Business Law
Chapter 20 Outline: Wills, Trusts, and Estates
20-1: Property Distribution Upon Death
Vocabulary
Decedent:The person who dies
Intestate:The condition of dying without a valid will
Administrator:The personal representative appointed by the court to take charge of the intestate’s property.
Estate:The property of the deceased.
Testate:The condition of dying with a valid will.
Will:A legal expression, usually writing, by which a person directs how her or his property is to be distributed after death.
Testator/Testatrix:Maker of a will
Executor:Person assigned by the court or the testator to carry out the terms of a will.
Codicil:A formal, written, and witnessed amendment to a will
Holographic Will:A will written entirely by the decedent’s own hand and signed by him or her.
Noncupative Will:An oral will.
Escheats:Property of decedent reverts to the state.
Where are the instructions of what is to be done with a person’s property after his/her death usually found?
It will be found either in a will, or in the state statutes, if no will is found.
What state court system settles the decedent’s affairs?Probate Court
What does an administrator do with an intestate’s property?
They take charge of the property and use it to pay all debts. Remainder will be distributed in accordance with state statute to rightful parties.
What is the cost to beneficiaries if someone dies intestate?
They may have to pay considerable administrative expenses and large estate taxes.
Though intestacy statutes vary among states, what do all generally say?
Surviving spouse will receive 1/3 to ½ of the estate, with the remainder divided equally among the children.
What does “posting bond” mean?
This involves making a pool of $ available to reimburse anyone injured by the executor’s improper handling of his/her duties. An executor can be exempted from doing this, if the will states so.
Can a will be used to name guardians for minor children?Absolutely
What is a “Living Will”?
A document directed to physicians regarding a person’s choices about the use of life support systems to treat a terminal illness or vegetative state.
What is “Durable Power of Attorney”?
This confers on a chosen or court-appointed individual the right to make health-care decisions, such as the removal of life support. This is an alternative to a living will.
3 Basic Requirements of a Valid Will in most states:
1.Testator must have clear intent that the document is his/her last will and testament, called testamentary intent. Person can’t be pressured to sign or misled to believe the document is not a will.
2.Testator must have testamentary capacity to make will, meaning they must know the kind and extent of property they want to dispose of, who beneficiaries will be, and that these are arrangements for after their death. Minors do not have testamentary capacity.
3.Will should be in writing, signed at the end of the document, and have at least 2 witnesses who are not related and not involved in the will as a beneficiary.
When does a will take effect? Once made, can it be changed?
Upon death. At any time, it can be changed or canceled. Should be minimized to lessen potentially false or forged claims. Changes are usually made with a codicil (See vocabulary).
Are holographic wills valid? How are changes to these wills made valid?
Many states do recognize these, even without witnesses. Any changes made must be witnessed, though. Must be in own handwriting.
How is a nuncupative will recognized as being valid?
If proclaimed during the maker’s last illness or by service personnel on active duty, it is valid. It must be witnessed and reduced to writing (witnesses must agree on what was said), and is often limited to controlling the distribution of personal property.
How are wills revoked in their entirety?
Defacing or destroying a will revokes it. Some states automatically revoke a will upon either marriage or birth/adoption of a child and require a new will. You can also revoke a will by a written revocation in a succeeding will. Divorce does NOT automatically revoke a will!
What is the first item of business for a will’s executor?
They must offer proof of death to the appropriate court.
How is proof of death established?
Usually a death certificate, death notification from armed services, or testimony of presence in a disaster where body is unrecoverable or unidentifiable (9/11) is presented to establish death.
What are “Enoch Arden laws”?
Laws that allow a person to be declared dead if they vanish without a trace after several years, usually 5-7 years.
4 Responsibilities of Executor after Proof of Death:
1.Assembling, preserving, inventorying, and appraising assets and debts of estate.
2.Giving public notice of estate the necessity for filing claims against it within statutory period.
3.Paying valid claims against the estate.
4.Distributing the remaining property according to the will or statute.
How long do creditors to an estate have to file a claim? What if they don’t?
Typically they have 6 months; otherwise they go unpaid and are wiped out.
How is distribution of property accomplished?
Without a will, state laws dictate. With will, its terms are followed, supervised by probate court. Sometimes laws may override a will, if the will contradicts them, such as paying a spouse. Per capita distribution means everyone splits property evenly. Per stirpes distribution divides estates according to shares allocated. (See page 362).
20-2: Trusts
Vocabulary:
Trust:A separate entity under law to which property is transferred
Trustee:Legal entity that has the title to the subject property of a trust
Settlor:Creator of a trust
Beneficiary:Party for whose benefit the trust is managed in accordance with the settlor’s wishes
Inter vivos trust:Trust created during the lifetime of the settlor
Testamentary trust:Trust created after the death of the settlor in accordance with the directions in his/her will
Revocable trust:Trust that may be cancelled at any time prior to the death of the settler and property taken back. Avoid probate delays and not subject to expensive fees paid to attorney
Charitable trust:Trust created for the fulfillment of an altruistic purpose
Private trust:Trust created for a private purpose
Spendthrift trust:Private trust that protects the beneficiary’s interest in the subject property from the beneficiary’s creditors
Express trust:Trusts created by a written or oral statement in which the terms are explicitly stated by the settler
Resulting trust:Trust formed when the entity intended to receive the benefit of an express trust cannot do so. This is an “implied trust”.
Constructive trust:Trust created to require a person holding property to transfer it to another because retention of the property would be wrongful and unjust enrichment of the holder. Also an “implied trust”.
Why can a trust be created?
For any conceivable legal purpose.
What is the duty of a trustee?
He/she must utilize the property in the trust in such a way as to accomplish the trust’s objectives, and put his/her personal interests secondary.
What if a trustee acts “in breach of trust”?
He/she may be personally liable ($).
Actions that are considered breaches include:
Spending the $ on matters outside the trust’s legal objects, fraud, serious negligence, failure to comply with relevant statutes, or receiving personal benefit other than assigned pay for services.
What happens to the trust if a trustee dies?
Another person is appointed to fulfill the trustee’s role and the trust continues.
Do trustees get paid for their services? What is their fee?
Yes they do. Either the court or state law may set a fee, or the settlor may detail how much the trustee is to be paid; should be sufficient so trustee will do the job.
Does a person nominated to be a trustee have to accept it? No.