Provisions Typically Found in a Last Will and Testament
Allocation of Estate Taxes
Special care must be given to this provision if a significant portion of the estate is to pass outside the Will (i.e., retirement plans, joint accounts, etc.)
Division of Tangible Property
Special directions may be given for items of sentimental value.
Specific Bequests
Bequests may be made to family members, friends and charities, although income tax benefits may be realized if charitable bequests are made from retirement plans, rather than under a Will.
Unified Credit or Disclaimer Trusts for the Benefit of Surviving Spouse
A trust is created for the benefit of the surviving spouse (and/or the client’s children/grandchildren) in order to take advantage of some or all of the client’s estate tax unified credit. The value of the trust will not be included in the taxable estate of the surviving spouse upon the surviving spouse’s death. This will reduce the estate tax burden upon the second death and will maximize the amount the client’s heirs will inherit.
A “unified credit trust,” “credit shelter trust” or “bypass trust” is funded based on the maximum applicable exclusion amount available in the year of death. Most older Wills were drafted with this type of provision and may inadvertently trigger a New York estate tax. This can be avoided by incorporating language in the Will that limits the size of the trust to the current New York estate tax limit. Alternatively or in conjunction with the unified credit trust, the Will can provide that the deceased spouse’s estate is to pass, outright, to the surviving spouse, but if the surviving spouse chooses to “disclaim” or “renounce” (waive his or her right to inherit) any portion of the deceased spouse’s estate, including property passing to the surviving spouse by operation of law (such as a joint bank account), the disclaimed portion will also be held in trust for the surviving spouse’s benefit. This election must be made within nine months after the death of the first spouse. There are some subtle differences in the manner in which these types of trusts may be drafted.
Life insurance proceeds can be used to fund a disclaimer trust if the insured has designated his spouse as the primary beneficiary of his policy and his estate as the secondary beneficiary.
Qualified Terminable Interest Trust
A “QTIP” Trust is often utilized when the deceased spouse wishes to control the manner in which the surviving spouse may use his or her inheritance during the survivor’s lifetime and how the proceeds of the trust are to be disposed of after the death of the surviving spouse. It is common to use QTIP Trusts when there is a second marriage and the deceased spouse wishes to protect his or her children from a first marriage. A variation of a QTIP Trust, called a Qualified Domestic Trust, is used when the surviving spouse is not a citizen of the United States.
Trusts for Children and Grandchildren
Parents and grandparents can safeguard the manner in which their heirs will utilize their inheritances by creating trusts for the benefit of children or grandchildren. Typically, the trusts can be invaded for the “health, maintenance, support and education” of the beneficiary and the trusts will terminate when the beneficiary reaches a certain age. Often, mandatory distributions of principal will be made over a period of years, such as when the beneficiary reaches ages 25, 30 and 35. Alternatively, the trusts can last for the lifetime of the beneficiary if the client is concerned about the beneficiary’s spouse, lifestyle, creditors, etc., or if the client wishes to take advantage of the exclusion from generation-skipping transfer tax.
Remote Contingency Beneficiaries
The client should decide how the client’s estate is to be divided in the event the client is not survived by a spouse or offspring. Such beneficiaries may include extended family members, friends and charities.
Appointment of Fiduciaries
The client must appoint those individuals (or a bank) who will serve as Executor and Trustee of the various trusts created under the Will. Guardians should be appointed if the client has children who are minors. Many clients find these decisions difficult to make.