Wills, Trusts and Estates

Chapter 14

Terminology

• Decedent – the one who dies

• Heirs – the persons who take property from the decedent when the decedent has no will

• Will – legally valid direction of how to distribute a person’s assets at death

• Intestate – dying without a will

• Testate – dying with a will

More Terminology

• Testator – is one who made a valid will

• Executor – one named by testator to distribute property

• Administrator – a person appointed by the court to supervise disposition of the estate of a a decedent who dies without a will

• Devise – a gift of real property by will

• Bequest – gift of personal property by will

Considerations

• Avoid estate tax (ie death tax)

• Avoid Inheritance taxes

• Avoid gift taxes

• Dead hand control

• Provide for spouse

• Determine who will raise your children

Types of Bequests

• A specific bequest – I give my 1967 Ford Mustang to my brother Jonny

• A general bequest – I give $10,000 from my credit union account at First Bank to my sister Rose.

• Specific devise – I give my house located at 134 Birch street to my unfaithful wife Donna

• A residuary gift – I give the residue of my estate to the Diabetes association

Valid Wills

• This is a state law issue• Iowa

– Need two witnesses– Cannot be holographic– Must be signed by testator– Must be attested to by two witnesses

• Attestation – the act of witnessing the signing of a document and thereafter signing yourself

– Testator must have capacity

Holographic Wills

• Some states allow holographic wills– Holographic will is a will signed by the testator

but unwitnessed– Generally states require that the will be

handwritten or typed by the testator

• “I give all my possession to Dora”– Valid?

• Why disallow holographic wills?

Contesting a Will

• Insanity– Adjudicated mentally insane– Insane delusion - a delusion that the

reasonable person would have abandoned based upon the evidence available

• Undue Influence– What if a lawyer is named in a will?

• Fraud• Improper Execution

Revoking a Will

• Some states require you to “rip, it tear it, or burn it.”

• Most states allow for cancelling or obliterating it.

• All states allow you to revoke a previous will by a subsequent will

• Codicil – a document prepared to change but not revoke an existing will.

Intestacy

• State law determines scheme• Died with spouse and no issue (descendents)

left behind or all issue are also issue of surviving spouse– Spouse gets greater share because assume spouse

will leave to own issue• 633.211

– Section 1- real property- probate and gross estate» Spouse gets all property possessed during marriage

– Section 2- personal property- probate estate» Property you own that is exempt from claims of creditors

– Section 3- personal property- probate estate» Property not necessary for the payment of debts and

charges

Spouse but other issue

• Died with spouse only and issue who aren’t issue of surviving spouse (i.e. stepparents)– Spouse gets lesser share

• 633.212– Section 1

» 1/2 of all real property

– Section 2

» All exempt personal property

– Section 3

» 1/2 of other personal property

– Must add up to at least $50,00- so add to these three sections to get spouse’s share up to $50,000

Probate

• Court proceeding during which assets of the deceased are distributed– Can be costly– Have to give notice to creditors

• How to avoid probate– Trusts– Joint tenancy– Intervivos gifts– Life insurance

Advance Directives

• A living will is a directive made by a person to physicians and directs the physician what to do when that person is on life support

• Durable power of attorney for healthcare – allows another person to make healthcare decisions for the maker of the power when that person becomes incapacitated.– More expansive than a power of attorney

Trusts

• Trust is a legal relationship in which one party leaves property to a second party for the benefit of a third party– Grantor of property is often called the settlor,

trustor, or donor– Trustee is the one whom holds the property

for the beneficiary– Beneficiary is the one whom the trust is

designed to benefit

Types of Trusts

• Irrevocable trusts – A trust that cannot be terminated by the donor

• Irrevocable inter vivos trust – created during the life of the donor– This one avoids probate

• Testamentary trust – created upon death

• Revocable inter vivos trust – can be revoked by trustor

Trust Issues

• Duties owed by a trustee– Duty of loyalty– Duty of care– Duty of accounting

• Can the donor be the trustee?• Income beneficiaries/ principal beneficiaries

– Remainder interest

• Rule against perpetuities – title has to vest within 21 years of the death of a life in being

Last slide for this semester!!!

• Generation skipping tax

• Power of appointment – authority given to a designated person, which allows that person to decide who will receive certain assets

• Spendthrift trust – allows the beneficiary to only withdraw certain amounts of value and is generally exempt from creditors