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How to Die Without a Lawyer
A Practical Guide to Creating an Estate Plan Without Paying Legal Fees
By Mary Clement
St. Martin's PressCopyright © 2000 Mary Clement
All rights reserved.
An Overview of Estate Planning
To my dear friend Mrs. George Hale, I give and bequeath the satisfaction of being remembered in my Will; and I leave my lawyer, Huber Lewis, the task of explaining to my relatives why they didn't get a million dollars apiece.
—from the will of Edwin O. Swain, who died penniless
Your estate includes all the property you own when you die. Estate planning is the development of a plan to provide for effective and orderly distribution of an individual's assets at the time of death. Good estate planning is more than drafting wills and contemplating tax consequences. Everyone wants to minimize his or her tax liabilities, but an overemphasis on taxes can substantially alter the ownership and enjoyment of your and your beneficiaries' assets.
A glance at this book's table of contents reveals the breadth of estate planning. While each area carries its own set of rules and considerations, no one part can be viewed in a vacuum. Hence, property transferred by will cannot be considered without reviewing those assets that can legally pass outside of a will, such as jointly owned property and retirement assets. Also, the well-being of minor children must be considered in tandem with wills, trusts, naming a guardian of the child (responsible for the supervision and control of a minor child), naming a guardian of the property (for safekeeping and financial management of the child's assets), naming children as beneficiaries of life insurance and other probate-avoiding techniques, disinheritance, and a comparison of the four major ways of leaving property to a minor, including the Uniform Transfers to Minors Act.
The process of developing an estate plan begins with assembling copies of deeds, stockholders' agreements, separation agreements, insurance policies, and the like. A complete profile of your assets will allow you to determine what you own and subsequently what you can give away. You can also determine whether the estate will have a liquidity problem; that is, will there be enough cash or other liquid assets to pay taxes, administration expenses, and funeral expenses?
How the assets are owned is equally important as what you own. An individual will often speak of "his" property when, in fact, the asset is held byboth partners of the marriage as tenants by the entirety. This property cannot pass under "his" will, but, instead, will immediately pass to the surviving spouse at his death. Liquid assets to satisfy cash requirements would not, therefore, be available from this property. Additional assets may be restrained from liquidation by the terms of a shareholder's partnership, or pension agreement. There is the added possibility that assets may be held as "community property," which is a form of joint marital property ownership, popular in eight Western states. Very generally, and with some exceptions, all property acquired after marriage and before permanent separation is considered to belong equally to both spouses in community property states. All of these jointly owned assets affect the size of the gross estate, the amount of allowable deductions, and the distribution of the assets.
In selecting the format for passing assets to your beneficiaries, you basically have two vehicles: a trust and a will. A revocable living trust can accomplish most people's main estate planning goals: leaving property to loved ones while avoiding probate and, if possible, saving on estate taxes as well. It eliminates the need and expense of probate as well as the entanglement of the court for the transfer of your property.
However, a living trust is not by itself a complete estate plan. You still need a will. A will specifies who gets the property mentioned in the document when you die. It also provides a place to name your executor (the person who carries out the terms of the will); to insert a no-contest clause (which automatically disinherits anyone who unsuccessfully challenges your will); to include a simultaneous death clause (which provides that if the testator—you, the creator of the will—and a beneficiary die under circumstances in which it is impossible to determine the order of death, then you are considered to have survived the beneficiary, unless your will provides otherwise); to forgive debts; and to name a trusted friend or relative to raise any minor children and to manage their propertyuntil they reach the majority age as determined by their state—usually age 18.
There are other means by which estates may be distributed. Arrangements may deal only with specialized assets, such as title to property held as joint tenants with a right of survivorship, and beneficiary designations for bank accounts, stocks and bonds, life insurance proceeds, employee death benefits, individual retirement accounts (IRAs), and deferred compensation plans. Comprehensive estate planning may also include the use of irrevocable trusts used to exert control over the beneficiary's right to the trust property. The income from such trusts might be used to pay for education, protect an unreliable beneficiary from squandering trust principal, or provide security for those with special physical or mental disabilities.
More than anything, you must be aware of the human element. Your estate plan won't be satisfactory to you or your beneficiaries unless you take human concerns into account. You must draw on your own life experiences and use your intuitive judgment in making decisions about your estate. Many people face no serious personal problems in their planning. They are clear about who the beneficiaries will be and foresee no personal or legal conflict over their estate after they are gone. Other people must deal with more difficult human dynamics, like the painful decision to disinherit a child. Money and possessions are not known for bringing out the best in people, and you may envision problematic scenarios as you consider the distribution of your estate.
A central goal of estate planning is to avoid conflict to the greatest degree reasonably possible. A good estate plan is an accurate reflection of your common sense and honesty regarding the strengths, weaknesses, and genuine needs of family members and possibly friends. Before you begin your plan, assess your circumstances and decide how you might be able to resolve foreseeable conflicts.
Potential Conflicts and Solutions
#1. You may want to leave unequal amounts of your estate to your children, but you don't want to leave the impression that you are favoring one child over the other.
Solution: Write a detailed letter explaining how and why you reached your decision, while at the same time expressing your love and good wishes for all children involved. Attach this letter to your estate planning documents (will and living trust), where your children can read it after you are gone. You can always amend the documents if circumstances change over time. This letter is a personal one between you and your children, requiring neither witnessing nor notarizing.
#2. Sometimes parents find it necessary to disinherit a child, leaving him nothing by will or trust.
Solution: It is perfectly legal to disinherit a child, but not a spouse, who has a right to inherit a certain percentage of your estate as determined by state law. Parents often feel it too harsh to completely disinherit a child. To soften the blow, you can leave the child a nominal amount and include a no-contest clause in your will. This clause states that if the will is contested by a beneficiary, he will receive nothing under the will if the challenge is unsuccessful. Odds are he will take the certain amount rather than risk the cost of a lawsuit and the good possibility of losing the bequest by virtue of the no-contest clause. Once again, write a letter explaining your reasoning and know that you can change your will at a later date.
Deciding to disinherit or "almost" disinherit a child is painful for a parent. One resolution to the problem, if grandchildren exist, is to create an educational trust for each offspring of the disinherited child, leaving each a specified amount for college or other post–high school education.
#3. People often worry about the effect of leaving money or property to a beneficiary they feel is too young or immature to handle it. Chronological age is not always the determinant. The beneficiary, usually an offspring in this case, may be a drug abuser or may belong to a cult that too easily could become the direct recipient.
Solution: You could leave a moderate amount outright and then leave the rest in trust to be released upon the child reaching a certain age. A common age used for these situations is 35. Another alternative is to give the beneficiary only the income from a trust for his lifetime. The beneficiary's children or a charitable institution could be the recipient of the trust principal outright when the income beneficiary dies.
#4. Unmarried couples wonder where they stand with regard to inheriting each other's estate.
Solution: Unmarried (lesbian, gay, or heterosexual) couples have no legal right, unlike a spouse, to inherit each other's money or property. However, unmarried people have total discretion to leave their property to whomever they choose, as long as they are competent. Sometimes hostile family members who have long disapproved of a nontraditional relationship will demand proof of the competency of the testator. Added precautions can be part of good planning here. To preclude future legal action, it is the better part of wisdom to establish by clear evidence that the testator was competent and not under duress or undue influence when he executed the estate plan. This can be accomplished by videotaping the signing and notarizing the documents, even though neither is required by law.
#5. A major concern of parents with minor children is who will take care of the children if both parents die.
Solution: There are really two issues to look at here: Who will be the personal guardian, responsible for raising the children and dealing with their day-today activities? and Who will be the property guardian, supervising the handling of all assets until the state or the parents feel the children are old enough to handle the property themselves? These jobs can be done by one person if that person has the expertise to perform both functions. If not, two people can be appointed—one to raise the child and another to supervise the finances. Trust and respect are characteristics needed for both jobs, but a child's input may determine the compatibility of all involved when appointing the personal guardian.
Also, after you have decided on the individual(s) but before you commit them in writing, make sure you ask if they are willing to accept the tasks. Some people are unable to handle the added responsibilities and would perceive their new role as a hardship. Others are flattered and accept immediately. There is nothing positive for your children in either living with people who don't want them or having their finances managed by someone who resents doing it. As I said earlier, the object of successful estate planning is to avoid or at least minimize conflict.
#6. People often ask how much should be said to family members about the estate planning that has taken place.
Solution: Certainly you need to communicate with people to whom you are giving responsibility for your minor children and with those supervising the distribution of your property after you die. What about telling beneficiaries what they will inherit? Do you want to give your heirs copies of your will? Do you want to tell people what you have already done, or perhaps state that you are open to any reasonable suggestions? It depends largely on your style. The approach you use should be personal and individual; it will depend on the nature of your relationships and your general tendency to divulge or withhold personal information. However, there are benefits to talking with family members, or at the very least mentioning that estate planning is or has taken place.
Future conflicts can often be avoided by inviting conversation now. If children are old enough for reasoned judgment, it is wise to get their views on with whom they would like to live. Discuss who will be appointed executor. The executor is the one who will manage the estate and gather and distribute the assets as you have specified in your will or trust. It is also possible that a child might have deep attachment to a family heirloom or other items that mean nothing to his siblings. One of my children specifically requested the books that fill the bookcases in our living room. If you are comfortable with the idea, open the conversation with your beneficiaries about feelings and preferences. Disputes are often over things that do not involve money. The goal of planning is satisfaction for all parties. Openly discussing certain matters can go a long way toward avoiding conflicts in the future.
* * *
This chapter has helped you focus in a general way on what you own and on the different means by which your estate may be distributed. I hope it has also brought an awareness of the human element into estate planning. You are dealing with possessions and assets, but human beings, with their frailties and sensitivities, must drive the process of estate planning for it to be successful. Considering these human dynamics now will determine how you are remembered in the future. From here on, I will concentrate on specific topics and issues that you need to know.CHAPTER 2
Property Rules for Married Couples
To my wife, Jen Eberhart, one-third of my estate. It is my earnest desire and everlasting wish that the above named adulteress and fiend in human form, to whose wiles I fell victim while temporarily separated from my first wife, this harlot whose insidious lies, poured in to my ear daily, caused me to take the step which made a reconciliation with my first wife impossible, this she-devil who, in an effort to ruin my good name, has for the last three years circulated the most damnable lies about me ever uttered by human tongue, this unnamable beast, who has made life for me a living hell for the last three years or more, and by whom I stand in daily fear of being murdered while asleep I repeat, it is my everlasting wish that this woman, whom I am compelled by law to call my wife, shall not receive one cent more of my very modest estate than she is entitled to under the laws of the State of Pennsylvania.
—from the will of Peter Eberhart
Although people are generally free to leave their property as they wish, there are state property ownership laws that affect how married people can distribute their property. These laws determine what you own individually and, therefore, what is yours to leave to others. If you are married or in the process of getting a divorce, these laws will give your surviving spouse the right to claim a certain percentage of your estate. The epigraph above from Peter Eberhart's will shows how a surviving spouse cannot be disinherited, no matter how badly the deceased spouse would like to do just that!
If you give away property you don't own or fail to give your spouse the minimum amount as determined by state law, you are leaving a contentious and expensive lawsuit to your family.
You need to read this chapter if:
1. you are married or in the process of getting a divorce; and
2. you plan to leave the majority of your estate to someone other than your spouse; or
3. you do not have voluntary, written approval from the other spouse that you want to ignore the state's ownership rules.
You can skip this chapter if:
1. you are single, divorced, or widowed; or
2. you are married and intend to leave the overwhelming portion of your estate to your spouse.
If you fall into the category of one who needs this chapter, you will need to answer the following questions:
1. Are you "married" for estate planning purposes?
2. Do you live in a "community property" state or a "common law" state?
3. What property is yours to give away when you die?
4. What (if anything) are you required to leave to your surviving spouse?
Excerpted from How to Die Without a Lawyer by Mary Clement. Copyright © 2000 Mary Clement. Excerpted by permission of St. Martin's Press.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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