Wills, Trusts & Estates

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Walk by Faith; Serve with Abandon
✅Expect to Win!
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The Advocacy Foundation, Inc.
Helping Individuals, Organizations & Communities
Achieve Their Full Potential
Since its founding in 2003, The Advocacy Foundation has become recognized as an effective
provider of support to those who receive our services, having real impact within the communities
we serve. We are currently engaged in community and faith-based collaborative initiatives,
having the overall objective of eradicating all forms of youth violence and correcting injustices
everywhere. In carrying-out these initiatives, we have adopted the evidence-based strategic
framework developed and implemented by the Office of Juvenile Justice & Delinquency
Prevention (OJJDP).
The stated objectives are:
1. Community Mobilization;
2. Social Intervention;
3. Provision of Opportunities;
4. Organizational Change and Development;
5. Suppression [of illegal activities].
Moreover, it is our most fundamental belief that in order to be effective, prevention and
intervention strategies must be Community Specific, Culturally Relevant, Evidence-Based, and
Collaborative. The Violence Prevention and Intervention programming we employ in
implementing this community-enhancing framework include the programs further described
throughout our publications, programs and special projects both domestically and
internationally.
www.Advocacy.Foundation
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Dedication
______
Every publication in our many series’ is dedicated to everyone, absolutely everyone, who by
virtue of their calling and by Divine inspiration, direction and guidance, is on the battlefield dayafter-day
striving to follow God’s will and purpose for their lives. And this is with particular affinity
for those Spiritual warriors who are being transformed into excellence through daily academic,
professional, familial, and other challenges.
We pray that you will bear in mind:
Matthew 19:26 (NLT)
Jesus looked at them intently and said, “Humanly speaking, it is impossible.
But with God everything is possible.” (Emphasis added)
To all of us who daily look past our circumstances, and naysayers, to what the Lord says we will
accomplish:
Blessings!!
- The Advocacy Foundation, Inc.
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The Transformative Justice Project
Eradicating Juvenile Delinquency Requires a Multi-Disciplinary Approach
The Juvenile Justice system is incredibly
overloaded, and Solutions-Based programs are
woefully underfunded. Our precious children,
therefore, particularly young people of color, often
get the “swift” version of justice whenever they
come into contact with the law.
Decisions to build prison facilities are often based
on elementary school test results, and our country
incarcerates more of its young than any other
nation on earth. So we at The Foundation labor to
pull our young people out of the “school to prison”
pipeline, and we then coordinate the efforts of the
legal, psychological, governmental and
educational professionals needed to bring an end
to delinquency.
We also educate families, police, local businesses,
elected officials, clergy, schools and other
stakeholders about transforming whole communities, and we labor to change their
thinking about the causes of delinquency with the goal of helping them embrace the
idea of restoration for the young people in our care who demonstrate repentance for
their mistakes.
The way we accomplish all this is a follows:
1. We vigorously advocate for charges reductions, wherever possible, in the
adjudicatory (court) process, with the ultimate goal of expungement or pardon, in
order to maximize the chances for our clients to graduate high school and
progress into college, military service or the workforce without the stigma of a
criminal record;
2. We then endeavor to enroll each young person into an Evidence-Based, Data-
Driven Transformative Justice program designed to facilitate their rehabilitation
and subsequent reintegration back into the community;
3. While those projects are operating, we conduct a wide variety of ComeUnity-
ReEngineering seminars and workshops on topics ranging from Juvenile Justice
to Parental Rights, to Domestic issues to Police friendly contacts, to Mental
Health intervention, to CBO and FBO accountability and compliance;
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4. Throughout the process, we encourage and maintain frequent personal contact
between all parties;
5 Throughout the process we conduct a continuum of events and fundraisers
designed to facilitate collaboration among professionals and community
stakeholders; and finally
6. 1 We disseminate Monthly and Quarterly publications, like our e-Advocate series
Newsletter and our e-Advocate Monthly and Quarterly Electronic Compilations to
all regular donors in order to facilitate a lifelong learning process on the everevolving
developments in both the Adult and Juvenile Justice systems.
And in addition to the help we provide for our young clients and their families, we also
facilitate Community Engagement through the Transformative Justice process,
thereby balancing the interests of local businesses, schools, clergy, social
organizations, elected officials, law enforcement entities, and other interested
stakeholders. Through these efforts, relationships are built, rebuilt and strengthened,
local businesses and communities are enhanced & protected from victimization, young
careers are developed, and our precious young people are kept out of the prison
pipeline.
Additionally, we develop Transformative “Void Resistance” (TVR) initiatives to elevate
concerns of our successes resulting in economic hardship for those employed by the
penal system.
TVR is an innovative-comprehensive process that works in conjunction with our
Transformative Justice initiatives to transition the original use and purpose of current
systems into positive social impact operations, which systematically retrains current
staff, renovates facilities, creates new employment opportunities, increases salaries and
is data-proven to enhance employee’s mental wellbeing and overall quality of life – an
exponential Transformative Social Impact benefit for ALL community stakeholders.
This is a massive undertaking, and we need all the help and financial support you can
give! We plan to help 75 young persons per quarter-year (aggregating to a total of 250
per year) in each jurisdiction we serve) at an average cost of under $2,500 per client,
per year. *
Thank you in advance for your support!
* FYI:
1 In addition to supporting our world-class programming and support services, all regular donors receive our Quarterly e-Newsletter
(The e-Advocate), as well as The e-Advocate Quarterly Magazine.
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1. The national average cost to taxpayers for minimum-security youth incarceration,
is around $43,000.00 per child, per year.
2. The average annual cost to taxpayers for maximum-security youth incarceration
is well over $148,000.00 per child, per year.
- (US News and World Report, December 9, 2014);
3. In every jurisdiction in the nation, the Plea Bargaining rate is above 99%.
The Judicial system engages in a tri-partite balancing task in every single one of these
matters, seeking to balance Rehabilitative Justice with Community Protection and
Judicial Economy, and, although the practitioners work very hard to achieve positive
outcomes, the scales are nowhere near balanced where people of color are involved.
We must reverse this trend, which is right now working very much against the best
interests of our young.
Our young people do not belong behind bars.
- Jack Johnson
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The Advocacy Foundation, Inc.
Helping Individuals, Organizations & Communities
Achieve Their Full Potential
…a compendium of works on
Wills, Trusts & Estates
“Turning the Improbable Into the Exceptional”
Atlanta
Philadelphia
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John C Johnson III
Founder & CEO
(878) 222-0450
Voice | Data | SMS
www.Advocacy.Foundation
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Biblical Authority
______
Inheritance
Proverbs 13:22 (NIV)
22
A good person leaves an inheritance for their children’s children,
but a sinner’s wealth is stored up for the righteous.
Proverbs 20:21
21
An inheritance claimed too soon will not be blessed at the end.
Romans 8:17
17
Now if we are children, then we are heirs—heirs of God and co-heirs with Christ, if
indeed we share in his sufferings in order that we may also share in his glory.
Revelation 21:7
7
Those who are victorious will inherit all this, and I will be their God and they will be my
children.
________
Wills
Genesis 48 (NIV)
Manasseh and Ephraim
Some time later Joseph was told, “Your father is ill.” So he took his two sons Manasseh
and Ephraim along with him. 2 When Jacob was told, “Your son Joseph has come to
you,” Israel rallied his strength and sat up on the bed.
3
Jacob said to Joseph, “God Almighty [a] appeared to me at Luz in the land of Canaan,
and there he blessed me 4 and said to me, ‘I am going to make you fruitful and increase
your numbers. I will make you a community of peoples, and I will give this land as an
everlasting possession to your descendants after you.’
5
“Now then, your two sons born to you in Egypt before I came to you here will be
reckoned as mine; Ephraim and Manasseh will be mine, just as Reuben and Simeon
are mine. 6 Any children born to you after them will be yours; in the territory they inherit
they will be reckoned under the names of their brothers. 7 As I was returning from
Paddan, [b] to my sorrow Rachel died in the land of Canaan while we were still on the
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way, a little distance from Ephrath. So I buried her there beside the road to Ephrath”
(that is, Bethlehem).
8
When Israel saw the sons of Joseph, he asked, “Who are these?”
9
“They are the sons God has given me here,” Joseph said to his father.
Then Israel said, “Bring them to me so I may bless them.”
10
Now Israel’s eyes were failing because of old age, and he could hardly see. So
Joseph brought his sons close to him, and his father kissed them and embraced them.
11
Israel said to Joseph, “I never expected to see your face again, and now God has
allowed me to see your children too.”
12
Then Joseph removed them from Israel’s knees and bowed down with his face to the
ground. 13 And Joseph took both of them, Ephraim on his right toward Israel’s left hand
and Manasseh on his left toward Israel’s right hand, and brought them close to him.
14
But Israel reached out his right hand and put it on Ephraim’s head, though he was the
younger, and crossing his arms, he put his left hand on Manasseh’s head, even though
Manasseh was the firstborn.
15
Then he blessed Joseph and said,
“May the God before whom my fathers
Abraham and Isaac walked faithfully,
the God who has been my shepherd
all my life to this day,
16
the Angel who has delivered me from all harm
—may he bless these boys.
May they be called by my name
and the names of my fathers Abraham and Isaac,
and may they increase greatly
on the earth.”
17
When Joseph saw his father placing his right hand on Ephraim’s head he was
displeased; so he took hold of his father’s hand to move it from Ephraim’s head to
Manasseh’s head. 18 Joseph said to him, “No, my father, this one is the firstborn; put
your right hand on his head.”
19
But his father refused and said, “I know, my son, I know. He too will become a people,
and he too will become great. Nevertheless, his younger brother will be greater than he,
and his descendants will become a group of nations.” 20 He blessed them that day and
said,
“In your name will Israel pronounce this blessing:
‘May God make you like Ephraim and Manasseh.’”
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So he put Ephraim ahead of Manasseh.
21
Then Israel said to Joseph, “I am about to die, but God will be with you [d] and take
you [e] back to the land of your [f] fathers. 22 And to you I give one more ridge of land [g]
than to your brothers, the ridge I took from the Amorites with my sword and my bow.”
2 Chronicles 21:3
3
Their father had given them many gifts of silver and gold and articles of value, as well
as fortified cities in Judah, but he had given the kingdom to Jehoram because he was
his firstborn son.
Job 42:15
15
Nowhere in all the land were there found women as beautiful as Job’s daughters, and
their father granted them an inheritance along with their brothers.
Hebrews 9:16-17
16
In the case of a will, [a] it is necessary to prove the death of the one who made it,
17
because a will is in force only when somebody has died; it never takes effect while the
one who made it is living.
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Table of Contents
…a compilation of works on
Wills, Trusts & Estates
Biblical Authority
I. Introduction: Inheritance…………………………………………… 21
II. Wills…………………………………………………………………... 39
III. Trusts…………………………………………………………………. 51
IV. Estates……………………………………………………………….. 73
V. Estate Planning………………………….. ………………………… 75
VI. Probate…………….…………………………………………………. 81
VII. References…………………………………………………….......... 93
______
Attachments
A. A Citizen’s Guide to Wills, Trusts and Estates
B. Trusts: Common Law and IRC 501(c)(3) and 4947
C. The Basics of Estate Planning
Copyright © 2003 – 2019 The Advocacy Foundation, Inc. All Rights Reserved.
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This work is not meant to be a piece of original academic
analysis, but rather draws very heavily on the work of
scholars in a diverse range of fields. All material drawn upon
is referenced appropriately.
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I. Introduction
Inheritance
Inheritance is the practice of passing on property, titles, debts, rights, and obligations
upon the death of an individual. The rules of inheritance differ among societies and
have changed over time.
Terminology
In law, an heir is a person who is entitled to receive a share of the deceased's (the
person who died) property, subject to the rules of inheritance in the jurisdiction of which
the deceased was a citizen or where the deceased (decedent) died or owned property
at the time of death.
The inheritance may be either under the terms of a will or by intestate laws if the
deceased had no will. However, the will must comply with the laws of the jurisdiction at
the time it was created or it will be declared invalid (for example, some states do not
recognize holographic wills as valid, or only in specific circumstances) and the intestate
laws then apply.
A person does not become an heir before the death of the deceased, since the exact
identity of the persons entitled to inherit is determined only then. Members of ruling
noble or royal houses who are expected to become heirs are called heirs apparent if
first in line and incapable of being displaced from inheriting by another claim; otherwise,
they are heirs presumptive. There is a further concept of joint inheritance, pending
renunciation by all but one, which is called co-parceny.
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In modern law, the terms inheritance and heir refer exclusively to succession to property
by descent from a deceased dying intestate. Takers in property succeeded to under a
will are termed generally beneficiaries, and specifically devisees for real property,
bequestees for personal property (except money), or legatees for money.
Except in some jurisdictions where a person cannot be legally disinherited (such as the
United States state of Louisiana, which allows disinheritance only under specifically
enumerated circumstances), a person who would be an heir under intestate laws may
be disinherited completely under the terms of a will (an example is that of the will of
comedian Jerry Lewis; his will specifically disinherited his six children by his first wife,
and their descendants, leaving his entire estate to his second wife).
History
Detailed anthropological and sociological studies have been made about customs of
patrilineal inheritance, where only male children can inherit. Some cultures also employ
matrilineal succession, where property can only pass along the female line, most
commonly going to the sister's sons of the decedent; but also, in some societies, from
the mother to her daughters. Some ancient societies and most modern states employ
egalitarian inheritance, without discrimination based on gender and/or birth order.
Jewish Laws
The inheritance is patrilineal. The father —that is, the owner of the land— bequeaths
only to his male descendants, so the Promised Land passes from one Jewish father to
his sons.
If there were no living sons and no descendants of any previously living sons, daughters
inherit. In Numbers 27:1-4, the daughters of Zelophehad (Mahlah, Noa, Hoglah, Milcah,
and Tirzah) of the tribe of Manasseh come to Moses and ask for their father's
inheritance, as they have no brothers. The order of inheritance is set out in Numbers
27:7-11: a man's sons inherit first, daughters if no sons, brothers if he has no children,
and so on.
Later, in Numbers 36, some of the heads of the families of the tribe of Manasseh come
to Moses and point out that, if a daughter inherits and then marries a man not from her
paternal tribe, her land will pass from her birth-tribe's inheritance into her marriagetribe's.
So a further rule is laid down: if a daughter inherits land, she must marry
someone within her father's tribe. (The daughters of Zelophehad marry the sons' of their
father's brothers. There is no indication that this was not their choice.)
The tractate Baba Bathra, written during late Antiquity in Babylon, deals extensively with
issues of property ownership and inheritance according to Jewish Law. Other works of
Rabbinical Law, such as the Hilkhot naḥalot : mi-sefer Mishneh Torah leha-Rambam,
and the Sefer ha-yerushot: ʻim yeter ha-mikhtavim be-divre ha-halakhah be-ʻAravit uve-
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ʻIvrit uve-Aramit also deal with inheritance issues. The first, often abbreviated to
Mishneh Torah, was written by Maimonides and was very important in Jewish tradition.
All these sources agree that the firstborn son is entitled to a double portion of his
father's estate: Deuteronomy 21:17.
This means that, for example, if a father left five sons, the firstborn receives a third of
the estate and each of the other four receives a sixth. If he left nine sons, the firstborn
receives a fifth and each of the other eight receive a tenth. If the eldest surviving son is
not the firstborn son, he is not entitled to the double portion.
Philo of Alexandria and Josephus also comment on the Jewish laws of inheritance,
praising them above other law codes of their time. They also agreed that the firstborn
son must receive a double portion of his father's estate.
Christian Laws
The New Testament does not specifically mention anything about inheritance rights: the
only story even mentioning inheritance is that of the Prodigal Son, but that involved the
father voluntarily passing his estate to his two sons prior to his death; the younger son
receiving his inheritance (1/3; the older son would have received 2/3 under then existing
Jewish law) and squandering it.
The topic is generally not discussed among doctrinal statements of various
denominations or sects, leaving that to be a matter of secular concern.
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Islamic laws
The Quran introduced a number of different rights and restrictions on matters of
inheritance, including general improvements to the treatment of women and family life
compared to the pre-Islamic societies that existed in the Arabian Peninsula at the time.
Furthermore, the Quran introduced additional heirs that were not entitled to inheritance
in pre-Islamic times, mentioning nine relatives specifically of which six were female and
three were male. However, the inheritance rights of women remained inferior to those of
men because in Islam someone always has a responsibility of looking after a woman's
expenses. According to the Quran, for example, a son is entitled to twice as much
inheritance as a daughter. [Quran 4:11] The Quran also presented efforts to fix the laws of
inheritance, and thus forming a complete legal system. This development was in
contrast to pre-Islamic societies where rules of inheritance varied considerably. In
addition to the above changes, the Quran imposed restrictions on testamentary powers
of a Muslim in disposing his or her property. The Quran contains only three verses that
give specific details of inheritance and shares, in addition to few other verses dealing
with testamentary. But this information was used as a starting point by Muslim jurists
who expounded the laws of inheritance even further using Hadith, as well as methods of
juristic reasoning like Qiyas. Nowadays, inheritance is considered an integral part of
Sharia law and its application for Muslims is mandatory, though many peoples (see
Historical inheritance systems), despite being Muslim, have other inheritance customs.
Inequality
Inheritance by amount and distribution received and action taken with inheritances in
Great Britain between 2008 and 2010
The distribution of the inherited wealth has varied greatly among different cultures and
legal traditions. In nations using civil law, for example, the right of children to inherit
wealth from parents in pre-defined ratios is enshrined in law, as far back as the Code of
Hammurabi (ca. 1750 BC). In the US State of Louisiana, the only US state to use
Napoleonic Code for state law, this system is known as "forced heirship" which prohibits
disinheritance of adult children except for a few narrowly-defined reasons that a parent
is obligated to prove. Other legal traditions, particularly in nations using common law,
allow inheritances to be divided however one wishes, or to disinherit any child for any
reason.
In cases of unequal inheritance, the majority might receive little while only a small
number inherit a larger amount, with the lesser amount given to the daughter in the
family. The amount of inheritance is often far less than the value of a business initially
given to the son, especially when a son takes over a thriving multimillion-dollar
business, yet the daughter is given the balance of the actual inheritance amounting to
far less than the value of business that was initially given to the son. This is especially
seen in old world cultures, but continues in many families to this day.
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Arguments for eliminating the disparagement of inheritance inequality include the right
to property and the merit of individual allocation of capital over government wealth
confiscation and redistribution, but this does not resolve what some describe as the
problem of unequal inheritance. In terms of inheritance inequality, some economists and
sociologists focus on the inter generational transmission of income or wealth which is
said to have a direct impact on one's mobility (or immobility) and class position in
society. Nations differ on the political structure and policy options that govern the
transfer of wealth.
According to the American federal government statistics compiled by Mark Zandi in
1985, the average US inheritance was $39,000. In subsequent years, the overall
amount of total annual inheritance more than doubled, reaching nearly $200 billion. By
2050, there will be an estimated $25 trillion inheritance transmitted across generations.
Some researchers have attributed this rise to the baby boomer generation. Historically,
the baby boomers were the largest influx of children conceived after WW2. For this
reason, Thomas Shapiro suggests that this generation "is in the midst of benefiting from
the greatest inheritance of wealth in history." Inherited wealth may help explain why
many Americans who have become rich may have had a "substantial head start". In
September 2012, according to the Institute for Policy Studies, "over 60 percent" of the
Forbes richest 400 Americans "grew up in substantial privilege", and often (but not
always) received substantial inheritances. The French economist Thomas Piketty
studied this phenomenon in his best-selling book Capital in the Twenty-First Century,
published in 2013.
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Other research has shown that many inheritances, large or small, are rapidly
squandered. Similarly, analysis shows that over two-thirds of high-wealth families lose
their wealth within two generations, and almost 80% of high-wealth parents "feel the
next generation is not financially responsible enough to handle inheritance."
Social Stratification
It has been argued that inheritance plays a significant effect on social stratification.
Inheritance is an integral component of family, economic, and legal institutions, and a
basic mechanism of class stratification. It also affects the distribution of wealth at the
societal level. The total cumulative effect of inheritance on stratification outcomes takes
three forms, according to scholars who have examined the subject.
The first form of inheritance is the inheritance of cultural capital (i.e. linguistic styles,
higher status social circles, and aesthetic preferences). The second form of inheritance
is through familial interventions in the form of inter vivos transfers (i.e. gifts between the
living), especially at crucial junctures in the life courses. Examples include during a
child's milestone stages, such as going to college, getting married, getting a job, and
purchasing a home. The third form of inheritance is the transfers of bulk estates at the
time of death of the testators, thus resulting in significant economic advantage accruing
to children during their adult years. The origin of the stability of inequalities is material
(personal possessions one is able to obtain) and is also cultural, rooted either in varying
child-rearing practices that are geared to socialization according to social class and
economic position. Child-rearing practices among those who inherit wealth may center
around favoring some groups at the expense of others at the bottom of the social
hierarchy.
Sociological and Economic Effects of Inheritance Inequality
It is further argued that the degree to which economic status and inheritance is
transmitted across generations determines one's life chances in society. Although many
have linked one's social origins and educational attainment to life chances and
opportunities, education cannot serve as the most influential predictor of economic
mobility. In fact, children of well-off parents generally receive better schooling and
benefit from material, cultural, and genetic inheritances. Likewise, schooling attainment
is often persistent across generations and families with higher amounts of inheritance
are able to acquire and transmit higher amounts of human capital. Lower amounts of
human capital and inheritance can perpetuate inequality in the housing market and
higher education. Research reveals that inheritance plays an important role in the
accumulation of housing wealth. Those who receive an inheritance are more likely to
own a home than those who do not regardless of the size of the inheritance.
Often, racial or religious minorities and individuals from socially disadvantaged
backgrounds receive less inheritance and wealth. As a result, mixed races might be
excluded in inheritance privilege and are more likely to rent homes or live in poorer
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neighborhoods, as well as achieve lower educational attainment compared with whites
in America. Individuals with a substantial amount of wealth and inheritance often
intermarry with others of the same social class to protect their wealth and ensure the
continuous transmission of inheritance across generations; thus perpetuating a cycle of
privilege.
Nations with the highest income and wealth inequalities often have the highest rates of
homicide and disease (such as obesity, diabetes, and hypertension). A The New York
Times article reveals that the U.S. is the world's wealthiest nation, but "ranks twentyninth
in life expectancy, right behind Jordan and Bosnia." This has been regarded as
highly attributed to the significant gap of inheritance inequality in the country, although
there are clearly other factors such as the affordability of healthcare.
When social and economic inequalities centered on inheritance are perpetuated by
major social institutions such as family, education, religion, etc., these differing life
opportunities are argued to be transmitted from each generation. As a result, this
inequality is believed to become part of the overall social structure.
Dynastic Wealth
Dynastic wealth is monetary inheritance that is passed on to generations that didn't earn
it. Dynastic wealth is linked to the term Plutocracy. Much has been written about the rise
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and influence of dynastic wealth including the bestselling book Capital in the Twenty-
First Century by the French economist Thomas Piketty.
Bill Gates uses the term in his article "Why Inequality Matters".
Taxation
Many states have inheritance taxes or death duties, under which a portion of any estate
goes to the government.
________
Inheritance Tax
An inheritance or estate tax is a tax paid by a person who inherits money or property
or a levy on the estate (money and property) of a person who has died.
International tax law distinguishes between an estate tax and an inheritance tax—an
estate tax is assessed on the assets of the deceased, while an inheritance tax is
assessed on the legacies received by the estate's beneficiaries. However, this
distinction is not always observed; for example, the UK's "inheritance tax" is a tax on the
assets of the deceased, and strictly speaking is therefore an estate tax.
For historical reasons, the term death duty is still used colloquially (though not legally)
in the UK and some Commonwealth countries.
Varieties of Inheritance and Estate Taxes
Belgium, droits de succession or successierechten (Inheritance tax).
Collected at the federal level but distributed to the regional level.
Bermuda: stamp duty
Brazil: Imposto sobre Transmissão "Causa Mortis" e Doação de Quaisquer
Bens ou Direitos (Tax on Causa Mortis Transmission and as Donation of any
Property and Rights). Collected at the state level. The Brazilian Senate limited
the maximum rate to 8%,.
Czech Republic: daň dědická (Inheritance tax)
Denmark: Boafgift (estate duty). Collected at state level. Different rates
depending on the relation to the deceased. Spouse: 0%. Children: 15%. Other
relatives: 15% of the estate sum + additional 25% of the individual sum. The
estate duty is calculated on the sum of the estate after deducting a free
allowance on the estate (289,000 DKK in 2018).
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Finland: perintövero (Finnish) or arvsskatt (Swedish) (Inheritance tax) is a state
tax. Inheritance to the close family is tax free up to the worth of 20 000 €, and
increasing from there via several steps (for instance, being 13% for 60 000 € -
200 000 €) to the maximum of 19% that must be paid for the portion of the
inheritance that exceeds one million euros. Taxation is more severe in case of
remote relatives or those with no family connection at all (19-33%).
France: droits de succession (Inheritance tax)
Germany: Erbschaftsteuer (Inheritance tax). Smaller bequests are exempt, i.e.,
€20,000–€500,000 depending on the family relation between the deceased and
the beneficiary. Bequests larger than these values are taxed from 7% to 50%,
depending on the family relationship between the deceased and the beneficiary
and the size of the taxable amount
Ghana: Inheritance tax on intangible assets
Ireland: Inheritance tax (Cáin Oidhreachta)
Italy: tassa di successione (Inheritance tax). Abolished in 2001 and
reestablished in 2006. €1,000,000 exemption on a bequest to a spouse or child,
and a maximum rate of 8%.
Japan: souzokuzei 相 続 税 (Inheritance tax) paid as a national tax (between 10
and 55% after an exemption of ¥30 million + ¥6 million per heir is deducted from
the estate)
The Netherlands: Successierecht (Inheritance tax) NB. as per 1 January 2010
Successierecht has been abolished for the erfbelasting regime, and is replaced
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with Erfbelasting with rates from 10% to 40%. for brackets by amounts and
separation
Switzerland has no national inheritance tax. Some cantons impose estate taxes
or inheritance taxes.
United Kingdom: see inheritance tax (United Kingdom) (actually an estate tax)
United States: see estate tax in the United States
Spain: Impuesto sobre Sucesiones (Inheritance Tax). The amendment of
Spanish law has been put into practice, in compliance with the European Court
ruling of September 3 of last year, and on December 31, 2014 Order
HAP/2488/2014, of December 29, was published in the Official State Bulletin,
which approve the Inheritance and Gift Tax self-assessment forms 650, 651 y,
and establishes the place, forma an term for its submission.
Some jurisdictions formerly had estate or inheritance taxes, but have abolished them:
Australia abolished the federal estate tax in 1979, but capital gains tax is levied
on the sale of an asset or its transfer of ownership and if this occurs upon the
death of the owner it constitutes a "crystalising action", and capital gains tax
becomes assessable.
Austria abolished the Erbschaftssteuer in 2008. This tax had some of the
features of the gift tax, which was abolished at the same time.
Canada: abolished inheritance tax in 1972. However, capital gains are 50%
taxable and added to all other income of the deceased on their final return.
Hong Kong: abolished estate duty in 2006 for all deaths occurring on or after 11
February 2006. (See Estate Duty Ordinance Cap.111)
India: had an estate tax from 1953 to 1985
Israel: abolished inheritance tax in 1981, but inherited assets are subject to a
20% to 45% capital gains tax upon their sale
Kenya: abolished estate duty tax by virtue of the Estate Duty (Abolition) Act No.
10 of 1982
Malaysia
New Zealand abolished estate duty in 1992
Norway: abolished inheritance tax in 2014
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Russia "abolished" "inheritance tax" in 2006, but have "fee" with rates of 0,3%
but no more than 100 000 rubles and 0,6% but no more than 1 000 000 rubles.
Singapore: abolished estate tax in 2008, for deaths occurring on or after 15
February 2008.
Sweden: abolished inheritance tax in 2005. A retroactive decision exempted
deaths during late December 2004 from inheritance tax, due to the many
Swedish casualties in the 2004 Indian Ocean earthquake.
Luxembourg
Serbia
Estonia
Mexico
Portugal
Slovak Republic
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Hungary
Bahamas
Some jurisdictions have never levied any form of tax in the event of death:
Cayman Islands
Jersey
Guernsey
United Kingdom
Inheritance tax was introduced with effect from 18 March 1986.
History (Succession Duty)
Succession duty, in the English fiscal system, is "a tax placed on the gratuitous
acquisition of property which passes on the death of any person, by means of a transfer
from one person (called the predecessor) to another person (called the successor)". In
order properly to understand the present state of the English law it is necessary to
describe shortly the state of affairs prior to the Finance Act 1894 — an act which
effected a considerable change in the duties payable and in the mode of assessment of
those duties.
The Succession Duty Act 1853 was the principal act that first imposed a succession
duty in England. By that act a duty varying from 1% to 10% according to the degree of
consanguinity between the predecessor and successor was imposed upon every
succession which was defined as "every past or future disposition of property by reason
whereof any person has or shall become beneficially entitled to any property, or the
income thereof, upon the death of any person dying after the time appointed for the
commencement of this act, either immediately or after any interval, either certainly or
contingently, and either originally or by way of substitutive limitation and every
devolution by law of any beneficial interest in property, or the income thereof, upon the
death of any person dying after the time appointed for the commencement of this act to
any other person in possession or expectancy". The property which is liable to pay the
duty is in realty or leasehold estate in the UK and personalty—not subject to legacy
duty—which the beneficiary claims by virtue of English, Scottish, or Irish law. Personalty
in England bequeathed by a person domiciled abroad is not subject to succession duty.
Successions of a husband or a wife, successions where the principal value is under
£100, and individual successions under £20, are exempt from duty. Leasehold property
and personalty directed to be converted into real estate are liable to succession, not to
legacy duty.
Special provision is made for the collection of duty in the cases of joint tenants and
where the successor is also the predecessor. The duty is a first charge on property, but
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if the property be parted with before the duty is paid the liability of the successor is
transferred to the alienee. It is, therefore, usual in requisitions on title before
conveyance, to demand for the protection of the purchaser the production of receipts for
succession duty, as such receipts are an effectual protection notwithstanding any
suppression or misstatement in the account on the footing of which the duty was
assessed or any insufficiency of such assessment. The duty is by this act directed to be
assessed as follows: on personal property, if the successor takes a limited estate, the
duty is assessed on the principal value of the annuity or yearly income estimated
according to the period during which he is entitled to receive the annuity or yearly
income, and the duty is payable in four yearly installments free from interest. If the
successor takes absolutely he pays in a lump-sum duty on the principal value. On real
property the duty is payable in eight half-yearly installments without interest on the
capital value of an annuity equal to the annual value of the property. Various minor
changes were made. The Customs and Inland Revenue Act 1881 exempted personal
estates under 300. The Customs and Inland Revenue Act 1888 charged an additional
1% on successions already paying 1% and an additional 11% on successions paying
more than 1%. By the Customs and Inland Revenue Act 1889, an additional duty of 1%
called an "estate duty" was payable on successions over 10,000.
The Finance Acts 1894 and 1909 effected large changes in the duties payable on
death. As regards the succession duties they enacted that payment of the estate duties
thereby created should include payment of the additional duties mentioned above.
Estates under £1,000 (£2,000 in the case of widow or child of deceased) are exempted
from payment of any succession duties. The succession duty payable under the
Succession Duty Act 1853 was in all cases to be calculated according to the principal
value of the property, i.e., its selling value, and though still payable by installments
interest at 3% is chargeable. The additional succession duties are still payable in cases
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where the estate duty is not charged, but such cases are of small importance and in
practice are not as a rule charged.
United States
The United States imposed a succession duty by the War Revenue Act of 1898 on all
legacies or distributive shares of personal property exceeding $10,000. This was a tax
on the privilege of succession, and devises and land distributions of land were
unaffected. The duty ran from 75 cents on the $100 to $5 on the $100, if the legacy or
share in question did not exceed $25,000. On those over that value, the rate was
multiplied 11 times on estates up to $100,000, twofold on those from $100,000 to
$200,000, 21 times on those from $500,000 to a $1 million, and threefold for those
exceeding a million. This statute was upheld as constitutional by the U.S. Supreme
Court.
Many of the states also impose succession duties, or transfer taxes; generally, however,
on collateral and remote successions; sometimes progressive, according to the amount
of the succession. The state duties generally touch real estate successions as well as
those to personal property. If a citizen of state A owns registered bonds of a corporation
chartered by state B, which he has put for safe keeping in a deposit vault in state C, his
estate may thus have to pay four succession taxes, one to state A, to which he belongs
and which, by legal fiction, is the seat of all his personal property; one to state B, for
permitting the transfer of the bonds to the legatees on the books of the corporation; one
to state C, for allowing them to be removed from the deposit vault for that purpose; and
one to the United States.
The different U.S. states all have other regulations regarding inheritance tax:
o
o
Louisiana: abolished inheritance tax in 2008, for deaths occurring on or
after 1 July 2004
New Hampshire: abolished state inheritance tax in 2003; abolished
surcharge on federal estate tax in 2005
o Utah: abolished inheritance tax in 2005
Some U.S. states impose inheritance or estate taxes (see inheritance tax at the state
level):
Indiana: abolished the state inheritance on December 31, 2012
Iowa: Inheritance is exempt if passed to a surviving spouse, parents, or
grandparents, or to children, grandchildren, or other "lineal" descendants. Other
recipients are subject to inheritance tax, with rates varying depending on the
relationship of the recipient to the deceased.
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Kentucky: The inheritance tax is a tax on a beneficiary's right to receive property
from a decedent's estate. It is imposed as a percentage of the amount
transferred to the beneficiary:
o
Transfers to "Class A" relatives (spouses, parents, children, grandchildren,
and siblings) are exempt
o
o
Transfers to "Class B" relatives (nieces, nephews, daughters-in-law, sonsin-law,
aunts, uncles, and great-grandchildren) are taxable
Transfers to "Class C" recipients (all other persons) are taxable at a higher
rate. Kentucky imposes an estate tax in addition to its inheritance tax.
Maryland
Nebraska
New Jersey: New Jersey law puts inheritors into different groups, based on their
family relationship to the deceased person:
o
Class A beneficiaries are exempt from the inheritance tax. They includes
the deceased person’s spouse, domestic partner, or civil union partner
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parent, grandparent, child (biological, adopted, or mutually
acknowledged), stepchild (but not step-grandchild or great-stepgrandchild),
grandchild or other lineal descendant of a child
o
o
o
o
Class B was deleted when New Jersey law changed
Class C includes the deceased person’s: brother or sister, spouse or civil
union partner of the deceased person's child, surviving spouse or civil
union partner of the deceased person's child. The first $25,000 inherited
by someone in Class C is not taxed. On amounts exceeding $25,000, the
tax rates are: 11% on the next $1,075,000, 13% on the next $300,000,
14% on the next $300,000, and 16% for anything over $1,700,000
Class D includes everyone else. There is no special exemption amount,
and the applicable tax rates are: 15% on the first $700,000, and 16% on
anything over $700,000
Class E includes the State of New Jersey or any of its political
subdivisions for public or charitable purposes, an educational institution,
church, hospital, orphan asylum, public library, and other nonprofits.
These beneficiaries are exempt from inheritance tax.
Oklahoma
Pennsylvania: Inheritance tax is a flat tax on the value of the decedent's taxable
estate as of the date of death, less allowable funeral and administrative
expenses and debts of the decedent. Pennsylvania does not allow the six-monthafter-date-of-death
alternate valuation method that is available at the federal
level. Transfers to spouses are exempt; transfers to grandparents, parents, or
lineal descendants are taxed at 4.5%. Transfers to siblings are taxed at 12%.
Transfers to any other persons are taxed at 15%. Some assets are exempted,
including life insurance proceeds. The inheritance tax is imposed on both
residents and nonresidents who owned real estate and tangible personal
property in Pennsylvania at the time of their death. The Pennsylvania Inheritance
Tax Return (Form Rev-1500) must be filed within nine months of the date of
death.
Tennessee
Other Taxation Applied to Inheritance
In some jurisdictions, when assets are transferred by inheritance, any unrealized
increase in asset value is subject to capital gains tax, payable immediately. This is the
case in Canada, which has no inheritance tax.
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When a jurisdiction has both capital gains tax and inheritance tax, inheritances are
generally exempt from capital gains tax.
In some jurisdictions, like Austria, death gives rise to the local equivalent of gift tax.
This was the UK model before the Inheritance Tax in 1986 was introduced, when
estates were charged to a form of gift tax called Capital Transfer Tax. Where a
jurisdiction has both gift tax and inheritance tax, it is usual to exempt inheritances from
gift tax. Also, it is common for inheritance taxes to share some features of gift taxes, by
taxing some transfers which happen during the lifetime of the giver rather than on death.
The UK, for example, subjects "lifetime chargeable transfers" (usually gifts to trusts) to
inheritance tax.
Historical
Ancient Rome
No inheritance tax was
recorded for the Roman
Republic, despite abundant
evidence for testamentary
law. The vicesima
hereditatium ("twentieth of
inheritance") was levied by
Rome's first emperor,
Augustus, in the last decade
of his reign. The 5% tax
applied only to inheritances
received through a will, and
close relatives were exempt
from paying it, including the
deceased's grandparents,
parents,
children,
grandchildren, and siblings.
The question of whether a
spouse was exempt was complicated—from the late Republic on, husbands and wives
kept their own property scrupulously separate, since a Roman woman remained part of
her birth family and not under the legal control of her husband. Roman social values on
marital devotion probably exempted a spouse. Estates below a certain value were also
exempt from the tax, according to one source, but other evidence indicates that this was
only the case in the early years of Trajan's reign.
Tax revenues went into a fund to pay military retirement benefits (aerarium militare),
along with those from a new sales tax (centesima rerum venalium), a 1 tax% on goods
sold at auction. The inheritance tax is extensively documented in sources pertaining to
Roman law, inscriptions, and papyri. It was one of three major indirect taxes levied on
Roman citizens in the provinces of the Empire.
Page 37 of 190

Page 38 of 190

II. Wills
A Will or Testament is a legal document by which a person, the testator, expresses
their wishes as to how their property is to be distributed at death, and names one or
more persons, the executor, to manage the estate until its final distribution. For the
devolution of property not disposed of by will, see inheritance and intestacy.
Though it has at times been thought that a "will" was historically limited to real property
while "testament" applies only to dispositions of personal property (thus giving rise to
the popular title of the document as "Last Will and Testament"), the historical records
show that the terms have been used interchangeably. Thus, the word "will" validly
applies to both personal and real property.
A will may also create a testamentary trust that is effective only after the death of the
testator.
History
Throughout most of the world, disposal of an estate has been a matter of social custom.
According to Plutarch, the written will was invented by Solon. Originally, it was a device
intended solely for men who died without an heir.
The English phrase "will and testament" is derived from a period in English law when
Old English and Law French were used side by side for maximum clarity. Other such
legal doublets include "breaking and entering" and "peace and quiet".
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Freedom of Disposition
The conception of the freedom of disposition by will, familiar as it is in modern England
and the United States, both generally considered common law systems, is by no means
universal. In fact, complete freedom is the exception rather than the rule. Civil law
systems often put some restrictions on the possibilities of disposal; see for example
"Forced heirship".
Advocates for gays and lesbians have pointed to the inheritance rights of spouses as
desirable for same-sex couples as well, through same-sex marriage or civil unions.
Opponents of such advocacy rebut this claim by pointing to the ability of same-sex
couples to disperse their assets by will. Historically, however, it was observed that
"[e]ven if a same-sex partner executes a will, there is risk that the survivor will face
prejudice in court when disgruntled heirs challenge the will", with courts being more
willing to strike down wills leaving property to a same-sex partner on such grounds as
incapacity or undue influence.
Types of Wills
Types of wills generally include:
Nuncupative (Non-Culpatory) - oral or dictated; often limited to sailors or military
personnel.
Holographic Will - written in the hand of the testator; in many jurisdictions, the
signature and the material terms of the holographic will must be in the
handwriting of the testator.
Self-Proved - in solemn form with affidavits of subscribing witnesses to avoid
probate.
Notarial - will in public form and prepared by a civil-law notary (civil-law
jurisdictions and Louisiana, United States).
Mystic - sealed until death.
Serviceman's Will - will of person in active-duty military service and usually
lacking certain formalities, particularly under English law.
Reciprocal/Mirror/Mutual/Husband And Wife Wills - wills made by two or more
parties (typically spouses) that make similar or identical provisions in favor of
each other.
Unsolemn Will - will in which the executor is unnamed.
Will In Solemn Form - signed by testator and witnesses.
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Some jurisdictions recognize a holographic will, made out entirely in the testator's own
hand, or in some modern formulations, with material provisions in the testator's hand.
The distinctive feature of a holographic will is less that it is handwritten by the testator,
and often that it need not be witnessed. In Louisiana this type of testament is called an
Olographic or Mystic will. It must be entirely written, dated, and signed in the
handwriting of the testator. Although the date may appear anywhere in the testament,
the testator must sign the testament at the end of the testament. Any additions or
corrections must also be entirely hand written to have effect. In England, the formalities
of wills are relaxed for soldiers who express their wishes on active service; any such will
is known as a serviceman's will. A minority of jurisdictions even recognize the validity of
nuncupative wills (oral wills), particularly for military personnel or merchant sailors.
However, there are often constraints on the disposition of property if such an oral will is
used.
Terminology
Administrator - person appointed or who petitions to administer an estate in an
intestate succession. The antiquated English term of administratrix was used to
refer to a female administrator but is generally no longer in standard legal usage.
Beneficiary - anyone receiving a gift or benefiting from a trust
Bequest - testamentary gift of personal property, traditionally other than money.
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Codicil - (1) amendment to a will; (2) a will that modifies or partially revokes an
existing or earlier will.
Decedent - the deceased (U.S. term)
Demonstrative Legacy - a gift of a specific sum of money with a direction that is
to be paid out of a particular fund.
Descent - succession to real property.
Devise - testamentary gift of real property.
Devisee - beneficiary of real property under a will.
Distribution - succession to personal property.
Executor/executrix or personal representative [PR] - person named to
administer the estate, generally subject to the supervision of the probate court, in
accordance with the testator's wishes in the will. In most cases, the testator will
nominate an executor/PR in the will unless that person is unable or unwilling to
serve. In some cases a literary executor may be appointed to manage a literary
estate.
Exordium clause is the first paragraph or sentence in a will and testament, in
which the testator identifies himself or herself, states a legal domicile, and
revokes any prior wills.
Inheritor - a beneficiary in a succession, testate or intestate.
Intestate - person who has not created a will, or who does not have a valid will at
the time of death.
Legacy - testamentary gift of personal property, traditionally of money. Note:
historically, a legacy has referred to either a gift of real property or personal
property.
Legatee - beneficiary of personal property under a will, i.e., a person receiving a
legacy.
Probate - legal process of settling the estate of a deceased person.
Specific legacy (or specific bequest) - a testamentary gift of a precisely
identifiable object.
Testate - person who dies having created a will before death.
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Testator - person who executes or signs a will; that is, the person whose will it is.
The antiquated English term of Testatrix was used to refer to a female.
Trustee - a person who has the duty under a will trust to ensure that the rights of
the beneficiaries are upheld.
Requirements for Creation
Any person over the age of majority and having "testamentary capacity" (i.e., generally,
being of sound mind) can make a will, with or without the aid of a lawyer. Additional
requirements may vary, depending on the jurisdiction, but generally include the
following requirements:
The testator must clearly identify themselves as the maker of the will, and that a
will is being made; this is commonly called "publication" of the will, and is
typically satisfied by the words "last will and testament" on the face of the
document.
The testator should declare that he or she revokes all previous wills and codicils.
Otherwise, a subsequent will revokes earlier wills and codicils only to the extent
to which they are inconsistent. However, if a subsequent will is completely
inconsistent with an earlier one, the earlier will is considered completely revoked
by implication.
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The testator may demonstrate that he or she has the capacity to dispose of their
property ("sound mind"), and does so freely and willingly.
The testator must sign and date the will, usually in the presence of at least two
disinterested witnesses (persons who are not beneficiaries). There may be extra
witnesses, these are called "supernumerary" witnesses, if there is a question as
to an interested-party conflict. Some jurisdictions, notably Pennsylvania, have
long abolished any requirement for witnesses. In the United States, Louisiana
requires both attestation by two witnesses as well as notarization by a notary
public. Holographic wills generally require no witnesses to be valid, but
depending on the jurisdiction may need to be proved later as to the authenticity
of the testator's signature.
If witnesses are designated to receive property under the will they are witnesses
to, this has the effect, in many jurisdictions, of either (i) disallowing them to
receive under the will, or (ii) invalidating their status as a witness. In a growing
number of states in the United States, however, an interested party is only an
improper witness as to the clauses that benefit him or her (for instance, in
Illinois).
The testator's signature must be placed at the end of the will. If this is not
observed, any text following the signature will be ignored, or the entire will may
be invalidated if what comes after the signature is so material that ignoring it
would defeat the testator's intentions.
One or more beneficiaries (devisees, legatees) must generally be clearly stated
in the text, but some jurisdictions allow a valid will that merely revokes a previous
will, revokes a disposition in a previous will, or names an executor.
There is no legal requirement that a will be drawn up by a lawyer, although there are
pitfalls into which home-made wills can fall. The person who makes a will is not
available to explain him or herself, or to correct any technical deficiency or error in
expression, when it comes into effect on that person's death, and so there is little room
for mistake. A common error, for example, in the execution of home-made wills in
England is to use a beneficiary (typically a spouse or other close family members) as a
witness—which may have the effect in law of disinheriting the witness regardless of the
provisions of the will.
A will may not include a requirement that an heir commit an illegal, immoral, or other act
against public policy as a condition of receipt.
In community property jurisdictions, a will cannot be used to disinherit a surviving
spouse, who is entitled to at least a portion of the testator's estate. In the United States,
children may be disinherited by a parent's will, except in Louisiana, where a minimum
share is guaranteed to surviving children except in specifically enumerated
circumstances. Many civil law countries follow a similar rule. In England and Wales from
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1933 to 1975, a will could disinherit a spouse; however, since the Inheritance (Provision
for Family and Dependants) Act 1975 such an attempt can be defeated by a court order
if it leaves the surviving spouse (or other entitled dependent) without "reasonable
financial provision".
International Wills
In 1973 an international convention, the Convention providing a Uniform Law on the
Form of an International Will, was concluded in the context of UNIDROIT. The
Convention provided for a universally recognised code of rules under which a will made
anywhere, by any person of any nationality, would be valid and enforceable in every
country which became a party to the Convention. These are known as "international
wills". Belgium, Bosnia-Herzegovina, Canada (for 9 provinces, not Quebec), Cyprus,
Ecuador, France, Italy, Libya, Niger, Portugal Slovenia, The Holy See, Iran, Laos, the
Page 45 of 190

Russian Federation, Sierra Leone, the United Kingdom, and the United States have
signed but not ratified. International wills are only valid where the convention applies.
Although the US has not ratified on behalf of any state, the Uniform law has been
enacted in 23 states and the District of Columbia.
For individuals who own assets in multiple countries and at least one of those countries
are not a part of the Convention, it may be appropriate for the person to have multiple
wills, one for each country. In some nations, multiple wills may be useful to reduce or
avoid taxes upon the estate and its assets. Care must be taken to avoid accidental
revocation of prior wills, conflicts between the wills, to anticipate jurisdictional and
choice of law issues that may arise during probate.
Methods and Effect
Revocation
Intentional physical destruction of a will by the testator will revoke it, through deliberately
burning or tearing the physical document itself, or by striking out the signature. In most
jurisdictions, partial revocation is allowed if only part of the text or a particular provision
is crossed out. Other jurisdictions will either ignore the attempt or hold that the entire will
was actually revoked.
A testator may also be able to revoke by the physical act of another (as would be
necessary if he or she is physically incapacitated), if this is done in their presence and in
the presence of witnesses. Some jurisdictions may presume that a will has been
destroyed if it had been last seen in the possession of the testator but is found mutilated
or cannot be found after their death.
A will may also be revoked by the execution of a new will. However, most wills contain
stock language that expressly revokes any wills that came before them, because
otherwise a court will normally still attempt to read the wills together to the extent they
are consistent.
In some jurisdictions, the complete revocation of a will automatically revives the nextmost
recent will, while others hold that revocation leaves the testator with no will, so that
their heirs will instead inherit by intestate succession.
In England and Wales, marriage will automatically revoke a will, for it is presumed that
upon marriage a testator will want to review the will. A statement in a will that it is made
in contemplation of forthcoming marriage to a named person will override this.
Divorce, conversely, will not revoke a will, but in many jurisdictions will have the effect
that the former spouse is treated as if they had died before the testator and so will not
benefit.
Where a will has been accidentally destroyed, on evidence that this is the case, a copy
will or draft will may be admitted to probate.
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Dependent Relative Revocation
Many jurisdictions exercise an equitable doctrine known as "dependent relative
revocation" ("DRR"). Under this doctrine, courts may disregard a revocation that was
based on a mistake of law on the part of the testator as to the effect of the revocation.
For example, if a testator mistakenly believes that an earlier will can be revived by the
revocation of a later will, the court will ignore the later revocation if the later will comes
closer to fulfilling the testator's intent than not having a will at all. The doctrine also
applies when a testator executes a second, or new will and revokes their old will under
the (mistaken) belief that the new will would be valid. However, if for some reason the
new will is not valid, a court may apply the doctrine to reinstate and probate the old will,
if the court holds that the testator would prefer the old will to intestate succession.
Before applying the doctrine, courts may require (with rare exceptions) that there have
been an alternative plan of disposition of the property. That is, after revoking the prior
will, the testator could have made an alternative plan of disposition. Such a plan would
show that the testator intended the revocation to result in the property going elsewhere,
rather than just being a revoked disposition. Secondly, courts require either that the
testator have recited their mistake in the terms of the revoking instrument, or that the
mistake be established by clear and convincing evidence. For example, when the
testator made the original revocation, he must have erroneously noted that he was
revoking the gift "because the intended recipient has died" or "because I will enact a
new will tomorrow".
DRR may be applied to restore a gift erroneously struck from a will if the intent of the
testator was to enlarge that gift, but will not apply to restore such a gift if the intent of the
testator was to revoke the gift in favor of another person. For example, suppose Tom
has a will that bequeaths $5,000 to his secretary, Alice Johnson. If Tom crosses out that
clause and writes "$7,000 to Alice Johnson" in the margin, but does not sign or date the
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writing in the margin, most states would find that Tom had revoked the earlier provision,
but had not effectively amended his will to add the second; however, under DRR the
revocation would be undone because Tom was acting under the mistaken belief that he
could increase the gift to $7,000 by writing that in the margin. Therefore, Alice will get
5,000 dollars. However, the doctrine of relative revocation will not apply if the
interlineation decreases the amount of the gift from the original provision (e.g., "$5,000
to Alice Johnson" is crossed out and replaced with "$3,000 to Alice Johnson" without
Testator's signature or the date in the margin; DRR does not apply and Alice Johnson
will take nothing).
Similarly, if Tom crosses out that clause and writes in the margin "$5,000 to Betty
Smith" without signing or dating the writing, the gift to Alice will be effectively revoked. In
this case, it will not be restored under the doctrine of DRR because even though Tom
was mistaken about the effectiveness of the gift to Betty, that mistake does not affect
Tom's intent to revoke the gift to Alice. Because the gift to Betty will be invalid for lack of
proper execution, that $5,000 will go to Tom's residuary estate.
Election Against the Will
Also referred to as "electing to take against the will". In the United States, many states
have probate statutes which permit the surviving spouse of the decedent to choose to
receive a particular share of deceased spouse's estate in lieu of receiving the specified
share left to him or her under the deceased spouse's will. As a simple example, under
Iowa law (see Code of Iowa Section 633.238 (2005)), the deceased spouse leaves a
will which expressly devises the marital home to someone other than the surviving
spouse. The surviving spouse may elect, contrary to the intent of the will, to live in the
home for the remainder of his/her lifetime. This is called a "life estate" and terminates
immediately upon the surviving spouse's death.
The historical and social policy purposes of such statutes are to assure that the
surviving spouse receives a statutorily set minimum amount of property from the
decedent. Historically, these statutes were enacted to prevent the deceased spouse
from leaving the survivor destitute, thereby shifting the burden of care to the social
welfare system.
In New York, a surviving spouse is entitled to one-third of her deceased spouse's
estate. The decedent's debts, administrative expenses and reasonable funeral
expenses are paid prior to the calculation of the spousal elective share. The elective
share is calculated through the "net estate".
The net estate is inclusive of property that passed by the laws of intestacy, testamentary
property, and testamentary substitutes, as enumerated in EPTL 5-1.1-A. New York's
classification of testamentary substitutes that are included in the net estate make it
challenging for a deceased spouse to disinherit their surviving spouse.
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Notable Wills
In antiquity, Julius Caesar's will, which named his grand-nephew Octavian as his
adopted son and heir, funded and legitimized Octavian's rise to political power in the
late Republic; it provided him the resources necessary to win the civil wars against the
"Liberators" and Antony and to establish the Roman Empire under the name Augustus.
Antony's officiating at the public reading of the will led to a riot and moved public opinion
against Caesar's assassins. Octavian's illegal publication of Antony's sealed will was an
important factor in removing his support within Rome, as it described his wish to be
buried in Alexandria beside the Egyptian queen Cleopatra.
In
the modern era, the Thellusson v Woodford will case led to British legislation against the
accumulation of money for later distribution and was fictionalized as Jarndyce and
Jarndyce in Charles Dickens's Bleak House. The Nobel Prizes were established by
Alfred Nobel's will. Charles Vance Millar's will provoked the Great Stork Derby, as he
successfully bequeathed the bulk of his estate to the Toronto-area woman who had the
greatest number of children in the ten years after his death. (The prize was divided
among four women who had nine, with smaller payments made to women who had
borne 10 children but lost some to miscarriage. Another woman who bore ten children
was disqualified, for several were illegitimate.)
The longest known legal will is that of Englishwoman Frederica Evelyn Stilwell Cook.
Probated in 1925, it was 1,066 pages, and had to be bound in four volumes; her estate
was worth $100,000. The shortest known legal wills are those of Bimla Rishi of Delhi,
India ("all to son") and Karl Tausch of Hesse, Germany, ("all to wife") both containing
only two words in the language they were written in (Hindi and Czech, respectively).
The shortest will is of Shripad Krishnarao Vaidya of Nagpur, Maharashtra, consisting of
five letters (“HEIR'S”).
An unusual holographic will, accepted into probate as a valid one, came out of a tragic
accident. On 8 June 1948 in Saskatchewan, Canada, a farmer named Cecil George
Harris became trapped under his own tractor. Thinking he would not survive (though
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found alive later, he died of his injuries in hospital), Harris carved a will into the tractor's
fender, which read:
In case I die in this mess I leave all to the wife. Cecil Geo. Harris.
The fender was probated and stood as his will. The fender is currently on display at the
law library of the University of Saskatchewan College of Law.
Probate
After the testator has died, an application for probate may be made in a court with
probate jurisdiction to determine the validity of the will or wills that the testator may have
created, i.e., which will satisfy the legal requirements, and to appoint an executor. In
most cases, during probate, at least one witness is called upon to testify or sign a "proof
of witness" affidavit. In some jurisdictions, however, statutes may provide requirements
for a "self-proving" will (must be met during the execution of the will), in which case
witness testimony may be forgone during probate. Often there is a time limit, usually 30
days, within which a will must be admitted to probate. In some jurisdictions, only an
original will may be admitted to probate—even the most accurate photocopy will not
suffice. Some jurisdictions will admit a copy of a will if the original was lost or
accidentally destroyed and the validity of the copy can be proved to the satisfaction of
the court.
If the will is ruled invalid in probate, then inheritance will occur under the laws of
intestacy as if a will were never drafted.
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III. Trusts
A Trust is a three-party fiduciary relationship in which the first party, the trustor or
settlor, transfers ("settles") a property (often but not necessarily a sum of money) upon
the second party (the trustee) for the benefit of the third party, the beneficiary.
A testamentary trust is created by a will and arises after the death of the settlor. An
inter vivos trust is created during the settlor's lifetime by a trust instrument. A trust may
be revocable or irrevocable; in the United States, a trust is presumed to be irrevocable
unless the instrument or will creating it states it is revocable, except in California,
Oklahoma and Texas, in which trusts are presumed to be revocable until the instrument
or will creating them states they are irrevocable. An irrevocable trust can be "broken"
(revoked) only by a judicial proceeding.
Trusts and similar relationships have existed since Roman times.
The trustee is the legal owner of the property in trust, as fiduciary for the beneficiary or
beneficiaries who is/are the equitable owner(s) of the trust property. Trustees thus have
a fiduciary duty to manage the trust to the benefit of the equitable owners. They must
provide a regular accounting of trust income and expenditures. Trustees may be
compensated and be reimbursed their expenses. A court of competent jurisdiction can
remove a trustee who breaches his/her fiduciary duty. Some breaches of fiduciary duty
can be charged and tried as criminal offences in a court of law.
A trustee can be a natural person, a business entity or a public body. A trust in the
United States may be subject to federal and state taxation.
A trust is created by a settlor, who transfers title to some or all of his or her property to a
trustee, who then holds title to that property in trust for the benefit of the beneficiaries.
The trust is governed by the terms under which it was created. In most jurisdictions, this
requires a contractual trust agreement or deed. It is possible for a single individual to
assume the role of more than one of these parties, and for multiple individuals to share
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a single role. For example, in a living trust it is common for the grantor to be both a
trustee and a lifetime beneficiary while naming other contingent beneficiaries.
Trusts have existed since Roman times and have become one of the most important
innovations in property law. Trust law has evolved through court rulings differently in
different states, so statements in this article are generalizations; understanding the
jurisdiction-specific case law involved is tricky. Some U.S. states are adapting the
Uniform Trust Code to codify and harmonize their trust laws, but state-specific variations
still remain.
An owner placing property into trust turns over part of his or her bundle of rights to the
trustee, separating the property's legal ownership and control from its equitable
ownership and benefits. This may be done for tax reasons or to control the property and
its benefits if the settlor is absent, incapacitated, or deceased. Testamentary trusts may
be created in wills, defining how money and property will be handled for children or
other beneficiaries.
While the trustee is given legal title to the trust property, in accepting the property title,
the trustee owes a number of fiduciary duties to the beneficiaries. The primary duties
owed include the duty of loyalty, the duty of prudence, the duty of impartiality. [4] A
trustee may be held to a very high standard of care in their dealings, in order to enforce
their behavior. To ensure beneficiaries receive their due, trustees are subject to a
number of ancillary duties in support of the primary duties, including a duties of
openness and transparency; duties of recordkeeping, accounting, and disclosure. In
addition, a trustee has a duty to know, understand, and abide by the terms of the trust
and relevant law. The trustee may be compensated and have expenses reimbursed, but
otherwise must turn over all profits from the trust properties.
There are strong restrictions regarding a trustee with conflict of interests. Courts can
reverse a trustee's actions, order profits returned, and impose other sanctions if they
finds a trustee has failed in any of their duties. Such a failure is termed a breach of trust
and can leave a neglectful or dishonest trustee with severe liabilities for their failures. It
is highly advisable for both settlors and trustees to seek qualified legal counsel prior to
entering into a trust agreement.
Ancient Examples
History
A possible early concept which later developed into what today is understood as a trust
related to land. An ancient king (settlor) grants property back to its previous owner
(beneficiary) during his absence, supported by witness testimony (trustee). In essence
and in this case, the king, in place of the later state (trustor and holder of assets at
highest position) issues ownership along with past proceeds to the original beneficiary:
On the testimony of Gehazi the servant of Elisha that the woman was the owner of
these lands, the king returns all her property to her. From the fact that the king orders
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his eunuch to return to the woman all her property and the produce of her land from the
time that she left...
English Common Law
Roman law had a well-developed concept of the trust (fideicommissum) in terms of
"testamentary trusts" created by wills but never developed the concept of the inter vivos
(living) trusts which apply while the creator lives. This was created by later common law
jurisdictions. Personal trust law developed in England at the time of the Crusades,
during the 12th and 13th centuries. In medieval English trust law, the settlor was known
as the feoffor to uses while the trustee was known as the feoffee to uses and the
beneficiary was known as the cestui que use, or cestui que trust.
At the time, land ownership in England was based on the feudal system. When a
landowner left England to fight in the Crusades, he conveyed ownership of his lands in
his absence to manage the estate and pay and receive feudal dues, on the
understanding that the ownership would be conveyed back on his return. However,
Crusaders often encountered refusal to hand over the property upon their return.
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Unfortunately for the Crusader, English common law did not recognize his claim. As far
as the King's courts were concerned, the land belonged to the trustee, who was under
no obligation to return it. The Crusader had no legal claim. The disgruntled Crusader
would then petition the king, who would refer the matter to his Lord Chancellor. The
Lord Chancellor could decide a case according to his conscience. At this time, the
principle of equity was born.
The Lord Chancellor would consider it "unconscionable" that the legal owner could go
back on his word and deny the claims of the Crusader (the "true" owner). Therefore, he
would find in favour of the returning Crusader. Over time, it became known that the Lord
Chancellor's court (the Court of Chancery) would continually recognize the claim of a
returning Crusader. The legal owner would hold the land for the benefit of the original
owner and would be compelled to convey it back to him when requested. The Crusader
was the "beneficiary" and the acquaintance the "trustee". The term "use of land" was
coined, and in time developed into what we now know as a trust.
Significance
The trust is widely considered to be the most innovative contribution of the English legal
system. Today, trusts play a significant role in most common law systems, and their
success has led some civil law jurisdictions to incorporate trusts into their civil codes. In
Curaçao, for example, the trust was enacted into law on 1 January 2012; however, the
Curaçao Civil Code only allows express trusts constituted by notarial instrument. France
has recently added a similar, Roman-law-based device to its own law with the fiducie,
amended in 2009; the fiducie, unlike a trust, is a contractual relationship. Trusts are
widely used internationally, especially in countries within the English law sphere of
influence, and whilst most civil law jurisdictions do not generally contain the concept of a
trust within their legal systems, they do recognize the concept under the Hague
Convention on the Law Applicable to Trusts and on their Recognition (partly only the
extent that they are parties thereto). The Hague Convention also regulates conflict of
trusts.
Although trusts are often associated with intrafamily wealth transfers, they have become
very important in American capital markets, particularly through pension funds (in
certain countries essentially always trusts) and mutual funds (often trusts).
Basic Principles
Property of any sort may be held in a trust. The uses of trusts are many and varied, for
both personal and commercial reasons, and trusts may provide benefits in estate
planning, asset protection, and taxes. Living trusts may be created during a person's life
(through the drafting of a trust instrument) or after death in a will.
In a relevant sense, a trust can be viewed as a generic form of a corporation where the
settlors (investors) are also the beneficiaries. This is particularly evident in the Delaware
business trust, which could theoretically, with the language in the "governing
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instrument", be organized as a cooperative corporation or a limited liability
corporation, :475–6 although traditionally the Massachusetts business trust has been
commonly used in the US. One of the most significant aspects of trusts is the ability to
partition and shield assets from the trustee, multiple beneficiaries, and their respective
creditors (particularly the trustee's creditors), making it "bankruptcy remote", and leading
to its use in pensions, mutual funds, and asset securitization as well protection of
individual spendthrifts through the spendthrift trust.
Terminology
Chart of a Trust
Appointer: This is the person who can appoint a
new trustee or remove an existing one. This
person is usually mentioned in the trust deed.
Appointment: In trust law, "appointment" often
has its everyday meaning. It is common to talk
of "the appointment of a trustee", for example.
However, "appointment" also has a technical trust law meaning, either:
o
o
the act of 'appointing' (i.e. giving) an asset from the trust to a beneficiary
(usually where there is some choice in the matter—such as in a
discretionary trust); or
the name of the document which gives effect to the appointment.
The trustee's right to do this, where it exists, is called a power of appointment.
Sometimes, a power of appointment is given to someone other than the trustee, such as
the settlor, the protector, or a beneficiary.
'As Trustee For' (ATF): This is the legal term used to imply that an entity is acting
as a trustee.
Beneficiary: A beneficiary is anyone who receives benefits from any assets the
trust owns.
'In Its Own Capacity' (IIOC): This term refers to the fact that the trustee is acting
on its own behalf.
Protector: A protector may be appointed in an express, inter vivos trust, as a
person who has some control over the trustee—usually including a power to
dismiss the trustee and appoint another. The legal status of a protector is the
subject of some debate. No-one doubts that a trustee has fiduciary
responsibilities. If a protector also has fiduciary responsibilities, then the courts—
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if asked by beneficiaries—could order him or her to act in the way the court
decrees. However, a protector is unnecessary to the nature of a trust—many
trusts can and do operate without one. Also, protectors are comparatively new,
while the nature of trusts has been established over hundreds of years. It is
therefore thought by some that protectors have fiduciary duties, and by others
that they do not. The case law has not yet established this point.
Settlor(s): This is the person (or persons) who creates the trust. Grantor(s) is a
common synonym.
Terms of the Trust means the settlor's wishes expressed in the Trust Instrument.
Trust deed: A trust deed is a legal document that defines the trust such as the
trustee, beneficiaries, settlor and appointer, and the terms and conditions of the
agreement.
Trust distributions: A trust distribution is any income or asset that is given out to
the beneficiaries of the trust.
Trustee: A person (either an individual, a corporation or more than one of either)
who administers a trust. A trustee is considered a fiduciary and owes the highest
duty under the law to protect trust assets from unreasonable loss for the trust's
beneficiaries.
Creation
Trusts may be created by the expressed intentions of the settlor (express trusts) [11] or
they may be created by operation of law known as implied trusts. An implied trust is one
created by a court of equity because of acts or situations of the parties. Implied trusts
are divided into two categories: resulting and constructive. A resulting trust is implied by
the law to work out the presumed intentions of the parties, but it does not take into
consideration their expressed intent. A constructive trust is a trust implied by law to work
out justice between the parties, regardless of their intentions.
Typically a trust can be created in the following four ways:
1. a written trust instrument created by the settlor and signed by both the settlor and
the trustees (often referred to as an inter vivos or living trust);
2. an oral declaration;
3. the will of a decedent, usually called a testamentary trust; or
4. a court order (for example in family proceedings).
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In some jurisdictions certain types of assets may not be the subject of a trust without a
written document.
Formalities
The formalities required of a trust depends on the type of trust in question.
Generally, a private express trust requires three elements to be certain, which together
are known as the "three certainties". These elements were determined in Knight v
Knight to be intention, subject matter and objects. The certainty of intention allows the
court to ascertain a settlor's true reason for creating the trust. The certainties of subject
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matter and objects allow the court to administer trust when the trustees fail to do so.
The court determines whether there is sufficient certainty by construing the words used
in the trust instrument. These words are construed objectively in their "reasonable
meaning", within the context of the entire instrument. Despite intention being integral to
express trusts, the court will try not to let trusts fail for the lack of certainty.
1. Intention. A mere expression of hope that a trust be created does not constitute
an intention to create a trust. Conversely, the existence of terms of art or the
word "trust" does not indicate whether an instrument is an express trust. Disputes
in this area mainly concerns differentiating gifts from trusts.
2. Subject Matter. The property subject to the trust must be clearly identified
(Palmer v Simmonds). One may not, for example state, settle "the majority of my
estate", as the precise extent cannot be ascertained. Trust property may be any
form of specific property, be it real or personal, tangible or intangible. It is often,
for example, real estate, shares or cash.
3. Objects. The beneficiaries of the trust must be clearly identified, or at least be
ascertainable (Re Hain's Settlement). In the case of discretionary trusts, where
the trustees have power to decide who the beneficiaries will be, the settlor must
have described a clear class of beneficiaries (McPhail v Doulton). Beneficiaries
may include people not born at the date of the trust (for example, "my future
grandchildren"). Alternatively, the object of a trust could be a charitable purpose
rather than specific beneficiaries.
Trustees
A trust may have multiple trustees, and these trustees are the legal owners of the trust's
property, but have a fiduciary duty to beneficiaries and various duties, such as a duty of
care and a duty to inform. If trustees do not adhere to these duties, they may be
removed through a legal action. The trustee may be either a person or a legal entity
such as a company, but typically the trust itself is not an entity and any lawsuit must be
against the trustees. A trustee has many rights and responsibilities which vary based on
the jurisdiction and trust instrument. If a trust lacks a trustee, a court may appoint a
trustee.
The trustees administer the affairs attendant to the trust. The trust's affairs may include
prudently investing the assets of the trust, accounting for and reporting periodically to
the beneficiaries, filing required tax returns and other duties. In some cases dependent
upon the trust instrument, the trustees must make discretionary decisions as to whether
beneficiaries should receive trust assets for their benefit. A trustee may be held
personally liable for problems, although fiduciary liability insurance similar to directors
and officers liability insurance can be purchased. For example, a trustee could be liable
if assets are not properly invested. In addition, a trustee may be liable to its
beneficiaries even where the trust has made a profit but consent has not been given.
However, in the United States, similar to directors and officers, an exculpatory clause
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may minimize liability; although this was previously held to be against public policy, this
position has changed.
In the United States, the Uniform Trust Code provides for reasonable compensation and
reimbursement for trustees subject to review by courts, although trustees may be
unpaid. Commercial banks acting as trustees typically charge about 1% of assets under
management.
Beneficiaries
The beneficiaries are beneficial (or 'equitable') owners of the trust property. Either
immediately or eventually, the beneficiaries will receive income from the trust property,
or they will receive the property itself. The extent of a beneficiary's interest depends on
the wording of the trust document.
One beneficiary may be entitled to income (for example, interest from a bank account),
whereas another may be entitled to the entirety of the trust property when he attains the
age of twenty-five years. The settlor has much discretion when creating the trust,
subject to some limitations imposed by law.
The use of trusts as a means to inherit substantial wealth may be associated with some
negative connotations; some beneficiaries who are able to live comfortably from trust
proceeds without having to work a job may be jokingly referred to as "trust fund babies"
(regardless of age) or "trustafarians".
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Purposes
Common purposes for trusts include:
Privacy: Trusts may be created purely for privacy. The terms of a will are public
in certain jurisdictions, while the terms of a trust are not.
Spendthrift clauses: Trusts may be used to protect beneficiaries (for example,
one's children) against their own inability to handle money. These are especially
attractive for spendthrifts. Courts may generally recognize spendthrift clauses
against trust beneficiaries and their creditors, but not against creditors of a
settlor.
Wills and estate planning: Trusts frequently appear in wills (indeed, technically,
the administration of every deceased's estate is a form of trust). Conventional
wills typically leave assets to the deceased's spouse (if any), and then to the
children equally. If the children are under 18, or under some other age mentioned
in the will (21 and 25 are common), a trust must come into existence until the
'contingency age' is reached. The executor of the will is (usually) the trustee, and
the children are the beneficiaries. The trustee will have powers to assist the
beneficiaries during their minority.
Charities: In some common law jurisdictions all charities must take the form of
trusts. In others, corporations may be charities also. In most jurisdictions,
charities are tightly regulated for the public benefit (in England, for example, by
the Charity Commission).
Unit trusts: The trust has proved to be such a flexible concept that it has proved
capable of working as an investment vehicle: the unit trust.
Pension plans: typically set up as a trust, with the employer as settlor, and the
employees and their dependents as beneficiaries.
Remuneration trusts: for the benefit of directors and employees or companies or
their families or dependents. This form of trust was developed by Paul
Baxendale-Walker and has since gained widespread use.
Corporate structures: Complex business arrangements, most often in the finance
and insurance sectors, sometimes use trusts among various other entities (e.g.,
corporations) in their structure.
Asset protection: Trusts may allow beneficiaries to protect assets from creditors
as the trust may be bankruptcy remote. For example, a discretionary trust, of
which the settlor may be the protector and a beneficiary, but not the trustee and
not the sole beneficiary. In such an arrangement the settlor may be in a position
to benefit from the trust assets, without owning them, and therefore in theory
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protected from creditors. In addition, the trust may attempt to preserve anonymity
with a completely unconnected name (e.g., "The Teddy Bear Trust"). These
strategies are ethically and legally controversial.
Tax planning: The tax consequences of doing anything using a trust are usually
different from the tax consequences of achieving the same effect by another
route (if, indeed, it would be possible to do so). In many cases, the tax
consequences of using the trust are better than the alternative, and trusts are
therefore frequently used for legal tax avoidance. For an example see the "nilband
discretionary trust", explained at Inheritance Tax (United Kingdom).
Co-ownership: Ownership of property by more than one person is facilitated by a
trust. In particular, ownership of a matrimonial home is commonly effected by a
trust with both partners as beneficiaries and one, or both, owning the legal title as
trustee.
Construction law: In Canada and Minnesota monies owed by employers to
contractors or by contractors to subcontractors on construction projects must by
law be held in trust. In the event of contractor insolvency, this makes it much
more likely that subcontractors will be paid for work completed.
Legal retainer – Lawyers in certain countries often require that a legal retainer be
paid upfront and held in trust until such time as the legal work is performed and
billed to the client, this serves as a minimum guarantee of remuneration should
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the client become insolvent. However, strict legal ethical codes apply to the use
of legal retainer trusts.
Alphabetic List of Trust Types
Types
Trusts go by many different names, depending on the characteristics or the purpose of
the trust. Because trusts often have multiple characteristics or purposes, a single trust
might accurately be described in several ways. For example, a living trust is often an
express trust, which is also a revocable trust, and might include an incentive trust, and
so forth.
Asset-Protection Trust: The concept of an asset-protection trust encompasses
any form of trust that provides for funds to be held on a discretionary basis. Such
trusts are set up in an attempt to avoid or mitigate the effects of taxation, divorce
and bankruptcy on the beneficiary. Such trusts may be proscribed or limited in
their effect by governments and the courts.
Constructive Trust: Unlike an express trust, a constructive trust is not created
by an agreement between a settlor and the trustee. A constructive trust is
imposed by the law as an "equitable remedy". This generally occurs due to some
wrongdoing, where the wrongdoer has acquired legal title to some property and
cannot in good conscience be allowed to benefit from it. A constructive trust is,
essentially, a legal fiction. For example, a court of equity recognizing a plaintiff's
request for the equitable remedy of a constructive trust may decide that a
constructive trust has been created and simply order the person holding the
assets to deliver them to the person who rightfully should have them. The
constructive trustee is not necessarily the person who is guilty of the wrongdoing,
and in practice it is often a bank or similar organization. The distinction may be
finer than the preceding exposition in that there are also said to be two forms of
constructive trust, the institutional constructive trust and the remedial constructive
trust. The latter is an "equitable remedy" imposed by law being truly remedial; the
former arising due to some defect in the transfer of property.
Discretionary Trust: In a discretionary trust, certainty of object is satisfied if it
can be said that there is a criterion which a person must satisfy in order to be a
beneficiary (i.e., whether there is a 'class' of beneficiaries, which a person can be
said to belong to). In that way, persons who satisfy that criterion (who are
members of that class) can enforce the trust. Re Baden’s Deed Trusts; McPhail v
Doulton
Directed Trust: In these types, a directed trustee is directed by a number of
other trust participants in implementing the trust's execution; these participants
may include a distribution committee, trust protector, or investment advisor. The
directed trustee's role is administrative which involves following investment
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instructions, holding legal title to the trust assets, providing fiduciary and tax
accounting, coordinating trust participants and offering dispute resolution among
the participants
Dynasty Trust (also known as a 'generation-skipping trust'): A type of trust in
which assets are passed down to the grantor's grandchildren, not the grantor's
children. The children of the grantor never take title to the assets. This allows the
grantor to avoid the estate taxes that would apply if the assets were transferred
to his or her children first. Generation-skipping trusts can still be used to provide
financial benefits to a grantor's children, however, because any income
generated by the trust's assets can be made accessible to the grantor's children
while still leaving the assets in trust for the grandchildren.
Express Trust: An express trust arises where a settlor deliberately and
consciously decides to create a trust, over their assets, either now, or upon his or
her later death. In these cases this will be achieved by signing a trust instrument,
which will either be a will or a trust deed. Almost all trusts dealt with in the trust
industry are of this type. They contrast with resulting and constructive trusts. The
intention of the parties to create the trust must be shown clearly by their
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language or conduct. For an express trust to exist, there must be certainty to the
objects of the trust and the trust property. In the USA Statute of Frauds
provisions require express trusts to be evidenced in writing if the trust property is
above a certain value, or is real estate.
Fixed Trust: The entitlement of the beneficiaries is fixed by the settlor. The
trustee has little or no discretion. Common examples are:
o a trust for a minor ("to x if she attains 21");
o a 'life interest' ("to pay the income to x for her lifetime"); and
o a 'remainder' ("to pay the capital to y after the death of x")
Grantor Retained Annuity Trust ('GRAT'): an irrevocable trust whereby a
grantor transfers asset(s), as a gift, into a trust and receives an annual payment
from the trust for a period of time specified in the trust instrument. At the end of
the term, the financial property is transferred (tax-free) to the named
beneficiaries. This trust is commonly used in the U.S. to facilitate large financial
gifts that are not subject to a 'gift tax'.
Hybrid Trust: Combines elements of both fixed and discretionary trusts. In a
hybrid trust, the trustee must pay a certain amount of the trust property to each
beneficiary fixed by the settlor. But the trustee has discretion as to how any
remaining trust property, once these fixed amounts have been paid out, is to be
paid to the beneficiaries.
Implied Trust: as distinct from an express trust, is created where some of the
legal requirements for an express trust are not met, but an intention on behalf of
the parties to create a trust can be presumed to exist. A resulting trust may be
deemed to be present where a trust instrument is not properly drafted and a
portion of the equitable title has not been provided for. In such a case, the law
may raise a resulting trust for the benefit of the grantor (the creator of the trust).
In other words, the grantor may be deemed to be a beneficiary of the portion of
the equitable title that was not properly provided for in the trust document.
Improvement Trust: can be set up by urban or local government to hold funds
for the development or improvement of an area. The trust is often run by a
committee, and can act similarly to a development agency, depending on the
provisions of its charter.
Incentive Trust: A trust that uses distributions from income or principal as an
incentive to encourage or discourage certain behaviors on the part of the
beneficiary. The term "incentive trust" is sometimes used to distinguish trusts that
provide fixed conditions for access to trust funds from discretionary trusts that
leave such decisions up to the trustee.
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Inter Vivos Trust (or 'Living Trust'): A settlor who is living at the time the trust
is established creates an inter vivos trust.
Irrevocable Trust: In contrast to a revocable trust, an irrevocable trust is one in
which the terms of the trust cannot be amended or revised until the terms or
purposes of the trust have been completed. Although in rare cases, a court may
change the terms of the trust due to unexpected changes in circumstances that
make the trust uneconomical or unwieldy to administer, under normal
circumstances an irrevocable trust may not be changed by the trustee or the
beneficiaries of the trust.
Land Trust: A private, nonprofit organization that, as all or part of its mission,
actively works to conserve land by undertaking or assisting in land or
conservation easement acquisition, or by its stewardship of such land or
easements; or an agreement whereby one party (the trustee) agrees to hold
ownership of a piece of real property for the benefit of another party (the
beneficiary).
Offshore Trust: Strictly speaking, an offshore trust is a trust which is resident in
any jurisdiction other than that in which the settlor is resident. However, the term
is more commonly used to describe a trust in one of the jurisdictions known as
offshore financial centers or, colloquially, as tax havens. Offshore trusts are
usually conceptually similar to onshore trusts in common law countries, but
usually with legislative modifications to make them more commercially attractive
by abolishing or modifying certain common law restrictions. By extension,
"onshore trust" has come to mean any trust resident in a high-tax jurisdiction.
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Personal Injury Trust: A personal injury trust is any form of trust where funds
are held by trustees for the benefit of a person who has suffered an injury and
funded exclusively by funds derived from payments made in consequence of that
injury.
Private And Public Trusts: A private trust has one or more particular
individuals as its beneficiary. By contrast, a public trust (also called a charitable
trust) has some charitable end as its beneficiary. In order to qualify as a
charitable trust, the trust must have as its object certain purposes such as
alleviating poverty, providing education, carrying out some religious purpose, etc.
The permissible objects are generally set out in legislation, but objects not
explicitly set out may also be an object of a charitable trust, by analogy.
Charitable trusts are entitled to special treatment under the law of trusts and also
the law of taxation.
Protective Trust: Here the terminology is different between the UK and the USA:
o
o
In the UK, a protective trust is a life interest that terminates upon the
happening of a specified event; such as the bankruptcy of the beneficiary,
or any attempt by an individual to dispose of his or her interest. They have
become comparatively rare.
In the US, a 'protective trust' is a type of trust that was devised for use in
estate planning. (In another jurisdiction this might be thought of as one
type of asset protection trust.) Often a person, A, wishes to leave property
to another person B. A, however, fears that the property might be claimed
by creditors before A dies, and that therefore B would receive none of it. A
could establish a trust with B as the beneficiary, but then A would not be
entitled to use of the property before they died. Protective trusts were
developed as a solution to this situation. A would establish a trust with
both A and B as beneficiaries, with the trustee instructed to allow A use of
the property until they died, and thereafter to allow its use to B. The
property is then safe from being claimed by A's creditors, at least so long
as the debt was entered into after the trust's establishment. This use of
trusts is similar to life estates and remainders, and is frequently used as
an alternative to them.
Purpose Trust: Or, more accurately, non-charitable purpose trust (all charitable
trusts are purpose trusts). Generally, the law does not permit non-charitable
purpose trusts outside of certain anomalous exceptions which arose under the
eighteenth century common law (and, arguable, Quistclose trusts). Certain
jurisdictions (principally, offshore jurisdictions) have enacted legislation validating
non-charitable purpose trusts generally.
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QTIP Trust: Short for "qualified terminal interest property." A trust recognized
under the tax laws of the United States which qualifies for the marital gift
exclusion from the estate tax.
Resulting Trust: A resulting trust is a form of implied trust which occurs where
(1) a trust fails, wholly or in part, as a result of which the settlor becomes entitled
to the assets; or (2) a voluntary payment is made by A to B in circumstances
which do not suggest gifting. B becomes the resulting trustee of A's payment.
Revocable Trust: A trust of this kind may be amended, altered or revoked by its
settlor at any time, provided the settlor is not mentally incapacitated. Revocable
trusts are becoming increasingly common in the US as a substitute for a will to
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minimize administrative costs associated with probate and to provide centralized
administration of a person's final affairs after death.
Secret Trust: A post mortem trust constituted externally from a will but imposing
obligations as a trustee on one, or more, legatees of a will.
Semi-Secret Trust: A trust in which a will demonstrates the intention to create a
trust, names a trustee, but does not identify the intended beneficiary.
Simple Trust:
o
In the US jurisdiction this has two distinct meanings:
• In a simple trust the trustee has no active duty beyond conveying
the property to the beneficiary at some future time determined by
the trust. This is also called a 'bare trust'. All other trusts are special
trusts where the trustee has active duties beyond this.
• A simple trust in Federal income tax law is one in which, under the
terms of the trust document, all net income must be distributed on
an annual basis.
o
In the UK a bare or simple trust is one where the beneficiary has an
immediate and absolute right to both the capital and income held in the
trust. Bare trusts are commonly used to transfer assets to minors.
Trustees hold the assets on trust until the beneficiary is 18 in England and
Wales, or 16 in Scotland.
Special Trust: In the US, a special trust, also called complex trust, contrasts with
a simple trust (see above). It does not require the income be paid out within the
subject tax year. The funds from a complex trust can also be used to donate to a
charity or for charitable purposes.
Special Power of Appointment Trust (SPA Trust): A trust implementing a
special power of appointment to provide asset protection features.
Spendthrift Trust: It is a trust put into place for the benefit of a person who is
unable to control their spending. It gives the trustee the power to decide how the
trust funds may be spent for the benefit of the beneficiary.
Standby Trust (or 'Pourover Trust)': The trust is empty at creation during life
and the will transfers the property into the trust at death. This is a statutory trust.
Statutory Business Trust: A trust created pursuant to a state's business trust
statute used primarily for commercial purposes. Two prominent variants of
Statutory Business Trusts are Delaware statutory trusts and Massachusetts
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usiness trusts. The Uniform Law Commission promulgated a final amended
draft of the Uniform Statutory Entity Act (2009) in 2013. As of 24 January 2017,
no states have adopted the Uniform Statutory Entity Act of 2009.
Testamentary Trust (or 'Will Trust'): A trust created in an individual's will is
called a testamentary trust. Because a will can become effective only upon
death, a testamentary trust is generally created at or following the date of the
settlor's death.
Unit Trust: A trust where the beneficiaries (called unitholders) each possess a
certain share (called units) and can direct the trustee to pay money to them out of
the trust property according to the number of units they possess. A unit trust is a
vehicle for collective investment, rather than disposition, as the person who gives
the property to the trustee is also the beneficiary.
Regional Variations
Trusts originated in England, and therefore English trusts law has had a significant
influence, particularly among common law legal systems such as the United States and
the countries of the Commonwealth.
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Trust law in civil law jurisdictions, generally including Continental Europe only exists in a
limited number of jurisdictions (e.g. Curaçao, Liechtenstein and Sint Maarten). The trust
may however be recognized as an instrument of foreign law in conflict of laws cases, for
example within the Brussels regime (Europe) and the parties to the Hague Trust
Convention. Tax avoidance concerns have historically been one of the reasons that
European countries with a civil law system have been reluctant to adopt trusts.
United States
State law applies to trusts, and the Uniform Trust Code has been enacted by the
legislatures in many states. In addition, federal law considerations such as federal taxes
administered by the Internal Revenue Service may affect the structure and creation of
trusts. The common law of trusts is summarized in the Restatements of the Law, such
as the Restatement of Trusts, Third (2003−08).
In the United States the tax law allows trusts to be taxed as corporations, partnerships,
or not at all depending on the circumstances, although trusts may be used for tax
avoidance in certain situations. For example, the trust-preferred security is a hybrid
(debt and equity) security with favorable tax treatment which is treated as regulatory
capital on banks' balance sheets. The Dodd-Frank Wall Street Reform and Consumer
Protection Act changed this somewhat by not allowing these assets to be a part of
(large) banks' regulatory capital.
Estate planning
Living trusts, as opposed to testamentary (will) trusts, may help a trustor avoid
probate. [34] Avoiding probate may save costs and maintain privacy and living trusts have
become very popular. Probate is potentially costly, and probate records are available to
the public while distribution through a trust is private. Both living trusts and wills can also
be used to plan for unforeseen circumstances such as incapacity or disability, by giving
discretionary powers to the trustee or executor of the will.
Negative aspects of using a living trust as opposed to a will and probate include upfront
legal expenses, the expense of trust administration, and a lack of certain safeguards.
The cost of the trust may be 1% of the estate per year versus the one-time probate cost
of 1 to 4% for probate, which applies whether or not there is a drafted will. Unlike trusts,
wills must be signed by two to three witnesses, the number depending on the law of the
jurisdiction in which the will is executed.
Legal protections that apply to probate but do not automatically apply to trusts include
provisions that protect the decedent's assets from mismanagement or embezzlement,
such as requirements of bonding, insurance, and itemized accountings of probate
assets.
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Estate Tax Effect
Living trusts generally do not shelter assets from the U.S. federal estate tax. Married
couples may, however, effectively double the estate tax exemption amount by setting up
the trust with a formula clause.
For a living trust, the grantor may retain some level of control to the trust, such by
appointment as protector under the trust instrument. Living trusts also, in practical
terms, tend to be driven to large extent by tax considerations. If a living trust fails, the
property will usually be held for the grantor/settlor on resulting trusts, which in some
notable cases, has had catastrophic tax consequences.
South Africa
In many ways trusts in South Africa operate similarly to other common law countries,
although the law of South Africa is actually a hybrid of the British common law system
and Roman-Dutch law.
In South Africa, in addition to the traditional living trusts and will trusts there is a ‘bewind
trust’ (inherited from the Roman-Dutch bewind administered by a bewindhebber) in
which the beneficiaries own the trust assets while the trustee administers the trust,
although this is regarded by modern Dutch law as not actually a trust. Bewind trusts are
created as trading vehicles providing trustees with limited liability and certain tax
advantages.
In South Africa, minor children cannot inherit assets and in the absence of a trust and
assets held in a state institution, the Guardian's Fund, and released to the children in
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adulthood. Therefore, testamentary (will) trusts often leave assets in a trust for the
benefit of these minor children.
There are two types of living trusts in South Africa, namely vested trusts and
discretionary trusts. In vested trusts, the benefits of the beneficiaries are set out in the
trust deed, whereas in discretionary trusts the trustees have full discretion at all times as
to how much and when each beneficiary is to benefit.
Asset Protection
Until recently, there were tax advantages to living trusts in South Africa, although most
of these advantages have been removed. Protection of assets from creditors is a
modern advantage. With notable exceptions, assets held by the trust are not owned by
the trustees or the beneficiaries, the creditors of trustees or beneficiaries can have no
claim against the trust. Under the Insolvency Act (Act 24 of 1936), assets transferred
into a living trust remain at risk from external creditors for 6 months if the previous
owner of the assets is solvent at the time of transfer, or 24 months if he/she is insolvent
at the time of transfer. After 24 months, creditors have no claim against assets in the
trust, although they can attempt to attach the loan account, thereby forcing the trust to
sell its assets. Assets can be transferred into the living trust by selling it to the trust
(through a loan granted to the trust) or donating cash to it (any natural person can
donate R100 000 per year without attracting donations tax; 20% donations tax applies
to further donations within the same tax year).
Tax Considerations
Under South African law living trusts are considered tax payers. Two types of tax apply
to living trusts, namely income tax and capital gains tax (CGT). A trust pays income tax
at a flat rate of 40% (individuals pay according to income scales, usually less than
20%). The trust's income can, however, be taxed in the hands of either the trust or the
beneficiary. A trust pays CGT at the rate of 20% (individuals pay 10%). Trusts do not
pay deceased estate tax (although trusts may be required to pay back outstanding
loans to a deceased estate, in which the loan amounts are taxable with deceased estate
tax).
The taxpayer whose residence has been ‘locked’ into a trust has now been given
another opportunity to take advantage of these CGT exemptions. The Taxation Law
Amendment Act of 30 September 2009 commenced on 1 January 2010 and granted a
2-year window period from 1 January 2010 to 31 December 2011, affording a natural
person the opportunity to take transfer of the residence with advantage of no transfer
duty being payable or CGT consequences. Whilst taxpayers can take advantage of this
opening of a window of opportunity, it is not likely that it will ever become available
thereafter.
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IV. Estates
An Estate, in common law, is the net worth of a person at any point in time alive or
dead. It is the sum of a person's assets – legal rights, interests and entitlements to
property of any kind – less all liabilities at that time. The issue is of special legal
significance on a question of bankruptcy and death of the person. (See inheritance.)
Depending on the particular context, the term is also used in reference to an estate in
land or of a particular kind of property (such as real estate or personal estate). The term
is also used to refer to the sum of a person's assets only.
The equivalent in civil law legal systems is patrimony.
Bankruptcy
Under United States bankruptcy law, a person's estate consists of all assets or property
of any kind available for distribution to creditors. However, some assets are recognized
as exempt to allow a person significant resources to restart his or her financial life. In
the United States, asset exemptions depend on various factors, including state and
federal law.
The estate (or assets) of a bankrupt person is administered by a trustee in bankruptcy.
The legal position in all common law countries is similar in this respect.
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Legal Estate in Land
In land law, the term "estate" is a remnant of the English feudal system, which created a
complex hierarchy of estates and interests in land. The allodial or fee simple interest is
the most complete ownership that one can have of property in the common law system.
An estate can be an estate for years, an estate at will, a life estate (extinguishing at the
death of the holder), an estate pur auter vie (a life interest for the life of another person)
or a fee tail estate (to the heirs of one's body) or some more limited kind of heir (e.g. to
heirs male of one's body).
Fee simple estates may be either fee simple absolute or defeasible (i.e. subject to future
conditions) like fee simple determinable and fee simple subject to condition subsequent;
this is the complex system of future interests (q.v.) which allows concepts of trusts and
estates to elide into actuarial science through the use of life contingencies.
Estate in land can also be divided into estates of inheritance and other estates that are
not of inheritance. The fee simple estate and the fee tail estate are estates of
inheritance; they pass to the owner's heirs by operation of law, either without restrictions
(in the case of fee simple), or with restrictions (in the case of fee tail). The estate for
years and the life estate are estates not of inheritance; the owner owns nothing after the
term of years has passed, and cannot pass on anything to his or her heirs.
Legal estates and interests are called rights "in rem", and said to be "good against the
world".
Equitable Estates
Superimposed on the legal estate and interests in land, English courts also created
"equitable interests" over the same legal interests. These obligations are called trusts
which will be enforceable in a court. A trustee is the person who holds the legal title to
property, while the beneficiary is said to have an equitable interest in the property.
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V. Estate Planning
Estate Planning is the process of anticipating and arranging, during a person's life, for
the management and disposal of that person's estate during the person's life and at and
after death, while minimizing gift, estate, generation skipping transfer, and income tax.
Estate planning includes planning for incapacity as well as a process of reducing or
eliminating uncertainties over the administration of a probate and maximizing the value
of the estate by reducing taxes and other expenses. The ultimate goal of estate
planning can be determined by the specific goals of the client, and may be as simple or
complex as the client's needs dictate. Guardians are often designated for minor children
and beneficiaries in incapacity.
The law of estate planning overlaps to some degree with elder law, which additionally
includes other provisions such as long-term care.
Devices
Estate planning involves the will, trusts, beneficiary designations, powers of
appointment, property ownership (joint tenancy with rights of survivorship, tenancy in
common, tenancy by the entirety), gift, and powers of attorney, specifically the durable
financial power of attorney and the durable medical power of attorney.
More sophisticated estate plans may even cover deferring or decreasing estate taxes or
business succession.
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Wills
Wills are a common estate planning tool, and are usually the simplest device for
planning the distribution of an estate. It is important that a will be created and executed
in compliance with the laws of the jurisdiction where it is created. If it is possible that
probate proceedings will occur in a different jurisdiction, it is important also to ensure
that the will complies with the laws of that jurisdiction or that the jurisdiction will follow
the provisions of a valid out-of-state will even if they might be invalid for a will executed
in that jurisdiction.
Trusts
A trust may be used as an estate planning tool, to direct the distribution of assets after
the person who creates the trust passes away. Trusts may be used to provide for the
distribution of funds for the benefit of minor children or developmentally disabled
children. For example, a spendthrift trust may be used to prevent wasteful spending by
a spendthrift child, or a special needs trust may be used for developmentally disabled
children or adults. Trusts offer a high degree of control over management and
disposition of assets. Furthermore, certain types of trust provisions can provide for the
management of wealth for several generations past the settlor. Typically referred to as
dynasty planning, these types of trust provisions allow for the protection of wealth for
several generations after a person's death.
Advance Directives
An estate plan may include the creation of advance directives, documents that direct
what will happen to a person's estate and in relation to their personal care if the person
becomes legally incapacitated. For example, an estate plan may include a healthcare
proxy, durable power of attorney, and living will.
After widespread litigation and media coverage surrounding the Terri Schiavo case,
estate planning attorneys often advise clients to also create a living will. Specific final
arrangements, such as whether to be buried or cremated, are also often part of the
documents.
Tax
Income, gift, and estate tax planning plays a significant role in choosing the structure
and vehicles used to create an estate plan.
United States
In the United States, assets left to a spouse or any qualified charity are not subject to
U.S. Federal estate tax. Assets left to any other heir, including the decedent's children,
may be taxed if that portion of the estate has a value in excess of the estate tax
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exemption. As of 2018, the federal estate tax exemption was $11,180,000. For a
married couple, the combined exemption is $22,360,000.
Tax Strategies
One way to avoid U.S. Federal estate and gift taxes is to distribute the property in
incremental gifts during the person's lifetime. Individuals may give away as much as
$15,000 per year (in 2018) without incurring gift tax. Other tax free alternatives include
paying a grandchild’s college tuition or medical insurance premiums free of gift tax—but
only if the payments are made directly to the educational institution or medical provider.
Other tax advantaged alternatives to leaving property, outside of a will, include qualified
or non-qualified retirement plans (e.g. 401(k) plans and IRAs) certain “trustee” bank
accounts, transfer on death (or TOD) financial accounts, and life insurance proceeds.
Because life insurance proceeds generally are not taxed for U.S. Federal income tax
purposes, a life insurance trust could be used to pay estate taxes. However, if the
decedent holds any incidents of ownership like the ability to remove or change a
beneficiary, the proceeds will be treated as part of his estate and will generally be
subject to the U.S. Federal estate tax. For this reason, the trust vehicle is used to own
the life insurance policy. The trust must be irrevocable to avoid taxation of the life
insurance proceeds.
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Probate
Countries whose legal systems evolved from the British common law system, like the
United States, typically use the probate system for distributing property at death.
Probate is a process where
1. the decedent's purported will, if any, is entered in court,
2. after hearing evidence from the representative of the estate, the court decides if
the will is valid,
3. a personal representative is appointed by the court as a fiduciary to gather and
take control of the estate's assets,
4. known and unknown creditors are notified (through direct notice or publication in
the media) to file any claims against the estate,
5. claims are paid out (if funds remain) in the order or priority governed by state
statute,
6. remaining funds are distributed to beneficiaries named in the will, or heirs (nextof-kin)
if there is no will, and
7. the probate judge closes out the estate.
Probate Avoidance
Due to the time and expenses associated with the traditional probate process, modern
estate planners frequently counsel clients to enact probate avoidance strategies. Some
common probate-avoidance strategies include:
1. revocable living trusts,
2. joint ownership of assets and naming death beneficiaries,
3. making lifetime gifts, and
4. purchasing life insurance.
If a revocable living trust is used as a part of an estate plan, the key to probate
avoidance is ensuring that the living trust is "funded" during the lifetime of the person
establishing the trust.
After executing a trust agreement, the settlor should ensure that all assets are properly
re-registered in the name of the living trust. If assets (especially higher value assets and
real estate) remain outside of a trust, then a probate proceeding may be necessary to
transfer the asset to the trust upon the death of the testator.
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Designation of a Beneficiary
Although legal restrictions may apply, it is broadly possible to convey property outside of
probate, through such tools as a living trust, forms of joint property ownership that
include a right of survivorship, payable on death account, or beneficiary designation on
a financial account or insurance policy. Beneficiary designations are considered
distributions under the law of contracts and cannot be changed by statements or
provisions outside of the contract, such as a clause in a will.
In the United States, without a beneficiary statement, the default provision in the
contract or custodian-agreement (for an IRA) will apply, which may be the estate of the
owner resulting in higher taxes and extra fees. Generally, beneficiary designations are
made for life insurance policies, employee benefits, (including retirement plans and
group life insurance) and Individual Retirement Accounts.
Identity: A specific, identifiable individual or business must be designated as
beneficiary for life insurance policies. Businesses may not be the beneficiary of a
group life insurance policy or a retirement plan.
Contingent beneficiary: If the primary beneficiary predeceases the contract
owner, the contingent beneficiary becomes the designated beneficiary. If a
contingent beneficiary is not named, the default provision in the contract or
custodian-agreement applies.
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Death: For retirement plan assets, at the account owner's death, the primary
beneficiary may select his or her own beneficiaries if the remaining balance will
be paid out over time. There is no obligation to retain the contingent beneficiary
designated by the IRA owner.
Multiple accounts: A policy owner or retirement account owner can designate
multiple beneficiaries. However, retirement plans governed by ERISA provide
protections for spouses of account holders that prevent the disinheritance of a
living spouse.
Mediation
Mediation serves as an alternative to a full-scale litigation to settle disputes. At a
mediation, family members and beneficiaries discuss plans on transfer of assets.
Because of the potential conflicts associated with blended families, step siblings, and
multiple marriages, creating an estate plan through mediation allows people to confront
the issues head-on and design a plan that will minimize the chance of future family
conflict and meet their financial goals.
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VI. Probate
Probate is the judicial process whereby a will is "proved" in a court of law and accepted
as a valid public document that is the true last testament of the deceased, or whereby
the estate is settled according to the laws of intestacy in the state of residence [or real
property] of the deceased at time of death in the absence of a legal will.
The granting of probate is the first step in the legal process of administering the estate
of a deceased person, resolving all claims and distributing the deceased person's
property under a will. A probate court decides the legal validity of a testator's (deceased
person's) will and grants its approval, also known as granting probate, to the executor.
The probated will then becomes a legal instrument that may be enforced by the
executor in the law courts if necessary.
A probate also officially appoints the executor (or personal representative), generally
named in the will, as having legal power to dispose of the testator's assets in the
manner specified in the testator's will. However, through the probate process, a will may
be contested.
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Terminology
Executor
An executor is the person appointed by a will to act on behalf of the estate of the will
maker (the "testator") upon his or her death. An executor is the legal personal
representative of a deceased person's estate. The appointment of an executor only
becomes effective after the death of the testator. After the testator dies, the person
named in the will as executor can decline or renounce the position, and if that is the
case should very quickly notify the probate court registry accordingly. There is no legal
obligation for that person to accept the appointment.
Executors "step into the shoes" of the deceased and have similar rights and powers to
wind up the personal affairs of the deceased. This may include continuing or filing
lawsuits to which the deceased was entitled to bring, making claims for wrongful death,
paying off creditors, or selling or disposing of assets not particularly gifted in the will,
among others. But the role of the executor is to resolve the testator's estate and to
distribute the estate to the beneficiaries or those otherwise entitled.
Sometimes, in England and Wales, a professional executor is named in the will – not a
family member but (for example) a solicitor, bank or other financial institution.
Professional executors will charge the estate for carrying out duties related to the
administration of the estate; this can leave the family facing additional and unexpected
costs. It is possible to get a professional executor to renounce their role meaning they
will have no part in dealing with the estate; or to reserve their power which means the
remaining executors will carry out the related duties, but without the involvement of the
professional executor.
Administrator
When a person dies without a will then the legal personal representative is known as
the "administrator". This is commonly the closest relative, although that person can
renounce their right to be Administrator in which case the right moves to the next
closest relative. This often happens when parents or grandparents are first in line to
become the administrator but renounce their rights as they are old, don't have
knowledge of estate law and feel that someone else is better suited to the task.
The appointment of an administrator follows a codified list establishing priority
appointees. Classes of persons named higher on the list receive priority of appointment
to those lower on the list. Although appointees named in the will and relatives of the
deceased frequently receive priority over all others, creditors of the deceased and 'any
other citizen [of that jurisdiction]' may act as an administrator if there is some cognizable
reason or relationship to the estate. Alternatively, if no other person qualifies or no other
person accepts appointment, the court will appoint a representative from the local public
administrator's office.
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Probate Clause
A representative example of a complete probate clause, from the 14th century (or
earlier) onwards, added at the bottom of the office transcribed copy of a will is as
follows, taken from the will of Anthony Bathurst, 1697, PROB 11/438:
PROBATUM fuit huiusmodi testamentum apud Londinium coram venerabili et egregio
viro domino Richardo Raines, milite, legum doctore curiae praerogativae Cantuariensis
magistro custodis sive commissarii legitime constituti vicesimo tertio die mensis Junii
Anno Domini Millesimo Sexcenti Nonaginta Septimo juramento Mariae Bathurst relictae
et executricis in dicto testamento nominata cui commissa fuit administratio omnium et
singulorum bonorum, jurium et creditorum dicti defuncti de bene et fideliter administrando
eadem ad sancta Dei Evangelis jurat. Examinatur.
Translated literally as:
This will was proved at London before the worshipful Sir Richard Raines, knight, Doctor
of Laws, Master Keeper or Commissary of the Prerogative Court of Canterbury, lawfully
constituted, on the twenty third day of the month of June in the year of our Lord one
thousand six hundred and ninety seven, by the oath of Mary Bathurst, relict and executrix
named in the said will, to whom administration was granted of all and singular the goods,
rights and credits of the said deceased, sworn on the holy Gospel of God to well and
faithfully administer the same. It has been examined".
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Etymology
The English noun "probate" derives directly from the Latin verb probare, to try, test,
prove, examine, more specifically from the verb's past participle nominative neuter
probatum, "having been proved". Historically during many centuries a paragraph in Latin
of standard format was written by scribes of the particular probate court below the
transcription of the will, commencing with the words (for example): Probatum Londini fuit
huismodi testamentum coram venerabili viro (name of approver) legum doctore curiae
prerogativae Cantuariensis... ("A testament of such a kind was proved at London in the
presence of the venerable man ..... doctor of law at the Prerogative Court of
Canterbury...") The earliest usage of the English word was in 1463, defined as "the
official proving of a will". The term "probative," used in the law of evidence, comes from
the same Latin root but has a different English usage.
Probate Process
Probate is a process of improvement that proves a will of a deceased person is valid, so
their property can in due course be retitled (US terminology) or transferred to
beneficiaries of the will. As with any legal proceeding, there are technical aspects to
probate administration:
Creditors must be notified and legal notices published.
Executors of the will must be guided in how and when to distribute assets and
how to take creditors' rights into account.
A Petition to appoint a personal representative may need to be filed and letters of
administration (often referred to as "letters testamentary") issued. A Grant of
Letters of Administration can be used as proof that the ‘Administrator' is entitled
to handle the assets.
Homestead property, which follows its own set of unique rules in states like
Florida, must be dealt with separately from other assets. In many common law
jurisdictions such as Canada, parts of the US, the UK, Australia and India, jointly
owned property passes automatically to the surviving joint owner separately from
any will, unless the equitable title is held as tenants in common.
There are time factors involved in filing and objecting to claims against the
estate.
There may be a lawsuit pending over the decedent's death or there may have
been pending suits that are now continuing. There may be separate procedures
required in contentious probate cases.
Real estate or other property may need to be sold to effect correct distribution of
assets pursuant to the will or merely to pay debts.
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Estate taxes, gift taxes or inheritance taxes must be considered if the estate
exceeds certain thresholds.
Costs of the administration including ordinary taxation such as income tax on
interest and property taxation is deducted from assets in the estate before
distribution by the executors of the will.
Other assets may simply need to be transferred from the deceased to his or her
beneficiaries, such as life insurance. Other assets may have pay on death or
transfer on death designations, which avoids probate.
The rights of beneficiaries must be respected, in terms of providing proper and
adequate notice, making timely distribution of estate assets, and otherwise
administering the estate properly and efficiently.
Local laws governing the probate process often depend on the value and complexity of
the estate. If the value of the estate is relatively small, the probate process may be
avoided. In some jurisdictions and/or at a certain threshold, probate must be applied for
by the Executor/Administrator or a Probate lawyer filing on their behalf.
Page 85 of 190

A probate lawyer offers services in probate court, and may be retained to open an
estate or offer service during the course of probate proceedings on behalf of the
administrator or executor of the estate.
Probate lawyers may also represent heirs, creditors and other parties who have a legal
interest in the outcome of the estate.
In common law jurisdictions, probate ("official proving of a will") is obtained by executors
of a will while letters of administration are granted where there are no executors.
Australia
In Australia, probate refers to the process of proving of the will of a deceased person
and also to a Grant of Probate, the legal document that is obtained.
There is a Supreme Court probate registry in each jurisdiction that deals with probate
applications. However, each State and Territory has slightly different laws and
processes in relation to probate. The main probate legislation is as follows:
In New South Wales, the Probate and Administration Act 1898 (NSW).
In Victoria, the Administration and Probate Act 1958 (VIC).
In Queensland, the Uniform Civil Procedure Rules 1999.
In Western Australia, the Non-contentious Probate Rules 1967 (WA).
In South Australia, the Administration and Probate Act 1919 (SA).
In Tasmania, the Administration and Probate Act 1935 (TAS).
In the ACT, the Administration and Probate Act 1929 (ACT).
In the Northern Territory, the Administration and Probate Act 1993 (NT).
Applying for a Grant of Probate
Only the executor(s) of a will can apply for a Grant of Probate. It is the duty of the
executor(s) of the will to obtain probate in a timely manner.
The executor(s) can apply for probate themselves (which is often done to reduce legal
fees) or be represented by a lawyer.
To obtain a grant of probate, there must have been a valid will and assets left by the
deceased person. Usually, asset holders require a Grant of Probate unless:
estate assets only consist of a small amount (usually under $50,000 for major
banks and lower thresholds for other financial institutions), and/or
jointly held assets (and does not consist of real estate in the deceased's name
sole or as tenant in common).
Page 86 of 190

Distributing the Estate
After probate is granted, the executor(s) is also responsible for distributing the assets in
accordance with the will. Some Australian jurisdictions require a notice of intended
distribution to be published before the estate is distributed.
United Kingdom
England and Wales
The main source of English law is the Wills Act
1837. Probate, as with the law of family
settlements (trusts), was handled by the Court of
Chancery. When that court was abolished in 1873,
their jurisdiction passed to the Chancery Division of
the High Court.
Definition
When someone dies, the term "probate" usually
refers to the legal process whereby the deceased's
assets are collected together and, following various
legal and fiscal steps and processes, eventually
distributed to the beneficiaries of the estate.
Technically the term has a particular legal
meaning, but it is generally used within the English
legal profession as a term to cover all procedures
concerned with the administration of a deceased
person's estate. As a legal discipline the subject is
vast and it is only possible in an article such as this
to cover the most common situations, but even that
only scratches the surface.
Jurisdiction
All legal procedures concerned with probate (as defined above) come within the
jurisdiction of the Chancery Division of the High Court of Justice by virtue of Section 25
of the Senior Courts Act 1981.
The High Court is, therefore, the only body able to issue documents that confer on
someone the ability to deal with a deceased person's estate—close bank accounts or
sell property. It is the production and issuing of these documents, known collectively as
grants of representation, that is the primary function of the Probate Registries, which are
part of the High Court, which the general public and probate professionals alike apply to
for grants of representation.
Page 87 of 190

Grants of Representation
There are many different types of grants of representation, each one designed to cover
a particular circumstance. The most common cover the two most common situations—
either the deceased died leaving a valid will or they did not. If someone left a valid will, it
is more than likely that the grant is a grant of probate. If there was no will, the grant
required is likely to be a grant of administration. There are many other grants that can
be required in certain circumstances, and many have technical Latin names, but the
general public is most likely to encounter grants of probate or administration. If an
estate has a value of less than £5,000.00 or if all assets are held jointly and therefore
pass by survivorship, for example to a surviving spouse, a grant is not usually required.
Applying for a Grant
A will includes the appointment of Executor(s). One of their duties is to apply to the
Probate Division of the High Court for a Grant of Probate. An Executor can apply to a
local probate registry for a grant themselves but most people use a probate practitioner
such as a solicitor. If an estate is small, some banks and building societies allow the
deceased's immediate family to close accounts without a grant, but there usually must
be less than about £15,000 in the account for this to be permitted.
Asset Distribution
The persons who are actually given the job of dealing with the deceased's assets are
called "personal representatives" or "PRs". If the deceased left a valid will, the PRs are
the "executors" appointed by the will—"I appoint X and Y to be my executors etc." If
there is no will or if the will does not contain a valid appointment of executors (for
example if they are all dead) then the PRs are called "administrators". So, executors
obtain a grant of probate that permits them to deal with the estate and administrators
obtain a grant of administration that lets them do the same. Apart from that distinction,
the function of executors and administrators is exactly the same.
Probate Requirements
A requirement of the Probate process is the valuation of the Estate.
Intestacy Probate Process
For an explanation of the intestacy probate process in England and Wales, see
Administration of an estate on death.
Contesting the Circumstances of a Will's Creation
An applicant may challenge the validity of a person's will after they have died by lodging
a Caveat and requisite fee at the probate registry. This prevents anyone from obtaining
a grant of probate for that person's estate for six months, which the applicant can shortly
Page 88 of 190

efore that point apply to extend. A caveat is not be used to extend the time for bringing
a claim for financial provision from a person's estate, such as under the Inheritance
(Provision for Family and Dependants) Act 1975. The court can order costs against an
applicant using a caveat for that purpose.
To challenge the caveat, the intended executor sends a completed “Warning” form to
the probate registry. This document will be sent to the person who entered the caveat,
and for the caveat to remain, they will have to enter an Appearance at the probate
registry. This is not a physical appearance; it is a further document to send to the
probate registry within eight days of receiving the warning.
Scotland
The equivalent to probate in Scotland is confirmation, although there are considerable
differences between the two systems because of the separate Scottish legal system.
Appointment as an executor does not in itself give confer authority to ingather and
distribute the estate of the deceased; the executor(s) must make an application to the
sheriff court for a grant of confirmation. This is a court order authorizing them to "uplift,
receive, administer and dispose of the estate and to act in the office of executor". A
grant of confirmation gives the executor(s) authority to uplift money or other property
belonging to a deceased person (e.g. from a bank), and to administer and distribute it
according to either the deceased's will or the law on intestacy.
Page 89 of 190

United States
Most estates in the United States include property that is subject to probate
proceedings. If the property of an estate is not automatically devised to a surviving
spouse or heir through principles of joint ownership or survivorship, or otherwise by
operation of law, and was not transferred to a trust during the decedent's lifetime, it is
generally necessary to "probate the estate", whether or not the decedent had a valid
will. For example, life insurance and retirement accounts with properly completed
beneficiary designations should avoid probate, as will most bank accounts titled jointly
or made payable on death.
Some states have procedures that allow for the transfer of assets from small estates
through affidavit or through a simplified probate process. For example, California has a
“Small Estate Summary Procedure” to allow the summary transfer of a decedent's asset
without a formal Probate proceeding. The dollar limit by which the Small Estate
procedure can be effectuated is $150,000.
For estates that do not qualify for simplified proceedings, a court having jurisdiction of
the decedent's estate (a probate court) supervises the probate process to ensure
administration and disposition of the decedent's property is conducted in accord with the
law of that jurisdiction, and in a manner consistent with decedent's intent as manifested
in his will. Distribution of certain estate assets may require selling assets, including real
estate.
Avoiding Probate
Some of the decedent's property may never enter probate because it passes to another
person contractually, such as the death proceeds of an insurance policy insuring the
decedent or bank or retirement account that names a beneficiary or is owned as
"payable on death", and property (sometimes a bank or brokerage account) legally held
as "jointly owned with right of survivorship".
Property held in a revocable or irrevocable trust created during the grantor's lifetime
also avoids probate. In these cases in the U.S. no court action is involved and the
property is distributed privately, subject to estate taxes.
The best way to determine which assets are probate assets (requiring administration) is
to determine whether each asset passes outside of probate.
In jurisdictions in the U.S. that recognize a married couple's property as tenancy by the
entireties, if a spouse (or partner in Hawaii) dies intestate (owning property without a
will), the portion of his/her estate so titled passes to a surviving spouse without a
probate.
Page 90 of 190

Steps of Probate
If the decedent dies without a will, known as intestacy, the estate is distributed
according to the laws of the state where the decedent resided.
If the decedent died with a will, the will usually names an executor (personal
representative), who carries out the instructions laid out in the will. The executor
marshals the decedent's assets. If there is no will, or if the will does not name an
executor, the probate court can appoint one. Traditionally, the representative of an
intestate estate is called an administrator. If the decedent died with a will, but only a
copy of the will can be located, many states allow the copy to be probated, subject to
the rebuttable presumption that the testator destroyed the will before death.
In some cases, where the
person named as executor
cannot administer the
probate, or wishes to have
someone else do so,
another person is named
administrator. An executor
or an administrator may
receive compensation for
his service. Additionally,
beneficiaries of an estate
may be able to remove the
appointed executor if he or
she is not capable of
properly fulfilling his or her
duties.
The representative of a testate estate who is someone other than the executor named
in the will is an administrator with the will annexed, or administrator c.t.a. (from the Latin
cum testamento annexo.) The generic term for executors or administrators is personal
representative.
The probate court may require that the executor provide a fidelity bond, an insurance
policy in favor of the estate to protect against possible abuse by the executor.
After opening the probate case with the court, the personal representative inventories
and collects the decedent's property. Next, he pays any debts and taxes, including
estate tax in the United States, if the estate is taxable at the federal or state level.
Finally, he distributes the remaining property to the beneficiaries, either as instructed in
the will, or under the intestacy laws of the state.
A party may challenge any aspect of the probate administration, such as a direct
challenge to the validity of the will, known as a will contest, a challenge to the status of
Page 91 of 190

the person serving as personal representative, a challenge as to the identity of the
heirs, and a challenge to whether the personal representative is properly administering
the estate. Issues of paternity can be disputed among the potential heirs in intestate
estates, especially with the advent of inexpensive DNA profiling techniques. In some
situations, however, even biological heirs can be denied their inheritance rights, while
non-biological heirs can be granted inheritance rights.
The personal representative must understand and abide by the fiduciary duties, such as
a duty to keep money in interest bearing account and to treat all beneficiaries equally.
Not complying with the fiduciary duties may allow interested persons to petition for the
removal of the personal representative and hold the personal representative liable for
any harm to the estate.
Page 92 of 190

VII. References
1. https://en.wikipedia.org/wiki/Inheritance
2. https://en.wikipedia.org/wiki/Inheritance_tax
3. https://en.wikipedia.org/wiki/Will_and_testament
4. https://en.wikipedia.org/wiki/Trust_law
5. https://en.wikipedia.org/wiki/Estate_(law)
6. https://en.wikipedia.org/wiki/Estate_planning
7. https://en.wikipedia.org/wiki/Probate
8. www.monmouthcountyparks.com/Documents/14/
9. https://www.legalzoom.com/pdf/estate-planning-guide.pdf
10. https://www.irs.gov/pub/irs-tege/eotopica03.pdf
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Attachment A
A Citizen’s Guide to Wills,
Trusts and Estates
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Attachment B
Trusts: Common Law
and IRC 501(c)(3) and 4947
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Attachment C
The Basics of Estate Planning
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Advocacy Foundation Publishers
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The e-Advocate Monthly Review
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The Ripple Effects of Ministry TLFA - September 2022
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The e-Advocate Quarterly
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The e-Advocate Journal
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Legal Missions International
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The e-Advocate Juvenile Justice Report
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Vol. I – Juvenile Delinquency in The US
Vol. II. – The Prison Industrial Complex
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The e-Advocate Newsletter
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25% of the World's Inmates Are In the US
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The Federal Bureau of Prisons
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The Sixth Amendment Project
The Eighth Amendment Project
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2015 - US Constitutional Issues In The New Millennium
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The Theological Foundations of US Law & Government
The Economic Consequences of Legal Decision-Making
The Juvenile Justice Legislative Reform Initiative
The EB-5 International Investors Initiative
2017 - Organizational Development
The Board of Directors
The Inner Circle
Staff & Management
Succession Planning
Bonus #1 The Budget
Bonus #2 Data-Driven Resource Allocation
2018 - Sustainability
The Data-Driven Resource Allocation Process
The Quality Assurance Initiative
The Advocacy Foundation Endowments Initiative
The Community Engagement Strategy
2019 - Collaboration
Critical Thinking for Transformative Justice
International Labor Relations
Immigration
God's Will & The 21st Century Democratic Process
The Community Engagement Strategy
The 21st Century Charter Schools Initiative
2020 - Community Engagement
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Extras
The Nonprofit Advisors Group Newsletters
The 501(c)(3) Acquisition Process
The Board of Directors
The Gladiator Mentality
Strategic Planning
Fundraising
501(c)(3) Reinstatements
The Collaborative US/ International Newsletters
How You Think Is Everything
The Reciprocal Nature of Business Relationships
Accelerate Your Professional Development
The Competitive Nature of Grant Writing
Assessing The Risks
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About The Author
John C (Jack) Johnson III
Founder & CEO – The Advocacy Foundation, Inc.
________
Jack was educated at Temple University, in Philadelphia, Pennsylvania and Rutgers
Law School, in Camden, New Jersey. In 1999, he moved to Atlanta, Georgia to pursue
greater opportunities to provide Advocacy and Preventive Programmatic services for atrisk/
at-promise young persons, their families, and Justice Professionals embedded in the
Juvenile Justice process in order to help facilitate its transcendence into the 21 st Century.
There, along with a small group of community and faith-based professionals, “The Advocacy Foundation, Inc." was conceived
and developed over roughly a thirteen year period, originally chartered as a Juvenile Delinquency Prevention and Educational
Support Services organization consisting of Mentoring, Tutoring, Counseling, Character Development, Community Change
Management, Practitioner Re-Education & Training, and a host of related components.
The Foundation’s Overarching Mission is “To help Individuals, Organizations, & Communities Achieve Their Full Potential”, by
implementing a wide array of evidence-based proactive multi-disciplinary "Restorative & Transformative Justice" programs &
projects currently throughout the northeast, southeast, and western international-waters regions, providing prevention and support
services to at-risk/ at-promise youth, to young adults, to their families, and to Social Service, Justice and Mental
Health professionals” in each jurisdiction served. The Foundation has since relocated its headquarters to Philadelphia,
Pennsylvania, and been expanded to include a three-tier mission.
In addition to his work with the Foundation, Jack also served as an Adjunct Professor of Law & Business at National-Louis
University of Atlanta (where he taught Political Science, Business & Legal Ethics, Labor & Employment Relations, and Critical
Thinking courses to undergraduate and graduate level students). Jack has also served as Board President for a host of wellestablished
and up & coming nonprofit organizations throughout the region, including “Visions Unlimited Community
Development Systems, Inc.”, a multi-million dollar, award-winning, Violence Prevention and Gang Intervention Social Service
organization in Atlanta, as well as Vice-Chair of the Georgia/ Metropolitan Atlanta Violence Prevention Partnership, a state-wide
300 organizational member violence prevention group led by the Morehouse School of Medicine, Emory University and The
Original, Atlanta-Based, Martin Luther King Center.
Attorney Johnson’s prior accomplishments include a wide-array of Professional Legal practice areas, including Private Firm,
Corporate and Government postings, just about all of which yielded significant professional awards & accolades, the history and
chronology of which are available for review online at LinkedIn.com. Throughout his career, Jack has served a wide variety of
for-profit corporations, law firms, and nonprofit organizations as Board Chairman, Secretary, Associate, and General Counsel
since 1990.
www.Advocacy.Foundation
Clayton County Youth Services Partnership, Inc. – Chair; Georgia Violence Prevention Partnership, Inc – Vice Chair; Fayette
County NAACP - Legal Redress Committee Chairman; Clayton County Fatherhood Initiative Partnership – Principal
Investigator; Morehouse School of Medicine School of Community Health Feasibility Study Steering Committee; Atlanta
Violence Prevention Capacity Building Project Partner; Clayton County Minister’s Conference, President 2006-2007; Liberty In
Life Ministries, Inc. Board Secretary; Young Adults Talk, Inc. Board of Directors; ROYAL, Inc Board of Directors; Temple
University Alumni Association; Rutgers Law School Alumni Association; Sertoma International; Our Common Welfare Board of
Directors President 2003-2005; River’s Edge Elementary School PTA (Co-President); Summerhill Community Ministries
(Winter Sports Athletic Director); Outstanding Young Men of America; Employee of the Year; Academic All-American -
Basketball; Church Trustee; Church Diaconate Ministry (Walking Deacon); Pennsylvania Commission on Crime & Delinquency
(Nominee).
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www.Advocacy.Foundation
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