Estate, Pre-Planning, and Sympathy Guide
2C
Friday, Feb. 23, 2018
What you need to know about wills and more
Wills and trusts can be confus-
ing for many people. The follow-
ing information was prepared by
the American Bar Association to
help people understand the op-
tions.
What happens if you die
without a will?
If you die intestate (without a
will), your state’s laws of descent
and distribution will determine
who receives your property by
default.
These laws vary from state to
state, but typically the distribu-
tion would be to your spouse and
children, or if none, to other fam-
ily members.
A state’s plan often refl ects the
legislature’s guess as to how most
people would dispose of their es-
tates and builds in protections for
certain benefi ciaries, particularly
minor children. That plan may
or may not refl ect your actual
wishes, and some of the built-in
protections may not be necessary
in a harmonious family setting.
A will allows you to alter the
state’s default plan to suit your
personal preferences. It also per-
mits you to exercise control over a
myriad of personal decisions that
broad and general state default
provisions cannot address.
What does a will do?
A will provides for the distri-
bution of certain property owned
by you at the time of your death,
and generally you may dispose of
such property in any manner you
choose.
Your right to dispose of prop-
erty as you choose, however, may
be subject to forced heirship laws
of most states that prevent you
from disinheriting a spouse and,
in some cases, children.
For example, many states have
spousal rights of election laws that
permit a spouse to claim a certain
interest in your estate regardless
of what your will (or other docu-
ments addressing the disposition
of your property) provides.
Your will does not govern
the disposition of your property
that is controlled by benefi ciary
designations or by titling and so
passes outside your probate es-
tate. Such assets include property
titled in joint names with rights
of survivorship, payable on death
accounts, life insurance, retire-
ment plans and accounts, and
employee death benefi ts.
These assets pass automatical-
ly at death to another person, and
your will is not applicable to them
unless they are payable to your
estate by the terms of the benefi -
ciary designations for them.
Your probate estate consists
only of the assets subject to your
will, or to a state’s intestacy laws
if you have no will, and over
which the probate court (in some
jurisdictions referred to as sur-
rogate’s or orphan’s court) may
have authority.
This is why reviewing ben-
efi ciary designations, in addition
to preparing a will, is a critical
part of the estate planning pro-
cess. It is important to note that
whether property is part of your
probate estate has nothing to do
with whether property is part of
your taxable estate for estate tax
purposes.
Wills can be of various degrees
of complexity and can be utilized
to achieve a wide range of family
and tax objectives.
If a will provides for the out-
right distribution of assets, it is
sometimes characterized as a
simple will. If the will creates
one or more trusts upon your
death, the will is often called a
testamentary trust will.
Alternatively, the will may
leave probate assets to a preexist-
ing inter vivos trust (created dur-
ing your lifetime), in which case
the will is called a pour over will.
Such preexisting inter vivos trusts
are often referred to as revocable
living trusts. The use of such
trusts or those created by a will
generally is to ensure continued
property management, divorce
and creditor protection for the
surviving family members, pro-
tection of an heir from his or her
own irresponsibility, provisions
for charities, or minimization of
taxes.
Aside from providing for the
intended disposition of your prop-
erty upon your death, a number of
other important objectives may
be accomplished in your will.
You may designate a guardian
for your minor child or children if
you are the surviving parent and
thereby minimize court involve-
ment in the care of your child.
Also, by the judicious use of
a trust and the appointment of a
trustee to manage property fund-
ing that trust for the support of
your children, you may eliminate
the need for bonds (money post-
ed to secure a trustee’s properly
carrying out the trustee’s respon-
sibilities) as well as avoid super-
vision by the court of the minor
children’s inherited assets.
You may designate an executor
(personal representative) of your
estate in your will, and eliminate
their need for a bond. In some
states, the designation of an in-
dependent executor, or the waiver
of otherwise applicable state stat-
utes, will eliminate the need for
court supervision of the settle-
ment of your estate.
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You may choose to provide
for persons whom the state’s in-
testacy laws would not otherwise
benefi t, such as stepchildren, god-
children, friends or charities.
If you are acting as the custo-
dian of assets of a child or grand-
child under the Uniform Gift (or
Transfers) to Minors Act (often
referred to by their acronyms,
UGMA or UTMA), you may des-
ignate your successor custodian
and avoid the expense of a court
appointment.
What does a will not do?
A will does not govern the
transfer of certain types of as-
sets, called non-probate property,
which by operation of law (title)
or contract (such as a benefi ciary
designation) pass to someone oth-
er than your estate on your death.
For example, real estate and
other assets owned with rights of
survivorship pass automatically to
the surviving owner. Likewise, an
IRA or insurance policy payable
to a named benefi ciary passes to
t hat named benefi ciary regardless
of your will.
How do I execute (sign)
a will?
Wills must be signed in the
presence of witnesses and certain
formalities must be followed or
the will may be invalid. In many
states, a will that is formally ex-
ecuted in front of witnesses with
all signatures notarized is deemed
to be “self-proving” and may be
admitted to probate without the
testimony of witnesses or other
additional proof.
Even if a will is ultimately held
to be valid in spite of errors in ex-
ecution, addressing such a chal-
lenge may be costly and diffi cult.
A potential challenge is best
addressed by executing the will
properly in the fi rst instance.
A later amendment to a will
is called a codicil and must be
signed with the same formalities.
Be cautious in using a codicil
because, if there are ambiguities
between its provisions and the
prior will it amends, problems
can ensue.
In some states, the will may
refer to a memorandum that dis-
tributes certain items of tangible
personal property, such as furni-
ture, jewelry, and automobiles,
which may be changed from time
to time without the formalities of
a will. Even if such a memoran-
dum is permitted in your state,
proceed with caution. This type
of separate document can create
potential confusion or challenges
if it is inconsistent with the terms
of the will or prepared in a hap-
hazard manner.
Jointly owned property
If you own property with an-
other person as joint tenants with
right of survivorship, that is, not as
tenants in common, the property
will pass directly to the remain-
ing joint tenant upon your death
and will not be a part of your pro-
bate estate governed by your will
(or the state’s laws of intestacy if
you have no will). It is important
to note that whether property is
part of your probate estate has
nothing to do with whether prop-
erty is part of your taxable estate
for estate tax purposes.
Frequently, people (particular-
ly in older age) will title bank ac-
counts or securities in the names
of themselves and one or more
children or trusted friends as
joint tenants with right of survi-
vorship. This is sometimes done
as a matter of convenience to give
the joint tenant access to accounts
to pay bills.
It is important to realize that
the ownership of property in this
fashion often leads to unexpected
or unwanted results. Disputes,
including litigation, are common
between the estate of the original
owner and the surviving joint ten-
ant as to whether the survivor’s
name was added as a matter of
convenience or management or
whether a gift was intended.
The planning built into a well-
drawn will may be partially or
completely thwarted by an inad-
vertently created joint tenancy
that passes property to a benefi -
ciary by operation of law, rather
than under the terms of the will.
In some instances, a power
of attorney document giving the
trusted person the power to act
on your behalf as your agent with
regard to the account in order to
pay bills will achieve your in-
tended goal without disrupting
your intended plans regarding to
whom the account will ultimately
pass.
Many of these problems also
are applicable to institutional re-
vocable trusts and “pay on death”
forms of ownership of bank, bro-
ker, and mutual fund accounts and
savings bonds. Effective planning
requires knowledge of the conse-
quences of each property interest
and technique.
In many instances, consum-
ers prepare wills believing that
the will governs who will inherit
their assets when in fact, the title
(ownership) of various accounts
or real property, for example, as
joint tenants, or benefi ciary des-
ignations for IRAs, life insurance
and certain other assets control
the distribution of most or even
all assets. This is why merely ad-
dressing your will is rarely suffi -
cient to accomplish your goals.
ally will determine what happens
to the property in the trust upon
your death.
A trust created during lifetime
may be revocable, which means
it may be revoked or changed by
the settlor, or irrevocable, which
means it cannot be revoked or
changed by the settlor. Either
type of trust may be designed to
accomplish the purposes of prop-
erty management, assistance to
the settlor in the event of physical
or mental incapacity, and dispo-
sition of property after the death
of the settlor of the trust with the
least involvement possible by the
probate (surrogate or orphan’s)
court.
Trusts are not only for the
wealthy. Many young parents
with limited assets choose to cre-
ate trusts either during life or in
their wills for the benefi t of their
children in case both parents die
before all their children have
reached an age deemed by the
parents to indicate suffi cient ma-
turity to handle property (which
often is older than the age of ma-
jority under state law).
Trusts permits the trust assets
to be held as a single undivided
fund to be used for the support
and education of minor children
according to their respective
needs, with eventual division
of the trust among the children
when the youngest has reached a
specifi ed age.
This type of arrangement has
an obvious advantage over an
infl exible division of property
among children of different ages
without regard to their level of
maturity or individual needs at
the time of such distribution.
For More Information, See
Planning With Retirement Bene-
Trusts
fi ts: General Information for Plan
Trusts are legal arrangements Participants. This is a brochure
that can provide incredible fl exi- published by the ABA.
bility for the ownership of certain
assets, thereby enabling you and Annuities and
your heirs to achieve a number retirement benefi ts
You may be entitled to receive
of signifi cant personal goals that
some type of retirement benefi t
cannot be achieved otherwise.
The term trust describes the under an employee benefi t plan
holding of property by a trustee, offered by your employer or have
which may be one or more per- an Individual Retirement Ac-
sons or a corporate trust company count (IRA) or a Roth-IRA.
Typically, a deferred com-
or bank, in accordance with the
provisions of a contract, the writ- pensation or reti rement benefi t
ten trust instrument, for the ben- plan provides for the payment of
efi t of one or more persons called certain benefi ts to benefi ciaries
benefi ciaries. The trustee is the designated by the employee in
legal owner of the trust property, the event of the employee’s death
and the benefi ciaries are the eq- before retirement age.
After retirement, the employee
uitable owners of the trust prop-
may elect a benefi t option that
erty.
A person may be both a trustee will continue payments after his
and a benefi ciary of the same or her death to one or more of
the designated benefi ciaries. It is
trust.
If you create a trust, you are sometimes advantageous to have
described as the trust’s grantor or these plan assets paid to trusts,
settlor. A trust created by a will but naming a trust as the benefi -
is called a testamentary trust, ciary of such plan assets raises a
and the trust provisions for such number of complex income tax,
a trust are contained in your will. estate planning and other issues.
Naming the surviving spouse
A trust created during your life-
time is called a living trust or an as the benefi ciary of certain re-
inter vivos trust, and the trust pro- tirement plans and spousal annui-
visions are contained in the trust ties is mandated by law and may
agreement or declaration. The be waived only with his or her
provisions of a living trust or inter properly signed consent. Com-
vivos trust (rather than your will petent estate planning counsel is
or state law default rules) usu- crucial.
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If you are entitled to start re-
ceiving retirement benefi ts during
your lifetime, the various payment
options will be treated differently
for income tax purposes. You
should seek competent advice as
to the payment options available
under your retirement plan and
the tax consequences of each.
Life insurance
If you own life insurance on
your own life, you may either
(a) designate one or more ben-
efi ciaries to receive the insurance
proceeds upon your death, or
(b) make the proceeds payable
to your probate estate or to a trust
created by you during your life-
time or by your will.
If insurance proceeds are pay-
able to your estate, they will be
distributed as part of your gen-
eral estate in accordance with the
terms of your will or, if you die
without a will, according to the
applicable state laws of intestate
succession.
If the proceeds are payable to
a trust, they will be held and dis-
tributed in the same manner as
the other trust assets and may be
protected from creditors’ claims.
Insurance proceeds that are
payable directly to a minor
child generally will necessitate
the court appointment of a legal
guardian or conservator. This can
be avoided by naming a trust or
custodial account under the state
transfers-to-minors law as the
benefi ciary.
Trusts often are used for insur-
ance proceeds, even if the trust
benefi ciary is not a minor, to pro-
tect the assets from a creditors,
divorce, to provide income tax
planning and distribution fl ex-
ibility, and to provide centralized
or professional management of
the proceeds.
Insurance plays an important
role in fi nancial, retirement and
estate planning and should be co-
ordinated with all other aspects
of your estate plan.
The laws pertaining to the tax-
ability of insurance proceeds are
complex, so it is important that
all matters pertaining to life in-
surance be carefully reviewed
with your attorney and insurance
advisor.
For example, your insurance
coverage should be reviewed at
least every two or three years to
assure that the policy is perform-
ing as intended, the insurance
company remains in solid fi nan-
cial position, and that the owner-
ship of the policy and its benefi -
ciary designations still comport
with your wishes.
Disclaimer
This information is provided
as a public service by the ABA
Section of Real Property, Trust
and Estate Law. While the infor-
mation on is about legal issues,
it is not legal advice or legal rep-
resentation. Because of the rap-
idly changing nature of the law
and our reliance upon outside
sources, we make no warranty or
guarantee of the accuracy or re-
liability of information contained
herein.
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