Make crime pay. Become a lawyer.
Wills, Inheritances, and Trusts
(part C)
by
Charles Lamson
When Administration Is Unnecessary
If an individual owns no property at the time of death, no need for administration exists. Also, all property jointly owned with someone else who acquires the interest by right of survivorship does not require administration.
Some states have special statutes allowing the administration procedures to be shortened for very small estates. In many states all the persons interested in the estate, relatives and creditors, can agree on the share each one is to receive and can divide the estate without formal court proceedings.
Title by Descent
When a person dies intestate (not having made a will before one dies), the property is distributed in accordance with the state law of descent. every state has such a law. Although these laws vary slightly, on the whole they provide as follows: The property of the intestate goes to any children subject to the rights of the surviving spouse. If no spouse, children, or grandchildren survive, the father and mother, as the next of kin, receive the property. If no parents survive, the brothers and sisters become the next of kin, followed by grandparents, aunts and uncles, and so on. Some statues permit any person related by blood to inherit when no nearer relative exists. Other statutes do not permit those beyond first cousins to inherit. In any case, if no proper person to inherit survives, the property passes on to the state.
The administrator conveys title to real estate by means of an administrator's deed. When approved by the court, the grantee obtains good title to the property.
Per Capita and Per Stirpes Distribution
The lineal descendants of a descendant include the children and grandchildren. If all the children were living at the time of an intestate death, and the spouse was dead, the property would be distributed per capita, meaning per head, or equally to the children (see Illustration 1). If one child predeceased the intestate and left two surviving children, then the property would be divided into equal parts on the basis of the number of children the intestate had. The dead child's part would then be divided into two equal parts with one of these parts going to each of the grandchildren. This divides the property per stirpes (see illustration 2.) If the child left no children or other lineal descendants, then the surviving Children of the interstate with the deceased child share.
ILLUSTRATION 1 Per Capita Distribution
ILLUSTRATION 2 Per Stirpes Distribution
Administrators
For the most part the duties and responsibilities of administrators resemble those of executors, with two significant differences. First, in the appointment all of an administrator, some states have a clear order of priority. The surviving spouse has first priority, followed by children, grandchildren, parents, and brothers or sisters. Second, an administrator must in all cases execute a bond guaranteeing the faithful performance of the duties.
The prime duty of administrators is the same as that of executors---to preserve the estate and distribute it to the rightful parties. Administrators must act in good faith, with prudence, and within the powers conferred on them by law. If any part of the estate is a going business, with only a few exceptions the business must be liquidated. However, the administrator may obtain leave of court to continue the business for either a limited time or an indefinite time, depending largely upon the wishes of those entitled to receive the estate. Third parties dealing with administrators, as well as executors, must know of limitations upon their authority.
Trusts
A trust is a form of contract by which one person or entity agrees to hold property for the benefit of another. In an earlier post where we discussed the nature of real property, we examined one way in which ownership of property may be divided between two owners. That post discussed the difference between a life estate, or income interest, and remainder interest in property. This division in ownership separates the total ownership, or the fee simple estate, over time. The life tenant is the first owner, and the holder of the reversion or remainder is the second after the death of the life tenant.
Ownership of property in trust can be described as a division at the same time of two ownership interests---the legal ownership and the beneficial ownership. The legal owner of trust property is the person or entity who holds title to the property and who has the authority to control, or administer, the way in which the property is used. The legal owner of trust property is usually referred to as the trustee. If no trustee is specified, a court will appoint a trustee because there must be a person with title to the property.
The beneficial owner of trust property is entitled to the income, enjoyment, or benefits of the trust property. The beneficial owner is usually referred to as the trust beneficiary. The benefits of the property usually include income generated by property and the right to inhabit or use the property. In older documents, you might encounter the Latin words cestui que trust, meaning beneficiary. Both the trustee and the beneficiary have ownership interests in the property at the same time.
Creation of a Trust
Because a trust is a specific form of contract, the law of contracts generally applies to trusts. Since a contract may be oral or written, a trust may also be oral or written, subject to the Statute of Frauds. Of course, the more valuable the property subject to the trust contract, the more important it is that the trust be written. It is easier both to remember and to enforce the terms of a written trust than those of an oral trust.
The person who creates a trust is known as the grantor. Other words used to describe the grantor include settlor and trustor. A grantor must have the legal capacity to enter into a contract in order to create a trust. Normally, the grand tour gives the trust property to the trustee and instructs the trustee how the property is to be used to benefit the beneficiary.
It is not necessary that the grantor, trustee, and beneficiary all be different persons or entities. However, they cannot all be the same person. That is, property may be given to the grantor, as trustee, to hold for another beneficiary. Or a grantor may give property to another, as trustee, to hold for the benefit of the grantor. The legal and beneficial ownership must be separate; therefore, the trustee and beneficiary must be separate and distinct entities. Otherwise, the grantor has simply given the property to the trustee/beneficiary in fee simple (a permanent and absolute tenure of an estate in land with freedom to dispose of it at will, especially in full fee simple absolute a freehold tenure, which is the main type of land ownership).
Because the trust is a creature of the law of contracts, the grantor has almost limitless ability to place restrictions on or grant options to the trustee and beneficiary as to the use of the trust property. Nonetheless, the trustee must have some identifiable purpose for administering the trust.
Specific Types of Trusts
Several types of trusts are frequently used. These include:
Express Trust
A trust that is created by a grantor clearly establishing a trust, whether oral or written, is sometimes referred to as as an express trust. This designation helps distinguish express trusts from other types of trusts, some of which may be implied. However, no specific words are required to create an express trust. It must just be clear that the grantor intended to create a trust.
Resulting Trust
A resulting trust occurs when one person supplies the purchase price for property, but has title issued in another person's name. This is sometimes called a purchase money trust. The theory of this type of trust is that unless the purchaser intended to make a gift, the one who pays for property should be the one to enjoy it and receive the benefits from it.
Constructive Trust
A constructive trust arises by operation of law when one acquires title to property to which he or she cannot in good conscience retain the beneficial interest. A constructive trust is most often declared by a court in cases of fraud, but also arises in cases of bad faith, duress, coercion, undue influence, mistake, wrongdoing, or any other form of unconscionable conduct. Under these circumstances, a court will declare a constructive trust to prevent a wrongdoer from continuing to take advantage of the other party.
Blind Trust
A blind trust is most commonly used when the grantor, for some reason, does not want to know exactly what is in the trust, but wants to retain the benefit of the property. An example is when a government official with authority to regulate a certain industry gives management of property to a trustee, so that there will be no conflict between the official's personal financial interest and official government duties. Wealthy members of Congress frequently use blind trusts so they will not know exactly what securities they own. Then when they vote on legislation they cannot know whether their vote helps the companies in which they have a personal financial interest.
Testamentary Trust
A testamentary trust is a special form of express trust created by the will of a testator. Even though the trust will not actually be created until the death of the testator, it will become a valid trust at that time. The trustee may, but need not, be the same person or entity as the executor of the will. A trust created by a will is subject to the same rules as other trusts.
Consider, as an example, the will of Heinrich Heine, the famous 19th century German poet. His will included the following provisions for his wife: "I leave all my estate to my wife on the express condition that she remarry. I want at least one person to sincerely grieve my death." Does this language have the effect of placing the entire estate into a trust? Heine died in France, but if his will still had been probated in the present day United States, it is highly unlikely a court would enforce this provision because of the requirement that Heine's widow remarry. Instead, the property would most likely be distributed directly to Heine's widow, outright and free from trust.
*SOURCE: LAW FOR BUSINESS, 15TH ED., 2005, JANET E. ASHCROFT, J.D., PGS. 55-555, 558*
end
|
No comments:
Post a Comment