1. Wills, Intestacy, and Estate Planning
CHAPTER THIRTY-FOUR
Wills, Intestacy, and Estate Planning

2. The Purpose of a Will
A will is legal document that allows a deceased person to direct how his/her business affairs will be concluded, debts paid and remaining assets distributed.
A person who has a valid will at death is said to have died testate.
Testator (male) or testatrix (female): person making the will
Estate: the property interest that a person holds at death
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3. The Purpose of a Will (continued)
The manner of property distribution depends upon whether a person has a will.
When a person dies testate with a will courts will usually try to distribute property in accordance with the deceased’s wishes.
Those who die without a will are said to die intestate (no will).
People who die intestate have their assets distributed according to state statutes.
When a person dies intestate assets are distributed without regard to the person’s wishes.
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4. Portions of a Will
The portion of a will that disposes of property can take many forms:
Residuary gift: a gift by will of the entire estate to one or more persons
Devise: a gift of specific real property
Legacy (bequest): a gift of specific personal property
Beneficiary: person who inherits property
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5. Beneficiaries
If a beneficiary dies before the testator or testatrix, the gift to that person will lapse (not be effective) unless:
The beneficiary is a certain kind of relative of the testator/testatrix:
Child
Grandchild
Sister or brother
The beneficiary died leaving a descendant.
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6. Beneficiaries (continued)
The estate can be distributed either per stirpes or per capita.
Per stirpes: the heirs of the deceased beneficiary will share the gift that would have been made to the deceased beneficiary.
Per capita: each beneficiary will receive an equal share of the distribution.
The method used will depend upon the language used in the will and the court’s interpretation of that language.
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7. Requirements of a Valid Will
The person making the will must:
Have the physical, mental capacity and age to make a will
Usually the age can be from 18 to 21 depending upon the state.
Be free from:
Fraud
Duress (threats)
Undue influence
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8. Requirements of a Valid Will (continued)
Written form:
Generally, a valid will must be in writing.
The will must be signed by the person making the will.
The maker should initial every page of the will.
Witnesses:
Generally, most states require that a will be witnessed by two or three people.
They should sign the will attesting to the fact they witnessed the maker freely sign the will.
A witness cannot be a beneficiary of the will.
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9. Special Wills Holographic will: a written will
Completely in the maker’s hand writing
Signed by the maker
Dated
Some states will recognize a holographic will, but some states will not.
Nuncupative will: an oral will
It is valid only if made during a maker’s final illness.
It must be made in the presence of witnesses.
After the maker’s death, it must be put in writing and signed by the witnesses.
Some states will recognize a nuncupative will, but others will not.
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10. Limitations on Disposing of Property by Will
When a married person dies, the surviving spouse may choose to ignore the will and take a portion of the estate.
The will cannot require people to act in a manner contrary to public policy.
A person cannot be forced to remain single to receive a gift under a will. This would be against the public policy of supporting marriage.
If a charitable gift is made and the charity no longer exists:
The court, under the cy pres doctrine, will choose another charity that comes close to what the maker of the will wanted.
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11. Limitations on Disposing of Property by Will (continued)
A will may only dispose of property that is solely in the name of the maker of the will.
If property is jointly owned, it cannot be disposed of by will.
Life insurance and pension benefits are paid to beneficiaries named in the policy or pension plan records.
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12. Limitations on Disposing of Property by Will (continued)
Certain obligations must be paid on death:
Debts
Estate taxes
Funeral expenses
Costs of administering the estate
These debts must be paid prior to making any distributions of property to beneficiaries or heirs.
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13. Making a Will
To make a will you will need to gather the following information:
Names and addresses of family members
Social security information
A listing of assets and their value
A listing of debts
Information on insurance and job benefits
Once you have gathered all of this information, you need to consult with your attorney to draw up your will.
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14. Making a Will (continued)
Other issues to consider in making up a will:
Who will be the executor or executrix?
Usually, this should be a close relative or friend.
Do you have children? What do you want to give them and when?
Are there charities or schools to which you would like donate?
These are all questions you must consider to make up your will. You should give them all careful thought and also make sure you consult your attorney.
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15. Changing a Will
A will doesn’t become effective until the person making it dies.
Thus, a will can be changed any time up to the death of the person making the will.
A will can be changed:
By destruction of the old will by the will maker
By writing a new will (a new will revokes all previous wills)
By amending a written will (the amendment is known as a codicil)
Automatically by state law, to include children born after a will is written
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16. Changing a Will (continued)
A will may automatically change due to circumstances.
If a piece of property is designated to be left to a particular person, and
That piece of property is destroyed or disposed of before the maker’s death,
That particular will provision will become ineffective.
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17. Probating a Will
Probate is the process of the court determining the validity of the will.
The executor or executrix, with the help of the attorney, will file a petition to have the court declare the will valid and operative.
The court where the will is filed is usually called Probate Court, Surrogate’s Court, or Orphan’s Court.
The procedure followed after probating the will varies from state to state.
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18. Administering the Estate
After probate, the estate will have to take the steps to comply with the will’s direction.
Assets are located, identified, and valued.
Insurance companies and Social Security are notified to allow for determination of benefits.
Debts are determined and paid.
Tax returns for the estate are prepared and filed.
Distribution of the estate assets is carried out.
If there are insufficient funds to pay all bequests, then all bequests are decreased according to a formula.
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19. Intestacy If a person dies without a will:
The court will appoint an administrator or administratrix to administer the estate.
Property, after payment of debts, taxes, and expenses, is distributed to heirs in accordance with state rules.
Heirs are persons related by blood or marriage to the deceased.
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20. Living Wills and Health Care Proxies
Living will: a document that expresses a person’s preferences regarding health care decisions.
A living will comes into play if the person is unable to make such decisions for themselves.
Health care proxy: an agent is allowed (in some states) to make health care decisions when the person who appointed the agent is unable to do so.
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21. The Need for Estate Planning
Estate planning is a program designed to minimize estate taxes while distributing your assets in accordance with your goals.
Distribution of assets can take place during the life or after the death of the person.
Estate planning also includes ensuring that you have enough assets to finance retirement.
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22. Taxes and Estate Planning
Depending on the size of the estate, taxes may consume a large portion of the estate’s value.
Estate planning takes into account your goals for distributing your assets while making the effort to minimize taxes.
Estate tax: tax on the value of a person’s assets at death
Estates are taxed by the federal government.
Some states also have a state- level estate tax.
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23. Taxes and Estate Planning (continued)
Estate tax is on the net estate.
The net estate is computed by taking the value of the estate’s assets and subtracting from it the following:
Funeral and administrative expenses
Debts of the deceased
Gifts to charitable and educational institutions.
Distributions to a spouse are not subject to the estate tax.
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24. Gifts The estate tax and gift tax are designed to work together.
People can avoid some estate taxes by giving away assets prior to death.
Gifts are subject to tax at the same rates as the estate tax.
There are exceptions provided in the law:
A person may give a gift of up to $11,000 in cash or property per year, per gift recipient.
A married couple can give $22,000 per year.
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25. Gifts (continued) A gift is made by:
Delivery of the gift to the recipient
Opening a bank account for the person receiving the gift
For the gift to be valid there must be:
An intention to make a gift
Delivery of the gift
Acceptance and control of the gift by the recipient
It is always best to document a gift in writing, giving:
The date of the gift, and
A description of the property given as a gift.
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26. Marital Deduction
The marital deduction allows all transfers between a husband and wife to pass tax- free.
The marital deduction effectively postpones payment of estate tax until the death of the spouse who received property.
Estate taxes will be paid when the surviving spouse dies.
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27. Trusts
Trust: a plan where a person (the trustee) is given assets to hold for the beneficiary of the trust.
The beneficiary is the person who will receive the benefit of the trust assets and income.
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28. Trusts (continued)
Trusts can be created during the life of the person creating the trust (the trustor) or through a provision in a will.
A trust created during the life of the trustor is known as an inter vivos trust (“between the living”) or living trusts
In a revocable living trust, the trustor may change or revoke the trust at any time.
In an irrevocable living trust, the trustor cannot change its terms or revoke the trust once it has been established.
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29. Trusts (continued)
A trust created through a will is known as a testamentary trust.
A testamentary trust is established during the lifetime of the trustor, but the property is placed in the trust only at the trustor’s death.
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30. Trusts (continued) Trusts
Offer flexibility in providing income as needed
Offer privacy: a trust never becomes public knowledge
Allow the trustor to control who will get what assets and when they will get them
Trusts can offer considerable income and estate tax advantages.
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31. Developing an Estate Plan
Developing estate plans requires the help of a lawyer and/or accountant.
The lawyer or accountant will:
Advise you of what information is required to create a trust
Help you decide what your goals are and how to achieve them within your situation
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