What is a will?

A will is a document which creates a plan for the transfer of assets to another person or entity upon death. A simple will should answer the following questions:

• Who will serve as the guardian of minor children?
• Who will administer the will as executor?
• To whom, will the assets in the probate estate pass?
• How will the assets in the probate estate pass to the beneficiaries? In trust or outright?
• If a trust is created, who will serve as trustee?

What is a tax planned will?

A tax planned will is appropriate for married individuals where the combined value of the taxable estate exceeds the exemption equivalent. The tax planned will creates a trust to hold the assets governed by the will of the first spouse to die to the extent the value of those assets do not exceed the exemption equivalent available to the deceased spouse’s estate. This type of trust is generally referred to as a family trust, credit shelter trust, or bypass trust.

Usually, a tax planned will creates another trust called a marital trust which is designed to hold the portion of the deceased spouse’s estate which exceeds the exemption equivalent. After the surviving spouse passes away, the assets in the credit shelter trust pass to the beneficiaries free of estate tax. However the assets in the marital trust are included in the taxable estate of the surviving spouse.

With the portability of the exemption equivalent, which enables the exemption equivalent belonging to the first spouse to die to be stacked on top of the surviving spouse’s exemption equivalent upon the surviving spouse’s death, the exemption equivalent of the first spouse to die need not be “sheltered” in a bypass trust.  Rather, an Estate Tax Return (Form 706) may be filed after the first spouse’s death so that the exemption equivalent belonging to the estate of the first spouse to die is added to the exemption equivalent available to the surviving spouse’s estate.

What assets are included in my taxable estate?

Generally, all assets under your dominion and control are included in your taxable estate. It i s a common misconception that life insurance is not included in your taxable estate. If you are the owner of a life insurance policy, the value of that policy will be included in your taxable estate.

What assets are governed by a will?

Assets pass to beneficiaries in three main ways: under a will or trust, via beneficiary designation (or pay on death agreement), and via rights of survivorship. Life insurance, annuities, and retirement plans usually pass to the beneficiary via beneficiary designation. Checking and savings accounts may pass to a surviving spouse as a joint tenant with rights to survivorship. Because some assets may not be governed by your will, it is important to coordinate beneficiary designations and rights of survivorship with your overall estate plan. Assets which are typically governed by a will include land, brokerage accounts, bank accounts, business interests, and personal property.

When is it appropriate to create a trust in a will?

Unless the value of an estate is very low, it is almost always advisable to leave assets to beneficiaries inside of a trust. A trust created under a will is called a testamentary trust. Transferring assets to beneficiaries in trust creates the following benefits for the beneficiaries:

• May protects assets from creditors, lawsuits, and failed marriages.
• Allows the assets to be managed by an individual or institutions of your choice, thereby enhancing flexibility and minimizing cost.
• May enable beneficiaries to receive benefit of inheritance without causing them to become disqualified from government assistance programs.

Who should serve as Executor or Trustee?

Persons you choose to serve in a fiduciary capacity should possess the following qualities: 1) interested in the well being of the beneficiaries; 2) consistently manages his or her own business in a responsible manner; and 3) seeks professional advice when dealing with issues outside of his or her realm of experience. Typically, the surviving spouse serves as the fiduciary over assets passing to him or her. Usually, after the death of both spouses, children serve as fiduciaries, either jointly or in the order of their birth. A corporate fiduciary is most appropriate if: 1) the beneficiaries do not get along with each other; 2) no individual meets the criteria discussed above; or 3) if a beneficiary is not a United States citizen, has creditor problems, or is a special needs individual.