Last week, we started our National Make-a-Will Month blog series on Wills. This week, we will take a look at some of the more common types of Wills, and discuss how they can be incorporated into an estate plan.
In Michigan, all Wills have a common theme - they identify who should be in charge of administering your estate in the event of your death, and they outline in a general sense how the assets in your estate should be distributed. Some Wills are very basic, and some are more complex. In our practice, we primarily use three different types of Wills, depending on the circumstances of each client: Standard Wills, Wills with a Testamentary Trust, and Pour-Over Wills. Let's take a look at each of these Wills in more detail.
A standard Will, without a trust, can be sufficient to plan a person's estate, depending on their specific circumstances. Standard Wills generally outline in some detail how a person's assets should be distributed after that person has passed away. Wills address how personal property should be divided and distributed, whether any specific gifts (i.e. to charity, friends, family members, etc.) should be made, and who the ultimate recipients of a person's assets should be.
Wills can also be used to "disinherit" certain people or alter how assets are distributed. If you pass away without a Will, your assets will be distributed to the people, and in the proportions set forth under Michigan law. For some people, that default set of rules does not align with how they feel assets should be distributed. Wills can be used to make gifts of different amounts to a class of people, or to specifically omit someone who would otherwise be entitled to receive assets from your estate.
For parents of minor children, a Will can be used to nominate a Guardian and Conservator for the minor(s) in the event the parents both pass away while the children are young. This nomination is often one of the most important motivating factors for parents with young kids who want to outline their wishes for the care of the children in the event of an early death.
Will with Testamentary Trust.
A testamentary trust is a trust contained within a Will, and is only created and funded upon the death of the individual signing the Will. Testamentary trusts can be tailored to a number of different situations, but are commonly used to plan for minor children, or to plan for Medicaid eligibility. Medicaid planning is a very fact-specific and individually tailored process, and is more complex than we can outline in a blog post like this. So, for today's topic, we'll focus on the use of a testamentary trust in planning for minor children.
Absent some form of a trust, a conservatorship generally needs to be established to manage assets being distributed to a minor. Most often, a conservatorship ends when the child turns 18, and a lot of parents want to provide protection for their children beyond age 18. This is where a testamentary trust comes in, and is crafted to the parents' specific directions. The testamentary trust can be crafted to provide management of assets for children over a period of time, and can outline the parents' intentions with respect to distributions. For example, a testamentary trust could provide that assets are held by a trustee for the benefit of the children, used for caring for the children and providing an education for the children, with any remaining assets being distributed to the children at a per-determined age.
Often, Wills with testamentary trusts are revised to remove the testamentary trust provisions once the children have reached an age at which the management of a trust is no longer needed. Testamentary trusts can make sense when parents want to avoid the necessity of re-titling their house, and updating beneficiary designations to direct assets to a trust during lifetime, but do want the protection of a trust only in the event they pass away while the kids are minors.
Some estate plans use a revocable living trust as the vehicle to administer and distribute assets, especially when business interests are involved, or provisions need to be put into place to delay distribution to heirs for any number of reasons (more on that in a later blog post). However, when a person creates a trust, it is also wise to prepare a Pour-Over Will to ensure that the trust ends up administering all of the decedent's assets. Often, people who create trusts acquire new assets after creating the trust, and fail to register the asset in the name of the trust or set up a beneficiary designation directing that asset to the trust. In those cases, the Pour-Over Will moves the asset to the trust following that person's death.
A Pour-Over Will is relatively straight-forward. It nominates a Personal Representative, and directs that all assets remaining in the decedent's name alone at the time of death should be transferred (or poured-over) to the trust. Pour-Over Wills generally do not outline specific distributions of assets (leaving that to the trust).
If you need to prepare or update any of these types of Wills, or any other estate planning documents, please contact us to schedule an estate planning consultation.