three major
areas: will execution, intestate succession, and probate administration.
JOINT TENANCY ARRANGEMENTS
The acquisition of title in joint tenancy is ordinarily a
simple matter, requiring the completion of one or two preprinted forms.
Transfers can be done with or without the aid of an attorney. Deeds to transfer
real property into joint tenancy are usually drafted by an attorney, although
in some states the job may be done by a real estate agent, by the title
company, or by an escrow agent. Similarly, when two or more people open an
account such as a stock brokerage account or bank account, the professionals
involved generally will ask whether title will be in joint tenancy or tenancy
in common.
Later in the
text the reader will learn several significant disadvantages to taking title in
joint tenancy. Deciding whether joint tenancy is appropriate is not always
clear; however, our focus at this point is on how title in joint tenancy is
taken, not whether it should be taken.
PROPERTY TRANSFER BY CONTRACT
A significant part of a person’s estate plan may be
transferred pursuant to a contract. Examples of property that is transferred
after the death of the owner (or the insured) are life insurance, pension and
profit sharing plans, and individual retirement accounts (IRAs).
Life Insurance
Wealth derived from life insurance comes in two forms: the
policy itself and the policy death proceeds. The policy may be transferred
while the insured is alive. After the insured’s death, the proceeds are paid by
the insurance company to the designated beneficiaries.
During the
policy application process, the applicant designates the beneficiary who will
receive the proceeds at the insured’s death. Once the policy is issued, up
until the death of the insured, the policy owner can easily change the
beneficiary designation by giving the company written notice using its
beneficiary designation form. Very rarely, there is an irrevocable beneficiary
designation, i.e., the designation cannot be changed without the consent of the
beneficiary or someone besides the owner. Such irrevocable designations may be
the result of a divorce settlement or as a condition of a personal loan. Once
certain conditions are met, the owner-insured may be free to change
beneficiaries, e.g., once the children are grown or the loan is repaid.
Arranging the
transfer of title to a life insurance policy itself from one owner to another
is simple. All that is required is the completion of a short assignment form
that can be obtained from the insurance company.
Pension and Profit Sharing Plans
Pension and profit sharing plans are contracts between the
employee-client and the employer. Ordinarily, the employer requests that the
employee fill out a written form designating the beneficiary, the party who
will be entitled to any benefits paid after the employee’s death. Thus, the
actual process of beneficiary designation for most retirement plans is simple
and straightforward.
WILLS AND TRUSTS
In contrast with the above transfer arrangements, the
document preparation process for the will and the trust are not simple, for two
reasons. First, unlike joint tenancy and written contracts, the will and the
trust are capable of disposing of nearly all the client’s estate, as well as
providing for the care of the client’s minor children. Thus, the will and the
trust will inevitably be more complicated. Second, unlike insurance and
retirement contracts, which are drafted by the insurer or the employer, wills and
trusts are semi-custom, drafted to fit each client’s unique circumstances. The
responsibility for choosing the terms for the lawyer to draft into the will and
trust falls to each individual.
The following
material presents an overview of will and trust construction. Major topics
include the legal requirements for a valid will, common will provisions,
essential characteristics of trusts, and common provisions of the living trust
and the testamentary trust.
THE WILL
Many people die leaving no formal directions as to the
disposal of their property, who should manage their estate, or who should care
for their minor children. In such cases, the state seeks to make these
decisions equitably and sensibly, applying statutory rules to the surviving
family situation. However, state law may conflict with the wishes of a
decedent, whether unstated or even as recollected by the survivors. Compared to
a properly planned estate, intestacy can result in unsuitable property
disposition and higher taxes. Individuals can avoid an undesirable outcome by
expressing, while still alive, their desires in a legally binding document that
serves as a set of directions to be followed by those who survive. The will is
the most common formal document for this purpose.
A will is a legally
enforceable document that expresses the testator’s directions for disposing of
his or her probate property at death. In some states, wills can be oral, but
laws usually greatly restrict the scope of their ability to dispose of wealth,
generally limiting the application of oral wills to personal property worth
less than a modest amount, such as $2,000. In addition, the testator, on
execution, is often required to be a member of the armed forces or in peril of
death. Practically speaking, wills prepared in the estate planning process are
written.
Who May Execute a Will
In most states, any individual 18 or older who is of sound
mind may dispose of his or her property by will. The implications of this are
twofold. First, individuals under age 18 cannot transfer property by will
unless they are emancipated minors. A minor is emancipated if a court, after a
petition and hearing, determines that the child should be free from parental
control and given the status of an adult for contractual and other legal matters.
In most states, a person under age 18 is considered an adult if he or she is
married. Thus, in most instances, a deceased minor’s property will pass
according to the laws of intestate succession, which will usually result in the
property passing to the child’s parents or if the parents are also deceased,
then to siblings. Second, a will can be denied probate if it can be established
that the testator, at date of execution of the will, lacked testamentary
capacity, was subject to undue influence or fraud, or acted mistakenly. These
four concepts are discussed next.
Testamentary capacity. Testamentary capacity concerns the
testator’s mental ability to execute a legally enforceable will. A testator has
testamentary capacity if he or she possesses each of the following three
attributes:
1. Sufficient mental capacity to understand the
nature of the act being undertaken (executing a will).
2. Sufficient mental capacity to understand and
recollect the general nature of his or her property.
3. Sufficient mental capacity to remember and
understand his or her relationship to the persons who have natural claims on
his or her bounty and whose interests are affected by the provisions of the
will.
Essentially, in
addition to being an adult, testators must know that they are executing a will,
they must be aware of what they own, and they must be cognizant of family and
friends. On its face, this test seems quite severe; strictly construed, it
might prevent many older testators from executing a valid will. However, mere
age and physical disability do not negate testamentary capacity. Probate courts
have admitted to probate wills executed by individuals who were forgetful,
absent-minded, alcoholic, or behaving peculiarly—even persons declared mentally
incompetent, insane, under conservatorship, or who committed suicide shortly
after executing a will. Indeed, the threshold is lower than that for
contractual capacity, which may be as it should, given that the formation of a
contract requires the ability to negotiate with another person, whereas
executing a will does not. Nonetheless, failure to meet one or more of these
three requirements will result in a finding of insufficient testamentary
capacity. Examples of sufficient evidence of incompetence include senility, ongoing
hallucinations, irrational beliefs, irrational behavior, and totally groundless
beliefs about the testator’s spouse, children, or other family members.
Generally, the outcome hinges on whether, at the time the will was executed,
the three-prong test was met. Appellate courts are reluctant to “set aside” a
will. They have reversed many cases where the jurors found that the testator
lacked testamentary capacity, especially those cases where the testator
disinherited immediate family members in favor of newly found friends. As a
consequence, affirmed findings of testamentary incapacity are very rare.
Anticipating the
possibility of a will contest based on lack of testamentary capacity, some
attorneys videotape the will execution of a testator who may have questionable
capacity, believing that the taping will make capacity more credible. Others
believe that videotaping can enhance the success of a contest, reasoning that
testators may look terrible on the screen (especially if they are shown lying
in a hospital bed), and that the taping constitutes evidence that even the will
drafting attorney lacked confidence in the testator’s capacity.
Undue influence. A will executed by a
testator who was subject to undue influence by someone who stands to benefit, directly
or indirectly, may also be denied probate. Undue influence is influence by a
confidante that has the effect of overcoming the testator’s free will. Examples
include improper persuasion and psychological domination, as when “Snake Oil
Sam,” the smooth-talking newcomer, makes a romantic play for the 92-year-old
widow, “encouraging” her to disinherit her children and leave her entire estate
to him.
Winning an undue
influence case can be difficult. These cases often involve a person with a
weak, unsound, or impaired mind. Indeed, the family may not be aware of a new,
less favorable will until after the testator is dead. An element of fraud or
deceit is a common thread in these cases. Juries tend to side with family
members against outsiders whom they see as meddling non-relatives. Thus, a jury
is likely to “rewrite” a will in keeping with what the jurors think is fair to
the family. But, unless the evidence of undue influence is clearly in the
record, this type of verdict is likely to be reversed on appeal.
Fraud. Fraud involves deception through false information. Some courts
distinguish two types of fraud based on the action of the deceiver. Fraud in the inducement is where the
testator is persuaded by lies of the wrongdoer to change his or her estate plan.
For example, fraud exists if a niece tells her great-uncle she is penniless
when, in fact, she is wealthy, or a daughter incorrectly tells her mother that
her sister instigated a conservatorship proceeding, when actually they acted
together. The other type is called fraud
in the execution, where the person is deceived into signing a document not
knowing that it is a will. An example would be obtaining a person’s autograph
on a blank sheet of paper, then, with the help of accomplices, placing will
language above it and witness signatures below to create what appears to be a
genuine will.
Mistake. Very rarely, a will can be
successfully contested on the basis of a mistake. Examples include: (a) the
testator leaves her estate to only one son, mistakenly believing that the other
is wealthy; (b) the testator mistakenly leaves out an intended clause; or (c)
the will mistakenly includes an unintended clause.
Ordinarily, a
finding of lack of testamentary capacity will invalidate the entire will, while
a finding of undue influence, fraud, or mistake might invalidate only those
provisions that relate to the specific problem.
Statutory Requirements for Wills
Most states, including those that have adopted the Uniform
Probate Code, recognize at least two types of wills, the witnessed will and the holographic
will.
Witnessed will. Although state laws
vary, a witnessed or attested will
must meet the following three requirements:
1. It must be in writing (handwritten, typed,
etc.).
2. The testator must sign the will in the
presence of two witnesses (three in a few states).
3. The two witnesses must sign their names to
the will, understanding that the instrument they sign is the testator’s will.
The main purpose of requiring witnesses is to prevent forgery and coercion of
the testator.
Beneficiaries
should not be witnesses to a will because that could imperil their right to
receive some or all their bequest. In many states, a bequest to a witness is
void, unless the witness is an heir. And in that case, the witness can take no
more than his or her intestate share. In some other states, a beneficiary can
witness the will, but if someone raises an undue influence challenge, the
“interested witness” may take more than the intestate share only if he or she
is able to rebut a statutory presumption that the bequest was procured by
duress, menace, fraud, or undue influence. Inability to rebut this presumption
might not totally invalidate the will, but it will probably invalidate some or
all the bequest to that witness.
Holographic will. If a written will
does not meet all the requirements for a witnessed will, in most states,
including those adopting the UPC, it can still be admitted to probate if it
meets the requirements for a holographic will. Typical state requirements for a
holographic will are:
1. Signature is in the testator’s handwriting.
2. All the “material provisions” of the will are
in the testator’s handwriting.
In the past,
courts often refused to admit to probate holographic documents unless it was
clear from reading just the handwritten portions that the document was the
decedent’s will. In determining what parts of the will must be in the
testator’s handwriting, some still follow the old rule, but many states now
allow a preprinted will form to be treated as a holographic will so long as
both the material provisions and the signature are in the decedent’s own
handwriting.[2] The material provisions are the
dispositive ones (who gets what), the identity of the executor, the nomination
of guardians, and the like.
Recently, the Uniform Probate Code added a
section that allows a court to accept as testamentary documents instruments
that do not meet the formal execution requirements of a witnessed will or the
handwriting requirements of a holographic will. However, the proponent of the
imperfectly executed will must establish by “clear and convincing evidence”
that the writing being offered was intended by the decedent to be his or her
will (or a codicil).[3] Clear and
convincing evidence is a higher standard of proof than the usual civil case
burden known as a preponderance of the evidence.
Contrasting witnessed and holographic
wills. There are two major differences
between the two sets of formal requirements: first, the witnessed will requires
the performance of certain activities by two witnesses. In contrast, the
holographic will may, but need not, be witnessed. Second, the holographic will
requires that all material provisions of the will be in the testator’s
handwriting. In contrast, the witnessed will requires that only the testator
and the witnesses’ signatures be in the person’s own hand, and even this may be
unnecessary when a proper authorization is arranged. A testator can execute a
will by directing another person to sign for him or her in the presence of the
witnesses.[4] In this case, it may be a good idea to
videotape the signing ceremony.
No Contest Clause
In the last few pages, we have described several technical
requirements for a valid will including testamentary capacity, absence of undue
influence, fraud, mistake, and certain specific execution requirements such as
signatures by witnesses and the testator. Anticipating that dissatisfied
persons may claim that one or more violations of these requirements have
occurred, as a pretext for obtaining more of the estate, testators may insert
in their will a “no contest” clause such as the one that follows:
I have purposely
made no provisions herein for any other person or persons, other than as set
forth in this will, and if any person contests this will, I revoke any share or
interest given such person, and said share or interest shall be disposed of as
though said person predeceased me without leaving issue.
This usually,
but not always, discourages will contests for several reasons. First, it will
discourage only beneficiaries named in the will, not disinherited persons who
stand to lose nothing by contesting. Second, beneficiaries may still wish to
contest if they expect to gain considerably more than they will lose. Finally,
in states that have adopted the UPC, such clauses are unenforceable if the
contestant had probable cause for instituting the proceedings.[5] Perhaps most testators would desire this
result anyway.
What situations tend to invite will
contests? The most common are where the testator chooses to disinherit family
members in favor of a friend, a charity, a spouse married shortly before death,
or where a testator treats children unequally. If the testator is very old or
is ailing physically or mentally, a contest is even more likely.
Will contests are infrequent, and
successful contests are very uncommon. One study showed that fewer than three
percent of wills offered for probate were challenged, and more than two-thirds
of those challenges were unsuccessful. However, will contests may become more
common for several reasons. As the general population continues to age, more
elderly people of means will acquire “friends” who offer to assist them in
their finances and work their way into the person’s estate plan. A high divorce
rate has increased the number of children of former marriages, a group that is
less likely to get along with the surviving spouse of a later marriage. When
any of these situations or factors apply to a particular client, attorneys
should take special precautions in drafting and executing the will.
The Simple Will
Wills can be quite lengthy and complex, but this section
focuses on a relatively simple will. A simple
will, as it is generally called, is a will prepared for a family having a
small, or even a modest estate, where death taxes are not a significant
concern. We will cover estate taxes in Chapter 5; and you will see that we are
in a period of transition. The amount that can pass tax-free (assuming the
decedent has not made significant lifetime gifts) is increasing, growing from
the pre-1998 figure of $600,000 to $3,500,000 in 2009. Complete repeal of the
estate tax takes place in 2010. However a “sunset” provision repeals the repeal
as of 2011. There is considerable agreement that Congress will not allow this
provision to take effect, so the shape of post-2010 tax law is uncertain. The
estate tax repeal may be made permanent or the tax-free amount may be set at a
high level and indexed for inflation.
The simple will
usually includes all the following: nominating an executor and, if there are
minor children, a guardian; a waiver of the probate bond; and, in most cases,
giving the testator’s property to the spouse, if alive, otherwise to the
children by right of representation.
Exhibit 3-1
presents a simple will that demonstrates the essential nature of this probate
property transfer document. The reader is encouraged to study it carefully so
that the analysis that follows is more readily understood.
WILL
OF
WILLARD
THOMAS SMITH
I, Willard Thomas Smith, a resident of
Mytown, Anystate, declare this to be my will. I revoke all prior Wills and
Codicils.
First: Family and Guardian I am married to Sue L. Smith, referred to in
this will as “my wife.” I have three children, all from this marriage, whose
names and birthdays are:
Kristi M. Smith June 27, 1987
Heather L. Smith April 19, 1989
Todd R. Smith May 11, 1991
Reference to “my
children” or to “my child,” shall include children born later and children
adopted by me. I have no deceased children.
If my wife does not survive me, and it is
necessary to appoint a guardian, I appoint Curtis J. Quint guardian of the
person and estate of each such minor child. If for any reason Curtis J. Quint
does not act as guardian, I appoint Maria S. Cruise as guardian of the person
and estate of each such minor child.
Second: Executor The executor shall serve as follows:
A.
Designation I appoint my wife as my executor. If for any
reason she does not so act, I appoint James A. Reliable to be my executor. If
for any reason neither my wife nor James A. Reliable acts as executor, I
appoint Third National Bank of Mytown to be my executor.
B.
Bond waiver No bond, surety, or other security shall be
required of my executor.
Third: Disposition of Property I make the following gifts of property:
A.
Tangible personal property If
my wife survives me by 30 days, I give her all my interest in our tangible
personal property. If my wife does not survive me by 30 days, I give my
tangible personal property to my issue, by right of representation, provided
they survive me for that period. My executor shall consider their personal
preferences in making the division. My executor has my permission to sell any
of that property and distribute the proceeds to equalize the shares. My
executor shall be 
discharged
for all tangible personal property so given to any minor child if the child, or
adult having the child’s custody, gives a written receipt to my executor.
B.
Residue If my wife survives me by 120 days, I give
her the residue of my estate. If my wife does not survive me by 120 days, I
give the residue to my issue, by right of representation, provided they survive
me for that period. If neither my wife nor any of my descendants survives me by
120 days, I give the residue of my estate according to Anystate’s laws of
descent and distribution, one half as if I had died with no will on the last
day of that 120-day period, and one half as if it were my wife’s estate and she
had died with no will on that last day.
C. Taxes
from residue All death taxes
imposed because of my death, as well as interest and penalties on those taxes,
whether on property passing under this will or otherwise, shall be paid by my
executor from the residue of my estate.
Fourth: Powers of Executor My executor shall have unrestricted powers,
without court order, to settle my estate as this will provides. In addition, my
executor shall have the following powers:
1. To make interim distributions of principal
and income to those entitled to it.
2. To sell, exchange, mortgage, pledge, lease or
assign any property belonging to my estate.
3. To continue operation of any business
belonging to my estate.
4. To invest and reinvest any surplus money.
I have signed my name to this instrument
on March 19, 2002, at Mytown, Anystate.
Willard Thomas Smith
Willard
Thomas Smith
Statement of Witnesses
We, the undersigned the witnesses, on March 19, 2002, sign our names to
this instrument, being first duly sworn, and do hereby declare to the undersigned
authority that the testator signs and executes this instrument as his last will
and that he signs it willingly (or willingly directs another to sign for him),
and that each of us, in the presence and hearing of the testator, hereby signs
this will as witness to the testator’s signing, and that to the best of our
knowledge the testator is eighteen years of age or older, of sound mind, and
under no constraint or undue influence.
John Meeks Jennifer Jarrett
