Chapter 29: Insurance, Wills, and Trusts

Chapter 29: Insurance, Wills, and Trusts

Learning Objectives • What is an insurable interest? When must an insurable interest exist—at the time the insurance policy is obtained, at the time the loss occurs, or both? • Is an insurance broker the agent of the insurance applicant or the agent of the insurer? 

Learning Objectives • What are the basic requirements for executing a will? How may a will be revoked? • What is the difference between a per stirpes and per capita distribution to the grandchildren of the deceased? • What are the four essential elements of a trust? What is the difference between an express trust and an implied trust?

Insurance • Insurance is a contractual arrangement for transferring and allocating risk. • Risk Management. • Prediction concerning potential loss based on known and unknown factors. • Involves the transfer of certain risks from the individual to the insurance company by a contractual agreement.

Insurance • Classification of Insurance. • Insurance is classified according to the nature of the risk involved.

Insurance • Insurance Terminology. • Policy (Insurance contract). • Premium is the consideration to be paid to the insurer. • Underwriter (usually an insurance company). • Broker v. Agent.

Insurance • Insurable Interest. • A person can insure anything in which he or she has an insurable interest. • Life Insurance: a person must have a reasonable expectation of benefit from the continued life of another. 

Insurance • Insurable Interest. • A person can insure anything in which he or she has an insurable interest. • Life Insurance.  • Key-Person Life Insurance.  • Property Insurance. 

Insurance • Insurable Interest. • Life Insurance: a person must have a reasonable expectation of benefit from the continued life of another. • Insurable interest must exist at the time the policy is obtained. • Interest may be financial or relational (blood or affinity).

Insurance • Insurable Interest. • Key- Person Life Insurance: obtained by an organization on the life of a person important to the organization. • Property Insurance: insured derives a pecuniary benefit from preservation and continued existence of certain property. Owner must have insurance at the time of loss.

Insurance • The Insurance Contract. • Governed by the general principles of contract law, and regulated by the state. • Application for Insurance: is an offer, which insurance company can either reject or accept. Misrepresentations can void a policy.

Insurance • The Insurance Contract. • Effective Date. • Broker versus Agents: broker is agent of applicant. Can be liable if policy is not secured and applicant is injured. • Binders and Conditions: binder means policy is pending, but applicant is insured if compensation is paid.

Insurance • The Insurance Contract. • Application. • Effective Date. • Coinsurance Clauses. • Incontestability Clauses. 

Insurance • The Insurance Contract. • Insurer must adequately notify insured of any change in policy under an existing policy. • CASE 29.1 Valero v. Florida Insurance Guaranty Association, Inc. (2011). How can an ‘exclusion’ absolve an insurance company from paying a claim? 

The Insurance Contract • Good Faith Obligations. • Bad Faith Actions. • Tort action if insurer denies coverage, insured may seek damages beyond the policy, as well as punitive damages. • Defenses Against Payment. 

The Insurance Contract • Defenses Against Payment. • Insurance policy procured through fraud, misrepresentation. • Insurance company lacked an insurable interest (void from beginning). • Improper actions, contrary to public policy, or illegal.

Wills • Will provides for a Testamentary disposition of property. • A will is the final declaration of how a person desires to have his or her property disposed of after death. • Testator makes the will. 

Wills • Person who dies with a will, dies testate (intestate without a will). • Executor: personal representative named in a will. • Administrator: personal representative appointed by the court when person dies without a will.

Wills • Types of Gifts. • Devise: gift of real estate. Bequest or Legacy: gift of personal property. • Types of Gifts: specific, general, or residuary . • Abatement. • Lapsed Legacies.

Wills • Requirements for a Valid Will. • Testamentary Capacity and Intent: requires a “sound-mind” and testamentary intent. • CASE 29.2 In re Estate of Johnson (2011). What role did Johnson’s alcoholism have in the court’s conclusion of undue influence.

Wills • Requirements for a Valid Will (cont’d). • Writing: can be handwritten, or holographic will (but nuncupative (oral) will is possible). • Signature : at least two witnesses, so will is ‘self-proving.’ • Witness. 

Wills • Requirements for a Valid Will (cont’d). • Publication Requirements: not required under the UPC. • Revocation of Wills. • Executed will is revocable by the maker anytime before death. • Revocation by Physical Act. 

Wills • Requirements for a Valid Will (cont’d). • Revocation by Subsequent Writing: called a codicil. • Revocation by Operation of Law.

Wills • Probate Procedures. • Informal Probate Proceedings: Family Settlement Agreements, and Small Estates. • Formal Probate Proceedings: larger estates, guardianship appointment, and trusts for minors or incompetent persons.

Wills • Probate Procedures. • Property Transfers Outside the Probate Process. • Living Trusts. • Joint Ownership of Property. • Gifts Intervivos (while one is alive). • Life Insurance Policies. • Individual Retirement Accounts (IRA).

Wills • Intestacy Laws. • Statutes of descent and distribution which attempt to carry out the likely intent and wished of the decedent who died without a will. • Surviving Spouse and Children. • Surviving spouse usually receives ½ of the estate if there is a surviving child.

Wills • Intestacy Laws. • Surviving Spouse and Children. • Surviving spouse usually receives only ½ of the estate, 1/3 if two or more children, 1/2 if one surviving child, or entire estate if no children or grandchildren. • If no surviving spouse or child the order of inheritance is: lineal descendants, and then collateral heirs (if no lineal descendants).

Wills • Intestacy Laws. • Step, Adopted, and Illegitimate Children. • Stepchildren -- not considered children of deceased. • Adopted children -- considered children of deceased. • Illegitimate -- must prove paternity.

Intestacy Laws • Distribution to Grandchildren. • Per stirpes distribution: heirs take the share their deceased parent would have taken had that parent lived. 

Intestacy Laws • Distribution to Grandchildren. • Per capita distribution: each person takes an equal share of the estate.

Trusts • A trust is any arrangement whereby property (real or personal) is held by one party for the benefit of another. • Essential Elements: designated beneficiary, designated trustee, funds sufficiently identified to enable title to pass to the trustee, actual delivery to the trustee with the intention of passing title.

Trusts • Express Trusts. • Living Trusts: revocable living trusts, irrevocable living trusts. • Testamentary Trusts. • Charitable Trusts. • Spendthrift Trusts. • Totten Trusts.

Trusts • Implied Trusts. • Constructive Trusts: arises by operation of the law in the interest of equity and fairness. • CASE 29.3 Garrigus v. Viarengo (2009). What circumstances prompted the court to create a constructive trust?

Trusts • Implied Trusts (cont’d). • Resulting Trusts. • The Trustee: person holding trust property. • Trustee’s Duties: honesty, good faith, and prudence in administering the trust and high degree of loyalty to beneficiaries. 

Trusts • The Trustee (cont’d). • Trustee’s Powers: state law governs in the absence of specific language in will or instrument. • Allocations Between Principal and Income. 

Chapter 29: Insurance, Wills, and Trusts