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