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Wills and Estates

During one’s lifetime, one has a right to own private property. This right does not disappear at death. Rather, the right to transfer property to one’s heirs is a way of extending this right to own property. The easiest and most often used way to transfer one’s property at death is through a validly executed will. A person who makes a will is called a “testator", the person who is put in charge (usually, by the terms of the will itself) of handling the estate after the death of the testator is called the "executor", and a person who is to receive money under a will is called a “beneficiary”.

There are four main requirements to the formation of a valid will:

  1. The will must have been executed with testamentary intent. This means that the testator must have intended for the will to be the instrument by which he or she disposes of property.
  2. The testator must have had testamentary capacity. This means that the testator must have been legally capable of drafting a binding document. This excludes people who, for whatever reason, are mentally incompetent to make a decision as important as how to draft a will. 
  3. The will must have been executed free of fraud, duress, undue influence or mistake. This rule is designed to protect people against beneficiaries who might take advantage of a confidential relationship with the testator to exert pressure on the testator to give them large gifts in the will. Therefore, a court can set aside a will if it determines that someone exerted undue influence on the testator during the will-making process.
  4. The will must have been executed through a proper ceremony. This means that the will must be signed by the testator and by at least two witnesses. In addition, the testator must sign the will in front of the witnesses and must express to the witnesses that the testator means for the document to be his or her will.

Revoking a Will 

A will is, by definition, revocable. This means that a testator may cancel or change his or her will at any time, for any reason. There are three ways in which a person can revoke or change a will: 

  • By Operation of Law:
    Certain events in a person’s life have the effect of automatically revoking or amending a prior will. Historically at common law, marriage followed by birth of issue revoked a man’s will. Marriage alone, irrespective of birth of issue, revoked a woman’s will. This is not the case anymore. Still, many states have rules that provide for spouses that marry the testator after the will is formed and/or children that are born after a will is drafted. In addition, many states have rules that state that divorce after a will is drafted inherently eliminates provisions made for the benefit of the erstwhile spouse.
  • By Subsequent Instrument:
    A new will can revoke a previous will, partially or wholly. This is usually done expressly, as many wills start with a provision that reads something like “I… declare this to be my last will… hereby revoking all previous wills”. Or, a revocation can be done by drafting a will that contradicts the previous will. To whatever extent the two wills are inconsistent with each other, it is the new will that controls because, to that extent, the new will impliedly revoked the previous will. For example:

John writes in his will “I give my house to Lisa and my car to Jane.” In a subsequent will, John writes, “I give my house to Jim.” The part of the first will relating to the house has been revoked by the second will. However, the part relating to the car has not been revoked. Therefore, Jim would get the house under the second will, but Jane would get the car under the first will, because that part has not been revoked.

A will that changes but does not completely revoke a previous will is sometimes referred to as a “codicil”.

  • By Physical Act:
    Instead of changing the will to reflect changed circumstances or writing a new will, the testator might decide to tear it up or perform some other type of physical act (e.g., burn it or write across the face of it) on the will that would serve to revoke it. Any act of destruction on the will that shows the intent to revoke the will is sufficient. Ripping the signature out of a will is another example of a way to revoke a will by physical act. Note that a physical act can only revoke an entire will, not just a portion of it.

Intestacy 

When a person dies without a will, that person is said to die “intestate”. In such an event, each state provides its own rules for “intestacy” (the state of dying without a will).

Generally, intestacy statutes maintain preferences for near relatives in determining the order of preference for doling out assets. A common statutory pattern provides for the following line of succession:

  1. Surviving spouse 
  2. Children 
  3. Parents 
  4. Brothers and sisters and their lineal descendents 
  5. Grandparents and their lineal descendents 
  6. Next of kin 
  7. If no next of kin, then to the state

This pattern is only a general rule. The actual rules vary from state to state. For example, most states provide that if a person dies without a will and leaves over a spouse and children, both the spouse and the children are entitled to a portion of the estate.

Estate Planning 

The federal government and state governments (more so the federal government) provide for the taxing of gifts given from one person to another and for money or property inherited from a person upon his or her death. The taxing of a person’s assets upon death is called the “estate tax”. A person cannot simply give away all his or her money before death, because there is also tax that applies to gifts made during the life of the giver (gift tax).

Gift and estate tax rates can be quite high, and so failure to set up a smart estate plan can end up costing heirs a lot of money in the long run. There are estate planning devices that can be used to help minimize or eliminate estate tax. These devices are discussed in the Wills, Trusts and Estates course. 

It should be noted that most Americans are not affected by the estate tax. This is because, as of the year 2004, each person has an estate tax “credit” of $1,500,000. This means that only people with estates worth more than $1,500,000 need worry about estate tax. However, remember that this includes the value of homes, life insurance policies, shares in businesses, etc., and so the estate tax does affect more people than one might ordinarily think it would. Another important point to note is that there is no estate tax on property or money transferred directly to the decedent’s spouse.

Trusts

A trust is a device that allows one person to hold money or property for the benefit of another person. There are three parties involved in a trust:

  • The grantor, sometimes also called the settlor, is the person who established the trust and is usually the person who gives the money or property to the trust.
  • The trustee is the person who is charged with taking care of the money or property. This person is a “fiduciary,” which means that he or she has a special duty to give his or her best efforts to safeguard the trust money or property.
  • The beneficiary is the person for whom the money is being held.

Note that there can be more than one of each of these three parties. In fact, many trusts are “family trusts”, which, by definition, are held for the benefit of more than one person.

A trust is almost always created in writing. However, a trust document can be a relatively simple document. The only features that a trust document must contain are:

  • An expression of intent to create a trust;
  • A specific trust “res” (this means a description of the money or property to be held in the trust);
  • A designation of the parties (grantor/settlor, trustee and beneficiary); and
  • A valid trust purpose. 

Charitable Trusts 

Generally, a charitable trust must have as its “purpose” some activity of such general public interest and benefit as to come within the meaning of the term “charitable.” The purpose must in some way benefit, improve or uplift mankind mentally, morally, physically or spiritually.

Categories of “charitable” purposes often get their definition by society. For instance, the relief of poverty is universally recognized by society as a charitable purpose. Additionally, the advancement of education and religion, promotion of health, and governmental purposes have also been deemed to be beneficial to the community.

There are many advantages to setting up a charitable trust, including the fact that the money in a charitable trust is exempt from gift and estate tax and the fact that a charitable trust can have an indefinite duration.