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Financial Planning > Trusts and Estates > Estate Planning

Under the Hood: What You Need to Know About Wills, Pt. I: The Checklist

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Estate planning may only be one part of the financial planning process, but it is vital to affluent and high-net-worth clients. As life expectancies continue to rise, the wealth of these clients should increase accordingly, lending greater importance to this discipline. 

In this article, the first in a series, we’ll discuss specifically what advisors should be looking for when reviewing a client’s will.

To accomplish this and to standardize the process, a few years ago I created a 74-point Will Checklist. In essence, I divided the will into sections or clauses listing the relevant points in each. Although the section names may vary from one practitioner to the next, the overall content is the primary issue. Therefore, by following this type of process, you will demonstrate to clients that you are a holistic planner with a strong value proposition. Now let’s cover some essential background. 

The Basics: The Will and the Estate

A person’s gross estate comprises everything owned at death. This differs from the probate estate which consists only of assets that are subject to the probate process. For example, assets titled jointly or assets with a valid beneficiary designation are not part of the probate estate. The probate estate, therefore, is a component of the gross estate.

A will is a legal document governed by state law and is used to designate who will receive one’s probate estate.  In short, all assets included in the will are subject to the probate process. The will is an important document or dispositive tool but not the primary one.

For example, if a person has an IRA, life insurance policy or annuity, the beneficiary designation will supersede any directives in the will. As a result, all assets which are not transferred via joint titling or a valid beneficiary designation will be transferred according to the will and subject to probate.

The Clauses of a Will

A will is divided into multiple sections or clauses which include:

1) Introduction

2) Debts

3) Tax

4) Tangible Personal Property

5) Real Estate

6) Specific Bequests of Intangibles and Cash

7) Residuary

8) Powers

9) Appointment of Fiduciaries

10) Testators Signing

11) Attestation

12) Other Clauses and Provisions 

Let’s examine clauses one through four and the specific issues to check. 

1) Introductory Clause

Issues to check:

Does the will state that it revokes all prior wills and codicils?

Is the name of the testator (the person making the will) spelled correctly?

Does the testator have any AKAs?

Is the domicile correct?

Does the will clearly identify all family members?

Is there any question as to the testator’s mental capacity?

2) Debts Clause

Issues to check:

Does the will specify how debts will be paid?

Example: Will the debt burden be shared pro-rata or paid from specific assets?

Have debt balances changed drastically since the will was created?

Will the debt of a bequeathed property become an obligation of the legatee?

Example: Will the person who inherits the house be responsible for its mortgage?

Will the marital deduction property pay any debts? 

3) Tax Clause

Issues to check:

Does the will specify how taxes will be paid?

If silent, will state law defeat the testator’s purpose?

Example: Will state law require that taxes be paid from certain assets in contrast to the testator’s desire?

Will taxes be paid from the probate estate only?

Example: When a person dies and a death certificate is sent to the IRA custodian, the beneficiary will receive the proceeds from the IRA and will not be responsible for taxes due. Is this what the testator wants?

Will marital deduction property pay any taxes?

Example: Does the deceased want the surviving spouse to pay taxes, reducing the inheritance?

Will GST taxes (i.e. generation skipping transfer tax) be paid from any GST asset?

4) Tangible Personal Property Clause:

Issues to check:

Are there any specific bequests?

Have any items been stolen, lost or sold?

Has replacement property been purchased?

Are all beneficiaries clearly identified?

Are any of the beneficiaries minors?

Are there any contingent beneficiaries?

Are all items adequately described?

Are there any gifts of tangible personal property to a charity?

If gifts to charities exist, is the charity’s full name and address listed?

Are the charities considered qualified by the IRS?

Are charitable bequests subject to taxes in the estate?

Is a catch-all phrase (i.e. all other tangible personal property) used to pass to residuary?

Are any items referred to by location using the word contents (e.g., contents of house)

Is there a provision to pass any property by reference to an instrument outside the will?

Example: Referred to as “incorporation by reference,” which is a method for treating a document as testamentary even though it is not a part of the will. If successful, the will is treated as if the terms of the incorporated document are contained in the will.

If incorporation by reference exists, does it meet the three criteria?

1) Is the intent of the testator clear?

2) Did the instrument exist at the time the will was drafted?

3) Is the instrument properly identified? 

Summing Up

The goal of estate planning is essentially determined by the client. For example, the client may wish to reduce or eliminate estate taxes. In addition, the client may wish to transfer wealth to certain individuals (or entities) in specific portions.

To provide appropriate estate planning advice and identify potential problem areas, the advisor must possess a good understanding of estate dispositive provisions. It’s also important to know how to calculate the gross estate (i.e., non-probate estate) and the probate estate.

Perhaps the key issue here is to know how to coordinate the probate and non-probate estate to accomplish the testator’s wishes. In my next article in this series, we’ll examine additional clauses of the will and identify specific issues in each.


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