Taking the Mystery Out of Estate Planning

by Stephen L Smith

Overview

Thinking about your death isn't easy, but it's even harder to consider the consequences of not thinking about it. Failing to execute a will or set up a trust could burden your heirs beyond just grief at your passing, leaving them to deal with your incomplete affairs as well.

Stephen L. Smith, a longtime attorney with thirty-five years of experience in estate planning, seeks to take the mystery out of what can often be an intimidating process. Using this guide, you can learn how to

• understand the differences between wills and trusts;
• evaluate attorneys and tax advisers;
• empower yourself to direct the planning process; and
• maximize the money and assets that get passed to others.

Whether you have a large estate or a modest one, it's important to engage in estate planning to make your wishes known. Take control of the process by arming yourself with the knowledge in Taking the Mystery out of Estate Planning.

Product Details

ISBN-13:	9781491708903
Publisher:	iUniverse, Incorporated
Publication date:	10/30/2013
Pages:	354
Product dimensions:	6.00(w) x 9.00(h) x 0.94(d)

Read an Excerpt

Taking the Mystery out of Estate Planning

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By STEPHEN L. SMITH

iUniverse LLC

Copyright © 2013 Stephen L. Smith
All rights reserved.
ISBN: 978-1-4917-0888-0

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CHAPTER 1

ANATOMY OF A TYPICAL WILL

Introduction

A will is the centerpiece of every person's estate plan, even in the case of those who also have a revocable trust agreement which contains many of the dispositive provisions (i.e., the provisions dealing with where the person's assets are to go at his death after the payment of debts, expenses and taxes). The revocable trust agreement will be discussed at greater length in chapter 2 of this book.

Those persons who have a revocable trust agreement would still have what is called a pour-over will which leaves all of their property (with the possible exception of their tangible personal property and other specified items [specific bequests] as discussed below) to the trustee(s) acting under the revocable trust agreement.

My goal is to make the will less intimidating to you so that when you review your own will you are familiar with what is likely contained in the typical will. I find that too often people are intimidated by their estate planning documents. Therefore, many people don't feel they are in a position to ask questions about the documents. I feel very strongly that everyone should be familiar with what the documents generally look like so that they will not be intimidated by their own will.

I also feel very strongly that you should not be afraid to ask questions about what provisions of your will mean. Don't be intimidated by the fact that the document was prepared by an estate planning attorney. The attorney's work is not foolproof. Attorneys are, after all, only human.

Moreover, in my experience there sometimes is miscommunication between the client and the attorney, so you want to make sure the final product is what you want. The final product is, after all, your will so do not be afraid to insist upon it being something you can understand and that is correct to the best of your ability to read it.

Sample Wills

Attached to the end of this chapter are two samples of typical wills which you might look through as you read through this chapter. The first is a pour-over will which is intended to work in conjunction with a revocable trust agreement. As you will see from the sample pour-over will, there are very few important provisions in this will with the bulk of the important provisions intended to be included in an accompanying revocable trust agreement. When I say important, I mean the provisions dealing with the disposition of a person's assets as well as the payment of the person's debts, expenses and taxes.

The second is a will that leaves everything to the surviving spouse, and if the spouse doesn't survive to the surviving children. For any children who have reached a specified age, they receive their share or part of a share of the estate right away with a share or part of a share for the younger children who have not attained the specified age held in trust for them. A separate trust is set up for each child who has not reached the specified age. If any of the children fail to survive but leave descendant(s) of their own (i.e., often the grandchildren of the person creating the will) then the share that would have otherwise gone to the child instead goes to the then living descendant(s) of the child.

I thought it might be helpful to you to see what the typical will looks like. The balance of this chapter will describe for you the provisions of the sample typical wills. The discussion will in large part deal with the pourover will. However, I will discuss in greater length one provision of the second will which includes a trust for any children who have not attained a specified age. The provision I will discuss at greater length is the provision of the sample will which sets up a trust for any child who has not reached a specified age.

As discussed later, I have based the sample wills on the BB&T Wealth Management/Estate Planning Forms Manual dated 1998. Also, I have changed the forms over time to suit my own needs. The forms in the Forms Manual have been enhanced since 1998 given the tax law changes but I thought we would stick with the 1998 version because I think it will work for our purposes.

I have assumed in the sample wills that the person is a resident of North Carolina, but North Carolina can be changed to the state of residency. The wills in most states largely look alike with the likely exception of the formalities of execution.

You will find that the formalities of execution vary from state to state and that while most states require only two witnesses, some states require three witnesses to the will. The different states also seem to have different requirements as to the exact wording of the attestation clause (which will be discussed in more detail later). As will also be discussed further in chapter 7 of this book, for a will to be valid in North Carolina (as least as it relates to real estate) it must be executed in accordance with North Carolina law.

I would encourage you to work with an estate planning professional in the state in which you reside with respect to some of the peculiarities of the will in that state. As indicated in chapter 7 entitled "Other Will Thoughts," a will executed outside North Carolina is not valid (as least as it relates to real estate) unless it was executed or it is re-executed in accordance with North Carolina formalities. Therefore, you probably want to work with a North Carolina attorney if you are developing a will to be used in North Carolina and you are a North Carolina resident.

However, reading over the provisions of the typical will as described in this chapter probably will prepare you for a discussion of what you want your will to say. Each of the types of provisions contained in a typical will is discussed in greater length below in this chapter.

Name of Creator of Will

The sample wills begin with the full name and the county of residence of the creator of the will. The creator of the will is typically referred to as the testator in the case of a man and testatrix in the case of a woman. These are Latin terms but in either case they refer to the person who is creating the will, whether a man or a woman. You sometimes see the creator of the will referred to as the decedent, as in a deceased person. The term "decedent" actually could mean a person who died without a will or intestate so the term is not necessarily accurate but is one you may hear.

This first part of the will also typically revokes any earlier wills and codicils. (A codicil is an amendment to a will and will be discussed in greater length in chapter 8 of this book.)

Disposition of Estate

The sample wills then jump into what is possibly the most crucial article of the typical will. This article (usually Article I) is typically composed of a number of paragraphs, one of which deals with the tangible personal property, another of which deals with any specific gifts and the third of which (second if there are no specific bequests) deals with the disposition of the residuary estate. These various paragraphs will be discussed below in this chapter.

The residuary estate also will be dealt with further below, but I thought it would be helpful for now for you to have at least a basic understanding of what constitutes the residuary estate. The term "residuary estate" means whatever is left over after the disposition of the tangible personal property and any specific bequests and the payment of debts, expenses and taxes.

The term "residuary" literally means whatever is left over. The residuary estate is what is left over after the disposition of tangible personal property and any specific bequests and the payment of debts, expenses and taxes.

The residuary estate often comprises the bulk of a person's assets. Therefore, it's a very important provision and should not be overlooked because of the residuary being what is left over. What is "left over" can be significant.

Gift of Tangible Personal Property

Often the tangible personal property (as described in the next section of this chapter) is left to the surviving spouse. If the spouse does not survive then the tangible personal property is often left to the surviving children.

When I use the term "surviving," I mean that the beneficiary outlives the creator of the will. If the term "surviving" is not used then the person named as beneficiary would inherit (or more to the point, their estate would inherit even if they were no longer alive). This could obviously result in the testator's property ending up in a very different place than the testator had intended.

Survivorship is a key concept in estate planning documents. For a person to inherit any property, the will usually requires that the beneficiary must outlive the creator of the will (the testator or testatrix). Typically, the will contains a provision which states that if a beneficiary does not survive the creator of the will, then the property which otherwise would have passed to that beneficiary instead passes elsewhere.

A common example of this is property that is left to the spouse if she survives, and if she does not survive then the property is left to the surviving children (or in trust for any children who have not reached a specified age).

Often there is a survivorship provision (as discussed in greater length in a later section of this chapter) which provides that if the creator of the will and one of the beneficiaries die under circumstances such that the order of death cannot be definitely ascertained, then the beneficiary is presumed to have predeceased the creator of the will. The survivorship provision is intended to cover the situation where the testator and one of the beneficiaries die in a common disaster (such as an automobile accident) in which the exact order of death is not known. The typical will provision just provides that in these circumstances, the beneficiary is presumed to have predeceased the testator.

As indicated above, the failure to include a survivorship provision can have some very bad consequences because the disposition of the property of the testator is controlled by the deceased beneficiary's will.

The concept of survivorship is an important one because you don't want to be passing on property to the estate of a deceased person. Not only does this cause extra expense (increased probate cost, as well as possibly increased fiduciary fees and estate taxes) because the assets are included in the deceased beneficiary's estate, but results in the possible disposition of the assets in a way different than the creator of the will would have intended.

Obviously, a worst case scenario would be that property is left to a beneficiary and the beneficiary dies at that same time as the testator and the testator's will does not contain the survivorship provision. In this case, the property likely passes on to the estate of the deceased beneficiary.

The problem would occur not only because of the increase in the fiduciary fees and probate costs and death taxes, but perhaps more importantly because the beneficiary's will might very well leave his/her property to persons that the testator would not have chosen to leave property to. However, since the testator leaves property to the beneficiary's estate, the disposition of that property is governed by the beneficiary's will rather than the will of the testator.

The result is that the property of the testator ultimately is received by people chosen by the deceased beneficiary rather than the testator. Such a result is probably totally unacceptable to most people.

What Do We Mean By Tangible Personal Property?

You will see the term "tangible personal property" used in your will. What this term refers to is your clothing, personal effects, any art work, jewelry, furniture, vehicles, boats and the like. The term does not include investment assets like bank accounts and mutual fund accounts.

Basically, the term includes anything that you have around your house as opposed to investment assets. Think of the term "tangible" when you think of tangible personal property. You can reach out and touch a piece of furniture because it is tangible. However, you cannot reach out and touch a bank account or a mutual fund account. This may be of help to you in understanding what we mean by tangible personal property.

The "tangible personal property" term is limited to the person's furniture and furnishings and the like. It does not encompass the bulk of their estate (usually investment assets) which is instead dealt with in the section below regarding the residuary estate.

As discussed below, you can choose to deal with items of tangible personal property in the will or in a memo referred to in the will or you can choose to deal with the tangible personal property through a combination of the two approaches. The pros and cons of the two approaches will be discussed below.

• Basic choice of including tangible personal property in will versus memorandum.

The basic choice open to anybody doing a will is to cover the disposition of the tangible personal property in the will or simply refer to a set of instructions (often referred to as a memo) which will appear outside the will. Each of these two alternatives will be discussed below. Each has its pros and cons even though I tend to lean toward the instructions or memo for the reasons discussed below.

Basically, the inclusion of provisions regarding the disposition or gifting of the tangible personal property in the will is binding upon everybody involved with the estate (at least in theory as discussed below) so that they have to follow your directions regardless of whether they make sense to them or not. An example of this would be a provision in the will directing which specified items of the family jewelry should go to what person(s).

The alternative is to include the provisions regarding the tangible personal property in a memo which is outside the will and is not binding on your heirs, at least not in North Carolina (I understand that in South Carolina a memo which is incorporated in the will is binding on the heirs). There is a reference in the will to the memo in North Carolina, but the memo is not actually made a part of the will.

You can also opt for a middle ground and cover certain items of tangible personal property in the will and cover the remainder in a memo referred to in the will.

The next two sections will deal with the pros and cons of these two choices

• Tangible personal property included in will.

I typically include language in the will dealing with specific items of tangible personal property such as jewelry when the item is fairly valuable and there may be some contention among the family members as to who is going to get that particular asset. For example, a common provision might specify that a decedent's wedding ring is to go to his oldest son/daughter if that son or daughter survives the decedent.

Coverage of the item in the will in theory insures that your wishes are carried out as best we can. I say in theory because there is never any guarantee that people will not just ignore your will in disregard of the law.

Placing the provisions in the will makes it much more likely that your wishes will be carried out. Moreover, if the will is entered into probate, then the Clerk of Court's Office will also seek to enforce the provisions of your will by requiring the beneficiaries to receipt for items received.

There is, of course, never any absolute guarantee that the heirs will not get together and decide to dispose of tangible personal property in a different way than you specified. If they are willing to sign receipts for items of tangible personal property they did not receive, then the Clerk's office is not going to have any real way of knowing that your wishes were not followed.

The problem with including items of tangible personal property in the will is that while the provisions are binding on all of your heirs (again, at least in theory), you have to come back to the estate planning attorney who drew up your will anytime you want to make a change in the disposition of the tangible personal property. Obviously, this can get expensive even if the change is made in a codicil to the will.

Another problem is just the lack of flexibility. Many people do not want to have to worry about setting up an appointment with the estate planning attorney or asking him/her to make changes in the will because all of this takes time. These people may therefore be attracted to the memorandum even when the cost of redoing the will is not a major consideration.

(Continues...)

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Excerpted from Taking the Mystery out of Estate Planning by STEPHEN L. SMITH. Copyright © 2013 Stephen L. Smith. Excerpted by permission of iUniverse LLC.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

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Table of Contents

Contents

Acknowledgments, 5,
Warning and Disclaimer, 6,
About The Author, 9,
Introduction Why I am Writing This Book, 11,
Chapter 1 Anatomy of a Typical Will, 21,
Chapter 2 Anatomy of a Typical Revocable Trust Agreement, 63,
Chapter 3 Anatomy of a Typical General or Financial Power of Attorney, 105,
Chapter 4 Health Care Directives And Health Care Powers of Attorney, 127,
Chapter 5 What is Probate?, 153,
Chapter 6 Why Use a Revocable Trust?, 179,
Chapter 7 Other Will Thoughts, 189,
Chapter 8 Codicils and Trust Amendments (Including Trust Restatements), 195,
Chapter 9 Intestacy, 221,
Chapter 10 Information Regarding Title to Your Assets, 235,
Chapter 11 Follow-Up to Your Estate Planning, 247,
Chapter 12 Retirement Plans Such as IRAs and 401(k)s, 255,
Chapter 13 Planning Under the Current Estate Tax Law, 261,
Chapter 14 More Sophisticated Estate Planning Techniques, 269,
Chapter 15 Impact of Divorce or Threat of Divorce on Estate Planning, 293,
Chapter 16 The Fiduciaries, 301,
Conclusion, 323,
Glossary, 325,