Estate planning is not easy. Once you have determined your estate, you must establish what to leave to whom, how you would like your assets distributed and the best vehicle to accomplish these goals. There are four basic distribution methods:
Gifting assets before death;
Inter vivos trusts (trusts established during your lifetime);
Distribution of assets on death through your will;
Distribution of assets on death outside your will.
Each method has advantages and disadvantages, depending on your financial situation, your tax rate, and your probate plan; in other words, your strategy for minimizing fees for validating your will. Your estate plan may combine these methods to accomplish your objectives, but you should discuss methods and vehicles of distribution with an attorney knowledgeable in estate law.
Once you decide the vehicles you will use to distribute your assets, the next step is to determine your beneficiaries and how you would like to leave your property. Only you can decide what you would like to give to the people who are important to you.
Making a will is the only way to ensure that the people you wish to inherit from your estate actually do so. Without a will, the law of intestacy will dictate how your estate is distributed. This may not reflect what you would have wanted. For example, if you are single you may want to distribute your assets to selected friends and family. The rules of intestacy do not take into account relationships based on friendship and will distribute your assets only to relatives, with everything passing to the state if no relatives can be found.
If you decide to leave all of your assets to your spouse, you can accomplish this in a number of ways, depending on the type of assets owned. One possibility is joint tenancy, where the surviving spouse inherits all of the property outside the will, avoiding probate upon your death, but not upon the death of the surviving spouse.
Another choice is what has been termed the “I love you” will. This type of simple will leaves all assets to the surviving spouse and divides everything equally among the children if there is no surviving spouse. A joint tenancy or a simple will that leaves everything to your surviving spouse, however, gives no protection to your children. Your spouse may spend or lose all the property, or may remarry and lose control of your assets, leaving your children with no part of your estate.
Couples who have divided their property ownership somewhat equally between themselves often use complex wills. In this case, the will directs property, usually real estate but not the personal residence, to the children, with lifetime use for the spouse.
If you have children from a prior marriage and you want to be sure that part or all of your assets go to them, you can accomplish that several different ways. First, you may use your will, specifying what gifts or what share of your estate goes to them. That type of gift will bypass your spouse and may lead to family conflict.
Trusts, not wills, are the best legal instruments for cutting the financial umbilical cord between your current spouse and grown children from your previous marriage. A Trust is often used to transfer assets to children from a prior marriage. This provides support for your surviving spouse during his or her lifetime, but controls the distribution of the estate after your spouse’s death.
When your spouse dies, any remaining principal (residuary) in the trust reverts to your children via a residuary trust – not to anyone else. The principal in the residuary trust can either be given outright to your children or remain in the trust, producing income that either can be divided or can accumulate for future distribution.
If you worry that your surviving spouse may outlive the assets set aside in the trust, you can stipulate that the annual income from the residuary go to him or her; you can empower your independent trustee to draw upon the principal as the children need it, for instance, to pay tuition, meet unexpected medical bills, or make a down payment on a home. Setting up a Trust and a residuary trust won’t eliminate all the frictions that can arise from familial complications after you depart, but they will help.
If you want to leave any specific assets to your parents, you need to prepare a will. Without a will, the court will transfer one third to your parents (if you are married with kids) irregardless of the types of assets. Half of all your estate will go to your surviving parent if you have no children, but married. You should specify in your will if you would like to leave some, or all, of your assets to your surviving parents. Alternatively, in your will you may set up a testamentary trust, created after your death and after the will goes through probate, and place some or all of your assets in the trust for the benefit of your parents. You will also need alternative beneficiaries in case your parents do not survive you.
As with your surviving parents, you should have a will, or a will that creates a testamentary Trust, in order to specify what gifts or what share of your estate will go to your siblings after you die. Without a will, your parents, your spouse and children will get everything that is in your name.
Suppose you die intestate (without a will) and have two children who survive you, but no spouse. Under intestacy laws, these two children will receive an equal share of your estate, but that may not be what you would have wanted. For example, if one of your children is disabled and will need life-long care, and the other is successful and married, or your oldest child is already a practicing physician and the youngest just starting college, the inevitable equal distributions provided by the intestacy laws do not produce an equitable result. Only a will can provide for special needs and circumstances, allowing you, and not a judge, to control the distribution of your property.