WILLS: TERMINOLOGY

 

 

n        Will: An instrument prepared by or at the direction of a testator directing what is to be done with her property upon her death.

 

n No interest in the testator’s property passes under the will prior to the testator’s death.

 

n The testator may revoke any part or all of her will, or amend it by a codicil, during her lifetime.

 

n Executor: A person appointed by the testator in her will to see that the will is administered and the testator’s property is disposed of as the testator wished.

 

n Administrator: A person appointed by a (probate) court to handle the disposition of an intestate’s property or to handle the disposition of a testator’s property if the executor named by the testator cannot serve.

 

n        Types of Gifts

 

n Devise: A gift of real property by will to a devisee.

 

n Legacy/Bequest: A gift of personal property by will to a legatee.

WILLS: REQUISITES FOR VALIDITY

 

 

n        Testamentary Capacity: The testator must be of legal age and sound mind at the time he makes the will.  Generally, a testator who is of legal age must:

 

(1) intend the document to be his last will,

 

(2) comprehend the kind and character of the property being distributed by the will, and

 

(3) comprehend and remember the “natural objects of his bounty” (i.e., the intended beneficiaries).

 

n        Writing Requirement: Generally, a will must be written.

 

n Holographic Will: A will that is completely handwritten.

 

n Nuncupative Will: An oral will made and declared before witnesses (e.g., a “deathbed will”).

 

n        Other Formalities: The testator’s signature must appear on the face of the will, and, in the case of non-holographic wills, must be declared before and signed by witnesses.

WILLS: REVOCATION

 

 

n     A testator may revoke her will at any time prior to her death.  Revocation may be accomplished by:

 

(1) Physical Act: intentionally burning, tearing, canceling, obliterating, or otherwise destroying the will or directing another to do so in the testator’s presence;

 

(2) Subsequent Writing: intentionally making a new will or amending or revoking any or all of a will by means of a codicil; or

 

(3) Operation of Law: due to marriage, divorce, or annulment, or the birth of one or more children after the will was executed.

PROBATE PROCESS

 

 

n        Probate: The legal process required to establish the validity of a will and to administer the decedent’s estate.

 

n Informal Probate: Most states allow the assets of smaller estates to be distributed without formal probate proceedings.

 

n Family Settlement Agreements: A majority of states permit the beneficiaries of an estate to agree among themselves, subject to court approval, how the assets will be distributed

 

n Formal Probate: For larger estates and for smaller estates that require the appointment of a guardian to protect the interest of a minor child or an incompetent person, the probate court generally supervises every aspect of the payment of the decedent’s surviving obligations and the distribution of the decedent’s assets.

 

n Non-Probate Assets: The decedent’s interest in certain assets that designate a beneficiary (e.g., inter vivos trusts, life insurance policy proceeds, IRAs, joint checking accounts with rights of survivorship) pass to the designated beneficiary without going through the probate process.

INTESTACY

 

 

n        When a person dies without leaving a valid will, he is said to have died intestate.  In such cases, the deceased’s property passes according to law, rather than according to his wishes.

 

n Generally speaking, an intestate’s property passes first to any surviving spouse and children.

 

n Stepchildren are not entitled to inherit unless the intestate legally adopted them prior to her death.

 

n Illegitimate children generally inherit only from their mother.

 

n When the intestate has no surviving spouse, her property will typically pass to her surviving children, if any, and grandchildren, if any, either

 

(1) per capita (meaning that each child – or, if there are no surviving children, each grandchild – will take an equal share), or

 

(2) per stirpes (meaning that each grandchild by non-surviving child X will divide child X’s share, and each grandchild by non-surviving child Y will divide child Y’s share – even if child Y produced twice as many grandchildren as child X).

TRUSTS

 

 

n        Trust: An arrangement by which title to property owned by one person (the grantor or settlor) is held by another person (the trustee) for the benefit of a third person (the beneficiary).  In addition to a designated beneficiary and a designated trustee, a valid trust requires:

 

(1) funds or other property sufficiently identified to enable title to pass to the trustee, and

 

(2) actual delivery by the grantor to the trustee with the intent that title pass to the trustee.

 

n     Inter Vivos Trust: An express trust created by the grantor and effective during the grantor’s lifetime.

 

n        Testamentary Trust: An express trust created by will and, therefore, not effective until the grantor’s death.

TRUSTS: SPECIAL TYPES

 

 

n        Charitable Trust: A trust in which the property held by a trustee must be used for a charitable purpose, such as the advancement of health, education, or religion.

 

n        Spendthrift Trust: A trust created to protect a beneficiary from spending all the money to which he or she is entitled, by parceling out the trust proceeds over time.

 

n        Totten Trust: A trust created by the deposit of a person’s own money in his or her own name as trustee for another.

 

n A Totten trust is revocable at will until the grantor dies or completes the gift by some unequivocal act or declaration.

 

n        Constructive Trust: An equitable trust imposed by a court in the interest of fairness and justice when someone wrongfully holds legal title to property.

 

n        Resulting Trust: An implied trust arising from the conduct of the parties, where one party holds legal title to another’s property, but only for the other’s benefit.

TRUSTEES’ DUTIES

 

 

n        Standard of Care: A trustee must administer the trust with (i) honesty, (ii) good faith, and (iii) prudence.  A trustee’s performance of her duties is judged against the degree of care a reasonably prudent person would exercise in her personal affairs.

 

n     Duty of Loyalty: A trustee must act in the exclusive interest of the trust beneficiaries.

 

n     A trustee’s specific duties include:

 

n keeping clear and accurate accounts of the trust’s administration;

 

n furnishing a complete and correct accounting to the beneficiaries;

 

n keeping the trust’s assets separate from her own;

 

n distributing, at reasonable intervals, the net income of trust assets to any income beneficiaries;

 

n diversifying the trust’s assets; and

 

n disposing of unreasonably risky assets.

TRUSTEES’ POWERS

 

 

n     The trust document may prescribe the trustee’s powers and direct the trustee in the performance of her duties.  A trust containing such terms “trumps” state law, unless the terms of the trust are contrary to law or public policy.

 

n     In the absence of specific terms in the trust, a trustee is generally required to:

 

n confine investments of the trust’s principal to conservative debt securities, such as government bonds and first mortgages on realty;

 

n balance the needs of income beneficiaries for a reliable stream of income against the importance of maintaining the principal of the trust for the sake of the principal beneficiaries (the “remaindermen”); and

 

n allocate the expenses of maintaining trust assets between income and principal beneficiaries in accordance with applicable state law.

ESTATE ADMINISTRATION

 

 

n        Personal Representative: A person designated by the decedent’s will (executor or executrix) or by a court (administrator or administratrix), if there is no valid will or if the will fails to name a viable executor(-trix), to administer a decedent’s estate.

 

n        Duties of the Personal Representative include:

 

n collecting and inventorying the decedent’s assets, and having them appraised, as necessary;

 

n managing the estate’s assets and prevent them from being wasted or unnecessarily depleted;

 

n receiving and paying valid claims of the decedent’s creditors;

 

n paying or arranging for payment of income, estate, and inheritance taxes due;

 

n distributing the remaining assets of the estate to the decedent’s beneficiaries; and

 

n preparing a final accounting of the estate.

DISABILITY PLANNING

 

 

n        Durable Power of Attorney: A written – and, where necessary, notarized – document authorizing a party to act on behalf of the person granting the power of attorney when the grantor becomes incapacitated.

 

n        Health Care Power of Attorney: A written – and, where necessary, notarized – document designating a party to have the power to choose what type of and how much medical treatment the grantor will receive when the grantor is incapable of making those decisions for himself.

 

n Living Will: A form of health care power of attorney that informs those reading it whether the maker wants certain lifesaving or life-sustaining procedures to be undertaken in situations where the treatment will not likely improve the maker’s quality of life.

 

n While state laws regarding living wills often require that precise language be used and other formalities be observed, once a valid living will is created, those same laws generally require physicians to abide by the terms of the living will, notwithstanding their best medical judgment.