SPOUSE
A spouse is often the primary beneficiary, and in many cases, receives the entire estate. However, depending on the circumstances, the spouse may receive a lesser amount. Further, sometimes the spouse is not given outright control of some of the assets.
- Amount: The amount of your estate that your spouse receives and whether your spouse is given control of the assets depends on the circumstances.
- Controlling Your Spouse’s Share: Your spouse could receive your assets outright, or you may wish to create a trust or other method of controlling distribution.
Amount
The size of your estate and the needs of your family are important in deciding how much of the estate should go to your spouse. The more substantial the size of your estate, the more likely it is that you will not direct all of your assets to your spouse. How much to give to your spouse depends on your spouse's needs.
Factors to consider are:
- the possibility that needs will increase in the future,
- the manner of living to which your spouse has become accustomed,
- the ability of your spouse to provide for his/her needs from his/her assets and earning ability.
You also need to consider the needs of children, elderly parents, or other persons that you may feel an obligation to support. Further, consider whether your spouse is likely to provide such support from the share that you provide to him/her.
Controlling the Spouse’s Share
Consider whether your spouse should receive your assets outright, or with some limitations. If your spouse’s share should be limited, you may wish to consider the use of trusts for the benefit of your spouse. The following factors may be important:
- Remarriage: Consider the likelihood that your spouse would remarry after your death, and the possible effect on your children and/or other beneficiaries.
- Asset Management: Consider whether your spouse has the ability or the inclination to manage the assets that he/she would receive from your estate.
- Control of Final Distribution: Consider to what extent you wish to control the disposition of the assets that remain after your spouse’s death.
CHILDREN AND GRANDCHILDREN
After considering the needs of a spouse, children are the next most likely beneficiaries. Often the entire estate is distributed to the spouse with an expectation that the spouse will provide for the children. However, this may not be appropriate if the spouse is not the parent of your children. Further, you must plan for the possibility that your spouse will not survive your death.
- Minor children: Children under a certain age require special considerations.
- Adult children: After providing for a surviving spouse, adult children often receive a portion of the estate.
- Grandchildren: You may wish to provide money for education, or grandchildren with special needs.
Minor Children
Minor children need to be protected against the possibility that a parent will not be available to provide support for the children. For example, you may wish to create a minor children’s trust to provide for the possibility that your spouse will not survive your death, or to provide for the possibility that you have minor children that are not also the children of your current spouse. Typically, protection is provided by including a minor children’s trust that is funded with your estate assets to provide support for your children until they become adults.
A minor children’s trust is included as part of your will, or if you use a living trust arrangement instead of a will, it can be included as part of a living trust. If you use a minor children’s trust, you will need to select a trustee. In addition, it is important to select a guardian to care for and make legal decisions for minor children.
Adult Children
After providing for the needs of a surviving spouse, adult children often receive a significant portion of the estate. Issues to consider include whether to provide equal shares to children, how to allocate assets between the children and the spouse, and how to provide for a child's special needs. You may also be interested in further information regarding the limitations on disinheriting a child.
Grandchildren
In some cases, it may be desirable to provide for grandchildren, if the grandchildren have special needs or if you want to assist with educational expenses. In other cases, it is appropriate to make gifts to grandchildren because the parents already have sufficient assets.
OTHER BENEFICIARIES
While it makes sense to name your immediate family as primary beneficiaries, you may wish to also consider other people/institutions that are important to you.
- Additional: Often, beneficiaries are named in addition to a spouse and/or children.
- Contingent: You should provide for the possibility that your first choice as a beneficiary will not survive you.
Additional Beneficiaries
Although many individuals include only a spouse and/or children as beneficiaries, in other circumstances, your beneficiaries may include other family members, friends, or charities.
- Other Family Members: In some cases it may be desirable to provide for siblings and elderly parents. In other cases, nieces and nephews may be appropriate choices.
- Friends: Friends, particularly close friends, may be more important to you than family members, and certainly are appropriate beneficiary choices.
- Charities: Charitable organizations provide important services, and many depend on gifts from estates as an important funding source. Leaving a bequest to one or more appropriate charities can help provide important services and benefits to your community and/or promote values that are members, and certainly are appropriate beneficiary choices important to you. Tax laws encourage charitable gifting, and as a result, significant income tax and estate tax savings can be achieved through charitable gifting.
Contingent Beneficiaries
You should provide for the possibility that your first choice as a beneficiary will not survive you. For example, if your first choice is to leave all of your estate to your niece, Mary, you need to provide for the possibility that Mary will die before you. Thus, you may provide that if Mary does not survive you, your estate should be distributed to Arnold. In this example, Arnold is the “contingent” beneficiary because his right to receive the assets of your estate is contingent on whether Mary’s death occurs before your death.
How many layers of contingent beneficiaries should you provide?
That is, should you provide for a contingent beneficiary who will receive your estate if neither Mary nor Arnold survives you? You should provide for enough layers of contingent beneficiaries to reasonably assure yourself that beneficiaries will be available to receive the assets of your estate.
TYPES OF BEQUESTS
Gifts made at the time of death (whether by will or living trust) are made as specific bequests or residuary bequests.
Specific Bequests
A specific bequest is a gift (bequest) or a specific item or asset to a named person or entity. For example, specifically providing that your diamond ring shall be given to your daughter is a specific bequest. Or, you may specifically provide that $1,000 shall be distributed to each of your five grandchildren. Specific bequests are usually made at the beginning of a will or living trust, followed by other provisions that provide for the distribution of the other assets of your estate.
Residuary Bequests
A residuary bequest is a gift (bequest) of all or a portion of the remaining assets after making distributions of specific bequests. Specifically providing that all of your remaining property shall be distributed in equal shares to your daughter and your favorite charity is an example of two residuary bequests.
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