Your Will: Who Gets Your Assets?

It's vital to name names and assign numbers.

For most people, it's fairly obvious who they should give their assets to. Their generosity goes to their immediate family and loved ones (spouse, children, partner, and siblings) and perhaps a few select friends or others they have a relationship with that they wish to recognize. The order and amounts are important to resolve.

OBSERVATION Always name additional alternates. While it may be unlikely that your first choices as beneficiaries won't be alive to receive the assets, it is always best to consider several layers of alternates. The last thing you want is, in the unlikely event your primary heirs cannot receive your estate, for court and legal fees to consume a substantial portion of your estate while it is determined who should receive what's left.

When naming people to receive assets under your will you must be careful with the wording you use. If you have two children and name them, what if there are future children? What about children adopted by you? Should they be treated the same as natural children? If you name a class or group of people (e.g., all my first cousins), make sure it is absolutely clear who is included and not included in that group.

OBSERVATION A family tree listing all of the people important to your plan (and also family members whom you may not wish to involve) is essential to assure that your goals are carried out. A family tree is just as important when you wish to leave assets to non-family members. This is because your will should mention the family members to whom you are not leaving assets so they will have difficulty challenging your will by stating that you simply overlooked them when drafting your will.

WARNING The difficulty of properly and carefully delineating who should receive assets as part of a group or class is a good example of why fill-in-the-blank forms, although inexpensive, are not always best. This type of wording can be critical to carrying out your wishes and heading off will challenge. Don't be penny wise and pound foolish. If your distribution arrangements start getting complex, hire a professional.

How Should Your Assets Be Left to the People You Have Selected?

There are many different ways to structure assets given to the people you've designated. For minor heirs (children, grandchildren, nieces, nephews, or anyone under age) a trust is often the best way to provide for the management of assets when they are too young to do so. The age and ability of the recipient are critical in making this decision. The younger and less able the recipient, the more important it is that some mechanism of formal control, namely a trust, should be used. If the amounts are not large enough to warrant a trust, a Uniform Gifts to Minors Act account may suffice. The form will in this book provides that money is held in trust for any beneficiary who receives an inheritance before age thirty-five. The trustees have considerable flexibility to make distributions to the child before the ages at which distributions are required (ages 25, 30, and 35).

A special needs trust may be important for a beneficiary who is aged or ill in order to prevent the funds from being used for basic care expenses that state or federal government programs would otherwise cover.

WARNING If you have a child or other heir with special needs, seek out specialized estate planning experts with experience in this area.

The best approach will depend on the people involved, the amount of money involved, and your goals.

OBSERVATION A primary purpose for a child or other minor's trust is that if you are giving money to a minor, the minor may not be mature enough to handle it. Even if the minor is more than sufficiently sophisticated and mature, the 50 percent divorce rate should concern you enough to have the inheritance held in trust for a period of time. Also, you want to protect the assets in the event of a law suit, which is always a concern. Another important reason for using a trust is to permit the minor to "be a kid." If the child is eighteen years old with $150,000 in the bank and his friends are scrounging for money to buy a used car and this minor goes out and buys a Rolls Royce, you are not giving the child a chance to grow up and be a kid like everybody else. Does the child have the freedom to make the mistakes others can in their carefree and youthful days? If the child has to be so worried about all the money in his pocket, he may be stifled. He may be too fearful to make the same mistakes that most of us had the chance to make in business and personal endeavors. If you put everything in the child's name and the child makes an investment or starts a business that doesn't work out, the child has lost not only what he has invested but possibly everything you have given him as well. Thus, a trust is not an implication that you don't trust your child (or other minor heir), it is a protection you've put in place because you care so much!

Tax Decisions Affect How and to Whom You Leave Your Assets

Tax decisions can have an important effect on what your will should include.

WARNING If you are not married and your total assets exceed $500,000, or if you are married and your total assets exceed $600,000 (assuming you have read this book and carefully understood and followed the planning advice concerning splitting assets), get professional advice. Don't use the will form in this book. While the form can be sufficient for even estates that are somewhat larger, you are taking an unreasonable risk. Even if your estate is less than these thresholds, it would be a wise decision to get professional advice. The cost of the planning is generally negligible compared to the savings you will secure for your heirs.

Taxes will also affect to whom you give assets. For example, if you are married, the fact that you can give an unlimited amount of assets to your surviving spouse without incurring any estate tax cost is a strong encouragement for such transfers. However, this must be weighed against the likely increased estate tax your surviving spouse may face as a result of adding your assets to his or her estate. In such cases a credit shelter (bypass) trust (discussed in Chap. 10) may be a preferable option. The will form included in this book provides that all assets are distributed outright and free of trust to your spouse. Only if your surviving spouse disclaims some portion or all of those assets (i.e., retains a lawyer to assist in filing papers in the appropriate court within nine months of your death stating that he or she doesn't want some of the inheritance) will those assets be distributed to the credit shelter trust. If you are not married, you will have to modify the language in that paragraph in order to specify to whom your assets should be distributed.

Second and Later Marriages

Where a second, third, or later marriage is involved, it may be prudent to have all assets left in trusts so you can control who will ultimately receive them. If you wish this level of protection, the will forms in this book will require modifications.

OBSERVATION If you have had more than one marriage, and if there are complex divorce or separation agreements, children from various marriages that will be treated differently, or concerns over a legal battle when you or your current spouse dies, play it safe and consult with a lawyer. You may even need to have the estate planner consult with a matrimonial attorney if the situation is especially complicated.

A common planning technique for second (and later) marriages is to leave all assets in a trust. You then can name the beneficiaries (persons who can receive the money from the trust) and the trustees (the persons who make the decisions about distributions from the trusts). With these elements of control you can have tremendous flexibility and security to assure that the people you want to receive money will receive what you want and when. If your assets exceed the maximum that can be distributed to a credit shelter trust (see Chap. 10), usually $600,000, the excess can be placed in another type of trust, which will qualify for the unlimited estate tax marital deduction. This defers any tax on your death until your spouse dies. It can also assure that after the later death of your current spouse, your children from a prior marriage (and not your current spouse's children from another marriage) will receive your assets. You need professional assistance to handle this properly. Don't try it on your own.

Disinheriting an Child

A difficult situation (and it is not uncommon) is for a parent to disinherit a child (leave that child nothing under the will).

OBSERVATION If you have a child or other heir with a drug or other severe problem, don't automatically disinherit that person. There may be a better answer. Instead, consider placing that heir's inheritance in a trust so you can protect the money until the heir overcomes the problems. Before disinheriting anyone first try to imagine what the hurt and disappointment might do to that person's chance of recovery. What if you reconcile before death and don't have an opportunity to change the will? What will such a serious action mean to the family?

WARNING If you plan to disinherit any heir, consult a lawyer. For example, if you have four nieces to whom you are leaving your entire estate and a fifth niece that is getting nothing, get professional help. If the will is not drafted properly, and signed with appropriate formality, you could be inviting a costly will challenge later.