chapter 25 wills, intestacy, and trusts - northern virginia...

Chapter 25

Wills, Intestacy,

and Trusts

McGraw-Hill ©2010 The McGraw-Hill Companies, Inc. All rights reserved.

Essentials of Business Law

Will

• 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.

PO: 1; Page: 377

Chapter 25-2


The Language of WillsPO: 2; Pages: 377–378

Chapter 25-3

• 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.


The Language of Wills (cont.)PO: 2; Pages: 377–378

Chapter 25-4

• 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.


Types of Gifts under Wills

• Legacy: • A legacy is a gift of money under a will.

• Bequest:• A gift of personal property.

• Devise:• A gift of real 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.

PO: 3; Page: 378

Chapter 25-5

• 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.

• Devise: A gift of real property.


Requirement of a Valid Will

• 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

PO: 4; Page: 378

Chapter 25-6


Requirement of Writing

• 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.

• Noncupative 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 noncupative will,

would be invalid.

PO: 4; Page: 378

Chapter 25-7

• 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.

• Noncupative 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 noncupative will, would be invalid.


Requirement of Witness

• 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.

• It is necessary that the witnesses see the testator sign the document, because they may be called upon later to attest that they actually saw the testator sign.

PO: 4; Page: 379

Chapter 25-8


Testamentary Capacity

• 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.

PO: 4; Page: 379

Chapter 25-9


Undue Influence

• 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.

PO: 4; Page: 379

Chapter 25-10


Example: Undue Influence

• David had worked as an assistant for Suzanne 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 stated that because of David’s undue influence, Suzanne had executed the new will. David denied this and insisted that the will was based on the relationship he had shared with Suzanne, but this is a case of undue influence because Suzanne wrote the will in David’s favor due to his threat.

Chapter 25-11

PO: 4; Page: 379


Living Wills

• Many are opposed to their and their loved ones’ lives being prolonged by artificial life support. • In response to these concerns, a number of states

have enacted legislation allowing an individual to execute a living will.

• Living will: A document in which a person directs his or her physician and/or health proxy to forgo certain extraordinary medical procedures if the person is dying or permanently unconscious. • The purpose of a valid living will is to permit a

terminally ill patient to live or die with dignity and to protect the physician or hospital from liability for sustaining or withdrawing life support.

PO: 4; Page: 380

Chapter 25-12


Revising and Revoking Wills

• 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.

PO: 5; Page: 380

Chapter 25-13


Revising and Revoking Wills (cont.)

• 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.

PO: 5; Page: 380

Chapter 25-14


Intestacy

• 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.

PO: 6; Page: 381

Chapter 25-15


Specific Performance—Example

• Add Special Performance content here . . .

Chapter 25-16

• Mathew died intestate leaving behind a spouse and two children. His real property valued worth $50,000 and personal property valued worth $25000. Mathew’s siblings argued that they wanted half of the property of Mathew’s. Mathew’s spouse and two children refused the same. Mathew’s siblings are wrong in claiming share in the property because as per the intestacy law if a person dies intestate that is without writing a will then the entire property belongs to the spouse and the children of the deceased.

Example: Intestacy

• 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 the intestacy law states that when a person dies intestate (without writing a will), then the entire property belongs to the spouse and the children of the deceased.

PO: 6; Page: 381


Trusts

• 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.

PO: 7; Pages: 381–382

Chapter 25-17


Types of Trusts

• 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.

PO: 7; Page: 382

Chapter 25-18


Role of the Trustee

• 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.

PO: 7; Pages: 382–383

Chapter 25-19


Role of the Trustee (cont.)

• 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.

PO: 7; Pages: 382–383

Chapter 25-20


Role of the Trustee (cont.)

• 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.

PO: 7; Pages: 382–383

Chapter 25-21

chapter 25 wills, intestacy, and trusts - northern virginia...

Documents