When a Will Is Not the Way
Mr. Gnu Less had a
Will. When the subject of estate planning came up, Gnu ended the
discussion quickly because he knew he had a Will and was sure that
nothing more was needed. Right?
Maybe. In
many instances, a Will alone is not adequate estate planning although
it is far better than no Will, or dying with no Will. Among other
things, Wills can designate guardians for minor children, who gets
what, who should be the Personal Representative (Executor). Although
Wills are better than nothing, Gnu needs to choose his estate planning
documents based on his needs, not his dislike for paying attorneys.
Let’s use an
analogy: if you own several horses and want to tow them in a trailer,
you would need a sturdy truck, not a small sports car, to pull the rig.
Revocable Living Trusts “RLTs,” the most common estate “towing”
vehicle, can do much more than Wills, and sometimes that is what is
needed.
Gnu is a Virginia
farmer who has several adult children who have youngsters (Gnu’s
grandchildren). If an adult child predeceases Gnu, he wants the
grandchildren to get what his deceased child would have gotten. He also has one mentally
impaired adult child, as well as a second home in another state, and a
penchant for privacy.
Gnu knows he is losing some of his abilities
because of age and may need financial and other help before he dies. Wills, even the best
prepared ones, do not, by definition, go into effect until the creator
of the Will dies. Let’s
assume that Gnu is disabled for an extended period before he passes on,
a common occurrence. Who
will take care of Gnu, his spouse, and the impaired adult child before
Gnu passes on? Who
will administer to Gnu’s property and funds?
RLTs are effective
when “signed,” not when Gnu dies; therefore Trustees such as Gnu’s wife
and an adult child (other than the impaired one) can take over and
handle his affairs if Gnu simply cannot handle his own affairs because
of illness.
As indicated above, should a child predecease
Gnu, he wants the grandchildren to receive the deceased child’s share. If
the grandchildren are minors, they should not be receiving large sums
of cash, therefore an arrangement is needed to protect the funds of the
grandchildren until they become older and are able to handle the money.
While such arrangements can be addressed in a Will, an RLT is a much better device to provide for minors in this context. Why? Trust provisions in a Will create what are frequently called Testamentary Trusts.
One of the problems
with Testamentary Trusts is that they require the continuing
involvement of probate officials, called Commissioners of Accounts in
Virginia, the posting of a commercial bond, and yearly reporting to the
probate court.
Real estate and
other assets titled in Gnu’s RLT are not part of the probate estate,
thus avoiding the need for real estate appraisals and other costs, such
as the fees paid to probate officials based on the size of the estate. Gnu’s desire for privacy
is also satisfied by proper use of his RLT, which unlike a Will is not
a public document.
Gnu’s second home highlights a major weakness
of relying on just a Will. Many states require a second probate process for real estate located in other
states. If Gnu had
an RLT with his second home titled to it, there would be no need for a
second probate. The
saving of extra expenses and legal fees for a second probate will
benefit Gnu’s heirs.
In addition to protecting Gnu, an RLT can also
assist his wife if she survives him.
If
she survives, the RLT can financially provide for her and insure that
certain estate tax benefits, like the Marital Deduction, are fully
utilized.
While there is
definitely a need for Wills, as discussed on our website under “The
Plain English Explanation of Wills and Trusts”, there is a greater need
for Revocable Living Trusts in many estate planning situations.
This newsletter
could elaborate on many different situations in which a Will may not be
enough. The purpose of this newsletter, however, is not to identify
every situation, but to alert readers that simply having a Will should
not preclude planning and implementation.
For people with some wealth, complex assets, or unique
problems a Will alone may not be the answer.
If you have estate planning needs and need
help, contact Newland & Associates, P.L.C for assistance.
Copyright 2013
Published by the law firm of Newland &
Associates, PLC
9835 Business Way
Manassas, VA 20110
Call us at (703) 330-0000 for a full range of business
law and
tax-related services.
While designed to be accurate, this publication is not intended to constitute the rendering of legal, accounting, or other professional services or to serve as a substitute for such services.
Redistribution or other commercial use of the material contained in Newland's Business Notes is expressly prohibited without the written permission of Newland & Associates, PLC.
Return to Newsletter List
Return to Content Index
Home Page