Wills and Estate Planning

A will is a legal document that sets forth your wishes regarding the distribution of your property and the care of your minor children after your death. If you’re like millions of Americans, a will is among the most important legal documents that you will ever sign.


When you create a will, you will be able to designate how your estate should be divided, determine who will receive your property, set up trusts, and designate a guardian for your minor children.


What Happens if You Die Without a Will?


If you die without a will, state law will determine the distribution and management of your estate. This is known as the law of intestacy. Through these laws, each state, in effect, draws your will for you – determines “who gets what” – according to what seems most equitable for the greatest number of its citizens. The problem with these laws is they are designed for general application and rarely suit individual circumstances. Preparing your own will assures that your property will go to the people you choose.


Legal Requirements for a Will


To have a legally valid will:

  • You must have testamentary capacity,

  • Free will,

  • An intention to transfer property; and

  • Sign the will in front of witnesses.

Free Will


If, in making a will, the will-maker’s free will is destroyed, substituting another’s volition for his, the will is invalid.


Intention to Transfer Property


The will must have a provision that disposes of property, and it must indicate the will-maker’s intention that the document is his or her final word on what happens to his or her property.

Sign in front of Witnesses


Most states require at least two witnesses to the will-maker’s signature. The witnesses should not be related to the will-maker or entitled to receive anything under the will. The will-maker must sign and date the will in the presence of the witnesses and the witnesses must sign in the presence of the will-maker and in the presence of each other. The witnesses do not need to know the contents of the will.


You do not need to notarize your will to make it legal. However, most states allow you to make your will “self-proving.” A self-proving will has an attached notarized affidavit (a sworn statement signed by the witnesses in front of a notary public) which states that all required legal formalities were observed in signing the will. The affidavit has no bearing on the legality of the will itself. It just speeds up the probate process because the witnesses will not need to be located after your death to confirm that the document was properly signed and executed.


What is Probate?


The term probate is simply the Latin word meaning, “prove.” In the context of wills, it refers to the court supervised legal procedure that officially says your will is valid.


In addition to determining the authenticity of your will during the probate process:

  1. your executor (referred to as a personal representative in some states) is officially appointed;

  2. your debts and taxes are paid;

  3. your beneficiaries are identified and located; and

  4. the property in your probate estate is distributed according to your will.

What is the Probate Estate?


Your probate estate includes all your property that will pass through probate. Generally, this means all property you own at your death but does not include:

  • Joint Tenancy with Right of Survivorship (JTWROS) property.

  • Tenancy by the Entirety property.

  • Life Insurance policy death benefits payable to a designated beneficiary other than “estate of the insured.”

  • IRAs, 401(k)s, and other retirement plans payable to named beneficiaries.

  • Payable-on-death (POD) Bank Accounts.

  • Transfer-on-death (TOD) Securities Accounts.

  • Property transferred to a Living Trust during your lifetime.

  • Community Property: Generally, when one spouse dies half of the community property automatically belongs to the surviving spouse. The other half can be passed by will.

All of the above items are considered to be non-probate property and are not controlled by your will.


How Property is Transferred at Death


It is important to recognize that a will only controls the disposition of property that falls within the probate estate. Generally speaking, there are three ways that property is transferred at death:

  • By will;

  • By operation of law; (Not part of the probate estate); and

  • By Contract. (Not part of the probate estate.)


By operation of law - Joint Tenancy with Right of Survivorship (JTWROS)


Joint tenancy with right of survivorship (JTWROS) is a form of co-ownership where each joint tenant is considered to be an owner of the entire property subject to the rights of the other joint tenants. A key element is the right of survivorship under which the survivors take title and possession of the entire property upon the death of a joint tenant by operation of law. Joint tenancy with right of survivorship assets are not transferable by will.


Tenancy by the entirety is a special form of JTWROS that can only be created between husband and wife. In a tenancy by the entirety, neither spouse can convey his or her interest in the property without the consent of the other.


By Contract


Another example of property that passes outside of the will is property that passes pursuant to the terms of a contract to the designated beneficiary. Some examples of property passing by contract include life insurance death benefits, IRAs and 401(k) plans.


In the case of a life insurance policy, when the insured dies, the insurer is contractually obligated to pay the death benefit directly to the designated beneficiaries. Note that if the designated beneficiary is the “estate of the insured,” then the insurance death benefit becomes part of the probate estate.


In the case of IRAs and 401(k) plans benefits are paid directly to the designated beneficiary pursuant to the terms of the IRA or 401(k) plan.


A trust agreement can also be considered a form of contract between the grantor (the person who creates the trust) and trustee.


Trusts


A trust is a device for the management of property where one person, the grantor (sometimes called the settler, trustor or trust maker), transfers property to another person (or corporate entity), the trustee, for the benefit of the trust beneficiary. A trust exists when a grantor transfers the legal title to the trustee who is to hold that title for the benefit of the beneficiaries (the beneficial owners).

One of the basic purposes of most trusts is protection. It may be the protection of a spouse, child, or parent. It may be the protection of a beneficiary against his or her own possible errors of judgment in the management of the trust property.


A revocable trust is one where the grantor retains the right to revoke the trust during his lifetime, as well as the right to alter or amend the trust. Assets in a revocable trust are includible in the grantor gross estate for federal estate tax purposes. In estate plans, which utilize revocable trusts the will, is frequently structured to simply transfer all property remaining at death (usually after any specific bequests of personal property) into the existing trust. This is often referred to as a "pour-over" will.


With an irrevocable trust the grantor completely relinquishes title to the property and does not retain a right to alter, amend or revoke the trust. Irrevocable trusts are permanent. Since the grantor gives up all control and dominion over the transferred property, the assets of an irrevocable trust are not includible in the grantor’s gross estate for federal estate tax purposes.


As its name implies, a testamentary trust is created in the will of the grantor and takes effect under the will after the grantor’s death.


A living trust is simply one that is created to take effect during the lifetime of the grantor, as distinguished from a testamentary trust, which does not become operative until death. A living trust is also called an inter-vivos trust (inter-vivos is Latin for “during lifetime”). Living trusts can be revocable or irrevocable.


See also:


Naming a Guardian for Minor Children

Wealth Transfer Taxes (in 6 minutes)

Duties of an Executor in New York State



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