In part 1 of this multi-part series, we began to look at the basics of completing a solid estate plan – including having a Living Will, Health Care Proxy and Power of Attorney.

In this article, we will discuss the last of the four “basic” documents of an estate plan: a Last Will & Testament or Living Trust.  Both documents accomplish a similar goal by disposing of your assets to your heirs upon your death.

So what is the difference between a Will and a Trust, and why would you pay extra for a Trust? This is a complicated and involved answer that is often specific to every individual. Let’s start with the Will and determine what it does and does not accomplish.

A Will is a declaration of your wishes, written, signed and witnessed by two individuals not named in the document. All Wills must be in writing; there are no oral Wills or videotaped exceptions.

Selecting an Executor for a Will

The document must state that it is your Will and also names an executor (in other states, the executor may be referred to as a personal representative). The executor is usually a spouse or partner followed by a successor of one or more individuals (children, friends, etc.).

There are no rules as to who may serve as an executor except the individual must be over 18 years old and a United States citizen or resident alien (these rules may vary from state to state).

In New York State, you can have multiple co-executors and multiple successor co-executors, but geography and convenience come into play. The executor’s main job is to gather all of the assets and ensure they are distributed to the heirs according to the terms of the Will.

The Will should only nominate the people chosen to fulfill the role; the court appoints the executor as part of the process of settling the estate (commonly referred to as “probate).

Selecting a guardian for children

A Will also appoints a guardian(s) to raise any minor children. Again, the appointment is up to the individual and you can choose whomever you like, keeping in mind that the natural other parent may have rights unless waived in an appropriate document. The guardian(s) can serve as executor(s) as well if you so desire and can also be heirs to your estate as well.

The executor (not the guardian) is entitled to a fee or commission for fulfilling that role (fee is established by state law). In New York State, the flat fee for an executor is 5% of the first $100,000 of probatable assets, 4% of the next $200,000 and 3% of the next $700,000.

By doing the math, an executor of a $1 million estate is entitled to $34,000 (which is taxable income). Many people choose to select their spouse or partner to perform that role, who will often refuse to accept any fee since he or she may inherit those assets without any tax.

Questions regarding selecting one child over the other

The commission issue may present a problem when the executor is one child and other children exist. Can the sole executor accept the commission, thereby depriving his or her siblings of a similar fee? Yes.

Can you ask that he or she not accept such a fee? Yes, but the executor can also decline to serve. What about appointing all of your children and having them then split the fees? Yes you can do that as well, but they would likely refuse the taxable fee in favor of a tax-free inheritance in that situation.

What if my children do not get along? That is certainly an issue, but you can still appoint them all and they would have to function together or not accept the role. This issue is one that deserves careful consideration before making a decision.

Disinheriting a spouse or children

Can you do what you want with your assets or are there rules you need to know? Normally, you are free to do as you choose and leave your assets to whomever you wish, although many states do not allow you to disinherit a spouse.

A spouse may waive their state-mandated share (referred to as a “Right of Election”) in a written waiver (pre or post- nuptial agreement). Absent such a waiver, a spouse is entitled to a portion of your estate as determined by the laws of your particular state of residence.

Can you disinherit some or all of your children? Generally yes, although some states do not permit you to disinherit minor children who may become a burden upon that state.

Is it permissible to leave your assets disproportionately to your children? Yes. Can disinherited children challenge your Will? Yes, but it’s extremely difficult to overturn a Will as this type of document is presumed to be valid. The challenger would have to prove (not just allege) the incapacity of the creator of the Will, or prove coercion of the creator of the Will.

Dealing with real estate and other assets

A Will covers all of your assets except those with either a co-owner (joint ownership) or designated living beneficiary. The joint owner automatically inherits that asset when you pass away so there is no need to do anything.

If real estate is owned jointly and the deed specifically states “as Joint Tenant with Right of Survivorship,” the surviving joint owner or surviving spouse can sell that property by producing the death certificate of the other owner. If a husband and wife own property and one spouse dies, the survivor does not need to change the deed as it is an automatic transfer. The same true holds true for any joint tenancy.

What happens to those assets with a named living beneficiary? The beneficiary can claim ownership upon production of a death certificate and completion of any forms requesting any financial institute or the owners were married at the time that the property was acquired.

Bank accounts “In Trust For” stocks held, “Transfer on Death” or bonds owned “Payable on Death” would then pass to the beneficiary upon presentation of a valid death certificate. Stocks owned “Transfer on Death” would also pass to the designated beneficiary.

What if the Will says otherwise regarding an asset with a beneficiary designation?  The Will takes second place to the designation; therefore, it’s important to make sure all designations are up to date.

Do you still need a Will if all of your assets have a designation of beneficiary? Most likely, yes. Some assets are difficult to transfer by beneficiary designation. The beneficiary may predecease you, thereby causing that asset to become part of your probate estate and necessitate the use of your Will. You may choose to leave an asset disproportionately to heirs, which is usually not accomplished by a designation of beneficiary.

And what if you want to leave an asset to a child to be held in a trust until the child reaches a certain age? In that case, a simple beneficiary designation would not work and a trust would be a better option.

A Will appoints an executor and guardian along with disposing of your solely owned non-beneficiary assets. You can change a Will as often as you like. Make sure to store it in a safe, fireproof location and let your executor know where it is. Spouses or certified domestic partners should also have their own Wills as there is no way of knowing who will pass away first. If you want to a revoke a present Will, the creator of the document can simply destroy or make a new one.

Stay tuned for part three of this article – which will discuss Probate and Trusts – in the May 2017 issue of the Preventive Law Guide.