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Chapter 52

Wills, Trusts, and Estates

Learning Objectives

List and describe the requirements for making a valid will

Describe the different types of testamentary gifts Identify how property is distributed under intestacy

statutes if a person dies without a will Define trust and living trust and identify the parties to

a trust Describe living wills and health care directives

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Key Terms

Will: declaration of how one wants property distributed after death

Testator/testatrix: the person who makes a will Beneficiary: a person or organization designated in

the will that receives all or a portion of testator’s property at the time of the testator’s death

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Will

Requirements for making a will: Testamentary capacity: testator must have been

of legal age and “sound mind” when the will was made

Writing: wills must be in writing to be valid Testator’s signature: testator’s signature must

appear at the end of the will

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Will

Attestation Action of a will being witnessed by two or three

objective and competent people Codicil

Separate document that must be executed to amend a will, with the same formalities as a will

Revocation Termination of a will by acts of the testator

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Will

Joint wills Executed by two or more testators

Mutual wills Two or more testators execute separate wills that

make testamentary dispositions of their property to each other

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Will

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 had survived

Probate Process of a deceased’s property being collected,

debts and taxes being paid, and the remainder of the estate being distributed

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Special Types of Wills

Holographic wills Entirely handwritten and signed by the testator

Nuncupative wills Oral wills that are made before witnesses Also called “dying declarations” or “deathbed

wills”

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Testamentary Gifts

Devise: a gift of real estate by will Bequest: a gift of personal property by will Specific gift: a gift of a specifically named piece of

property General gift: a gift that does not identify the specific

property from which the gift is to be made Residuary gift: a gift of an estate left after the debts,

taxes, and specific and general gifts have been given

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Testamentary Gifts

Per stirpes distribution Distribution of an estate in which grandchildren

and great-grandchildren of the deceased inherit by representation of their parent

Per capita distribution Distribution of an estate in which each grandchild

and greatgrandchild of the deceased inherits equally with the children of the deceased

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Exhibit 52.3 - Per Stirpes Distribution

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Exhibit 52.4 - Per Capita Distribution

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Testamentary Gifts

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 nothing

Abatement If the property a 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

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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 state intestacy statute. If there are no heirs, the deceased’s property escheats to the state.

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Irrevocable Trusts

Trust: 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

Settlor: person who creates a trust Trustee: person or an entity that holds legal title to a

trust corpus Trust corpus: property and assets held in trust

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Irrevocable Trusts

Income beneficiary of a trust: person or an entity to be paid income from a trust

Remainder beneficiary of a trust: person or an entity to receive the trust corpus upon the termination of a trust

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Exhibit 52.5 - Trust

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Irrevocable Trusts

Inter vivos trust Trust that is created while the settlor is alive Settlor transfers legal title of property to a named

trustee to hold, administer, and manage for the benefit of named beneficiaries

Testamentary trust Trust created by will Comes into existence when the settlor dies

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Special Types of Trusts

Constructive trust Equitable trust that is implied by law to avoid

fraud, unjust enrichment, and injustice Resulting trust

Trust that is implied from the conduct of the parties

Charitable trust Created for the benefit of a segment of society or

society in general

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Special Types of Trusts

Spendthrift trust Designed to prevent a beneficiary’s personal

creditors from reaching his or her trust interest Totten trust

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

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Living Trust

Method for holding property during a person’s lifetime and distributing the property upon that person’s death

Does not reduce estate taxes Does not reduce the grantor’s income taxes Does not avoid creditors Subject to property division upon divorce Does not avoid controversies upon the grantor’s death

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Funding and Operation of a Living Trust

To fund a living trust, grantor transfers title to his or her property, called trust corpus, to the trust

Living trust is revocable during the grantor’s lifetime A living trust names a trustee who is responsible for

maintaining, investing, buying, or selling trust assets Trust should name a successor trustee to replace the

grantor-trustee if the grantor becomes incapacitated or too ill to manage the trust

Income and remainder beneficiaries

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Undue Influence

One person takes advantage of another person’s mental, emotional, or physical weakness and unduly persuades that person to make a will

Persuasion by the wrongdoer must overcome the free will of the testator

A will may be found to be invalid if it was made as a result of undue influence on the testator

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Case 52.1: Undue Influence

Case Medlock v. Mitchell Web 2006 Ark. App. Lexis 320 (2006) Court of Appeals of Arkansas

Issue Has Jerald rebutted the presumption of undue

influence?

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Living Will and Health Care Directive

Living will States which life-saving measures the signor does and does

not want Health care directive

The maker names someone to be his health care agent to make all health care decisions

Right to die Terminally ill person may make a decision to end his or her

life

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Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 26