Estate Planning: Chapter 7 Methods of Estate Transfer at Death

A will is amended by means of a document referred to as a codicil. This document must be executed with all the formalities and prerequisites of the original will. After identifying testator and date of original will, codicil has provisions like:

"Article 6 of my will is amended to read in its entirety as follows " Except as altered by codicil, original remains in effect. Testator may execute multiple codicils to a will.

Distributions to Trusts; Testamentary Trust: If one or more of the dispositions is not made outright to an individual beneficiary, a dispositive clause may transfer property to this. Property transfer to a trust:

"I direct my personal representative to transfer all of my real and personal property to my trustee, to be administered and disposed of according to the terms of the trust as set forth in Article 9 of my will."

Tax Apportionment Clause: Designate the source of payment for taxes owed by the estate rather than leaving that decision to the state's tax apportionment statute. May vary greatly in content. Example:

"I direct that all estate, inheritance, and other taxes payable by reason of my death, including generation-skipping transfer taxes, on any property included in my estate for tax purposes shall be paid from . . . "

Outright Disposition of Assets: Disposition of property is accomplished by several types of dispositive clauses. A bequest that is payable out of specifically identifiable assets is known as a specific bequest which may read as:

"I give my ring to my daughter, Amy," or, "I give half of my probate estate to my wife." A separate tangible personal property memo is often used. Enables maker to change the beneficiary without having to go to amend the will.

Introductory clause example:

"I, John Smith, of Jefferson County, Colorado, being of sound mind and under no constraint or undue influence, revoke any and all prior wills made by me and declare this instrument to be my last will and testament."

Concluding Clauses: Testator's signature clause. Purpose to: Reaffirm document is testator's last will. Affirm that statutory signature requirements have been met. State the date of signing.

"I, x, the testator, sign my name to this instrument in the presence of the undersigned witnesses this 26th day of March, 2018, and being first duly sworn do hereby declare that I sign and execute this instrument as my last will and testament."

Marketability Discount Typically Ranges Between:

15 to 35% of the interests fair market value.

The medium used determines the type of will. Every state authorizes typewritten or witnessed wills. These types of wills are most often prepared by attorneys and executed in the presence of an attorney as well as other witnesses.

A holographic will authorized by some states. Material provisions must be written entirely in will maker's handwriting and signed, and possibly dated, by testator or testatrix. Does not usually require witnesses or notarization.

Determining Whether to Amend or Revoke Validity: An existing will needs to be amended or replaced if it is invalid or will not fully accomplish maker's goals.

A will is valid, regardless of where it is presented for probate, if all state requirements in which it was executed are complied with. Even if that state's laws change, main will and any previously executed codicils do not have to be redone.

A will affects only property owned by the decedent at death that is not held in will substitute form. Must know not only what assets the client owns, but also how those assets are titled.

A will loses to every other form of passing ownership at death except intestacy. Must know what objectives important to the testator and determine if existing will achieves them. If not, changes should be discussed.

No Contest Clause: When a testator leaves nothing to a close family member, it is fairly common to include this, which states that if a disinherited family member contests the will:

Ad succeeds in having the provision that disinherits her declared invalid, then given a nominal amount, such as one dollar or a beneficiary's share is revoked, and is to be distributed as if the beneficiary had predeceased the testator.

Should make sure the disclaimer is writing and is irrevocable.

Additionally, she should make sure that it is filed with the executor within nine months. Cannot have benefited from disclaimed assets and cannot try to direct Marleen's disclaimed assets to particular heirs.

Preventing a surviving spouse from being left destitute upon the death of his spouse is the purpose of: Community property laws; Spousal elective share statutes; Laws of intestate succession.

Advancement statutes apply when some estate beneficiaries claim that what another beneficiary received from decedent before death was an advancement on what he was to receive at death. Unrelated to spouse.

Characteristics of Intestate Succession Laws: Every state's intestate succession laws based on a distribution scheme legislature feels average person would have adopted in a will, had one been made.

All intestacy laws reflect public policy that decedent's surviving spouse and lineal descendants, if any, should be adequately cared for before property is allowed to pass to more remote family members.

Advantages of executing a last will and testament include ability to: Implement transfer tax planning to save on death taxes in either spouse's estate. Designate a guardian for a minor child in the event of the simultaneous death of the child's parents.

Allocate administrative expenses to specific bequests rather than the residue of testator's estate. A Property held jointly with right of survivorship passes automatically to surviving owner(s) when one owner dies. Not affected by a will.

Real property clause: disposes of real property: "I give all of my real property, including my residence, to . . ." Since it is unlikely that all of the decedent's property will have been disposed of by the other dispositive clauses, a residuary clause is needed to dispose of

Any probate property not disposed of by the foregoing dispositive clauses to prevent probate property not disposed of by other clauses from passing by the laws of intestate succession. "I give all the rest, residue, and remainder of my estate to..."

Blockage Discount:

Applies only to stock of publicly traded companies.

The owner of a life insurance policy will naturally employ the beneficiary designation form. Designate both a primary and contingent beneficiary to receive the death benefit upon the death of the insured. Other situations may require a more complex analysis.

Asset is a bank account held either in joint tenancy or with a POD designation. Client willing to give up total control or wants to be able to change beneficiary designation? If latter, POD.

Fiduciary powers: Grants powers to fiduciaries. Testator's signature: States date of signing and reaffirms the document is the maker's will and that statutory signature requirements are met. No contest: Attempts to penalize those who contest the will. Disclaimed property: Disposes of disclaimed property.

Attestation /statement of witnesses: Witnesses affirm maker's signature, that maker had testamentary capacity, and that witness signature requirements have been met. Self-proving: Allows will to be probated without witness testimony.

Any gift taxes paid "out-of-pocket", tax liability beyond the gift tax applicable credit amount, on gifts made within three years of death must:

Be included in the gross estate under the gross-up rule.

Beneficiary Designation Will Substitutes Continued: Transfer on death (TOD) accounts: like POD bank accounts except a TOD limited to the registration of publicly traded securities.

Beneficiary deeds: Competent sole owner of real property can record a deed in the appropriate real estate records, designating a beneficiary or beneficiaries to take title to the home upon his death.

Life insurance: Most common beneficiary designation. Life insurance contract traditionally gives owner the incident of ownership to designate a beneficiary of the policy, with designation being revocable until the insured's death.

Beneficiary designations are also commonly made for pension benefits, IRAs, and annuities.

Family statement clause Example: "I am married to Mary Smith. Any references in my will to my spouse are to her. My child, now living, is Bob Smith,

Born May 15, 2010. Any references in my will to my children are to such children, as well as any children subsequently born to, or legally adopted by, me."

A single life private annuity will remove the asset involved from the seller's gross estate.

Both the sold asset and the annuity will avoid probate because the asset is no longer owned by the seller, and there is no interest in the annuity to transfer after death.

While a witness who is a beneficiary of the will increases the chances of a will contest based on undue influence on the testator:

But it does not make the will invalid per se. However, most states require a will to have two witnesses, and this will has only one. This will may be invalid because of too few witnesses.

Two ways in which a person's wealth can be transferred at death:

By probate proceedings and by use of will substitutes. Both methods of transfer are controlled by state law which varies.

Ancillary Probate: If a probate proceeding must be conducted in a state other than a decedent's state of domicile in an additional proceeding.

Can greatly increase administrative costs and time. Should be avoided by either giving away real property prior to death or placing property in a will substitute form, such as a trust or joint tenancy.

Three miscellaneous state statutes based on public policy not allowed to be changed in a person's will: Felonious homicide

Cannot receive property from a decedent when the person has feloniously caused the decedent's death. Oopsies.

Distributions to Classes: Instead of leaving property to one or more named individuals, a dispositive clause may name as the beneficiary a class of persons whose exact makeup is not determinable at the date the will is executed.

Clause may state property is to go to maker's "descendants" or "issue." Precisely defined in state probate law, but often synonymous and usually mean a person's lineal offspring children, grandchildren, etc.

Personal Representative's Duties: Secure decedent's real or personal property against theft, casualty, or vandalism. State law may immediately place the obligation of insuring such property with the surviving tenants. May be required to file an inventory of all probate estate assets.

Collect amounts due to the decedent from others and payments payable to estate as a result of the decedent's death, such as those from Social Security, the decedent's employer, or life insurance death proceeds.

Uniform Simultaneous Death Act (USDA) or Simultaneous Death Statutes: It is not uncommon for the disposition of property at death to depend upon whether one person survives another.

Death benefits from a life insurance policy go to one person, the primary beneficiary, if alive at insured's death but go to another person, contingent beneficiary, if the primary beneficiary does not survive the insured.

A clause in the will that disposes of real property is know as a:

Devise. A bequest or legacy disposes of personal property. A general bequest is payable out of the general assets of the estate.

Distributing Estate Assets: PR's Fifth duty. If decedent left a valid will, distribution will be made to those beneficiaries named in the will. If not, or decedent's will did not fully or properly dispose of probate assets:

Distribution made to those entitled to probate assets pursuant to applicable state intestacy statutes.

Property held as a tenancy in common:

Does not avoid probate because there is no survivorship feature as there is with JTWROS.

If there are none, only then would it go to collateral heirs. Or, statute may direct that the intestate estate escheats to the state. When one person is not given the entire intestate estate, the probate court must decide who gets which assets, unless all assets sold and turned into cash.

Escheat: Reversion of property to the state, or in feudal law to a lord, on the owner's dying without legal heirs.

Minimize the probability of a successful will contest: Leaving every heir a bequest, even if it is small.

Establishing a trust during lifetime to provide for testamentary disposition to the heirs. Including an in terrorem clause in the will if these clauses are generally enforced in the testator's state

Family allowance statutes: States also recognize that the decedent may have been the major, if not the sole, source of support for a surviving spouse and dependent children. Parties cannot wait until the estate is distributed to receive assets from the estate so:

Every state has a statute allowing estate to pay a periodic amount to such parties for their maintenance during estate administration process. Such payments have priority over distributions to pay debts owed to unsecured creditors of the estate.

Requirements for a Valid Will: Minimum Age

Every state has one, generally age 18 or 19, at which a person can make a valid will. Prior to this, deemed legally incompetent to make wills.

Execution: Every state has very specific statutes for the testator. For every will that is reduced to writing, the testator must sign or execute the will. If witnesses and a notary are required, most states require the testator to sign in the presence of the witnesses and the notary.

Execution requirements for witnesses: Most states require them to be present when testator signs the will and be in each other's presence when they sign the will, in order to attest to testator's signature and testamentary capacity.

Homestead allowance and exempt property: Gives a dependent spouse and/or children an ownership or an occupancy interest in real property that is used by these parties as a personal residence.

Exempts property from claims of the general (not secured) creditors of decedent. Similar statutes protect certain classes of decedent's personal property from being used or sold to satisfy estate's general (not secured) creditors.

Attending to Tax Obligations: Third duty of PR to take care of tax obligations of decedent and estate: File federal and state income tax; File federal, state, gift tax returns; file any federal and/or state generation-skipping tax returns; File estate tax return

File federal (and state, if applicable) income tax returns for the estate, if required. Pay any property or use taxes assessed against estate property

If the person nominated as the PR by the decedent declines to serve, predeceases the decedent, or if the decedent dies without a valid will, the court will appoint the first competent person who agrees to serve from a statutory priority of appointment list established by the state.

First priority to spouse, then adult children. If no competent person can be found to serve, court can appoint a local attorney or bank formalized by document, often called letters of appointment, PR can present to third parties.

The executor is: Person or institution named in will to manage decedent's estate. Is a fiduciary. Must act for exclusive benefit of heirs of the estate.

First responsibility is to locate the decedent's will and submit it for probate. Should balance the needs of all the estate beneficiaries.

Per Capita by Generation: Still count heads but count by generation. One child so they get one third

Five Grandchildren so they divide up the two thirds between them.

Providing for Survivors: Every state has passed statutes to ensure that certain family members will receive at least a minimal portion of the estate even if that is not what the decedent has stated in her will. These statutes cannot be negated by provisions in a will. Community property states:

Give each spouse half interest in everything acquired while domiciled in such state by either spouse during the marriage with certain exception s like property acquired by one spouse by gift or bequest.

Objectives Obtainable by Will Substitutes: Payable on death (POD): Avoid Immediate Gift Tax: Yes. Decrease Estate No. Revocable Transfer Yes. Shift Income No. Transfer on Death (TOD): Avoid Immediate Gift Tax Yes. Decrease Estate No. Revocable Transfer Yes. Shift Income No.

Government savings bond: Avoid Immediate Gift Tax: Yes. Decrease Estate No. Revocable Transfer Yes if A payable to B. No if A or B. Shift Income No.

Will Substitutes using Beneficiary Designations Continued: Irrevocable living trusts: Statements made for revocable living trusts also apply to irrevocable living trusts, with the exception that:

Grantor has no right to revoke so trust beneficiaries may have a vested interest sooner than with the revocable trust. Not all will substitutes mentioned recognized in every state.

Because the beneficiary deed is revocable:

Grantor retains total control of the trust assets. Beneficiary deeds are used only with real property. Beneficiary deeds act as will substitutes and avoid probate.

By representation: Similar to per stirpes. Each generation treated the same. John has three kids with 4 grandchildren.

He dies and two of his kids are still alive. Live kids get 1/3 and 2 grand children from dead kid get 1/6 each: per stripe. Or he dies and his children already dead. Each of four grandchildren get quarter of inheritance: By representation.

The Clauses of a Will: All wills have certain standard clauses. Preliminary Clauses: Introductory Clause: Every will starts with one. Purpose is to:

Identify the testator or testatrix. Establish testator's or testatrix's domicile. Declare document is meant to be testator's or testatrix's will. Revoke any prior wills.

Methods of Revoking: All copies of will bearing testator's and witnesses' signatures should be destroyed to prevent a copy of an old will being presented for probate with a claim that the original has been lost.

If all copies cannot be destroyed, original should be canceled in testator's handwriting and retained as proof of revocation. To avoid testator dying intestate in interim, an existing will should not be revoked until a new will has been executed.

In Terrorem or No Contest Clause:

If challenges the will, will not receive what was left to them.

Died in a state that requires PR to notify creditors by publishing a notice of probate proceedings in the local newspaper. State law gives creditors four months after last date of publication to file claims. Had a balance of $752 due on her date of death.

If department store fails to see the notice and file a claim, claim now barred, despite three-year statute of limitations to file suit for any past due payments. If filed in time, probate provides a method for collection.

Placing another person's name on the account as a joint tenant would allow that person to withdraw funds; original owner would no longer have total control of the funds and, depending on the amount withdrawn by the new owner, may incur gift tax liability.

If does not mind giving other person some control putting it in joint tenancy may be acceptable and could reduce current owner's gross and taxable estate at death if a spouse is named as the only other tenant.

Another universal characteristic of state intestacy laws is a lack of provisions giving any intestate property to charity or to nonfamily members, such as friends or domestic partners. If no heirs decedent's intestate property given to state to hold in trust for a stated number of years.

If no person entitled to the estate under the intestacy laws comes forward during this time, the property will belong to the state. This property is said to escheat to the state.

Pretermitted /Omitted/After-Born Heir Statutes: If decedent did not include a child or spouse in the will, such beneficiaries may still make a claim against the decedent's estate.

If testator intends to disinherit a child, testator should make this intention abundantly clear in the will. Not effective until evidence omission was intentional or decedent made other provisions for the omitted person outside of the will.

Probate estate: Primary objective of wills and intestate succession laws is to establish the identity of the persons and/or entities that will receive title to the decedent's property interests.

If the new owner of the property can be legally identified without looking in the will, that property is not in probate.

Contingent Beneficiary: In any of the previous dispositive clauses, maker may have named a contingent beneficiary to receive property if primary beneficiary predeceases the maker.

If the primary beneficiary should predecease the maker, assuming that the contingent beneficiary survives, the property will go to him.

After the share of the surviving spouse is computed, the remainder of the intestate estate, if any, is distributed on some basis to the decedent's surviving descendants. The distribution is usually made on either a per stirpes or per capita at each generation basis.

If there is no surviving spouse or descendants, or if there are no surviving descendants and the surviving spouse is not given the entire estate, the balance is usually given to either the decedent's siblings and/or parents, if any.

Rashaan and Lucinda married, have wills that leave everything to the survivor. If no surviving spouse, Rashaan's will leaves his probate estate in trust for his minor child, Ari, by a previous marriage.

If there is no surviving spouse, Lucinda will leave her probate estate to her brothers and sisters in equal shares. Neither will contains a simultaneous death clause.

Revocable joint tenancy bank accounts may be the most widely used form of will substitute. Upon death of one of the parties, proceeds go to the survivor.

In such an account, each joint tenant can withdraw all the funds on deposit without the consent of, or an accounting to, the other joint tenant.

Total Intestacy: Second situation in which the laws of intestate succession will be applied. Decedent must die without a valid will and with property that is not held in a will substitute form.

In the previous example, if the decedent had made no will, or if the will was held to be invalid for some reason, both the real estate and the car would be subject to the laws of intestate succession.

Family Statement Clause: Clarifies who the maker is talking about when he says, "I give to my spouse . . ." or "I give to my children . . ." If a maker names beneficiaries who are minors as of the date of the will, it is common to give the birth dates of at least these beneficiaries.

In this way, if these beneficiaries are still minors, and property is to be placed in trust for them at the maker's death due only to the minority of the beneficiaries, the trustee can accurately determine when the trust will end.

Beneficiary Designations: Avoid Immediate Gift Tax Yes, if revocable. Decrease Estate No, unless irrevocable. Revocable Transfer Yes in most cases. Shift Income No unless irrevocable. Revocable Living Trusts: Avoid Immediate Gift Tax Yes. Decrease Estate No. Revocable Transfer Yes. Shift Income No.

Irrevocable Living Trusts: Avoid Immediate Gift Tax No if completed gift. Decrease Estate Yes, if certain rights not retained. Revocable Transfer No. Shift Income Yes if certain rights not retained.

Tenancy by the entirety requires the consent of both spouses to dispose of property.

JTWROS does not. Sole ownership requires probate. Tenancy in common will not eliminate the need for ancillary probate as Bill's share of the property will require probate unless other plans are made.

Right of Survivorship: Two forms of property ownership that can act as will substitutes by using the right of survivorship principle, or operation of law: Joint tenancy with right of survivorship (JTWROS), or joint tenancy, and tenancy by the entirety (TBE).

Joint tenancy form of co-ownership used in virtually every state, while TBE can be used only by spouses in states where recognized. These will substitutes are usually effective in transferring both real and personal property of all kinds.

Statutes That Cannot Be Changed by Will Provisions

Legal limitations that cannot be changed by the provisions in a will. These limitations are based on public policy grounds to ensure fairness and prevent foul play.

Probate Disadvantages: Expensive. Lawyers fees, appraiser for tax purposes, accountants, auctioneers if estate assets must be sold. PR usually entitled to a fee for services and may have to post a surety bond paid from estate assets. Court and filing fees.

Lengthy process. Distribution of estate assets to beneficiaries usually does not occur until end, as payment of valid debts and taxes is given priority over such distributions. Probate is public. Some do not like that.

Advantages of Probate: An orderly process overseen by a judge with or without formal hearings. Provides certainty to beneficiaries that they are inheriting a legally valid record title. Creditors assured of an established process for payment. Court orders provide certainty as well.

Limited time frame for creditors to file claims helps beneficiaries, since not required to wait for the much longer statute of limitations on collection of debts to expire. A creditor cannot later claim a right to an asset.

Intestate succession laws vary greatly from state to state, but issues most likely to be proved include: Decedent survived by a spouse or lineal descendants?

Lineal descendants of decedent also lineal descendants of the decedent's surviving spouse? Decedent's surviving spouse surviving lineal descendants who are not also lineal descendants of decedent?

Probate Process:

Lodge Will with Court, Appoint Personal Representative, Notice to Creditors, Inventory and Manage Assets, Pay Debts and Expenses, Distribute Estate Assets

CFP Board has demonstrated a bias against probate, so

Look for ways to avoid probate when answering questions

The simultaneous death statute for the state in which Rashaan and Lucinda live states that in the event of simultaneous death, the beneficiary shall be deemed to have survived the owner of the property. Die simultaneously in a plane crash.

Lucinda deemed to have survived Rashaan, so will receive his probate estate and Rashaan will receive Lucinda's probate estate. This is unacceptable if one spouse had a substantially greater probate estate than the other.

Managing Estate Assets: PR's fourth duty: Keep estate assets insured against loss; Invest estate assets in a prudent manner; Manage certain estate assets such as rental property or a business run by the decedent prior to death;

Maintain and/or repair estate assets; Protect estate assets from damage or theft. Expenses incurred in the performance of this duty will be paid from estate assets if reasonable and necessary.

Spousal elective share: Common law states generally provide for a surviving spouse by giving the spouse the right to take a stated percentage of the probate estate, usually a maximum of 50%. Surviving spouse may either receive assets left in decedent's will or

Make an election to receive statutory amount, but not both. If surviving spouse received assets in will substitute form, such assets will be considered by the court in determining the award.

Amendment or Revocation of a Will: Wills revocable until testator's death if testator is competent so revoking the entire will or amending a few of its existing clauses presents no legal problem.

Method to Revoke: Every state has a statute. Methods include tearing or burning will or canceling it with words canceled or revoked across pages in maker's handwriting and date of termination.

Divorce or Annulment Statutes:

Most state statutes disinherit an ex-spouse from a decedent's estate. These statutes may address only transfers made by will, or they may also apply to transfers made by will substitute.

Disclaimer: Third miscellaneous statute. Occurs when a beneficiary of a decedent does not want to accept assets given by decedent. Disclaimer statutes define how a valid disclaimer is made so

No one, not even party disclaiming, the estate, or the beneficiary who will eventually receive the disclaimed asset, will have a basis for argument about whether a valid disclaimer has occurred.

Joint tenancy with right of survivorship and Tenancy by the entirety

Not Subject to Probate - Survivorship Feature

Marshaling the Decedent's Assets: PR's first duty, Must: Collect money in bank accounts titled solely in the decedent's name.

Notify banks, brokerage houses etc of death, that the PR should receive any future communications regarding the decedent's property, and PR has sole authority to take actions.

Attestation Clause a Self Proving Clause If (Continued)

Or state in which the will is executed has an appropriate statute allowing a will to be admitted to probate without personal testimony of the witnesses if it is in a prescribed form.

Nuncupative will: authorized by only a few states.

Originally made orally by the testator, but state law may require that it be reduced to a written memorandum within a specified time period. Since it is oral, a nuncupative will must have at least one witness.

fiduciary appointment clause: If the will establishes testamentary trusts, a trustee is also appointed since a trustee is also a fiduciary.

Other persons who can be appointed in this clause include guardians and conservators for minor children or incompetent dependents of the maker.

The Appointment of the Personal Representative: Responsible to the probate court for completion of process in a timely manner. Representative of the decedent. Some states say executor (male) and executrix (female).

PR must be of the age of majority as specified by state law and must be mentally competent. Most states also allow entities like banks to be appointed as PRs.

Beneficiary Designation or Operation of Contract: Many forms of will substitutes using beneficiary designation principle including: Government savings bonds. Operate on either the right of survivorship principle or the beneficiary designation principle.

Payable on death (POD) accounts: deposit funds with a financial institution. Funds payable on death of depositor to a designated beneficiary.

Per capita. If the testator wants every person in the class to receive the same amount regardless of their degree of relationship, an abbreviated way of indicating this intent is to state that the property is to be given per capita.

Per stirpes. Maker's children usually do not like per capita as gives grandchildren and great-grandchildren same amount as the children get. Therefore, distributions to a class may be made per stirpes.

Pour-Over Will: One or more of the dispositive clauses may direct the PR to transfer estate assets to an existing trust established by the will maker prior to death.

Pours probate estate assets into a trust, such as a revocable living trust.

Statutes That Can Be Negated by Will: States also have other statutes to address certain questions that commonly arise when property is transferred at death.

Prevent probate courts from having to hold numerous hearings in various cases to decide the same issue.

Does not like that the probate process is public so wants assets to pass to heirs without it so makes his children joint owners of his residence. Joint titling allows residence to pass to his children outside of probate. Intestacy occurs when a person dies without a valid will;

Probate applies. Naming estate as a beneficiary makes life insurance policies probate assets. Naming specific individuals would avoid probate. A testamentary trust is created by a will, and wills go through the probate process.

Requirements for a Will: Valid Form: Recognized as valid in the state where it is executed.

Proper form includes compliance with requirements like: state regarding medium used, execution for testator/testatrix, execution for witnesses, and execution regarding notarization.

Will substitutes: Since these transfers do not have safeguards built into the probate process, may be limited to specific types of assets. All must have a method of designating who is to receive the property at death.

Property owned in a valid will substitute form is not affected by a will or intestacy laws. Will substitutes name the recipient at death in two ways: by right of survivorship and by beneficiary designation.

Probate Processes are: costly and may result in a delay of the distribution of a decedent's assets. Protects decedent from certain creditor claims and protects creditors by giving them a forum to have their claims heard.

Provides heirs and/or beneficiaries with a means of obtaining clear title to a decedent's property. Public process.

Processing Payments to Valid Creditors of Deceased: Second duty of PR is to enable valid creditors of deceased to get paid: Providing actual notice to known creditors by mail;

Providing constructive notice to unknown creditors by publication in a local newspaper. The time period for creditors to file claims is usually three to six months so estate can be settled as soon as possible.

Unless structured as a qualified terminable interest property (QTIP) trust, all bequests that qualify for the marital deduction must use it regardless of the preferences of the decedent's executor; therefore, the assets transferred outright by the will, and by will substitute, will:

Qualify for the marital deduction without an election. Estate can use decedent's applicable credit amount to extent QTIP election is not made for any portion of the assets placed in the QTIP trust. Assets in a QTIP trust can be disclaimed.

Retitling property as tenancy in common would reduce a gross estate but:

Remaining fractional interest would still have to go through probate.

Domicile must be distinguished from residence.

Residence is where a person is residing or staying at any particular moment. Domicile is equivalent to a permanent residence: place always intends to return. A person's domicile and residence can be, and often are, the same state.

Tangible personal property: Disposes of tangible personal property; often refers to a separate memorandum. Intangible personal property: Disposes of intangible personal property. Real property: Disposes of real property.

Residuary: Disposes of all probate property not effectively disposed of in other clauses. Fiduciary appointment: Appoints primary and successor personal representatives, trustees, guardians, and conservators.

Intestate Situations: Someone who dies with a probate estate and without a valid will died intestate.

Resulting probate proceeding is sometimes referred to as an intestacy proceeding: state's laws of intestate succession applied to any property owned by decedent at death not held in will substitute form.

Irrevocable living trusts: Grantor transfers assets to a trustee but has no right to revoke the trust; irrevocable.

Revocable Living Trusts: Grantor transfers assets to a trustee, but retains the power to revoke the trust; trust becomes irrevocable at grantor's death; revocable.

Substitute techniques is also known as operation of law:

Right of survivorship is also known as operation of law. Beneficiary designations is known as operation of contract. Using trusts and TOD or POD arrangements are not known by any other name.

Advancement statutes: Decedent gave property to a beneficiary during the decedent's life, but unclear if such a gift was meant to be a true gift or if it is to be considered an advancement from the beneficiary's inheritance.

Significantly impacts assets distributed to decedent's beneficiaries. If an advancement, it is only that beneficiary's share of the estate that will be reduced accordingly.

Abatement statutes are also used when a surviving spouse chooses to take the spousal elective share rather than the amount left to him in the will, and when the estate is not large enough to pay all claims, expenses, and bequests.

Since actual order of abatement serves no public policy, testators allowed to specify a specific order of abatement Unlike provisions designed to protect spouses and children, these statute can be altered by will provision.

A brokerage account with a T.O.D. (transfer on death) designation will pass by will substitute,

So probate estate has been reduced. The assets, however, will still remain in gross estate. Because such a retitling is revocable, will still be able to control the account and change the title

If gift not deemed an advancement, that beneficiary will receive the amount left to her pursuant to the will provisions, which may decrease the amount received by other beneficiaries.

So public policy of carrying out the decedent's intentions with respect to distribution of property at death is preserved. These statutes can apply to a testate or an intestate situation.

Introductory: Identifies maker, establishes domicile, declares document to be maker's last will, and revokes prior wills. Tax apportionment: Designates source of payment for death taxes. Family statement: Identifies maker's family members.

Specific bequest: Bequest of specifically identifiable assets. General bequest: Bequest of non-specifically identifiable assets, usually stated as a percentage or dollar value.

PR may be required by state law to make certain distributions to beneficiaries according to other state laws. Such distributions include:

Spousal elective share, homestead property, real property, exempt property, ie personal property, and family allowances. Provide for a surviving spouse and/or dependent children of deceased.

Statutes Concerning Adopted Children: Most states give adopted children same rights as biological children of the decedent.

Statutes do not require a testator to leave property to an adopted child, just as a testator is not required to leave property to a biological child. Give adopted children same rights as those of biological children of the testator.

Sole (fee simple) Tenancy in common and Community property both:

Subject to Probate - No Survivorship Feature

If one party contributed all of the funds in the account, no completed gift at opening of account. But is when nondepositing joint tenant withdraws any or all of the funds. If two joint tenants married, gift not taxable and no gift tax liability.

Such accounts have been upheld as will substitutes on the theory that a contract is established between the bank and its depositor(s) at the time the account is opened and/or the signature card is completed.

Many states require witnessed wills to be signed before a notary public.

Such notarization is often a prerequisite to allowing a will to be admitted to probate without the in-court testimony of the witnesses.

Most state intestacy laws will begin by stating the share to which a surviving spouse, if any, is entitled under certain circumstances.

Surviving spouse will receive entire intestate estate even if decedent had surviving children with surviving spouse. But if had children of a different relationship, surviving spouse's share may be decreased to provide for them.

Joint Tenancy with right of Survivorship: Avoid Immediate Gift Tax No, unless to spouse. Decrease Estate Yes, if to spouse, no if to nonspouse, unless he contributes funds. Revocable Transfer No.. Shift Income Yes if to other than a spouse.

Tenacy by the entirety: Avoid Immediate Gift Tax Yes. Decrease Estate Yes. Revocable Transfer No. Shift Income No.

Wants to transfer assets in such a way as to reduce size of her estate.

Tenancy of the Entirety TBE will always reduce an estate because ownership is transferred to a spouse. Irrevocable beneficiary designations and irrevocable trust can also accomplish this goal.

Partial Intestacy: Decedent must die with property not held in a will substitute form and not disposed of by decedent's will. There is property in the estate that does not have a named beneficiary. Most often occurs when a will lacks a residuary clause.

Testator dies owning real estate and a car solely in his name, and only dispositive provision in will states all real estate to go to his brother. The real estate will pass to his brother by the will provision.

What must be proved in a probate proceeding? If the decedent left a will, it must be proved that the will is the valid last will and testament of the decedent (testator). Must prove: Testator intended document presented to be his will;

Testator was mentally competent, had testamentary capacity, at the time of execution of the will; is deceased; document presented is testator's last will and has not been revoked; will properly executed and valid in state where executed.

States have laws known as tax apportionment statutes that answer this question, unless otherwise specified in the will.

The ability to change by will what would otherwise be applicable by state law highlights the advantages of making a will.

Next comes the attestation, or statement of witnesses,clause: Purpose to: Allow witnesses to affirm that they saw the testator sign the will and that testator had testamentary capacity at the time of signing. Verify statutory requirements relating to witness signatures met.

The attestation clause can also act as a self-proving clause if it contains all essential statements witnesses would have to verify if called to testify personally at the time the will is offered for probate. Will notarized.

Contingent testamentary trust: The dispositive clauses may also state that all or a certain portion of the estate is to be given outright to a competent adult and otherwise is to be paid to a trustee to administer for:

The benefit of the minor or incompetent person. May only be established if the beneficiary is a minor or incompetent at the time of distribution of the decedent's estate.

But his car will go to the person or persons entitled to receive it under the state laws of intestate succession.

The car also could have been transferred through the will if it contained a residuary clause stating that "all the rest, residue, and remainder of my estate, I give to . . ."

Ademption Statutes If a will leaves a specific asset to a beneficiary, and that asset is no longer in the decedent's estate at the time of death:

The issue arises as to whether the beneficiary is entitled to a replacement asset or value. In this situation, the missing property is said to have adeemed, and thus, the related statutes are known as ademption statutes.

Intestacy is usually to be avoided, but not always.

The key is that intestacy be an intentional choice for the client rather than an unintended consequence.

Evaluation of whether an existing will is valid involves simply knowing:

The requirements of the state in which the will was executed as of the date of execution and making sure these requirements were complied with in the existing will.

Per capita at each generation: John has three kids, A, B & C each to receive 1/3. B & C die, three kids between them. A gets 1/3, his kid gets nothing. C and B's one-third shares combined and distributed equally to the number of heads at the grandchildren's level.

The three cousins would each get one-third of the two-thirds of the property that would have gone to C and B had they survived the decedent, so 2/9ths for each of the three grandchildren.

Joint tenancy: If only owners are spouse 1 and spouse 2, and spouse 1 dies, spouse 2 will automatically become the sole owner of the property. If there are three joint tenants and one of them dies:

The two surviving joint tenants each become an owner of a portion of deceased tenant's interest in the property in proportion to current ownership of the property. Joint tenants typically own property equally.

Dispositive Clauses: After preliminary clauses, a will is ready to perform the main part of its job: disposing of the decedent's probate property.

The wording of dispositive clauses should direct or command that property be disposed of in a certain way. If the disposition is stated only as a wish, hope, or desire of the testator, the probate court may not enforce such a provision.

If the decedent did not have a will, had a will that did not fully or properly dispose of all probate property, or had a will that is found to be invalid for some reason, which will trigger the intestate succession laws to apply:

Then the identity of the persons entitled to receive such probate property must be proved.

Location of Probate

There are established rules for deciding where a probate proceeding must be commenced. Personal property is probated in state of decedent's domicile. Real property must be probated in state where real estate is located.

A P.O.D. designation is revocable.

Therefore, no completed gift is made, and the named beneficiary has no use of the account assets until the account owner dies. The account assets are included in the owner's gross estate, but not the owner's probate estate.

New state law: If a state passes a new law, a person might want to re-execute the will. Similarly, a person may want to amend an existing will, or revoke it and re-execute a new one, to take advantage of a change in tax or other types of laws.

These actions would be taken to benefit from the new law and would not be taken because the old will was invalid.

Collateral heirs: nieces, nephews, etc.. The identity of lineal offspring may be quite different at the time of the will maker's death from who they are at the time the will is executed.

This ability to name a class of beneficiaries that may change over time allows the maker to avoid amending the will every time the composition of the class changes.

Appointment Clauses: Although a will does not have to name a personal representative to be valid, one advantage of making a will is the ability of the maker to choose the PR.

This act is performed in the fiduciary appointment clause. A contingent PR is also usually appointed in case the primary PR predeceases or is otherwise unable or unwilling to act in the capacity of PR.

Abatement Statutes: When a spouse or child is omitted from the will and her claim against the decedent's estate is granted, such assets granted are derived from reducing the share of other beneficiaries.

To prevent having to hold a hearing in every estate where this situation occurs every state has enacted abatement statutes. These statutes specify which shares are to be reduced first, second, third, and so on, and by what amounts.

Advantages of a Will Substitute: Avoids probate process with associated cost, delay, and potential publicity. Allows current owner to name person(s) to receive owner's interest at death. Many revocable allowing current owner to maintain:

Total control until death but also requires asset be included in owner's gross estate at death for estate tax, and keeps asset within reach of creditors. Designated beneficiary only has contingent interest in property prior to owner's death.

Per Stirpes:

Tracks each child. All children get one third even if dead. If dead their third split among their kids.

Will Substitute Summary: Government savings bonds: A or B Irrevocable. A payable on death to B Revocable. Payable on death (POD) accounts: Funds deposited in a financial institution for the benefit of another, payable on the death of the depositor; revocable.

Transfer on death (TOD) accounts: Like POD account, but for publicly traded securities and debt obligations; revocable. Life insurance: Beneficiary designations for life insurance proceeds, revocable.

Will Substitutes Using Beneficiary Designations Continued: Revocable living trusts: Recognized in all states. Grantor transfers assets to a trustee but retains power to revoke trust at any time. Trust must be funded to avoid probate upon grantor's death.

Trust passes only a contingent equitable interest in assets to its beneficiaries other than the grantor at time of funding. Beneficiary receives a vested interest only when an actual distribution made to beneficiary or possibly at death of grantor.

One way to rectify problem, both Rashaan and Lucinda include a survival clause in their respective wills stating that any estate beneficiary who does not survive the testator by a specified number of days shall be presumed to have predeceased the testator.

Under these circumstances, Rashaan's probate estate would go to his child, and Lucinda's probate estate would go to her brothers and sisters. This result is much more likely to meet their goals.

Requirements for a Valid Will: Testamentary Capacity The creator of a will—the testator or testatrix—must also have testamentary capacity. Testamentary capacity usually involves following elements:

Understanding of general nature of document maker is signing or executing. Understanding of the nature and extent of his property and of the persons who are the will maker's family.

Most states have laws that allow will to be proved by affidavit, written statement made under oath, of party presenting the will: usually the party named in the will to be the personal representative or executor or executrix.

Unless affidavit contested, will admitted to probate via an informal probate proceeding, which continues to require court supervision but few, if any, hearings during the process.

Want estate transfer plans flexible with regard to who they name as a beneficiary, as their family situation is somewhat volatile. Estate planning techniques that ensure the greatest flexibility:. Establish a revocable living trust.

Using JTWROS titling or TBE titling on assets or irrevocable beneficiary designations are titling options and, once made, give joint owner rights that cannot be taken away without permission, thus reducing or eliminating flexibility.

Real estate is probated according to the law of its situs:

Where the property is located Personal assets are probated according to the law of the decedent's domicile.

Tax Apportionment Statutes: Probate process ensures collection of any taxes owed by decedent or estate. If more than one person benefits from decedent's estate, question arises as to the source from which death taxes will be paid.

Will gives all real property to decedent's spouse and all personal property to decedent's child, should money to pay death taxes come from spouse's or child's share, or some from each? The same question can also arise in an intestate situation.

Property subject to probate: Tom owns a residence as tenants by the entirety with his wife. Because this form of property ownership includes a survivorship feature, a provision in Tom's will that states "I hereby give all of my property to my son":

Will not be effective in transferring Tom's interest in the residence to his son at his death. The residence will be solely owned by his wife if she survives him.

Wants the bulk of his estate to pass to his spouse. However, he plans to pass the vacation home to his adult children. Does not have a will and does not intend to make one. Holding it in joint tenancy with right of survivorship with his children.

Will pass directly to them without consent of surviving spouse. Would go to his spouse, not his children, if held in tenancy by the entirety. Spouse would receive at least part of the property if tenancy in common used.

Per Capita by class under a Will Different then Under Life Insurance. With life insurance if have three children, five total grandchildren and two children are dead, surviving chilled gets everything.

With a will if have two kids and only one alive estate distributed to all six: one sixth to the child and one sixth to each of the five grand children.

However, if Tom survives his wife, he would become the sole owner

and then the provision of Tom's will would pass the residence to his son at Tom's death because property that is solely owned at death does not pass by will substitute

There will be no marital deduction for the life insurance death benefits, as the designated beneficiaries for each policy are the children. The first spouse to die will have to include one-third of the total real estate in their gross estate as wife, husband and son owners,

but one-half of this will go to the surviving spouse and qualify for marital deduction. Remainder to son. Estate of first spouse to die has estate tax on one-sixth of real estate due to marital deduction for other one-sixth that goes to surviving spouse.

FLP interest will be included

in the probate estate. The other assets will pass via will substitute: IRA, profit sharing plan, JTRWOS house.