9.4 Wills and trusts

Wills and trusts are the core tools of estate planning. They let individuals control how their assets get distributed after death. For legal professionals, drafting these documents demands precision: a single ambiguous phrase can trigger costly litigation or defeat a client's intentions entirely.

This topic covers the key concepts you need to know, from testamentary capacity and trust structures to will contests, probate, and the drafting techniques that make these documents hold up.

Overview of wills and trusts

Wills and trusts both govern asset distribution, but they work differently. A will takes effect only at death and must go through probate. A trust can operate during the settlor's lifetime or after death, and often avoids probate entirely. Both require careful drafting to be legally enforceable.

Testamentary capacity

Testamentary capacity is the mental ability required to make a valid will. Courts generally require the testator to satisfy four elements at the time of execution:

1. Understand the nature and extent of their property
2. Recognize the "natural objects of their bounty" (family members and other likely heirs)
3. Comprehend the disposition they're making
4. Relate these elements together to form a rational plan for distribution

If any of these elements is missing, the will may be vulnerable to challenge.

Formalities of execution

Most jurisdictions require specific formalities for a will to be valid:

• The will must be in writing
• The testator must sign the will (or direct someone to sign on their behalf)
• The signature is typically placed at the end of the document
• Witnesses must observe the testator signing or acknowledging the will
• Most jurisdictions require two witnesses, though this varies

Failure to comply with even one formality can invalidate the entire document, so precision here matters.

Witnesses and signatures

• Witnesses must be competent adults
• Beneficiaries generally should not serve as witnesses, since this can create conflicts or void their bequest in some jurisdictions
• Witnesses sign in the presence of the testator and, in most jurisdictions, in the presence of each other
• A self-proving affidavit (a sworn statement attached to the will) can simplify probate by eliminating the need to locate witnesses later
• Some jurisdictions require or allow notarization

Revocation and modification

A testator can revoke or change a will in several ways:

• Physical act: destroying, canceling, or obliterating the document
• Subsequent writing: executing a new document that expressly revokes the prior will
• Implied revocation: creating a new will whose terms are inconsistent with the old one
• Codicil: a formal amendment that modifies specific provisions without revoking the entire will

Life events such as marriage, divorce, or the birth of a child may also affect a will's validity depending on the jurisdiction.

Types of trusts

Trusts are more flexible than wills because they can be structured in many different ways. Understanding the major categories helps you match the right trust type to a client's needs.

Express vs. implied trusts

Express trusts are created intentionally by the settlor through explicit instructions, usually in a written trust document. They require a clear manifestation of intent to create a trust.

Implied trusts arise by operation of law rather than explicit creation:

• Resulting trusts arise when property is transferred but the beneficial interest was not intended to pass with it (e.g., the transferee was meant to hold it for someone else)
• Constructive trusts are imposed by courts as a remedy to prevent unjust enrichment, even though no trust was intended

Revocable vs. irrevocable trusts

• Revocable trusts let the settlor modify or terminate the trust during their lifetime. They offer flexibility but provide no tax advantage because assets remain part of the settlor's taxable estate.
• Irrevocable trusts cannot be altered or terminated without beneficiary consent. They remove assets from the settlor's taxable estate, offering stronger asset protection and potential tax benefits. The tradeoff is loss of control.

Living vs. testamentary trusts

• Living trusts (inter vivos) are created and take effect during the settlor's lifetime. They can be revocable or irrevocable and are especially useful for managing assets if the settlor becomes incapacitated.
• Testamentary trusts are established through a will and only become effective at the settlor's death. They're always irrevocable (since the settlor is deceased) and are subject to probate court supervision.

Trust creation and administration

Once a trust is created, someone has to manage it. That's the trustee's job, and it comes with significant legal obligations.

Role of the trustee

The trustee manages trust assets according to the trust instrument and applicable law. Key responsibilities include:

• Making investment decisions to preserve and grow trust property
• Distributing income and principal to beneficiaries as the trust specifies
• Maintaining accurate records of all trust transactions
• Providing periodic accountings to beneficiaries
• Acting as a fiduciary, meaning the beneficiaries' interests come first

Fiduciary duties

Trustees owe several specific duties to beneficiaries:

• Duty of loyalty: avoid conflicts of interest and self-dealing
• Duty of care: exercise reasonable skill and caution in managing trust assets
• Duty to inform and account: keep beneficiaries reasonably informed about trust administration
• Duty of impartiality: treat multiple beneficiaries fairly, balancing their competing interests
• Duty to segregate: keep trust property separate from the trustee's personal assets

Breach of any fiduciary duty can expose the trustee to personal liability.

Trust property management

• Invest trust assets prudently under the Prudent Investor Rule, which requires a balanced approach to risk and return across the entire portfolio
• Diversify investments unless the trust instrument directs otherwise
• Consider tax implications of investment and distribution decisions
• Maintain proper insurance coverage for trust assets
• Delegation of investment authority is permitted, but the trustee must monitor the delegate's performance

Beneficiary rights

• Right to receive distributions according to the trust terms
• Right to information about trust administration and financial status
• Right to an accounting of trust transactions
• Right to enforce trust terms through court action if the trustee breaches their duties
• In some cases, the right to modify or terminate the trust under certain conditions (e.g., when all beneficiaries agree and the modification doesn't violate a material purpose of the trust)

Will contests and trust disputes

Estate documents can be challenged in court. Knowing the grounds for these challenges is essential both for drafting documents that withstand scrutiny and for litigating disputes.

Grounds for contesting wills

The most common grounds are:

• Lack of testamentary capacity: the testator didn't have the mental ability to make a valid will
• Improper execution: the will failed to meet required legal formalities
• Undue influence: someone exerted excessive pressure on the testator
• Fraud: deception was used to induce the testator to make or change the will
• Forgery: the testator's signature or the will's contents were falsified

Undue influence

Undue influence occurs when someone exerts excessive persuasion over the testator, overcoming the testator's free will. It often involves a person in a position of trust or authority, such as a caregiver or close family member.

Courts typically consider:

• The testator's vulnerability (age, illness, isolation)
• The influencer's opportunity and access
• The influencer's conduct and actions
• Whether the resulting disposition is one the testator would not have made independently

The burden of proof generally falls on the party alleging undue influence, though some jurisdictions shift the burden when a confidential relationship and suspicious circumstances are shown.

Lack of capacity

Capacity is assessed at the time the will is executed, not before or after. The standard tracks the four elements of testamentary capacity described above. A few key points:

• Temporary incapacity (e.g., from medication) does not necessarily invalidate a will if it was executed during a lucid interval
• Medical records and witness testimony are often the most important evidence
• Capacity is presumed; the challenger bears the burden of proving its absence

Fraud and forgery

Fraud involves intentional deception that causes the testator to make or change a will. For example, someone might lie about a family member's conduct to get the testator to disinherit them. The fraud must have materially affected the testator's decisions.

Forgery refers to falsifying the testator's signature or altering the will's contents. This can range from creating an entirely fake document to changing specific provisions in an existing one. Forensic handwriting analysis is commonly used to prove forgery claims.

Estate planning considerations

Estate planning goes beyond just drafting a will or trust. Tax strategy, asset protection, and charitable giving all factor into a comprehensive plan.

Tax implications

• The federal estate tax applies to estates exceeding the exemption amount ($12.92 \text{ million}$ for 2023, adjusted annually for inflation)
• The gift tax applies to lifetime transfers exceeding the annual exclusion ($17{,}000$ per recipient for 2023)
• The generation-skipping transfer tax applies to gifts made to grandchildren or more remote descendants, preventing families from skipping a generation of taxation
• Inherited assets generally receive an income tax basis step-up to fair market value at death, which can significantly reduce capital gains tax for heirs
• State-level estate and inheritance taxes vary widely; some states have much lower exemption thresholds than the federal level

Asset protection strategies

• Spendthrift trusts and asset protection trusts can shield assets from beneficiaries' creditors
• Limited liability entities (LLCs, family limited partnerships) help protect business assets
• Retirement accounts often carry built-in creditor protection under federal law (ERISA) and state law
• Homestead exemptions protect primary residences in many states, though the amount of protection varies
• Proper titling of assets (tenancy by the entirety, transfer-on-death designations) can keep them out of probate and provide some creditor protection

Charitable giving options

• Charitable remainder trusts provide income to the donor during their lifetime, with the remainder going to charity
• Charitable lead trusts benefit the charity first, with the remainder passing to heirs
• Private foundations allow ongoing family involvement in charitable activities
• Donor-advised funds offer simplified administration for charitable giving without the overhead of a private foundation
• Direct bequests to charities through wills or beneficiary designations are the simplest approach

Probate process

Probate is the court-supervised process of administering a deceased person's estate. It involves validating the will, paying debts, and distributing assets.

Probate vs. non-probate assets

Probate assets pass through the court-supervised process. These include assets solely owned by the deceased that lack a beneficiary designation, such as individually titled real property, personal property, and some financial accounts.

Non-probate assets transfer directly to beneficiaries without court involvement:

• Joint tenancy property with right of survivorship
• Assets with designated beneficiaries (life insurance policies, retirement accounts)
• Property held in trusts

A major goal of estate planning is often to minimize the assets that must pass through probate, since the process can be slow, expensive, and public.

Executor responsibilities

The executor (sometimes called a personal representative) handles the estate's administration:

1. Locate and file the will with the probate court
2. Inventory and appraise all estate assets
3. Notify creditors and pay valid debts
4. File final income tax returns and estate tax returns if required
5. Distribute remaining assets to beneficiaries according to the will (or intestacy laws if there's no will)
6. Provide accountings to the court and beneficiaries as required

Estate administration

The administration process generally follows these steps:

1. Initiate probate by filing a petition with the appropriate court
2. Obtain authority to act through letters testamentary (if there's a will) or letters of administration (if there's no will)
3. Manage estate assets during the administration period, preserving their value
4. Resolve disputes, including any will contests or disagreements among beneficiaries
5. Close the estate by filing final accountings and obtaining court approval for distributions

Legal drafting for wills and trusts

Drafting wills and trusts is where legal method and writing skills converge most directly with substantive law. The goal is translating a client's wishes into language that's legally enforceable and resistant to challenge.

Key clauses and provisions

Most wills and trusts include some combination of these:

• Testamentary clause: declares the document as the testator's last will and testament
• Executor appointment: names the executor and specifies their powers
• Specific bequests: gifts of particular assets to named beneficiaries
• Residuary clause: disposes of all remaining assets not specifically bequeathed
• Trust provisions: trustee powers, beneficiary rights, and distribution instructions
• Tax-related clauses: marital deduction provisions, generation-skipping provisions

The residuary clause is especially important because it catches anything the drafter may have overlooked.

Clarity and precision in language

• Use plain language whenever possible so non-lawyers (beneficiaries, executors) can understand the document
• Define key terms on first use to prevent ambiguity
• Use consistent terminology throughout; don't switch between "children" and "issue" unless you mean different things
• Structure sentences and paragraphs logically for easy reading
• Prefer active voice and direct instructions over passive constructions

Avoiding ambiguity

Ambiguity is the enemy of good estate drafting. A few practical techniques:

• Identify beneficiaries by full legal name and relationship to the testator
• Describe assets with specificity (include account numbers, property addresses, legal descriptions)
• Address contingencies: what happens if a beneficiary predeceases the testator, or if an asset is no longer owned at death?
• Include a residuary clause to catch any overlooked assets
• Consider an in terrorem clause (a no-contest clause) to discourage frivolous challenges, where permitted by law

Ethical considerations

Estate planning raises distinct ethical issues because the work often involves family dynamics, vulnerable clients, and documents that won't be tested until the client has died.

Conflicts of interest

• Be alert to potential conflicts when representing multiple family members in estate planning
• Avoid representing both spouses if their interests diverge (e.g., blended families with competing inheritance goals)
• Disclose any personal or financial interest that could affect your representation
• Obtain informed consent from all clients when potential conflicts exist
• Withdraw from representation if conflicts cannot be resolved or waived

Confidentiality issues

• Client confidentiality survives the client's death
• You may need to balance confidentiality against duties to disclose information to beneficiaries or courts when legally required
• Protect client information from unauthorized access
• Understand the exceptions to confidentiality (crime prevention, court orders)
• Develop clear office policies for handling client information in estate planning matters

Professional responsibility

• Maintain competence in estate planning law through continuing education, since tax laws and statutes change frequently
• Communicate clearly with clients about the scope and limitations of your representation
• Charge reasonable fees and provide transparent billing
• Safeguard client property (original documents, funds held in trust) and return it promptly upon request
• Comply with rules regarding advertising and solicitation of estate planning services

Recent developments in estate law

Estate law continues to evolve as technology and society change. These are areas where the law is still developing, so staying current is particularly important.

Digital assets in estates

Digital assets (email accounts, social media profiles, cryptocurrency, digital media libraries) are increasingly significant in estate planning. Key challenges include:

• Privacy laws and platform terms of service can block fiduciary access to accounts
• The Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA), adopted by most states, provides a framework for fiduciary access to digital accounts
• Clients should maintain an inventory of digital assets and access credentials
• Cryptocurrency and blockchain-based assets require special attention because they may be inaccessible without private keys

Same-sex marriage implications

The Supreme Court's 2015 decision in Obergefell v. Hodges legalized same-sex marriage nationwide, which had significant estate planning consequences:

• Same-sex spouses receive equal treatment for federal estate and gift tax purposes, including the unlimited marital deduction
• Some couples who previously used alternative planning strategies (e.g., trusts to replicate spousal rights) may need to update their estate plans
• Non-biological children in same-sex families may require specific provisions to ensure inheritance rights

International estate planning

Cross-border estate planning adds layers of complexity:

• Foreign jurisdictions may have forced heirship rules that override a decedent's wishes and require certain shares go to specific heirs
• Tax treaties and foreign tax credits can help address potential double taxation
• International trusts may be used for asset protection and tax planning, but they carry significant compliance obligations
• U.S. persons with foreign assets must comply with reporting requirements such as FBAR (Foreign Bank Account Report) and FATCA (Foreign Account Tax Compliance Act)