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Distribution of Assets by Will

Implementation of an individual’s estate plan requires the execution of appropriate documents. Individuals generally use a will as the document governing the distribution of assets to beneficiaries upon death.

An individual’s will should address a number of different issues. The preparation of an individual’s will may require an analysis of alternative, possible sets of circumstances that could arise at the time of the individual’s death.

An individual needs an understanding of basic characteristics of wills to make informed decisions about issues that his or her will should address. One important characteristic to keep in mind during will preparation is that wills are revocable. In other words, an individual who writes a will (the “testator”) may generally revoke his will at any time because a will does not become effective until the individual’s death. However, an individual who is mentally impaired and unable to comprehend essential components of a will does not have the legal capacity to revoke a will or make a new will.

The power of a will to control the disposition of an individual’s assets may be limited, depending on the forms of ownership in which his or her assets are held. An individual’s will effectively governs the disposition of the testator’s probate assets only. Will provisions are not relevant in directing the distribution of non-probate assets.

The Importance Of Will Preparation

Wills perform a number of functions, which include providing gifts of property to the selected appropriate beneficiaries. A gift under a will may take the form of a bequest, which is a gift of personal property, or a devise, which is a gift of real estate. Wills frequently include separate provisions for gifts of different categories of property, such as bequests of tangible personal property, devices of real estate, and gifts of specific amounts of cash.

A will should also include a residuary clause. A residuary clause is a provision that distributes all property that is not distributed under other provisions of the will. The residuary clause of a will normally appear after the provisions of the will that make gifts of individual assets or specific categories of assets.

An individual in the process of identifying persons to receive assets upon his or her death should consider not only primary beneficiaries but also persons who the individual would want to receive assets if the primary beneficiaries do not survive. Consideration of alternative or contingent beneficiaries allows a person to write a will that is more likely to remain viable despite changes in circumstances. A person whose will names primary and contingent beneficiaries will not face the necessity of writing a new will merely as a result of the death of the primary beneficiaries.

Wills frequently include provisions designed to create trusts in certain circumstances. The term “testamentary trust” refers to a trust created under a will. If the will requires the creation of a testamentary trust, the executor acting under the will must transfer specified assets to the trustee. The trustee receiving the assets must then administer the assets under provisions of the will that govern the trust.

Additional Will Planning Considerations

Other important provisions include those relating to the nomination of an executor of the will and the trustee of any testamentary trust. The will should nominate one or more persons to act as executors or as co-executors and one or more persons to act as trustees or as co-trustees. The will should also nominate a successor executor and a successor trustee who can serve if a person nominated to act as executor or as trustee is unable to serve.

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What Is a Trust?

A trust is an arrangement under which one person, referred to as the “trustee,” holds title to certain assets and manages and distributes the assets for the benefit, use, and enjoyment of one or more specific individuals. Persons entitled to benefit from trust assets are referred to as “beneficiaries.” The person who creates the trust provides the directions that govern the management and distribution of trust property.

What Is the Role of A Trust in Estate Planning?

Trusts play a useful role in planning to minimize or avoid income and estate taxes. An individual may reduce his family’s income tax liability in certain situations by creating a trust that shifts taxable income to a child. Estate planning tools for married persons include a credit shelter or bypass trust, which allows a married couple to protect the maximum amount of their assets from exposure to estate tax. Irrevocable life insurance trusts facilitate reduction or avoidance of estate tax for persons with life insurance coverage because insurance held in the trust is not subject to estate tax. In many cases, charitable remainder trusts are useful in assisting individuals to minimize income and estate tax liability.

Trusts may also be used to achieve a number of estate planning objectives unrelated to reducing tax liability. A trust may be a suitable arrangement for providing effective management of assets when the trust beneficiary is a minor, is disabled, or is considered incapable of making wise decisions in regard to managing or investing assets. An individual may also transfer assets to a trust as a means of avoiding probate, i.e., avoiding the application of estate administration procedures to those assets on the individual’s death.