Your Last Will and Testament operates to dispose of your assets upon your death. Given that most people own some type of property, a Will is unique in being a legal document nearly every single person should have. A typical Will have the following provisions:
· Burial/Cremation Wishes. If you desire to be buried/cremated or have other requests for your bodily remains, you may make these wishes known in your Will.
· Appointment of Executor. The Executor is the person you trust to take possession of your assets upon your death, pay any final expenses/creditors, and distribute the remaining assets in accordance with your wishes.
· Appointment of Trustee. If your Will creates trusts for your beneficiaries, such as your children, your Will should designate who the Trustee will be. The Trustee is the person/institution serving as “gate keeper” for the funds. For example, if your Will creates a lifetime trust for your child upon your death, the designated Trustee will be the person your child goes to when he/she needs funds from the trust.
· Appointment of Guardians. If you have minor children, your Will may designate who you would like to be appointed as the children’s legal guardian(s) if you die when your children are still minors. Appointing the guardians in your Will can help resolve a costly guardianship contest after your death if multiple family members disagree on who is best fit to serve.
· Disposition of Remains. Finally, your Will contains the plan for distributing your assets upon your death. The distribution provisions of Wills vary in complexity depending on several factors such as what type of assets you own, how many beneficiaries there will be, and how much property any one individual is inheriting.
To generalize the type of Wills Lindholm Law drafts, 90% will fall into 1 of the 3 following categories:
1. Starter Wills (Level 1). When the first spouse dies, this Will transfers everything outright to the surviving spouse. Upon the second spouse’s death, the Will transfers everything remaining from both spouses to the children, outright. The children (or descendants) will then own their inheritance outright. With an outright inheritance, the children’s assets WILL be vulnerable to creditors and divorces.
2. Asset Protection Wills (Level 2). As with the starter Will, this Will transfers everything outright to the surviving spouse upon the first spouse’s death. However, at the second spouse’s death, this Will transfers the remaining property to lifetime trusts for each child (or descendant). Now, the child’s inheritance is protected for the child’s lifetime from creditors/divorces. Upon a child’s death, their trust terminates and transfers their remaining inheritance to a new trust(s) for their own children (IE the grandchildren). I recommend this Will anytime any 1 child/recipient is receiving more than $500,000 in inheritance. Thus while I would recommend this Will for a married couple with a net worth of $500,000 and 1 child, I would not recommend it for a married couple with a net worth of $1,000,000 and 5 children.
3. Asset Protection and Estate Tax Wills (Level 3). This Will does everything the Level 2 Will does but also helps to prevent/eliminate estate taxes. Currently, the estate tax exemption is $11 million per individual as result of the 2018 tax reform. However, the heightened exemption is set to reduce in ½ upon the expiration of the tax reform 2025. From a conservative planning perspective, I recommend this Will for a married couple with a net worth close to $5 million.
Aside from the 90% described above, other common Will provisions include:
· Special Needs Planning. If your spouse or one of your children is disabled/special needs, your Will can create a special needs trust which protects the person’s inheritance, qualifies him/her for government benefits, and prevents the government ‘claw-back’ of assets at their death.
· Foreign Citizen Planning. If you are a non-US citizen and you own property/assets within the United States, special planning must be implemented in your Will to prevent the heightened foreign-citizen estate tax. Whereas US citizens don’t incur estate tax unless their net worth is above $11 million, non-citizens incur estate tax once their estate reaches just $60,000 in the event the IRS concludes you are a non-resident at the time of your death. A special QDOT (Qualified Domestic Trust) in the Will can resolve this tax trap.