Estate Planning Basics

When a client asks us to create an estate plan, we give serious consideration to plan for changes that may occur in our client’s life. Such “contingency” planning is included in the primary estate plan document, whether a Last Will and Testament (“Will”), a Trust, or both.

For purposes of this article, assume that our client, Mary, a widow, has come to us to create her Will, and has three children: Stephanie, James, and John.

Executor

You’ve probably heard the phrase “executor” before. The executor is the person who the testator (the person making the Will) nominates to be in charge of carrying out the wishes of the testator (the person who makes the Will) or the Grantor (the person who creates the Trust). For example, if Mary’s Will directs that her personal property (jewelry, household furnishings, and the like) be given to her three children upon her death, the executor would be responsible for making sure that the personal property is actually distributed to the children. (The executor has other duties, too, but such duties are beyond the scope of this article).

At our meeting with Mary, she indicates that she would like her daughter, Stephanie, to serve as her executor. We would recommend to Mary, however, that she designate one or more successor executors, in case Stephanie is unable or unwilling to serve in that role at the time of Mary’s death.  For example, if Stephanie predeceases Mary (passes away before Mary), and Mary does not name a successor executor, (and has not updated her Will after Stephanie’s death), the Surrogate’s Court would then be responsible for appointing an executor to serve. (In this scenario, the executor appointed by the Court may not be the same person Mary would have chosen to be her executor).  On the other hand, if Mary had named her son, James, as her first successor executor in her original Will, then James would have been able to petition the Court to be officially appointed as executor, in light of the fact that Stephanie passed away.  In this way, Mary has retained complete control over who is appointed as executor of her estate.

Beneficiaries

A beneficiary is a person whom the testator designates to receive his or her property in a Will or Trust.  For example, a testator may choose to make a bequest (gift) of a specific piece of his or her property to specific person.  In the instant scenario, for example, Mary may choose to leave her jewelry to her daughter, Stephanie.

However, let’s assume that Mary chooses not to make any specific bequests in her Will, but desires instead to leave her entire estate outright to her three children, Stephanie, James, and John, in equal shares.  This is perfectly fine, but what happens if Stephanie or James or John predeceases (dies before) Mary?  While Mary can always create a new Will at any time to account for any predeceased children, what happens if Mary doesn’t have a chance to update her Will before she dies?  We, therefore, recommend that Mary make certain provisions in her Will to describe what would happen to her assets in case any of her children predeceased her.

For example, assume that Mary’s three children, Stephanie, James, and John, all have children of their own (Stephanie – 5 children; James – 2 children; John – 1 child).  Mary may wish that if any one of her children predeceases her, the share of her estate that such predeceased child would have received go to her predeceased child’s children instead. In this scenario, we would draft the Will to state that the estate is being left to Mary’s “issue, per stirpes.”  “Issue” means a person’s “lineal descendants,” who are the person’s children, grandchildren, great-grandchildren, etc., and “per stirpes” is a Latin phrase meaning “by the stalk.”  This seems complicated, but it is actually quite simple.  An illustration may be helpful:

Let’s say that Mary’s estate is being left to her “issue, per stirpes.”  Assuming Mary’s three children are alive at the time of her death, this means that Stephanie, James, and John will each receive a one-third (1/3) share of Mary’s estate.  If Stephanie predeceases Mary, however, under a “per stirpes” distribution, Stephanie’s five children will equally share the one-third (1/3) share that Stephanie would have received had she survived Mary, and James and John will each receive a one-third (1/3) share of Mary’s estate.  Changing the facts slightly, if Stephanie and James both predecease Mary, then Stephanie’s five children will still equally share Mary’s one-third (1/3) share, and James’ two children will equally share the one-third (1/3) share that he would have received had he survived Mary.  In this scenario, John will still receive a one-third (1/3) share of Mary’s estate.

Using the same facts as above, another option is for Mary to leave her estate to her “issue, by representation.”  This is similar to a “per stirpes” distribution, but with some distinct differences.  Again, an illustration may be helpful (assuming the same facts as above):

Assume Mary’s estate is being left to her “issue, by representation.”  If Mary’s three children are alive when she dies, Stephanie, James, and John would each receive a one-third (1/3) share of Mary’s estate (the result is the same as it would be under a “per stirpes” distribution).  Similarly, under a “by representation” distribution, if Stephanie predeceases Mary, Stephanie’s five children will equally share the one-third (1/3) share that Stephanie would have received had she survived Mary, and James and John will each receive a one-third (1/3) share of Mary’s estate (again, this is the same result as it would be under a “per stirpes” distribution).  Changing the facts slightly, if Stephanie and James both predecease Mary, the distribution to Stephanie’s and James’ children will be quite different under a “by representation” distribution compared to a “per stirpes” distribution: under “by distribution,” the one-third (1/3) shares that Stephanie and James would have each received had they survived Mary will be combined into a single two-third (2/3) share, and said two-third (2/3) share will be shared equally by  all of Stephanie’s and James’ children. This means that all seven children (Stephanie’s five children and James’ two children) will each receive an equal portion of the two-third (2/3) share.

Compared to a “per stirpes” distribution, Stephanie’s five children are each receiving a larger share of Mary’s estate under the “by representation” distribution, while James’ two children are each receiving a smaller share of the estate than they would have under a “per stirpes” distribution.”  In this scenario, however, all of Mary’s grandchildren who are the children of her predeceased children are receiving an equal share.

Clearly, this is not a simple subject, and this article only touches on the various options that one has when making his or her estate plan. What is clear is that contingency planning be given serious consideration in the preparation of an estate plane. Of course, we would be happy to discuss your estate plan in detail with you during a complimentary consultation.

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