Moral of the story: Make sure your beneficiary designations are up to date. Doing so should be as much a part of the estate planning process as writing a Will.
Remember
The legal form in which you own an asset determines who gets it when you die. Check how you own your assets.
Real estate
•Who are the named owners on the deed?
•If more than one named owner, are they joint tenants, tenants in common, or something else?
•Does the deed specify a beneficiary?
Bank or brokerage accounts
•Who are the owners of the account?
•If more than one named owner, are they joint owners or something else?
•Is there a POD or TOD designation on the account?
Life insurance, IRAs, 401(k)s, annuities, pensions
•Who are the primary beneficiaries?
•Who are the secondary beneficiaries?
Vehicles
•Who are the named owners on the registration?
•If more than one, are they joint owners or something else?
•Does the registration specify a beneficiary?
CHAPTER 3
More About Wills
You’ll Want to Know
A LAST WILL AND TESTAMENT (“Will”) is a basic building block of an estate plan. In this chapter we’ll look at the different parts a Will should have, why you need one, and where you should keep it.
What Happens to Your Property
if You Don’t Have a Will?
If you don’t have a Will, then any property which would otherwise pass by Will (your probate estate) instead passes according to state law. These laws are generally called intestacy laws and this situation is typically referred to as an intestacy or an intestate estate.
The intestacy laws of your state determine which relatives inherit your probate estate if you don’t have a valid Will. Such relatives are called your legal heirs (sometimes called distributees). In most cases your legal heirs will be your surviving spouse, your children, and any grandchildren of a deceased child, but this can vary in certain particulars from state to state. If at the time of your death you have no surviving spouse, children or grandchildren, then the law specifies how your estate will be divided among more remote relatives, such as surviving parents, siblings, nieces and nephews.
Examples
Michael lives in State A and dies without a Will. At the time of his death, he has a surviving spouse and three surviving children. His probate estate is valued at $100,000. The intestacy laws of State A say that if a deceased person is survived by a spouse and children, the spouse receives one-half of the estate and the other half is divided among the surviving children. His spouse will receive $50,000 and each of his children will receive about $16,667.
Assume the same facts as above, except that Michael lives in State B. The intestacy laws of State B say that the surviving spouse receives $50,000 off the top plus one-half of the rest of the estate, and the balance is divided among the surviving children. His spouse will receive $75,000 ($50,000 plus $25,000) and each of his children will receive about $8,334.
Lydia lives in State A and dies without a Will. At the time of her death, she has no surviving spouse, children or parents. Lydia has a surviving sister, who has three children. She also has a surviving niece and nephew, who are the children of Lydia’s deceased brother. Her probate estate is valued at $100,000. The intestacy laws of State A say that one-half of Lydia’s estate passes to her sister and the other half passes to the children of her deceased brother in equal shares. Lydia’s sister will receive $50,000 and the children of her deceased brother will receive $25,000 each.
What Your Will Should Include
The primary purposes of your Will are to:
•give your instructions regarding your probate property,
•name your executor, and
•name a guardian for your minor children (if any).
Make sure your Will clearly states what should happen to all of the property in your probate estate so that state law doesn’t make those decisions for you.
Your Tangible Personal Property
Typically, a Will contains a separate provision for the distribution of your tangible personal property. For example, “I give and bequeath all of my tangible personal property and household effects and the like wherever situated, such as jewelry, clothing, automobiles, furniture, furnishings, silver, crystal, china, books and pictures, to my spouse, John.” As we saw in Chapter 1, Basics You’ll Want to Know, tangible personal property is personal property (not real estate), that you can touch; for example, the items listed in the previous sentence. Such property is sometimes also known as your “personal effects.”
Often the value of tangible personal property is more sentimental than economic, but not always. Make sure you specify not only who is to receive your tangible personal property but also, if there is more than one person, the method used to divide up the property. For example, “I give and bequeath my tangible personal property to my children who survive me, to be divided as they agree or, if they cannot come to an agreement within six months after my death, then as my executor shall determine.”
If you want to leave specific items of tangible personal property to specific people, you can, of course, do so. Just don’t forget to name who gets the balance of any tangible personal property you haven’t specifically described. For example, “I give and bequeath my sterling silver tea service to Jane and the balance of all my other tangible personal property to my spouse, John.” If you decide to give specific items to specific people, make sure you describe the item sufficiently so that there can be no doubt about which item you mean. “My engagement ring” may cause confusion whereas “my 1.75 carat square-cut diamond solitaire engagement ring set in platinum” may be a better description.
Make sure your attorney knows about any tangible personal property that is particularly valuable, such as valuable art or jewelry, or a valuable collection. In the interest of clarity, you may want to refer to such property specifically instead of having it pass under the general tangible personal property clause. For example, “I give and bequeath all of my tangible personal property, including my collection of twelve Monet watercolors, to Sally.”
If your Will is unclear about whether or not an item is “tangible personal property,” then state law will decide. For example, although money in a bank account typically is not tangible personal property, cash in the house or in a safe deposit box may be considered to be tangible personal property. If you’re not sure whether an asset is tangible personal property, ask your attorney for clarification.
Example
Sam’s Will specifies that all of his tangible personal property passes to Nancy, but that the residue of his estate passes to Claudia. After Sam’s death, $10,000 in cash is discovered in the wall safe in his house. Does this $10,000 pass to Nancy, as part of the tangible personal property? Or does it pass to Claudia, as part of the residue?
It depends. If Sam’s Will specifically states something like “I give my tangible personal property, including any household furniture and furnishings, automobiles, books, pictures, jewelry, art, clothing and other articles of household or personal use, but excluding coins held for investment and paper currency, to Nancy,” then the cash passes to Claudia.
If the Will is not that specific, then it depends upon how “tangible personal property” is defined under the law of Sam’s state.
Depending on the state where you live, you may be able to write a note or memorandum, separate from your Will, that lists specific items of tangible personal property and the person you want to receive each item. Then, if you change your mind, you can just change your list without having to change your Will. But be aware that in some states this type of note or memorandum is legally binding, while in others it is just a request that cannot be enforced legally. Make sure you know what the law is in your state.
Your Residuary Estate
The residue of your estate (also known as your residuary estate) is what remains after the payment of debts, expenses and taxes, the distribution of the tangible personal property, and the payment of any specific amounts you leave to anyone. Your Will must have a provision which disposes of the residue. For example, “I give, devise, and bequeath all the rest, residue and remainder of my property, both real and personal, of whatever kind and nature and wherever situated, to my spouse, John.” This type of catch-all provision is known as the residuary clause.
You should name alternate beneficiaries of the residue in case your primary beneficiary dies before you do. For example, “I give, devise, and bequeath all the rest, residue and remainder of my property, both real and personal, of whatever kind and nature and wherever situated, to my spouse, John, if he survives me or, if he does not survive me, to my sister, Cathy, if she survives me or, if she does not survive me, to [name of a charity].”
What Does an Executor Do?
Your Will should also name an executor (and at least one alternate if the first executor is unable or unwilling to serve). Your executor is legally responsible for settling your estate. If you don’t name an executor, or if all your named executors are unable or unwilling to serve, then the court will appoint an executor, but it may not be who you would have wanted.
Generally speaking, an executor:
files the Will for probate if necessary,
makes a diligent search for any assets of the deceased person; this may involve doing some detective work such as contacting financial institutions,
safeguards the assets while the estate is being settled; for example, maintains any real estate, insures the property, and so on,
pays all legitimate debts, expenses and taxes; this may involve determining whether or not a debt is legitimate, and
distributes the remaining assets in accordance with the Will.
An executor’s role is usually fairly short. Once the estate is fully settled (typically in a year or two), the executor’s job is done.
Who Should You Choose as Your Executor?
You have a lot of choice in naming your executor. It can be any adult individual, such as a family member, friend, your accountant or your attorney. It can also be a corporate executor, such as a bank or trust company. If you wish, you can have more than one executor, who will act together as co-executors.
The most important consideration in choosing an executor is whether you trust that person to carry out your wishes, as expressed in your Will, as accurately, fairly and efficiently as possible. If you name co-executors, it is extremely important that they work well together. If not, you might be better served by naming a sole executor. You may feel that you should name all of your children as co-executors to avoid hurting anyone’s feelings, and in some cases that may work out okay. But remember that this is not an honorary position; your executor has real legal rights and obligations. Be very cautious before you “include” a child as a co-executor who may cause problems for your estate, for example, someone who might fail to provide necessary information, might not meet court or other deadlines, or might be unhelpful to or disagreeable with the other co-executor(s).
In this day and age it is not particularly important to name an executor who lives close to you; most tasks can easily be done remotely. Also, as a practical matter, in most cases your executor will hire an attorney in the state where you live to help settle your estate.
Naming a Guardian for Your Child
If you have a minor child-that is, a child under the age of 18 or 21, depending on state law-then it is important that you name the person you would like the court to appoint as your child’s legal guardian in the event a guardian is needed upon your death. Generally speaking, the court-appointed guardian (sometimes called a conservator) will have the rights and responsibilities of a parent, such as deciding where the child will live, what school he or she will attend, and the like.
Generally it is the court who ultimately decides who to appoint as guardian, based on the best interests of the child. The court doesn’t necessarily have to appoint the person you name; however, your choice will be a strong factor in the court’s decision. If you wish, you can name co-guardians. You should also name at least one alternate guardian in case your named guardian is unable or unwilling to accept the job.
Providing Financially for a Child
Although it is the court who appoints the guardian, you can decide who controls any money or other property that you leave for the benefit of a child.
In many states, a young child cannot directly inherit property of a value above a certain (small) amount. If you leave more than that amount to a child, the court will appoint someone to manage and control the property while the child is a minor. This court-appointed person is sometimes called a custodian or conservator of the estate of the child. When the child reaches the age of majority, the child automatically receives the property outright.
A much better way to provide financially for a child is to set up a trust for him or her. There are at least two major advantages to this: First, you get to appoint the person (the “trustee”) who will manage the child’s property, rather than leaving this important decision in the hands of a judge. Second, the child does not have to receive the property outright as soon as he or she reaches the age of majority. Instead, the trust can continue for as long as you like – even for the child’s whole life. You can create the trust as part of your Will (see Chapter 5, Do You Need a Trust?) or as part of a revocable living trust (see Chapter 6, Revocable Living Trusts).
I am often asked whether it’s better to name the same person as both guardian and trustee, or whether it’s better to have different people in each of these roles. As with most things, there are pros and cons. On one hand, it may be easier for the guardian to access money for the support of the child without having to go through another person (the trustee). On the other hand, naming a separate guardian and trustee provides a system of checks and balances.
Other Will Provisions
The discussion above is by no means an exhaustive list of all of the provisions that can and should appear in a Will. There are many others. The important point is that, whatever provisions there are, your Will should be clear and unambiguous. You don’t want controversies to arise after your death because your Will is subject to different interpretations.
Where Should You Keep Your Will?
State law and custom influence where you should keep your original, signed Will. In general, you should keep it in a safe place, because the original is needed for probate and to have your executor appointed. In some states, if your original Will cannot be found, then the law presumes that you intended to revoke it. Regardless of where you keep the original of your Will, you can, of course, keep copies at home for reference.
You may be inclined to keep the original in your safe deposit box. Whether you should do so depends on whether or not the person you named as your executor will be able to get into the box to retrieve the original of your Will.
In some states it may be just fine to keep your original Will in your safe deposit box because, after you die, your named executor will have easy access to your safe deposit box by, for example, simply showing the bank a copy of the Will in which he or she is the named executor.
However, depending on your state’s laws, your solely-owned safe deposit box may be sealed upon your death, in which case your named executor will need a court order to retrieve your original Will. In that case, you may be better off not keeping it in your safe deposit box. Some estate planning attorneys will offer to keep your original Will for you in their vault at no charge. Other options would be a safe or a fireproof file cabinet at home.
As with everything else, look to your attorney for guidance on the particular laws and customs in your state. Whichever way you go, make sure you are clear about where your original Will is located. It’s also a good idea to tell your executor where to locate your Will. But you don’t necessarily have to tell
your executor what your Will says or give him or her a copy-that’s entirely up to you.
You Need a Will Even if
You Think You Don’t
As we saw in Chapter 2, The Number One Misconception About Wills, many types of property don’t pass by Will; namely, property that passes by beneficiary designation and property that passes by law. Moreover, as we will see in Chapter 6, Revocable Living Trusts, you can transform almost any property that would otherwise pass by Will into property that does not pass by Will by using a revocable living trust.
So you might not have any property that passes by Will. Then why bother having one?
In short, you need a Will as a default measure to handle any unexpected probate assets. In the course of settling your estate, your executor may find probate assets that were previously unknown, or may have been forgotten, or the like. For example, you may have thought that you and your spouse owned your cars as joint tenants with right of survivorship (no probate needed), when you really owned them as tenants in common (probate needed). Another common example would be if, after you die, your executor receives a refund check which is made out to you. In each of those cases, without a Will your share of the cars and the refund check, respectively, would pass by intestacy, which almost certainly isn’t what you want.
Examples
Mr. & Mrs. Jones own their home as joint tenants with right of survivorship. They also own some joint bank accounts, their respective 401(k) accounts, and life insurance. They have named each other as the beneficiaries of the 401(k)s and the life insurance. Assume Mr. Jones dies. The house will pass to Mrs. Jones by law, as will the joint bank accounts. Mr. Jones’ 401(k) and the life insurance upon his life will both pass to Mrs. Jones by beneficiary designation. There are no assets which would pass under a Will, that is, no probate assets. Why, then, would Mr. Jones need a Will?
Estate Planning for the Savvy Client Page 3