Planned Giving for Financial Advisors
A Bequest in a Will or Trust — Frequently Asked Questions
What happens if my client dies without a valid will?
Everyone has an estate plan, whether they think they do or not. In the unfortunate case that an individual dies without a valid will, the laws of her state of residence prescribe how and to whom the estate will be distributed — very possibly in a way that your client did not intend. Regardless of means, everyone who has an opinion about how she wants her estate to be distributed needs a will.
What is a revocable or living trust?
A "revocable trust," also known as a living trust, is created by a living individual (grantor) to manage assets for the benefit of the grantor and/or other persons during the grantor's lifetime. The grantor has the right to modify or revoke the trust during life.
At the grantor's death, the living trust becomes irrevocable and its assets are distributed to named beneficiaries, either outright or in further trust just as they would be under a will. However, assets held in the trust are "non-probate" assets, and trust distributions are not overseen by a probate court. Typically, the grantor serves as the initial trustee of her living trust and appoints an additional trustee to oversee the distributions after her passing.
When should my client consider updating her will or revocable trust?
Life circumstances change constantly. If your client has taken steps to finalize her estate plan, she can be certain that her circumstances and the makeup of her estate will change from time to time. She should review her plan every five years to be sure it still meets her needs and takes into account current estate tax rules, and she should review it more frequently as major life or tax law changes occur.
Examples of common events that signal it's time for your client to review and update her plan include:
- Marriage
- Divorce
- A new baby
- Stepchildren
- The death of heirs
- A move to a different state
- Disposal, inheritance or purchase of significant assets
- When guardianship is no longer needed for adult children
- When testator changes her mind about her existing beneficiaries
- When she wishes to add or change a charitable beneficiary
Does my client need an attorney to write a will?
The simple answer is "yes." Having an attorney guide your client in writing a will ensures compliance with all applicable state and federal requirements to give your client peace of mind about the validity of her estate plan. Sometimes clients are reluctant to spend the money for a will and believe that they can take care of the legal language by following online guides.
In order to convince your client to get the professional guidance that makes this a smooth process, please read on.
Every state prescribes what are known as "will formalities" to ensure the validity of a will. Those formalities typically require that the will be in writing, that the testator and some number of witnesses sign, and that the will be notarized with self-proving affidavits to avoid requiring witnesses to come to court to prove the authenticity of the signatures on the will when the testator dies.
A few states even allow individuals to create a will entirely in their own handwriting (known as "holographic" wills). If the will is properly witnessed and signed according to state law, the applicable probate court will accept the will.
However, there are many state and federal law statutory limitations and details that should be addressed to avoid creating headaches for an executor down the road — statutory limits on deductible funeral expenses, fiduciary powers for the executor, and so on. There are also many contingencies that a layperson often overlooks. For example:
- What happens if the spouse and children are all deceased at the time a testamentary trust terminates?
- Who will serve as, or have the right to choose, a successor executor or guardian for minor children if the first choice is unavailable?
- Which beneficiary's share will bear the costs of estate administration, insurance, and/or shipping or items of tangible personal property?.
A will is an important legal document, and your client will be wise to employ the expertise of a qualified attorney. The expense of creating a well-written document will save your client's estate and her heirs' dollars and hassle later. Plus, she will have peace of mind knowing that her plan is solid and does just what she intends. Often, the cost of a simple will is far less than what your client imagines.
Your encouragement to find a qualified estate attorney to help her is invaluable to her and her heirs.
What is the role of an executor/personal representative?
An executor or personal representative of an estate is the person the testator named in her will to manage and distribute her estate in accordance with the will. If the individual died without a valid will, the probate court will designate someone as an estate administrator to manage and distribute the estate according to the intestacy statutes. An executor's or administrator's work will be monitored by a probate court.
An executor does not need to be an expert in finances, probate law, or taxes, but can and should hire experts needed to assist in the proper administration of the estate. A good executor will be honest and organized, possess good common sense, and be willing to serve in a fiduciary capacity.
Many people name their spouse, an adult child, or some other close relative to serve. If possible, the testator should name someone who lives nearby, is a resident of the state of the testator's domicile, and who is familiar with her financial matters. That will make it easier for the person to do chores like collecting mail, selling assets, and finding important records and papers, and an executor who is domiciled in the state where the estate is being administered won't have to file a surety with the court.
What is a probate court?
This is the court that determines the validity of a will and provides judicial oversight over the distribution of the estate. If there is no valid will, then the probate court will oversee the distribution of the estate according to the state's intestacy laws.
What are non-probate assets?
Non-probate assets are any assets in an individual's estate that will pass to beneficiaries by operation of law rather than according to the will. Examples include assets held in a living trust, jointly-held property such as real estate and bank accounts, and assets that will pass pursuant to a beneficiary designation such as life insurance proceeds, brokerage accounts, and retirement plans. Whether an asset passes through probate or not has no impact on the estate taxability of the asset.
Non-probate assets often comprise the majority of an individual's estate, so it's important for your client to focus closely on all types of assets that will pass as part of a comprehensive estate plan.
What is a codicil?
This is a simple amendment to a will, which avoids the cost and complication of rewriting an entire will. The codicil must be signed and witnessed and/or notarized in compliance with the state's will formalities.
When will my client typically want to use a bequest in a will or trust?
Most individuals who make bequest gifts are deeply loyal to the mission of Harper College Educational Foundation and want to make a long-term investment in our future. Because these gifts do not impact current assets or cash flow, they are frequently 10 times larger than the biggest lifetime gift. Most bequests are to create an endowed fund or to add to our general endowment, thereby providing support for our long-term future and continuing the client's philanthropy in perpetuity. Many clients set the amount of their gift to effectively endow their annual support.