A crucial part of writing your Will is dividing and distributing your estate to your beneficiaries. In our guide today, we’ll breakdown the key terms you should know and the difference between your estate and ‘gifts’.
Key estate terms in your Will
We’re often asked the difference between an estate and residual estate and how to leave a gift to someone special. Let’s break down these terms!
- Estate: Your estate is an inventory of everything you own at the time of your death. This can include assets such as property, shares, bank accounts, household items and much more.
- Beneficiary: A beneficiary is an individual (such as a family member or loved one) or group (such as a charity or not-for-profit) who receives part of the estate
- Gift: A gift is generally a specific asset or item or designated amount of money you choose to leave to a particular beneficiary. When giving to charity, this is also known as a Gift in Will or bequest.
- Residual Estate: The residual estate is the remainder of the deceased’s estate once all debts and expenses have been paid and gifts have been distributed to the beneficiaries.
How do residual estates work?
Generally, once an individual has passed, a process known as Probate must be completed to distribute their estate. Once the Court has granted probate, the Executor can finalise the estate by paying any debts and expenses, before allocating any gifts to beneficiaries. This can often include items such as vehicles, jewellery, heirlooms and pets.
Following the distribution of gifts named in the Will, the Executor can divide the residual estate.
Typically this is stated as a percentage within the Will and can be left to an individual or group such as a charity, as long as the total amount equals 100%. For example, you may choose to leave 30% of your residual estate to your siblings and the remaining 40% left to a charity such as Beyond Blue.
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What happens if I do not nominate a beneficiary for my residual estate?
Suppose you fail to nominate a beneficiary for your residual estate. In that case, you could be deemed to have died ‘partially intestate’, which means that the Court will divide the remaining assets according to the law of intestacy.
To avoid this, it is best to include a backup beneficiary in your Will, should the first beneficiary pre-deceases you.
Disclaimer: The content of this blog is intended to provide a general guide to the subject matter. This blog should not be relied upon as legal, financial, accounting or tax advice.
Unlike money, personal belongings usually cannot be divided equally after their owner passes away. For this reason, distributing possessions like furniture, jewelry, dishes, silverware, artwork, photographs or clothing is often the most difficult challenge in settling an estate. (Just ask Audrey Hepburn's two sons.)
It can help if the deceased person had stated in her will or in a separate memorandum who should receive what. In many states, reference within a will to such a separate document over what is technically called "tangible personal property" makes the list binding. The list can be updated without changing the will, although it's a good idea to check with your lawyer when making changes to the list.
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Often items of little monetary value have great emotional significance. This can make distribution difficult when more than one person feels attached to a particular item. The process can also become the venue for playing out old family insecurities and grievances. Everyone may revert to the relationships they had as teenagers.
That said, most families are able to work out the distribution of personal belongings that have not been directed by the decedent in a fair way. Here are a few methods:
- Draw lots and take turns picking items. To make this method even fairer, change the order with each round of choosing. The person who went second in the first round goes first in the second round. For instance, if there are four children, the order of choosing personal items would flow as follows: 1-2-3-4, 2-3-4-1, 3-4-1-2, etc.
- Use colored stickers for each person to indicate what he wants. The process may be expedited by each person putting a sticker on the items he wants. Where there's only one sticker on an item, it will go to that person. Where there's more than one sticker, then the family may revert to taking turns on the contested items.
- Get appraisals. Deciding on who gets what can become more difficult if some items have significantly more value than others. If families were to use the taking turns method of distribution, the person who gets the first pick may walk off with the only Rembrandt. It may be necessary for a few rounds for everyone to choose items of similar value, some people getting a single item while others choose several that together are worth as much as the most expensive possession. In other cases, the individual or individuals getting the most valuable items may have to pay the other family members for the value or the family members may decide that the only fair way to go is to sell the most valuable possessions and share the proceeds equally.
- Make copies. While many personal belongings are unique, in the case of photographs and videos copies can be almost as good as the original. Many family members will be as happy with a copy.
- Use an online service like FairSplit.com to catalog and divide personal property in an estate.
- Work with a senior move manager, who can serve as a neutral third party who can be trusted by family members and defuse the strong feelings among siblings.
- Bring in a mediator. Where there are conflicts among family members over particular items, often estate attorneys act as mediators, but you can also go to a trained mediator. Mediation can help the family members get at the root of the interests with the process, healing past wounds and ruptures rather than exacerbating them.
In many cases, families use a combination of these methods to come up with a fair system of distribution. Sometimes, however, people’s schedules get in the way of everyone meeting in one place to make distributions or the process gets dragged out for other reasons.
The University of Minnesota Extension School has developed useful materials to help families resolve issues around distribution of personal possessions called Who Will Get Grandma's Yellow Pie Plate? which is available both online and in a workbook format. It is a great place to start both for parents planning the distribution of their estate and for executors figuring out what to do after the fact.
For a Consumer Reports article on "How to spare your heirs a battle over your estate," click here.
Talk to your elder law attorney about how to avoid family strife over the distribution of personal possessions.
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The idea of dividing up your estate between your children can be daunting. Does it make sense to split everything equally? Or should you consider a different arrangement? Also, how might your choices today affect your children in the future? In Brian M. Douglas & Associates’ latest blog, we’re looking at the situations where equal division is a good idea, and when equitable division might be the right option for your family.
Dividing your inheritance equally among your children means that everyone will receive the same amount. If you have two children, they will each get 50%. If you have five children, they will each receive 20% of your estate.
An equal inheritance is a good idea for your family if all of your children are similarly situated in life. They all have similar salaries or incomes. They are all emotionally capable and responsible people. All of the children have received the same financial support from their parents, whether that was college tuition, their first car, or maybe paying for their weddings or putting money towards a house. If your children do not need immediate financial assistance and they’re all responsible with money, then it makes sense to divide your estate equally among them.
If your estate assets include both money and tangible assets (ex: home, vehicle, art, jewelry), in order to divide these evenly, you will first have to determine the dollar value of each tangible item. Then, you’ll need to decide which child should inherit each item, and compensate your other children for the difference in dollar amounts. For example, if you decide to leave your oldest child your home, you might consider giving your other children a higher percentage of your financial assets to make up the difference.
Different Inheritance Amounts
Whereas equal or even inheritance might work for some families, for others, it just doesn’t feel appropriate. There are a number of reasons why a parent would want to leave their children different amounts. One of the most common reasons is that one child has been the “family caregiver,” and the parent or parents want to reward or compensate that child for their time and effort. Or, the parents might leave the most expensive asset to their child caregiver, such as their primary residence.
Another common reason for unequal inheritance is the family’s history of giving. A parent may have given considerably more money to one child to cover the cost of their tuition, a wedding, or a down payment on a house. As a result, the parent might want to leave more money to the other children to account for the difference. For example, let’s say the parent gave the oldest child $50,000 for tuition, but only $25,000 the other two children for their college costs. The parent might want to leave the younger children an extra $25,000 each to account for the difference in the financial gifts.
Other common reasons for unequal inheritances include children who need special care or help with ongoing medical needs, children from blended families (ex: step-children vs. biological children), or children who are not financially responsible. Parents who own a family business might also leave their children disparate amounts, depending on which children are interested in continuing the operation.
Preventing Future Will Contests
If you decide not to divide your estate evenly between your children, your decisions could lead to a lawsuit in the future. One of your children might file suit and contest your Last Will and Testament. Lawsuits can be emotionally and financially draining, not to mention a situation you don’t want your children to have to deal with. There are a few ways to mitigate the risks of a will challenge and to ensure your final wishes will be honored:
- Ask your doctor to be a witness at your will signing, which can help invalidate future challenges based on capacity
- Do not involve your children directly in the drafting of your will, so as to avoid claims of undue influence
- Consider including a No Contest clause in your will; if a beneficiary tries to challenge the will, they will be disinherited and lose their right to your estate assets
- Use a trust to provide guidance and structure for any children who might not be financially responsible
Above all, one of the best ways to avoid future lawsuits and will contests is to talk to your children. Discuss your estate plan. Be sure to tell your children who is inheriting (or not inheriting) what, and your reasoning for that. Communication can help avoid surprises, confusion, and hurt feelings. The goal is an easy transition and maintaining family harmony.
Have Additional Questions? Contact the Estate Planning Team at Brian M. Douglas & Associates
Thinking about your estate and how you would like to provide for your loved ones – these can be tricky decisions. At Brian M. Douglas & Associates, we can walk you through your different options and help you craft an estate plan that is best for you and your family. If you have additional questions about inheritance or would like to schedule an estate planning consultation, please reach out to us at (770) 933-9009. We would be happy to help.
When making your will, think about how much you have to leave and who gets what. This guide will help you work out the basics, so you can get started with writing your will.
What’s in this guide
- Making your will – step by step
- What to do once you’ve made your will
- Talking to your family about your will
- During the conversation
Making your will – step by step
Before you can write a will, you need to decide who gets what.
Set down the basics of your plan for your money and possessions – your estate – early on, before you visit a solicitor or discuss your will with your family.
Don’t worry, it’s easier than it sounds – just follow this step-by-step process.
Step one – make a list of who you want to benefit from your estate
It’ll probably take you just a few minutes to tick off this step – you can even do it right now.
You might include:
- your partner or spouse or civil partner
- children and other family members
These people (or charities) are called your beneficiaries.
Step two – write down your assets and roughly what they’re worth
Start with assets that are easiest to value:
- valuable objects, like jewellery or heirlooms.
Then move on to the things that change in value. These will be harder to estimate exactly.
- your pension
- your business, if you own or part-own one
- stock market investments — shares, bonds & funds
- property – your house, plus any investment properties, land, or even a parking space that you own. Remember to factor in the value of any outstanding mortgage or other loans secured against your property.
Lastly, think about any sentimental items that you want particular people to have.
Whether you can include your pension will depend on the rules of your pension scheme . You should also check that your pension scheme knows who you want your pension to go to – don’t just rely on this being in the will.
Step three – think about how you want to split your money and property when making your will
There are broadly five types of legacy you can leave.
- “I leave £2,000 to my son” – this is called a ‘pecuniary bequest’. It means you leave a fixed sum of money.
- “I leave my jewellery to my daughter” – this is called a ‘specific bequest’. It means you leave a specific item which you own. The way to identify it will be to see what meets that description at the date of death. If there’s no jewellery at that time, then the gift will fail.
- “I leave half my estate to my brother” – this is a ‘residuary bequest’. It means you leave a percentage of whatever your estate is worth after any debts, costs, liabilities, legacies and tax have been paid.
- “I leave my share of my house to my wife if she survives me, but if she does not survive me then it will pass to my daughter” – this is a ‘reversionary bequest’ for your daughter. You can specify what happens if the person you leave it to dies.
- “I leave my share of my house to my wife for the rest of her life, and then it will pass to my daughter” – this creates a ‘trust’ over your share of the house. A trust allows you to say who you would like to benefit from your property immediately after your death (for example, your wife), and then who you would like to benefit from your property (for example, your daughter) once the first person you’ve chosen to benefit immediately after your death has died. This type of gift can easily go wrong, so you’ll need to get legal advice if you want to include a ‘trust’ in your will.
If your affairs are comparatively simple (for example, you want to leave everything to your husband, wife or civil partner), it’s likely you’ll just use simple residuary bequests.
If things are more complicated, you’ll probably use a combination. For example:
Mike is married with one son. His wife has a son too, from a previous marriage. He leaves:
- his share of his home to his wife for the rest of her life
- £1,000 to each of his grandchildren
- his watch to his wife’s son
- anything else in his estate to a charity.
June is divorced with three children and four grandchildren. Her son has mental health problems. She leaves:
- £500 to each grandchild
- half the remaining estate in a trust for her son for the rest of his life, to be split between her daughters on his death, and
- a quarter of the estate each to her daughters, but if any daughter dies before her, that daughter’s children will receive the dead daughter’s quarter share of the estate between them.
Step four – check if you’ll have to pay Inheritance Tax
There is normally no tax to be paid if:
- the value of your estate is below the £325,000, threshold or
- you leave everything above the threshold to your spouse or civil partner, or
- you leave everything above the threshold to an exempt beneficiary such as a charity.
The allowance can be transferred to a spouse or civil partner if it isn’t used up on the first death.
When creating a Will, you have the right to give your assets or property to whomever you choose.
A person or organization you leave your assets to is known as a beneficiary. You can name any person, family member, friend, organization, or institution as a beneficiary. The only person you can’t name as a beneficiary is a person who serves as a witness to the signing of the Will.
If you name multiple beneficiaries in your Will, you’ll need to decide how the assets will be distributed among those beneficiaries. Some common methods of distribution are:
- To distribute assets equally among beneficiaries
- To distribute assets unequally among beneficiaries (e.g. 25% to your brother, 75% to your sister)
- To stipulate that certain pieces of property go to certain people
- To leave a portion of your estate to be divided equally among a group of people, and also specify that the remainder be distributed in specific amounts to other people or organizations
- To specify that all your assets should be sold and the profits from those sales be distributed equally or unequally among beneficiaries
If you are naming multiple beneficiaries it’s a good idea to consider the assets that you’ll be giving and the ways in which the distributions of those assets might play out. For example, if you leave a piece of real estate to multiple children with each child holding an equal share, think about what happens if one child wants to sell the property and another child does not. Or, if you leave valuable art or family heirlooms to multiple children to be divided equally, consider that the children might be forced to sell the property in order to fairly distribute the value among them. If these are concerns for you, it might be a good idea to consult an attorney who can help you think through these issues and craft the most appropriate language for your situation.
Minor Children As Beneficiaries
You may name minor children (under the age of 18) as beneficiaries in your Will. However, until those children become 18 years old, they will not directly receive any assets you designate for them. The assets you leave to minor children will need to be put into a Trust (which you can establish in your Will) and will be managed by the Trustee of that Trust, who may be either the child’s “Guardian of the Person” or “Guardian of the Estate.” In this way, minor children can receive the benefits of distributions from the Trust but will not themselves control those distributions.
Pets As Beneficiaries
You cannot leave assets to an animal directly. Instead, you may include a provision in your will that accounts for the care of any pets you own. In order to provide for care for pets, you will also need to name a caretaker for those animals. Any money that you designate for your pets will be given to the caretaker to be used for care for the animals. This can also be accomplished by setting up a Trust with the sole purpose of providing funds to care for your pets after you’re gone. [For more information on this, check out our article: How To Make Sure Your Pets Are Taken Care Of After You’re Gone]
If you decide you would not want to leave assets to someone in your family—particularly, one of your children—who may have a legal right to inherit your estate, you need to explicitly state it in your Will. (All states allow for wills to disinherit children, except for Louisiana.) However, it’s not sufficient to merely leave a child’s name out of your Will or fail to mention a child as a beneficiary of your estate; if you want to disinherit a child, you must specifically state that the child is to receive no distributions from your estate.
The most effective way to disinherit a child is to acknowledge in writing the existence of the child and then state that you are making no provisions for that child as a beneficiary. Alternately, some lawyers recommend leaving a very small amount of money to the disinherited child so that it’s clear that the child was not accidentally left out of the Will.
Communicating With Your Family
Whatever arrangements you choose to make in terms of naming beneficiaries and distributing your assets, it’s a good idea to have a conversation with your family about the arrangements you’ve made. By talking openly about your decisions with your family members or other people you’ve named as beneficiaries in your Will, you can help your family avoid surprises, disappointments, and conflict. If you’ve made choices that you think your family might disagree with, talking about the choices you’ve made can offer you an opportunity to explain your reasons for making these decisions, which can hopefully help your family avoid conflict in the future.
To learn about who may have a legal right to inherit your property, see our article Understanding Inheritance Rights.
Once all assets have been realised and all debts paid, including any loan taken out to pay Inheritance Tax, you may distribute the estate in accordance with the will or rules of intestacy.
LEGACIES (WHERE THERE IS A WILL)
If the will contained several beneficiaries (people who inherit) and legacies (gifts to specific people)
you should take advice before distributing any assets.
Legacies can fail and therefore be invalid for several reasons.
Contact us for advice.
Executors are responsible for estate distribution therefore can be personally liable for mistakes.
Property can be transferred to a beneficiary rather than being sold. You can complete the relevant paperwork and submit to Land Registry.
Where you are following the intestacy provisions as the deceased left no valid will the distribution of the net estate (after all costs and debts have been paid) is determined by law based on the surviving family at date of death.
Remember as we noted before co-habitees who are not married or in a civil partnership are NOT included in the intestacy provisions and therefore do NOT inherit. If there is a co-habitee this may make probate contentious. You should seek legal advice.
Family at date of death:
Spouse only – spouse inherits everything if survives 28 days after the deceased.
Spouse & children – spouse inherits all personal chattels, £250,000 (or less if the estate is small), 50% of any remainder. Children inherit an equal share of the other 50%.
Spouse & near relatives (eg mother/father) – spouse inherits everything.
Children only – 100% shared equally
No spouse or children – 100% or an equal share (within each category) to 1. Parents, 2. Siblings.
The full lists of who should inherit are much longer than this so if none of these situations apply please contact us for advice.
If there is no one to inherit the estate passes to the Crown (government) ‘bona vacantia’.
RESIDUE TO BENEFICIARIES
The will should include an ‘everything else’ clause where the person or persons are named to receive the remainder of the estate after any legacies. The remainder should be split as per the terms of the will.
It is very common for an estate to consist of a property (family home), some investments or bank accounts, some liabilities, and only one or two beneficiaries (eg sons and daughters).
In this instance you may be able to deal with the estate in a relatively straightforward manner, paying debts once assets are realised.
But then it comes to selling the family home which may take some months.
You may decide to distribute the estate fully bar the sale of the property.
In this case you can request that your conveyancing solicitor sends funds from the sale of the property direct to the beneficiaries at completion.
INDEMNITY FROM BENEFICIARIES
If you are working on the accelerated 30 days to Probate timeline you will need to consider new creditors (see ' Creditors' ). You can either part distribute and hold back partial funds to cover any new creditors, or you can require the beneficiaries to sign an indemnity letter confirming they will pay funds back into the estate if necessary. If the estate is complicated with many assets, debts and beneficiaries the most appropriate course of action is to wait until all matters are finalised and the creditors notice period has expired. Personal Representatives are ultimately responsible for the estate and any unpaid debts if distribution is too early.
When a deceased person has a valid Will, their estate is distributed according to their Will, after all debts of the estate have been dealt with and the waiting period for claims against the estate has passed. When there is no Will, The Intestate Succession Act, 2019 sets out how the estate will be distributed.
Under a Will
The Executor or Administrator can distribute the estate:
- once the six month waiting period is over
- debts have been paid
- Canada Revenue Agency has issued a Clearance Certificate
If there are specific gifts these are distributed first. The rest of the estate is then divided according to the Will.
Without a Will
When someone dies without a Will, they are said to have died intestate and their property is distributed according to the rules set out in The Intestate Succession Act, 2019.
This law does not take into account the wishes of the deceased or their family. An Administrator must distribute the net value of the estate in accordance with the Act. The net value of the estate is the value of the estate after payment of taxes, debts, funeral expenses and so on.
Once all debts and liabilities are dealt with, the estate is then distributed according to the following rules.
The entire estate goes to the spouse if.
- there is a spouse and no descendants
- there is a spouse and children, and all children are children of the intestate and the spouse
The entire estate also goes to the spouse if the value of the estate is not more than $200,000 and there is a spouse and children who were not children of the intestate and the spouse.
If the value of the estate is more than $200,000 and there is a spouse and children who were not children of the intestate and the spouse, the spouse inherits the first $200,000 or 50% of the estate, whichever is greater. The rest of the estate will be shared as follows.
- if there is one child, the remainder is split evenly between the spouse and the child
- if there is more than one child, one-third of the remainder goes to the spouse and the other two-thirds is shared by the children
A spouse includes a legally married spouse and an individual who has lived with the intestate for at least 24 months as a spouse. It is important to note that a spouse is not entitled to any of the estate if.
- they had been living apart for more than two years at the time of the intestate’s death
- a family law proceeding had been started against each other and not reconciled
- that had made a separation agreement and not reconciled
- they were in a spousal relationship with another person
If an intestate dies without a spouse or any children or grandchildren, the estate will go first to.
- the intestate’s parents or descendants of their parents (such as their siblings or nieces or nephews)
- the intestate’s grandparents or their descendants (such as aunts and uncles or first cousins)
- the intestate’s great grandparent or their descendants.
Descendants of the intestate take their share of the estate “per stirpes”. The easiest way to explain this legal concept is to look at an example.
Harry had no Will when he died. He had two children, John and Mary. John and Mary would take their share of the estate in equal portions. If, however, either of them died before their father, their share would be divided equally between their children. If any of those children had died, their share would be divided between their children and so forth.
Grandchildren are often on the minds of those doing estate planning; learn the best strategies for including them in your plan.
Similarly to planning the transfer of assets to your children, how you plan the transfer of your assets to your grandchildren will likely depend on whether they are adults or minors. Also, special needs children may need complete or supplementary financial support throughout their lives; as a grandparent, you may wish to contribute to that, as well.
Grandchildren may be subject to the generation skipping transfer (GST) tax, which is levied in addition to estate and gift taxes.
Additionally, paying for education may be a concern as grandchildren transition into adulthood and beyond. If you haven’t already placed assets in a 529 plan, Uniform Gifts to Minors Act (UGMA) account or Uniform Transfers to Minors Act (UTMA) account, doing so during your lifetime may be a strategic way to reduce the value of your taxable estate while working toward education savings goals.
If you have a 529 plan, you generally maintain control of the account until the money is withdrawn. Therefore, part of your estate planning might be to update the successor designation, which stipulates who will take over management of the account if you pass away.
And, as always, ensure your beneficiaries are up to date on other assets that have provisions for naming them, including investment and bank accounts with transfer on death (TOD) designations.
For minor grandchildren
If grandchildren are still minors, you may wish to help ensure they are provided for financially. Even if you have other assets you would like to pass to grandchildren, you may want to consider them when you choose your life insurance coverage. You might also want to plan to help cover the cost of college education through insurance, or to provide for grandchildren into adulthood, as well.
Trusts can be especially beneficial for minor children, as they allow more control of the assets, even after your death. By setting up a trust, you can state how you want the money you leave to your grandchildren to be managed, the circumstances under which it can be distributed, and when it should be withheld. You can also determine if your grandchildren will be able to control the money at a certain age as either co-trustees or full owners.
Trusts with distinct benefits for grandchildren
Generation-skipping trusts can allow trust assets to be distributed to non-spouse beneficiaries two or more generations younger than the donor without incurring GST tax.
Credit shelter trusts make full use of each spouse’s federal estate tax exclusion amount to benefit children or other beneficiaries by bypassing the surviving spouse’s estate.
Irrevocable life insurance trusts (ILITs) purchase life insurance policies to provide immediate benefits upon death that do not usually pass through probate.
A trust can also be an effective tool for transferring assets to an adult grandchild, while reducing estate taxes and allowing your influence on the assets even after you have passed away. A simple revocable trust or irrevocable trust may suit your needs, or you may want to consider one of the trusts with distinct benefits for grandchildren, listed at the right.
Since only spouses have the option of rolling your retirement plan assets into their own IRAs, grandchildren will generally be required to begin taking required minimum distributions (RMDs) soon after your death based on their age—and to pay the associated income taxes.
Additionally, your retirement plan assets will be included in the federally taxable value of your estate. This results in estate tax liability when you pass away (unlike leaving the assets to a spouse, which allows you to take advantage of the unlimited marital deduction).
Although IRAs have no special provisions for naming grandchildren as beneficiaries, your options for grandchildren include:
- Name grandchildren individually; if any pass away prematurely, the assets will be divided equally among the rest.
- Choose “Per stirpes,” which means that if one of your children passes away before you do, their share will automatically go to their descendants.
- Name grandchildren “contingent beneficiaries,” if, for example, you want to name your spouse as the primary beneficiary and your children are financially secure. If your spouse passes away before your IRA is transferred, then the assets would go to your grandchildren.
As always, if you want to name grandchildren as IRA beneficiaries, make sure your designations are up to date.
To learn about the options your grandchildren (and other non-spouse beneficiaries) will have when inheriting an IRA, see If you are a non-spouse IRA beneficiary in Fidelity Viewpoints ® .
The rules for 401(k)s and other qualified retirement plans are similar to those for IRAs. If you are married and you want to designate beneficiaries—such as grandchildren—other than your spouse, you may need written consent from your spouse.
Otherwise, retirement plans follow roughly the same guidelines for what is taxable, but other features will vary from plan to plan. Contact the plan’s administrator for specific rules governing your plan.
Special needs grandchildren
For any grandchildren or other beneficiaries who may be unable to care for themselves as adults, you may want to help ensure they have the care and oversight they need for their lifetimes.
If they are unable to make a living for themselves, leaving them assets and making them beneficiaries of life insurance are both options. Trusts can be useful in either case, to help ensure the money is spent properly if they are unable to make spending decisions on their own.
Those of us who practice in the area of estate planning are regularly confronted with families behaving at their worst. People who are normally thoughtful and connected with their emotions revert to fighting children, figuratively, sometimes literally, scratching, punching, and pulling each other’s hair. Even where there is no overt conflict, it seems that nearly every family has some amount of tension percolating just beneath the surface as they address family inheritance issues.
Stories of families in conflict at the death of a loved one are regular fodder in the media. It is easy to mock them; they look ridiculous, and it all seems so petty. We wonder why people just can’t get along. But, after some study I have learned that what appears as greed and pettiness are really symptoms of survivors’ struggle to feel loved and important. The fight for money and things—Dad’s watch, Mom’s wedding ring—is not about the object or the money itself, but about what they symbolize: importance, love, security, self-esteem, connectedness, and immortality.
The old adage that “money makes people do funny things” doesn’t do justice to the real problems and root causes of family conflict. Money is not the core reason that families fight; money is how we keep score in the fight for the intangibles of love, approval, and primordial survival. Money and possessions also help allay the fears of those left behind. When families fight, greed is rarely the principal motive.
The combatants can always trace their problems back several years, if not all the way back to childhood. For some, the trouble starts with the involvement of nonfamily: “everything changed when dad remarried,” or “we all got along until my brother-in-law started calling the shots.” It is clear that inheritance conflict doesn’t come out of the blue; it is a continuation of long-term relationship problems that resurface upon the illness or death of a loved one. And they aren’t just about money or greed; they are about more, much more. But what is it that so often drives people to wage war against their own flesh and blood over a loved one’s estate?
There are five basic reasons why families fight in matters of inheritance: First, humans are genetically predisposed to competition and conflict; second, our psychological sense of self is intertwined with the approval that an inheritance represents, especially when the decedent is a parent; third, we are genetically hardwired to be on the lookout for exclusion, sometimes finding it when it doesn’t exist; fourth, families fight because the death of a loved one activates the death anxieties of those left behind; and finally, in some cases, one or more members of a family has a partial or full-blown personality disorder that causes them to distort and escalate natural family rivalries into personal and legal battles. These sources of family conflict are not mutually exclusive; in most cases, some combination of the five elements present themselves in a combustible cocktail of family rivalry and conflict.
A significant number of inheritance disputes also involve testators and beneficiaries who come from dysfunctional families, are mentally ill or addicted, or suffer from one or more of the four Cluster B personality disorders as defined in the Diagnostic and Statistical Manual (DSM IV): antisocial, borderline, histrionic, or narcissistic.
Despite the tensions and rivalries that naturally exist in all families, family conflict is not inevitable. As family counselors we can help families overcome the natural tensions that tend to pull them apart in order to preserve their most valuable asset: family itself. We can counsel our clients on the pitfalls of various courses of action, dissuade them from provisions that are punitive, encourage them to mend fences while family members are still alive, and promote planning that leaves a legacy of love.
More than just scriveners, clients look to their estate planning counsel to advise them on what is fair and customary. We use our legal and personal skills to document their wishes while being sensitive to the needs of those left behind. Special care must be taken to not upset long-held roles when allocating personal and financial assets and in appointing fiduciaries. We can also protect our clients from predators from within the family and without who are most likely to manipulate and abuse. In short, we can make a difference. Our clients are also good teachers, instructing us on the importance of family, the transience of money and things, and the shortness of life.
About the author
P. Mark Accettura is a practicing elder law attorney in Michigan with nearly thirty years of experience. He is the author of a number of books on estate planning including his new book, Blood & Money: Why Families Fight Over Inheritance And What To Do About It.
Many people think that estate and will planning is only for the elite. Nothing could be further from the truth. If you have an asset (can be anything from a bike to a private airplane), you need to create a will, period! Though more people now than ever realize the importance of creating a will, many people still downplay the significance of writing a will. Ever wondered what happens to an estate of a person who passes away without making a will? We try to answer this question in this blog.
A person who dies without a will is said to have died intestate, meaning that the local intestacy laws (of the state) will decide how their property such as bank accounts, real estate, securities, and other assets will be divided. Real estate acquired in a different state than where the deceased person resided will be handled according to the intestacy laws of the state where it is located.
The laws of intestacy succession will vary depending on whether the person was single or married or had kids. In most cases, the estate of a person who died without making a will is divided between their heirs, which can be their surviving spouse, uncle, aunt, parents, nieces, nephews, and distant relatives. If, however, no relatives come forward to claim their share in the property, the entire estate goes to the state.
What Happens If a Single Person Dies Without a Will?
If a person dies single and childless, their surviving parents will get the estate. In case there are no surviving parents, the property will be divided among siblings (half siblings included) in equal parts. If one parent is dead, the property will be divided between siblings and the surviving parent. If a single person dies without creating a will and does not have any surviving parents, siblings, or descendants of siblings, the property will be divided equally among relatives on the father’s and mother’s side.
If a person dies single, but has children, the property will be divided among them in equal parts. The share of dead children (if any) will be passed on to their kids (the property owner’s grandchildren).
What Happens If a Married Person Dies Without a Will?
If a married person dies without a will, assets will be divided depending on how they were owned. While community property will go entirely to the spouse, separate property will be divided among the spouse, siblings, and parents. If the person was married multiple times, the entire property will pass on to the current spouse (if they have kids from the person). If, however, the property owner does not have kids from the current spouse, the property will be divided equally among them and the kids from another spouse.
What Happens If a Person in a Domestic Partnership Dies Without a Will?
Many states do not recognize domestic partnerships. If a person in a domestic partnership dies without a will, the state will decide how the property will be divided.
What Happens If a Person in a Live-in Relationship Dies Without a Will?
If a person living with a partner without marrying them dies, the surviving partner won’t inherit the property as intestacy laws only recognize relatives.
There is more to inheritance laws than meets the eye. At Johnston Thomas Law, we are committed to helping our clients navigate the complex legal framework. We are one of the most sought-after law firms in Santa Rosa. No matter how complex your case, our legal experts will come up with the right legal strategy for you. To talk to an estate planning attorney in Sonoma County, call us at 707-545-6542.
My dad passed away. His will named my brother as the executor. I'm a beneficiary. My brother hasn't told us the details of how the estate will be divided up, but he's started giving away some of dad's furniture to other relatives, and he's driving dad's car. Is that allowed?
The wording of the will is the first place to look for guidance as to what the executor is allowed to do. Many wills instruct the executor to divide household and personal belongings equally among certain beneficiaries . Some wills include specific instructions about certain belongings, or refer to a memo or list that gives specific items to specific people.
It’s also possible for a will-maker to give such a memo or letter to the executor and it not be referred to in the will.
If your father didn’t leave instructions in his will or a letter to the executor about the car or household belongings, then those items belong to the residue of the estate . The residue is whatever is left over in an estate after the executor pays all the expenses, taxes, and debts, and distributes any specific gifts. The residue is distributed to whoever is named in the will as a residual beneficiary . It sounds like you might be one here.
How the law treats household and personal belongings
Here’s the thing about household and personal belongings left behind after someone passes away. The law isn’t really too concerned about used furniture or clothing, for example, unless they have some special value. If a few modest pieces are given away, the law is unlikely to intervene.
A car, on the other hand, is an asset that's likely to have marketable value.
The executor’s duties
Either way, the executor should keep in mind their duties under the law. An executor is subject to what is known as the even-hand rule. Executors are required to treat all the beneficiaries equally, unless the will says differently. So even when distributing some relatively worthless articles of clothing or used furniture, they should first of all only be distributed to beneficiaries, and secondly the executor should be even-handed about it and offer these things to all the beneficiaries.
The executor also has a duty to preserve and protect the estate assets , and to realize their value. This includes ensuring the assets remain in relatively the same condition as they were on the date of death — for example, no additional miles on the deceased's vehicles, and no additional wear and tear on the deceased’s home or other property. (An exception to this might be where a spouse continues to live in the matrimonial home.)
The bottom line is the executor does not have the right to give away items from the residue of the estate to people who are not beneficiaries. But if only one or two items of no special value are involved, and they're offered to all beneficiaries, then that’s less likely to attract concern.
As is the case with most wills, the majority of people who set up revocable and irrevocable trusts leave their assets outright to their children in equal shares when they die. So, what’s wrong with that? Well, there may be a better way.
Instead of leaving your assets equally to your children, why not leave it to your children’s trusts, which you can create here and now?
The Inheritance Trust is created by you, today, as grantor, naming your child as trustee and beneficiary when you die. So, for example, if your daughter was Mary Jones, the trust would read Mary Jones, as Trustee of the Mary Jones Trust”.
There are a number of good reasons to create trusts for your children today. Just as you’ve learned about the benefits of a trust, undoubtedly your children will wish to avail themselves of the same opportunity one day. But in the case of your children, there are a number of additional benefits to leaving assets to them in trust.
These are: (1) the assets will be protected from their spouse in the event of divorce (2) the assets will be protected from their creditors in the event of a financial hardship, and (3) on your child’s death, the unused assets will go to your blood relatives (usually grandchildren) instead of in-laws or others.
These trusts provide that, during your children’s lifetimes, they have complete access to the income and the principal of their trusts — so that you’re not giving them a “gift with strings attached” or “ruling from the grave”. But when your child dies, you would like the unused portion of their inheritance to go to your grandchildren. If the grandchildren are under age 30, the funds are held in trust for them until then, with the Trustee (usually one of your other children) using so much of the assets as may be needed for their health, education, maintenance and support. If one of your children dies without leaving children of their own, then the trust funds go to their surviving brothers and sisters.
An additional benefit is that, as a client of the firm, we are pleased to offer these trusts to you at a fraction of the cost it would be to your children if they were to go out and set these trusts up for themselves either now or many years later when they receive their inheritance.
Most people do not have the time and the resources to handle trust matters, including the keeping of detailed records. They not only act objectively but are held to higher performance standards by the courts than are individual trustees.
The reality of the Inheritance Trust is that it is much easier for your child to keep assets separate from their spouse when these assets are left to them in trust. On your death, all of your assets are retitled directly from your trust to your children’s trusts. There is a world of difference when a child can say to their spouse “my parents left this money to me in a trust” compared to their receiving the inheritance “in hand” and having to take active steps to keep those assets separate from their husband or wife.
We look at it this way, if you’re going to leave it all to them anyway, why not use a small portion of the inheritance to do some good planning for them today? Not only will they greatly appreciate what you’ve done for them, but it will get them on the right track of planning for themselves and their families. If you would like to discuss whether the Inheritance Trust makes sense for you and your family.
If your parents or another relative left you and your siblings a house together in their probate will, you have several options on what to do with the property. In a majority of cases, you will have an equal share unless stated otherwise in the will.
Finding the right inheritance funding company could make dealing with this type of inheritance much simpler.
One option is to keep the home and everyone can enjoy it equally. Perhaps you decide to make it your vacation home and share it with your families. Since you have joint ownership, you have equal rights to spend time there and equal equity in the real estate property.
Another option is to either sell or rent the house out if neither you nor your sibling want to keep the property. You would need to determine how to divide the rent if one takes care of more of the upkeep and other tasks as landlord. If you decide to sell, you would split the profits after selling at fair market value.
In some situations, the siblings can’t agree on what they want to do. One wants to keep the property and the other wants to sell. In these situations, you may need to take your case to court and let the judge order the sale of the home. A third party would be responsible for getting the property ready to sell, which will reduce your profits because their payment would come out of the amount paid.
How Do You Buy Someone Out of an Inherited House?
If you and your sibling can agree on one of you keeping the house and the other selling, the process can be quite simple. You can pay your sibling cash for their share of the real estate property and they will sign the deed over to you. You could also get a mortgage but only for half the value if you are willing to take on the debt. You would need to pay closing costs, and you may need an appraisal to determine the value of the home.
If you can’t get a mortgage, you could set up a private arrangement with your sibling. In the contract, you would spell out how much you would be paying for the other half of the property and the interest rate. You would determine monthly payments and how long until the house is paid off. You would want to have all this done in writing to avoid problems in the future. You would also record a deed of trust to recognize the arrangement. It also gives the other person the ability to foreclose if you become unable to make the payments. This is an ideal situation if the other person is most interested in receiving regular income and not being saddled with real estate they don’t want.
How Do I Refinance an Inherited Property to Buy Out Heirs?
If you want to keep a property and your siblings want to sell it, you will need to come up with the necessary cash to complete the transaction for your share of the inherited property split between siblings. In most cases, traditional lenders, such as a bank, won’t provide a loan for a property in an estate or trust with other owners. Your best option is to find a hard money lender for estate funding. These loans are also known as probate loans, inheritance loans, and trust loans. They are different terms that all mean the same thing.
The way this type of loan works is that the lender pays the money directly to the estate, which will then go to the heirs who are selling their part of the house. The heir who wants to keep the house will assume the loan and pay the lender. Interest rates are usually higher than with a bank, but you are usually able to get approval quickly so you can move forward with the buyout. You will need to bring some cash to the table because most probate loans are only for as much as 70 percent of the value of the property. The lender will review your application and determine how much percentage of funds to provide and the terms for the loan.
After the refinancing is complete, the title of the property will go to the one heir who is buying the rest of the property from their siblings. They have the option of getting a refinance loan from a bank for a lower interest rate.
Can Sisters and Brothers Require the Sale of Inherited Real Estate?
If you want to keep the house and your siblings want to sell it, you may wonder if you have any rights with your part of equity in the property. You may be forced to sell if you can’t come to a compromise because one of the siblings could file an action with the court which will require the property to be sold and the proceeds split between the heirs.
When this happens, the house will be listed for sale. It may be sold in a public auction or it could have a listing as a regular real estate listing. If this situation occurs, you could bid on the property or make an offer. Once your offer is accepted or you become the highest bidder, you could purchase the property.
Generally, if real estate is involved in an estate, you will need to go through court in probate. The exact requirements differ, depending on the state. If you own the property jointly with one or more siblings, you will need to reach an agreement or the court will force the sale. However, there are ways you can buy out your siblings’ share of the property if you want to continue to have ownership in the home. Just know that in many cases, you will need to have cash in hand, which may be in the form of a loan or an inheritance advance. You can find heir loans from reputable companies. Search for the top inheritance funding company to ensure your assets are protected. Be diligent in avoiding inheritance fraud so you don’t become a victim. With a loan for probate, you can get the cash you need to buy the house or other property. Loans for an inheritance can help you keep your family’s property.
You Can Choose:
- A living person.
- A trust.
- Your estate.
- Any combination of these options.
You cannot name a church or other charitable organization as a beneficiary.
If you choose more than one beneficiary, each will share your benefits equally. You can also name a contingent beneficiary. Only members can designate their beneficiaries. Conservators, guardians and those with power of attorney cannot select or change a KPERS beneficiary.
Designate Your Beneficiary Online
You can change your beneficiaries any time online. Login to your KPERS account and click “Beneficiaries” in the left-hand menu. You’ll see your current beneficiaries. Choose the orange “Click here to change your beneficiary” button to make new designations
If You Need a Paper Form
- For KPERS, KP&F and Judges Members:Beneficiary Designation (KPERS 7/99) form
- For Kansas Board of Regents Members: Kansas Board of Regents Beneficiary Designation (KPERS 7/99a) form
Remember, each time you complete a beneficiary form, it cancels all those you have previously completed. Be sure to fill in both the primary and contingent beneficiary sections if you intend to have a contingent beneficiary. If you only complete the contingent section and leave the primary blank, you will have no primary beneficiary, even if a past form names one. The Board of Trustees recognizes only those designations received in the Retirement System office before your death.
If you need to name more beneficiaries than space allows, please use an additional page. This page must be with your completed form to be valid, including date and signature page.
Reviewing Your Designation
It is important to keep your beneficiary designation up-to-date. Review your designation periodically or whenever you have a significant life event.
- A birth or adoption in your family
- A death in your family
Naming a Trust/Estate
If you name a trust, provide the name of the trust (e.g., John Doe, Trust #1). If you designate your estate, simply write "My Estate" or "Estate of John Doe."
You can name another primary or contingent beneficiary in addition to your estate or a trust, and each will share your benefit equally.
Naming a Minor
When you name a minor as primary beneficiary and the amount of the benefit is less than $10,000, the money is paid out under the Kansas Uniform Transfers to Minors Act. KPERS sends the guardian or custodian a form to complete and the benefit is then paid to that individual on behalf of the minor. If the benefit is $10,000 or over, Kansas law requires a conservatorship be established to receive the benefit on the child’s behalf.
If you do not have a living beneficiary when you die, the Retirement System must follow a line of descendants by Kansas law.
- Dependent children
- Dependent parents
- Non-dependent children
- Non-dependent parents
- Estate of the deceased member
A dependent is a parent or child who relies upon the member for at least half of his or her support.
Active Member Beneficiaries
- KPERS retirement benefits (return of contributions and interest, or surviving spouse benefit).
- Group life insurance benefits (basic and optional life insurance).
You can add or change beneficiaries at any time in your online account or by completing a Designation of Beneficiary form (K-7/99). If you choose not to name a separate beneficiary, the beneficiary for your retirement benefits will receive all benefits payable, including group life insurance. Kansas Board of Regents use this beneficiary form (KPERS 7/99a).
Surviving Spouse Benefit Option
If you die before retirement, your spouse may be able to choose a monthly benefit for the rest of his or her life, instead of receiving your returned contributions and interest. You must have designated your spouse as your sole primary beneficiary for retirement benefits. You can name contingent beneficiaries or separate beneficiaries for your life insurance without affecting this benefit option.
If you were eligible to retire, your spouse begins receiving a monthly benefit immediately.
If you were not yet eligible to retire but had 10 years of service, your spouse begins receiving a monthly benefit when you would have reached age 55.
KP&F Beneficiaries and Death Benefits
Benefits are automatically paid to your spouse and/or eligible children. Children are eligible up to age 18, or age 23 if a full-time student. If you do not have a surviving spouse or eligible children, your beneficiary receives a one-time lump-sum benefit.
Your spouse receives a lifetime monthly benefit based on the greater of:
- 50% of your final average salary.
- The benefit amount if you had elected the 100% joint-survivor option.
Your children, if eligible, also receive an annual benefit of 10% of your final average salary. The maximum total benefit is 90% of your final average salary. If you do not have a surviving spouse or eligible children, your beneficiary receives a lump sum equal to your current annual salary.
Non Service-Connected Death
Your spouse receives a lump-sum payment of 100% of your final average salary, plus an annual benefit of your final average salary x 2.5% x years of service in on-going monthly payments for the rest of his or her life. The maximum annual benefit is 50% of your final average salary. If you do not have a surviving spouse, your eligible children share the benefit. If you do not have a surviving spouse or eligible children, your beneficiary receives a lump sum equal to your current annual salary.
KPERS 457 Beneficiaries
Your regular KPERS (pension) beneficiary isn’t for KPERS 457 (deferred compensation). Even though the beneficiaries for the two different plans can be the same person(s), you’ll need to make a separate designation for each plan. If you haven’t already, designate a KPERS 457 beneficiary online or submit the paper form.
Retired Member Beneficiaries
Your Beneficiary Will Receive:
$4,000 Retiree lump-sum death benefit PLUS Any remaining contributions and interest. This benefit is taxable for federal income tax purposes and exempt from Kansas income tax.
If you chose a 5-, 10- or 15-year Life Certain payment option when you retired, your beneficiary receives a monthly benefit for the rest of the guaranteed period after your death instead of returned contributions and interest.
You can add or change beneficiaries at any time in your online account or by completing a Designation of Beneficiary – Retired form (K-7/99R).
Naming a Funeral Establishment
In addition to a living person, their estate or a trust, retirees can name a funeral establishment to receive their $4,000 death benefit for funeral expenses.
If you directly name a funeral establishment, the establishment will pay the tax on the benefit as regular income. If your beneficiary assigns the death benefit to a funeral establishment, your beneficiary is responsible for paying the taxes.
You also need to designate another primary beneficiary to receive any other retirement benefits. Only the $4,000 death benefit is paid to the funeral establishment.
If you die without a Will, the law says that you have died “intestate,” which means that you left no instructions as to how your property is to be divided and distributed. In these circumstances, the Ontario Succession Law Reform Act governs how your property will be distributed to your surviving relatives. Even if you want your property divided according to provincial law, you should still have a Will because it will reduce delays and expenses involved in wrapping up your affairs.
How your property will be distributed
According to the Act, if you die without a Will, your property will be distributed as follows:
1) If you have a spouse, but no children:
Your spouse inherits everything. This only applies to legally married spouses. Common-law spouses do not automatically receive anything if you die without a Will.
2) If you have a spouse and children:
Your spouse first takes a preferential share
- up-to $200,000 worth of assets if death took place before March 1, 2021, or
- up-to $350,000 worth of assets if death took place on or after March 1, 2021
Anything left over is called the residue. If anything is left over, it is divided between your spouse and your children as follows: If there is only one child, your spouse and child each receive half of the residue of the estate; if there is more than one child, your spouse receives one-third of the residue and the children share the remainder equally.
3) If you have children, but no spouse:
The children each inherit an equal portion of your estate. If any of them have died, that child’s descendants (i.e. the deceased person’s grandchildren) will inherit their share.
4) If you have no spouse and no children:
Your parents inherit your entire estate.
5) If you have no spouse, no children, and no parents:
Your brothers and sisters (or their children if any brothers and sisters have died) divide your estate.
6) If you also have no brothers and sisters:
Your nieces and nephews each inherit an equal portion of your estate.
7) If you have no nieces and nephews:
All other next of kin inherit an equal portion of your estate.
8) If you have no living next of kin:
Your estate goes to the Ontario government.
Who is considered a relative?
It is important to note that when someone dies without a Will, only blood relatives, including children born outside of a marriage, or legally adopted children can inherit. Half-blood relatives will share equally with whole-blood relatives.
Problems that arise when someone dies without a Will
Dying without a Will can create problems for those you leave behind. First, your property will be divided according to the law, which may not be the same as how you would have divided it. Second, there will be extra time delays and expenses involved in wrapping up your affairs, and the court will have to appoint someone to act as your personal representative. The general rule is that your closest relative has the right to be appointed as your personal representative. They are appointed by applying to the court for a Certificate of Appointment of Estate Trustee Without a Will. This gives authority to the personal representative to manage and distribute the estate of the deceased.
For more information about Wills, visit the Ministry of the Attorney General website.
Getting the legal help you need
Wills are extremely important documents and relatively inexpensive to have prepared professionally. If you want to make sure your Will is legal and clearly expresses your wishes, you should consult a lawyer.
Do you have married children? Are you thinking about your estate planning? If the answer to both is yes, one of your goals is probably making sure your hard-earned assets end up with your own grandchildren should your child get divorced or pass away. You may be very fond of your daughter-in-law or son-in-law. Nonetheless, your inheritance ending up with your in-law – or maybe even with your in-law’s children from another marriage or your in-law’s new spouse – is the stuff sleepless nights are made of. Surely that is not why you scrimped and saved all these years.!
Even if your child remains married, you may have reservations about his/her spouse. Is the spouse responsible with money? Is the marriage a stable one? Might the spouse pressure your child into spending money foolishly? Would your child co-mingle your inheritance with marital funds, giving the spouse control over that money?
A candid conversation with your child and in-law may not go over well
While we generally advocate talking candidly with your family about estate planning matters, these concerns are probably best left unshared in this situation. After all, you want to stay on good terms with your child and your in-law – for their sake, for yours, and for your grandchildren’s. Regardless of whether you love or loathe your in-law, you don’t want to inject any tension into the marriage. Telling them, “We plan to leave an inheritance to you, our own child, but we really don’t trust your spouse and don’t want him/her getting it” is not exactly a recipe for family harmony.
Some people are so plagued over how to handle these concerns that they procrastinate endlessly. Then they end up with no estate plan at all, or with a plain vanilla last will and testament. In both cases, the child will ultimately get your bequest, outright – without any planning to prevent the nightmare scenarios you’ve worried about.
An Inheritance Trust could be the answer to protecting your child and grandchildren
Is there a method to keep your hard-earned assets in your family, your bloodline? To make sure that your child and grandchildren benefit from your bequest, not your in-law or your in-law’s new spouse or children who are not your own grandchildren? Traditional estate planning techniques cannot accomplish this. Fortunately, there is a solution: An Inheritance Trust.
With an Inheritance Trust, you can protect your child’s inheritance from his/her spouse in the event of divorce or your child’s death, while avoiding the radioactive Don’t share this with your spouse! conversation. You can protect your grandchildren and make sure your hard-earned assets don’t end up with in-laws.
Plus, there are two added benefits to the Inheritance trust. First, you may also be able to protect your child’s inheritance in the event he ends up in financial trouble. Second, it can also avoid probate.
How the Karp Law Firm Inheritance Trust keeps assets in your family
- Our firm will create an Inheritance Trust for your child. If you have more than one child, each child will have his/her own Inheritance Trust.
- Your child will be the primary beneficiary. He/she will also be the trustee of the trust upon your passing.
- The Inheritance Trust is the beneficiary of your revocable trust and/or any insurance policies you have. Upon your death if you are single, or upon the death of both you and your spouse if you are married, these assets will flow into your child’s Inheritance Trust.
- Under the provisions of the Inheritance Trust, your child, as the trustee, will have full access to the principal and income during your his/her lifetime. In accordance with trust provisions, your child is free to use the funds for his/her own benefit and for his own children’s benefit. That means your child can never say that parents were “ruling from the grave.”
- It also means that your child can avoid telling the spouse, I won’t share this money with you. Instead, your child can explain that you left money to him/her in trust, to be used for specific purposes, and as trustee, has a legal obligation to honor the terms of the trust. That’s a far more palatable explanation.
Protecting your grandchildren in the event of your child’s death
A key feature of the Inheritance Trust is that it allows you to name the beneficiary(ies) who will receive any funds remaining in the Inheritance Trust when your child passes on. Most people name their grandchildren as beneficiaries. In the event your grandchildren are still young when your child passes, you should also name a trustee to hold and manage their money. Many people name another one of their children as trustee should this occur, directing them to use the money for the grandchildren’s health, education, support and maintenance. You can also set a specific age at which the funds will be released to the grandchildren.
Your child, the original Inheritance Trust trustee, has the power to alter beneficiaries, but ONLY if a beneficiary is another of his children, or another one of your children or grandchildren.
If your child dies without any children of his own, the Inheritance Trust can direct that any unused funds will be divided among your blood relatives, generally the deceased child’s surviving siblings and your other grandchildren.
Summary: Benefits of an Inheritance Trust
- The money belongs to your child. Your child has complete access to the trust principal and income.
- Divorce protection. The funds you pass to your child through the Inheritance Trust are not a joint asset with his/her spouse. Therefore, the money is protected from the spouse if your child divorces.
- Easier on your child’s marriage. Leaving money in trust specifically for your child makes it easier for your child to keep it separate from his/her marital funds. Most spouses will find it more palatable to hear, This money was left in trust by my late parents specifically for me and for their grandchildren, rather than, I have this money, but I want to keep it separate.
- The money stays with your own blood relatives. When your child passes away, any funds remaining in the trust will be distributed to your child’s children (your grandchildren), or to your other children.
To see a graphic illustration of the Inheritance Trust click here.
Our lawyers would be pleased to talk with you about how an Inheritance Trust can serve your estate planning goals. Call us at 561-625-1100 or email us to schedule your consultation.
Distributing the estate to beneficiaries in Lombard is a task that an attorney could help you with. While you may not be as familiar, an attorney could help you vet valid creditors, pay them first, and then use the remaining assets to distribute among beneficiaries. If you were to not follow either the will of the testator or the rules governing distribution, you could be made liable for the estate. To prevent that, reach out to an attorney.
How Assets Are Distributed to Heirs or Beneficiaries in Lombard
Assets are distributed to heirs and beneficiaries in Lombard through the estate process. Generally, it is distributed to heirs if it is an intestate estate (an estate without a will). In Illinois, there is a series of statutes which provide for how that property is distributed. It follows the closeness or the familial relationship between the decedent and their family members as to who gets what. For example, if a person dies in Illinois with a spouse and children, then that property is distributed 50 percent to the spouse and 50 percent to all the children in equal shares. If a person passes away without a spouse but with children, 100 percent of that property passes to the children, but they divide it among themselves in equal shares.
A will allows a person to distribute their property outside of this basic statutory scheme. The intestacy statute could be described as the Illinois legislature’s best guess as how one would want their property to be distributed. A will could name specific beneficiaries that do not fall within that best guess of the Illinois legislator and it allows a person to pick and choose in what amounts, to whom, and where their property goes. Assets, whether it is intestate or testate, are distributed by a representative through the probate process. While distributing the estate to beneficiaries in Lombard may seem relatively straightforward, it is still wise to have an attorney guide testators through the will-writing process.
Beneficiary Designation And How it Works
A beneficiary designation is a designation of an individual to receive specific property upon the death of the person making the designation. The classic example is a beneficiary designation on a life insurance policy. In that case, according to the terms of the life insurance policy, the proceeds are paid directly to an individual. Beneficiary designations are a very popular way for individuals to pass property to others upon their death without using an estate.
Generally, property that passes via beneficiary designation passes outside of that individual’s probate estate and is distributed directly from the financial institution to that beneficiary. A lot of times people could avoid probate by using beneficiary designations. Many accounts today have the ability to be passed via beneficiary designation. This includes retirement accounts, brokerage accounts, and regular bank accounts. This could also be referred to as a payable-on-death distribution, or designation, or a transfer-on-death designation. Both are very similar. It is a mechanism by which property could pass outside of a probate estate.
The Illinois Order of Priority
The order of priority is determined by the Illinois estate legislature and establishes priority as to who could serve as the administrator of an intestate estate because a person who dies with a will has the opportunity to name an executor. However, in the event that there is no will, someone needs to come forward to manage the estate and become the representative. However, if there is uncertainty and no overt designation of an administrator, Illinois has established an order of priority as to who has priority to represent an estate and become the administrator.
This is also primarily which is based on the family relationships between a decedent and other individuals interested in becoming a representative. For example, the top priority is given to the spouse and then, in descending order, it is given to the kids, siblings, parents, and guardian of one of the beneficiaries. It is also important to note that a creditor could open an estate for a decedent as opposed to a family member. However, they are the lowest priority.
Is Priority a Strict Rule Or a Guideline?
The priority is a strict rule. In Illinois, a judge would pay attention to the priority as their main concern. If there are competing petitions and one petition takes priority over the other, most often the judge is going to grant that petition with greater priority.
Where it gets tricky is when petitioners have similar priority levels or are on the same level of priority. The classic example is when there is no spouse and the only petitioners are two children of a decedent. The judge needs to make a determination as far as the best interests of the estate as to who should be representative.
Priority Beyond the Distribution of Assets in Lombard
Priority commonly comes into play beyond the distribution of assets when it comes to debts and claims. A priority as to where money goes is superseded by claims. For the amount available for beneficiaries distributing the estate in the order of priority to the heirs, debts and claims jump in front. The heirs and beneficiaries are only entitled to the net estate. The net estate is all the receipts that an estate has and all the assets in an estate reduced not only by the expenses of administration, but also the claims.
In Illinois, this is addressed where, as part of the claims statute, all expenses of administration are first-class claims against the estate.
This means that if the entirety of the estate is paid to a creditor, there could result in a situation where nothing is available for distribution to the heir. Priority among the heirs does not come into effect until all the claims are paid, and then the net amount is distributed in the order of priority.
Get Help with a Legal Representative in Lombard
It is not uncommon for people who have been elected as an estate representative to find it challenging. Distributing the estate to beneficiaries in Lombard does not, however, need to be challenging. With the help of an attorney, you could pay off creditors and valid claims. All it takes is a call to a local attorney. Reach out today.
“Per Stirpes” vs “Per Capita” Estate Distributions
Wills and revocable trusts often refer to the terms “per stirpes” and “per capita”. When you create a last will and testament, or a revocable trust, you choose specific beneficiaries to inherit your estate at your death. But what if the predecease you? These Latin terms set forth different ways your property is to be distributed when a beneficiary dies before you.
In a per stirpes distribution, beneficiaries with the closest linear relation to you inherit an equal share of your estate when you pass away. For example, assume you have three children– John, Kevin, and Mary – and you have a will that states:
“I leave my entire estate to my descendants, per stirpes.”
If all three children survive you, they each inherit 1/3 of your estate. But let’s assume one of your children, John, dies before you. In such a scenario, John’s descendants (John’s children) will split the 1/3 of your estate that would have gone to John if he had survived you. If John has no descendants, then Kevin and Mary would inherit John’s 1/3 of your estate, in addition to their own 1/3 shares. The idea is that your grandchildren would have inherited their parent’s share one day so it is fair to apportion your deceased child’s share to them.
In contrast, a per capita distribution is only divided among surviving beneficiaries in the same generation. A deceased beneficiary’s children do not receive their portion unless they are specifically designated as beneficiaries or there are no surviving members of the class. As an example, assume again that you have three children – John, Kevin, and Mary – and you have a will that states:
“I leave my entire estate to my descendants, per capita.”
If all three children survive you, they each inherit 1/3 of your estate. However, let’s assume again that John predeceases you. In a per capita distribution, only the two surviving children – Kevin and Mary – share the estate, each receiving half. Even if John has descendants (your grandchildren), they do not inherit his share.
Under a per capita distribution, if all three children predecease you, then the grandchildren would each inherit an equal part. If John had five children, Kevin had two and Mary had one child – each grandchild would each inherit 1/8 of the entire estate. With per stirpes, grandchildren inherit their parent’s share. This means John’s five children would split his 1/3 share. Mary’s child would get a full 1/3 to herself.
In New York State, the default distribution is by representation. Yes, this is yet a third distribution option that lies between per stirpes and per capita. It works much like per stirpes, but differs significantly under some circumstances. Continuing with our example, if John predeceased you then Kevin and Mary would get 1/3 each and John’s children would split his share. But if John and Mary passed away, Kevin would get 1/3 and John and Mary’s children would split the 2/3 equally between them, each getting 1/9.
There is no “correct” distribution plan. Using a per stirpes distribution simplifies your estate plan if you are comfortable with your beneficiaries’ descendants inheriting. While a per capita distribution gives you greater control, you may have to amend your estate plan more frequently to provide for new children born into a family or after a beneficiary’s death. If you have a taxable estate, you also must be mindful of not triggering the generation skipping transfer tax. To ensure that your wishes are truly honored, it is critical to speak with an experienced estate planning attorney. In other words, do not attempt this Latin at home.
A trust can be a helpful tool for passing assets to your descendants and can also help your grandchildren meet their goals.
If you’re considering transferring wealth to your grandchildren, you could gift money outright or pay tuition or medical expenses directly on their behalf. That said, don’t overlook the option of establishing a trust. In many cases, trusts may provide you more alternatives for how and when your grandchildren receive funds, says Paul Sowell, lead wealth planner at Wells Fargo Bank within the Wealth & Investment Management division.
Establishing and funding a trust for your grandchild enables you to:
- Set guidelines on how you’d like the money to be used.
- Release funds at key milestones—like graduating college, getting married, or turning 35—over your grandchild’s lifetime, rather than all at once.
- Help protect the inheritance from potential depletion due to lack of financial literacy or other financial challenges.
- Help your grandchild meet specific goals, such as buying a home or starting a business.
Establishing a trust
Administratively, trusts can be fairly simple to set up, but they require careful thinking about what you’d like them to accomplish, says Sowell. Plus, gift trusts are typically created as irrevocable trusts – once you’ve established them, you typically can’t change your mind and reclaim your money.
Since grandchildren’s trusts are legal structures, you’ll work with an attorney to establish them. However, you may also want to discuss planning and investment options with your contacts at Wells Fargo Private Bank before you finalize your plans, Sowell says.
Selecting a trustee also requires thoughtful analysis. The trustee is the individual or entity that will be responsible for approving distributions from the trust. In addition, trusts also require a fair amount of administration and record keeping, and the trustee is responsible for those tasks as well. Although you can name a family member as trustee, it can sometimes be simpler to work with an objective third party, Sowell notes.
- Individual trustees may be the better choice if a particularly close relationship with the beneficiary is needed (when caring for a parent, for example) or if the trust asset requires specialized knowledge (like running a family business).
- Corporate trustees may be the better choice when there isn’t a trusted individual available who can both manage trust assets effectively and make the hard decisions about when (and when not) to make distributions.
Choose the right trust option
Once you decide that a trust is the right choice for your grandchild, you have two general options with advantages and disadvantages depending on the size of your family, Sowell explains:
1. A family pot trust for all of your descendants. If you have a large family and want to give discretion to your trustee for distribution of assets, a family pot trust may work for your needs. With a pot trust, you set up a single trust, and your trustee can decide when and how much money to distribute from that single pot of money to each of your grandchildren or other descendants based on a specific standard or desired objective written into the trust. The pot trust may specify that all of the beneficiaries be treated equally, or may allow the trustee to make unequal distributions among the beneficiaries based on their individual needs. You can also use a pot trust to leave a continuing financial legacy for multiple generations of your family. Depending on the size of your family, however, the trust may have many beneficiaries which may place the trustee in a difficult position when making unequal distribution decisions.
2. Individual trusts for each grandchild. If you’re leaving assets to just one or a few grandchildren, establishing individual trusts for each may be a good option. Most grandparents choose to put equal amounts of money into each grandchild’s individual trust. The trustee can then decide when and how much money to distribute to each grandchild from their individual trust based on the standards written into the trust. If you have many grandchildren, keep in mind that establishing individual trusts could increase the amount of trust administration and costs.
Give instructions and set stipulations
One of the advantages of establishing trusts for grandchildren is that you can work with your attorney to draft specific language in the trust. These provisions are helpful to the trustee in the administration of the trust for the benefit of the grandchildren.
For instance, you can set up your trust to distribute funds when the beneficiaries attain certain ages—such as 35, 45, 55— rather than all at once. You can also leave recommendations for your trustee, asking your trustee to consider approving distributions for paying college tuition, buying a first home, or addressing other goals such as starting a business. Alternately, you could ask the trustee to match your grandchild’s funds to buy a new car, rather than pay for the entire car, for example.
To help the trustee understand your intentions, a commonly used standard for discretionary distributions is health, education, maintenance, and support (also known as “HEMS”). The trust document may include a broader standard than HEMS or no standard at all. Sometimes the trustee is directed to make distributions by another party such as a distribution committee or trust advisor. Your estate planning attorney can help you understand the benefits of these different distribution standards.
Discuss with family
Just as important as coming up with all the stipulations for a trust? Frank family conversations about the concept. “In order to keep family harmony, I don’t believe you should ever set up financial gifts for grandchildren without linking in the parents,” says Sowell. For one thing, he says, the parents may have strong opinions about inherited wealth and how to prepare their children for it.
You may also want to discuss with the parents how much information to provide your grandchildren about the trusts you’re creating for them. Many experts now recommend talking openly to children about inheriting wealth rather than keeping it confidential until they’re older. Doing so can give your family time to educate your grandchildren about responsible money management.
However, Sowell says each family needs to decide for themselves the best time to speak to grandchildren about trust funds and the best way to communicate the information so that awareness of the trust does not remove the incentive for a grandchild to become financially independent or financially responsible.
For more information about establishing trusts for your grandchildren, talk to your contacts at Wells Fargo Private Bank and your estate planning attorney.
Wells Fargo Wealth and Investment Management (WIM) is a division within Wells Fargo & Company. WIM provides financial products and services through various bank and brokerage affiliates of Wells Fargo & Company.
Trust services available through banking and trust affiliates in addition to non-affiliated companies of Wells Fargo Advisors. Any estate plan should be reviewed by an attorney who specializes in estate planning and is licensed to practice estate law in your state.