Before you decide what you want to do with your estate at your death, please consider the following:
1. "Specific bequests" are those gifts that are of specific property. It can be real estate or personal property such as vehicles, furniture, jewelry, clothing, stocks, bank accounts, certain retirement accounts, or cash. The "residual estate" is everything that is left after making gifts of specific property.
2. What do you want to happen if you make a specific bequest to a person and that person is no longer alive at your death? Do you want his or her descendants to receive the proceeds from the sale of the property? Do you want his or her descendants to receive nothing in relation to that property? If you put nothing, then under Texas law, the property will go into the residual estate and not to his or her descendants.
3. What do you want to happen if a specific bequest is no longer in existence or if you no longer own it at the time of your death? Do you want it to simply go into the residual estate? Do you want the proceeds of a sale of the property to go to the beneficiary if it has been sold (requires the ability to trace the proceeds)? Do you want to substitute some other property or cash?
4. If there is a debt on property in a specific bequest, do you want the beneficiary to be responsible for the debt or do you want the debt to be paid out of the rest of the estate? If you make no other provision, the property would pass to your beneficiary subject to the debt on it.
5. What so you want to happen if there is not enough property in the estate (or there is too much debt) to make all of the bequests that you make? In other words, what bequests do you want to take precedence?
6. Most Wills that I prepare provide that you may leave a "memo" asking that your executor give certain personal property to certain people. Since that memo is written after your Will and since it undoubtedly will not be properly executed it is NOT mandatory on your executor to do so. It does provide him or her the right to do as you wish. This is usually not a problem since you should not have an executor that you do not trust. Please let me know if you do not want to do this.
7. In a Will for a husband and wife, it is common for the first to die to leave vehicles, jewelry, club memberships, and other personal items to the spouse before making specific and residual bequests. It is also common for a single person to do the same with his or her descendants or other beneficiaries. Please let me know if you do not want to do this.
8. Not all of your property passes under your Will. For example, most bank account with rights of survivorship, life insurance, and retirement benefits pass outside of your estate. This can greatly confuse your estate planning. For example, suppose that you had an estate of $200,000 consisting of a $100,000 house and a bank account of $100,000. Now let’s suppose that, for convenience, you put your son’s name on the account and, either intentionally or not intentionally, made the account a "survivorship" account. Later, you sign a Will that leaves all of your estate to your son and daughter equally. Under those circumstances, you have just left your son the $100,000 bank account and half of the house. He gets 75% of your estate and your daughter gets $50,000 or 25%. It is important to discuss the circumstances of ALL of your property with your attorney so that you do not accidentally leave your estate far different that you think.
9. Although the government has almost eliminated the estate tax by setting the exemption at over $5,000,000, there are still income tax considerations for a much smaller estate. The most significant is the possibility that you could lose most of your tax benefits on retirement plans and IRAs. Such plans postpose taxes until retirement age. In essence, you can invest the government’s tax money for your own benefit. On your death, however, that can change. The benefits will pass to a surviving spouse if the plan is set up right, but other than that, you must plan carefully. There are three things to consider:
a. First, your beneficiary designations must be right. You must leave your retirement plan to one or more persons. If you leave it to your estate or most trusts, your beneficiaries will lose the favorable treatment and could pay dramatically higher income taxes. The wording on your beneficiary designation is critical and if a beneficiary fails (for example, he dies before you do), then your plan might have rules to leave your money to an improper beneficiary such as your estate.
b. Second, your Will, if it has a special kind of trust can be a beneficiary, but you must be sure that the trust is set up correctly.
c. Finally, and perhaps most importantly, on your death your beneficiaries must get good advice as to the transfer of the assets. There are elections that must be made and failing to do so properly could trigger the tax. There is no way to leave proper instructions because the circumstances can change. For example, what you can do depends on who the beneficiary is, whether he or she survives you, whether he or she lives until the date that the beneficiary must be established, and many other factors. Remember that the law could also change after you sign your Will and before your death.
Since every situation is different, we can discuss these issues at our meeting if you have such a retirement plan.