Wills & Trusts Plan
Wills and Intestacy
What Is a Will?
A will is a definitive written declaration made by an individual (the testator) regarding the distribution of their assets after death. When a will is prepared and executed in accordance with the legal requirements of the decedent's state, and the testator possesses competence and is free from duress, the probate court will uphold the will and ensure that the testator’s wishes are honored through the appointed executor (also known as the personal representative).
It's important to note that a will does not encompass all property. Jointly held assets and accounts payable to a named beneficiary (like life insurance policies) are prime examples of properties that don't pass through a will. While a will is a crucial component of any estate plan, it is one piece of a broader strategy.
Purposes of a Will
Beyond outlining property distribution, a will empowers the testator to:
- Minimize or eliminate estate costs, including taxes and administrative expenses, effectively preserving assets.
- Nominate a guardian for minor children when no parent is available.
- Specify bequests for unique or difficult-to-divide assets, such as family heirlooms or digital assets.
- Make charitable contributions.
- Appoint a dedicated executor or personal representative to carry out the will’s terms during the probate process.
- Grant the executor specific powers beyond state law’s standard provisions, such as the authority to continue operating a family business.
- Optimize the utilization of estate tax credits and deductions.
- Ensure proper care for a mentally or physically disabled child, parent, or spouse.
- Address the distribution of assets in the event of the simultaneous deaths of both spouses.
- Clearly define how estate settlement costs will be handled to avoid charges against specific heirs or bequests.
Testamentary Capacity
For a will to hold legal validity, the testator must demonstrate "testamentary capacity." This requires that the individual is:
- Of sound mind.
- Of the required minimum legal age for executing a valid will.
Sound Mind
The testator must be mentally competent at the time the will is executed. Even if mental capacity diminishes later, it does not invalidate a properly executed will. In cases of contestation, a court can affirm the testator’s sound mind at the time of signing.
Legal Age
Typically, the minimum legal age to create a valid will is 18 years, which aligns with the age of majority in most states, though some states may differ.
Fraud, Duress, or Undue Influence
It is critical that the testator is not subjected to duress, undue influence, or fraud when executing the will, as these factors can be valid grounds to challenge the will’s legitimacy. For instance, if Wilma coerces her elderly mother, Susan, into modifying her will to name Wilma as the sole beneficiary, and there are witnesses who observe this manipulation, a challenge to the will could render it invalid in court.
Legal Formalities
Wills must be drafted and signed following state law protocols, typically requiring one or two adult witnesses for validation. In the event of a court contest, witnesses will be called upon to recount the testator’s state of mind and the circumstances of the will’s execution.
An oral will, known as a nuncupative will, may be accepted in some states if it follows specific criteria, including being articulated during the testator's final illness, promptly documented by witnesses, and filed swiftly with the probate court. A holographic will, composed entirely in the testator's handwriting without witnesses, may also be valid in certain jurisdictions, but potential ambiguities in handwriting or unclear intentions can raise challenges to its legitimacy.
Revocation of a Will
To revoke a will, the testator can intentionally destroy the document or execute a new one. It is essential that the testator remains of sound mind in either situation. Various circumstances can automatically revoke a prior will in certain states—this includes marriage, divorce, annulment, or the birth of a child. In some jurisdictions, divorce may nullify specific provisions favoring an ex-spouse without affecting the entire will.
By understanding the ins and outs of wills, you position yourself to implement a robust estate plan that ensures your intentions are clearly communicated and honored.
Trusts
What Is a Trust?
A trust is a legal arrangement created by a "grantor," an individual who intends to have the trust effectively manage property for the benefit of specific beneficiaries. The "trustee" holds the legal title to any property transferred into the trust, while the beneficiaries possess the equitable or beneficial title, granting them the right to the income and/or principal from the trust.
The trustee, as the legal titleholder, has the authority to exercise a wide range of rights over the trust assets, such as investing or selling them. However, it is crucial to understand that trustees must prioritize the interests of the beneficiaries and cannot act in their own self-interest. They are bound by the terms of the trust and are required to uphold their fiduciary responsibilities.
To ensure clarity and effectiveness, the trust agreement must be in writing and should be crafted by an attorney who specializes in estate planning. Once the attorney comprehends the grantor's objectives, they will draft a trust that decisively addresses key issues, including:
1. Who will receive the trust income, and for how long will these payouts (or income accumulation period) last?
2. Who will receive distributions of the trust principal, and on what schedule?
3. When will the trust come to an end?
Trusts are generally known by the services they are intended to provide. The various types of trusts include:
- Revocable Living Trust
- Irrevocable Life Insurance Trust
- Spousal Limited Access Trust
- Intentionally Defective Grantor Trust
- Dynasty Trust
- Qualified Personal Residence Trust
- Grantor Retained Annuity Trust
- Grantor Retained Unitrust
- Section 2503(c) Trust
- Bypass Trust
- Qualified Domestic Trust
- Special Needs Trust
Understanding these options will empower you to make informed decisions about how to manage and distribute your assets effectively.