wills, trusts, and living wills

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© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 19 - 1 Chapter 52: Wills, Trusts, and Living Wills Business Law Legal, E-Commerce, Ethical, and International Environments

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Page 1: Wills, Trusts, and Living Wills

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman19 - 1

Chapter 52:Wills, Trusts, and Living Wills

Business LawLegal, E-Commerce, Ethical, and International Environments

Page 2: Wills, Trusts, and Living Wills

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman19 - 2

WillWill

A declaration of how a person wants A declaration of how a person wants

his or her property distributed after his or her property distributed after

death.death.

Page 3: Wills, Trusts, and Living Wills

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman19 - 3

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.

Page 4: Wills, Trusts, and Living Wills

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman19 - 4

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 Signature

Page 5: Wills, Trusts, and Living Wills

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman19 - 5

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 cannot be witnesses.

Page 6: Wills, Trusts, and Living Wills

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman19 - 6

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.

Page 7: Wills, Trusts, and Living Wills

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman19 - 7

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.

Page 8: Wills, Trusts, and Living Wills

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman19 - 8

Joint and Mutual WillsJoint 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.

Page 9: Wills, Trusts, and Living Wills

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman19 - 9

Special Types of Wills

• Holographic 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.

Page 10: Wills, Trusts, and Living Wills

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman19 - 10

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.

Page 11: Wills, Trusts, and Living Wills

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman19 - 11

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.

Page 12: Wills, Trusts, and Living Wills

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman19 - 12

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 court

• Appoints personal representative to administer estate– Executor named in will– Administrator appointed if died

intestate

Page 13: Wills, Trusts, and Living Wills

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman19 - 13

Types of Testamentary Gifts

Bequest

Specific Gift

General GiftResiduary Gift

Devise

Page 14: Wills, Trusts, and Living Wills

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman19 - 14

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.

Page 15: Wills, Trusts, and Living Wills

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman19 - 15

Example of Per Stripes Distribution

AnneAnne BethBeth

11stst DEGREE DEGREE

BartBart

BruceBruce

(deceased)(deceased)

(deceased)(deceased)

22ndnd DEGREE DEGREE

33rdrd DEGREE DEGREE

CarlaCarla

ClaytonClayton

CathyCathy

DeborahDeborah

1/121/12

DominicDominic

1/121/12

((1/31/3))

((1/31/3))

((1/61/6))

( 0 )( 0 )(deceased)(deceased)

Page 16: Wills, Trusts, and Living Wills

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman19 - 16

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.

Page 17: Wills, Trusts, and Living Wills

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman19 - 17

Example of Per Capita Distribution

AnneAnne BethBeth

11stst DEGREE DEGREE

BartBart

BruceBruce

(deceased)(deceased)

(deceased)(deceased)

22ndnd DEGREE DEGREE

33rdrd DEGREE DEGREE

CarlaCarla

ClaytonClayton

CathyCathy

DeborahDeborah

DominicDominic

((1/61/6))

(deceased)(deceased)((1/61/6))((1/61/6))

((1/61/6))

((1/61/6))

((1/61/6))

Page 18: Wills, Trusts, and Living Wills

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman19 - 18

Ademption and AbatementAdemption

• 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.

Page 19: Wills, Trusts, and Living Wills

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman19 - 19

Intestate Succession

Heirs set forth in the applicable intestacy statute.

If there are no heirs, the deceased’s property escheats (goes) to the state.

Deceased dies without a valid will

Beneficiaries named in the will.

Deceased dies with a valid will

Parties Who Receive Deceased’s Property

Situation

Page 20: Wills, Trusts, and Living Wills

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman19 - 20

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 – the property held in trust.

Page 21: Wills, Trusts, and Living Wills

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman19 - 21

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.

Page 22: Wills, Trusts, and Living Wills

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman19 - 22

Example of Parties to a Trust

Equitable title to the trust corpusEquitable title to the trust corpus

Legal title to the trust Legal title to the trust corpuscorpus

Manages the trust Manages the trust for the benefit of the for the benefit of the beneficiary or beneficiary or beneficiariesbeneficiaries

SettlorSettlor TrusteeTrustee

Beneficiary Beneficiary or or

BeneficiariesBeneficiaries

Page 23: Wills, Trusts, and Living Wills

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman19 - 23

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.

Page 24: Wills, Trusts, and Living Wills

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman19 - 24

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.

– Resulting Trust – a trust that is created by the conduct of the parties.

Page 25: Wills, Trusts, and Living Wills

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman19 - 25

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.

Page 26: Wills, Trusts, and Living Wills

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman19 - 26

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.

Page 27: Wills, Trusts, and Living Wills

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman19 - 27

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.

Page 28: Wills, Trusts, and Living Wills

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman19 - 28

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.

Page 29: Wills, Trusts, and Living Wills

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman19 - 29

Living Trusts (continued)

• Trustee-Person named in a living will to administer the trust assets. This is usually the grantor.

• Used to avoid probate.

Page 30: Wills, Trusts, and Living Wills

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman19 - 30

Funding and Operation • Grantor transfers title to

property to trust.• Trust revocable during

grantor’s lifetime.• Trist names trustee, normally

grantor.– Should also name successor

trustee.

Page 31: Wills, Trusts, and Living Wills

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman19 - 31

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.

Page 32: Wills, Trusts, and Living Wills

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman19 - 32

Pour-Over Will• A will that distributes the

grantor’s property that is not in the living will upon the grantors death.