UTMA--Alternative to Testamentary Trust

Those with minor children rightfully concern themselves with the many "what if's" should both of us die. The easy part is, in my mind, is executing a will nominating guardians for your children should both parents die. It may take the parents several hours of kibitzing in the kitchen to agree on the guardian but the mechanics of nominating a guardian are rather straightforward (a simple paragraph slipped into the last will of both parents). The more difficult planning issue concerns the financial welfare of the children should both parents die.

The traditional planning tool creation of a testamentary trust designed to hold and distribute assets as needed while the children or minor, and even till much later in life should you so desire. Let's say each child in expected to inherit several hundred thousand dollars for their parents' estates if both were to die. One advantage of a testamentary trust is that it can control distribution of the assets to the children for as long as the parents desire (limited by the rule against perpetuities in some jurisdictions). Coupled with such features as a spendthrift clause, the testamentary trust does give some added protection against the squandering of the children squandering their inheritance upon reaching majority. The downside of creating the trust is not all that great. You do face added attorneys fees in drafting the trust. Also, the trustee will need to open a special trust account with a financial institution to hold the funds and to file annual income tax returns. In my mind, these are minor when weighed against the benefits.

Still, some people prefer not to bother with trusts. They have faith in their chosen guardian (often a sibling) to use the funds wisely for the benefit of their children. If the expected inheritance is modest, that may be another reason for wishing to do minimal planning in this area. Is there a quick and easy alternative to the testamentary trust? Yes, designation of custodian in your will under the Uniform Transfer to Minors Act. Here are links to the UTMA for several states:

• California
• Massachusetts
• Pennsylvania

How does one designate a custodian for the inheritance to be received by minor children? "[B]y naming the custodian followed in substance by the words: 'as custodian for [name of minor] under the Pennsylvania Uniform Transfers to Minors Act.'" Penn. Stats. Ch. 53, Section 5302(a). Under this arrangement, a custodial account will be set up by the executor of your estate in the name of the custodian designed in your will for each of your children. The downside is that any funds remaining in the account when the child reaches the statutory age are transferred free and clear to the child. See chart at bottom of this page.

Intestate Succession

What happens when an individual dies without a will? In such cases, the individual is said to have died "intestate" and the decedent's assets are distributed pursuant to the laws of intestate succession for the applicable state. The best source I have found summarizing the intestate succession laws for each state is CCH (just click on the state of interest from chart at bottom of the page).

Let's assume you check the intestate succession laws for your state of residence discovering the distribute rules to be as you wish. For example, you are a single individual in Missouri with no children. The intestate laws for Missouri distribute a decedent's assets in such cases equally between the parents and siblings. Further assume this distribution is how you would have stated it in a last will if you created one so why bother executing a will? Several reason. First, naming an executor in your will makes the process that much easier for this individual to get named as executor (or personal representative, as the case may be) by the court. Secondly, your will can waive the requirement of the executor posting bond and authorized informal administration in many states. This makes the probate process cheaper and faster. If you have children, your last will is the place where you designate a guardian for your children should both parents die while they are minors.

FWIW, here is a web page giving its taken on why you should have a will.

Disinheriting A Child

You are a parent with several children and wish to disinherit one of the children. How exactly is this handled in the drafting of the last will? The bequests to family members generally fall into two categories: (a) specific bequests (i.e., "I leave my 1969 red Corvette to my brother John") and (b) residuary bequests (i.e., "I leave the rest, residue, and remainder of my estate to my children in equal shares, per stirpes"). Instead of naming, as a class, "my children" for any bequest in the will, you would identify by name each child who is a beneficiary and omit the name of the child you wish to disinherit. Finally, to show that the omission of this child from your will was intentional, it is customary to add a line similar to the following to your last will:

I acknowledge that I have a son named Brian who is not provided for in this will. It is my specific intention to not provide for Brian under the terms of my will. See A Practical Guide to Estate Planning and Administration By Michael Gau (2004) p. 37

If your last will document has a "Miscellaneous" section, you can put the above language there or, as an alternative, in the same section where the other children are named as beneficiaries. Are there provisions in the law allowing a child to petition the probate court to be added back as a beneficiary of the estate despite the will language? Absent a claim of mental incapacity on the part of the testator at the time the will was executed, the only provision of the Uniform Probate Code that comes to mind is Section 2‑302. Omitted Children. However, Section 2-302 only applies to a situation where "a testator fails to provide in his [or her] will for any of his [or her] children born or adopted after the execution of the will ... ." The intentional omission of a child is, by definition, different than a pretermitted heir. Thus, Section 2-302 would not help a child intentionally disinherited.

Transfer On Death and Last Wills

On another web site, I answer user questions on estate planning and business law topics. Not infrequently, I receive questions displaying confusion with the interaction of transfer on death designations and beneficiary designations in a last will. Let's try and break it down.

What is a transfer on death designation?
A Transfer on Death (TOD) designation transfers ownership of designated property to named beneficiaries upon your death without the necessity of probate the designated property. There are two uniform laws which authorize transfer on death designations: (a) Uniform TOD Security Registration Act and (b) Uniform Nonprobate Transfers On Death Act. Of the two, the Uniform TOD Security Registration Act is more popular having been adopted by 48 states and the District of Columbia. As the name implies, this act only allows TOD designation for securities defined as "a share, participation, or other interest in property, in a business, or in an obligation of an enterprise or other issuer, and includes a certificated security, an uncertificated security, and a security account." The Uniform Nonprobate Transfers on Death Act enacted in 1989 has become part of the Uniform Probate Code (see Article VI). Section Section 6‑101 of the Uniform Probate Code significantly expands the categories of property that can be subject to a nonprobate transfer:

A provision for a nonprobate transfer on death in an insurance policy, contract of employment, bond, mortgage, promissory note, certificated or uncertificated security, account agreement, custodial agreement, deposit agreement, compensation plan, pension plan, individual retirement plan, employee benefit plan, trust, conveyance, deed of gift, marital property agreement, or other written instrument of a similar nature is nontestamentary.

How are nonprobate transfers different from naming a beneficary in a will?

The obvious difference is that the property subject to a TOD transfer becomes the property of the beneficiary immediately upon the death of the transferor. No probate, no court order is necessary. Another major difference stemming from the first point is that special probate rules do not apply to TOD transfers. For instance, if you name your spouse as the TOD beneficiary, divorce her, then die, the TOD designation is still effective and she will take the property. The probate codes of all states (to my knowledge) invalidate bequests by will to a former spouse where the will was created pre-divorce. Another probate concept is forced shares for minor children and spouses. TOD property is not eligible for apportionment to children and spouses of the deceased although it is often included in the calculation of the augmented estate for purposes of determining the minor child or spouse's eligible elective share of an estate.

Use of TOD in blended family situations

A common situation in our society today is blended families: i.e., one where the husband and wife have children from prior relationships. In such cases, each spouse often desires to have a separate specific bequest made for his or her children that were not by the current spouse. Naming the child as beneficiary of a life insurance policy or TOD designation are two options for providing for the children without making them beneficiaries under the will. I particularly prefer this option when the children from the prior relationship do not get along with the new spouse who is apt to be named the executor of the estate. TOD takes away the potential for disputes with the step parent over the estate as they will not be beneficiaries of the estate.

Self-Proving Wills

What is a self-proving will? It is one "simultaneously executed, attested, and made self‑proved, by acknowledgment thereof by the testator and affidavits of the witnesses, each made before an officer authorized to administer oaths under the laws of the state in which execution occurs and evidenced by the officer's certificate, under official seal." Uniform Probate Code § 2‑504(a). Essentially, a last will is made self-proving by execution by the maker (together with the witnesses) in front of a notary who acknowledges the document with his or her seal.

How is a self-proving will different than a normal last will? "A self‑proved will may be admitted to probate * * * without the testimony of any subscribing witness, but otherwise it is treated no differently from a will not self proved." See Comments to §2-504 of the Uniform Probate Code. We are a mobile society. What a self-proving will does is eliminate the need to tract down the witnesses and get affidavits in order to probate the will. If the witnesses predeceased the testator (testatrix), more headaches. The bottom line behind taking the extra step involved with a will self-proving is to make the probate process as ease as possible for your family at death.

What happens if a will is not made self-proving? As an example, below is the Missouri Probate Code section setting forth the rules for admitting a last will to probate that has not been made self-proving:

§ 473.053. Testimony of subscribing witnesses, other evidence.
  1. At least two of the subscribing witnesses to a written will shall be examined if they are alive and competent to testify and otherwise available. Before any will is probated each of at least two witnesses thereto shall testify to facts showing that the will was executed in accordance with section 474.320, RSMo. This section does not alter the rules of evidence as to the establishment of a will by probate in solemn form or affect the probate of a self-proved will.
  2. If either or both of the subscribing witnesses to the will are dead, physically or mentally incapable of testifying, or their whereabouts unknown, then due execution of the will by testator and its attestation by subscribing witnesses shall be proved by the available subscribing witness, if any, and proof of the handwriting of any dead or mentally incapacitated subscribing witness or subscribing witness whose whereabouts is unknown, or by such other competent evidence as is available.

The real danger is if one of the witnesses cannot be found, is dead, or mentally incompetent at the time the will is ready for presentation to the court for probate. Then you are looking at not only time to prepare the necessary evidence for probate of the will but also increased estate administration expenses. The attorney fees meter runs at a rapid rate while the necessary testimony and other evidence is collected.

The MedLawPlus.com® Last Will and Testament Form is a fast and economical solutions for those wishing to create a simple will ($13.99, free trial). It can be used to create self-proving wills (USA only).

Contingent Beneficiaries

What if one of the beneficiaries of my will predeceases me? Personally, I think this issue is blown out of proportion. Simple answer: if one of your beneficiaries dies then redraft the will to leave the bequest someone else. Yeah, but what if we die together? The probability of this occurring is very low but people still fret over it so the law provides a solution: contingent beneficiaries. This class of beneficiary only takes if the primary beneficiary predeceases the maker of the will (the technical term is testator or testatrix). An example is as follows:

I give and bequeath all the rest, residue and remainder of my estate to Sally Smith, but if she shall not survive me by at least 24 hours, then I give and bequeath the rest, residue and remainder of my estate to the Animal Rescue Foundation.

All competent estate planning attorneys will be able to craft a last will for you naming contingent beneficiaries. Some online last will templates allow for the naming contingent beneficiaries, some do not. If this issue is a concern to you, check before purchase whether this feature is offered.

Personal Effects

In terms of monetary value, the decedent's personal effects are of the least value yet often take up a substantial amount of planning time when creating a last will. What are personal effects? The general definition is personal or intimate belongings of an individual such as clothing, jewelry, mementos, personal papers, awards, photographs, and other similar items. As this definition can be slippery, I prefer to draft a definition of "personal effects" into the last will.

My experience has been that people really put mucho thought into who gets their stuff and quite often change their mind after their will has been drafted and executed. To help with this problem, Section 2‑513 of the Uniform Probate Code (adopted by most states) contains a mechanism for naming beneficiaries for specific items of personal property through a separate written list that is signed and dated. I give clients a copy of the separate list for personal effects in electronic format allowing them to change the list at will as they may so choose. Here is a sample written list for use in the bequest of specific items of personal property (MS Word format).

Elements of A Standard Last Will

So you're not a wealthy human with gobs of earthly possessions tying you down in life. Still, you wish to have a somewhat simple last will in place to make things easier on your family / significant others when the inevitable occurs. What are the elements of a basic last will and testament?

• Personal Representative / Executor. If probate is necessary, this is the person nominated to administer the estate. In case the first named personal representative is unable or unwilling to serve, it is wise to name at least one successor personal representative. Also, you have the option in most states to recite in the will that your personal representative may serve without posting bond. Waiving the bond requirement reduces the administrative expense of the probate estate.
• Burial Wishes. Do you have any special wishes regarding your burial and / or funeral? Your last will is the place to make these known. Common requests include such things as to be cremated, the location of your burial, or that there is to be no funeral (only a memorial service). My grandfather requested that one of his old drinking buddies sing "Danny Boy" at his funeral.
• Charitable Gifts. Name bequests, if any, to charitable, educational or religious institutions.
• Specific Bequests. These are specific items of your property or stated dollar amounts left to specific heirs.
• Remainder Beneficiaries. The remainder or residuary of your estate is that which is left over after all the administration expenses and debts of the estate are paid plus all the specific bequests. The remainder beneficiaries are generally named as a group taking equal shares or by stated percentages of the residuary for each remainder beneficiary.
• If you have children, an essential element of your last will and testament would be to nominate a guardian for your children should both spouses dies while the children are still minors.

These are just the standard operative provisions in a last will. They comes with many more bells and whistles. Here is a sample standard last will.