I. Introduction: Estate Planning
As the saying goes, nothing is more certain in life than death. As many lawyers are trained, if you know that an event will happen, it is best to prepare for that event in order to put yourself in the best possible situation to take advantage of circumstances when the event occurs. The law’s response to effectively preparing for the ultimate eventuality is known as estate planning. Estate planning, in essence, is the process and procedures performed by an individual to arrange for the transfer of their “estate” in anticipation of death or incapacity (LII, n.d.). An estate refers to all of a person’s assets and property that they have legal title to own; or those assets and property that a person has legal title to own and designates as wanting to transfer. An estate can include physical property, money, intellectual property, and even a person’s legal rights and interests (Spelman and von Herrmann, 2013). The primary importance of estate planning is that it provides one with a significant amount of certainty in determining how their assets will be distributed and who will receive which specific assets, even though you are not present to direct the distribution. While estate planning is extremely important for someone that has numerous assets, it is also tremendously useful for anyone who has only a single asset in his control.
According to the American Bar Association, estate planning provides a number of important benefits (ABA, 2016). One of the most basic benefits is decreasing or eliminating confusion during a very emotional and chaotic situation such as the passing of a loved on. This is especially if death or incapacity occurs suddenly and without warning. To be sure, having an estate plan that has been arranged prior to any emergency can save family members a substantial amount of grief or heartache. Additionally, is can allow the family to focus on more important matters. An estate plan, for example, can provide immediate financial resources and security to surviving family members (ABA, 2016). Similarly, an estate plan can “ease the strain on family” such as those happening as a result of medical or funeral expenses. Another benefit of estate planning is that it allows others, such as your family or business, to know exactly what you wanted done with your assets (ABA, 2016). Consequently, less time will be needed to determine what assets you had, who is entitled to those assets, and how will those assets be transferred to or obtained by the individual or organization designated to receive the benefit. Without such directions, survivors and other related parties may need to spends months, and perhaps several court appearances, to understand and organize one’s affairs.
The two most common means of organizing and drafting an estate plan are through a trust or a will. While trusts and wills generally accomplish the same goals, namely the orderly transfer of one’s assets and property after death or incapacity, they are distinct in the use of different procedures to accomplish their goals. A trust is defined as a fiduciary relationship between a settlor, a trustee, and a beneficiary (Dukeminier & Sitkoff, 2013). The settlor in this relationship, is any person with property or assets, that gives the legal title of their property and assets to a trustee. The trustee has a legal duty to use or manage the settlor’s property and assets for the benefit of the beneficiary. Alternatively, a will is defined as a “drafted document” that provides instructions or directions on who will receive the assets and property of the will maker upon their death or incapacity (Dukeminier & Sitkoff, 2013). In addition, wills generally appoint a legal representative to carry out the documents instructions.
The main difference between a trust and a will, therefore, is found on how one’s assets and property are distributed. With a trust, a trustee, in essence manages the property and assets in the name of the beneficiary. On the other hand, with a will, the property and assets go directly to the beneficiary to use as they see fit.
II. Trusts
A trust, as mentioned, is a relationship between a settlor, trustee, and beneficiary for the benefit of the beneficiary. A trust can go into effect whether the settlor is alive or dead but a trust cannot exist without a trustee. A trustee is any person or organization that a settlor appoints. A trustee must have the capacity to acquire and hold property and the capacity to administer or perform the duties of the trust (Dukeminier & Sitkoff, 2013). A trustee must voluntarily accept the position; however, once the position is accepted a trustee can only leave the positon with the consent of the beneficiary or a court. In the event that a trustee resigns or otherwise fails to carry out the duties of the trust, a court may appoint a trustee to administer the trust.
Generally, the duties of a trustee are to make sure that the property of the trust is maintained, expanded or used for the benefit of the beneficiary. For example, a trustee might be required to ensure that the value of a trust company is maintained. Additionally, a trustee may periodically pay the beneficiary an amount of the company’s profits. As a result of a trustees’ duties, the trustee is expected to uphold all relevant fiduciary duties such as loyalty, prudence, and good faith (Carter, 1998).
A beneficiary can be any person or group of people. Persons, in terms of a trust, can include legal persons such as a corporation, a charity, and even unborn children (Dukeminier & Sitkoff, 2013). The property a trust can accept include “any presently existing property that can be transferred” (Dukeminier & Sitkoff, 2013). Accordingly, the range of items that can be included in the body or “corpus” of a trust is extremely flexible including real, personal, or intangible property. The only exception to this is that items where the interest is not yet in legal existence, such as a debt or the promise of future profits (Dukeminier & Sitkoff, 2013).
In order to create and maintain a trust, four elements must be present. First, there must be a “manifestation of trust intent (Dukeminier & Sitkoff, 2013). This means that a settlor must express an intention to create a trust. While no oral or written documentation of intent is necessary to show intent, at the least there must be a transfer of property to a person with the intention that that person will hold the property for the benefit of someone else. If words are used to show intent without a transfer of property, the words must unambiguously show the intent to create a trust. Second, the trust must be created for a valid purpose. Invalid purposes include for unlawful benefits such as if it involves criminal acts. Third, the must be the transfer to property to a trustee. Lastly, there must be duties for the trustee to perform. Without any duties to person the trust will fail and the title to the trust property will pass to the beneficiary.
III. Wills
A will is a documents drafted by a person that provides instructions on what should be done with their estate upon their death. To be sure, unlike trusts, a will can only go into effect when the person who drafts the will, who is known as the testator, dies (Dukeminier & Sitkoff, 2013). In addition, will can also be used to provide instructions on how you should be treated, as opposed to how your property will be distributed, in the event that you are incapacitated. A living will, for instance, can provide direction on what medical treatments you want to receive, if you suffer from a medical emergency and are unable to communicate your wishes.
A testator can be anyone at least 18 year of age who is of “sound mind”, and is free from the influence of third parties (Dukeminier & Sitkoff, 2013). Sound mind for purposes of understanding a will, refers to having the appropriate mental capacity. In other words, a testator must: be able to understand the extent of their property, be able to understand the nature of the act of creating a will, and exhibit a desire to dispose of the property upon their death. At a minimum, sound mind means that the testator does not suffer from insane delusion or “a false concept of reality” that the testator maintains a belief in despite evidence to the contrary. Second, free from the influence of third parties refers to any abnormal influences on the testator such as being forced into drafting a will as a result of fraud, duress or desires of a family member, friend, business associate, or other third parties that have a relationship with the testator and may potentially receive a benefits as a result of the will.
If a testator complies with the above requirements, they are free to draft a will. However, the testator must exhibit a present intention to make the actual documents they are drafting to be their will. In other words, the document that is claimed to be the will cannot be a fake, must contain the testators signature, and most importantly, must be the same document that the testator originally designated as an expression of his desire for it to be a will.
In order for a will to be valid, a number of formalities must be observed. First, a will must generally be a “writing”, signed by the testator, in the presence of at least two witnesses, and the also signed by the witnesses, who understand that the document that they signed is the testator’s will. Additionally, the witnesses must also have the legal and mental capacity to understand the nature of what they are doing.
The property that a testator can include in a will includes any real, personal or intangible property that the testator has legal title to own. Additionally, if the testator is married, they can also include half of community property that the testator has an ownership interest in, as well as a half of any quasi-community property that belong to them (Featherston, 2014). What constitutes community or quasi-community property is determined by the laws of the particular state that the testator and their spouse reside in at the time.
IV. Conclusion
While no one wants or likes to think about the inevitable circumstances of one’s passing or incapacitation, estate planning provides the tools to consider that eventuality. Indeed, from the perspective of making it as positive a circumstance as possible for one’s survivors including family members, business associations, and even causes that one believes in and supports. On the one hand, a trust, one can appoint a person to manage your assets for the benefit of a designated person or group of people. On the other hand, a will allows you to direct the direct distribution of your assets to surviving family members or others. Both trusts and wills facilitate a smooth, clear, and quick organization of your affairs even when you are not present.
References
American Bar Association (ABA). (2016). 10 things estate planning can do for you: What are the advantages to estate planning? Retrieved from https://www.americanbar.org/groups/public_education/resources/law_issues_for_consumers/estatebenefits.html
Carter, B.G. (1998). Relief for beneficiaries suing for breach of fiduciary duty: Payment of accounting costs before trial. Retrieved from http://openscholarship.wustl.edu/cgi/viewcontent.cgi?article=1545&context=law_lawreview
Dukeminier, J. & Sitkoff, R.H. (2013). Wills, Trusts, and Estates, 9th ed. New York, NY: Wolters Kluwer Law & Business.
Featherston, T.M. (2014). His, her or their property: A primer on the marital property law in the community property states. Retrieved from https://www.baylor.edu/law/faculty/doc.php/205011.pdf
Legal Information Institute (LII). (n.d.). Estate planning. Retrieved from https://www.law.cornell.edu/wex/estate_planning#
Spelman, K. & von Herrmann, S. (2013). Estate planning and copyright. Retrieved from http://www.schiffhardin.com/Templates/media/files/publications/PDF/LAND_v005n03_jan_feb13_estateplanning.pdf
