2. Methods Of Transfer At Death

Front 1

An orderly procedure for submission and payment of creditors' claims that bars claims if not filed within a specified period

Back 1

yes

Front 2

Surviving spouse's elective share

Back 2

Permits the surviving spouse to receive a specified portion of the decedent spouse's estate in lieu of property left to the spouse under the decedent spouse's will

If elected, the specified statutory share supersedes the provisions of the decedent's will (it is sometimes called an election against the will), and other beneficiaries will receive smaller shares.

Front 3

Simultaneous death

Back 3

States the presumed order of death when it cannot be conclusively determined; the order of death may give property to a contingent rather than primary beneficiary and may affect shares in the will because of the effect on death taxes

Again, the will can state which order of death will be presumed, and it will supersede the state statute.

Front 4

means of documenting title to property of the decedent and the transfer of such title

Back 4

yes

Front 5

Minimizes the time required to transfer the decedent's property to beneficiaries

Back 5

no

Front 6

A means of proving the validity of the decedent's will

Back 6

yes

Front 7

Holographic and/or nuncupative will

Back 7

These laws, in states where they exist, recognize handwritten and oral wills, respectively.

Supersedes the intestate succession statute for property mentioned in such wills

Front 8

After-born child

Back 8

Gives a child born after the execution of the decedent's will a right to the amount that the child would have inherited under the intestate succession statute

These laws apply unless there is clear proof that the omission was intentional, that the decedent provided for the omitted child outside of the will, or that the decedent left a sufficient amount to the omitted child's other parent to adequately care for such child.

Front 9

Provides a person or persons with the necessary authority to collect and distribute the decedent's assets on behalf of the estate

Back 9

yes

Front 10

Homestead, exempt property, and family allowance

Back 10

Distributes certain property of the general estate to the decedent's spouse and children prior to the application of either the decedent's will or the intestate succession statute

The property is not subject to the claims of the creditors of the estate

Front 11

Provides for administration of the estate without publicity

Back 11

no

Front 12

1. The two methods of probate transfer are:

Back 12

will
the laws of intestate succession

Front 13

Provides for orderly distribution and transfer of the decedent's property to beneficiaries

Back 13

yes

Front 14

2. Generally, only some of a decedent's property will be subject to probate. Check the appropriate column in the table below to indicate whether each property interest must go through probate

Life insurance proceeds made payable to the decedent's spouse

Back 14

Not Subject to Probate

Front 15

Provides systematic administration (inventory, appraisal, and accounting) of the decedent's estate

Back 15

yes

Front 16

Mortmain

Back 16

Specifies the percentage of the decedent's net estate that may not be distributed to charity either by will at death and/or within a certain period immediately prior to death

In the few states where they exist, these laws may thwart a decedent's intentions as expressed in a will

Front 17

Shares of stock distributed to the decedent's children according to the state intestate succession statute

Back 17

Required to Go Through Probate

Front 18

Results in reduced administrative costs and other expenses associated with an estate

Back 18

no

Front 19

Abatement

Back 19

Specifies the order in which shares in the decedent's estate will be consumed to satisfy claims of the decedent's creditors

One advantage of a will is that the preferred order can be stated and will supersede the statute.

Front 20

Real estate devised to the decedent's cousin in the decedent's will

Back 20

Required to Go Through Probate

Front 21

Provides notice of the decedent's death and estate proceedings to all interested parties so they may be barred from further challenge if they fail to respond in a timely fashion

Back 21

yes

Front 22

Cash in a savings account that was held in joint tenancy with right of survivorship with the decedent's mother

Back 22

Not Subject to Probate

Front 23

Judicial supervision and approval minimizes the possibility of future claims against the estate by heirs and creditors

Back 23

yes

Front 24

An automobile that is community property given to the surviving spouse in the decedent's will

Back 24

Required to Go Through Probate

Front 25

4. The four primary objectives of probate are as follows

Back 25

to transfer a decedent's wealth to other persons or entities in an orderly manner
to care for a surviving spouse and dependent children, if any
to give valid creditors of the decedent or the estate a method by which they can be paid
to provide a procedure for the collection of taxes owed by the decedent or the estate

Front 26

Ademption and partial ademption

Back 26

Clarifies how the beneficiary of a specific bequest is to be treated if the property bequeathed is no longer available or has diminished in value

Could lead to a redistribution of other bequests to satisfy a specific bequest

Front 27

6. Describe the following types of statutes and how each may affect estate distribution

Type of Statute
Dower and curtesy
Description:

Effect on estate distribution:

Back 27

Common law rights of the surviving spouse (of a widow and widower, respectively) in real property


In states where such rights still exist, the surviving spouse has a life estate in all or a portion of the decedent spouse's real property, which may be in addition to rights under the law of inheritance (intestate succession law) or an option in lieu of such inheritance rights.

Front 28

Tax
apportionment

Back 28

Declares whether the taxes to be paid will be apportioned pro rata among all shares or will be paid from the residuary share only

Express language in the will can declare which shares will pay the taxes and supersede the state statute.

Front 29

3. Though each state has its own set of probate laws, the characteristics of the probate procedure are the same in all 50 states. Place a check mark in the appropriate column to indicate whether each item is or is not a characteristic of the probate process.

A means of simplifying and expediting the transfer of property

Back 29

no

Front 30

Intestate succession

Back 30

Specifies to whom property that is part of the probate estate will pass if it does not pass by will substitute, by operation of any other law, or by the decedent's will

Property will usually go either all to the surviving spouse or to the surviving spouse and lineal descendants depending on circumstances; no property goes to friends or charities; property may escheat to the state if no recognized heirs.

Front 31

7. Describe how each of the following circumstances might affect a client's estate distribution

Execution of a qualified disclaimer

Back 31

Property that was left to one beneficiary will be distributed to another beneficiary; the specific requirements of a qualified disclaimer are contained in state statute and IRC Section 2518

Front 32

Death of a beneficiary before the testator's death

Back 32

If there is a contingent beneficiary, the property will be distributed to that person; if not, and there is a residuary clause, it will be distributed to the residuary beneficiary. Otherwise, this situation will result in partial intestacy

Front 33

Existence of a valid nuptial agreement

Back 33

Obligations and benefits agreed to by the decedent in this document regarding ownership and claims upon property of the other spouse are binding on the estate and its beneficiaries; where there is a disagreement between the will and the agreement, the agreement will prevail.

Front 34

Existence of a valid buy-sell agreement

Back 34

Obligations and benefits agreed to by the decedent in this document regarding rights and obligations to buy or sell a business interest are binding on the estate and its beneficiaries; where there is a disagreement between the will and the agreement, the agreement will prevail.

Front 35

8. Check the appropriate column in the table below to indicate the state in which real and personal property must be probated when more than one residence or locality is involved

Back 35

Real property -- state in which it is located

Personel property---State in which deceased is domiciled

Front 36

9. The terms below are basic to understanding estate transfers and probate. Match each term with the most appropriate description by placing the term in the blank to the left of the description.

estate transfer

Back 36

the act by which property interests that are part of the estate of one person are conveyed to another person; this may occur either during the person's lifetime or at the person's death

Front 37

probate

Back 37

the legal process of administering that portion of a decedent's estate that is disposed of by either the decedent's will or the state laws of intestate succession

Front 38

testacy (testate):

Back 38

the condition that results from a person's dying after having made and left a valid will; also used to describe a person who dies and leaves a valid will

Front 39

residence

Back 39

the place where a person is currently living; because some persons live in different places at different times of the year, this may not be the place of domicile

Front 40

domicile:

Back 40

a person's true, permanent residence; the place to which, whenever absent, the person has the intention of returning; this is the factor that will determine the state in which the person's personal property will be probated

Front 41

10. When making the probate decision, identify why a client might do the following:

choose to have property go through probate

Back 41

fairness to interested parties
orderly administration of estate assets; court supervision to see that the decedent's desires are carried out
greater protection from estate creditors ("cut-off period" for creditors)
possible income tax savings

Front 42

choose to use a will substitute to avoid probate

Back 42

avoids the time delays associated with probate
offers the property owner a greater degree of control or flexibility and avoids the inherent complexity of probate
may transfer the decedent's interest to someone other than the surviving spouse without the possibility of spousal election to take against the will or filing a will contest (however, this may not necessarily be true in a UPC state that has adopted the concept of the augmented estate)
often a quicker, more convenient means of creating an estate plan than drafting a will
greater privacy

Front 43

11. Tony Shaw and his wife, Grace, have an estate valued at $2.5 million. They recently moved from a large city to a rural home and are looking forward to retirement. They are very private people. Several years ago, Tony invested in an oil and gas drilling operation that is steadily decreasing in market value. He borrowed heavily to finance his investment. Tony also owns a tract of commercial real estate that has rapidly appreciated in recent years. He wants to leave the tract at his death to Chris, his son from a previous marriage, but he wants to do so with a minimum amount of transfer costs. Tony has two children, John and Susan, from his current marriage, who are not included in his will.

Identify the advantages for Tony in having his estate probated.

Back 43

Since the two children who are natural beneficiaries of Tony's estate are excluded from his will, one or more will contests may arise. Probate court ensures fairness to all parties by providing an unbiased forum for adjudicating such a claim.
Probate provides for the orderly administration of assets.
The ability to have creditors file claims within a statutory period after death affords Tony some protection against untimely and unwarranted claims.

Front 44

Identify the disadvantages for Tony in having his estate probated.

Back 44

Tony wants to minimize the cost of transferring property, but probate will not do this.
The probate process may cause delay in transfer.
The Shaws are private people, but probate is a public process

Front 45

Identify the disadvantages for George in having his estate probated

Back 45

Because most assets are solely in George's name, it is likely that Mary will experience a severe drop in income at George's death. The length of the probate process could compound this problem, absent a family allowance statute that pays Mary enough to live on during the period of administration.
If the disinherited son does bring a will contest, it will be a public matter since probate is a public process.
The cost of probate will diminish the estate. Mary needs all the money she can get.

Front 46

13. The four requirements for a valid will are as follows

Back 46

the testator must meet the minimum age;
the testator must have testamentary capacity;
the will must be in an acceptable form; and
the will must be executed in the proper manner by the testator and, if required, witnesses and/or a notary public

Front 47

12. George and Mary Finkbine have a combined estate of $1,000,000, with most assets in George's name alone. Their wills leave everything to the survivor, and upon the death of the survivor, everything is left to their only child. George left nothing in his will to a son by a prior marriage because he feels that he has given this son enough money during his life, and that the son has wrongly accused Mary of poisoning George's attitude toward him. Mary has never worked outside the home. George has recently retired from his consulting engineer practice due to severe health problems.

Identify the advantages for George in having his estate probated

Back 47

Since a will contest from the disinherited son is a distinct possibility, the probate court may become involved in any event; the probate court is an unbiased forum for adjudicating such a claim.
George's profession is one that would subject him to possible civil claims. Therefore, the relatively short claim period for creditors in the probate process would be a distinct advantage.
Because of the statutory time limits on creditor claims against the estate, a beneficiary of George's estate can be certain that a creditor will not demand payment after the beneficiary has received estate assets

Front 48

14. The three elements of testamentary capacity are as follows

Back 48

an understanding of the general nature of a will;
an understanding of the general nature and the extent of property owned; and
an understanding of the persons who are the natural objects of a person's bounty (i.e., a person's family).

Front 49

15. Define the three forms of wills

Back 49

holographic will
a will written in the testator's own handwriting

nuncupative will
an oral will

typewritten or witnessed will
a will prepared by an attorney

Front 50

The process of probate makes more sense when the objectives of probate are kept in mind. These objectives are:

Back 50

(1) distributing the decedent’s property according to applicable provisions in a will (subject to the caveat discussed later in this module that a surviving spouse, and in some cases, surviving dependents, must be provided for) or state laws of intestate succession, (2) paying the legitimate claims of creditors, and (3) collecting taxes

Front 51

16. Define the four types of wills

Back 51

reciprocal
two wills in which each maker names the other as beneficiary

mutual
single or multiple wills in which two or more makers agree to leave their property in a specified manner

simple
a single will by one testator

joint
a single will executed by two or more parties as their will

Front 52

fiduciary powers clause

Back 52

to grant and/or limit the powers given to the executor (and trustee, if any) that are different from those granted by state statute and to protect the executor against suit by other beneficiaries by specifically granting authority

Front 53

Will Clauses and Purposes

testamonium clause

Back 53

to establish that the document is intended to be the testator's last will, that the formal statutory signature requirement has been met, and the date of signing

Front 54

self-proving clause

Back 54

to allow the will to be admitted to probate without requiring that the witnesses appear at a hearing of the probate court

Front 55

tangible personal property clause:

Back 55

to establish who will receive legacies of specific personal property and under what conditions

Front 56

The word probate comes from a Latin word

Back 56

that means to prove

Front 57

This person or entity is generically referred to as a personal representative (PR) since he or she is the representative of the decedent. Some states still

Back 57

use the terms executor (male) and executrix (female), especially in the situation in which the decedent has left a will. The terms administrator (male) and administratrix (female) are also interchangeable terms for a PR in an intestacy situation

Front 58

PROBATE IS AN ORDERLY PROCESS
Probate has requirements that must be met within certain time frames, and a judge oversees the process to make sure that all the bases are cover

Back 58

The assets of the estate must be gathered and secured, and oftentimes an inventory must be filed. Notices to creditors have to be mailed and published. Valid debts, expenses, and taxes must be paid. Finally, the remaining estate assets must be distributed

Front 59

Distribution of estate assets to beneficiaries usually does not occur until the very end of the probate process

Back 59

. Payment of valid debts and taxes is given priority over such distributions, and the PR can be held personally liable for at least the estate taxes if distribution to beneficiaries is made prior to payment. Therefore, the PR is usually adamant that distribution of estate assets be the final act in administering the estate

Front 60

A nuncupative will

Back 60

these wills, even where allowed, are often limited by one or more of the following factors:
· By Dollar Amount. Only property up to a certain dollar amount may be transferred by a nuncupative will.
· By Type of Property. A nuncupative will may be used only to transfer tangible personal property.
· By Occupation of the Testator. For example, many states allow a nuncupative will to be made only by persons in the military or by mariners at sea.

Front 61

18. Explain the rationale for including a simultaneous death (or survivorship) provision in a will.

Back 61

The reason for including a survivorship provision in a will is to determine (in cases where there is no clear evidence) in what order the testator and/or beneficiaries died. The order of death can be important in allocating the marital deduction between spouses or in deciding whether the primary or contingent beneficiary receives the property

Front 62

20. Focusing only on transfer tax implications, explain why the use of joint and/or mutual wills often is inadvisable.

Two reasons that joint and/or mutual wills may be inadvisable are as follows:

Back 62

A contract to leave property to specific individuals other than the surviving spouse may be found when the surviving spouse dies. This eliminates the survivor's right of disposition over property bequeathed to him or her, which makes the interest a terminable interest and eliminates a marital deduction at the first spouse's death.
When one spouse dies, the surviving spouse may be found to have made a gift to the beneficiaries of a remainder interest in all of the property in which he or she was given a life estate under the joint will

Front 63

What must be proved in a probate proceeding? If the decedent left a will, it must be proved that the will is the valid last will and testament of the decedent. Thus, the person or persons presenting the will must prove the following:

Back 63

· that the testator intended the document presented to be his or her will,
· that the testator is deceased,
· that the document presented is the testator's last will and has not been revoked, and
· that the will was properly executed and was valid in the state in which it was executed.

Front 64

The rule for deciding where a probate proceeding must be commenced is as follows:

Back 64

personal property is probated in the state of the decedent's domicile, while real property must be probated in the state where the real estate is located.

Front 65

probate is exclusively controlled by state law, whether the advantages outweigh the disadvantages or vice versa may vary from state to state

Back 65

The advantages and disadvantages may also vary for decedents within a single state due to different circumstances

Front 66

PROBATE DISADVANTAGES

Back 66

Attorney's fees are merely the tip of the iceberg, however. Appraisers must also be employed—for tax purposes, if for no other reason. Accountants or certified public accountants are often employed to prepare tax returns. Auctioneers may be hired if estate assets must be sold because of inadequate liquidity

Front 67

The will maker—called a

Back 67

a testator (if male) and a testatrix (if female)—must also have testamentary capacity

Front 68

By Health of the Testator

Back 68

. For example, some states allow only persons who are in imminent peril of dying to make a nuncupative will

Front 69

19. Explain why, in most states, a surviving spouse cannot be totally disinherited

Back 69

A surviving spouse normally cannot be totally disinherited in a common law state because he or she has the right to a specific share (elective share) of the decedent's property, regardless of the will provisions. A surviving spouse normally cannot be totally disinherited in a community property state either, because of the nature of community property, which does not require a spouse’s name to be on the property title for him or her to have an ownership interest in it.

Front 70

Most states have laws that allow these matters, in the vast majority of cases, to be proved by affidavit

Back 70

a written statement made under oath)

Front 71

If a probate proceeding must be conducted in a state other than a decedent's state of domicile, this additional proceeding is referred to as an

Back 71

ancillary probate

Front 72

21. Explain why it may or may not be appropriate to state within a will the reasons for disinheriting a child

Back 72

It may be appropriate to state the reasons for disinheriting a child in a will to discourage charges of fraud, undue influence, or lack of testamentary capacity. A less divisive alternative is to make only a minimal or nominal bequest and thereby avoid the argument that the child was inadvertently left out of the will

Front 73

22. Explain why it is best to name contingent guardians, conservators, and personal representatives in a will.

Back 73

Contingent guardians, conservators, or personal representatives should be named in a will because if the primary guardian, conservator, or personal representative predeceases the will maker, a special court hearing must be held to name someone else; such a hearing can be avoided if a contingent individual is named, and the testator can be assured that his wishes will be carried out to the fullest extent possible

Front 74

23. Explain why it may be appropriate for a client to make a lifetime disposition of real estate that is located in a state outside the state of domicile rather than retaining it.

Back 74

A lifetime disposition of real estate that a client solely owns in another state avoids the unnecessary expense of ancillary probate of real estate in a state outside the client's state of domicile

Front 75

24. Explain why it is appropriate to include a residuary clause in a will if the will does not have one

Back 75

A residuary clause names a beneficiary for all probate property that is not specifically disposed of by other will provisions, thus avoiding the possibility of partial intestacy upon the client's death

Front 76

25. Tennyson Thorndike is a philanthropist with an estimated gross estate of $30 million. Tennyson has previously been married three times, and each of his wives has predeceased him. He has three children, one from each of his marriages. After the death of his third wife, Tennyson had his will revised in 1980. In the revised will, Tennyson left one-third of his estate to each of his children.

Since the will was drafted, there have been a number of changes in Tennyson's family situation. Last year, Tennyson met a young widow whom he recently married even though he knew that his two oldest children disapproved of her. Tennyson understands that marrying her has legal implications, particularly if she outlives him.

In addition, Tennyson's children have become somewhat of a disappointment to him. Tennyson and his eldest son, Montgomery, have not been on speaking terms for the past three years. Tennyson has disowned him and no longer thinks of him as a son. His middle child, Suzette, has run off with the lead singer of a rock band. When last heard from, Suzette was on tour with the band in Europe. From time to time, she attends press conferences where she denounces her father to the press as a capitalist exploiter of the masses. The youngest child, Miranda, has decided to devote her life to the welfare of the poor. She has joined a convent and has taken a vow of poverty.

Using the information provided in the narrative, indicate whether Tennyson's will needs to be amended.
His will needs to be amended.

Justify your response.

Back 76

The following aspects of Tennyson's situation may indicate a need to amend the will:

The will has not been reviewed within the past 12 months.
The testator would like to change one or more of the beneficiary designations.
The testator would like to change the amount bequeathed to one or more of the beneficiaries.
The testator would like to add and/or delete one or more beneficiaries.
There has been a change in the marital status of the will maker or his family since the last review.
There may have been significant tax law changes since the last review

Front 77

26. Meredith Thompson had her will drafted in 1985. It does not have a residuary clause, but it does have the following provisions:

a bequest of three-fourths of her estate to her sister, Angela
a bequest of one-fourth of her estate to her brother, Michael
payment of debts and administrative expenses out of Michael's share
instructions for Meredith's funeral arrangements
her cousin, Bill, is named executor of her estate
Four years after Meredith's will was drafted, Bill died. Also, her sister just inherited a substantial amount from her deceased husband's parents, so Meredith would like her brother to receive more of her estate. Meredith is now in the process of having her will amended.

Identify estate planning pitfalls that Meredith should avoid in her amended will and actions that should be taken to avoid them. Justify the actions selected

Back 77

Delete instructions for Meredith's funeral arrangements and place them in a separate document to be left with a person who is likely to survive her and who would normally be involved in the funeral planning process. Such action would make it more likely that her desires regarding funeral arrangements would be known and followed.
Allocate a proportionate share of debts and expenses to Angela's share instead of deducting them all from Michael's share. This action accomplishes her desire to give more to her brother and less to her sister.
Name a new executor, as well as a contingent executor (since Bill has died). This action would make it more certain that a person of whom Meredith approves would be appointed executor.
Name contingent beneficiaries if Angela or Michael predecease her to prevent partial intestacy.
Include a residuary clause stating a beneficiary for her estate if both Angela and Michael predecease her. This action would prevent total intestacy in these circumstances

Front 78

Answers

2–1 Identify property interests that must go through probate, the objectives and characteristics of the probate process, the duties and activities of a personal representative, and common laws and circumstances that may affect estate distribution at death.

1. The two methods of probate transfer are:

will
the laws of intestate succession.
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2. Generally, only some of a decedent's property will be subject to probate. Check the appropriate column in the table below to indicate whether each property interest must go through probate.

Required to Go Through Probate
Not Subject to Probate

Life insurance proceeds made payable to the decedent's spouse Ö

Shares of stock distributed to the decedent's children according to the state intestate succession statute Ö

Real estate devised to the decedent's cousin in the decedent's will Ö

Cash in a savings account that was held in joint tenancy with right of survivorship with the decedent's mother Ö

An automobile that is community property given to the surviving spouse in the decedent's will Ö


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3. Though each state has its own set of probate laws, the characteristics of the probate procedure are the same in all 50 states. Place a check mark in the appropriate column to indicate whether each item is or is not a characteristic of the probate process.

Characteristic of the probate process?

Yes
No

A means of simplifying and expediting the transfer of property Ö

An orderly procedure for submission and payment of creditors' claims that bars claims if not filed within a specified period Ö

A means of documenting title to property of the decedent and the transfer of such title Ö

Minimizes the time required to transfer the decedent's property to beneficiaries Ö

A means of proving the validity of the decedent's will Ö

Provides a person or persons with the necessary authority to collect and distribute the decedent's assets on behalf of the estate Ö

Provides for administration of the estate without publicity Ö

Provides for orderly distribution and transfer of the decedent's property to beneficiaries Ö

Provides systematic administration (inventory, appraisal, and accounting) of the decedent's estate Ö

Results in reduced administrative costs and other expenses associated with an estate Ö

Provides notice of the decedent's death and estate proceedings to all interested parties so they may be barred from further challenge if they fail to respond in a timely fashion Ö

Judicial supervision and approval minimizes the possibility of future claims against the estate by heirs and creditors Ö


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4. The four primary objectives of probate are as follows:

to transfer a decedent's wealth to other persons or entities in an orderly manner
to care for a surviving spouse and dependent children, if any
to give valid creditors of the decedent or the estate a method by which they can be paid
to provide a procedure for the collection of taxes owed by the decedent or the estate
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5. Identify the primary duties and activities of a personal representative (PR) by completing the following table:

Duty Corresponding Activities
1. Marshal the decedent's assets Collect bank account funds
Notify relevant businesses of decedent's death and the PR's identity and role

Secure decedent's personal property from theft or vandalism

Collect amounts payable to decedent (rents, promissory notes, etc.)

Collect death proceeds (Social Security, employer policy, or life insurance death proceeds payable to the estate)

File an inventory with the court

2. Allow valid creditors of the deceased to get paid Notify known creditors by mail, and/or unknown creditors by publication, of the following:
name of the deceased
probate court, case number
name and mailing address of the PR
deadline for creditors to file claims
information and documents necessary for a claim
Decide which creditor claims are valid

3. Attend to tax obligations of the decedent and the estate File income tax returns for the decedent for the year of death
File gift tax returns as necessary

File generation-skipping tax returns as necessary

File estate tax returns if the estate is taxable

File income tax returns for the estate, if required

Pay property or use taxes assessed against estate property

4. Manage estate assets Obtain insurance
Invest prudently to increase the size of the estate

Manage assets wisely

Maintain estate property

Protect assets

5. Distribute estate assets If the decedent left a will, distribute assets accordingly.

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6. Describe the following types of statutes and how each may affect estate distribution:

Type of Statute Description Effect on Estate Distribution
Dower and curtesy Common law rights of the surviving spouse (of a widow and widower, respectively) in real property In states where such rights still exist, the surviving spouse has a life estate in all or a portion of the decedent spouse's real property, which may be in addition to rights under the law of inheritance (intestate succession law) or an option in lieu of such inheritance rights.
Intestate succession Specifies to whom property that is part of the probate estate will pass if it does not pass by will substitute, by operation of any other law, or by the decedent's will Property will usually go either all to the surviving spouse or to the surviving spouse and lineal descendants depending on circumstances; no property goes to friends or charities; property may escheat to the state if no recognized heirs.
Surviving spouse's elective share Permits the surviving spouse to receive a specified portion of the decedent spouse's estate in lieu of property left to the spouse under the decedent spouse's will If elected, the specified statutory share supersedes the provisions of the decedent's will (it is sometimes called an election against the will), and other beneficiaries will receive smaller shares.
Holographic and/or nuncupative will These laws, in states where they exist, recognize handwritten and oral wills, respectively. Supersedes the intestate succession statute for property mentioned in such wills.
After-born child Gives a child born after the execution of the decedent's will a right to the amount that the child would have inherited under the intestate succession statute These laws apply unless there is clear proof that the omission was intentional, that the decedent provided for the omitted child outside of the will, or that the decedent left a sufficient amount to the omitted child's other parent to adequately care for such child.
Homestead, exempt property, and family allowance Distributes certain property of the general estate to the decedent's spouse and children prior to the application of either the decedent's will or the intestate succession statute The property is not subject to the claims of the creditors of the estate.
Mortmain Specifies the percentage of the decedent's net estate that may not be distributed to charity either by will at death and/or within a certain period immediately prior to death In the few states where they exist, these laws may thwart a decedent's intentions as expressed in a will.
Abatement Specifies the order in which shares in the decedent's estate will be consumed to satisfy claims of the decedent's creditors One advantage of a will is that the preferred order can be stated and will supersede the statute.
Ademption and partial ademption Clarifies how the beneficiary of a specific bequest is to be treated if the property bequeathed is no longer available or has diminished in value Could lead to a redistribution of other bequests to satisfy a specific bequest
Tax
apportionment Declares whether the taxes to be paid will be apportioned pro rata among all shares or will be paid from the residuary share only Express language in the will can declare which shares will pay the taxes and supersede the state statute.
Simultaneous death States the presumed order of death when it cannot be conclusively determined; the order of death may give property to a contingent rather than primary beneficiary and may affect shares in the will because of the effect on death taxes Again, the will can state which order of death will be presumed, and it will supersede the state statute.

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7. Describe how each of the following circumstances might affect a client's estate distribution:

Circumstance Possible Effect on Estate Distribution
Execution of a qualified disclaimer Property that was left to one beneficiary will be distributed to another beneficiary; the specific requirements of a qualified disclaimer are contained in state statute and IRC Section 2518.
Death of a beneficiary before the testator's death If there is a contingent beneficiary, the property will be distributed to that person; if not, and there is a residuary clause, it will be distributed to the residuary beneficiary. Otherwise, this situation will result in partial intestacy.
Existence of a valid nuptial agreement Obligations and benefits agreed to by the decedent in this document regarding ownership and claims upon property of the other spouse are binding on the estate and its beneficiaries; where there is a disagreement between the will and the agreement, the agreement will prevail.
Existence of a valid buy-sell agreement Obligations and benefits agreed to by the decedent in this document regarding rights and obligations to buy or sell a business interest are binding on the estate and its beneficiaries; where there is a disagreement between the will and the agreement, the agreement will prevail.

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8. Check the appropriate column in the table below to indicate the state in which real and personal property must be probated when more than one residence or locality is involved.

State in Which the Property Is Located State in Which the Deceased Was Domiciled
Real property (real estate) Ö

Personal property Ö


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9. The terms below are basic to understanding estate transfers and probate. Match each term with the most appropriate description by placing the term in the blank to the left of the description.

Terms

domicile probate
estate transfer residence
testacy (testate)

Descriptions

estate transfer: the act by which property interests that are part of the estate of one person are conveyed to another person; this may occur either during the person's lifetime or at the person's death
probate: the legal process of administering that portion of a decedent's estate that is disposed of by either the decedent's will or the state laws of intestate succession
testacy (testate): the condition that results from a person's dying after having made and left a valid will; also used to describe a person who dies and leaves a valid will
residence: the place where a person is currently living; because some persons live in different places at different times of the year, this may not be the place of domicile
domicile: a person's true, permanent residence; the place to which, whenever absent, the person has the intention of returning; this is the factor that will determine the state in which the person's personal property will be probated
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Application A

Investigate your state's statutes to determine the default position of your state on such issues as abatement, ademption, tax apportionment, and simultaneous death.



2–2 Analyze a situation to identify the advantages and disadvantages of the probate process.

10. When making the probate decision, identify why a client might do the following:

choose to have property go through probate
fairness to interested parties
orderly administration of estate assets; court supervision to see that the decedent's desires are carried out
greater protection from estate creditors ("cut-off period" for creditors)
possible income tax savings
choose to use a will substitute to avoid probate
avoids the time delays associated with probate
offers the property owner a greater degree of control or flexibility and avoids the inherent complexity of probate
may transfer the decedent's interest to someone other than the surviving spouse without the possibility of spousal election to take against the will or filing a will contest (however, this may not necessarily be true in a UPC state that has adopted the concept of the augmented estate)
often a quicker, more convenient means of creating an estate plan than drafting a will
greater privacy
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11. Tony Shaw and his wife, Grace, have an estate valued at $2.5 million. They recently moved from a large city to a rural home and are looking forward to retirement. They are very private people. Several years ago, Tony invested in an oil and gas drilling operation that is steadily decreasing in market value. He borrowed heavily to finance his investment. Tony also owns a tract of commercial real estate that has rapidly appreciated in recent years. He wants to leave the tract at his death to Chris, his son from a previous marriage, but he wants to do so with a minimum amount of transfer costs. Tony has two children, John and Susan, from his current marriage, who are not included in his will.

Identify the advantages for Tony in having his estate probated.
Since the two children who are natural beneficiaries of Tony's estate are excluded from his will, one or more will contests may arise. Probate court ensures fairness to all parties by providing an unbiased forum for adjudicating such a claim.
Probate provides for the orderly administration of assets.
The ability to have creditors file claims within a statutory period after death affords Tony some protection against untimely and unwarranted claims.
Identify the disadvantages for Tony in having his estate probated.
Tony wants to minimize the cost of transferring property, but probate will not do this.
The probate process may cause delay in transfer.
The Shaws are private people, but probate is a public process.
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12. George and Mary Finkbine have a combined estate of $1,000,000, with most assets in George's name alone. Their wills leave everything to the survivor, and upon the death of the survivor, everything is left to their only child. George left nothing in his will to a son by a prior marriage because he feels that he has given this son enough money during his life, and that the son has wrongly accused Mary of poisoning George's attitude toward him. Mary has never worked outside the home. George has recently retired from his consulting engineer practice due to severe health problems.

Identify the advantages for George in having his estate probated.
Since a will contest from the disinherited son is a distinct possibility, the probate court may become involved in any event; the probate court is an unbiased forum for adjudicating such a claim.
George's profession is one that would subject him to possible civil claims. Therefore, the relatively short claim period for creditors in the probate process would be a distinct advantage.
Because of the statutory time limits on creditor claims against the estate, a beneficiary of George's estate can be certain that a creditor will not demand payment after the beneficiary has received estate assets.
Identify the disadvantages for George in having his estate probated.
Because most assets are solely in George's name, it is likely that Mary will experience a severe drop in income at George's death. The length of the probate process could compound this problem, absent a family allowance statute that pays Mary enough to live on during the period of administration.
If the disinherited son does bring a will contest, it will be a public matter since probate is a public process.
The cost of probate will diminish the estate. Mary needs all the money she can get.
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2–3 Identify the requirements for a valid will, characteristics and types of wills, and the clauses and purpose(s) of each clause of a will.

13. The four requirements for a valid will are as follows:

the testator must meet the minimum age;
the testator must have testamentary capacity;
the will must be in an acceptable form; and
the will must be executed in the proper manner by the testator and, if required, witnesses and/or a notary public.
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14. The three elements of testamentary capacity are as follows:

an understanding of the general nature of a will;
an understanding of the general nature and the extent of property owned; and
an understanding of the persons who are the natural objects of a person's bounty (i.e., a person's family).
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15. Define the three forms of wills:

holographic will
a will written in the testator's own handwriting

nuncupative will
an oral will

typewritten or witnessed will
a will prepared by an attorney

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16. Define the four types of wills:

reciprocal
two wills in which each maker names the other as beneficiary

mutual
single or multiple wills in which two or more makers agree to leave their property in a specified manner

simple
a single will by one testator

joint
a single will executed by two or more parties as their will

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17. Illustrate your understanding of the purpose or purposes of common will clauses by matching each clause below with the most appropriate purpose that follows. Place the clauses in the blanks to the left of the purpose statements.

Will Clauses

introductory (exordium) clause fiduciary powers clause
death tax clause fiduciary appointment clause
tangible personal property clause testator's signature (testamonium) clause
real property clause attestation (statement of witnesses) clause
intangible personal property clause self-proving clause
residuary clause

Will Clauses and Purposes

testamonium clause: to establish that the document is intended to be the testator's last will, that the formal statutory signature requirement has been met, and the date of signing
tangible personal property clause: to establish who will receive legacies of specific personal property and under what conditions
fiduciary powers clause: to grant and/or limit the powers given to the executor (and trustee, if any) that are different from those granted by state statute and to protect the executor against suit by other beneficiaries by specifically granting authority
self-proving clause: to allow the will to be admitted to probate without requiring that the witnesses appear at a hearing of the probate court
introductory (exordium) clause: to identify the testator, to establish domicile, to declare that the document was meant to be the testator's will, and to revoke prior wills
residuary clause: to distribute assets not otherwise distributed by other clauses of the decedent's will
attestation (statement of witnesses) clause: to obtain acknowledgment from the witnesses that they have witnessed the testator's signing and his or her compliance with the statutory requirements of execution
death tax clause: to establish the source for the payment of federal estate tax, state inheritance and estate tax, and any federal or state generation-skipping tax, especially where the testator's desires are contrary to the statutory presumption
real property clause: to dispose of real estate and/or handle problems where real estate has been sold or destroyed prior to the testator's death and amendment of the testator's will
intangible personal property clause: to make specific bequests of cash, stocks, bonds, etc.
fiduciary appointment clause: to indicate the individuals whom the testator would like to have administer the estate (and/or trusts, if any), to specify compensation and bonding requirements, and to indicate whom the testator would like to serve as guardians of any minor children
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18. Explain the rationale for including a simultaneous death (or survivorship) provision in a will.

The reason for including a survivorship provision in a will is to determine (in cases where there is no clear evidence) in what order the testator and/or beneficiaries died. The order of death can be important in allocating the marital deduction between spouses or in deciding whether the primary or contingent beneficiary receives the property.

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19. Explain why, in most states, a surviving spouse cannot be totally disinherited.

A surviving spouse normally cannot be totally disinherited in a common law state because he or she has the right to a specific share (elective share) of the decedent's property, regardless of the will provisions. A surviving spouse normally cannot be totally disinherited in a community property state either, because of the nature of community property, which does not require a spouse’s name to be on the property title for him or her to have an ownership interest in it.

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20. Focusing only on transfer tax implications, explain why the use of joint and/or mutual wills often is inadvisable.

Two reasons that joint and/or mutual wills may be inadvisable are as follows:

A contract to leave property to specific individuals other than the surviving spouse may be found when the surviving spouse dies. This eliminates the survivor's right of disposition over property bequeathed to him or her, which makes the interest a terminable interest and eliminates a marital deduction at the first spouse's death.
When one spouse dies, the surviving spouse may be found to have made a gift to the beneficiaries of a remainder interest in all of the property in which he or she was given a life estate under the joint will.
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21. Explain why it may or may not be appropriate to state within a will the reasons for disinheriting a child.

It may be appropriate to state the reasons for disinheriting a child in a will to discourage charges of fraud, undue influence, or lack of testamentary capacity. A less divisive alternative is to make only a minimal or nominal bequest and thereby avoid the argument that the child was inadvertently left out of the will.

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Investigate your state's statutes to determine the types of wills allowed, the number of witnesses required, and whether self-proving wills are allowed.



2–4 Evaluate a situation to determine whether specific will clauses are adequate and whether a will needs to be amended.

22. Explain why it is best to name contingent guardians, conservators, and personal representatives in a will.

Contingent guardians, conservators, or personal representatives should be named in a will because if the primary guardian, conservator, or personal representative predeceases the will maker, a special court hearing must be held to name someone else; such a hearing can be avoided if a contingent individual is named, and the testator can be assured that his wishes will be carried out to the fullest extent possible.

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23. Explain why it may be appropriate for a client to make a lifetime disposition of real estate that is located in a state outside the state of domicile rather than retaining it.

A lifetime disposition of real estate that a client solely owns in another state avoids the unnecessary expense of ancillary probate of real estate in a state outside the client's state of domicile.

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24. Explain why it is appropriate to include a residuary clause in a will if the will does not have one.

A residuary clause names a beneficiary for all probate property that is not specifically disposed of by other will provisions, thus avoiding the possibility of partial intestacy upon the client's death.

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25. Tennyson Thorndike is a philanthropist with an estimated gross estate of $30 million. Tennyson has previously been married three times, and each of his wives has predeceased him. He has three children, one from each of his marriages. After the death of his third wife, Tennyson had his will revised in 1980. In the revised will, Tennyson left one-third of his estate to each of his children.

Since the will was drafted, there have been a number of changes in Tennyson's family situation. Last year, Tennyson met a young widow whom he recently married even though he knew that his two oldest children disapproved of her. Tennyson understands that marrying her has legal implications, particularly if she outlives him.

In addition, Tennyson's children have become somewhat of a disappointment to him. Tennyson and his eldest son, Montgomery, have not been on speaking terms for the past three years. Tennyson has disowned him and no longer thinks of him as a son. His middle child, Suzette, has run off with the lead singer of a rock band. When last heard from, Suzette was on tour with the band in Europe. From time to time, she attends press conferences where she denounces her father to the press as a capitalist exploiter of the masses. The youngest child, Miranda, has decided to devote her life to the welfare of the poor. She has joined a convent and has taken a vow of poverty.

Using the information provided in the narrative, indicate whether Tennyson's will needs to be amended.
His will needs to be amended.

Justify your response.
The following aspects of Tennyson's situation may indicate a need to amend the will:

The will has not been reviewed within the past 12 months.
The testator would like to change one or more of the beneficiary designations.
The testator would like to change the amount bequeathed to one or more of the beneficiaries.
The testator would like to add and/or delete one or more beneficiaries.
There has been a change in the marital status of the will maker or his family since the last review.
There may have been significant tax law changes since the last review.
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26. Meredith Thompson had her will drafted in 1985. It does not have a residuary clause, but it does have the following provisions:

a bequest of three-fourths of her estate to her sister, Angela
a bequest of one-fourth of her estate to her brother, Michael
payment of debts and administrative expenses out of Michael's share
instructions for Meredith's funeral arrangements
her cousin, Bill, is named executor of her estate
Four years after Meredith's will was drafted, Bill died. Also, her sister just inherited a substantial amount from her deceased husband's parents, so Meredith would like her brother to receive more of her estate. Meredith is now in the process of having her will amended.

Identify estate planning pitfalls that Meredith should avoid in her amended will and actions that should be taken to avoid them. Justify the actions selected.

Delete instructions for Meredith's funeral arrangements and place them in a separate document to be left with a person who is likely to survive her and who would normally be involved in the funeral planning process. Such action would make it more likely that her desires regarding funeral arrangements would be known and followed.
Allocate a proportionate share of debts and expenses to Angela's share instead of deducting them all from Michael's share. This action accomplishes her desire to give more to her brother and less to her sister.
Name a new executor, as well as a contingent executor (since Bill has died). This action would make it more certain that a person of whom Meredith approves would be appointed executor.
Name contingent beneficiaries if Angela or Michael predecease her to prevent partial intestacy.
Include a residuary clause stating a beneficiary for her estate if both Angela and Michael predecease her. This action would prevent total intestacy in these circumstances.
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27. Edward and Mamie Dryden, husband and wife, established their estate plan in 1965. On the advice of their attorney, they executed one document—a joint and mutual will—to serve as the vehicle for passing title to their property. Edward and Mamie each named the other to receive the property when one of them dies. Since the will was drafted, they have acquired real estate in several other states. They also frequently travel together for both business and pleasure. Edward and Mamie's daughter, a financial planner, recently indicated to them that their will may need to be amended.

Identify the actions that Edward and Mamie should take to avoid estate planning pitfalls when amending their will. Justify the actions selected

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They should write separate wills (one for Edward and one for Mamie). Joint and mutual wills run the risk of being held to constitute contracts, which can have gift tax consequences for the surviving spouse and could result in a potential loss of the marital deduction for the estate of the first spouse to die.
They should include survivorship provisions in the event of simultaneous death. The possibility of simultaneous death should always be contemplated and provided for in a will; if no provision is made, property may be needlessly subjected to two probate proceedings.
They should make a lifetime transfer of real estate located in nondomiciliary states, or place such real estate in a will substitute form. This action will prevent the need for ancillary probate proceedings in these jurisdictions and would avoid the resulting increased probate costs.

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28. Clifford Renslow is planning to have his will revised. Clifford's existing will contains the following provisions:

"I hereby disinherit my son, Phillip. He will not receive any bequests, devises, or inheritances from my estate."
"I hope that my coin collection will be given to my nephew."
"I hereby give my 1981 Ford LTD to my daughter, Jan."
"I hereby give Bruce Brisbane $100,000."
Since the will was executed, the Ford was destroyed in an accident, and Clifford's wife learned that Bruce had threatened to expose some past indiscretions by Clifford if he was not provided for in Clifford's will.

Identify the actions that Clifford should take to avoid estate planning pitfalls when he has his will amended. Justify the actions selected.

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Clifford should include a reason why he is disinheriting his son Phillip to avoid the risk of a will contest after Clifford's death.
Clifford should remove the precatory language concerning the coin collection, as such language may be ignored and the coin collection could go to someone else; the bequest to the nephew should be made mandatory.
Clifford should provide a substitute bequest for Jan; this action is necessary only if Clifford still wants Jan to receive something from his estate.
Clifford should eliminate the bequest to Bruce. Since his threat has become known, the bequest will probably be challenged on the grounds that Bruce exerted undue influence; elimination of the bequest will prevent this expense and delay

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30. Identify the factors that will usually determine the share of a surviving spouse under a state's intestate succession statutes

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whether the decedent has surviving descendants
whether the decedent's surviving descendants are also descendants of the surviving spouse
whether the surviving spouse has surviving descendants that are not also descendants of the decedent

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32. The terms below are basic to understanding will substitutes. Match each term with the most appropriate description by placing the term in the blank to the left of the description.

Terms

beneficiary designation
right of survivorship
operation of law
will substitute

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Descriptions

will substitute: the term for several methods (survivorship, contract, living trust provision, etc.) that transfer a person's estate at death outside of probate (because they supersede a will and the state intestate succession laws)
right of survivorship: the legally enforceable claim by the survivor of a deceased person to the property of the deceased; a distinguishing characteristic of joint tenancy; a widely recognized form of will substitute
beneficiary designation: a contractual provision usually found in insurance policies, pension plans, and IRAs, etc., that indicates the person who is entitled to receive the proceeds at another person's death; a widely recognized form of will substitute
operation of law: when rights and sometimes liabilities pass from one person to another by the mere application of the established rules of law to the particular situation, without any action by either of the two persons
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33. Identify characteristics of the following methods of property transfer, each of which may serve as a will substitute.

deeds of title

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legal requirements for execution of a valid deed must be satisfied; deed must pass present interest to grantee during grantor's lifetime to avoid testamentary formalities; unconditional delivery of deed to escrow agent (with possession of property delayed until grantor's death) may be permitted in some states; irrevocable unless the power to revoke is expressly reserved in the deed

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joint tenancy with right of survivorship in real or personal property

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survivorship rights provide for direct disposition to surviving tenant(s) at one tenant's death by operation of law; manner of and presumption as to creation determined by state law; taxed according to federal tax code

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joint tenancy bank accounts

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survivorship rights; three types of joint accounts—most common is the revocable account (each joint tenant can make deposits and withdraw funds without consent of other tenant); present interest in all account funds; vests upon creation by signature card

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payable on death (P.O.D.) accounts

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depositing of funds for benefit of another, payable on death of original depositor; depositor has complete control over funds; not allowed by all states; guardianship problem when account is established for minor child

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Totten trusts

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a revocable trust in a bank account in which depositor is named trustee for another's benefit; not permitted in some states; depositor retains right of withdrawal until death; when depositor dies, balance in account passes to beneficiary, who has no rights until depositor dies

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provisions in a contract taking effect at the individual's death

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for the provision to be effective, the individual must have a lifetime enforceable right to performance of the contract provision; most common example is life insurance beneficiary designation

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government savings bonds

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co-ownership issued in one of two forms—(1) to alternative payees ("A or B"), where the survivor becomes sole owner upon death of other payee; or (2) in beneficiary format ("A payable on death to B"), where the primary payee reserves the right to control disposition and B becomes the sole owner upon the death of A (but not vice versa

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revocable living trusts

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most popular will substitute; trust must be funded during grantor's lifetime to avoid probate at death; gives equitable interests in beneficiaries at time of creation, although they may be revoked or altered later

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transfer on death (T.O.D.) designations

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revocable titling of individual securities or a securities account in the owner's name but transferable on death of the owner to the designated beneficiary; owner has complete control over securities until death; not allowed in all states

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irrevocable living trusts

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trust must be funded during grantor’s lifetime to avoid probate at death; vests equitable title in beneficiaries at time of creation

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34. Keith Everett, a single individual, has just purchased $50,000 of Series HH U.S. savings bonds. He has designated on the bonds that they are to be payable on his death to his niece, Sharon.

Identify the advantages for Keith in titling the U.S. savings bonds as an attempted will substitute

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Keith retains control over the disposition of bond proceeds during his lifetime.
The bonds avoid probate at Keith's death.
There are no gift tax consequences upon creation because the transfer is revocable, and therefore it is an incomplete gift

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Identify the disadvantages for Keith in using the U.S. savings bonds as an attempted will substitute

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The bonds are included in Keith's estate.
There are no disposition rights at death to anyone other than Sharon

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35. Kenneth Stafford owns a tract of farmland that he wants to transfer at death to his son, Stanley. He wants to avoid probate on the transfer. Kenneth has executed a deed conveying title to Stanley and has delivered the deed to a title company with directions to send the deed to Stanley upon Kenneth's death.

Identify the advantages for Kenneth in using this deed as an attempted will substitute

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possible valid will substitute: avoids probate if it is determined that title passes when the deed is delivered to an escrow agent (the title company) with only possession of the property postponed until Kenneth's death

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Identity the disadvantages for Kenneth in using this deed as an attempted will substitute

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possible invalid will substitute: will not avoid probate if it is determined that title does not pass when the deed is delivered to an escrow agent (the title company); in this event, the property is likely to pass to the beneficiary of Kenneth's residuary estate

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36. Scott Carpenter has a gross estate valued at $1,500,000. His estate includes several tracts of income-producing property that he would like to transfer to his son, Samuel. Scott wants to accomplish this transfer without the expense of probate. He does not have a will and does not believe he needs one. Although Scott could deed the property to his son and deliver the deed to an escrow agent for delivery to his son when Scott dies, he disapproves of this method because he cannot change his mind later. Scott is in the maximum marginal income tax bracket for the current tax year. He needs all income generated from the tracts and cannot afford to gift them now.

Select the most appropriate form of will substitute for Scott

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a revocable living trust naming Samuel as beneficiary upon Scott's death

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Justify your response.

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A revocable living trust allows Scott to maintain control over the income-producing tracts and their income (which he currently needs for his own support), while accomplishing the transfer to his son without a will, thereby avoiding the expense of probate.

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37. Robert and Cynthia Cannon have a combined gross estate consisting primarily of real estate and cash assets valued at less than $600,000. They have no children. They do not have wills, nor do they intend to have wills written soon. Robert and Cynthia want all their property to be distributed upon each other's death to the survivor. They want to accomplish this without incurring the expense of probate.

Select the most appropriate form of will substitute for Robert and Cynthia

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a joint tenancy between Robert and Cynthia

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Justify your response

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Robert and Cynthia are in no danger of experiencing the tax problems often associated with joint tenancy (i.e., their combined gross estates are less than one applicable exclusion amount). They do not want to write wills, yet they want all property to pass to the survivor. Joint tenancy with right of survivorship is a simple and relatively inexpensive method that will allow Robert and Cynthia to accomplish their estate planning objectives and at the same time avoid probate expenses. (Note: If allowed in their state, Robert and Cynthia could accomplish the same objectives by titling the property in their names as tenants by the entirety.)

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FINANCIAL GOALS
Estate planning goals relating to monetary concerns can be further broken down into nontax and tax-related goals.

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Nontax Goals
· Preserve Business Value. While transfer of a person's interest in a business may be achieved by a will, intestacy, or a will substitute, the steps that actually preserve value must be taken by the owner prior to death.
· Maximize Premortem Flexibility. This can be achieved by a will or intestacy, since neither method requires surrender of any control prior to death, and it can also be achieved by any will substitute form that is revocable.
· Maximize Postmortem Flexibility. This can be achieved by a will or intestacy, since neither requires surrender of any control prior to death, thus leaving all assets to be disposed of after death. Because will substitutes pass property outside of probate, these assets will not be available to the estate's personal representative.
· Maximize Benefits for a Surviving Spouse. This can best be achieved by a will or will substitute since a surviving spouse can be given everything; the spouse is likely to get something through intestacy, but it may not include all assets.
· Minimize Nontax Transfer Costs. Due to the cost of probate, this can be achieved only by a will substitute.
· Maintain Satisfactory Standard of Living. Since this goal requires a person to maintain maximum flexibility, it can be achieved only by a will, intestacy, or a revocable will substitute (see the previous section on nonfinancial goals involving flexibility).
· Maintain Premortem Liquidity. This goal, which has more to do with maintaining enough cash or cash equivalent assets than with how assets are transferred, can be most easily accomplished by maintaining total control over such assets and, therefore, can be achieved by a will, intestacy, or a revocable will substitute.
· Maintain Postmortem Liquidity. This goal requires availability of cash or cash equivalent assets after death and, therefore, can be most easily achieved by maintaining total control over such assets prior to death so that they are available after death. Thus, it can be achieved by a will or intestacy.
Example 2–10. Jake placed a T.O.D. designation on all of his stocks naming his brother the beneficiary of these stocks at his death. By using this will substitute, Jake has maximized premortem flexibility, minimized his nontax transfer costs, and has not jeopardized his current standard of living because he has maintained premortem liquidity.

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A disadvantage common to nearly all will substitutes is that they require the current

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owner to expend funds currently in order to place the property in will substitute form

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DISPOSITIVE CLAUSES
After these preliminaries, a will is ready to perform the main part of its job—disposing of the decedent's probate property. Since a will is not effective until the death of the testator and its provisions apply only to probate property owned by the testator at death, specific items of property are seldom mentioned except for heirloom-type items or other assets certain to be owned by the testator at death.

One or more of the dispositive clauses may direct the personal representative to transfer estate assets to an existing trust established by the will maker prior to death (known

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as a pourover trust). In this instance, the will is called a pourover will because it pours estate assets into the trust

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If the will maker does want every person in the class to receive the same amount regardless of his or her degree of relationship, an abbreviated way of indicating this intent is to state that the property is to be given to his or her issue

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per capita. This is a Latin phrase meaning "by the head." In such a situation, the personal representative simply "counts the heads" of the members of the class and divides the value of the property by that number to find out how much to give to each member of the class.

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The maker's children usually do not like per capita distribution since it gives grandchildren and great-grandchildren the same amount as the children get. Therefore, some distributions to a class may be made

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per stirpes (also known as by representation). These Latin words mean "by the root."
Example 2–6. To illustrate this scheme of distribution, assume that the decedent had three children, Mark, Jennifer, and Harold. Further assume that Jennifer predeceased the decedent, leaving one child, and that Harold also predeceased the decedent, leaving two children. With per stirpes distribution, Mark would receive one-third of the property, Jennifer’s child would receive one-third, and Harold’s two children would split the remaining one-third.
Note that while this distribution does not treat everyone equally, it does allow Jennifer's child to receive more than each of Harold's two children. Although all three grandchildren are in the same generation, under per stirpes distribution, beneficiaries take by the root or line in which they happen to be in relation to the decedent. If Jennifer had survived the decedent, she would have received a one-third share that she could have passed on to her child at her death, so this share is given to her child. Similarly, if Harold had survived, he would have received a one-third share that he could have split between his two children when he died. Therefore, his two children are given the shares they would have received by virtue of being in their father's line.

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Harold's two children might think it unfair that they each get only half as much as their cousin. A way to avoid this perceived injustice is to make distribution of the property per capita at each generation. In this situation

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Jennifer and Harold's one-third shares are combined and distributed equally to the number of heads at the grandchildren's level. Therefore, the three cousins would each get one-third of the two-thirds of the property that would have gone to Jennifer and Harold had they survived the decedent. This distribution scheme gives more to members in generations closer to the decedent but the same amount to persons within the same generation

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Joint tenancy bank accounts may be the most widel

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used form of will substitute

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On various public policy grounds, each state has approved limited methods of transferring property at death that avoid subjecting estate property to the probate process, with all of its advantages and disadvantages

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. These methods of estate transfer are collectively referred to as will substitutes

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In addition to being accepted as valid by the state, all will substitutes must have one other feature

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they must have a method of designating who is to receive the property at the current owner's death. Since probate is not involved, neither the decedent's will nor state intestacy laws can be consulted to answer this question. Property owned in a valid will substitute form is not affected by a will or intestacy laws. Will substitutes name the recipient at death in two ways: (1) by right of survivorship and (2) by beneficiary designation

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There are two forms of property ownership that act as will substitutes by using the right of survivorship principle. These are

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are joint tenancy with right of survivorship (JTWROS), often referred to simply as joint tenancy, and tenancy by the entirety (TBE). Joint tenancy is a form of co-ownership that can be used by any number of people in virtually every state, while tenancy by the entirety can be used only by spouses in the states where it is recognized. These forms of will substitute are usually effective to transfer both real and personal property of all kinds.

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By placing property in these forms of ownership, the owners are deemed to be saying, "When I die, I want my interest in this property to pass equally to the other owner or owners who survive me." For example,

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, if the only owners are a husband and wife and the husband dies, the wife will automatically become the sole owner of the property. If there are three joint tenants and one of them dies, the two surviving joint tenants will each receive one-half of the deceased tenant's interest in the property. Since transfer of a decedent's interest to the surviving tenant(s) takes place automatically, without the need for probate, such interests are said to transfer by operation of law.

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There are many forms of will substitutes that employ the beneficiary designation principle. Such will substitutes include the following:

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· government savings bonds
· payable on death (P.O.D.) accounts
· bank account trusts, commonly known as Totten trusts
· transfer on death (T.O.D.) accounts
· provisions in contracts of all kinds, including a beneficiary designation for pension benefits, IRAs, annutities, and for a life insurance policy; unless specifically stated otherwise, these beneficiary designations are revocable and take effect upon death
· a deed that is unconditionally delivered to an escrow agent to be delivered to the grantee at the grantor's death
· gifts causa mortis
· revocable living trusts

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A Totten trust is created when an individual deposits his or her money in a bank or savings account for

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for another person's benefit and names himself or herself as trustee of the account. The beneficiary has no right to the trust funds until the depositor dies.

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A transfer on death account operates in the same fashion

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as a P.O.D. bank account except that a T.O.D. designation is usually limited to the registration of publicly traded securities and debt obligations.

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The deed and the will serve separate and distinct functions in the U.S. legal system. A deed is used to pass a

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present interest in property, usually real estate, to a grantee during an individual's lifetime. A will is designed to pass all types of property to named beneficiaries at an individual's death

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Causa mortis are Latin words meaning

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in contemplation of death. A few states allow their citizens to make revocable gifts of personal property if they are in a terminal condition. Since the gifts are revocable if death does not occur as anticipated, these gifts do, in fact, operate as will substitutes using the beneficiary designation principle.

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REVOCABLE LIVING TRUSTS
A revocable living trust is a will substitute recognized in all states. In a typical revocable living trust arrangement, the grantor transfer

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transfers assets to a trustee but retains the power to revoke the trust at any time. It is important that the trust be funded to avoid probate upon the grantor's death. If the grantor has not revoked the trust prior to his or her death, the assets are distributed to the named beneficiaries under the trust or are held in further trust for the beneficiaries. These assets pass free of any court-directed administration since they are owned by the trust, not the grantor, as long as the grantor did not revoke the trust prior to death.

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A revocable trust is effective upon its creation and funding during the grantor's lifetime.

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The trust passes a contingent equitable interest in the assets to its beneficiaries before the death of the grantor, even though a vested interest in the assets is not transferred to the beneficiaries until after the grantor's death.

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IRREVOCABLE LIVING TRUSTS
All statements made for revocable living trusts also apply to irrevocable living trusts, with the exception that the grantor has no right to revoke, and therefore trust beneficiaries have a vested, rather than a contingent, equitable interest.

Every will substitute has the advantage of avoiding

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the probate process and the attendant cost, delay, and potential publicity. Every will substitute also has the advantage of allowing the current owner of property to name the person or persons who are to receive the owner's interest at his or her death.

While the right to revoke the beneficiary designation may allow the current owner to maintain control until death, it also requires that the asset be included in the owner's gross estate at death for estate tax purposes, and keeps the asset within reach of the owner's creditors.

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NONFINANCIAL GOALS
The common estate planning goals that relate to distribution, protection, and control of wealth are as follows:

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· Provide for the Care of Dependents. This can be accomplished by giving property to dependents in a will or by will substitute, either outright or in trust; although assets might go to dependents by intestacy, the amount or form of transfer will not be optimal.
· Proper Distribution of Assets (amount, form, and identity of recipient). This can be accomplished by either a will or will substitute; a will can be used for all types of property, while certain will substitutes may be limited in application.
· Speedy Distribution of Assets. This can be accomplished only by a will substitute due to the nature of the probate process.
· Orderly Distribution of Assets. This can be accomplished by a will, a will substitute, or intestacy according to established statutory procedures.
· Protect Assets From Claims of Creditors of Owner. This can be achieved only by an irrevocable will substitute form (e.g., irrevocable inter vivos trust, joint tenancy or tenancy by the entirety) so that ownership of the asset is totally or partially transferred from the owner.
· Protect Assets From Claims of Creditors of Beneficiary. This can be accomplished by will substitute only when the beneficiary has a contingent interest in the property, or when the property is given to the beneficiary in trust with an appropriate spendthrift clause. For example, the creditors of a beneficiary designated by a P.O.D. clause cannot access money in the account because the beneficiary has no present right to the account; the beneficiary may never receive any part of the account if the account owner names another beneficiary or completely eliminates the P.O.D. designation. Since a will is also revocable, the creditors of beneficiaries named in a will also are prevented from seizing the beneficiary's share of an estate prior to the testator's death.
· Maintain Total Control of Assets Until Death. This can be achieved by will or intestacy since neither is effective until death; it can also be achieved by a revocable will substitute (except a joint bank account).
Example 2–9. Jake placed title to the residence he owned, prior to his marriage, into his and his wife’s names as joint tenants with right of survivorship after the marriage. By this transfer, Jake has accomplished all of the foregoing goals except the last two. While Jake’s interest in the property will not be protected from his creditors, it will be protected from his wife’s creditors.