04/03/98

Lawyers' Answers to Reader Questions About Wills

My thanks go out to the several lawyers and one accountant who volunteered the following answers to the SNET Internet reader questions posted last week (3/27/98) about wills and estate planning. Please note that laws differ from state to state, so the opinions presented below should not be considered as substitutes for personal consultation with an attorney of your choice.

Q: Can a man legally disinherit his spouse? A: Yes, but it has to be done in a specific manner, as spouses have certain legal rights in the estate of each other. Spouses can generally elect against the will and take a "widow's share," set out by law, which is normally about a third of the estate, regardless of what their spouse's will provides.

However, one spouse can disinherit the other with a written waiver prenuptial or anti-nuptial agreement and providing something in another manner, insurance or other assets. A usual provision in a will is to leave the disinherited person something, and then have a provision that says if that person contests the will, he or she gets nothing.

Q: If I am the beneficiary of an IRA (Individual Retirement Account), do I have to cash it in when I inherit it and pay the taxes on it all at once, or can I roll it into my own retirement account? A: Regular IRA money received can only be rolled over if you are the spouse. All others must pay tax on the distribution (without penalty). You should always open a separate IRA and not combine it with yours. The beneficiary of the new Roth IRA does not have to be a spouse and will not be taxed on the distribution.

Q: Are the wills generated from software packages valid? A: Software wills are valid as long as they are executed properly; that is, with two witnesses. If the witnesses are sworn by a notary public, it is called a self-proving will and further attests to the authenticity of the document. There are specific requirements for wills and their execution which vary from state to state. Exact wording and language is vital and the wording in the generic computer will may not accomplish the desired result. Also, the computer will cannot consider the additional ramifications of the will on taxes or alternative methods available to achieve the estate plan.

Q: Do revokable trusts reduce or eliminate taxation on an estate? What are the most common ways to reduce federal and state estate taxes? A: (The attorneys differed with their answers to this question. Here are three different answers). 1. There are positive and negative aspects to such trusts. Generalizations are dangerous. 2. Revocable trusts do nothing to lower estate taxation. Furthermore, when a revocable trust is created, the grantor pays a gift tax to Connecticut, but this can be credited on the estate tax return. The benefit is that the assets of the trust are shielded from disclosure to the probate court and the general public. Taxes are still paid since the grantor still has a power to revoke the trust. An irrevocable trust avoids taxation but is still subject to gift tax when it is created. 3. Revocable trusts can reduce taxes if used properly. The most common way to reduce or eliminate taxes is with a well thought out plan, which usually includes a plan of giving tax-free interests during one's lifetime. The goal is to die with assets valued at exactly what the federal credit amounts are to be tax-free. This is usually simply a matter of prudent planning. Also, insurance can be used, often funded by tax-free pensions, to generate sufficient funds to pay taxes, so that they are not an effect on death.

Q: We made a will 30 years ago with an attorney who died. Do we have to make a new will now? (His firm is still operating.) A: The will made 30 years ago is valid, whether or not the attorney is alive. It is probably outdated (the tax laws have changed materially since then) so it should be updated anyway. The witnesses probably aren't around anymore, which is also a good reason to update a will especially if there is any anticipation that any of the provisions will be challenged. It is hard to imagine any estate that has not changed (children, grandchildren, additional assets) in the last 30 years that should not be re-visited. We recommend that our clients take a legal check-up (like a doctor) every 5 years or so, and on every major event of their lives.

Q: How long does it take to settle an estate in probate court? A: The time it takes to settle an estate varies with the amount of money and the complexity of the provisions of the will, as well as with any contest of the provisions. For example, if the will sets up a trust with $1 million to fund education of grandchildren that are currently minors, the estate can't be wound up until the last of the funds are distributed, which could take 15 to 20 years. It also takes time to locate all the heirs, determine the estate assets and administer those assets. If there are simple dispositions, the federal and state tax returns often take 4-6 months to prepare and then be accepted. There are also simplified provisions for small or simple estates where there are no tax or other long term issues.

Q: How much does a will cost? What is the least expensive way to draft a will? A: The real question is, what is the cost if the will is not properly drawn, signed, and witnessed? A will that fails to carry out your wishes can be very costly, both in money and anguish. The cost of a will depends on its complexity. Every attorney has his own schedule of rates. A simple will is the least expensive. Simple wills (mirror image - husband and wife) can cost $150-$1000 or more, depending on assets and complexity (multiple marriages with children, charitable trusts and disinheriting persons are all examples of complex issues.)

Q: What happens to certificates of deposit in an estate when the name of the decedent plus the name of one child is on each one? There are three children and the total amounts for each one differ. A: A certificate of deposit or any savings account in joint names with the survivor being a child is called a Totten trust. Essentially both persons are legal owners of the account. On death the survivor gets the money. It generally passes outside of the estate and free of taxes, if the gifts were made properly at the time the account was set up. There are always gift taxes potentially due on amounts in excess of $10,000 per person per year. Be careful of persons who have creditors and know about the accounts in their joint name. This could be an issue later on. Since the survivor named on the CD gets the whole CD, this can bring an undesirable outcome when a person puts his/her accounts in the name of himself and his nearest child (for the sake of convenience), but wants all his children to share in his bounty. The problem of the total amounts for each child is then up to the children to settle among themselves.

Q: What powers does the executor of a will have? A: The executor's powers should be expressly stated in the will. Without that, the executor's powers are limited by statutes. In general, the executor has the power to sell assets, marshal assets, file tax returns, make tax elections (which may benefit one heir or the others differently) and other powers provided by law. A will can change (by either expanding or contracting) the powers of an executor.

Please send questions or comments to bbruno@snet.net.