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Articles From Lumsden McCormick

It’s Not an Estate Plan Without a Will

When you hear “estate planning,” you probably think of trusts and other vehicles for minimizing taxes and passing on more wealth to your heirs. However, a will remains the cornerstone of any estate plan. And it's essential to draft a will with professional advisors that covers all the bases so that you, not a court, decide what happens after you die. But what provisions should you include? Let's take a look.

First Things First

Typically, a will begins with an introductory clause, identifying yourself along with where you reside (city, state, county, etc.). It should also state that this is your official will and replaces any previous wills.

After the introductory clause, a will generally explains how your debts and funeral expenses are to be paid. In the past, funeral expenses were often paid out of the share of assets going to your children, instead of the amount passing to your spouse under the unlimited marital deduction. However, now that the inflation-adjusted federal gift and estate tax exemption has increased to $11.4 million for 2019, this may not be as critical as it was in the past. The provisions for repaying debt generally reflect applicable state laws.

A will may also be used to name a guardian for minor children. To be on the safe side, name a backup in case your initial choice is unable or unwilling to serve as guardian or predeceases you. 

What doesn't belong here? Specific instructions for funeral arrangements. It's likely that your will won't be accessed in time for your survivors to follow them. Instead, spell out your wishes in a letter of instructions — an informal letter to your family.

Addressing Estate Taxes

The next section of the will may address estate taxes. Remember that this isn't necessarily limited to federal estate tax. It can also apply to state death taxes. You might arrange to have any estate taxes paid out of the residuary estate that remains after assets have been allocated to your spouse.

Furthermore, if you're using a testamentary trust, it may be required to pay any resulting estate taxes. Coordinate this with other aspects of your will. You can't anticipate every possible scenario, so rely on your tax advisor or attorney for guidance.

Making Bequests

One of the major sections of your will — and the one that usually requires the most introspection — divides up your remaining assets. Outside of your residuary estate, you'll likely want to make specific bequests of tangible personal property to designated beneficiaries. For example, you might leave a family heirloom to a favorite niece or nephew.

When making bequests, be as specific as possible. Don't simply refer to jewelry or other items without describing them in detail, especially if you own multiple rings or watches or the like. This can avoid potential conflicts after you're gone.

If you're using a trust to transfer property, make sure you identify the property that remains outside the trust, such as furniture and electronic devices. Typically, these items won't be suitable for inclusion in a trust.

As for real estate, include detailed information about the property and identify the specific beneficiaries. Note that if you own property jointly with rights of survivorship, the real estate passes automatically to the surviving owner. Cash and securities can be distributed through specific bequests. (However, you may also have “payable on death” accounts that designate beneficiaries outside of a will.) Be sure to include in your will how to handle cash in your home or other places, such as a safe deposit box. And don't forget about money you're owed.

Finally, most wills contain a residuary clause. As a result, assets that aren't otherwise accounted for go to the named beneficiaries, often adult children, grandchildren or a combination of family members.

Considering Common Disasters

If you're married, you and your spouse's wills should complement each other. Frequently, an attorney will advise each spouse to insert a “common disaster clause” in their wills. As the name implies, this clause addresses situations where the spouses die almost simultaneously. It covers issues about the sequence of death to establish where assets are to be transferred first.

Including this language is particularly important in second marriages where each spouse has children from a prior marriage. Without such a clause, the wills may trigger unintended results. A common disaster clause can also provide protection when property is bequeathed to another beneficiary — say, a child or sibling — and both the person making the will and the beneficiary die within a short time of each other.

Naming an Executor

Toward the end of the will, name the executor — usually a relative or professional advisor — who will be responsible for administering it. Of course, this should be a reputable person whom you trust. Also, include a successor executor if the first choice is unable to perform these duties. Frequently, an attorney or financial advisor is used in this backup capacity.

Be sure to meet all the legal obligations for a valid will in the applicable state and keep it up-to-date. Sign the will, putting your initials on each page, with your signature attested to by witnesses. Include the addresses of the witnesses in case they ever need to be located. But don't use beneficiaries as witnesses because it could lead to potential conflicts of interest — or at least the appearance of conflicts.     

Don't Wait

Even if you don't need such estate planning tools as trusts, you do need a will. Everyone does. Without one, the courts will decide how to dispose of your estate — and even name guardians for your minor children.

It’s Not an Estate Plan Without a Will

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Bob provides tax compliance and planning strategies to businesses and individuals, concentrating on issues related to gift and estate planning, trust administration, individual taxation, and wealth preservation. 


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