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Home , Operation of law, Simultaneous death, Totten trust, Trustee, Trust law, Will and testament

Estates, Last Will & Testaments and Trusts

Introduction:

An “” is composed of the real, personal or mixed which is still legally his or hers after .

What Are part of an Estate

There may be some property that is still legally yours after your last breath. Each state has a set up to pass to the property. ’s court is the Orphan’s Court, and the court in New York that handles the transfer of the legal of property of the decedents is called the Surrogate’s Court. The are primarily established to pass title to property that is still yours after your death. The rules as to who would receive property. In New York, Article 4 of the Estate powers and sets forth the rules of distribution.

Some property transfers automatically after your last breath. I consider these to fall into two categories. They are and .

OPERATION OF LAW

Ownership of some property passes automatically due to the nature of the ownership in the property.

Joint Ownership

The most common examples of joint ownership are bank accounts and . The joint owners’ names will be listed on the ownership documents (i.e., bank account, ) with the designation as joint owners. In regards to , when you own a property jointly with a spouse it is considered joint property, but you are called “tenants by the entireties”. This means that you are joint tenants because you are married. A joint ownership means that you co-own a property and have the right of survivorship. In other words, if you are the last joint owner to survive, you become the sole owner of the property.

Life

You can have a life use in real property. The most common situation is where one person or persons will give their home over to others but keep a life use. At the end

Como Law Office, 440 Waverly Street, Waverly, NY 14892 (866) 747-8694 of the life use, the entire rights to the property automatically become those of the remainderman.

Conditional Gifts/

A Totten Trust is a bank account that is set up in one person’s name “in trust” for another person. However, the first person continues to use the account for his/her own personal purposes and there is no formal trust agreement. The courts consider this to be a form of conditional that vests automatically upon the death of the owner.

CONTRACT

The most common form of contract is the life contract. It is a contract between the owner of the policy (usually the insured) and the insurance . Upon the death of the insured, the insurance company has agreed to pay the . If the insurance company does not, it can be sued by the beneficiary to receive the moneys contracted to be paid.

There are various other . Most plans are established by the contract terms of the pension plan. You can have a 401k, IRAs and other similar planning devices. The simple rule of thumb is: if you can name a beneficiary, then it is governed by contract.

Another common contract is a trust. A trust is a formal agreement between the grantor to the . The trustee is the , who has agreed to hold items under the terms of the trust agreement and to pay out according to the terms of that agreement. Trusts will be explained further below.

None of the foregoing items will become part of your estate since they become some else’s automatically. However please note that the rules for automatic transfer of ownership do not apply to the issue of estate taxation. Simply put, you may be taxed on whatever you owned prior to your last breath.

The items in which you still have a legal interest in after your death will pass by the of intestate distribution under the provisions of the pertinent state laws.

Last Will & Testament

However, with some exceptions, you do not have to follow those laws. You can create a directive that supersedes them. The exceptions mainly pertain to ensuring that the surviving spouse gets enough from the Estate, or if there is a child, that he/she

Como Law Office, 440 Waverly Street, Waverly, NY 14892 (866) 747-8694 gets some form of income. Except for these restrictions, you do not have to follow the State’s Laws on Distribution.

The directive you create is called a Last Will & Testament. It has to be executed with certain formalities. As noted above, your Last Will & Testament will supersede the distribution rules of state law.

Essentially, a Last provides the Surrogate Court with direction as to whom a person wants the assets that remain his/hers after his/her death to be distributed.

Therefore, the major items of concern for a person drafting a Will are to determine who is to get what. Should you want something to go to a particular person (i.e., if she survives me, my diamond ring to my daughter Jane), you should state it in the Will.

More importantly, you should make alternative provisions for disposition of such assets in case the person you bequest them to in the first instance predeceases you (i.e., all the rest, residue and to my husband, if he does not survive me then to my children, Jane, John and Jill equally, by representation). If you do not have an alternate disposition of property, that property will pass in one of two ways. If there is a residuary clause in the Will (i.e., the last example used above) then that property will pass through the provisions of the residuary clause. Using the prior example of bequest of the diamond ring to daughter Jane, if Jane had no children and passed away before the (the person who wrote the will), the diamond ring would go to either the husband, if he survived or would be liquidated and the proceeds divided equally between the other two children through the residuary clause of the Will.

Secondly, if there is no residuary clause then the asset would pass to whomever should take pursuant to the Laws of . The Laws of Intestacy determine where items go when there is no Will.

The other major reason for having a Will is if you have minor children. If both parents pass away, it would be appropriate for them to have a say in who should take care of the child. Otherwise, the child may become a ward of the State, or the Surrogate Court would determine whether or not another person who petitions would be an appropriate guardian. By appointing a person to be the guardian of the person and property of your child in the event that both you and your spouse have died, the Surrogate will follow the request of the testator, absent extraordinary circumstances to indicate that such person is not qualified. For those of us who have minor children, this may be the primary reason for having a Will. As in the case of lapsed bequests, you should consider appointing alternate guardians should the person or persons appointed in the first instance be unable to act in that .

Also, you should consider who you wish to be the of your Will. The executor is the person who is responsible for administering the Will, and distributing the

Como Law Office, 440 Waverly Street, Waverly, NY 14892 (866) 747-8694 assets of the Will accordingly. He/she is also responsible for collecting all the assets of the estate and for filing Estate and Fiduciary Income Returns, if necessary. I generally recommend that if the spouse is going to be the primary beneficiary, that he/she should be the executor. Also, there should be an alternate executor should your spouse predecease you. Many people have a tendency to make that alternate executor the same person or persons that is appointed as guardian of the person and property of each of the children.

There are some other clauses that I recommend in order to hold down the burden and costs of the administration of an estate. They are as follows:

1. One such provision is a waiver by the testator of the need for an executor, trustee and/or guardian to post any bond with the Surrogate Court.

2. Another clause is one that is known as a " clause" which avoids the otherwise necessary litigation should a testator and a beneficiary die at the same time. In the case of spouses, this may avoid the need to both spouses' estates.

3. A provision that all expenses of the estate, including the estate are paid from the estate. Otherwise, if the estate taxes were owed, they would have to be apportioned among the persons receiving anything through the estate, and persons receiving assets that pass outside of the estate.

4. Also, I believe that a clause allowing the executor to handle and distribute assets of the minor child in like manner as a Uniform Transfers to Minors Act Trustee is a worthwhile provision. By allowing this power, the Executor would not necessarily have to put the assets going to a child in a supervised bank account, which would need a court order to enable funds to be withdrawn from. Although this may seem to negate the need for a person to be appointed as the guardian of the property of that child, this latter appointment would still be necessary should assets come to the child from outside of the estate (i.e., benefits paid directly to the child as a beneficiary).

Pitfalls to avoid in drafting Wills

These are some of the issues that might arise from the way that a Will is drafted.

Incomplete Bequests

If there is a gap in the Will, state law will apply. This will happen is you fail to name someone a residuary beneficiary of the Will or a trust created under it. The residuary beneficiary is the catchall person to get whatever is left over. Quite often Wills just name residuary beneficiaries and no other ones.

Como Law Office, 440 Waverly Street, Waverly, NY 14892 (866) 747-8694

Lapsed Bequests

The Last Will & Testament can only direct the disposition of assets that are still yours or assets that are still titled in your name after your last breath. Also, the Will cannot direct that which is not yours after your last breath. If the ownership passes automatically to someone else, you cannot give it to a third party (i.e. you cannot give your house to your daughter if you own it with your wife and your wife survives you). Likewise, if you had a life use of a house, you cannot extend that life use or give away the property in a Will.

When you execute a Will you may have been the sole owner of the house. If you no longer own the property then you cannot convey title to it. That property will be deemed to be “lapsed”. If you are the sole owner of your house and you give it to your daughter in your will, but you sold the house, it will be deemed “lapsed”. However, if you take the proceeds from the sale of that house and set it aside, then the bequest will not be deemed “lapsed” but rather converted to another form – the proceeds from the sale.

Caring for Children through a Will

A will cannot only be used to bequeath property to others as an acknowledgment of your love of them. If you are a parent of minor children one of the most important things you can do for them is to plan for their personal and financial care in the event of your and your spouse’s untimely . Although the possibility of such an occurrence may be remote, the consequences to the child would be devastating.

While no other person can totally fill the shoes of a parent, it is best that a person who is to assume such a duty, do so as soon as possible. By deciding who would be best suited to be a guardian of your children in the event of your death, you not only allow that person to assume the job as soon as possible, but you give him/her time to reflect on what his/her responsibilities would be. Therefore, the guardian would be more prepared to assume those responsibilities, if need be.

If you do not make this election, the courts will make that choice. They may choose someone who is a close relation. However, that person may not have the same philosophy on child-rearing as the one by which you have been raising your children. Moreover, even if they have the willingness they may not have the energy, stamina, and/or longevity (i.e. grandparents). You may find someone else more suitable. However, the courts will not know this unless you state it in your will.

By making provisions for the guardianship of your minor children in a will, you can thus give them “gifts”. Your children may never know of or understand this gift. However, your time, effort, and thought in planning for such a remote possibility is one of the greatest gifts you can give your children.

Como Law Office, 440 Waverly Street, Waverly, NY 14892 (866) 747-8694

Choosing an Executor

You should put a considerable amount of thought into making the decision as to who will be responsible for the administration and distribution of your and real property.

Administrator/Administrix:

If you pass away and leave an estate, the Court will appoint someone to be your Administrator/Administrix (“rix” ending denotes a female). Usually it will be a spouse or the closest relative. Unless all parties , that person will have to obtain a fidelity bond for the performances of these services. Quite often, obtaining and discharging the bond entails more work than the actual administration of the estate. As Executor/Executrix, you can designate the individual that you would like to handle the administration of your estate.

In your will you can declare that any Executor/Executrix, alternate executor/executrix, or administrator with the will annexed not post any bond. This would avoid the and expense of bonding.

Executor/Executrix:

As part of your will you can designate an individual whom you would like to handle these affairs. This person is known as the Executor or Executrix of the Estate. This person or persons will be responsible for the overseeing and administration of your last wishes as contained in your will.

Insurance, and Other Financial Documents

It is strongly recommended that all insurance policies, pension information (including employee booklets), financial accounts and tax returns all be kept in one spot. Depending on the circumstances you may want to have your primary or substitute agent to have copies of the same.

Trusts

A Trust is an agreement where property is transferred to be held by someone under and according to the terms of that agreement.

Como Law Office, 440 Waverly Street, Waverly, NY 14892 (866) 747-8694

Parties

Grantor- This is the person or persons who set up the trust (typically are the ones to, at least initially, transfer items.

Trustee- This is the person who is named as the fiduciary to receive the transferred items and hold them according to the terms of the trust. The Trustee and the Grantor can be one and the same person.

Beneficiary- The Beneficiary of the trust is the person who is named in the trust to benefit from the items in the trust. Again this can be the Grantor and/or other persons. The Beneficiaries may have a lifetime interest. If the balance of the trust is to be given to the Beneficiary at a certain point in time (or after prior beneficiaries have passed away) that Beneficiary is considered to be the remainderman.

Lifetime Trust- A lifetime trust, (sometimes called Inter Vivos) is a trust that is created by the Grantor during his or her lifetime. The trust is created and funded at or about the time of creation. More items can be added to the trust during the course of the life of either the Grantor or Beneficiary. However, sometimes it will be unfunded until the death of the Grantor and can be a beneficiary of his or her Last Will & Testament. This is called a “pour up” trust. Otherwise, a trust can be funded and a will can make it the beneficiary of the decedent’s estate. This is called a “pour over” trust.

Testamentary Trust- The trust which is created as part and under the provisions of a Last Will & Testament. The Testator is the Grantor. He or she names a Trustee. The Court will then appoint a Trustee. By accepting the appointment the Trustee agrees to follow the terms of the trust.

Uses for Trusts

Medicaid Planning- A trust, properly set up and has been in existence for 5 years, can be a tool for doing Medicaid preplanning. For it to be effective the Grantor’s spouse cannot be the Trustee or Remainderman.

Choosing a Trustee

Como Law Office, 440 Waverly Street, Waverly, NY 14892 (866) 747-8694

When considering a Trustee, it is important to make sure that you name several alternates. You may wish to name a financial institution as a Trustee, Co-Trustee, or alternate Trustee to ensure that there is a Trustee in place for the entire term of the Trust.

Insurance, Pensions and Other Financial Documents

It is strongly recommended that all insurance policies, pension information (including employee booklets), financial accounts and tax returns all be kept in one spot. Depending on the circumstances you may want to have your primary or substitute agent to have copies of the same.

Como Law Office, 440 Waverly Street, Waverly, NY 14892 (866) 747-8694