildren and great-grandchildren of the deceased inherit by representation of their parent i.e., they split what their deceased parent would have received If their parent is not deceased, they receive nothing

27. 38 - 27Copyright © 2006 by Pearson Prentice-Hall. All rights reserved. Example of a Per Stripes Distribution AnneBeth 1 st DEGREE Bart Bruce (deceased) (deceased) 2 nd DEGREE 3 rd DEGREE Carla Clayton Cathy Deborah Dominic ( 1/3 ) ( 1/6 ) ( 0 ) () () (deceased) 1/12 1/12

28. 38 - 28Copyright © 2006 by Pearson Prentice-Hall. All rights reserved. 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

29. 38 - 29Copyright © 2006 by Pearson Prentice-Hall. All rights reserved. Example of a Per Capita Distribution AnneBeth 1 st DEGREE Bart Bruce (deceased) (deceased) 2 nd DEGREE 3 rd DEGREE Carla Clayton Cathy Deborah Dominic ( 1/6 ) (deceased)

30. 38 - 30Copyright © 2006 by Pearson Prentice-Hall. All rights reserved. Special Types of Wills Holographic Will Holographic Will Will that is entirely handwritten and signed by the testator Noncupative Will Noncupative Will Oral will that is made before a witness during the testator’s last illness

31. 38 - 31Copyright © 2006 by Pearson Prentice-Hall. All rights reserved. Joint and Mutual Wills Joint Will A will that is executed by two or more testators A joint will may be held invalid as to one testator but not the others Joint Will A will that is executed by two or more testators A joint will may be held invalid as to one testator but not the others 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 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

32. 38 - 32Copyright © 2006 by Pearson Prentice-Hall. All rights reserved. Intestate Succession SituationParties 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.

33. 38 - 33Copyright © 2006 by Pearson Prentice-Hall. All rights reserved. Living Wills Right to Die Right to Die A personal liberty protected by the Due Process Clause of the U.S. Constitution Living Will Living Will A document signed by a person that stipulates his or her wishes to not have his or her life prolonged indefinitely by artificial means

34. 38 - 34Copyright © 2006 by Pearson Prentice-Hall. All rights reserved. Trust A legal arrangement established when one person transfers title to property to another person to be held and used for the benefit of a third person Trust Corpus Trust Corpus – the property held in trust The trust has legal title to the trust corpus The beneficiary has equitable title

35. 38 - 35Copyright © 2006 by Pearson Prentice-Hall. All rights reserved. Parties to a Trust Settlor or Trustor Settlor or Trustor – person who creates a trust Trustee Trustee – person who hold legal title to the trust corpus and manages the trust for the benefit of the beneficiary or beneficiaries Beneficiary Beneficiary – person for whose benefit a trust is created

36. 38 - 36Copyright © 2006 by Pearson Prentice-Hall. All rights reserved. Example of Parties to a Trust Equitable title to the trust corpus Legal title to the trust corpus Manages the trust for the benefit of the beneficiary or beneficiaries Settlor Trustee Beneficiary or Beneficiaries

37. 38 - 37Copyright © 2006 by Pearson Prentice-Hall. All rights reserved. Living Trust A legal entity used for estate planning grantor’s trustrevocable trustinter vivos trust Also called a grantor’s trust, revocable trust, or inter vivos trust Trust corpus Trust corpus – the property that is placed in the trust to fund the trust The primary purpose of using a living trust is to avoid probate

38. 38 - 38Copyright © 2006 by Pearson Prentice-Hall. All rights reserved. Parties to a Living Trust Grantor Grantor – person who establishes a living trust Trustee Trustee – person who is responsible for maintaining, investing, buying, and selling trust assets Income beneficiary Income beneficiary – person who is entitled to receive income from a living trust Remainder beneficiary Remainder beneficiary – person who is entitled to receive the assets of the trust upon the death of the grantor Pour-over will Pour-over will – necessary to distribute any of the grantor’s property not in the living trust at the time of the grantor’s death to the trust upon the grantor’s death Grantor Grantor – person who establishes a living trust Trustee Trustee – person who is responsible for maintaining, investing, buying, and selling trust assets Income beneficiary Income beneficiary – person who is entitled to receive income from a living trust Remainder beneficiary Remainder beneficiary – person who is entitled to receive the assets of the trust upon the death of the grantor Pour-over will Pour-over will – necessary to distribute any of the grantor’s property not in the living trust at the time of the grantor’s death to the trust upon the grantor’s death