BUS 116 Chap031 wills trusts and advance directives
Wills, Trusts, and Advanced Directives
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
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.
Sources and Relevance of Probate Law
– refers to the process of handling the will and the estate
of a deceased person.
– Formal document that governs the transfer of property
• A person who dies with a will is said to die testate.
• A person who dies without a will is said to die
• Bequest (or legacy)
– Personal property that is left by will
– Real property that is left by will
– Those who receive property by will
– 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
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.
Need for Accuracy
• Certain words often used in wills may have a legal
interpretation that is different from their everyday
• Care must be taken to describe each bequest and
devise in a manner that will satisfy the legal
• 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
§ 31-3.2. Kinds of wills.
• (a) Personal property may be bequeathed and real property may be
– (1) An attested written will which complies with the requirements of G.S.
– (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,
§ 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.
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.
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
• Exempt property
– certain property of a decedent that passes to the
surviving spouse or children and is beyond the reach of
• Exempt property NC
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
• § 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.
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
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)
Revoking and Changing a Will
– A formal document used to supplement or change an
– When properly executed, has the effect of republishing
the will, possibly validating a previously invalid will
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.
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
– Real property – passes according to law where the
property is located
– If no surviving spouse and no blood relatives, estate
escheats to the state
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
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
• (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.
• 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.)
• Siblings / children of siblings
• Any other blood relative
• The State
• 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.
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
– 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)
Settling an Estate
• When people die owning assets, their estates must
– settled under the supervision of the court
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
• Anyone with grounds to object may do so.
• 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
–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.)
• Legal device by which property is held by one
person (the trustee) for the benefit of another (the
– Settlor – person who sets up the trust
– Corpus (trust fund) – property held in the trust
Types of Trusts
• Testamentary trust
– Created by a will
– Comes into existence only upon the death of the
– 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
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
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
• 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.
Types of Trusts
• A living trust may be:
• 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
• May be taken back or changed at any time during the settlor’s
• No estate tax or income tax advantages
• 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
– Beneficiary cannot assign the trust to other people, and the trust
is not subject to claims by beneficiary’s creditors
• 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
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
• Supervise and care for real property
What refers to the process of handling the will and
the estate of a deceased person?
A. Financial planning
C. Estate planning
D. Domain planning
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
A person who dies without a will is said to die
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
What formal document is used to supplement or
change an existing will?
A. Power of attorney
B. Testamentary will
D. Legal appendix
What is a legal device by which property is held by
one person for the benefit of another?
B. Asset account