Wills and estate planning
Given the opportunity, who would not like to write his or her own life’s story? To immortalize the values you have come to adopt? To demonstrate your love for your family? To care for them in every way imaginable?
You can, you know. Not by writing a novel, but by writing your very personal will. If you look upon your will as one last act of love in your life’s story, a will takes on a very different hue. Unique as your life, your will can not only pass property to individuals you choose; it can also provide specific directions for unique situations. There are as many situations as there are individuals, and each person needs a personal will to accommodate his or her own specific circumstances. Listed below are six common, but different, situations that can occur throughout life. Each circumstance has with it an explanation of how your will forms a valuable foundation for your other estate planning goals.
Reasons for a Will
You Are Single
According to 2000 figures from the U.S. Census Bureau (the latest year completed figures are available), there were 27.2 million people living alone in a household. Of those, 9.7 million were age 65 or older. A total of 12.9 million unmarried women made up 12.2 percent of all households, and 7.6 million were raising children under age 18.
Regardless of why you are single, you need a will to distribute your property to those you wish to receive it. If you do not make a will, the state where you reside has one for you, and it will probably not represent your personal wishes. Among other things, your state-drafted will doesn’t provide for:
- Your choices for distributing your property after your life
- Your choice for providing a guardian for those under your care
- Your ability to make charitable gifts
State statutes do the best they can. The example of a farmer who died without having made a will illustrates their problem: Three years after his death, his estate was finally settled. His assets were divided, not among the relatives and friends who lived near him and cared for him and whom he loved, but among 29 blood relatives, many of whom he had never met and most of whom he had never known. He attended his church on a regular basis and consistently supported its endeavors, but upon his death, his church received nothing and his regular donations ceased. If he had made a will, he most certainly would have made very personal choices that mimicked his lifetime of giving. Why didn’t he have a will? Let’s hope other “single” people learn from him.
And while planning your will, keep in mind your estate plan should also include establishing a healthcare power of attorney, durable power of attorney, and a living will to ensure your care and financial well-being should you become incompetent.
You Are Divorced and Remarried
Let’s say you were divorced and have since remarried. Your old will left your entire estate to the spouse you divorced. You were told when you divorced that according to the laws of your state, divorce did not cancel that will. It did cancel provisions favorable to your first spouse and removed him or her as executor of your estate. Now you want a new will. You are required, however, to provide alimony for your first spouse for a term of years.
After you write a new will, you can imitate a man who chose to use a charitable trust as a method of paying alimony to his former wife. He set up a charitable remainder annuity trust with her as its beneficiary and his favorite charitable organizations as its remaindermen. Because a charitable remainder annuity trust pays a fixed dollar amount per year for the life of the trust, he chose to have the annuity trust pay her an amount equal to his monthly alimony requirement. After her life, the principal amount remaining in the trust would be given to the charitable organizations he had named as the irrevocable remaindermen in his trust instrument.
You and Your Spouse Have Children from Different Marriages
In many cases, remarriage comes with extended family. It is important to discuss with your spouse the needs for each of the children and how to provide for both sets of your children after your lives. Several options are available from which you can choose; you will want to pick the best option for your own circumstances.
A postnuptial agreement may be one way to avoid serious inheritance problems, depending on your estate. That agreement permits you to spell out how much each would inherit from the other (you would surrender your rights to the amounts provided for spouses by state statute) and how your assets would be distributed to your own children.
Another alternative is to set up QTIP (qualified terminal interest property) trusts, which would enable each of you to leave income for life to your surviving spouse. You may also allow them to invade the principal in the event of need. The remaining principal, after that spouse’s life, would go to your own children. This plan enables you to care for your surviving spouse while directing certain assets to your own children.
Here is an example of how one couple solved this problem. Each spouse sets up a separate charitable remainder unitrust designating his or her favorite charitable organizations as beneficiaries with the lifetime income going to his or her own children. The couple received immediate income tax charitable deductions and avoided capital gains tax on the transfer of appreciated assets to the trusts. The income percentage assigned for the lives of their children was set low enough to permit the invested trust assets to increase year after year, so that the income payable to the children would increase proportionately. In addition, because the capital remaining after the lives of their children would go to the designated charitable organizations, the couple would also receive estate tax deductions enabling their estate to distribute even more to their children. In any scenario, however, your will should contain provisions for the care of the children and for the presumed order of death should you both die simultaneously in an accident.
You Have a Child with a Disability
Thoughts of death can be deeply disturbing when you have a child with a disability. You can care for the child as long as you are alive, but what happens after you are gone? Who will provide care? Will there be enough money to provide care for as long as the child lives? Under these circumstances, you want to write your will to be fair to the other children and still give special assistance to the child who requires special care.
A special caution
If you give this child an outright bequest by will, be careful that it doesn’t make him or her ineligible for Supplemental Security Income (SSI) benefits providing for lifetime food, clothing, and shelter.
If you place funds in a special trust for the child’s benefit, however, he or she would not be disqualified. Ask your attorney to explain whether a supplemental needs trust or a fully discretionary trust would be better.
A supplemental needs trust is an irrevocable trust for persons with disabilities. It states that the trustee may make distributions to those persons to provide for needs over and above the basic needs for food, clothing, and shelter, which SSI provides.
A fully discretionary trust may make distributions for any purpose at the trustee’s sole or absolute discretion. As one author explains, it “…usually contains (and should contain) a statement requesting the trustee, in exercising its discretion, to take into consideration whether the proposed distribution would have a negative effect on the beneficiary’s eligibility for benefits.”
You can set up either trust as a testamentary trust in your will or as a living trust during your lifetime.
We know your first responsibility is to provide a will that meets the needs of a child with a disability. To accomplish this goal, you should always seek the advice of professionals knowledgeable in this area.
You Want to Make Gifts to Your Grandchildren
Grandparents worry about their grandchildren. Among other needs, the cost of higher education is often a concern. Your immediate goal is to set up a program in your will that would enable money to grow for their future educations.
Trusts are a common solution to this problem, with your children as trustees on the grandchildren’s behalf. But another solution combines your gifts to them with a charitable trust. For example, a $50,000 charitable lead trust, established by will, could provide income to your favorite charitable organization for a set number of years and after that period transfer the trust’s principal amount (which had grown through the years) to a grandchild. Suppose you created a $50,000 charitable lead annuity trust or charitable lead unitrust with a 15-year term. If you set the income payout to the charitable organization low enough to permit the vested income to grow at 7 percent, the principal amount would reach almost $120,000. The exemptions that apply to generation-skipping transfers can substantially reduce the tax burden for charitable lead trusts to grandchildren. This twofold gift, one to your favorite charitable organization and one to your grandchildren, is a testamentary trust that puts your grandchildren first.
You Want to Leave Charitable Bequests
We have shown that charitable giving through your will can often assist in special will circumstances. It is natural for people to want to provide for nonprofit causes that have beneficially touched their lives. This is illustrated by the fact that Americans gave $241 billion outright to charitable organizations in 2003. Those who left money to charitable organizations when they died (by wills, trusts, and insurance) directed their giving to causes that were dearest to them.
Motivation for giving comes in many forms:
- pure altruism
- a family desire not to make the children rich or richer
- an estate tax–advantaged awareness that there is an unlimited charitable deduction available to any estate
If you do want your will to reflect your life’s meaning, remember that a will provides the easiest, safest (it is totally revocable at any time) and surest way for you to contribute assets and be certain your gift will be used as you wish.
Vigilance is the watchword when selecting the charitable organizations you wish to benefit.
Research your potential recipient organization until you are confident of your choice. While one major and emotionally appealing charitable organization spends 60 cents of every donated dollar on administrative expenses and salaries, another spends as little as 27 cents per dollar. Studies show that one of the main reasons for selecting one organization over another as a recipient of charitable planned gifts, such as gifts by will, trusts, insurance, annuities, etc., is the result of contrasting how much of each bequest will go to its actual intended purpose. Charitable organizations often can provide reports to individuals who are interested in donating
to their charitable cause. These reports state how much of donated funds is spent on day-to-day operations and how much is spent on their actual mission-directed programs.
Conclusion
Solutions for each of the six “will circumstances” mentioned here may require family discussions, legal advice, and professional planning. You may have other special circumstances that are specific to your needs. To ensure your will addresses the needs of your family and your own special circumstances, consult an experienced estate planning attorney and be detailed in outlining the unique circumstances prompting the meeting.
Procrastination need not make a mockery of your good intentions—don’t delay in securing the future for your family and loved ones.
The information on this web site is not intended as legal advice. For legal advice, please consult an attorney. Figures cited in examples are based on current rates at the time of printing and are subject to change. References to estate and income tax include federal taxes only; individual state taxes may further impact results.
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How to Write a Charitable Bequest
Your will is a written testimonial of your desire to provide for the well-being of family and loved ones. It is a way to show others what you value above all in life, being especially generous with the people and organizations that matter the most. Should you decide to provide support for Community Hospital of the Monterey Peninsula services as part of your estate plan, there are many ways to include the hospital in your will.
The Simplest Form
The easiest and most popular way to provide for a gift to Community Hospital is to simply say: I give, devise, and bequeath to the Board of Trustees of Community Hospital Foundation, a California nonprofit corporation located in Monterey, Calif., all assets herein described. This gift shall be used for [purpose].
An unrestricted gift is the most useful, as it allows us to determine the most suitable need for the funds. You may, however, specify how the funds are to be used. If this is the case, please contact our Development Office at (831) 625-4506 to be certain your intent can be fulfilled.
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Checklist for a Sound Estate Plan
- Do you have a living will and durable power of attorney?
- Are your assets sheltered from tax in your surviving spouse’s estate?
- Have you taken advantage of the estate tax marital deduction?
- Does your will reflect any changes in your family situation?
- Have you adopted strategies to reduce the future tax exposure of your qualified retirement plans or IRAs?
- Does your estate plan benefit your favorite charitable organizations?
- Do your insurance and retirement plans reflect current beneficiaries?
- Is your executor qualified to manage your estate, resolve claims, minimize taxes, and pay legacies?
- Are your assets held in the correct titles?
- Have you named a guardian for any dependents under your care?
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