Chapter 52 Wills and Trusts McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Estate Planning (Definition): Process by which an individual decides what to do with his/her real and personal property during and after life 52-2

The Uniform Probate Code Guides states in developing laws related to estate planning 52-3

Important Estate Planning Tools Will: Legal document that outlines how a person wants his/her property distributed on death Will: Legal document that outlines how a person wants his/her property distributed on death Trust: Allows a person to transfer property to another person; property used for benefit a third person Trust: Allows a person to transfer property to another person; property used for benefit a third person 52-4

Reasons Individuals Engage In Estate Planning To provide for their family financially after their death To provide for their family financially after their death To reduce taxes and preserve wealth To reduce taxes and preserve wealth To promote family “harmony” To promote family “harmony” To allow individuals in non-traditional family relationships to gain benefits of traditional family relationships To allow individuals in non-traditional family relationships to gain benefits of traditional family relationships 52-5

Intestacy Statutes (Definition): Outline how a person’s property will be distributed if he/she dies without a will 52-6

Requirements For A Legally Valid Will Testamentary Capacity: Person must be old enough to write will, and must be “of sound mind” Testamentary Capacity: Person must be old enough to write will, and must be “of sound mind” Document in writing (usually a typed, written instrument) Document in writing (usually a typed, written instrument) Testator’s Signature (including initials on each page) Testator’s Signature (including initials on each page) Witnesses (who “attest to” the will) Witnesses (who “attest to” the will) 52-7

Exhibit 52-2: Special Kinds Of Wills Oral Will: Will that testator declares verbally during his/her last illness, in front of witnesses, who later document testator’s wishes Oral Will: Will that testator declares verbally during his/her last illness, in front of witnesses, who later document testator’s wishes Holographic Will: Will that testator writes and signs in his/her own handwriting; usually states do not require witnesses, because when entire will is in handwriting, less chance of fraud/forgery Holographic Will: Will that testator writes and signs in his/her own handwriting; usually states do not require witnesses, because when entire will is in handwriting, less chance of fraud/forgery Mutual Will: Will that two/more testators execute in which they leave property to each other, provided the survivor agrees that when he/she dies, remaining property will be distributed consistent with plan created by all testators Mutual Will: Will that two/more testators execute in which they leave property to each other, provided the survivor agrees that when he/she dies, remaining property will be distributed consistent with plan created by all testators 52-8

Legal Issues Related To Wills Grounds for contesting will: Grounds for contesting will: Will fails to meet legal requirements Will fails to meet legal requirements Testator a victim of fraud/undue influence Testator a victim of fraud/undue influence Changing will: By writing a will codicil (wills are “ambulatory”, meaning testators can change them) Changing will: By writing a will codicil (wills are “ambulatory”, meaning testators can change them) A “codicil” is a separate document with new provisions that outline changes to will A “codicil” is a separate document with new provisions that outline changes to will Testator must satisfy same procedures to make a valid codicil as those followed in making original will Testator must satisfy same procedures to make a valid codicil as those followed in making original will Revoking will: Most common method is destruction of will Revoking will: Most common method is destruction of will Settlement of estate: By way of a personal representative (executor/executrix), through process known as probate Settlement of estate: By way of a personal representative (executor/executrix), through process known as probate 52-9

Creation of A Trust Person who creates trust (settlor) delivers and transfers legal title to property to another person (trustee), who holds the property and uses it for benefit of third person (beneficiary) Person who creates trust (settlor) delivers and transfers legal title to property to another person (trustee), who holds the property and uses it for benefit of third person (beneficiary) Trusts are usually created through formal, written documents Trusts are usually created through formal, written documents Common trust components: Common trust components: Trust Corpus: Property held in trust Trust Corpus: Property held in trust Income Corpus: Trust income generated through interest and/or appreciation Income Corpus: Trust income generated through interest and/or appreciation 52-10

Types of Trusts Express: Express: Living Trust: Created when settlor is alive Living Trust: Created when settlor is alive Testamentary Trust: Created through a will Testamentary Trust: Created through a will Implied: Created by court Implied: Created by court 52-11

Termination of Trust Through provision in trust which either indicates date on which trust will terminate, or specifies an event that will terminate trust 52-12

End-Of-Life Decisions: “Advance Directives” Types of advance directives (through which person can express his/her wishes about efforts to prolong life, and the “right to die”) include: Living Wills: Allow individuals to express their wishes regarding extent of medical treatment desired if they are in an accident or suffer from a life-threatening illness Living Wills: Allow individuals to express their wishes regarding extent of medical treatment desired if they are in an accident or suffer from a life-threatening illness Health Care Proxies/Durable Powers of Attorney: Allow individuals to make medical decisions for others Health Care Proxies/Durable Powers of Attorney: Allow individuals to make medical decisions for others 52-13

The Uniform Anatomical Gifts Act (UAGA): Provides that any individual 18 years old/older may give all/any part of his/her body to donee on death; such donations are called “anatomical gifts” 52-14

The Convention Providing for a Uniform Law on the Form of an International Will (1973) Sponsored by International Institute for Unification of Private Law (UNIDROIT); protects wills written in other countries, provided the wills follow a particular format 52-15