April 8, 2021

By: Charles Avalli

The pandemic has affected different people in different ways.  One thing that I have seen during the pandemic is that people are much more focused on the provisions of their estate plan.  I guess the pandemic has brought into focus the frailty of life and therefore people want to make certain that they have adequate plans in place.  Some people are creating an estate plan who had not previously done so and other people with comprehensive estate plans are reviewing them to make certain their decisions contained therein are still appropriate.  Below I will set forth some things everyone should think about in reviewing or creating an estate plan.

Who are the beneficiaries?  Most people provide for their spouse and/or children in the estate plan.  One of the considerations is whether the beneficiaries receiving gifts are of sufficient age and sophistication to receive assets outright.  If not, we frequently use a Trust to provide someone (a Trustee) to handle the assets and distribute funds to the beneficiaries pursuant to the terms stated in the estate planning documents.  Estate planning becomes especially difficult for individuals who do not have a spouse or even more difficult for those who do not have children.  Frequently people in those circumstances avoid estate planning because the decisions as to who are to be the beneficiaries are very difficult for them to reach.  Sometimes it involves charities and sometimes it involves more distant relatives or friends.  It is frequently the case that we need to have several consultations to work through making those decisions.

Who are the Representatives?  Under every Will there needs to be an Executor appointed who stands in the shoes of the Decedent after death and accomplishes the collection of assets, payment of bills and after all debts and taxes are paid, making distribution to the beneficiaries identified in the Will.  In addition, to the extent a Trust is created under the Will, you need to select a Trustee who will handle the administration of the Trust.  Frequently, the same individuals are named Executor and Trustee as the talents required are the same for each position, the jobs are just done at different periods of time.  Also, we always want to name a Successor Executor and Trustee in the event the initial appointee is unavailable.  Sometimes the selection of a Trustee is made more difficult because the Trust is going to continue for a number of years, and you have to consider the age of the Trustee in making an appointment decision.  Also, a parent will want to nominate someone to be guardian of their minor children.  Although this designation is not binding upon the Court, it is an important consideration for the Court to make to the extent a guardian is needed.

What assets are covered?  It is vitally important to understand what assets are distributed pursuant to the terms of the Wills and those which are distributed outside of the Will.  The assets distributed by the Will are called probate assets and the assets distributed outside of the Will are called non-probate assets.  It is easiest to first identify non-probate assets.  Non-probate assets would include a life insurance policy as it has a beneficiary designation.  As long as that beneficiary is to an individual (and not to the Decedent’s estate), those assets pass pursuant to the beneficiary designation regardless of the terms of the Will.  Similarly, retirement assets normally have beneficiary designations which are followed.  This would include qualified plans such as 401(k)’s and also individual retirement accounts.  Next, more recently people are using a designation known as POD (pay-on-death) or TOD (transfer-on-death) for bank or security accounts.  Under those designations, the asset is owned by the Decedent throughout the Decedent’s life but upon Decedent’s death, the assets are transferred to the individual named through the POD or TOD designation.  A final classification of non-probate assets are assets titled jointly with right of survivorship.  Those assets pass by operation of law to the surviving co-owner.

Now, lets talk about probate assets.  Probate assets are essentially assets titled solely in the Decedent’s name that do not have some type of beneficiary designation.  It is frequently the case that an individual’s assets are more non-probate (normally life insurance or retirement assets) as opposed to probate assets.  The process of distribution of non-probate assets as to who is the beneficiary is vitally important.  One of the things routinely reviewed in an initial estate planning meeting is to identify what assets are probate and what assets are non-probate and with regard to the non-probate assets, who is going to be the beneficiary of those assets.

This is nothing more than a short description of the considerations to be made for estate planning.  Everyone should consider the make up of their assets and how they would be distributed if they would pass. It is frequently not a happy discussion, but it certainly is an important one to have with a qualified advisor