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2. Methods of transfer at death


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An orderly procedure for submission and payment of creditors' claims that bars claims if not filed within a specified period
Surviving spouse's elective share
Permits the surviving spouse to receive a specified portion of the decedent spouse's estate in lieu of property left to the spouse under the decedent spouse's will

If elected, the specified statutory share supersedes the provisions of the decedent's will (it is sometimes called an election against the will), and other beneficiaries will receive smaller shares.
Simultaneous death
States the presumed order of death when it cannot be conclusively determined; the order of death may give property to a contingent rather than primary beneficiary and may affect shares in the will because of the effect on death taxes

Again, the will can state which order of death will be presumed, and it will supersede the state statute.
means of documenting title to property of the decedent and the transfer of such title
Minimizes the time required to transfer the decedent's property to beneficiaries
A means of proving the validity of the decedent's will
Holographic and/or nuncupative will
These laws, in states where they exist, recognize handwritten and oral wills, respectively.

Supersedes the intestate succession statute for property mentioned in such wills
After-born child
Gives a child born after the execution of the decedent's will a right to the amount that the child would have inherited under the intestate succession statute

These laws apply unless there is clear proof that the omission was intentional, that the decedent provided for the omitted child outside of the will, or that the decedent left a sufficient amount to the omitted child's other parent to adequately care for such child.
Provides a person or persons with the necessary authority to collect and distribute the decedent's assets on behalf of the estate
Homestead, exempt property, and family allowance
Distributes certain property of the general estate to the decedent's spouse and children prior to the application of either the decedent's will or the intestate succession statute

The property is not subject to the claims of the creditors of the estate
Provides for administration of the estate without publicity
1. The two methods of probate transfer are:
the laws of intestate succession
Provides for orderly distribution and transfer of the decedent's property to beneficiaries
2. Generally, only some of a decedent's property will be subject to probate. Check the appropriate column in the table below to indicate whether each property interest must go through probate

Life insurance proceeds made payable to the deceden
Not Subject to Probate
Provides systematic administration (inventory, appraisal, and accounting) of the decedent's estate
Specifies the percentage of the decedent's net estate that may not be distributed to charity either by will at death and/or within a certain period immediately prior to death

In the few states where they exist, these laws may thwart a decedent's intentions as expressed in a will
Shares of stock distributed to the decedent's children according to the state intestate succession statute
Required to Go Through Probate
Results in reduced administrative costs and other expenses associated with an estate
Specifies the order in which shares in the decedent's estate will be consumed to satisfy claims of the decedent's creditors

One advantage of a will is that the preferred order can be stated and will supersede the statute.
Real estate devised to the decedent's cousin in the decedent's will
Required to Go Through Probate
Provides notice of the decedent's death and estate proceedings to all interested parties so they may be barred from further challenge if they fail to respond in a timely fashion
Cash in a savings account that was held in joint tenancy with right of survivorship with the decedent's mother
Not Subject to Probate
Judicial supervision and approval minimizes the possibility of future claims against the estate by heirs and creditors
An automobile that is community property given to the surviving spouse in the decedent's will
Required to Go Through Probate
4. The four primary objectives of probate are as follows
to transfer a decedent's wealth to other persons or entities in an orderly manner
to care for a surviving spouse and dependent children, if any
to give valid creditors of the decedent or the estate a method by which they can be paid
to provide a procedure for the collection of taxes owed by the decedent or the estate
Ademption and partial ademption
Clarifies how the beneficiary of a specific bequest is to be treated if the property bequeathed is no longer available or has diminished in value

Could lead to a redistribution of other bequests to satisfy a specific bequest
6. Describe the following types of statutes and how each may affect estate distribution

Type of Statute
Dower and curtesy

Effect on estate distribution:
Common law rights of the surviving spouse (of a widow and widower, respectively) in real property

In states where such rights still exist, the surviving spouse has a life estate in all or a portion of the decedent spouse's real property, which may be in addition to rights under the law of inheritance (intestate succession law) or an option in lieu of such inheritance rights.
Declares whether the taxes to be paid will be apportioned pro rata among all shares or will be paid from the residuary share only

Express language in the will can declare which shares will pay the taxes and supersede the state statute.
3. Though each state has its own set of probate laws, the characteristics of the probate procedure are the same in all 50 states. Place a check mark in the appropriate column to indicate whether each item is or is not a characteristic of the probate proc
Intestate succession
Specifies to whom property that is part of the probate estate will pass if it does not pass by will substitute, by operation of any other law, or by the decedent's will

Property will usually go either all to the surviving spouse or to the surviving spouse and lineal descendants depending on circumstances; no property goes to friends or charities; property may escheat to the state if no recognized heirs.
7. Describe how each of the following circumstances might affect a client's estate distribution

Execution of a qualified disclaimer
Property that was left to one beneficiary will be distributed to another beneficiary; the specific requirements of a qualified disclaimer are contained in state statute and IRC Section 2518
Death of a beneficiary before the testator's death
If there is a contingent beneficiary, the property will be distributed to that person; if not, and there is a residuary clause, it will be distributed to the residuary beneficiary. Otherwise, this situation will result in partial intestacy
Existence of a valid nuptial agreement
Obligations and benefits agreed to by the decedent in this document regarding ownership and claims upon property of the other spouse are binding on the estate and its beneficiaries; where there is a disagreement between the will and the agreement, the agreement will prevail.
8. Check the appropriate column in the table below to indicate the state in which real and personal property must be probated when more than one residence or locality is involved
Real property -- state in which it is located

Personel property---State in which deceased is domiciled
9. The terms below are basic to understanding estate transfers and probate. Match each term with the most appropriate description by placing the term in the blank to the left of the description.

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

choose to have property go through probate
fairness to interested parties
orderly administration of estate assets; court supervision to see that the decedent's desires are carried out
greater protection from estate creditors ("cut-off period" for creditors)
possible income tax savings
choose to use a will substitute to avoid probate
avoids the time delays associated with probate
offers the property owner a greater degree of control or flexibility and avoids the inherent complexity of probate
may transfer the decedent's interest to someone other than the surviving spouse without the possibility of spousal election to take against the will or filing a will contest (however, this may not necessarily be true in a UPC state that has adopted the concept of the augmented estate)
often a quicker, more convenient means of creating an estate plan than drafting a will
greater privacy
11. Tony Shaw and his wife, Grace, have an estate valued at $2.5 million. They recently moved from a large city to a rural home and are looking forward to retirement. They are very private people. Several years ago, Tony invested in an oil and gas drilli
Since the two children who are natural beneficiaries of Tony's estate are excluded from his will, one or more will contests may arise. Probate court ensures fairness to all parties by providing an unbiased forum for adjudicating such a claim.
Probate provides for the orderly administration of assets.
The ability to have creditors file claims within a statutory period after death affords Tony some protection against untimely and unwarranted claims.
Identify the disadvantages for Tony in having his estate probated.
Tony wants to minimize the cost of transferring property, but probate will not do this.
The probate process may cause delay in transfer.
The Shaws are private people, but probate is a public process
Identify the disadvantages for George in having his estate probated
Because most assets are solely in George's name, it is likely that Mary will experience a severe drop in income at George's death. The length of the probate process could compound this problem, absent a family allowance statute that pays Mary enough to live on during the period of administration.
If the disinherited son does bring a will contest, it will be a public matter since probate is a public process.
The cost of probate will diminish the estate. Mary needs all the money she can get.
13. The four requirements for a valid will are as follows
the testator must meet the minimum age;
the testator must have testamentary capacity;
the will must be in an acceptable form; and
the will must be executed in the proper manner by the testator and, if required, witnesses and/or a notary public
12. George and Mary Finkbine have a combined estate of $1,000,000, with most assets in George's name alone. Their wills leave everything to the survivor, and upon the death of the survivor, everything is left to their only child. George left nothing in h
Since a will contest from the disinherited son is a distinct possibility, the probate court may become involved in any event; the probate court is an unbiased forum for adjudicating such a claim.
George's profession is one that would subject him to possible civil claims. Therefore, the relatively short claim period for creditors in the probate process would be a distinct advantage.
Because of the statutory time limits on creditor claims against the estate, a beneficiary of George's estate can be certain that a creditor will not demand payment after the beneficiary has received estate assets
14. The three elements of testamentary capacity are as follows
an understanding of the general nature of a will;
an understanding of the general nature and the extent of property owned; and
an understanding of the persons who are the natural objects of a person's bounty (i.e., a person's family).
15. Define the three forms of wills
holographic will
a will written in the testator's own handwriting

nuncupative will
an oral will

typewritten or witnessed will
a will prepared by an attorney
The process of probate makes more sense when the objectives of probate are kept in mind. These objectives are:
(1) distributing the decedentÂ’s property according to applicable provisions in a will (subject to the caveat discussed later in this module that a surviving spouse, and in some cases, surviving dependents, must be provided for) or state laws of intestate succession, (2) paying the legitimate claims of creditors, and (3) collecting taxes
16. Define the four types of wills
two wills in which each maker names the other as beneficiary

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

a single will by one testator

a single will executed by two or more parties as their will
fiduciary powers clause
to grant and/or limit the powers given to the executor (and trustee, if any) that are different from those granted by state statute and to protect the executor against suit by other beneficiaries by specifically granting authority
Will Clauses and Purposes

testamonium clause
to establish that the document is intended to be the testator's last will, that the formal statutory signature requirement has been met, and the date of signing
self-proving clause
to allow the will to be admitted to probate without requiring that the witnesses appear at a hearing of the probate court
tangible personal property clause:
to establish who will receive legacies of specific personal property and under what conditions
The word probate comes from a Latin word
that means to prove
This person or entity is generically referred to as a personal representative (PR) since he or she is the representative of the decedent. Some states still
use the terms executor (male) and executrix (female), especially in the situation in which the decedent has left a will. The terms administrator (male) and administratrix (female) are also interchangeable terms for a PR in an intestacy situation
Probate has requirements that must be met within certain time frames, and a judge oversees the process to make sure that all the bases are cover
The assets of the estate must be gathered and secured, and oftentimes an inventory must be filed. Notices to creditors have to be mailed and published. Valid debts, expenses, and taxes must be paid. Finally, the remaining estate assets must be distributed
Distribution of estate assets to beneficiaries usually does not occur until the very end of the probate process
. Payment of valid debts and taxes is given priority over such distributions, and the PR can be held personally liable for at least the estate taxes if distribution to beneficiaries is made prior to payment. Therefore, the PR is usually adamant that distribution of estate assets be the final act in administering the estate
A nuncupative will
these wills, even where allowed, are often limited by one or more of the following factors:
· By Dollar Amount. Only property up to a certain dollar amount may be transferred by a nuncupative will.
· By Type of Property. A nuncupative will may be used only to transfer tangible personal property.
· By Occupation of the Testator. For example, many states allow a nuncupative will to be made only by persons in the military or by mariners at sea.
18. Explain the rationale for including a simultaneous death (or survivorship) provision in a will.
The reason for including a survivorship provision in a will is to determine (in cases where there is no clear evidence) in what order the testator and/or beneficiaries died. The order of death can be important in allocating the marital deduction between spouses or in deciding whether the primary or contingent beneficiary receives the property
20. Focusing only on transfer tax implications, explain why the use of joint and/or mutual wills often is inadvisable.

Two reasons that joint and/or mutual wills may be inadvisable are as follows:
A contract to leave property to specific individuals other than the surviving spouse may be found when the surviving spouse dies. This eliminates the survivor's right of disposition over property bequeathed to him or her, which makes the interest a terminable interest and eliminates a marital deduction at the first spouse's death.
When one spouse dies, the surviving spouse may be found to have made a gift to the beneficiaries of a remainder interest in all of the property in which he or she was given a life estate under the joint will
What must be proved in a probate proceeding? If the decedent left a will, it must be proved that the will is the valid last will and testament of the decedent. Thus, the person or persons presenting the will must prove the following:
· that the testator intended the document presented to be his or her will,
· that the testator is deceased,
· that the document presented is the testator's last will and has not been revoked, and
· that the will was properly executed and was valid in the state in which it was executed.
The rule for deciding where a probate proceeding must be commenced is as follows:
personal property is probated in the state of the decedent's domicile, while real property must be probated in the state where the real estate is located.
probate is exclusively controlled by state law, whether the advantages outweigh the disadvantages or vice versa may vary from state to state
The advantages and disadvantages may also vary for decedents within a single state due to different circumstances
Attorney's fees are merely the tip of the iceberg, however. Appraisers must also be employed—for tax purposes, if for no other reason. Accountants or certified public accountants are often employed to prepare tax returns. Auctioneers may be hired if estate assets must be sold because of inadequate liquidity
The will maker—called a
a testator (if male) and a testatrix (if female)—must also have testamentary capacity
By Health of the Testator
. For example, some states allow only persons who are in imminent peril of dying to make a nuncupative will
19. Explain why, in most states, a surviving spouse cannot be totally disinherited
A surviving spouse normally cannot be totally disinherited in a common law state because he or she has the right to a specific share (elective share) of the decedent's property, regardless of the will provisions. A surviving spouse normally cannot be totally disinherited in a community property state either, because of the nature of community property, which does not require a spouseÂ’s name to be on the property title for him or her to have an ownership interest in it.
Most states have laws that allow these matters, in the vast majority of cases, to be proved by affidavit
a written statement made under oath)
If a probate proceeding must be conducted in a state other than a decedent's state of domicile, this additional proceeding is referred to as an
ancillary probate
21. Explain why it may or may not be appropriate to state within a will the reasons for disinheriting a child
It may be appropriate to state the reasons for disinheriting a child in a will to discourage charges of fraud, undue influence, or lack of testamentary capacity. A less divisive alternative is to make only a minimal or nominal bequest and thereby avoid the argument that the child was inadvertently left out of the will
22. Explain why it is best to name contingent guardians, conservators, and personal representatives in a will.
Contingent guardians, conservators, or personal representatives should be named in a will because if the primary guardian, conservator, or personal representative predeceases the will maker, a special court hearing must be held to name someone else; such a hearing can be avoided if a contingent individual is named, and the testator can be assured that his wishes will be carried out to the fullest extent possible
23. Explain why it may be appropriate for a client to make a lifetime disposition of real estate that is located in a state outside the state of domicile rather than retaining it.
A lifetime disposition of real estate that a client solely owns in another state avoids the unnecessary expense of ancillary probate of real estate in a state outside the client's state of domicile
24. Explain why it is appropriate to include a residuary clause in a will if the will does not have one
A residuary clause names a beneficiary for all probate property that is not specifically disposed of by other will provisions, thus avoiding the possibility of partial intestacy upon the client's death
25. Tennyson Thorndike is a philanthropist with an estimated gross estate of $30 million. Tennyson has previously been married three times, and each of his wives has predeceased him. He has three children, one from each of his marriages. After the death
The following aspects of Tennyson's situation may indicate a need to amend the will:

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

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

2–1 Identify property interests that must go through probate, the objectives and characteristics of the probate process, the duties and activities of a personal representative, and common laws and circumstances that may affect estate
They should write separate wills (one for Edward and one for Mamie). Joint and mutual wills run the risk of being held to constitute contracts, which can have gift tax consequences for the surviving spouse and could result in a potential loss of the marital deduction for the estate of the first spouse to die.
They should include survivorship provisions in the event of simultaneous death. The possibility of simultaneous death should always be contemplated and provided for in a will; if no provision is made, property may be needlessly subjected to two probate proceedings.
They should make a lifetime transfer of real estate located in nondomiciliary states, or place such real estate in a will substitute form. This action will prevent the need for ancillary probate proceedings in these jurisdictions and would avoid the resulting increased probate costs.
28. Clifford Renslow is planning to have his will revised. Clifford's existing will contains the following provisions:

"I hereby disinherit my son, Phillip. He will not receive any bequests, devises, or inheritances from my estate."
Clifford should include a reason why he is disinheriting his son Phillip to avoid the risk of a will contest after Clifford's death.
Clifford should remove the precatory language concerning the coin collection, as such language may be ignored and the coin collection could go to someone else; the bequest to the nephew should be made mandatory.
Clifford should provide a substitute bequest for Jan; this action is necessary only if Clifford still wants Jan to receive something from his estate.
Clifford should eliminate the bequest to Bruce. Since his threat has become known, the bequest will probably be challenged on the grounds that Bruce exerted undue influence; elimination of the bequest will prevent this expense and delay
30. Identify the factors that will usually determine the share of a surviving spouse under a state's intestate succession statutes
whether the decedent has surviving descendants
whether the decedent's surviving descendants are also descendants of the surviving spouse
whether the surviving spouse has surviving descendants that are not also descendants of the decedent
32. The terms below are basic to understanding will substitutes. Match each term with the most appropriate description by placing the term in the blank to the left of the description.


beneficiary designation
right of su

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

deeds of title
legal requirements for execution of a valid deed must be satisfied; deed must pass present interest to grantee during grantor's lifetime to avoid testamentary formalities; unconditional delivery of deed to escrow agent (with possession of property delayed until grantor's death) may be permitted in some states; irrevocable unless the power to revoke is expressly reserved in the deed
joint tenancy with right of survivorship in real or personal property
survivorship rights provide for direct disposition to surviving tenant(s) at one tenant's death by operation of law; manner of and presumption as to creation determined by state law; taxed according to federal tax code
joint tenancy bank accounts
survivorship rights; three types of joint accounts—most common is the revocable account (each joint tenant can make deposits and withdraw funds without consent of other tenant); present interest in all account funds; vests upon creation by signature card
payable on death (P.O.D.) accounts
depositing of funds for benefit of another, payable on death of original depositor; depositor has complete control over funds; not allowed by all states; guardianship problem when account is established for minor child
Totten trusts
a revocable trust in a bank account in which depositor is named trustee for another's benefit; not permitted in some states; depositor retains right of withdrawal until death; when depositor dies, balance in account passes to beneficiary, who has no rights until depositor dies
provisions in a contract taking effect at the individual's death
for the provision to be effective, the individual must have a lifetime enforceable right to performance of the contract provision; most common example is life insurance beneficiary designation
government savings bonds
co-ownership issued in one of two forms—(1) to alternative payees ("A or B"), where the survivor becomes sole owner upon death of other payee; or (2) in beneficiary format ("A payable on death to B"), where the primary payee reserves the right to control disposition and B becomes the sole owner upon the death of A (but not vice versa
revocable living trusts
most popular will substitute; trust must be funded during grantor's lifetime to avoid probate at death; gives equitable interests in beneficiaries at time of creation, although they may be revoked or altered later
transfer on death (T.O.D.) designations
revocable titling of individual securities or a securities account in the owner's name but transferable on death of the owner to the designated beneficiary; owner has complete control over securities until death; not allowed in all states
irrevocable living trusts
trust must be funded during grantorÂ’s lifetime to avoid probate at death; vests equitable title in beneficiaries at time of creation
34. Keith Everett, a single individual, has just purchased $50,000 of Series HH U.S. savings bonds. He has designated on the bonds that they are to be payable on his death to his niece, Sharon.

Identify the advantages for Keith in titling the
Keith retains control over the disposition of bond proceeds during his lifetime.
The bonds avoid probate at Keith's death.
There are no gift tax consequences upon creation because the transfer is revocable, and therefore it is an incomplete gift
Identify the disadvantages for Keith in using the U.S. savings bonds as an attempted will substitute
The bonds are included in Keith's estate.
There are no disposition rights at death to anyone other than Sharon
35. Kenneth Stafford owns a tract of farmland that he wants to transfer at death to his son, Stanley. He wants to avoid probate on the transfer. Kenneth has executed a deed conveying title to Stanley and has delivered the deed to a title company with dir
possible valid will substitute: avoids probate if it is determined that title passes when the deed is delivered to an escrow agent (the title company) with only possession of the property postponed until Kenneth's death
Identity the disadvantages for Kenneth in using this deed as an attempted will substitute
possible invalid will substitute: will not avoid probate if it is determined that title does not pass when the deed is delivered to an escrow agent (the title company); in this event, the property is likely to pass to the beneficiary of Kenneth's residuary estate
36. Scott Carpenter has a gross estate valued at $1,500,000. His estate includes several tracts of income-producing property that he would like to transfer to his son, Samuel. Scott wants to accomplish this transfer without the expense of probate. He doe
a revocable living trust naming Samuel as beneficiary upon Scott's death
Justify your response.
A revocable living trust allows Scott to maintain control over the income-producing tracts and their income (which he currently needs for his own support), while accomplishing the transfer to his son without a will, thereby avoiding the expense of probate.
37. Robert and Cynthia Cannon have a combined gross estate consisting primarily of real estate and cash assets valued at less than $600,000. They have no children. They do not have wills, nor do they intend to have wills written soon. Robert and Cynthia
a joint tenancy between Robert and Cynthia
Justify your response
Robert and Cynthia are in no danger of experiencing the tax problems often associated with joint tenancy (i.e., their combined gross estates are less than one applicable exclusion amount). They do not want to write wills, yet they want all property to pass to the survivor. Joint tenancy with right of survivorship is a simple and relatively inexpensive method that will allow Robert and Cynthia to accomplish their estate planning objectives and at the same time avoid probate expenses. (Note: If allowed in their state, Robert and Cynthia could accomplish the same objectives by titling the property in their names as tenants by the entirety.)
Estate planning goals relating to monetary concerns can be further broken down into nontax and tax-related goals.
Nontax Goals
· Preserve Business Value. While transfer of a person's interest in a business may be achieved by a will, intestacy, or a will substitute, the steps that actually preserve value must be taken by the owner prior to death.
· Maximize Premortem Flexibility. This can be achieved by a will or intestacy, since neither method requires surrender of any control prior to death, and it can also be achieved by any will substitute form that is revocable.
· Maximize Postmortem Flexibility. This can be achieved by a will or intestacy, since neither requires surrender of any control prior to death, thus leaving all assets to be disposed of after death. Because will substitutes pass property outside of probate, these assets will not be available to the estate's personal representative.
· Maximize Benefits for a Surviving Spouse. This can best be achieved by a will or will substitute since a surviving spouse can be given everything; the spouse is likely to get something through intestacy, but it may not include all assets.
· Minimize Nontax Transfer Costs. Due to the cost of probate, this can be achieved only by a will substitute.
· Maintain Satisfactory Standard of Living. Since this goal requires a person to maintain maximum flexibility, it can be achieved only by a will, intestacy, or a revocable will substitute (see the previous section on nonfinancial goals involving flexibility).
· Maintain Premortem Liquidity. This goal, which has more to do with maintaining enough cash or cash equivalent assets than with how assets are transferred, can be most easily accomplished by maintaining total control over such assets and, therefore, can be achieved by a will, intestacy, or a revocable will substitute.
· Maintain Postmortem Liquidity. This goal requires availability of cash or cash equivalent assets after death and, therefore, can be most easily achieved by maintaining total control over such assets prior to death so that they are available after death. Thus, it can be achieved by a will or intestacy.
Example 2–10. Jake placed a T.O.D. designation on all of his stocks naming his brother the beneficiary of these stocks at his death. By using this will substitute, Jake has maximized premortem flexibility, minimized his nontax transfer costs, and has not jeopardized his current standard of living because he has maintained premortem liquidity.
A disadvantage common to nearly all will substitutes is that they require the current
owner to expend funds currently in order to place the property in will substitute form
After these preliminaries, a will is ready to perform the main part of its job—disposing of the decedent's probate property. Since a will is not effective until the death of the testator and its provisions apply only to probate
as a pourover trust). In this instance, the will is called a pourover will because it pours estate assets into the trust
If the will maker does want every person in the class to receive the same amount regardless of his or her degree of relationship, an abbreviated way of indicating this intent is to state that the property is to be given to his or her issue
per capita. This is a Latin phrase meaning "by the head." In such a situation, the personal representative simply "counts the heads" of the members of the class and divides the value of the property by that number to find out how much to give to each member of the class.
The maker's children usually do not like per capita distribution since it gives grandchildren and great-grandchildren the same amount as the children get. Therefore, some distributions to a class may be made
per stirpes (also known as by representation). These Latin words mean "by the root."
Example 2–6. To illustrate this scheme of distribution, assume that the decedent had three children, Mark, Jennifer, and Harold. Further assume that Jennifer predeceased the decedent, leaving one child, and that Harold also predeceased the decedent, leaving two children. With per stirpes distribution, Mark would receive one-third of the property, Jennifer’s child would receive one-third, and Harold’s two children would split the remaining one-third.
Note that while this distribution does not treat everyone equally, it does allow Jennifer's child to receive more than each of Harold's two children. Although all three grandchildren are in the same generation, under per stirpes distribution, beneficiaries take by the root or line in which they happen to be in relation to the decedent. If Jennifer had survived the decedent, she would have received a one-third share that she could have passed on to her child at her death, so this share is given to her child. Similarly, if Harold had survived, he would have received a one-third share that he could have split between his two children when he died. Therefore, his two children are given the shares they would have received by virtue of being in their father's line.
Harold's two children might think it unfair that they each get only half as much as their cousin. A way to avoid this perceived injustice is to make distribution of the property per capita at each generation. In this situation
Jennifer and Harold's one-third shares are combined and distributed equally to the number of heads at the grandchildren's level. Therefore, the three cousins would each get one-third of the two-thirds of the property that would have gone to Jennifer and Harold had they survived the decedent. This distribution scheme gives more to members in generations closer to the decedent but the same amount to persons within the same generation
Joint tenancy bank accounts may be the most widel
used form of will substitute
On various public policy grounds, each state has approved limited methods of transferring property at death that avoid subjecting estate property to the probate process, with all of its advantages and disadvantages
. These methods of estate transfer are collectively referred to as will substitutes
In addition to being accepted as valid by the state, all will substitutes must have one other feature
they must have a method of designating who is to receive the property at the current owner's death. Since probate is not involved, neither the decedent's will nor state intestacy laws can be consulted to answer this question. Property owned in a valid will substitute form is not affected by a will or intestacy laws. Will substitutes name the recipient at death in two ways: (1) by right of survivorship and (2) by beneficiary designation
There are two forms of property ownership that act as will substitutes by using the right of survivorship principle. These are
are joint tenancy with right of survivorship (JTWROS), often referred to simply as joint tenancy, and tenancy by the entirety (TBE). Joint tenancy is a form of co-ownership that can be used by any number of people in virtually every state, while tenancy by the entirety can be used only by spouses in the states where it is recognized. These forms of will substitute are usually effective to transfer both real and personal property of all kinds.
By placing property in these forms of ownership, the owners are deemed to be saying, "When I die, I want my interest in this property to pass equally to the other owner or owners who survive me." For example,
, if the only owners are a husband and wife and the husband dies, the wife will automatically become the sole owner of the property. If there are three joint tenants and one of them dies, the two surviving joint tenants will each receive one-half of the deceased tenant's interest in the property. Since transfer of a decedent's interest to the surviving tenant(s) takes place automatically, without the need for probate, such interests are said to transfer by operation of law.
There are many forms of will substitutes that employ the beneficiary designation principle. Such will substitutes include the following:
· government savings bonds
· payable on death (P.O.D.) accounts
· bank account trusts, commonly known as Totten trusts
· transfer on death (T.O.D.) accounts
· provisions in contracts of all kinds, including a beneficiary designation for pension benefits, IRAs, annutities, and for a life insurance policy; unless specifically stated otherwise, these beneficiary designations are revocable and take effect upon death
· a deed that is unconditionally delivered to an escrow agent to be delivered to the grantee at the grantor's death
· gifts causa mortis
· revocable living trusts
A Totten trust is created when an individual deposits his or her money in a bank or savings account for
for another person's benefit and names himself or herself as trustee of the account. The beneficiary has no right to the trust funds until the depositor dies.
A transfer on death account operates in the same fashion
as a P.O.D. bank account except that a T.O.D. designation is usually limited to the registration of publicly traded securities and debt obligations.
The deed and the will serve separate and distinct functions in the U.S. legal system. A deed is used to pass a
present interest in property, usually real estate, to a grantee during an individual's lifetime. A will is designed to pass all types of property to named beneficiaries at an individual's death
Causa mortis are Latin words meaning
in contemplation of death. A few states allow their citizens to make revocable gifts of personal property if they are in a terminal condition. Since the gifts are revocable if death does not occur as anticipated, these gifts do, in fact, operate as will substitutes using the beneficiary designation principle.
A revocable living trust is a will substitute recognized in all states. In a typical revocable living trust arrangement, the grantor transfer
transfers assets to a trustee but retains the power to revoke the trust at any time. It is important that the trust be funded to avoid probate upon the grantor's death. If the grantor has not revoked the trust prior to his or her death, the assets are distributed to the named beneficiaries under the trust or are held in further trust for the beneficiaries. These assets pass free of any court-directed administration since they are owned by the trust, not the grantor, as long as the grantor did not revoke the trust prior to death.
A revocable trust is effective upon its creation and funding during the grantor's lifetime.
The trust passes a contingent equitable interest in the assets to its beneficiaries before the death of the grantor, even though a vested interest in the assets is not transferred to the beneficiaries until after the grantor's death.
All statements made for revocable living trusts also apply to irrevocable living trusts, with the exception that the grantor has no right to revoke, and therefore trust beneficiaries have a vested, rather than a contingent,
the probate process and the attendant cost, delay, and potential publicity. Every will substitute also has the advantage of allowing the current owner of property to name the person or persons who are to receive the owner's interest at his or her death.

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

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