May 27th Notes

Business Law
May 27, 2010

NEWS
Write a will for extra credit
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Estate Planning

What is Estate Planning?
An individual’s “estate” is any interest the individual has in any personal or real property.
This includes property owned solely by the individual or owned in common with another.

Probate
Property owned by the decedent at the time of death
This property is distributed by the court

Non-Probate
Property that was owned by the decedent at the time of death that passes directly to heirs (or someone else) rather than going through probate


Why make a plan?
Provide for spouse or partner at death
Provide for minor children
Provide for children of a prior relationship
Designate specifically who – person or entity – will have benefit of one’s property
Avoid taxes
Avoid probate


Sources of Law
Primarily statute
In Washington RCW Title 11 is the title governing estate interests
Title 26 governs community property and property of domestic partners
Title 83 governs taxes of estates and gifts
Some common law sources
Appellate decisions
Restatements


Without a plan?
Intestate Succession
If the individual does not provide for property distribution prior to death, the government will decide how to distribute the property.
Decedent is called an intestate
Includes property in a will if there is a lapsed gift
Includes all property if will is invalid

RCW 11.04.015
Priority of distribution


Protection of Families
Homestead exception

Family allowance

In Washington, the protections for the family are set out in RCW 11.54

Escheat
If a person dies without a will and without an heir, the estate will pass to the state.
RCW 11.08.140

What kinds of plan?
Prenuptial agreements
Community property agreements
Life insurance
Wills
Trusts
Health care directives
Powers of attorney

Prenuptial Agreements
An agreement made in anticipation of marriage.
Provide for distribution of property upon dissolution of marriage
Also provide for agreement as to distribution upon death of one spouse

Community Property
One spouse’s share in community property (i.e., one-half) may be gifted by will. 
If an estate is probated, all community property is subject to probate administration.

Life Insurance
Whole life – these policies are both life insurance and an investment (premiums are set at the time of purchase)
Universal life – also are both life insurance and an investment (premiums may vary during the course of policy ownership)
Term life – only insurance
Purchased for a specified term (with renewal option)

Wills
A will is a legal expression of an individual’s wishes as to how his or her property should be distributed when that person dies.
The person making the will is the testator
RCW 11.12 governs the making of wills in Washington

Kinds of Wills
Formal will
Written, signed by the testator, witnessed by two witnesses
Holographic (or informal) will
Usually handwritten by the testator
These are NOT valid in Washington
Nuncupative (or oral) will
These are NOT valid in Washington (however there a limited exceptions)

Requirements of a Will
Legal capacity
Must be an adult (18 in Washington)
Testamentary capacity (of sound mind)
Knowing what property one owns
Knowing who his or her relations are
Knowing what he/she wants to do with the property
Voluntarily act (without undue influence)

Contents of Will
Exordium clause
identifies testator, states his domicile and announces that this is his will
Revocation clause
revokes all prior wills, codicils
Identification of family clause
Dispositive provisions (specific devises)
Minor beneficiary clauses
Testamentary guardian/Trust for minor
Simultaneous death clause

Appointment of personal representative
Statement of powers and duties
Separate writing clause
Attestation clause
Self proof clause

Self Proving Clause
Washington statute provides for a self-proving clause.
Affidavit signed by the witnesses under oath.
This affidavit makes it unnecessary to call the witnesses in the probate proceeding to prove the validity of the will

Execution of Will
One of the few formalities left in law
Must be signed
Must be witnessed by two witnesses
Witnesses must be able to say
They know who the testator is
The testator was competent
The testator was not acting under duress or undue influence
Testator must ask witnesses to witness; they must both be present at the time the will is signed (presence of testator and presence of each other)

Letters of Instructions
Information for the family and personal representative
Preferred funeral arrangements
Location of assets
Location of important papers (including will)
Information about insurance policies and pension plans
List of debts, creditors
Contact information for key people (personal representative, CPA, attorney, heirs)

Codicil
A codicil is an amendment or addition to the will
The same formalities are required for executing a codicil

Revocation
A will can be revoked by
Writing a new will
Physically destroying the old will

Trusts
A trust is an agreement under which money or other assets are held and managed by one person for the benefit of another.
Common benefits include
Providing personal and financial safeguards for the beneficiaries
Postponing or avoiding unnecessary taxes
Establishing a means of controlling property
Meeting social or commercial goals

Trust Terms
Trustor (grantor or settlor) – the person who creates the trust
Trustee – the person or entity who holds legal title of the trust property for the benefit of another
Trust Property (principal, corpus or res) – the property placed in trust by the settlor
Beneficiary – person to benefit from trust
Trust purpose – reason why trust is created

Requirements
To be a valid trust
Settlor must manifest an intention to create it
Trust must have assets (this may include future assets)
Trust must have legal purpose (not against public policy)
Must identify beneficiary
Must be established by written document or by operation of law

Categories of Trusts
Inter vivos or living trusts – created while trustor is alive
Testamentary – created as part of will
Revocable living trusts – trustor retains right to change or terminate the trust
Irrevocable living trusts – trustor gives up right to revoke after creation
Express trusts – intentionally created
Implied trusts – created by operation of law

Rule against Perpetuity
All interests in property must vest within 21 years of the life of someone who is alive at that time of the creation of the interest.
Insures that someone will own the property within a reasonable time
RCW 11.98.130

Termination
Trusts terminate when:
Express terms of trust instrument require termination at a specific time or upon the happening of a specific condition (child reaches age of majority)
Fulfillment of trust purpose
The same person owns both legal and equitable or beneficial title of trust property
Settlor revokes the trust

Probate
Probate is a legal procedure for settling the affairs of a person who has died and overseeing the distribution of the decedent’s property to the rightful beneficiaries.
The process
Collects and protects decedent’s property
Identifies beneficiaries and creditors
Pays all debts, expenses, taxes
Distributes the property of the estate properly

Jurisdiction of the court is triggered by
Filing Petition to Probate a Will (person died testate) or
Petition for Letters of Administration (intestate)
Personal Representative or Administrator is appointed
Court’s continued involvement is to resolve disputes or interpret documents

Duties of Representative
Notify heirs and creditors
Take possession of and inventory estate
Determine fair market value of estate assets
Determine names, locations of heirs
Collect debts owed to the decedent
Represent the estate in any challenges to the will
Complete any pending lawsuits in which the decedent has an interest

Prepare tax returns and pay all estate and income tax
Pay the valid claims of creditors
Sell property – when necessary – to pay debts and taxes
Transfer title to real property and certain personal property
Distribute the remaining assets to the designated heirs
File a Declaration of Completion of Probate

Estate Taxes
One reason for making estate plans is to avoid estate taxes

Health Care Directive
A document that expresses the individual’s desires regarding the withholding or withdrawal of life support measures
A helpful website discussing the issues that should be considered is
www.agingwithdignity.org  
www.atg.wa.gov/DealingWithDeath/default.aspx
www.doh.wa.gov/livingwill/healthcaredirective.htm

Power of Attorney
Three forms
Durable Power of Attorney
Power of Attorney for Health Care Decisions
Power of Attorney


Review for the Final
-2 long essays
    1. Fact pattern in the assignment 3 formation of a business
    -facts of assignment 3, question is using fact scenario below discuss the types of business forms and why each is or is not appropriate for these entrepreneurs?
    -go online, stop after Dan.
        -LLC, Corporation, etc.
        -Can write answer ahead of time and attach it
    2. Fair use question

-some matching questions
    -words that match
    -23 contract terms
    -16 property law terms

-true/false questions
    -agency and employment law

-multiple choice
    -14 taken from book
    -1 business tort

-short answers
    -4 questions
    -3 to 4 sentences
    -contract claims, tort claims, intestate. Employment, contract