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474744Business Law and the Legal EnvironmentBusiness Law and the Legal Environment

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Quotes of the Day“BEQUEATH, v.t. To generously give to another that

which can no longer be denied to somebody.”

Ambrose Bierce,American writer,

“Enlarged Devil’s Dictionary”

“If you can make one heap of all your winningsAnd risk it on one turn of pitch-and-toss,

And lose, and start again at your beginningsAnd never breathe a word about your loss....”

Rudyard Kipling,English novelist and poet,

In the poem “If” (ends “you’ll be a man, my son.”)

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Definitions� Estate Planning -- giving away property

after (or in anticipation of) death

i Estate – the legal entity that holds title to assets after the owner dies

t Decedent – the person who died

e Testator – person who has signed a valid will (Testatrix is used for a female)

e Intestate – to die without a will

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More Definitions� Heir – a person who inherits from a

decedent who died intestate (Devisee is the correct term for someone who inherits through a will, though “heir” is often used for either situation.)

i Probate – the process of carrying out the terms of the will

Executor or Executrix – personal representative chosen by the decedent to carry out the will (executrix is female)

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And MORE Definitionsi Administrator or Administratrix –

personal representative appointed by the court to oversee the probate process (administratrix is the female)

t Grantor or Settlor – someone who creates a trust

o Donor – someone who makes a gift or creates a trust

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Purpose of Estate Planninge Estate planning has two primary goals:

• to ensure that property is distributed as the owner desires

• to minimize estate taxes

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Wills� A will is a legal document that disposes

of the testator’s property after death.

s Reasons for Having a Will• Ensure assets are distributed as you wish• Select a representative to oversee estate• Avoid unnecessary expenses• Provide guardians for minor children• To convey any “last words”

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Legal Technicalitiest In most cases, a will must be written,

signed and witnessed.

s In most cases, two witnesses are required.

w A testator unable to sign may direct someone to sign for him. This must also be witnessed.

d A witness may not inherit anything.

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Exceptions� Holographic Will

• Handwritten and signed by the testator, does not have to be witnessed; in about 30 states, this is accepted if the decedent knew (or expected) he was about to die.

d Nuncupative Will• Oral will just before dying; valid if decedent

knows he is dying, and three witnesses are aware that they are hearing a will.

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Distributing Assetse In general, a testator may leave his

assets to anyone he wishes.

However, a spouse is entitled to a “forced share” regardless of the provisions in the will.

e If a person dies without making a valid will, laws of intestacy determine how his assets are distributed.• Intestacy laws vary from state to state, and

usually distribute assets to spouse, parents and issue (children, grandchildren, etc.)

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Distributing Assetse Spouse’s Share

• In community property states, this is half. In other states, it is usually 33% - 50%.

• Under the Uniform Probate Code, the surviving spouse is given the greater of: $50,000 or a percentage (increases with the number of years of the marriage.)

o Children’s Share• Parents are not required to leave assets to

their children. But...• The law presumes that a pretermitted child

(not mentioned in a will) is left out by mistake.

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Per stirpes vs. Per capitaP The will must indicate what method of

dividing assets will be used.• Per stirpes – each branch of the family

receives an equal amount, so if a child dies before the parent, his heirs split his share.

• Per capita – each heir receives an equal amount -- total inheritance is divided equally among living children and grandchildren, for example.

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Amending a Will� A testator can generally revoke or alter

a will at any time prior to death.

m Codicil – an amendment added to a will to change specific terms of the will; must meet all the requirements of a will.

e A will is automatically revoked if a change in family situation, such as marriage or divorce, was not provided for in the will.

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Power of Attorneyy A durable power of attorney is a

document that allows you to empower another person to conduct legal business on your behalf.• An immediate power takes effect when

signed.• A springing power takes effect at some time

in the future.

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Probate� Once a testator dies, the executor takes

over: The executor must:• Admit the will to probate.• Send notices.• Gather assets.• Manage assets.• Pay debts and expenses.• Pay taxes and file estate tax returns.• Distribute assets.

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Property Not Transferred by Will

n A will does not control the distribution of:• joint property, • retirement benefits, or • life insurance.

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Anatomical Gifts� The Uniform Anatomical Gift Act

(UAGA) allows an individual to indicate her desire to be a donor either by putting a provision in her will or by signing an organ donation card in the presence of two witnesses.

Click here to see a sample organ donation card.

http://www.delafe.com/frmdonor.htm

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Living Wills (Advance Directives)

v The Supreme Court ruled that family members can choose to discontinue treatment for an incompetent person if there is evidence the patient would have made that choice herself.

h Assisted suicide, the administration of a lethal substance or prescription of a fatal dose of drugs by a physician, is illegal in almost every state.

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Advance Directives Practice e Living wills or advance directives are

documents which direct medical personnel to withhold extreme lifesaving measures in cases where recovery is unlikely.

k A health care proxy is a person appointed in a living will to make health care decisions for an incompetent patient.

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Trusts� A trust is an entity that separates legal

and beneficial ownership.• The grantor creates and funds the trust, the

trustee manages the assets, and the beneficiary receives the financial proceeds.

• The trustee technically owns the property, but must use it for the benefit of the beneficiary.

f A grantor can create a trust during her lifetime or after death through her will.

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Requirements to Create Trust C Legal capacity – legal age and sound

mind

Trustee – must appoint trustee, but it can be yourself

p Beneficiary – must specify (either by name or by class – “all living children of…”)

Trust Property – must transfer specific assets to the trust, though amount may be small and added to later

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Advantages � Control – trust document can specify

how the money is to be used.

Children – protect children’s assets.

c Tax Savings – minimize estate taxes.

n Privacy – documents are not available to the public; probated wills are.

r Accessibility – trusts do not have to go through probate, so heirs have quicker access to pre-existing trust funds.

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Types of Trusts� Also known as an inter vivos trust, a

living trust is established while the grantor is still alive.• Most living trusts are revocable during the

grantor’s lifetime.

m A testamentary trust is created by a will.• Obviously, since the grantor is dead when

this trust is created, it is irrevocable.

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Trust Administrationt In carrying out the terms of the trust, the

trustees have a fiduciary duty to the beneficiary.• Duty of Loyalty – trustee must put the

interests of the beneficiary first.• Duty of Care – trustee must use reasonable

care in managing the assets of the trust.

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Termination� A trust ends upon the occurrence of any

of these events:• On the date indicated by the grantor.• If the trustee is revocable, when revoked by

the grantor.• When the purpose of the trust has been

fulfilled.

The Rule Against Perpetuities specifies that a trust must end within 21 years after the death of some named person who is alive when the trust is created.

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Insurance Definitionst Person – individual, corporation,

partnership or other legal entity

t Insurance – contract in which one person, for a fee, agrees to guarantee another against a specific loss

a Insurer – person who issues the insurance policy

Insured – person whose loss is the subject of the insurance policy

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More Insurance Definitionse Owner – person who enters into the

insurance contract and pays the premiums

c Premium – consideration that the owner pays under the policy

o Beneficiary – person who receives the proceeds from the insurance policy

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Insurance Contractc An insurance policy must meet all the

common law requirements for a contract.

r Offer and Acceptance• The purchase of a policy makes an offer by

delivering an application and a premium to the insurer.

• It can be accepted by oral notice, by written notice, or by delivery of the policy.

• It also has a fourth option-a written binder, which is a temporary acceptance.

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Insurable Interests An insurance contract is not valid

unless the owner has an insurable interest in the subject matter of the policy.• This means you must have some financial

stake in the subject of the insurance policy.• The insurable interest must exist at the time

of loss, and cannot be for more than the amount of loss.

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Rights and Dutiess Insurers have the right to void a policy

if, during the application process, the insured makes a material misstatement or conceals a material fact.

t Insurance policies often contain a covenant of good faith and fair dealing, either explicitly or by implication.• Insurance companies cannot fraudulently

induce someone to buy a policy, refuse to pay a valid claim or refuse to accept a reasonable settlement offer.

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Property Insurancec Property insurance (also known as

casualty insurance) typically does not cover:• Earthquakes and floods (unless a special

rider is added)• Friendly fire (fire that stays where it is

supposed to be)• Employee theft or embezzlement• Merchandise lost or damaged in

transportation

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Life Insurance� Term Insurance – simple, cheap;

covers a particular time period

l Whole Life Insurance (straight life) – more expensive, but forces policyholder to save; part of premium goes into a savings, giving the policy cash value.

t Universal Life – a hybrid of term and whole life; premiums may be adjusted some.

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Annuities� Annuities are the reverse of life

insurance-they make payments until death whereas life insurance pays after death.• Owner makes a lump sum payment to an

insurance company in return for a guaranteed fixed income for life.

• Deferred annuities work the same way, except they don’t begin immediately. The payments begin at a designated time in the future.

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Health Insurance� In a pay for service plan, the insurer

pays for almost any treatment ordered by almost any doctor.

c In managed care plans, patient and doctor choice is limited, in order to limit costs.• HMOs (Health Maintenance Organizations)

are a type of managed care plan.

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Disability Insurancea Disability insurance replaces the

insured’s income if he becomes unable to work because of illness or injury.• The average person is 7 times more likely

to be disabled for at least 90 days than to die before the age of 65.

• Half of all mortgage foreclosures are due to an owner’s disability.

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Liability Insurancen The purpose of liability insurance is to

reimburse the insured for any liability she incurs by (accidentally) harming someone else.

c Liability insurance covers:• Injuries sustained on the insured’s property• Injuries to another’s property caused by the

insured• Professional malpractice• Product liability

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Automobile Insurancea Collision – pays to repair or replace a

car damaged in an accident.

n Comprehensive – covers fire, theft and vandalism.

c Liability – covers harm to other people or other property (usually required).

y Uninsured Motorist – covers the insured and all passengers who are injured by another driver who does not have insurance.

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“Life is risky. Cars crash, people die, houses burn. So what can

we do? Sign a will, buy insurance, and get on with our

lives, knowing that we have prepared the best we can.”

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Link to the Internetr Clicking on the orange button below will link

you to the website for this book. (You must first have an active link to the internet on this computer.)

i Once there, click:• Online Study Guide, then• Your choice of a chapter, then• Practice, then• Internet Applications

t You should then see web links related to that chapter.

Click here!

Click above to return to the slide show.

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