Reviewing and revising wills
By Robert Adler
Summit Business Media (AUS)
Under no circumstances should anyone but the client's attorney attempt to write or draft a will for a client or revise any such document. Leaving aside the legal prohibition against non-lawyers preparing wills -- unauthorized practice of law -- the financial advisor will do his client a real disservice by attempting to invade the domain of the attorney. There are few legal documents in which the inaccurate use or location of a word or phrase, or noncompliance with certain legal formalities, is likely to result in more serious harm to the client's best interests. The "homemade" will should be rejected in all cases, and the client urged to have his or her will prepared only by competent legal counsel.
Within the framework of this caution, the financial advisor can provide a real service to the client. The financial advisor with an understanding of the concepts involved can urge the client to take positive steps to set his "estate house" in order.
Many people who have executed wills are under the impression that they can be filed and forgotten. However, this is far from the truth, as changing circumstances necessitate a re-evaluation of the will's provisions, and possible revision in line with the individual's testamentary objectives. In this area, many of the problems are uniquely adaptable to the financial advisor's approach and to interview questions, which lead to a full discussion of an individual's objectives for the future security and welfare of his loved ones.
In this article, we'll discuss some of the circumstances which necessitate a review and possible revision of an individual's will.
Careful and skillful drafting of a will can obviate, to some degree, undesirable results, which may come from changes in estate and family circumstances. However, the attorney has his hands full just anticipating the difficulties that may be encountered if the testator should die at once. It is difficult for the attorney to be a "[drafts] man for all seasons." It is imperative for a testator to have periodic review of his situation. Yet, many individuals live for years after the execution of a will, neglecting to supplant it by a later one even though their individual situation has undergone marked changes.
A discussion of some of the more important circumstances calling for a will review follows.
Changes in estate values
Changes in the property holdings of an individual, as well as fluctuations in property values require the periodic review and revision of will provisions. Such review of an individual's estate may well indicate the need for additional insurance for estate taxes, wealth replacement, etc. Further, as his estate increases in value the testator may find that he is able to provide more insurance protection for his family than at the time his estate was originally reviewed and his will made.
Changes in income requirements
Many wills contain provisions under which certain portions of the estate are held in trust to provide an income for the surviving spouse or the children or other beneficiaries. Such income provisions in wills should be examined closely in the light of today's investment returns and tax burdens.
Many such provisions, though providing a return at that time fully sufficient to meet the needs of the beneficiaries involved, will be found utterly inadequate when re-examined later when the income-producing ability of the property has changed. A revaluation of the assts set aside under such income provisions may disclose the need for a revision of the entire plan of estate distribution to overcome the effects of principal depreciation or curtailed investment returns.
Changes in value of residuary estate
The will which is properly drawn disposes of all of the testator's property in some manner, usually by making certain desired specific bequests and legacies, and then providing that all property not otherwise disposed of shall be distributed under the provisions relating to the residuary estate. Thus, the will makes certain specific bequests, and then, under the residuary clause, leaves the remainder to some person or group.
The residuary estate may represent the bulk of the estate, and pass to the persons whom it is desired to benefit the most, the surviving spouse or children. The object is to make certain preliminary, fixed bequests of relatively minor importance in the estate scheme (gifts to friends, church, charities, and the like), with all the remainder of the estate going to the family.
The danger in such a provision lies in the fact that, if the estate shrinks greatly in value between the time the will is made and the testator's death, then, after the specific bequests (which formerly constituted a small part of the total estate) have first been paid, there will be little or no remainder for the persons most in need of and entitled to the testator's generosity. The probate records are full of instances where the family was left a residuary estate which was adequate when the will was drawn, and virtually non-existent when the testator died. Periodic review and revision of a will can avoid this result. Another way in which this result can be avoided is to rewrite or prepare the will in a manner that eliminates specific bequests entirely, and provides for gifts to the different beneficiaries based solely on certain percentages of the distributable estate. In that manner, a depreciation of the estate principal through fluctuation of market values or unexpected liabilities for taxes or other debts will reduce both specific and general legacies proportionately, instead of taking the losses entirely out of the residuary estate.
Changes in family situation
Where there have been changes in the family situation such as birth, death, divorce or marriage a will should be reviewed and if necessary updated.
More often than not, even when the prospect realizes that he must change his will because he has since been married or has had additional children born to him, he delays action indefinitely and must be urged by the financial advisor to take the necessary action to prevent confusion and difficulty in the administration of his estate.
Even changes in more remote heirs often require re-adjustment of will provisions. Any substantial alteration in the family structure, whether it may affect the validity of the will or not, will affect the nature of the gifts to be made under that instrument. Divorces on the part of children may lead to a desire to make certain changes. Also, new beneficiaries may need to be named in the event of deaths of those now named in the will.
Changes in tax laws
Another point to be borne in mind is the fact that increases or decreases in federal and state death tax rates, increased or reduced exemptions, new law, or other important changes under tax laws, indicate a need to review and possibly alter the estate plan.
For example, under the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of 2001, the $675,000 applicable exemption amount has been increased to $3.5 million (for estate and generation skipping transfer (GST) tax purposes) in a series of increases between 2002 and 2009.
As the exemption equivalent increases certain considerations arise for clients using formula funding clauses (i.e., do they still want to fund the credit shelter trust fully, even if this results in no marital trust being created).
Bringing wills up-to-date
As times change, wills should change. An individual should review his or her will at more or less regular intervals, but most particularly should he review it and probably revise it:
1. When there have been substantial changes in the value of the property which he intends to distribute
2. When there have been deaths, births or marriages which affect its provisions or his intentions in regard to his property distribution
3. When he becomes a resident of another state from that in which the will was drawn
4. When the executor or administrator named can no longer serve with the efficiency originally expected
5. When a guardian for minor children has not been named or when a new guardian should be substituted
6. When federal or state tax laws have materially affected the value of the legacies or the plan of distribution
7. When specific provisions as, for instance, income for a surviving spouse from a given portion of the estate, no longer are adequate
8. When percentage designations would now more appropriately indicate the testator's intentions than specific bequests
9. When conditions have arisen in the family that make a "spendthrift" trust arrangement desirable
10. When the powers of a trustee or administrator should be changed to meet situations arising since the will was drawn
11. When changes in or new business ventures require consideration of will provisions
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