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Last Will & Testament

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Can anyone make a will?

Generally, yes. But there are requirements set forth by state law that must be met for it to be valid. The person making the will must be of a certain age (usually 18) at the time the will is made. He must also have testamentary intent. Additionally, the testator must have testamentary capacity. This means that he is of sound mind and understands that he is creating a will, knows the extent of the property he owns, knows the people that are related to him, and understands the estate plan that he is creating.

The above requirements must be satisfied at the time the will is made. Anything before or after that point in time will not cause the will to be invalid.

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What is required for the will to be valid?

Every state sets forth a few general criteria for the will to be valid, commonly known as "requirements for due execution." Generally, the will must be written (handwritten or typed), signed by the person making it, and signed by at least two competent witnesses. You must sign in the presence of your witnesses and notary and they have to sign in your presence. Remember that the testator also has to be a certain age and of sound mind.

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I executed my will 10 years ago, and at that time both of my witnesses were sane and healthy. However, one of my witnesses now has been diagnosed with dementia. Will her current condition cause my will to be invalid when I die?

No. The signature of your witness is valid as long as she was competent when she signed the will. Her mental condition at any time before or after she signs the will does not affect your will’s validity.

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What kind of property can I give away through my will?

You can give away any property that you own when you die, or in which you have an interest at death. This property is said to comprise your estate, and includes land, homes, cars, bank accounts, stocks, any debts owed to you, personal belongings (such as jewelry, furniture, books, etc.), and any interest you own in property as a tenant in common. However, you cannot give away “nonprobate property,” which is defined as property that passes on your death by some means other than your will or intestacy. The following are common forms of nonprobate property that cannot be given away in your will.

  1. Joint tenancy property with right of survivorship - When you die, your share automatically passes to the surviving joint owner. If you try to give it away in your will the gift is ineffective.
  2. Tenancy by the entirety property - This is property given to a husband and wife and carries with it a right of survivorship and automatically passes to the surviving spouse.
  3. Proceeds from life insurance policies, IRAs, pensions, and employee benefit plans - These are governed by your contract with the insurance or financial company, and descend to the beneficiary that you named in that contract. If you attempt to give it to someone else in your will, it is ineffective.
  4. Lifetime gift to another (called "inter vivos gift") - Since you gave the property away when you were alive, you can’t give it away again on your death - you no longer own it so it’s not in your estate.
  5. Property placed in a trust - The terms of the trust control how the property is to be distributed.
  6. Pay-on-death accounts (also called "Totten trust accounts") - When you die, the proceeds pass to the person in whose favor you created the account.
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Who can be a beneficiary in my will?

A beneficiary is a person or organization to whom you leave property in your will, and can be anyone you want. You can name as beneficiary your mother, next door neighbor, employee, favorite charity, or a person you’ve never even met. It’s your property and you can leave it to whomever you like. Note that from a legal standpoint, a beneficiary is not the same as an heir. A beneficiary is a person you name in your will to receive property and can be anybody. An heir is a person who takes your property under intestate succession if you die without a will and usually is a member of your family, however remote.

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I want to leave a sum of money to my pet poodle? Can I do that?

You cannot leave property to a pet because a pet is considered to be property itself. But that doesn’t mean that you can’t provide for your pet’s care beyond your death. One option is to leave a sum of money to a trusted individual with the requirement that the money be used for your pet’s care. Another option is to set up an honorary trust in favor of your pet.

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What do I need to consider when writing out the gifts in my will?

First, take time to think about who you want to include in your will and what property you want to give them. When it comes to gifts, describe each beneficiary and item of property with exact specificity. You do not want any confusion when the will is being probated. For real property, state the address and any other descriptive information. For personal property, describe the item and state where it can be found. Your beneficiaries should be identified by full name and you should include their addresses. It might also be a good idea to name a contingent beneficiary for each gift in the event the original beneficiary dies before you or rejects the gift, in which case the gift either fails and passes under intestacy or passes to the beneficiary’s descendants under the anti-lapse statute.

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What types of gifts can I make?

You can make four types of gifts: specific, demonstrative, general, or residuary. The gift will be either real property or personal property. Real property includes any land that you own, including any structures on the land, such as your home and garage, and any interest you own in gas, oil, or minerals. Personal property is everything else – both tangible and intangibles. Examples of personal property are: cash, stocks, bonds, clothes, furniture, jewelry, automobiles, and bank accounts.

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Can you explain how a residuary clause operates?

A residuary clause devises the remainder of your estate after all claims have been paid and all other gifts in the will have been distributed. It is a “catch-all” clause because it includes anything you own (other than nonprobate property such as life insurance) that is not specifically given to someone else in your will, including any property you acquired after the will was written and any gifts that fail for some reason.

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Where is the best place to keep my signed original estate planning documents?

The best place is probably in a safe deposit box because it will protect the documents from theft, fire, accidental loss, and most other types of damage or harm. A potential problem, though, is getting it opened after your death. If you decide to keep your estate planning documents in a safe deposit box, consider naming a family member or your Personal Representative or trustee as a joint holder on the box. That should simplify matters following your death because someone will be able to get into the box without delay.

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If someone's Will is in a safe deposit box at a bank when he or she dies, how do you get access to it?

There are two ways to get the Will out of the box. The easiest way is if another person is named as a joint holder of the box. That person can retrieve the Will with no problems or delays. Another option is to go to court to request that a judge order an examination of the box. If a Will is found, it will be sent to the court. This should be the option of last resort because it takes longer, requires the filing of papers with the court, and usually involves a lawyer and the legal fees.

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Should I give copies of my Will and other estate planning documents to my children and to the Personal Representatives of my estate?

For some people, their estate planning documents are as private as their income tax returns, and nobody is ever given copies. For other people, estate planning documents are no different than a spare key to the house, and every family member and Personal Representative and/or trustee named in the documents is given a copy. If you are the type of person who values your privacy, who does not especially trust your children, Personal Representative, or trustee, or if you have written a Will or trust which does not treat all the children equally, then it may not be a good idea to hand out copies. Also, you may have more money than your children expect, and depending on how your Will or trust is written, giving them a copy may be letting them know too much about your personal business. On the other hand, if you have a fairly open relationship with all your children, you regularly discuss finances with them, and you are leaving your estate to them in equal shares, then go ahead and give everyone a copy. Of course, if you decide to change your Will or revocable trust, you should be sure to give all the same people copies of the new documents.

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What gifts can I make without having to pay gift taxes?

Every year, you can give any person you want as much as $13,000 without any gift tax consequences. This dollar amount is known as the annual exclusion, and it is now indexed for inflation. It will be increasing from time to time in $1,000 increments. If you are married, the amount you can give to each person doubles to $26,000 since the person receiving the gift can receive $13,000 from each spouse. Gifts can be in the form of cash, stocks, bonds, real estate, or anything else of value. Buying real estate or bonds in the names of one or more other persons is the same as making a gift of that property to them. The value of the gift would be the amount of money you spent to buy the property or the bond. You can also make tuition payments for any person you choose, and these payments do not count toward the $13,000 annual limit. Payments you make for medical expenses don't count against the $13,000 limit either. However, if you make a tuition or medical payment, be sure to pay the school, hospital or doctor directly, as a check made payable to a person which is used for tuition or medical care counts towards the $13,000 annual limit. If you want to give more than $13,000 to any one person, to the extent your gifts exceed $13,000, you will use up a portion of your $1,000,000 lifetime exemption (amount currently varies from year to year). This is the amount each person can give away without having to pay gift or estate taxes.

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What exactly are 529 accounts, and are they really as good as everyone seems to think?

Yes, 529 accounts are that good. In fact, they are one of the best ways--and many people think they are the best way--to save for a child's education. You have a number of options when it comes to saving for college. There are Uniform Transfers to Minors Accounts, education IRAs, and prepaid tuition plans, to name a few. All the options have their advantages, yet 529 accounts seem to combine the best features of all of them to make a fairly good investment vehicle. The main advantage is that the earnings and most withdrawals are income tax free. Overall, 529 accounts present you with an unbeatable combination of features. The accounts offer income tax free growth and withdrawals with no gift taxes, no estate taxes, retained control of the funds, and flexibility in the future should circumstances change. The only real problem with 529 accounts is coming up with the cash needed to maximize your gifts to the accounts. I recommend calling your broker or financial planner for details on how to set up the 529 accounts.

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For whom are living trusts most appropriate? What are the pros and cons?

Living trusts are useful estate planning tools, and they have an important place in many people's estate plans. If you find any one of the following benefits appealing, then a living trust may be appropriate for you.

Benefits:

  • Benefit #1: No Probate. When a person dies, most properties pass either under a person's Will or under a living trust. Some properties--such as life insurance, IRAs, and certain types of bank and brokerage accounts--pass directly to named beneficiaries. If property passes under a Will, then the Will must be probated at the courthouse. Probate entails hiring a lawyer, filing a number of papers with the court, attending one or more hearings, and providing a written inventory to the court valuing the properties which passed under the Will. Some people don't want this type of involvement with the court, so they opt for a living trust. By transferring all properties which would otherwise pass under your Will to a living trust, you can avoid the probate proceeding. For estates which owe no estate taxes, there is usually less work for the lawyers, and that translates into reduced estate administration costs. Court involvement is not eliminated entirely however. Florida now requires the trustee of a living trust to file a notice of the trust with the appropriate court containing information about the person who created the trust and the trustee. Also, in certain circumstances, the trustee may be required to pay expenses of administering the decedent's estate as well as the claims of creditors against the decedent's estate.
  • Benefit #2: More Privacy. As mentioned above, when a person dies with a Will, an inventory must be filed with the court. You may not want your friends, neighbors, or the media to be able to read a listing of what you own and what it is worth. After all, an inventory is a public record. With a living trust, your properties and their values remain private.
  • Benefit #3: Plan For Future Incapacity. You may be worried that one day you won't be able to manage your own finances, and you may want to name someone to handle these types of matters for you. You can address this potential problem with a power of attorney or with a living trust. A power of attorney will usually be accepted by banks, title companies and the like, but there is always the risk that an institution's legal department will reject it. The same person who may be denied the ability to use a power of attorney will likely be allowed to do anything he or she wants when acting as trustee of a living trust.
  • Benefit #4: Harder to Challenge. If you are planning to disinherit one of your children or grandchildren, you may be better off with a living trust because there is nothing filed at the courthouse. Also, it is a little harder to contest a living trust than a Will.
  • Benefit #5: Avoid Out-of-state Probate. If you own property in another state, you can avoid a costly probate proceeding in that state by transferring the property to a living trust.

Disadvantages:

Before you establish a living trust you need to understand the downsides, which include the following:

  • Disadvantage #1: Time-consuming to Set Up. Depending on how many different types of properties and accounts you own, it can take quite some time to switch everything over to the name of your living trust.
  • Disadvantage #2: Complicated. Wills are usually shorter and simpler to understand than living trusts. Also, with a Will, you can sign it and forget about it. But with a living trust, you need to put your property into the trust and run your life out of it for as long as you live. For many people, this downside outweighs all the potential benefits.
  • Disadvantage #3: Time-consuming to Revoke. A year after you set up the living trust, you may decide you don't want it any more. At this point, you will need to return to every bank and brokerage house, and undo everything you had done to establish the trust. You can expect more lawyers' fees too.
  • Disadvantage #4: Post-Death Costs Not Eliminated. If you have a taxable estate, there will be a lot of work to be done after death regardless of whether probate is required. Typically, there are tax returns to file, trusts to establish, assets to value, and more. Avoiding probate will only marginally reduce the cost of administering a taxable estate.

  • If you leave just one bank account or one piece of real estate out of the trust, probate will still be necessary. And probate takes about as long when there is one asset as when there are twenty.

    I created a Uniform Transfers to Minors Account for my son a few years ago, and it is now worth about $60,000. My son has no idea about the account, but I know he is legally entitled to the funds when he turns 21 later this year. I realize it's not exactly legal to put the $60,000 back in my name, but I don't want him to get the funds because I have a suspicion it will be spent in a matter of weeks. Is there anything legal I can do to maintain control of the account and keep him from having full access at age 21?

    There are two realistic options available to you. For starters, you could invest the $60,000 in a limited partnership controlled by you. When your son reaches age 21, he will not receive the $60,000, but instead will become the owner of a limited partner interest. As a limited partner, his rights can be severely restricted, thereby allowing you to control the funds for as long as the limited partnership exists. The limited partnership agreement can be written so that your son has no right to demand a distribution or veto your investment decisions. One of the downsides to creating a limited partnership is that you are introducing a bit of complexity into your life. Many people find this type of business arrangement too complicated for their tastes. Also, the fees to set up a limited partnership can be costly. And once the limited partnership exists, you will need to file annual income tax returns to report the partnership's income to the IRS. Not only that, but many people create a corporation or limited liability company to serve as the limited partnership's general partner. If you choose to create this additional entity, the fees to form and maintain the limited partnership arrangement will be even higher. A word of caution: Your son may be the type to hire a lawyer to represent his best interests. If he does, it is possible--although highly unlikely--that your son might sue you to recover any funds you have placed in a limited partnership which limits his rights. In theory, your son would have a compelling argument. After all, most people would agree that receiving $80,000 in stocks and cash is better than receiving a limited partnership interest with all the associated restrictions.

    Another option is to tell your son about the existence of the account, but make it clear that he would be making a huge mistake by not letting you continue to control the funds. If he puts up too big a fuss and demands the money, you can modify your estate plan and completely cut him out as a beneficiary of your estate. There is nothing illegal about you managing your son's investments for him, assuming he has the right to ask for the money at any time.

    I set up custodial funds in my children's names to pay their college expenses, with me as custodian. The mutual funds I invested in have done so well that the accounts far exceed what they'll need for college. Can I legally give money from these funds back to myself? If so, how?

    No, even though there is nobody to stop you from giving the money back to yourself, doing so would be illegal. Gifts to custodial accounts are irrevocable.If you were to return the funds to yourself, your children would have the right to sue you, and they would probably win. Of course, they would probably never know what you did, and most kids don't sue their parents (especially if they think there may be a lot more money to come one day). Fortunately, you can start spending the money in the custodial account on things for your children which you may now be paying out of your own funds. For instance, if one of your children wants to spend the summer studying in France or if one of your children needs a new car, use the money in the custodial account to pay for these expenses, not your own money.

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What is the difference between a Designation of Health Care Surrogate and a Living Will?

Designation of Health Care Surrogate is a document that allows you to name an agent to make medical treatment decisions for you in accordance with your wishes if you are not able to do so yourself. A Living Will is a document that allows you to address what kind of medical treatment you would like to receive if you ever face a terminal or irreversible medical condition. It is often referred to as the document where you tell the doctors to "pull the plug." Most people request that all treatments other than those needed to keep them comfortable be discontinued or withheld so they can be allowed to die as gently as possible. The main difference between the two documents is that the Living Will is where you actually express your own specific preferences as to the use of life sustaining treatment, and the Designation of Health Care Surrogate is where you name one or more persons to make most medical decisions for you. It is not uncommon to combine a Living Will and a Designation of Health Care Surrogate into a single form. Preparing the two documents as separate forms or as a single form are both valid ways to address the medical issues.

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Which assets are handled outside of probate?

There are a number of different kinds of properties that may pass outside the provisions of your Will. The list includes life insurance, retirement plans, individual retirement accounts, and annuities. When you purchased or set up these types of assets and accounts, you were probably asked to fill out a form listing the beneficiaries who will receive payments upon your death. These investments will pass to the named beneficiaries regardless of whether you have a Will. However, if you don't have a beneficiary named, if the beneficiary named is your "estate," or if all the beneficiaries are dead, then those investments will be paid to your estate and pass under your Will. Certain bank and brokerage accounts will also pass outside your Will. For instance, payable-on-death accounts (sometimes called "POD" accounts) will be distributed to the named beneficiary. Additionally, accounts set up by one or more persons as joint tenants with rights of survivorship will pass to the surviving account holder or holders. Some banks allow you to set up what they call trust accounts even though there is no written trust agreement. These types of accounts will pass to a named beneficiary without going through probate as well. Not all joint accounts pass to the survivor. When joint accounts are set up as tenants in common, the portion of the account that was owned by the decedent passes under his or her Will.

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Must a Will be probated if the estate is less than $2,000,000? Are insurance proceeds included in that total?

There is no requirement that you probate a Will no matter how much the estate is worth. Wills need to be probated only if property is not transferred by some other means. You are confusing probate with the filing of a federal estate tax return. Regardless of how the property is transferred at death, if an estate is valued at $3,500,000 or more in 2008, then a federal estate tax return must be filed. And yes, you must include proceeds of life insurance owned by the decedent in computing the $3,500,000. The probate process is primarily a method of changing title from the deceased to the person or persons who inherit the property. Some assets require probate, such as real estate and bank accounts held only in the name of the deceased, while others do not, such as life insurance policies or retirement plans payable directly to named beneficiaries.

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