Understanding Wills
An integral part of any financial plan.

A key component of any financial plan is his last will and testament. A properly drafted will enables a testator to:

• select the beneficiaries of his estate;
• protect property for children by establishing trusts;
• naming his own fiduciaries such as executors, trustees and guardians;
• save estate taxes by using marital and non-marital trusts and charitable trusts;
• save administrative expenses by waving bond fees and providing for an orderly distribution of assets; and ,
• help surviving family members emotionally by showing them his clear intent with respect to his property.

 

 

The Problem

Most people don't understand how to read a will or how they are written. Often, these documents are written in "legalese" and can exceed 50 pages in length. Contrary to popular opinion, attorneys do not charge by the word or the page. There are good reasons why wills are drafted in long and complex ways.

Understanding Drafting

A will is a legal declaration of an individual's intent with respect to the disposition of his property and the appointment of his fiduciaries. There is no time limit on the validity of a will. Once a will is legally drafted for a competent person, it remains valid. Thus, if an 18-year-old drafts a valid will in state X and lives for another 80 years, that will governs the disposition of his property. Therefore, attorneys try to take into consideration the potential amount of time that may elapse between the execution of a will and the time of its probate.

There are several ways attorneys take into consideration time and change of circumstances. If a parent wants to leave money or property to a minor, a trust is usually established under the will. The trust may postpone distribution of the property until the child reaches an age of fiscal responsibility such as 35 years. The trustee may be given discretion to spend money for the child's benefit prior to that age, or make periodic distributions of income and corpus. Contingencies may also be provided in the event the child marries, has children of his own, dies prior to the testator, dies prior to receiving all of his property or becomes disabled. Describing what happens to the property in each of these contingencies takes time and careful drafting. It can't be done in a two-page will that costs $50 at a neighborhood legal center.

Simple testamentary bequests of money or property can become complicated. For example, let's assume a parent wants to leave her daughter a diamond wedding band. A will may provide for the disposition of the ring if the following contingencies occur:

• The daughter dies before the parent and has children surviving. Do the grandchildren share the ring?
• The daughter dies before the parent and has no issue surviving. Does the ring pass to another child?
• The diamond wedding band was sold by the parent. Does the daughter get the cash realized from the sale?
• The ring was exchanged for another item of jewelry. Does the daughter get the jewelry?

Thus, to ensure what would happen in each situation takes time in drafting.

A critical component of a will or trust for most clients of wealth is a marital and non-marital trust. Generally, the intent of a testator is to set aside $625,000 (the amount of assets sheltered by the unified credit against the estate tax in 1998 which is scheduled to increase to $1,000,000 by 2006 and years thereafter) to a non-marital trust and have the balance of the estate pass to the spouse or to a marital deduction trust for her benefit.

Two or more trusts may be needed to create an optimum estate plan. In a non-marital deduction trust, counsel may describe the interests, if any, given the surviving spouse and children with respect to distributions of income and corpus. In addition, a trustee may be given discretionary authority to invade corpus for the benefit of one or more beneficiaries. Contingencies, such as the death or disability of a beneficiary should also be planned for in the trust.

The second trust which might be created under the will is a marital deduction trust. This trust will grant specific rights to a surviving spouse to qualify the property for the marital deduction. Once again, the trust should carefully describe the interests of the spouse and those of the children who may inherit property after the spouse's death.

Most wills grant executors and trustees broad discretionary powers with respect to investments of trust assets. This is done to help the beneficiaries by authorizing the trustee to take advantage of attractive investments. Since we don't know when a person will die or how long a trust may last, testators want their trustees to be able to buy and sell trust assets as financial markets change. Without specific authority in the trust, a trustee would be limited by state law as to what constitutes a permissible investment. These powers are usually located at the end of the will and take several pages to describe.

Wills are complicated legal instruments which show the final wishes of a decedent. Everyone should appreciate the time that must be taken by attorneys to have them drafted properly.

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