Tax & Business Insights

What Do I Do With These? (Part I)

Volume 10 Issue 5-- September/October 1998

What do I do with these? You might say this to yourself when a client brings estate-planning documents to your office. Even if you don’t do a lot of estate planning in your practice, you can provide meaningful services to a client who asks, Will you look at these papers? To do this, it is important to understand some of the basic concepts, which are discussed below.

Individuals with smaller estates, say $25,000 to $100,000, often need only relatively simple Wills giving everything to the surviving spouse. If there is no surviving spouse, then all of the family assets go equally to the surviving children. These types of Wills are referred to by some as I love my wife Wills. The needs of the family or individual with greater wealth are usually more complicated than those addressed by simple Wills.

Follow the Assets

The essential, but often overlooked, concern in estate planning is how the assets are owned and the relationship between asset ownership and distribution at death. All too often, the estate-planning documents — Wills or Trusts — which ostensibly dictate how assets are to be distributed when one or two family members (usually spouses) die, don’t work as intended because assets pass to survivors independently of the provisions of the Will or Trust. Assets pass to others via three broad channels: (1) Operation of Law, (2) Probate, and (3) Trusts. Let’s look at the first two of these.

Operation of Law

The term Operation of Law covers a multitude of arrangements where distribution is controlled by deeds or other contractual-type documents. Let’s begin with deeds. Regardless of what a Will or Trust may say about who gets what, if a deed says the real property passes to a surviving joint owner (often a spouse), then that is what happens, the surviving spouse gets the land.

The survivorship aspect of joint ownership is often responsible for problems when a surviving spouse (Mom, for example) remarries and retitles the family assets jointly with a new spouse. Should Mom die before the new husband, the property controlled by the new joint deed passes to the new husband, regardless of what Dad or Mom’s Will and Trust may state. Under these circumstances, the children of the first marriage may receive none of the property.

Contractual relationships may control how assets pass to others, such as payable on death bank accounts, beneficiary designations in insurance policies and annuities, and beneficiary designations for retirement plans.

For example, the contractual documents between the owner of a bank account and the bank will control disposition of the bank account. With insurance, the relationship between the owner of the insurance and the insurance company, namely, the policy and its beneficiary designation, controls who gets the insurance proceeds.

It is quite common for lawyers and their clients to overlook the controlling effect of deeds and contractual relationships which may thwart the objectives of estate planning. In this regard, a valuable service can be provided to your clients by asking if the beneficiary designation of insurance policies, retirement plans, and annuities have been considered and changed to be consistent with the Wills and Trusts. Similarly, you may suggest that land be retitled in the name of a Revocable Living Trust, if there is one.


In the old days, the really old days, whoever got to the cave first got all the furs and valuables of a decedent. Since this deplorable possibility was unfair and heavily favored the fleet of foot, a system eventually called probate administration was adopted. Although the term probate refers to proving a Will, probate can be thought of as a type of accounting process. The person authorized by a Will to operate under court supervision, often called a Personal Representative or Executor, presents the Will for probate in the face of any potential challenges as to its validity. He or she gets the Court’s badge of authority, often called letters testamentary, stating that the Court appoints this person as the Personal Representative to assemble and distribute the decedent’s assets.

In most states, the Personal Representative has to file an inventory of the decedent’s assets within three to four months after the Will is admitted to probate and then distribute the assets according to the Will. In many probate estates, the assets are distributed and, if all goes reasonably well, a first and final accounting is filed with a court official, and the Personal Representative is discharged. In most states, assuming no unusual problems, probate can be waived in smaller estates, and affidavits can be used in lieu of more formal procedures.

Recently, Paul Maloney, a CPA, in Boston, forwarded to us two sets of confusing Wills and Trusts, prepared by two different law firms, for comparison and analysis. If you have questions about estate planning call us, as Paul did.

Next time, we will discuss Trusts (the third channel of asset distribution, mentioned above) and why they are the preferred vehicle for many estate plans.

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