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Chapter 52
Wills and Trusts
See Separate Lecture Outline System
INTRODUCTION
This chapter is concerned with the law related to wills and trusts. On death, title to a decedent’s property must vest in
someone. A decedent can direct the passage of property after death by will, subject to certain limitations imposed by the state.
If no valid will has been executed, state law prescribes the distribution of property. If no heirs or kin can be found, the property
escheats. Property can also be transferred through a trust. These are all part of estate planning, which can also involve the
considerations in the section titled “Elder Law.”
ADDITIONAL RESOURCES—
VIDEO SUPPLEMENTS
The following video supplements relate to topics discussed in this chapter—
PowerPoint Slides
To highlight some of this chapter’s key points, you might use the Lecture Review PowerPoint slides compiled for
1266 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION
Chapter 52.
CHAPTER 52: WILLS AND TRUSTS 1267
CHAPTER OUTLINE
I. Wills
The property of a person who dies intestate, and without heirs, passes to the state. A will must follow exactly the
requirements of the appropriate state’s statutes to be effective. Besides distributing property, a will can appoint a
guardian and a personal representative.
A. LAWS GOVERNING WILLS
Although the Uniform Probate Code (UPC) has been adopted in about a third of the states, state laws vary widely
B. GIFTS BY WILL
1. Types of Gifts
Gifts may be specific or general. The residuary (assets remaining after specific gifts have been made and
debts paid) are distributed to the surviving spouse, descendants, or others.
ANSWER TO CRITICAL THINKING QUESTION IN THE FEATURE—
INSIGHT INTO ETHICS
A Facebook game, Farmville, allows members to manage virtual crops together. Would there be any benefit in
being able to pass on to one’s heirs “the fruits of one’s virtual labor”? Why or why not? There are two possibilities. (1)
2. Abatement
If the assets are insufficient to pay all general bequests, the legatees receive reduced benefits.
3. Lapsed Legacies
1. Testamentary Capacity and Intent
Key elements of a general test for capacity are intent and comprehension during a lucid interval.
a. The “Sound Mind” Requirement
A testator must be of legal age (usually eighteen) and sound mind when a will is made.
b. Intent
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CASE SYNOPSIS—
Case 52.1: Shaw Family Archives, Ltd. v. CMG Worldwide, Inc.
Marilyn Monroe, a New York resident, died in 1962. Eventually, her estate’s residuary assets were transferred to
Marilyn Monroe, LLC (MMLLC). During Monroe’s life, photographer Sam Shaw took photos of her. After his death, the
photos descended to the Shaw Family Archives (SFA), which licensed Monroe’s picture, image, and likeness for
commercial use. In Indiana, in 2006, t-shirts that bore her picture and SFA’s inscription on the label were available for
sale. MMLLC asserted that under Indiana’s Right of Publicity Act (which creates a right of publicity that survives for 100
years after a person’s death) it owned a right of publicity bequeathed by the residuary clause of Monroe’s will, and that
SFA had violated this right. SFA and others filed a suit in a federal district court against MMLLC and CMG Worldwide,
Inc., contending that MMLLC did not own such a right.
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Notes and Questions
MMLLC cited a certain case for the proposition that a residuary clause may dispose of property “that the testator
may have overlooked, property that lacked particular definition or property that the testatrix did not know that she
was entitled to at the time the will was executed.” Did the right of publicity for which MMLLC asserted ownership fit
into one of these categories? No. According to the court in the Shaw case, “Ms. Monroe’s purported postmortem right
of publicity does not fit into any of the categories mentioned . . . . Ms. Monroe could not have overlooked a right that
did not come into being (assuming she was domiciled in California) until 22 years after her death. The property right
that she allegedly devised through the residuary clause did not lack particular definition—it did not exist. Nor, for
identical reasons, is this a case where the testatrix was entitled to certain property at the time her will was executed
(or at the time of her death) but was unaware of her entitlement.”
Any argument that the residuary clause of Ms. Monroe’s will could devise a postmortem right of publicity is thus
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ANSWER TO “THE E-COMMERCE DIMENSION”
QUESTION IN CASE 52.1
Did SFA and Bradford’s online offer of licenses for the commercial use of Monroe’s image have any effect on the
court’s decision in this case? Why or why not? No, the online offer of such property did not influence the court’s
decision. The principles at issue concerned a testator’s gifting of property that he or she owns, or does not own, at the
time of death. The availability of such property or related rights for sale via the Internet did not alter these principles.
ANSWER TO “THE LEGAL ENVIRONMENT DIMENSION”
QUESTION IN CASE 52.1
How might the court have ruled if Monroe had phrased her residuary clause to clearly state an intent to devise
property she did not then own? (Hint: Can anyone—during or after their life—transfer property that they do not own?)
The court’s ruling would likely have been the same. Monroe—or any testator—has no capacity to bequeath or devise
property that she or he does not own at the time of death. Even if it were possible to clearly phrase such a clause, the
court in the Shaw case explained that “the effect would be to render the disposition invalid, because she had no legal
right to dispose of property that did not exist at the time of her death. . . . Under no circumstances, in the absence of a
valid power, can any amount of testamentary intent produce the effect of subjecting property not owned by a testator
at the date of his death to any disposition whatever.”
ADDITIONAL CASES ADDRESSING THIS ISSUE —
Recent cases determining the testator’s intent include the following.
amending the will to direct any payments in the suit to someone other than the nephew).
estate to pass intestate, which was not the surviving spouse’s intent).
2. Writing Requirements
A written document is generally required, though it can be informal. In some cases, an oral will, such as a
nuncupative will, is valid, particularly if made during the last illness of the testator.
3. Signature Requirements
4. Witness Requirements
5. Publication Requirements
Sometimes, witnesses must sign in the sight or presence of each other, but the UPC requires only that the
testator acknowledge his or her signature to the witnesses [UPC 2–502]. Some states require a testator to
declare the will is his or her “last will or testament.”
ADDITIONAL BACKGROUND—
Harmless Errors under the UPC
To allow a probate court to excuse a harmless error in complying with the technical requirements for executing or
revoking a will, the UPC was revised in 1990. The following is the section that reflects that revision.
ARTICLE II. INTESTACY, WILLS, AND DONATIVE TRANSFERS (1990)
PART 5. WILLS, WILL CONTRACTS, AND CUSTODY AND DEPOSIT OF WILLS
§ 2–503. Writings Intended as Wills, etc.
Although a document or writing added upon a document was not executed in compliance with Section 2–502, the
D. REVOCATION OF WILLS
1. Revocation by a Physical Act of the Maker
A testator may revoke a will by intentionally burning, tearing, canceling, obliterating, or destroying it or by
Case 52.2: Peterson v. Harrell
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Marion Peterson executed a will that contained a bequest to Vasta Lucas in the form of a trust. On Lucas’s death,
the trustee was to distribute the assets to four beneficiaries, including Peterson’s brother and sister, Arvin and Carolyn
(caveators). Later, without witnesses, Peterson crossed out the beneficiaries’ names, but left the bequest to Lucas
intact. After Peterson’s death, the will was admitted to probate. The caveators appealed, contending that the will had
been revoked.
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Notes and Questions
Suppose that shortly before Peterson’s death, she had asked Lucas to tear up her will, and Lucas had done it.
Would the result have been different? Yes, because a testator may revoke a will by having someone tear it up at her
direction, and the will’s proponents would not have been able to prove that it existed at the time of her death or that it
had been destroyed without her consent. Other evidence might have been considered in that circumstance, however,
concerning, for example, Peterson’s capacity, which might have influenced the result.
How might the availability of a secure online repository for a person’s will affect a challenge to the will? A copy of a
will might be produced more easily if it were deposited in an electronic database that could be accessed online.
Whether a court would accept it as authentic is another question. The kind of proof that could be required to validate
an online copy would be different from the proof needed to prove a paper copy. The testator’s e-signature would be in
a different form (even a copy of the original would be electronic). These and other factors in such circumstances could
make it easier to challenge and easier to propound a will.
ANSWERS TO QUESTIONS AT THE END OF CASE 52.2
1. Why would the caveators argue that the entire will should be revoked? How would the will’s revocation benefit
them? Clearly, if the will were only partially revoked, the caveators would take nothing. They were among Lucas’s
successor beneficiaries whose names had been crossed out by the testator. In other words, if the will were only
partially revoked, Lucas would take the entire estate, and if she died, the estate would pass to her beneficiaries—not to
the caveators. If the entire will was revoked, however, then Marion Peterson would be deemed to have died
intestate—without a valid will. In this situation, the caveators, as siblings of the testator, might inherit part or all of the
estate (depending on whether there other beneficiaries who might inherit under intestacy laws).
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clear to the court.
2. Revocation by a Subsequent Writing
3. Revocation by Operation of Law
A marriage, divorce, annulment, or birth of children after a will has been executed generally revokes the will
(at least as regards the new spouse, ex-spouse, or new children). The text spells out details. Generally,
depending on the testator’s intent and applicable state law, a new spouse and new children get intestate
shares, and an ex-spouse gets nothing.
E. RIGHTS UNDER A WILL
ADDITIONAL BACKGROUND—
Elective Share under the Revised UPC
The following is the section of the revised (1990) UPC that adjusted the amount of a surviving spouse’s elective
share to relate to the number of years that he or she had been married to the decedent.
ARTICLE II. INTESTACY, WILLS, AND DONATIVE TRANSFERS (1990)
PART 2. ELECTIVE SHARE OF SURVIVING SPOUSE
§ 2–202. Elective Share.
(a) [Elective-Share Amount.] The surviving spouse of a decedent who dies domiciled in this State has a right of election,
under the limitations and conditions stated in this Part, to take an elective-share amount equal to the value of the
elective-share percentage of the augmented estate, determined by the length of time the spouse and the decedent
were married to each other, in accordance with the following schedule:
If the decedent and the spouse were married to
each other:
The elective-share percentage is:
Less than 1 year
Supplemental Amount Only.
1 year but less than 2 years
3% of the augmented estate.
2 years but less than 3 years
6% of the augmented estate.
3 years but less than 4 years
9% of the augmented estate.
4 years but less than 5 years
12% of the augmented estate.
5 years but less than 6 years
15% of the augmented estate.
6 years but less than 7 years
18% of the augmented estate.
7 years but less than 8 years
21% of the augmented estate.
24% of the augmented estate.
9 years but less than 10 years
27% of the augmented estate.
10 years but less than 11 years
30% of the augmented estate.
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11 years but less than 12 years
34% of the augmented estate.
12 years but less than 13 years
38% of the augmented estate.
13 years but less than 14 years
42% of the augmented estate.
14 years but less than 15 years
46% of the augmented estate.
15 years or more
50% of the augmented estate.
(b) [Supplemental Elective-Share Amount.] If the sum of the amounts described in Sections 2–207, 2–209(a)(1), and
that part of the elective-share amount payable from the decedent’s probate estate and nonprobate transfers to others
under Section 2–209(b) and (c) is less than [$50,000], the surviving spouse is entitled to a supplemental elective-share
amount equal to [$50,000], minus the sum of the amounts described in those sections. The supplemental elective-
share amount is payable from the decedent’s probate estate and from recipients of the decedent’s nonprobate
transfers to others in the order of priority set forth in Section 2–209(b) and (c).
F. PROBATE PROCEDURES
1. Informal Probate
The assets of small estates can often be distributed without formal probate. Title to cars, bank accounts,
2. Formal Probate
For large estates, or when trusts are set up by will, formal probate is required. A court supervises every
aspect of the settlement. The process can be long and expensive, depending on such factors as the types of
assets, applicable tax laws, size of the estate, and other things.
ADDITIONAL BACKGROUND—
Estate Administration
The orderly procedure used to collect assets, settle debts, and distribute the remaining assets when a person dies
is the subject matter of estate administration. The rules and procedures for managing the estate of a deceased are
controlled by statute and, consequently, vary from state to state. In every state, there is a special court, often called a
probate court, that oversees the management of estates of decedents.
Is There a Will? The first step after a person dies is usually to determine whether or not the decedent left a will. In
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(executor) to administer the estate. If there is no will, or if the will fails to name a personal representative, then the
court must appoint an administrator. Under the UPC, the term personal representative refers to either an executor
(person named in the will) or an administrator (person appointed by the court) [UPC 1-201(30)].
Personal Representative’s Duties. The personal representative has a number of duties. His or her first duty is to
inventory and collect the assets of the decedent. If necessary, the assets are appraised to determine their value. Both
the rights of creditors and the rights of beneficiaries must be protected during the estate administration proceedings.
In addition, the personal representative is responsible for managing the assets of the estate during the administration
period and for not allowing them to be wasted or unnecessarily depleted.
and state income taxes and estate taxes (or inheritance taxes, depending on the state). A personal representative is
required to post a bond to ensure honest and faithful performance. Usually, the bond exceeds the estimated value of
the personal estate of the decedent. Under most state statutes, the will can specify that the personal representative
need not post a bond.
accounting is rendered to the court, the estate is closed, and the personal representative is relieved of any further
responsibility or liability for the estate.
Estate Taxes. The death of an individual may result in tax liabilities at both the federal and state levels. At the
federal level, a tax is levied on the total value of the estate after debts and expenses for administration have been
deducted and after various exemptions have been allowed. The tax is on the estate rather than on the beneficiaries.
Therefore, it does not depend on the character of any bequests or on the relationship of the beneficiary to the
decedent, unless a gift to charity that is recognized by the Internal Revenue Service as deductible from the total estate
for tax purposes is involved. Estate planning for larger estates also considers other deductions available under federal
law. An entire estate can pass free of estate tax if the estate is left to the surviving spouse.
G. PROPERTY TRANSFERS OUTSIDE THE PROBATE PROCESS
These include living trusts, joint ownership of property, gifts while one is still living, and life insurance.
II. Intestacy Laws
Intestacy statutes set out rules and priorities under which “natural” heirs inherit property (after estate debts are paid).
The rules vary widely from state to state.
A. SURVIVING SPOUSE AND CHILDREN
A surviving spouse is usually entitled to a share of an estate—the entire estate if there are no children or
grandchildren, one-half if there is one surviving child, and one-third if there are two or more children. If there is
no surviving spouse or child, an estate passes to lineal descendants (in the order of grandchildren and parents) or,
if none, collateral heirs (brothers and sisters, nieces, nephews, aunts, and uncles).
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ENHANCING YOUR LECTURE—
TRIMBLE V. GORDON (1977)
At common law, an illegitimate child was regarded as a filius nullius (Latin for “child of no one”) and had no right to
inherit. Over time, this attitude has changed. In 1977, the United States Supreme Court decided a landmark case
establishing the rights of illegitimate children in the United States. In Trimble v. Gordon,a an illegitimate child sought to
inherit property from her deceased natural father on the ground that an Illinois statute prohibiting inheritance by
illegitimate children in the absence of a will was unconstitutional.
THE ILLINOIS LAW
The child was Deta Mona Trimble, daughter of Jessie Trimble and Sherman Gordon. The paternity of the father had
been established before a Cook County, Illinois, circuit court in 1973. Gordon died intestate in 1974. The mother filed a
petition on behalf of the child in the probate division of the county circuit court; the court denied the petition on the
basis of an Illinois law disallowing the child’s inheritance because she was illegitimate. Had she been legitimate, she
would have been her father’s sole heir. In 1975, the Illinois Supreme Court affirmed the petition’s dismissal.
THE SUPREME COURT INVALIDATES THE ILLINOIS LAW
APPLICATION TO TODAY’S WORLD
This is a landmark case in the law because it represents a significant step toward equal rights for children. By
declaring the Illinois statute unconstitutional, the Court invalidated similar laws in several other states. That does not
mean, however, that all illegitimate children now have inheritance rights identical to those of legitimate children.
Those state statutes that discriminate between the two classes for legitimate state purposes have thus far been
allowed to stand, in the interest of recognizing each state’s need to create an appropriate legal framework for the
disposition of property at death.b