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Chapter 31 – Wills, Trusts, and Advanced Directives

Chapter 31

Wills, Trusts, and Advanced Directives

I. Key Terms

Administrator (p. 766) Intestate (p. 756)

Administratix (p. 766) Intestate succession (p. 764)

Advance directives (p. 767) Issue (p. 765)

Bequest (p. 756) Last will and testament (p. 756)

Bond (p. 766) Legatees (p. 756)

Codicial (p. 763) Living trust (p. 771)

Conveyance in trust (p. 771) Living will (p. 767)

Declaration of trust (p. 771) Next of kin (p. 765)

Devise (p. 756) Nuncupative wills (p. 760)

Devisees (p. 756) Personal representative (p. 766)

Durable power of attorney (p. 756) Probate (p. 755)

Elective share (p. 760) Probated (p. 766)

Executor (p. 766) Sureties (p. 766)

Executrix (p. 766) Testamentary trust (p. 771)

Exempt property (p. 760) Testate (p. 756)

Family allowance (p. 760) Testator (p. 756)

Fiduciary (p. 767) Testatrix (p. 756)

Forced share (p. 760) Trust (p.770)

Gericide (p. 769) Trustee (p. 770)

Health care proxy (p. 767) Widow’s allowance (p. 760)

Heir (p. 756) Will (p. 756)

Homestead exemption (p. 760)

II. Learning Objectives

1. Give details about the sources of probate law and its relevance to business entities.

2. Identify the formal requirements for executing a will.

3. Determine whether a person who makes a will has the capacity to do so.

4. Explain how the Supreme Court’s ruling involving DOMA affected the law.

5. List the different methods of revoking or changing a will.

6. Outline 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.

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III. Major Concepts

31-1 Sources and Relevance of Probate Law

Because each state’s law is different on the subject of probate law, it is necessary to check

one’s own state law when dealing with probate matters. Furthermore, the subject of

probate law is relevant to all forms of business entities.

31-2 The Law of Wills

The terms will, last will and testament, testate, intestate, testator, testatrix, bequest,

devise, legatees, devisees, and heir are frequently used in the field of probate law. Any

person who has reached adulthood and is of sound mind may make a will. Wills must be

in writing, signed by the testator, and attested to in the testator’s presence by two

witnesses in most states. In some states, no formalities are necessary when a holographic

will is made. Surviving spouses are given protection through such provisions as a family

allowance, a homestead exemption, exempt property, and the rights of dower and curtesy.

Spouses in states that recognize same sex marriages can now claim all of the protection

methods available to traditional spouses regarding estate planning. Also, because of the

Supreme Court’s rulings in the Windsor and Obergefell cases, the surviving spouse of a

same sex marriage can now claim an inheritance as an exemption when paying federal

taxes. A will may be revoked by burning, tearing, canceling, or obliterating the will with

the intent to revoke it; by executing a new will; and in some states, by the subsequent

marriage of the testator. A will may be contested on the grounds of improper execution,

unsound mind, and undue influence. When people die without a will, their property

passes to others according to the law of intestate succession, which varies from state to

state. Special rules apply when people die simultaneously. Separately owned property

passes as if its owner had survived the other person. Property owned jointly by both

decedents is distributed equally. Insurance proceeds are payable as if the insured survived

the beneficiary when they both die at the same time. When people die owning assets,

their estates must be probated. Heirs are notified, and an executor or administrator is

appointed by the probate court.

31-3 Advanced Directives

Advance directives are written statements in which people give instructions for their

future medical care if they become unable to direct their care themselves. The most

common type of advance directive is the living will, which is a written expression of a

person’s wishes to be allowed to die a natural death and not kept alive by heroic or

artificial methods. Another vehicle that is used for this purpose is the health care proxy—

a written statement authorizing an agent to make medical treatment decisions for another

in the event of incapacity.

31-4 The Law of Trusts

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Trusts are used, among other reasons, to save taxes, provide for the needs of young

children, and prevent money from being squandered easily. They may be created to take

effect while a person is alive or after a person dies. When a trust is established, title is

split between the trustee, who holds legal title, and the beneficiary, who holds equitable

or beneficial title. The trustee manages the trust fund for the beneficiary.

IV. Outline

I. Sources and Relevance of Probate Law (31-1)

A. Probate

1. Probate is the process of handling the will and the estate of a deceased person.

2. Each state has its own laws governing the writing of wills and the settling of estates.

3. Not all states have adopted the Uniform Probate Code.

B. Relevance of Probate to Business

1. When a sole proprietor dies, the assets of the deceased’s business pass to the

deceased’s heirs.

2. When owners of a corporation die, their shares of stock pass to their heirs.

3. When a partner in a partnership dies, the partnership automatically dissolves.

C. Probate Terminology

1. A will is a formal document that governs the transfer of property at death.

2. A person who dies with a will is said to die testate.

3. A person who dies without a will is said to die intestate.

4. Real property left by a will is known as a devise.

5. Those who receive property by will are referred to as beneficiaries.

6. An heir is one who inherits property.

7. A durable power of attorney is a document authorizing another person to act on one’s

behalf with words stating that is to survive one’s incapacity or is to become effective

when one becomes debilitated.

II. The Law of Wills (31-2)

A. Requirements for Executing a Will

1. Laws governing the making of wills are not uniform.

2. A will that is properly executed according to the laws of one state will be given full

faith and credit in another state.

3. Any person who has reached the age of adulthood and is of sound mind may make a

will.

4. With the exception of a nuncupative will, a will must be in writing and signed by the

testator with witnesses as required by state law.

5. Problems may be avoided by the testator signing only one will, not an original and a

copy.

6. In some states the testator must sign the will in the presence of the witnesses.

7. In many states, persons and their spouses who witness a will may not receive gifts

under the will unless there are other witnesses or they will receive only the amount

they would have received in the absence of a will.

8. A holographic will is one that is not witnessed but is written entirely in the

handwriting of the testator.

9. Approximately half the states recognize holographic wills as valid.

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10. Oral wills made by persons in their last illness or by soldiers and sailors in actual

combat are nuncupative wills.

11. Nuncupative are valid only in some states and are restricted to the giving of personal

property.

B. Protection of Spouses and Children

1. Protection of Spouses

a. Some states provide for a family allowance which is 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.

b. A homestead exemption puts the family home beyond the reach of creditors up to

a certain limit.

c. Exempt property is certain property of a decedent that passes to the surviving

spouse or children and is beyond the reach of creditors.

d. In some states dower and curtesy are available, providing surviving spouses with

certain property rights in real property.

e. Surviving spouses are assured a share of a deceased spouse’s estate and may elect

to take a forced, or elective, share.

2. Protection of Children

a. 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.

b. A testator who wishes to disinherit a child should name the child in the will and

make the statement that the child was intentionally omitted.

c. Adopted children are given the same legal rights as natural children.

C. Advantages and Disadvantages of the Windsor Ruling

1. The Windsor case had a tremendous impact on financial planning.

2. After Windsor, the surviving spouse of a same sex marriage could claim an

inheritance as an exemption when paying federal taxes.

3. Because of the Court’s ruling in Windsor, employer-provided health coverage for an

employee’s same sex spouse was no longer taxable.

4. After Windsor, same sex married couples were no longer able to file income tax

returns as single individuals.

D. The Obergefell v. Hodges Case

1. In the case of Obergefell v. Hodges, five justices ruled that any state action, legislative

or constitutional, that limited the definition of marriage to opposite sex couples

violated the due process and equal protection clauses of the 14th Amendment.

2. The majority ran through a series of cases, each one ruling that under the Due Process

Clause the fundamental right to be married cannot be procedurally dismantled or

limited without some compelling state reason to do so.

E. Changes in Estate Planning

1. Spouses in a same sex marriage can now claim all of the protection methods available

to traditional spouses in estate planning.

2. The family allowance, the homestead exemption, and the exempt property provisions

should be available to same sex married couples.

3. Obergefell may result in additional questions involving restrictions on marriage such

as provisions regarding marrying several people simultaneously or marrying someone

of a close genetic relationship.

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F. Revoking, Changing, and Contesting a Will

1. With state variations, a will may be revoked in any of the following ways:

a. Burning, tearing, canceling, or obliterating the will with the intent to revoke it

b. Executing a new will

c. Depending on the state, marriage, divorce, or annulment.

2. A codicil is a formal document used to supplement or change an existing will that

must be executed with the same formalities as a will.

3. Only persons who would inherit under an earlier made will or under the law of

intestacy are allowed to contest a will.

4. A will may be contested on any of the following grounds:

a. Improper execution

b. Unsound mind

c. Undue influence

G. Dying Without a Will

1. When people die without a will, their property passes to others according to the

various state laws of intestate succession.

2. Personal property is dispersed according to the law of the state where the deceased

permanently resided.

3. Real property passes according to the law where the property is located.

4. Rights of a surviving spouse differ from state to state and may be affected by issues

including whether the deceased is survived by issue or blood relatives.

5. Subject to the rights of a surviving spouse, property typically passes in equal shares to

the deceased’s children, with the issue of any deceased child taking that child’s share.

6. If the deceased has no issue, other relatives inherit.

H. Simultaneous Death

1. The Uniform Simultaneous Death Act may be applied 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.

2. Primary sections of the act are as follows:

a. The separately-owned property of each person passes as if he or she had survived

unless a will or trust provides otherwise.

b. Property owned jointly by both the deceased is distributed equally to the

husband’s heirs and the wife’s heirs.

c. 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.

I. Settling an Estate

1. When a person dies owning assets, his or her estate must be probated and settled

under the supervision of the court.

2. If a will exists, it usually names a personal representative called an executor (male) or

executrix (female) who is the person named in the will to carry out its terms.

3. A court may appoint a person to settle an estate of a person who has no will or when

an executor or executrix named in a will fails to act, and that person is called an

administrator (male) or administratrix (female).

4. In states that have adopted the Uniform Probate Code, people who settle an estate are

called personal representatives.

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5. The person charged with settling an estate may be required to post a bond.

6. The person charged with settling an estate is a fiduciary.

III. Advance Directives (31-3)

A. Living Wills and Health Care Proxies

1. Advance directives are written statements in which people give instructions for future

medical care if they become unable to do so themselves.

2. A living will is the written expression of a person’s wishes to be allowed to die a

natural death and not be kept alive by heroic or artificial methods.

3. A health care proxy is a written statement authorizing an agent to make medical

treatment decisions for another in the event of incapacity.

B. The Right to Die and the Supreme Court

1. The Government’s Compelling Interest in Life

a. In 1990 the United States Supreme Court ruled that the right to die is guaranteed

by the Due Process Clause of the United States Constitution.

b. According to the Supreme Court at the point of viability, the government has a

compelling interest in preserving the life of a fetus that outweighs the mother’s

right to have an abortion; and the point of viability has become a moving target.

2. Living Wills and the Right to Die

a. According to the Supreme Court, the government cannot prevent passive

euthanasia in accordance with a living will because it must protect due process,

but it can prevent abortion because it has a compelling interest in preserving life.

b. The balancing act between the government’s compelling interest in life and the

rights guaranteed by due process is still open to debate.

3. The Science Court Revisited

a. A proposed science court would be made up of scientists, engineers, and other

experts educated in the discipline and the industry involved in a dispute.

b. Issues involving matters such as living wills and the right to die would be

candidates for a science court.

IV. The Law of Trusts (31-4)

A. Background

1. A trust is a legal device by which property is held by one person, the trustee, for the

benefit of another, the beneficiary.

2. The property that is held in trust is the corpus or trust fund.

3. State rules, such as the rule against perpetuities, may prevent property form being

held in trust indefinitely.

B. Types of Trusts

1. A testamentary trust is a trust that is created by a will.

2. A living trust comes into existence while the settler is alive and is established by

either a conveyance in trust or a declaration of trust.

3. In a conveyance in trust, the settler conveys away the legal title to a trustee to hold for

the benefit of either the settler or another as beneficiary.

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4. In a declaration of trust, the settler holds the legal title to property as trustee for the

benefit of some other person to whom the settler now conveys the equitable title.

5. A living trust may be either irrevocable or revocable.

6. A spendthrift trust, which is not permitted in some states, is designed to provide a

fund for the maintenance of a beneficiary and, at the same time, to secure the fund

against that person’s improvidence or incapacity.

7. A charitable or public trust is one established for charitable purposes, and the rule

against perpetuities would not apply.

8. A sprinkling trust, or spray trust, allows the trustee to decide how much will be given

to each beneficiary rather than have the settlor make the decision.

C. Obligations of the Trustee

1. The trustee is obligated by law to use a high standard of care and prudence in the

investment of funds held by the trust.

2. A trustee relationship is one of great and continuing responsibility.

V. Background Information

A. Cross-Cultural Notes

1. The modern spendthrift trust evolved because of unjust restrictions on the property

rights of married women under British common law. Up until the nineteenth century

in England, a woman’s property was automatically transferred to her husband upon

marriage. Sometime after 1700, however, fathers began to set up spendthrift trusts for

their daughters’ property. Today, spendthrift trusts are not allowed in England,

although some trusts protective of beneficiaries are permitted.

B. Historical Notes

1. While some areas of early Greece recognized the concept of wills, the development of

Roman law furthered the modern concept of wills. A will is mentioned in the Old

Testament under which Jacob left Joseph a portion of inheritance double that of his

brothers. Under the English Statute of Wills (1540) and according to early American

law, a married woman was not allowed to dispose of real property. She could dispose

of personal property only with her husband’s consent.

2. In England, the Wills Act (1837) broadened individuals’ rights to include disposal of

both personal and real property.

3. The first known will was found carved on the tomb of a man named Nek’ure, the son

of an Egyptian Pharoah who died n 2601 B.C.. The will divided fourteen towns and

two estates among Nek’ure’s wife, three children, and another woman. The will states

that Nek’ure composed it “while standing on [his] own two feet and not ailing in any

respect.”

4. A brief will, dated January 19, 1967, was written by Karl Tausch of Langen, Hesse,

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Germany. It said, Vse zene, which is Czechoslovakian for “all to wife.” Another will

was scratched into a metal identification tag worn by a British soldier who had been

lost at sea. A microscope had to be used to see the letters, which read, “All to

mother.”

5. The law of primogeniture in Europe—the eldest son’s right to inheritance— had its

origins in Medieval Europe. Primogeniture was abolished in the United States shortly

after the Revolutionary War.

C. State Variations

1. In Puerto Rico, spouses and also children have inheritance rights.

2. Roughly half the states permit holographic wills. Some limit them, for example, to

those serving in the military.

3. Under Roman law, a child was entitled to “legitime,” which was his or her share of

parents’ property, and parents could not contest the child’s right. Louisiana is the only

state to still abide by legitime under certain situations.

4. Iowa has state laws that are generous to spouses in cases of intestacy. If the deceased

leaves no children or only children from marriage to the surviving spouse, the spouse

receives the whole estate. If the deceased leaves children that are not the spouse’s,

then the spouse receives $50,000 plus half of the estate over that amount, and the

children receive the rest.

5. Most states have statutes that provide that a beneficiary who has murdered the

deceased shall not receive any benefits from the deceased’s will or in intestacy

proceedings.

6. The Washington Post has an article titled “Brittany Maynard, as Promised, Ends Her

Life at 29” and a video regarding her actions to end her life under the Oregon Death

With Dignity Act based on a terminal illness available at

https://www.washingtonpost.com/news/morning-mix/wp/2014/11/02/brittany-maynar

d-as-promised-ends-her-life-at-29/.

D. Quotations

1. I have nothing; I owe a great deal; the rest I give to the poor.

— from the will of François Rabelais (1483–1553), French satirist

2. I give unto my wife my second best bed with the furniture.

— William Shakespeare (1564–1616), British dramatist and poet

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3. Put not your trust in money, but put your money in a trust.

— Oliver Wendell Holmes (1809–1894), physician, author, and father of U.S.

Supreme Court justice of the same name

VI. Terms

1. Will comes from the Old English words willa and wille, in use before the twelfth

century and meaning intention or desire.

2. The word heir comes from the Middle English eir.

VII. Related Cases

1. Over forty wills surfaced immediately following the death of eccentric billionaire

Howard Hughes. The most famous was the “Mormon Will,” so-called because it was

discovered on the desk of a Mormon official in Salt Lake City. The will stipulated that

a Utah gas station attendant, Melvin Dummar, was entitled to one-sixteenth of

Hughes’s estate. Dummar claimed that he had once picked up a disheveled old man,

later discovered to be Howard Hughes, on a Nevada highway and given the man a lift

to Las Vegas. A Nevada court eventually ruled that the Mormon Will was a fake,

despite testimony from Hughes’s associates that it was authentic. The 1980 movie

Melvin and Howard was based on the case.

2. A mother died with a will naming her sole surviving daughter as beneficiary. Her

previously-deceased daughter had three children who sued to receive a share,

claiming that they were mistakenly left out of the will. The surviving daughter

attempted to show an earlier will that explicitly stated the granddaughters were to

receive nothing. The court ruled in the granddaughters’ favor, stating that the previous

will had been revoked and there was no evidence in the final will that the

granddaughters had been omitted intentionally. Armstrong v. Butler, 553 S.W.2d 453

(Ark. 1977).

3. The case of In re Estate of David R. Leath, 294 S.w.3d 571 (Tenn.Ct.App. 2008),

involved an effort by the decedent’s widow and stepdaughters to establish a copy of a

lost will as the decedent’s last will and testament. The defendant was shot and killed.

After his death, a dispute arose between his wife and the decedent’s adult daughter

from a previous marriage. Each claimed that the other shot the decedent. In a dispute

over his estate, the court ruled that there was insufficient proof to establish that a will

leaving the bulk of the decedent’s estate to the wife was lost as opposed to

intentionally destroyed.

VIII. Teaching Tips and Additional Resources

1. Some states have information available regarding living wills and other advance

directives. For example, information provided by the State of Tennessee regarding

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Chapter 31 – Wills, Trusts, and Advanced Directives

advance directives is available at https://tn.gov/health/article/advance-directives.

Additional information is available from the Public Broadcasting Service at

http://www.pbs.org/now/shows/541/living-wills.html.

2. An interesting document is the last will and testament of George Washington which is

available on the web site of the Ashbrook Center at

http://www.ashbrook.org/library/18/washington/will.html. Wills of some other

famous people are available at

http://livingtrustnetwork.com/estate-planning-center/last-will-and-testament/wills-of-t

he-rich-and-famous.html.

3. Additional information on estate and gift taxes can be found on the web site of the

Internal Revenue Service at

http://www.irs.gov/businesses/small/article/0,,id=98968,00.html

4. A significant amount of information regarding estate planning is available from the

State Bar of California at

http://www.calbar.ca.gov/Public/Pamphlets/EstatePlanning.aspx.

5. Information on estate planning and retirement is available from AARP at

http://www.aarp.org/money/estate-planning/.

6. The National Law Review discusses changes to estate and gift tax law at

http://www.natlawreview.com/article/summary-estate-and-gift-tax-law-changes-2015.

7. Administration of Wills, Trusts, and Estates, by Gordon W. Brown is written in a style

similar to this book and contains much information about wills, trusts, and estates.

8. After explaining that only interested persons may contest a will, have students

brainstorm reasons why this may be a good or bad requirement.

9. Emphasize the risks involved in making a will without legal consultation from a

qualified estate-planning attorney.

10. Probate proceedings can be quite expensive, as much as 10 percent even in

uncomplicated cases. Estate tax is also a concern. Uncertainty exists regarding future

percentages that will be charged in estate tax. Currently, a surviving spouse does not

have to pay estate taxes on inheritances received from a deceased spouse.

11. Help students understand the similarities and differences between wills and trusts by

explaining that both are legal means of transferring assets to other people. A will

names an executor to distribute the assets, while a trust names a trustee to do the same

thing after holding the assets according to the trust’s terms. However, a will is carried

out upon a person’s death, whereas the execution of a trust can remain open long

afterward. Moreover, a will is a public record (anyone can examine a person’s debts

and assets), and a trust (except a testamentary trust) is private. Wills are subject to

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probate taxes. Trusts may avoid probate taxes, and they are becoming more popular

as a method of saving taxes.

12. Invite a trust officer of a local bank and an estate-planning attorney to talk to your

class about the advantages of creating a trust. Ask these experts to explain how the

rules in your state vary from other states regarding trusts.

13. Divide students into teams and assign each team one type of trust (testamentary,

living, spendthrift, charitable, or sprinkling). Have these teams research their trust’s

history, local requirements and limitations, and current usage. Then have each team

give a presentation as to the benefits of their trust.

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