1. Does Carsten really need a will? Explain why or why not? What would happen to his estate if he were to die without a will?
2. Explain to Carsten the common features that need to be incorporated into a will.
3. Might the manner in which titles are held thwart his estate planning desires? What should be done to avoid problems?
4. Is a living trust an appropriate part of his estate plan? How would a living trust change the nature of Carsten’s will?
5. How does the age of his children complicate the estate plan? What Special provisions should he consider?
6. What options are available to Carsten if he decides later to change or revoke the will? Is it more difficult to change a living trust?
7. What duties will Forrest Gauthier and Heinrich Richter have to perform as co-executors of Carsten’s estate? If a trust is created, what should Carsten consider in his selection of a trustee or co-trustees? Might Forest and Heinrich, serving together, be a good choice?
In the late 1980s, Carsten Richter, from Germany, migrated to the United States, where he is now a citizen. A man of many talents and deep foresight, he has built a large fleet of oceangoing oil tankers during his stay in the United States. Now a wealthy man in his 60s, he resides in Aspen, Colorado, with his second wife, Gabriela, age 50. They have two sons, one in junior high and one a high-school freshman. For some time, Carsten has considered preparing a will to ensure that his estate will be property distributed when he dies. A survey of his estate reveals the following:
Ranch in Colorado …………………………………. $1,000,000
Condominium in Santa Barbara ……………………. 800,000
House in Aspen …………………………………….. 1,500,000
Franchise in ice cream stores….…………………….. 2,000,000
Stock in Google …………………………………….. 5,000,000
Stock in Wal-Mart…………………………………… 1,000,000
Stock in Silver Mines International …………………. 3,000,000
Other assets …………………………………………. 200,000
Total Assets…………………………………………. $14,500,000
The house and the Silver Mines International shares are held in joint tenancy with his wife, but all other property is in his name alone. He desires that there be a separate fund of $1 million for his sons’ education and that the balance of his estate be divided as follows: 40 percent to his sons; 40 percent to his wife, and 20 percent to given to other relatives, friends and charitable institutions. He has scheduled an appointment for drafting his will with his attorney and close friend, Forrest Gauthier. Carsten would like to appoint Forrest, who is 70 years old and Carsten’s cousin Heinrich Richter (a CPA) as co-executors. If one of them predeceases Carsten, he’d like First National Bank to serve as co-executor.
SOLUTION
1. Yes, Carsten really needs a will. Without a valid will, the statutes of the state of Colorado would govern the disposition of his sizable estate. This situation would not provide for minimum estate shrinkage, nor would it result in the transfer of assets to those whom Carsten would choose. If Karen is not the mother of his two sons, a battle could ensue over property, and as the sons are still in high school, they are probably not yet “of age,” so their guardian needs to be named. Because Carsten owns property in several states, the states could possibly fight over which is his state of domicile—something which could be avoided with a valid will.
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2. His will should contain eight distinct parts:
(1) Introductory Clause—stating his place of residence and nullifying old and forgotten wills and codicils (legally binding modifications of an existing will).
(2) Direction of Payments—directing his estate with respect to certain payments of expenses.
(3) Disposition of Property—disposing of his personal effects, passing money to specified parties, or distributing his residual assets after specific gifts have been made.
(4) Appointment Clause—appointing his executors, guardians, and trustees, as well as their successors.
(5) Tax Clause—allocating his burden of taxes among his beneficiaries. Otherwise, apportionment statutes of his state will allocate the taxes among beneficiaries.
(6) Simultaneous Death Clause—protecting his estate against a common disaster or simultaneous death of his spouse. This clause attempts to avoid double probate of the same assets.
(7) Execution and Attestation Clause—providing his signature as a precaution against fraud. Many attorneys suggest initialing each page after the last line and including a signature on the left-hand margin of each page, which of course should be numbered.
(8) Witness Clause—containing the signatures of the required number of witnesses, who sign in the presence of each other (with their addresses noted on the will) in order to affirm that the will in question is actually his.
3. The property titled joint with right of survivorship will pass to the survivor regardless of a will provision otherwise. The form of ownership must be consistent with the will or unforeseen results will occur.
4. Certainly either a living will or a durable power for health care should be provided. Carsten needs to provide for how he want his health care handled. In addition he has substantial wealth which could attract the curious and bring unwanted publicity to the estate. A living trust established by the will could add privacy to the estate.
5. Minor children need to be cared for either by trusts and/or guardians (godparents). Funds are best managed by a trust to insure that the funds will last as long as possible. With nothing but guardianships, the funds would go to the kids when they reach 18. Generally, that is much too young to wisely manage large sums of wealth. Better to have in a trust with professional manager.
6. Minor changes in the will may be made by a codicil, a short document that reaffirms all existing provisions in the will except the one to be changed. The codicil should be executed and witnessed in the same formal manner as a will.
The will may be revoked by any one of the following:
1. Making a later will that expressly revokes prior wills.
2. Making a codicil that expressly revokes all well before the one being modified.
3. Making a later will that is inconsistent with a former will.
4. Physically mutilating, burning, tearing, or defacing the will with the intention of revoking it.
7. As co-executors of Carsten’s estate, Forrest Gauthier, his close friend and attorney, Heinrich Richter, his cousin, will share the duties of estate administration. Upon Carsten’s death, they must take inventory and value his assets, pay his debts or provide for payment of debts that are not yet due, and distribute any remaining assets to the persons entitled to them as specified in Carsten’s will. Their responsibility will, therefore, be to carry out Carsten’s wishes as specified in his will once all legal obligations related to the probate process have been satisfied.
Generally, a trustee’s job is long term, e.g., until the youngest boy reaches 30 years of age, and involves long term investing and management of the trust’s assets. Given Forrest’s age, he is not a good candidate for trustee, even though he might be appropriate as a co-executor. Heinrich seems to be a good selection for both. He is young enough that it is likely he can serve for many years and his training as a CPA will come in handy in both executor and trustee capacities. A trustee does not have to be an expert in investments merely smart enough to know when he or she needs help and where to find it. Also, the bank will become co-trustee at the death of one of the other co-trustees.