The Facts about Estate Planning

I am amazed at how little knowledge most people have regarding estate planning. Far too many people express the belief that the state will take at least some of their property if they die intestate (without a will). Many believe that the estate plan does not allow for much if any creativity, unless they have lots of money. They believe that an estate plan, in fact, is not necessary unless the estate is worth lots of money. They also believe that it costs too much money to develop a good estate plan. Well, I draft wills, trusts, powers of attorney, and other estate planning documents, and I generally charge very little. My rule of thumb: help the client. If you seek diligently, you will find others who feel the same.

Dying Without a Will

First of all, every state has an intestate succession statute which distributes the deceased’s estate in the event that no will exists. The typical intestate succession statute leaves everything to the spouse if there exists no children. For the record, “children” usually includes legitimate, illegitimate, stepchildren, adopted children, and those children derived from artificial insemination. If the deceased is married with children, then the spouse gets one half, and the children split the other half. (Read that again if necessary.) If the deceased leaves children but no spouse, then the children split everything. If the deceased leaves no spouse and no children, then the deceased’s parents take everything in equal shares. If no parents exists, then the maternal grandparents split one half, and the paternal grandparents split the othe half. On and on it goes.

Simple Guidelines for the Will

First of all, the authentication of the will can be bedeviled if the will presented for probate has handwritten deletions, modifications, or other marks suggestive of these. For that reason, I strongly advise everyone never to give others a copy of your will. It is senseless, anyway. Why do that? Keep the original in a safe place, and if you just must have a copy, make sure it is watemarked or otherwise notated on every page in such a way that it is clearly identified as a copy. If you want to discuss it with your children, parents, friends – fine. They do not need copies.

There is no requirement that a will be typed, prepared by an attorney, or stored in a safe deposit box. However, understand that software programs and other quick fixes generally do not adequately consider each state’s laws regarding wills and probate. The area of wills and probate is a state-controlled area, and each state has its own probate code. States vary, though not by much typically, in what they formally require in order to have a valid will. In general, a will must be written, signed by the testator, present the intent and capacity necessary to make a will, be dated, and be witnessed. The witnesses may even be beneficiaries.

When a husband and wife prepare wills, they often forget to include a Simultaneous Death clause. This can matter greatly. Understand that a husband and wife cannot operate with just one will. Each person needs his or her own will. Now, consider the spouses dying in a plane crash. If such an event occurs, it can be impossible to determine who died first. The husband’s will may have left a few things to his children from a previous marriage, and the rest to his wife. The wife’s will may have left a few things to her children from a previous marriage, and the rest to her husband. Whose will controls? Good question. That is why the spouses need corresponding Simultaneous Death clauses.

Finally, utilize the Memorandum option. Most jurisdictions allow the use of a separate document called a Memorandum. The Will itself references the Memo and instructs that all bequests in the Memo be satisfied prior to the Will, which directs the division of the remainder. The Memo is a separate, usually one-page document that contains a two-columned list. One column is for the asset to be described, and the other column is for identifying the beneficiary to receive the listed asset. This Memo can be added to over time. For instance, a person can keep this Memo in a safe place and pull it out after the holidays, upon learning that John Junior has always loved the gun cabinet in the garage. Old Crappy Gun Cabinet in the garage…. John Junior. The “Will” was just amended.

Everyone Can Be Creative

Life insurance proceeds are not probate property! This means that this money does not pass under a will. It passes as directed in the contract of insurance – typically called the insurance policy. However, do not ever forget or underestimate the importance of life insurance when it comes to estate planning. Sure, I know. You have a policy or two. Odds are, the beneficiaries of those policies are spouse, kids, maybe even parents. That’s good. However, if you want to do something really cool, create a trust. It’s not too expensive. In fact, I created a trust last week and charged the person $125. Why create a trust? Check this out.

Consider Joe and Amy, who have three children, 10, 6, 3 years of age. If Joe and Amy die, then the estate may receive life insurance money from one or both of the spouses, assuming the other spouse was the beneficiary. In that case, the children (or their guardian…. think long and hard about this…) would get the money. Arguably, a better scenario would have this money being managed in such a way that it could not be spent except as the parents would want it spent were they alive. Hence, the trust.

To make this short, I will complete the example with what I did last week. I established a trust for Joe and Amy. According to the trust, the guradian (or parent if one is still alive) of the children can spend money on behalf of the children only for education, health or welfare. When each child reaches 18, the child gets $2,500. When the child reaches 21, the child gets $5,000. When the child reaches 25, the child gets $7,500. When the child reaches 30, the child gets his or her share. You see, the beneficiary of the $250,000 life insurance policy was the Joe & Amy Children’s Trust. Upon Joe’s death, $250,000 went into a trust, managed by the bank. The bank is authorized to invest with minimum to moderate risk. The trustee is authorized to distribute funds only as authorized in the trust document. Think about this. Let your creativity and imagination work.

Live Well, Die Well

That’s enough for now. Of course, estate and other taxes must be considered. If the estate is valued at a million dollars, the government may get over a third of it in taxes. There are ways to diminish these taxes. Lifetime gifts, shelters, and so on. I will not bore you anymore, though. Just remember that it doesn’t take much these days to have an estate valued that high. Do you have a house, land, a vacation home? If you die in 10 years, what do you imagine their values will be? Add to that the values of automobiles, bank accounts, and so on… It adds up quickly.