ESTATE
PLANNING - WILLS
"This section
contains additional data that supplements basic information contained in
Your
Money Matters
and should be used
in conjunction with the material contained in Your
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Everyone knows the importance of preparing and maintaining a will,
yet many people have never written one. Your will should specify
exactly how your estate is to be divided, including, if appropriate,
a list that indicates which heirs are to receive which specific items
of personal property. More on this below.
Although your will should be drawn up by a lawyer, you (and when
possible, your heirs) should be familiar with its general form and
contents. The following items should be included:
v Your full name
v A statement that the document is a will
v The date
v A statement revoking all previous wills
v Specific bequests and provisions for the death of the named beneficiaries. (A specific bequest is for the transfer of a particular piece of property to a named beneficiary.)
v General bequests (which do not specify from which part of the estate the property is to be taken), with provisions for the death of the named beneficiaries
v Instructions for dividing the residuary (that is, the total amount of the estate remaining after these specific and general bequests have been made).
v Provisions for trusts, if any, including the names of selected trustees and successor trustees
v Statements of who should be presumed to have died first (either husband or wife), should both die in a common accident. (This allows both wills to be processed without complications.)
v Names of guardians and alternative guardians for minor children, if necessary, or for a handicapped dependent under your care. (See additional discussion of guardianship below.)
v Names of the executor and substitute executor
v Your signature. Your will should be signed in the presence of witnesses. In general, it is preferable to have disinterested witnesses at the signing of the will. In some states, the validity of the will may be questioned or denied if the signing is witnessed by individuals who have an immediate financial interest in your will.
v Any major changes in the
form of codicils (a will amendment). Codicils must be witnesses and
signed, just like the original will.
Important Considerations in Drafting a Will
A will is an essential estate-planning document — don’t leave home without it! A common misconception is that a will limits your flexibility. This is by no means the case, as a will can always be changed to reflect changes in your circumstances or desires. In fact, changing the will to reflect such changes is an important part of estate planning. Getting married or divorced, starting a family, losing loved ones, and becoming disabled all are changes that more likely than not will require revisions in your will. Indeed, in many states, marriage, divorce, or a new baby invalidates any existing will. You can either write a new will that declares any previous will to be invalid or append a codicil to an existing will. Moving to a new state may invalidate a will drawn up under the laws of your previous state. Codicils are subject to the same legal stipulations as are wills. Earlier wills should be saved for reference: If a current will is declared invalid, the latest dated, legally valid will is considered as your legal will.
The first step in drawing up your will is to decide which of your assets should go to which inheritor. All valuable possessions should be clearly identified in the will, along with your designated inheritors. It is also advisable to include the manner in which your less valuable personal possessions are to be distributed. Alternatively, a list indicating specifically how personal possessions are to be distributed could be included in your letter of instructions. (A letter of instructions, however, does not have the legal standing of a will.) Very elderly individuals who have not yet divided up their personal possessions might be advised to place color stickers in an inconspicuous place on individual possessions, each color indicating a specific heir. The explanation of which color belongs to which heir can be included in the letter of instructions.
Disposing of certain possessions before death may also be advisable for older people who may no longer need certain items. They will save themselves (and their heirs) a great deal of trouble by giving away, donating, or selling unneeded possessions before they die.
Some related parties, particularly married couples, prepare a joint will, under the terms of which they leave everything to each other or to specified beneficiaries if they die together. Joint wills can create problems and unexpected litigation. Questions naturally arise as to whether one of you can change the terms of the will without the consent of the other. Separation and divorce can cause additional problems. Some joint wills obligate the survivor to make bequests to specific persons. This may, under some state laws, not qualify for the marital deduction and could therefore be subject to tax. Joint wills are a bad idea — everyone should have his or her own individual will.
The legal term for dying without a valid will is dying intestate. If you die intestate, your heirs will be faced with estate planning’s worst-case scenario. If you simply “haven’t gotten around to” drafting a will, consider this: If you die without one, the state will have complete power to determine the disposition of your estate.
When you die intestate, the state courts will step into the fray. Each state has its own laws governing intestacy. In most states, however, the first action the court will take is to appoint an administrator for your estate. Your spouse will probably be saddled with that thankless task, or the court may appoint one of your children or grandchildren. Essentially, the court will go through the line of succession until it reaches the first qualified individual able to administer your estate. In cases where no survivors are available or able to serve as administrator, the court appoints a public administrator.
State law often hobbles the ability of the administrator to act effectively. For instance, should real estate need to be sold to pay your estate’s bills, a court order may first be necessary if minors have any claim to the property. (Under most state laws, real estate passes intact to your survivors. Any decision about disposing of real estate must thus be unanimous.) Obtaining a court order can be costly, as can having to post a bond, which your estate’s administrators must also do.
In addition, your administrator will have no say over how the property is distributed to heirs. Instead, a group of statutes known as the laws of descent and distribution mandate to whom the estate will go once all liabilities have been satisfied. Typically, the law would divide your property between your spouse and children — approximately half to the spouse and half to the children. The exact proportion involved would depend on the particularities of a given state’s intestacy code. There are a thousand permutations of the law designed to meet every possible combination of survivors. The law is rigid in its prescriptions, however, and more than a few intestate estates have been gerrymandered under laws that reflected very little of the survivors’ actual needs. Indeed, the laws of descent and distribution almost never reflect the decedent’s wishes, particularly where a spouse and children are involved. Enough said.
Guardianship generally refers to responsibility for a minor child’s (or disabled adult’s) care and upbringing if the parents die early. Although most parents would rather not think of someone else raising their children, it is important to consider the possibility of your death before the children are able to care for themselves. Lawyers are increasingly urging their clients who have children to make detailed guardianship arrangements and to make them earlier in life.
These lawyers and estate planners are entirely correct. Deciding who should take care of your minor children can be a very difficult process. Today, however, a failure to make such decisions can lead to greater custodial and financial problems than families have encountered in the past. With the increasing number of less traditional family situations, such as divorced parents and step-parents, the possible complications are obvious.
Estate planners estimate that 80 to 90 percent of parents with young children have no formal instructions specifying who will care for the children in the event of their death — never mind who will manage the children’s finances. As a result, such decisions fall to overloaded state courts, where battles over custody and money can leave orphans in limbo for months or longer.
The trend toward more complex guardianship arrangements is occurring for good reason. Divorce and remarriage are commonplace among parents, and if one parent dies, the determination of who gets custody of the children may not be clear-cut. It’s no longer automatic that the parents’ first choice will be the court’s first choice.
Under most state laws, the natural parents have paramount right to custody of the children. But in a dispute, the judge will make the decision based on factors such as the length of the marriage, how involved the biological parents were in the children’s lives, and the wishes of the children. If the step-parent has adopted the children or has made them inheritors, the case to retain them is much stronger. This is where the wishes of the deceased natural parents can play a crucial role in the decision-making process.
On the other hand, courts tend to work very slowly when there is no written instruction available from the deceased parent. Another problem that arises when instructions for guardianship are absent is that economics tends to play a larger role than many parents would like. Simply put, it’s not always the relative with the most affection for the child who receives custody, but the relative with the most money.
Your attorney may advise you to divide guardianship duties so that the responsibility for taking care of the children’s health and well-being is given to a personal guardian, and the responsibility for taking care of their financial affairs is given to a property guardian. There are several reasons for separating guardianship responsibilities between a personal guardian and a property guardian. The most important reason is that the particular relative or friend whom you trust completely with your child’s upbringing may not have the expertise to deal with money that will be left to the child. Indeed, if no written instruction from you is available, the court itself may well appoint both a personal guardian and a property guardian.
But there is another side to the question of division of responsibilities. The separate trustee of the child’s assets may be unaware of — and even at odds with — your and your guardian’s financial priorities. Of course, this is more likely to be the case when the court appoints property guardians without the benefit of a written instruction from you. In many states, the guardian must hire a lawyer and petition the court annually to be reimbursed for even the most routine child rearing expenses.
Since the main goal of appointing a property guardian is to protect an estate until a child reaches the age of majority, courts are often reluctant to allow any expenses that will decrease the principal. In one case, the guardians of a 12-year-old disabled child received only $5,200 for her care, even though the assets available to her totaled six figures. Don’t allow this to happen. Include clauses in your will or trust that empower your guardians to spend the money in your estate that is necessary to raise the children as you would want them to be raised.
If your estate is likely to be considerably greater than the resources of the guardian, it is conceivable that your children will grow up in a household where there is some resentment of their inheritance. If this is a possibility, you may want to consider empowering the property guardian to provide additional resources to the personal guardian’s family to minimize the potential for resentment. For example, some parents provide for the payment of college tuition out of their estate for the guardian’s children as well as for their own.
Finally, regardless of how the guardianship arrangement is made, it
is vital that you discuss your wishes with the potential guardians
prior to putting them in the will or trust. If the children are old
enough, they should be included in the discussion, too. Parents are
too often embarrassed to do this or afraid to start a fight within
the family. Don’t you be. Realize that it is of the utmost
importance to inform guardians. Otherwise, upon the event of your
death, serious problems could arise when your designated guardians
suddenly realize they are responsible for the lives of your children.