What Do I Need To Know To Do To A Will And Plan My Estate?

This is a question we hear regularly from clients. In order to assist you in addressing this question for yourself, here are some of the important basics for you to know:

Your Last Will and Testament (“Will”) is a legal document that sets forth, in detail, what is to happen to your property after you die.

Your Will controls what happens to your probate estate. All property owned solely in your own name, plus any and all other property interests that do not pass to somebody else by “operation of law” are included in your probate estate, and are distributed under the terms of your Will.

If an asset is held jointly with right of survivorship (for example, a house that is held jointly with right of survivorship, or a joint bank account) the survivor gets 100% ownership at the very moment of the other owner’s death. Also, if you name a designated beneficiary of an asset (for example, a beneficiary of a life insurance or pension death benefit), that designated beneficiary will inherit the asset immediately at the owner’s death.

An asset that passes by “operation of state law” is not passed through the probate estate and is therefore not controlled by the Will.

However, all assets in which the deceased person had an interest are part of the taxable estate. There is a big distinction between one’s probate estate and taxable estate. Avoiding probate does not mean avoiding taxes, and specialized estate tax planning, which is beyond the scope of this basic summary, can be accomplished with the help of an experienced estate planning attorney familiar with federal estate tax law.

If you die without a Will, your assets will be distributed among the persons (usually one or more family members) as dictated by the intestacy law in your state. You may be surprised to learn that in New York, and many other states, your surviving spouse will not automatically inherit your assets through intestacy if you have children.

If you die intestate, the court will choose the person responsible for wrapping up your affairs. This person is called an Administrator, and might not be the person you would have wanted. Sadly, family bickering often develops over who should be appointed by the judge. Sometimes, a public official called the Public Administrator is appointed, and must be paid with estate funds.
Here are some important components and issues to consider for a basic Will designed for a husband and wife with small children, and an estate that is less than the federal estate tax limit so that complex estate tax reduction planning is not required:

  1. Naming of Executor. The Executor is the person who is appointed to wind up your affairs, including paying all final expenses, making sure court papers are filed, taxes paid, and money distributed as set forth in the Will. Usually the spouse is named, but there should be an alternate, too.
  2. Payment of debts and taxes. Most wills contain a clause spelling out that debts and taxes are to be satisfied, and how these costs are to be shared among the estate beneficiaries.
  3. Specific Bequests of tangible property or cash can be made. For example, “My beloved cousin John Smith is hereby given, devised and bequeathed the sum of $ 10,000.00”
  4. Disposition of the remainder (or residue) of property. This consists of everything that remains after steps 1 through 3, above. Usually, people want it this way: “If I die first, everything goes to my spouse. If my spouse has already died, all to the children, in equal shares, per stirpes.” (Latin for, “If a child dies before the parent, that child’s children split the share.”)
  5. When there are minor children, a Will should always be used to name a guardian(s) of their persons and property. Alternates should also be named. This should not be done any other way. Of course, if there is a surviving parent, he/she automatically is guardian, if living in the same household. Be aware, too, that the court will probably have to approve the proposed guardian eventually, even if named in a Will (unless he/she is the surviving parent, in the same household). The purpose of the Will in this regard, though, is to guide the court, and to avoid family arguments over who is better qualified.  The person you choose as guardian is the person who will raise your children. It is generally suggested that they share your views, moral and religious beliefs so that your children are raised in a manner of which you would approve.  The guardian will also control any property received by your children from sources outside your estate (or from your estate if you do not name a trustee as discussed in #6 below).
  6. 6A trustee should be appointed for children who inherit money from your estate before they are of age.

Consider carefully, however, the appropriateness of leaving money or other property outright to young children, even if a qualified guardian is available. Guardianship is a cumbersome way to manage financial affairs. Periodic reports and accounting to the court are required, and flexibility is limited by law. More important, for many, is that guardianship ends at the age of legal adulthood (usually 18, sometimes 21).

From then on, any property left to a child is exclusively owned and controlled by him/her. Most people recognize that it is bad to die intestate, unintentionally leaving half (or more) of everything to small children. Sometimes they forget it might be no better to die with a Will, if it allows the same result, i.e., leaving property to minor children.

If significant assets are to be committed immediately at death to the direct benefit of your children (as opposed to their surviving parent), a Trust is the way to go. A trust can keep your estate from eventually falling into the hands of inexperienced and immature teenagers, if you have left your children money and die while they are young.

A properly drafted trust can put the trustee, a person you choose to control the money until the child reaches a designated age, in the position of a “gatekeeper” who makes sure your youthful and inexperienced child is not left in control of a large sum of money after reaching 18 or 21 without appropriate financial supervision. A trust can defer the outright control until some later age, often 25, 30 or later, while still allowing the trustee to spend sums he or she deems appropriate for important expenses like education, healthcare, purchase of a home, etc.
The foregoing is merely a general overview of some of the principles involved in basic estate planning, and should not be construed as legal or tax advice for a specific situation.

Estate planning encompasses both property distribution planning, and estate tax reduction planning if your estate exceeds the federal estate tax exemption limit. Personal preferences, goals and psychological factors relative to estate planning should be considered before making a Will.

Preparation of a power of attorney and healthcare proxy and living will should also be considered when planning your estate. These documents allow you to appoint a competent and trusted person to handle your financial and medical affairs if you are too ill to speak for yourself. The unfortuate case of Terri Schiavo a few years ago reminds us just how important these planning tools can be. They allow you, not the courts, to decide who should speak for you.
It is important to explore the facts with competent legal counsel, and specific legal and tax advice should be sought prior to making any estate plan.

Copyright Robert G. McDermott – March 2006.