The Last Will and Testament applies when you
have passed. It specifies to whom you want your assets to be
distributed. There is an underlying premise for Wills that many people
do not realize: a Will is only applicable to the extent that the legal title
to the asset would not otherwise specify to whom the asset should be
distributed. Thus:
- When assets are jointly owned, with
right of survivorship, if one person dies the other person owns the
asset by operation of law. This property does not flow through
probate because it is unnecessary: there is no reason to probate
property that automatically goes to someone by operation of law.
- When assets are in a trust, since legal
title is not in the decedent, those assets do not flow through the
probate process.
- Generally speaking, only assets which
you personally own will pass through probate. (When an asset is
owned by two or more persons, the asset can be owned "jointly with right
of survivorship" or "jointly as tenants in common." In the former,
if a party dies, the other party owns the decedent's interest
automatically. In the latter, if a party dies, the interest is
passed through the estate. Titling assets is important.)
Another common misunderstanding is that
when a married person dies, any interest passes to the spouse. Not
in Pennsylvania. In Pennsylvania, the surviving spouse receives
the first $35,000 plus 1/2 of any excess of the estate, with the other
1/2 descending to children.
Some things to think about:
A Last Will can be completely tailored to
your needs. Following are discussion points:
Gifts:
Specific Gifts. Identify to whom you will
give any specific gifts; identify the person and the gift. E.g., I want to
give my Rolex watch to Jane Doe. If the gift is destroyed, does the person
get the value? E.g., if the watch is destroyed in event of the death, e.g.,
the accident, do you want to give the value of the watch?
After giving the specific gifts:
Personal Effects. Identify to whom, if
anyone, will receive your personal effects. "Personal effects" are personal
items, such as rings, watches, hair brushes, clothing. Often a person gives
personal effects to the spouse, if the spouse survives, otherwise to any
living children. This is called a "per capita" gift, because it is,
literally, a "head count" of living persons.
Residue. Whatever remains after specific
gifts and gifts of personal effects is called "residue." Reside is often
given to the spouse, if the spouse survives, otherwise, to children on a
"per stirpes" basis. "Per stirpes" means that, if a child is predeceased,
then any children of that deceased child takes the parent's share.
For example, after specific gifts and gifts
of personal effects, there is residue of $400,000 in the form of stocks and
bonds. The decedent, John Doe, had four children, but one of the children,
Jane, died before John Doe. Jane has two living children (John's
grandchildren.) If the gift is on a per capita basis, the residue is split
in three equal shares of $133,333.33 among John's living children; Jane's
children receive nothing. If the gift is on a per stirpes basis, the residue
is split in four equal shares of $100,000: each living child takes one
share, and the two grandchildren "step up" into Jane, their parent's,
quarter share, each receiving $50,000.
Simple Trusts:
Children can take an inheritance at 18 years
of age. With larger inheritances, many parents believe that 18 is too young
to inherit money or property, and tend to prefer mid-twenties and thirties.
Usually a Will has a provision for a
"testamentary trust," which is simply saying that a beneficiary (the person
receiving the gift) will need to be of a certain age, such as 26 years old.
With multiple minor children, there is always
a question of when to divide the potential inheritance into shares, and how
to handle a need of one child, e.g., medical emergency, beyond the presume
equal share split.
Trustees and Guardians:
Whenever children are minors at the time of
death, they require a guardian. There are two "estates": one for the person
of the child and one for the inheritance. That is, you can nominate a
guardian to care for the children, but not give that same guardian care of
the money. You can have a separate guardian for the estate of the child and
estate of the money. For example, if Aunt Florence is loving but not good
with money, then you could nominate Aunt Florence as guardian for the estate
of the children only. Then you could appoint Joe Cpa, as guardian for the
estate of the money. Aunt Florence would then need to ask Joe Cpa for
disbursements for care of the children.
Once children reach the age of majority, 18
years of age in Pennsylvania, they are adults and do not need guardians for
their care or care of the inheritance. However, as stated for trusts, above,
you can establish a higher age before which the children cannot take the
inheritance. (You cannot prevent the "emancipation" of a child, however, as
to their own care upon reaching the age of majority--you can only prevent
access to the money.)
For any period of time after the child
reaches the age of majority, the inheritance is held in trust, by the
trustee, pursuant to the terms in the Will. For example, the Will might
provide that the trustee is to pay education expenses for the child.
Any guardian and any trustee can be the same
person. It is recommended policy to have two alternates.
Executor:
The Executor handles the administration of
the estate. Paying taxes, filing the forms, and making sure the
beneficiaries receive their inheritance. When there is a guardianship or
trust, the Executor distributes to those persons for the beneficiary.
The Executor, any guardian and any trustee
may be the same person. It is recommended policy to have two alternate
Executors.
You can have alternate individual executors,
trustees and guardians, but you need to consider complications upon
disagreements.
Please think about these issues, and contact
us. Our office regularly assists our business
client owners with structuring their estates, including for succession.
