ArticlesJust A Will?There is a fair amount being published and talked about today concerning living trusts. Many people are using trusts as part of their estate plan. Even though trusts offer many advantages, they are not for everyone, and in those instances where you and your lawyer decide a trust is not something your estate plan needs, you will still need a Will and the two kinds of the durable powers of attorney which are available today. A discussion on the durable powers of attorney is contained in "The New Powers of Attorney", so I will not discuss them here. Instead, let's focus on what a Will can do for your estate planning goals. It is important to know what a Will covers and what it does not cover. This is because too many people assume a Will covers all of their property interests. This is a real misconception. Let me explain. The manner in which property is owned determines how it will pass at the death of the owner. For instance, many husbands and wives deposit their money in joint bank accounts. In such an instance, if one joint tenant dies, the account passes automatically to the surviving joint tenant by what is called "operation of law". In that case, the transfer of the deceased tenant's interest in the bank account is not controlled by his Will. Other examples are life insurance, annuities, IRAs and pension plans. These have a beneficiary designation which means the person who is to receive the proceeds can be named by the owner before his death. When the owner dies and the proceeds become payable, the beneficiary receives those proceeds "by contract". Again the Will of the deceased owner does not control the disposition of those proceeds. Another example is property, which is held in a trust. A trust is a contract, so at the death of the beneficiary of that trust, his beneficial interest in the trust is not normally* controlled by his Will. A final example would be real estate, which is owned only in the form of a life estate. The life tenant's Will would not control the disposition of that land when he dies. What then does a Will control? Basically, it is property which you own in your name alone and which does not have a beneficiary designation, is not in trust and is not a life estate. For instance, your car, your house, your farm, your bank accounts, your stocks, bonds and mutual funds, your household goods and furnishings, your jewelry and your collections. The reason for this discussion is to impress upon you the importance of taking into consideration all of your varied property interests when you have your Will prepared. Let me give you an example of how the failure to do so could result in an unintended result:
This was obviously not what the mother intended. How could the mother have avoided this result, yet still enabled the nearby daughter to handle her financial affairs? First, by simply leaving the bank accounts in her name alone, (which would allow her Will to control the distribution of the monies), and secondly, by giving the nearby daughter a property power of attorney (which would enable that child to manage her mother's property). With a little careful planning, both objectives were met. WHAT ARE THE PARTS OF A WILL?A Will basically consists of:
A Will can be very simple or it can be very complex. Where it gets complex is in the dispositive provisions. The complexity depends on your specific estate planning goals. Following is a discussion as to how different types of property are disposed of in a Will: TANGIBLE PERSONAL PROPERTYTangible personal property consists of movable items such as household goods and furnishings, automobiles, farm machinery and equipment, jewelry and personal effects. Oftentimes these items are disposed of separately in the Will, because of their sentimental value. The best method for giving away of these items is to specifically list those items and the persons to whom they are to go in the Will. There are other methods used such as tagging the items with names or making lists outside of the will, but only the list within the Will method is totally legal and binding. Obviously a Will could become very cumbersome if every item were listed. Therefore, it is recommended that only certain items be described and the balance of the tangible personal property be simply given to a class of persons (e.g. children) to be divided amongst themselves by agreement. INTANGIBLE PERSONAL PROPERTYIntangible personal property is property which is not tangible. In this category fall basically stocks, bonds, money (including bank accounts and certificates of deposit) and partnership interests. Oftentimes this type of property is simply given away as part of the residue of the estate, but sometimes it is specifically given to certain persons (called "legatees"). For instance, you may wish to make a gift of money to certain individuals, your church or a charitable organization. A legatee's interest in intangible personalty can be limited (i.e. giving him only the income from the property). If this is done, a testamentary trust (which is a trust which is contained within a Will) should be used. REAL ESTATEReal estate can be specifically given away in a Will, as opposed to being just lumped together with other types of property in the disposition of the residue of the estate. The purpose for dealing with real estate in this manner is usually to make sure a certain person receives a specific piece of land and/or to limit that person's interest in that land (as in the case of a life estate). The legal description of the land should be used so there is no doubt as to which piece of real estate is being given. This information is obtainable from the deed, abstract of title or title insurance policy for the land. RESIDUARY ESTATEThe residuary estate is so named because it is the residue or remainder of the estate; that property which is controlled by the Will but which is not specifically given away otherwise in the Will. It is a catchall meant to make sure the entire estate is disposed of. The property in the residuary estate is not normally specifically identified in the Will. However, the recipients of the residuary estate (called "residuary legatees") are specifically identified either personally or as part of a class (e.g. children). One point to remember about the residuary estate is that it is the primary source for the payment of the expenses and taxes. This means that every dollar spent for those items means a dollar less in the pockets of the residuary legatees. It also means that if any property in the estate has to be sold to meet expenses or pay taxes, the property contained in the residuary estate is the first to be liquidated. So if you do not want a specific item of property sold, list it as a specific gift as outlined above. Now that we have looked at the parts of the Will and how the various kinds of property are dealt with in the Will, let's take a look at the considerations involved for specific circumstances: FOR PARENTS (INCLUDING A SINGLE PARENT) OF MINOR CHILDRENParents of minor children need to plan for the possibility that they may both die before their children reach an age where they are capable of handling an inheritance. By law, a child under the age of eighteen is deemed to be incapable of managing his own property. In that instance, a guardianship of the estate (or court-supervised trust) is imposed on the child's property until the child reaches majority age. While a guardianship is a necessity in some instances, a testamentary trust (which is a trust which is contained within a Will) is better by far. A trust is more flexible and less expensive to operate than a guardianship. Probably the best reason to use a trust instead of a guardianship is the fact that a guardianship automatically ends when the child turns age eighteen, whereas the trust can delay full distribution of the inheritance until a time you specify in your Will, thus giving the property to your children when they are at a more responsible age. The trust still can provide for controlled distributions for the necessities of life and for education while the child is reaching the age specified for full distribution to him. A Will for parents of minor children should therefore contain a testamentary trust for the benefit of the children. Parents of minor children also need to name in the Wills the person or persons who will be the custodians of their children. This person or persons is officially called the guardian of the person of the child. This form of guardianship (like the guardian of the estate) also automatically ends at the eighteenth birthday of the child. There is no way to extend a guardianship of the person with a trust. One word of caution about selecting trustees and guardians of the person. Many people like to choose close family members for these positions. Family members are usually ideal, because of their close familiarity with the children. It is not recommended, however, that the same person be both trustee and guardian of the person. Keep in mind that the trustee is managing the child's property and has a duty to account to the child as to the monies spent. Since a child does not have the ability to totally comprehend what an accounting would reveal, the guardian of the person would receive and approve of the accounting for the child. Most trusts provide for this procedure in this manner. If there is an abuse regarding the management of the trust funds, the guardian of the person will be the one to detect it and speak up for the child. If the trustee and guardian are the same person, the abuse could go undetected for some time. In conclusion, parents with minor children should name trustees to manage their children's inheritance and a guardian of the person as custodian for the children. PARENTS WITH A DISABLED CHILDParents who have either a minor or adult child who is disabled need to make special provision for that child in their Will. In many ways that provision is similar to what is provided for minor children who are not disabled. With the disabled child, however, an additional consideration is the fact that there may be public sources of support (i.e. public aid, SSI) for that child which either are or will be drawn upon in the future. In that instance, receipt of an inheritance can cause loss of right to that public support or the inheritance can be attached to reimburse public agencies which had previously provided support or medical payments. Special Needs Trusts have been developed in the past ten years to deal with this problem. A discussion of that type of trust is beyond the scope of this article. A Special Needs Trust need not be a separate trust itself, but can be a testamentary trust which is contained in your Will. HUSBAND AND WIFEThe Will of Calvin Coolidge, the president of few words, was quite short. It simply stated that he gave his entire estate to his wife and appointed her executor. For most married couples this provision in the Will is usually this simple. However, there are good reasons why a more complicated provision for a spouse should be used. If the size of the estate is substantial (over $600,000 in value), there can be adverse estate tax consequences, which can be avoided with proper planning. Such estate tax planning would involve changing the form in which the property passes between the spouses at death. Usually a trust is employed for this purpose. Suffice it to say that the cost of saving tax dollars is having a more complicated Will. The additional complexity is well worth it, however, because the tax savings came be tremendous. Another reason to make things a little more complex is to protect the inheritance against the creditors of the surviving spouse. This is more of a concern for elderly people, since living one's last years in a nursing home is a reality today and nursing home costs are high. By leaving a spouse her inheritance in a spendthrifted testamentary trust, the principal of the trust is protected from invasion by her creditors, and at her death can pass to the children free of those claims. Such a trust would fit into the estate tax savings plan referred to above. If a trust for a surviving spouse will prevent creditors from reaching the trust property, it will also prevent a second husband or second wife from being able to do so. Therefore, if a husband leaves property to his wife in trust, and she remarries, she can still receive all of the income from that trust (and even some principal distributions) during her lifetime, but in the event she divorces that second husband or she predeceases him, the property in the trust will be free of any claim that second husband might normally have as her surviving spouse. This is a very good way to make sure you do not disinherit your children or grandchildren. Must a testamentary trust be used to obtain the tax savings and/or protections described above? The answer is "no", but it is recommended. Especially in the situation where land is being given to the surviving spouse, a life estate can be utilized instead of a trust. A life estate is very simple, since there is no trustee and no extra income tax returns to be filed. However, a life estate does not offer all of the protections against creditors that a spendthrifted trust does; and in the case of intangible personal property, failing to use a trust could result in a dissipation of the principal by the life tenant. It is impossible to steal land, but it is easy to steal money. One final observation about husbands and wives: a surviving spouse in most states is allowed to renounce the deceased spouse's Will. This means he or she can elect to take a portion of the estate instead of what the Will leaves him or her. This is automatic if the election is made. In Illinois, for instance, the spouse must make the election within six months of the opening of the estate in the courthouse. If the Will is renounced, the spouse takes one third of the estate and has to forfeit the gifts to her or him, which are stated in the Will. This is mentioned only because some persons do want to draw Wills which leave their spouse little or nothing. If this is the goal, it is better to leave the spouse the minimum one third of the estate, since she can elect against the Will anyway. If a person seriously wants to disinherit his spouse, he would have to use one of the forms of ownership, which pass outside a Will at death. THE SINGLE PERSON WITHOUT CHILDRENIf a person dies without a Will, the law provides that his estate passes to his "heirs". For the person who is survived by a spouse and/or children, his heirs are his wife and children and they inherit his estate. The law assumes that is what he wanted to happen anyway. The person who will not be survived by a spouse and children, however, may not want his estate to pass to all or any of his heirs. After all, those heirs may not be any closer than a second cousin. Therefore, by having a Will, he can specify where he wants his estate to go after his death, and the possibilities there are endless. Nieces and nephews may need the same protection of their inheritance that children need so nearly everything that has been said about children above also can apply to property which will go to young relatives; so if you want your estate to go them, using a testamentary trust for that purpose, instead of letting it go into a guardianship, will be better for them. For adult relatives, the protections that are available for a surviving spouse can also be utilized. It may be that the legatees are not to be natural persons but instead organizations such as a church, college or a YMCA. The gift to them can be structured almost any way imaginable. Many large charitable organizations have brochures that they are all too happy to send out to someone who is considering them in their Will, to make sure the proper name of the organization is used and also to suggest possible ways the gift can be structured. In fact, they oftentimes have someone on staff who will deal with you or your attorney directly to assist in the preparation of your Will. For organizations which operate on too small of a budget to go to such extremes, your attorney who is drafting the Will will either be familiar with the organization, if it is local, or can contact someone in the organization to get the necessary information about it. When putting gifts to both persons and organizations in your Will, it is important to remember that the size of your estate may decrease in size before your death. Do not assume it will remain the same. If, therefore, you leave a specific dollar amount to an organization, and then leave the balance (i.e. the residuary estate) to natural persons, shrinkage in your estate could result in the residuary legatees being shorted or even left out altogether. This is because the organizations will be entitled to the specific dollar amount listed in the Will. If it takes all of the assets in the estate to pay these specific gifts and the expenses of the estate, there will be no residue to distribute to anyone else. The way to keep this from happening is to state the gift to the organizations as a percentage of the estate instead of a specific dollar amount. Then if the estate shrinks, the organizations' gifts will shrink proportionately, and the residuary legatees will not be left giftless. Finally, it is again important to keep in mind what is and is not going to be covered by your Will when making out this type of Will. If you base a gift on a percentage of the estate, the term "estate" will only be interpreted as the property which is covered by the Will. Therefore, annuities, life insurance, IRAs and pension benefits, as well as joint tenancy properties will not be included in the "estate" and therefore the gift will be less than envisioned. This problem can be solved by undoing the joint tenancies and by changing the beneficiary designations on the annuities and so forth. The attorney who drafts your will can coordinate this for you. IF YOU HAVE A LIVING TRUSTFor those individuals who have a living trust, their Will is usually of a "pour over" type. This type of Will simply leaves the residuary estate to the living trust, which then controls its disposition. One other thing the Will in this instance does is dispose of the tangible personal property, since that type of property is usually not placed in a living trust. Finally, if parents of young children are using a living trust, they still need to make provision for the children's custodian or guardian of the person in their Will and not in the trust instrument. DISINHERITING IN THE WILLOne of the myths of Wills and estates is that a person cannot be effectively disinherited. Like all myths, this is quite untrue. It is true that care must be taken in doing so. Specific language in a Will which acknowledges the existence of the heir to be disinherited and that he is to receive nothing under the Will is sufficient. A reason for disinheriting does not have to be stated. Only persons who are heirs can be disinherited. There seem to be some misconceptions as to who heirs are. Children, either natural ones or adopted ones, are heirs. A stepchild, however, is not an heir unless he has been legally adopted. It does not matter how long he lived in your home; he is not an heir unless he was adopted. The same is true of a stepchild of one of your children. If your child, however, adopts that stepchild, then that stepchild becomes your heir. A spouse is an heir. However, Illinois does not recognize common law marriages. Therefore, unless you are legally married to the person with whom you are living, that person is not your spouse. By the same token, if you are legally married and have not been divorced, your spouse (no matter how estranged) is still your spouse. The right to inherit and the right to renounce a Will is tied directly in with that legal status. Finally, if you have left any portion of your estate to your spouse in your Will and you subsequently get a divorce, all provisions as to that spouse are automatically revoked when the order dissolving the bonds of matrimony is filed by the Court. Since there is some lead time between the time things go sour in a marriage and the actual divorce order being entered, it is wise to revoke that existing Will by signing a new one as soon as it is apparent things are heading that direction. SELECTING AN EXECUTORThe executor is the one whose duty it will be to (1) determine what assets are covered by your Will; (2) to make sure the terms of your Will are carried out; (3) to pay taxes and expenses; (4) to resolve claims which may be made by creditors; and (5) to manage the assets of your estate, which may include operating your business, renting your farm, investing in the stock market or selling those assets. Obviously, the one chosen as executor should be someone you trust to do these things. If the executor is going to be a person (as opposed to a bank or trust company), his ability to carry out his duties is also important. Finally, the executor's familiarity with your estate is quite helpful. I recommend to my clients that family members are usually the best candidates for the job of executor. Even though many family members do not have extensive business or financial experience, keep in mind that the attorney who is handling the estate will be doing most of the work, decision making and guiding of the executor, so an executor's deficiencies in this area are not critical. You should provide for backup or successor executors, since you cannot guarantee the named executor will survive you or even be in a position (or in the mood) to accept the job when the time to serve comes. In Illinois, an executor is required to file a financial surety bond to guarantee his faithful performance of his duties. The surety requirement can be, and usually is, waived by you by so stating in the Will. Banks and trust companies which are licensed by the Commissioner of Banks and Trust Companies of the State of Illinois can serve as executor of estates and as trustees of trusts. Over an individual executor, they offer professional management of property. In other words, they are expert executors and trustees. However, you have to pay for that expertise. Family members and close friends, even though entitled to receive a fee as executor under the law, usually do not charge a fee. One other advantage of using a corporate executor (as they are called) is that they are independent. Thus, if the heirs and legatees of your estate are going to be at each other's throats during the administration of your estate, you might want to name an impartial executor who will not be in the fray himself. CONCLUSIONA Will can be very simple or very complex. How simple or complex depends on what you want, because in this country we have the privilege of specifying where our property will go when we die and with whatever strings we attach. However, we have to exercise that privilege before our wishes will be followed, and that means having a Will prepared, taking the time to make sure it is what you want and then finally signing it. A Will which was never signed is not effective, and all the good intentions in the world about getting your Will done someday are equally ineffective if it never gets done. *There are exceptions to every rule and this one has two exceptions, namely:
Prepared by: George C. Hupp, Jr.
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