chapter 29: insurance, wills, and trusts

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Chapter 1: Legal EthicsCHAPTER 29: INSURANCE,

WILLS, AND TRUSTS

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Learning Objectives1. 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?

2. Is an insurance broker the agent of the insurance applicant or the agent of the insurer?

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Learning Objectives3. What are the basic requirements for

executing a will? How may a will be revoked?

4. What is the difference between a per stirpes and per capita distribution to the grandchildren of the deceased?

5. What are the four essential elements of a trust? What is the difference between an express trust and an implied trust?

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• 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

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Insurance Classification of Insurance. –Insurance is classified according to the

nature of the risk involved.

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Insurance Insurance Terminology.–Policy (Insurance contract).–Premium is the consideration to be paid

to the insurer. –Underwriter (usually an insurance

company).–Broker v. Agent.

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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.

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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.

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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).

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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.

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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.

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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.

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Insurance The Insurance Contract.–Application.–Effective Date.–Coinsurance Clauses.–Incontestability Clauses.

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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?

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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Wills Requirements for a Valid Will (cont’d).–Revocation by Subsequent Writing:

called a codicil.–Revocation by Operation of Law.

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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.

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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).

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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).

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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.

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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).

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Wills Intestacy Laws.–Step, Adopted, and Illegitimate Children.• Stepchildren -- not considered children of

deceased.• Adopted children -- considered children of

deceased.• Illegitimate -- must prove paternity.

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• Distribution to Grandchildren.– Per stirpes distribution: heirs take the share their

deceased parent would have taken had that parent lived.

Intestacy Laws

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• Distribution to Grandchildren.– Per capita distribution: each person takes an equal

share of the estate.

Intestacy Laws

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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.

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Trusts Express Trusts. –Living Trusts: revocable living trusts,

irrevocable living trusts.–Testamentary Trusts.–Charitable Trusts.–Spendthrift Trusts.–Totten Trusts.

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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?

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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.

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• 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.

Trusts