Estate Planning: Will Substitutes

Filed Under » Estate Laws Estate Planning, Estate Planning, Estate Laws

by Cathy Pareto, CFP®, AIF® (Contact Author | Biography)

A will substitute is a technique that allows you to transfer property at your death to a beneficiary outside the probate process. This will not only expedite the distribution process but also avoid any costs associated with probate. What are considered will substitutes?

Right of Survivorship
Joint tenancy with right of survivorship (JTWROS) and tenancy by entirety (TBE) transfer assets directly to the surviving tenant at the death of the other. However, tenancy by entirety can only be used by legally married husband and wife and is not recognized in all states.

Beneficiary Designation
Naming of a beneficiary can also be considered a will substitute. Examples of these include:

• Payable-on-Death (POD) Accounts: In states where it is allowed, this involves depositing funds for the benefit of another, payable on the death of the original depositor.
• Transfer-on-Death (TOD) Accounts: Similar to a payable-on-death account, except it is used for individual stocks or a stock account.
• Contract Provisions Effective at Death: This can include life insurance, annuity contracts,qualified plans, 403(b) plans, 457 plans and IRAs, where you designate a beneficiary to whom payments are made after your death.
• Deeds of Title: In some states a valid deed may be used to pass a present interest to the grantee during your lifetime to avoid testamentary formalities.
• Funded Living Trusts: Revocable living trusts is the most common form of will substitutes. These trusts are funded during your lifetime to avoid probate at death.

Advantages and Disadvantages
The following are many advantages to having will substitutes:

• You can avoid probate.
• They are easier to amend.
• They are usually revocable until death, which means that you maintain control.
• For planning tools like TODs or PODs, they are cheap (or free) to execute.

The following are some disadvantages of will substitutes:

• Set-up costs can be high (especially for living trusts) because they usually include attorney fees for setting up the trusts and contracts.
• You may incur some maintenance costs.
• You may also be on the hook for some taxes if the substitute you choose is not set up properly.

Next: Estate Planning: Introduction To Trusts » 

Table of Contents

1. Estate Planning: Introduction
2. Estate Planning: Estate Planning Basics
3. Estate Planning: Introduction To Wills
4. Estate Planning: Other Types Of Wills
5. Estate Planning: Will Substitutes
6. Estate Planning: Introduction To Trusts
7. Estate Planning: Marital And Non-Marital Trusts
8. Estate Planning: Charitable Trusts
9. Estate Planning: Estate Taxation
10. Estate Planning: Life Insurance In Estate Planning
11. Estate Planning: Health Problems, Money Matters And Death
12. Estate Planning: Conclusion

CA Wills Method of Distribution Definition CA uses Per Capita and Per Stirpes as methods of distribution Per Capita: property is divided into as many equal shares as there are children or surviving descendents of deceased children, each taking one share Per Capita at Each Generation: Count number of living from the nearest generation and deceased of that generation with living issue; Each living member of nearest generation takes one share; remaining shares are combined and divided evenly among living issues of deceased members of that generation CA has Per Capita for both descendents and collaterals where all that are the same degree of kinship to the decedent take equally and those more remote take by representation (per stirpes) Term CA Wills Intestate Succession Definition Complete: person dies without a will or the will is invalid Partial: person made a will but not all of the property was disposed of by the will (no residuary clause) - Disclaimer by the residuary legatee results in partial Any property not disposed of passes by way of intestacy laws CA: Intestate estate of a married person is 1/2 of the community property and 1/2 of the quasi community property Term CA Wills Intestate Provisions: Spousal Share Definition 100% CP/QCP to surviving spouse automatically For bon CP/QC, if Decedent survived by: - No one - Spouse gets rest - One child, issue of deceased child, or no kids but parents or siblings - surviving spouse gets 1/2 of decedents separate property - More than 1 child or issue of deceased child - 1/3 of decedent's separate property Term CA Wills Intestate Provisions: Non-Spousal Share Definition CA: Permits inheritance by relaties very remote from the decedent; unike the Uniform Probate Code If no taker under the rules of intestate succession, estate echeat's to the state of CA Term CA Wills Intestate Provisions: Share of Pre-Deceased Spouses Estate Definition Factors for distribution: - Decedent received real property from pre-deceased spouse not more than 15 year prior to decedent's death - Decedent received personal property from pre-deceased spouse: 1. Written record of ownership of title 2. Aggregate value over $10K 3. Pre-deceased spouse died no more than 5 years earlier Distribution: 1. Decedent survived by issue of predeceased spouse, goes to surviving issue per capita with right of representation 2. If no surviving issue of predeceased spouse, goes to predeceased spouse's surviving parents equally 3. If no surviving issue or parent of predeceased spouse, goes to surviving issue of predeceased parents per capita with righ tof representation Term CA Wills Share of Children: Adopted Children Definition CA: Follows the Transplantation Theory for adopted children - The relationship of parent and child is deemed to exist between an adopted person and his adopted parent(s) - Adopted child had full rights to inherit by, from, and through his adopted parents (and their relatives) and they in turn are able to inherit by, from and through the adoptee - If the adopted person does intestate, decedent's property distributed as if the decedent had actualy been born to the adopted parents Term CA Wills Share of Children: Children Born Out of Wedlock Definition Child may inherit from natural parents regardless of the marital status of the natural parents Neither the natural parent nor a relative of the parent inherits from or through the child unless the parent or relative acknowledges the child and contributed to the support or care of the child Term CA Wills Advancements Definition Property given inter vivos to an heir by an intestate may be treated as an advancement of that heir's share of the estate CA: Requires a contemporaneous writing by the decedent or acknowledgement in writing by the heir for the gift to be considered an advancement Term CA Wills Capacity to Make a Will Definition Will must be executed by a: 1. Competant individual 2. With the requisite testamentary intent 3. In accordance with the prescribed statutory formalities Requisite mental capacity, Testator must posess both 1. Testamentary intent 2. Testamentary capacity Term CA Wills Execution Requirements: General Definition A will is valid if its execution complies with: 1. CA statutes for attested wills, statutory wills, or international wills 2. The law of the place executed 3. The law of the place testator was domiciled or had a place of abode or was a national at the time of execution or at time of death Term Definition Term CA Wills Attested WIl Definition Generally, a will must be: 1. In writing, signed by the testator 2. Witnessed by two persons Interested witnes: a witness who receives a beneficial disposition under the wil CA: will is valid, but the gift to the interested witness is presumed to have been the result of undue influence The gift fails unless the presumption of undue influence is rebutted, but the witness may take the amount of the devise up to any intestate share he would have been entitled Term CA Wills Holographic Wills Definition A will in the handwriting of the testator and signed by the testator, but unattested by witnesse CA: Recognizes holographic wills if the material provisions are in the testator's handwriting If no statement as to the date of hte execution and if the omission results in doubt as to whether its provisions or the inconsistent provisions of another will are controlling, the holographic will is invalid to the extent of the inconsistency, unless the time of its execution is established to be after the date of the execution of the other will Term CA Wills Codicils Definition CA: "will" includes a codicil A codicil is an addition to or alteration of a will and must be executed with the same formalities Absent contrary language or inconsistency, a codicil modifies rather than replaces the will's provisions A validly executed codicil validates an invalid will if the codicil refers to the will with sufficient certainty or if on the same paper as the will Term CA Wills Revocation and Revival: Types Definition 1. By subsequent act 2. By physical act 3. Revocation due to changed circumstances 4. Dependent relative revocation Term CA Wills Revocation and Revival:By Subsequent Will Definition A will may be revoked in whole or in part by a subsequent will that revokes the prior will or part of it either expressly or by inconsistency Term CA Wills Revocation and Revival: By Physical Act Definition A will may be revoked by being burned, torn, cancelled, obliterated, or destroyed with the intent and for the purpose of revoking it By either the testator or another person, in the testator's presence, and by the testator's direction - Testator must have same testamentary capacity to revoke a will as is needed to execute a wil Cancelling a wil: must be some defacement of words or signature of the will, coupled with the intent to revoke - Where testator crossed out several legatees and wrote in penceil notations changing the amounts, intended to call a lawyer to change the will but didn't, court found no revocation Partial Revocation: may be made by crosing out or drawing lines through particular clauses in the will If a will known to exist can't be found,last known to be in the testator's possesion, testator was competent until death, will presumed destroyed by testator If alterations made after execution, changes are effective if the remainder standing alone would be an understandable testamentary disposition Term CA Wills Revocation and Revival:Revocation Due to Changed Circumstances Definition CA: Allows for implied revocation of any disposition or appointment of property made to the testator's former spouse if the testator's marriage is subsequently dissolved or annulled - This proviion revokes gifts to "my spouse's children" or "my spouse's issue" upon dissolution of the marriage, unless contrary intent is expressed in the will Term CA Wills Revocation and Revival:Dependent Relative Revocation Definition A testator may revoke an old will with the intention that the newly executed will replaces it CA: If the new will is not made or is invalid, CA will admit the revoked will to probate on the theory that the testator would only have intended the old will to be revoked if the new will were valid - The revocation occurred through a mistake of law or fact - Doctrine sometimes called the conditional revocation Term CA Wills Disposition of Other Writings: Incorporation by Reference Definition Most states allow a testator to incorporate by reference a separate document into a will when certain conditions are met The separate document need not met the execution requirements for a will CA: A writing in existance when a will is executed may be incoproated into the will by reference if the will manifests this intent and describes the writing sufficiently to identify it Term CA Wills Construction of Wills: Rules of Construction Definition A will is construed to pass all the testator's separate property and 1/2 of the commuity property and quasi community property belonging to the decedent at death, including property aquired after the execution of the will and property acquired after the testator's death In accordance with the rules for determining relationships for purposes of intestate succession, half bloods, adopted persons, persons born out of wedlock, stepchildren, and foster children are included in terms of relationship in wills and trust instruments Term CA Wills Classification of Legacies and Devises Definition Specific Gift: transfer of specifically identifiable property General Gift: transfer from the general assets of the transferor Demonstrative Gift: general gift that specifies the fund or property from which the transfer is primarily to be made Pecuniary Gift: gift that is either expressly stated as a fixed dollar amount or is a dollar amount determinable by the provisions of the instrument Residuary Gift: transfer of property that remains after all specific and general gifts have been satisfied Term CA Wills Ademption: By Extinction and Satisfaction Definition When a testamentary gift is adeemed by extinction, it fails This occurs when property specifically bequeathed or devised is not in the testator's estate at the time of the testator's death CA: If after execution of a will containing a specific devise, the decedent alters but does not wholly divest his interest in the specifically devised property, the beneficiary of the specific gift has the right to the remaining interest of the trasnferor in the property - Applies only to property specifically described in the will, not to general or demonstrative dispositions Doctrine of Ademption by Satisfaction is analogous to the doctrin of advancement in intestate estates Term CA Wills Class GIfts: Lapse and Anti-Lapse Definition Class gift exists when a testator makes a gift to a number of persons as a group and the group may either increase or decrease in number CA Anti-Lapse: A statute that, in some instances, pass the gift that would otherwise have lapsed to issue of the deceased beneficiary CA: Anti-lapse statute states that, unless a different interpretation is made or required by the will, if a beneficiary dies before the testator, leaving issue who survive the testator, the isue take the estate as the beneficiary would have done if the beneficiary had survived the testator - If there is more than one residuary beneficiary, and hte share of one residuary beneficiary fails, that share passes to the other residuary beneficiary in proportion to their respective interests in the residue Term CA Wills  Probate and Will Contests: Grounds for Contest of a Will Definition Grounds to contest a will generally include: Lack of testamentary capacity Undue influence Fraud Mistake Term CA WIlls Probate and Will Contests: Undue Influence Definition Any species of coercion that subverts the sound judgment and genuine desire of the individual constitutes undue influence There is a presumption of undue influence where the contestant of the will can show all of the following: 1. a confidential or fiduciary relationship existed between the testator and the person who allegedly exerted the undue influence 2. person actively participated in preparation or execution of the will 3. person unduly benefited substantially from the will If undue influence is alleged for part of the will, the court may reject that part and admit the rest to probate If entire will is tainted, all property passes by intestacy Term CA Wills Will Substitutes: Inter Vivos Gifts and Gifts Causa Mortis Definition Absolute title to the property passes at completion of the gift A valid gift generally requires 3 elements: 1. Present donative intent 2. Delivery (actual or constructive) 3. Acceptance by the donee Gift Causa Mortis: gift of personal property made by the fonor in anticipation of imminent death from a specific cause - May not be revoked by donor's will; passes outside of probate - Revocatiom is automatic if the donor does not die as anticipated Term CA Wills Multiple Party Accounts: Savings Accounts Definition Savings Account Trus: one type of revocable inter vivos trust that may be used as a substitute for a will Totten Trust: A settlor may create a savings account trust by depositing money in a bank in the name of "A in trust for B" - Recognized in CA - In CA, the Totten Trust account can be reached by the decedent's creditors, or by a surviving spouse under the right of election or through community property rules Term CA WIlls Protection of Surviving Spouse Definition The comunity property concept in CA prevents the decedent from totally disinheriting a spouse or registered domestic partner, so there is no right of election A spouse who has been ommitted from the will executed before the marriage may also be protected Waiver of All Rights, such as in a complete property settlement agreement, means a waiver of: 1. right to take community property or QCP against the will 2. right to take statutory share of an ommitted spouse Term CA WIls Protection of Surviving Spouse: Omitted Spouse Definition If decedent fails to provide in the testamentary instrument (will or irrevocable trust at death) for the surviving spouse who married the decedent after the execution of all of the instruments, the omitted spouse receives the folowing: 1. 1/2 community property 2. 1/2 quais community property 3. a share of the separate property equal to receipt under intestacy, but only up to 1/2 of the value of the separate property in the estate Term CA Wils Protection of Surviving Spouse: Omitted Children Definition If decedent fails to provide for his child born after the execution of in all testamentary instruments, the omitted child will receive a share equal to what he child would have received in intestacy Omitted child's share is first taken from decedent's estate that was not disposed of by will or trust, if any, and then from the shares of all beneficiaries under the decedent's testamentary instruments proportionately, as far as necessary to satisfy the omitted child's share Child does not receive share if: 1. omitted intentionally 2. decedent had other children and decised substantially all to other parent 3. transfers outside of estate in lieu of inheritence

Per stirpes

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Per stirpes (/pɜr ˈstɜrpiːz/; "by branch") is a legal term in Latin. An estate of a decedent is distributed per stirpes, if each branch of the family is to receive an equal share of an estate. When the heir in the first generation of a branch predeceased the decedent, the share that would have been given to the heir would be distributed among the heir's issue in equal shares. It may also be known as right of representation distribution, and differs from distribution per capita as members of the same generation may inherit different amounts.^[1]

Contents   [hide]  1 Examples 2 Per capita at each generation 3 Modifications 4 References 5 External links

Examples [edit]

Figure 1. A's estate is divided equally between each of the three branches. B, C and D each receive one third. As B pre-deceased A, B's two children - B1 and B2 - each receive one half of B's share, equivalent to one-sixth of the estate.

Example 1A: The testator A, specifies in his will that his estate is to be divided among his descendants in equal shares per stirpes. A has three children, B, C, and D. B is already dead, but has left two children (grandchildren of A), B1 andB2. When A's will is executed, under a distribution per stirpes, C and D each receive one-third of the estate, and B1 and B2 each receive one-sixth. B1 and B2 constitute one "branch" of the family, and collectively receive a share equal to the shares received by C and D as branches (figure 1).

Example 1B: If grandchild B1 had predeceased A, leaving two children B1a and B1b, and grandchild B2 had also died leaving three children B2a, B2b and B2c, then distribution per stirpes would give one-third each to C and D, one-twelfth each to B1a and B1b, who would constitute a branch, and one-eighteenth each to B2a, B2b and B2c. Thus, the B, C, and D branches receive equal shares of the whole estate, the B1 and B2 branches receive equal shares of the B branch's share,B1a and B1b receive equal shares of the B1 branch's share, and B2a, B2b and B2c receive equal shares of the B2 branch's share.

Per capita at each generation [edit]

Per capita at each generation is an alternative way of distribution, where heirs of the same generation will each receive the same amount. The estate is divided into equal shares at the generation closest to the deceased with surviving heirs. The number of shares is equal to the number of original members either surviving or with surviving descendants. Each surviving heir of that generation gets a share. The remainder is then equally divided among the next-generation descendants of the deceased descendants in the same manner.

Example 2A: In the first example, children C and D survive, so the estate is divided at their generation. There were three children, so each surviving child receives one-third. The remainder - B's share - is then divided in the same manner amongB's surviving descendants. The result is the same as under per stirpes because B's one-third is distributed to B1 and B2 (one-sixth to each).

Figure 2. Comparison between per stirpes inheritance and per capita by generation inheritance. On the left, each branch receives one third of the estate. On the right, A's only surviving descendant, C, receives one third of the estate. The remaining two thirds are divided between the descendants in the next generation.

Example 2A: The per capita and per stirpes results would differ if D also pre-deceased with one child, D1 (figure 2). Under per stirpes, B1 and B2 would each receive one-sixth (half of B's one-third share), and D1 would receive one-third (all of D's one-third share). Under per capita, the two-thirds remaining after C's one-third share was taken would be divided equally among all three children of Band D. Each would receive two-ninths: B1, B2, and D1 would all receive two-ninths.

Notes:

• To give the effect indicated in these examples the clause should also include a provision that no beneficiary being a grandchild or remoter descendant will take a share if his or her parent is alive and takes a share.
• The spouses of the children (that is, spouses of B, C, and D) are not considered. Spouses are not a part of the branch. Therefore, even if B, C, or D died leaving a spouse as well as children, all (100%) of the assets pass to the children and (0%) nothing passes to the spouses of A's children B, C, and D. From the example above, if A's child B died before A's death, A's grandchildren B1and B2 would each receive half of B's share. Even if B had a living spouse at the time of A's death, that person would receive nothing from A's estate.

Modifications [edit]

At least in one state, New York, a statute modified this definition. Under New York law, the number of branches is determined by reference to the generation nearest the testator which has a surviving descendant. Thus, in the first example, if C and D also are already dead, and each left one child, named (respectively and appropriately) C1 and D1, then each of B1, B2, C1 and D1 would receive one quarter of the estate. This method is actually applied by the states of Alaska, Arizona, Colorado, Hawaii, Maine, Michigan, New Jersey, New Mexico, New York, North Carolina, Oklahoma, Utah, and West Virginia.

Texas also uses this 'modified' version of per stirpes distribution. Although the caption of Texas Probate Code §43 contains the phrase 'per stirpes,' the distribution method described is actually what is known as "per capita with representation." The distribution method for New York (based on the description above) would also be called "per capita with representation."

References [edit]

1. ^ Henry Campbell Black. "Black's Law Dictionary". 2nd Edition. West Publishing. Retrieved 10 December 2012.

External links [edit]

• The Per Stirpes Calculator
• The Per Capita Calculator
• California Probate Code 245-247

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