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BUS 116 Chap031 wills trusts and advance directives

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BUS 116 Chap031 wills trusts and advance directives

  1. 1. 1 Chapter 31 Wills, Trusts, and Advanced Directives
  2. 2. 2 Learning Objectives 1. Give details about the sources of probate law and its relevance to business entities. 2. Explain the formal requirements for executing a will. 3. Determine whether a person who makes a will has the capacity to do so. 4. Compare the protection of children with the protection of spouses under the law of wills. 5. Identify the different methods of revoking or changing a will.
  3. 3. 3 Learning Objectives (cont.) 6. Explain the three grounds for contesting a will. 7. Describe who will inherit the property of someone who dies without a will. 8. Describe the steps to be taken by an executor or administrator in settling an estate. 9. Discuss the types and purposes of advance directives. 10. Differentiate among the various types of trusts and determine when they might be used.
  4. 4. 4 Sources and Relevance of Probate Law • Probate – refers to the process of handling the will and the estate of a deceased person.
  5. 5. 5 Probate Terminology • Will – Formal document that governs the transfer of property at death • A person who dies with a will is said to die testate. • A person who dies without a will is said to die intestate.
  6. 6. 6 Probate Terminology • Bequest (or legacy) – Personal property that is left by will • Devise* – Real property that is left by will • Beneficiaries – Those who receive property by will • Heir – Broader term referring to a person who inherits property either under a will or from a person dying without a will *under uniform probate code, devise refers to both real and personal property
  7. 7. 7 Requirements for Executing a Will • Vary from state to state • Formal Requirements: – in writing – signed by the testator – attested to in the testator’s presence by the number of witnesses established by state law • Each of the particular statutory requirements of the state where the will is made must be met for a will to be valid.
  8. 8. 8 Need for Accuracy • Certain words often used in wills may have a legal interpretation that is different from their everyday meaning. • Care must be taken to describe each bequest and devise in a manner that will satisfy the legal definition.
  9. 9. 9 Informal Wills • Holographic will – One that is not witnessed but is written entirely in the handwriting of the testator • Nuncupative wills – Oral wills made by persons in their last illness or by soldiers and sailors in actual combat
  10. 10. 10 In NC § 31-3.2. Kinds of wills. • (a) Personal property may be bequeathed and real property may be devised by – (1) An attested written will which complies with the requirements of G.S. 31-3.3, or – (2) A holographic will which complies with the requirements of G.S. 31-3.4. • (b) Personal property may also be bequeathed by a nuncupative will which complies with the requirements of G.S. 31-3.5. (1953, c. 1098, s. 2.)
  11. 11. 11 § 31-3.3. Attested written will. • (a) An attested written will is a written will signed by the testator and attested by at least two competent witnesses as provided by this section. • (b) The testator must, with intent to sign the will, do so by signing the will himself or by having someone else in the testator's presence and at his direction sign the testator's name thereon. • (c) The testator must signify to the attesting witnesses that the instrument is his instrument by signing it in their presence or by acknowledging to them his signature previously affixed thereto, either of which may be done before the attesting witnesses separately. • (d) The attesting witnesses must sign the will in the presence of the testator but need not sign in the presence of each other. (1953, c. 1098, s. In NC
  12. 12. 12 Protection of Spouses • Family Allowance (Widow’s allowance) – an amount of money taken from the decedent’s estate and given to the family to meet its immediate needs while the estate is being probated. • § 30-15. When spouse entitled to allowance. • Every surviving spouse of an intestate or of a testator, whether or not he or she has petitioned for an elective share, shall, unless the surviving spouse has forfeited his or her right thereto, as provided by law, be entitled, out of the personal property of the deceased spouse, to an allowance of the value of twenty thousand dollars ($20,000) for the surviving spouse's support for one year after the death of the deceased spouse. Such allowance shall be exempt from any lien, by judgment or execution, acquired against the property of the deceased spouse, and shall, in cases of testacy, be charged against the share of the surviving spouse.
  13. 13. 13 Protection of Spouses • Homestead exemption – puts the family home beyond the reach of creditors up to a certain limit ($35,000 in NC, or $60,000 if over 65 years of age and previously owned the house with their deceased spouse) • Exempt property – certain property of a decedent that passes to the surviving spouse or children and is beyond the reach of creditors • Exempt property NC
  14. 14. 14 Protection of Spouses • Forced share (Elective share) – A surviving spouse who does not like the provisions of a deceased spouse’s will may choose to take a portion of the estate set by state statute rather than accept the amount provided in the will
  15. 15. 15 In NC • § 30-3.1. Right of Elective Share – (1) If the decedent is not survived by any lineal descendants, one-half of the Total Net Assets. – (2) If the decedent is survived by one child, or lineal descendants of one deceased child, one-half of the Total Net Assets. – (3) If the decedent is survived by two or more children, or by one or more children and the lineal descendants of one or more deceased children, or by the lineal descendants of two or more deceased children, one-third of the Total Net Assets. • (b) Reduction of Applicable Share. – In those cases in which the surviving spouse is a second or successive spouse, and the decedent has one or more lineal descendants surviving by a prior marriage but there are no lineal descendants surviving by the surviving spouse, the applicable share as determined in subsection (a) of this section shall be reduced by one-half.
  16. 16. 16 Protection of Children • Children who can prove that they were mistakenly (rather than intentionally) left out of a parent’s will are protected by the laws of most states. • Adopted children treated as natural children • Stepchildren do not inherit from a stepparent unless they have been adopted
  17. 17. 17 Revoking and Changing a Will A will may be revoked in any of the following ways: 1. burning, tearing, canceling, or obliterating the will with the intent to revoke it 2. executing a new will 3. in some states, the subsequent marriage of the testator (not in NC)
  18. 18. 18 Revoking and Changing a Will • Codicil – A formal document used to supplement or change an existing will – When properly executed, has the effect of republishing the will, possibly validating a previously invalid will
  19. 19. 19 Contesting a Will • A will may be contested on any of three grounds: – improper execution – unsound mind – undue influence • Only persons who would inherit under an earlier made will or under the law of intestacy are allowed to contest a will.
  20. 20. 20 Dying Without a Will • Intestate succession – state laws that contain the rules governing the allocation of intestate property – Personal property – distributed according to laws of state where deceased permanently resided at the time of death – Real property – passes according to law where the property is located – If no surviving spouse and no blood relatives, estate escheats to the state
  21. 21. 21 Rights of the Surviving Spouse • § 29-14 (greatly shortened and simplified paraphrase) • If the intestate has no other descendants/parents, spouse gets all of the real and personal property • If the intestate has other descendants, spouse gets a reduced amount, depending on their number and nature.
  22. 22. 22 Rights of Other Heirs • § 29-15. Shares of others than surviving spouse. • Those persons surviving the intestate, other than the surviving spouse, shall take that share of the net estate not distributable to the surviving spouse, or the entire net estate if there is no surviving spouse, as follows: • (1) If the intestate is survived by only one child or by only one lineal descendant of only one deceased child, that person shall take the entire net estate or share, but if the intestate is survived by two or more lineal descendants of only one deceased child, they shall take as provided in G.S. 29-16; or • (2) If the intestate is survived by two or more children or by one child and any lineal descendant of one or more deceased children, or by lineal descendants of two or more deceased children, they shall take as provided in G.S. 29-16; or • (3) If the intestate is not survived by a child, children or any lineal descendant of a deceased child or children, but is survived by both parents, they shall take in equal shares, or if either parent is dead, the surviving parent shall take the entire share; or • (4) If the intestate is not survived by such children or lineal descendants or by a parent, the brothers and sisters of the intestate, and the lineal descendants of any deceased brothers or sisters, shall take as provided in G.S. 29-16; or • (5) If there is no one entitled to take under the preceding subdivisions of this section or under G.S. 29-14, • a. The paternal grandparents shall take one half of the net estate in equal shares, or, if either is dead, the survivor shall take the entire one half of the net estate, and if neither paternal grandparent survives, then the paternal uncles and aunts of the intestate and the lineal descendants of deceased paternal uncles and aunts shall take said one half as provided in G.S. 29-16; and • b. The maternal grandparents shall take the other one half in equal shares, or if either is dead, the survivor shall take the entire one half of the net estate, and if neither maternal grandparent survives, then the maternal uncles and aunts of the intestate and the lineal descendants of deceased maternal uncles and aunts shall take one half as provided in G.S. 29-16; but • c. If there is no grandparent and no uncle or aunt, or lineal descendant of a deceased uncle or aunt, on the paternal side, then those of the maternal side who otherwise would be entitled to take one half as hereinbefore provided in this subdivision shall take the whole; or • d. If there is no grandparent and no uncle or aunt, or lineal descendant of a deceased uncle or aunt, on the maternal side, then those on the paternal side who otherwise would be entitled to take one half as hereinbefore provided in this subdivision shall take the whole. (1959, c. 879, s. 1.)
  23. 23. 23 Hierarchy • Children • Grandchildren • Parents • Siblings / children of siblings • Grandparents • Aunts/uncles • Any other blood relative • The State
  24. 24. 24 Simultaneous Death • Uniform Simultaneous Death Act – contains rules that are followed when the inheritance of property depends upon the time of death, and there is nothing to indicate that the parties died other than at the same time.
  25. 25. 25 Simultaneous Death 1. The separately owned property of each person passes as if he or she had survived, unless a will or trust provides otherwise. – husband and wife die together in a plane crash, the husband’s individually owned property passes to his heirs as though his wife were not living at the time of his death. 2. Property owned jointly by both of the deceased is distributed equally. – half of the couple’s jointly owned property passes to the husband’s heirs; the other half passes to the wife’s heirs. 3. When the beneficiary of an insurance policy dies at the same time as the deceased, the proceeds of the insurance policy are payable as if the insured had survived the beneficiary. – the wife was the beneficiary on the husband’s life insurance policy. The wife would be regarded as deceased at the time of the husband’s death. The proceeds of the policy go to the husband’s estate, unless an alternate beneficiary is named in the policy. (120-hour rule in NC)
  26. 26. 26 Settling an Estate • When people die owning assets, their estates must be probated – settled under the supervision of the court
  27. 27. 27 Settling an Estate • Before an executor or administrator is appointed, notice of the petition for appointment is published in a newspaper and sent to all heirs, legatees, and devisees. • Anyone with grounds to object may do so.
  28. 28. 28 Advance Directives • Written statements in which people give instructions for their future medical care if they become unable to do so themselves. – Living will • expresses a person’s wishes regarding life-prolonging medical treatments, becomes effective upon incapacity – Health care proxy • authorizes an agent to make medical treatment decisions in the event of incapacity
  29. 29. 29 –Durable power of attorney • Document authorizing another person to act on one’s behalf with words stating that it is to either: –Survive one’s incapacity –Become effective when one becomes debilitated • POA in NC • Health Care POA NC Advance Directives (cont.)
  30. 30. 30 Trusts • Legal device by which property is held by one person (the trustee) for the benefit of another (the beneficiary) – Settlor – person who sets up the trust – Corpus (trust fund) – property held in the trust
  31. 31. 31 Types of Trusts • Testamentary trust – Created by a will – Comes into existence only upon the death of the testator – Terms and names of trustee and beneficiaries are set out in the body of the will – Provision made for final distribution of assets once the purpose of the trust has been served
  32. 32. 32 Types of Trusts • Living trust, (inter vivos trust) – Comes into existence while the settlor is alive – Established by either: • a conveyance in trust • a declaration of trust
  33. 33. 33 Types of Trusts • Conveyance in trust – Settlor conveys away the legal title to a trustee to hold for the benefit of either the settlor or another as a beneficiary • Declaration of trust – Settlor holds the legal title to the property as trustee for the benefit of some other person to whom the settlor now conveys the equitable title.
  34. 34. 34 Types of Trusts • A living trust may be: – Irrevocable • Settlor loses complete control over trust and cannot change it or take it back • Income from trust not taxable to settlor, and avoids estate and inheritance taxes – Revocable • May be taken back or changed at any time during the settlor’s lifetime • No estate tax or income tax advantages
  35. 35. 35 Other Topics • Spendthrift trust – Designed to provide for the maintenance of a beneficiary, while also securing the fund against their incompetence/improvidence – In NC, a spendthrift provision must be put into a trust to protect against voluntary or involuntary transfer of a beneficiary’s interest – Beneficiary cannot assign the trust to other people, and the trust is not subject to claims by beneficiary’s creditors
  36. 36. 36 Other Topics • Charitable trust (public trust) – To be valid, beneficiary must be uncertain (advancement of education, promotion of religion, etc.) – Not subject to rule against perpituities • Sprinkling trust (spray trust) – Allows the trustee (instead of the settlor) to decide how to distribute money to beneficiaries
  37. 37. 37 Obligations of the Trustee • Use a high standard of care and prudence in investment of funds – May be liable for losses if violates the standard of care and prudence • Supervise and care for real property
  38. 38. 38 Question? What refers to the process of handling the will and the estate of a deceased person? A. Financial planning B. Probate C. Estate planning D. Domain planning
  39. 39. 39 Question? What document can authorize another person to act on one’s behalf? A. Durable power of attorney B. Estate will C. Executor power of attorney D. Legal estate document
  40. 40. 40 Question? A person who dies without a will is said to die ___________. A. Detestate B. Indetestate C. Testate D. Intestate
  41. 41. 41 Question? What will is not witnessed but is written entirely in the handwriting of the testator? A. Nuncupative will B. Homographic will C. Holographic will D. Discupative will
  42. 42. 42 Question? What formal document is used to supplement or change an existing will? A. Power of attorney B. Testamentary will C. Codicil D. Legal appendix
  43. 43. 43 Question? What is a legal device by which property is held by one person for the benefit of another? A. Will B. Asset account C. Trust D. Codicil

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