Living (Revocable) Trusts
Estate Taxation - Federal & Vermont
Estate Planning for IRA's/Pensions
Life Insurance Trusts
Family Limited Partnerships
Grantor Trusts (GRATS & GRUTS)
Qualified Personal Residence Trusts
Charitable Trusts (CRATS & CRUTS)
Special Needs Trusts
Chittenden District Probate Court
Vermont Tax Department
Lisman Leckerling Website
What is a Will?
How Do I Write a Will?
Who Needs a Will?
What is Probate?
What Property is Subject to Probate?
I Own Everything in Joint Name - Do I need a Will?
Who Should Be My Executor?
Why Do I need a Trustee?
Who Should be the Guardian of my Children?
What if I Become Incompetent?
A Will is a written document which can accomplish a number of objectives at your death:
(1) The payment of your final debts, funeral expenses, taxes, estate administration, etc. Vermont has rules which govern the priority of payments for these types of expenses.
(2) The transfer of specific assets to specific individuals or charities. The assets can consist of personal property (jewelry, furniture, automobiles, etc.), real property (i.e. your home), or intangible property (such as cash, stocks, bonds, etc.). Such transfers are commonly known as “specific bequests.”
(3) The transfer of the remainder of your assets to individuals or charities after all expenses are paid and specific bequests are fulfilled. The remainder of your estate is also known as the “residue.”
(4) The appointment of an Executor. See the discussion of Executor, below.
(5) The appointment of a Trustee. See the discussion of Trustee, below.
(6) The appointment of a Guardian for your minor children. Note that your selection of a guardian cannot override the rights of others - i.e., the rights of a surviving parent. See the discussion of Guardian, below.
(7) Specific burial instructions or funeral arrangements.
In Vermont, certain formalities must be observed when preparing a Will. First, the Will must be written. Except for certain uncommon situations, “oral” Wills are not valid in Vermont. Second, a Will must be witnessed by two legally competent persons. This means that a child (someone under the age of majority - 18 years) cannot be a witness. The witnesses must watch the person signing the Will (known as a "testator") in the presence of the other witnesses, and the "testator" must watch each witness sign the Will in his or her presence. The failure to observe these formalities can result in the Will being declared void.
Other states may have different requirements for the execution of a Will.
To understand who needs a Will, it is necessary to understand what happens without one. Dying without a Will is known as dying “intestate.”
With respect to the disposition of your property, Vermont law provides an elaborate scheme which is based on your family structure (marital status, children, parents, siblings, etc.). Here are some examples:
If there is a surviving spouse, he or she receives the entire estate if there are no descendants or if all of the decedent's surviving descedants are also descendants of the surviving spouse. In contrast, if the decedent leaves descendants who are not descendants of the surviving spouse (for example, in a second marriage situation), then the surviving spouse gets one-half of the estate. Quite a different result, and possibly not what was intended.
If you die with absolutely no living relatives, then your assets pass to the town/city in which you lived for the benefit of the local schools (a very rare event).
As you can see, these are complicated rules.
With respect to other matters, if you die intestate the probate court will appoint someone to administer your estate. More importantly, if you die leaving minor children, the probate court will appoint a guardian. These important positions might be filled with individuals you would not have selected if given a choice.
Everyone should have some form of a Will which, according to your individual situation, will accomplish some or all of the objectives discussed above (see What is A Will?). Without a Will, the State, not you, will determine the disposition of your property.
If you have a Will, probate is the process by which the instructions in your Will are executed (which is why you name an “executor”). If you do not have a Will, probate is the process by which your property is administered under the laws of descent and distribution (which is why the court selects an “administrator”). It is the probate court’s role to watch over the executor to ensure that he or she follows the instructions in the Will, or over the administrator to ensure compliance with the laws of descent and distribution.
The probate process is designed to protect all persons "interested” in an estate. This includes every person or entity (such as a charity) named in the Will, and every person who is, or would be, an heir under the laws of descent and distribution. The court will require these persons and entities to be informed of each step in the probate process, and will provide them an opportunity to be heard if they object to the actions being taken by the executor or administrator.
The probate process consists of a number of steps. The court will first require the executor or administrator to file an inventory which lists the assets in the estate, and to ascertain whether the decedent had any debts, including income and estate taxes. Once all debts are paid, the court will then require the filing of an accounting which details the payments of debt, receipts of income, etc. If the accounting is approved, the court will then decree the remaining assets to the estate beneficiaries according to the Will (or laws of descent and distribution). The court will then order the executor or administrator to distribute the assets to the beneficiaries, and the estate is then closed.
When you die, you essentially have two “estates” – one for probate purposes and one for tax purposes. Your probate estate consists of all property you owned in your own name at death, but does not include property which passes to another person by operation of law or by contract. This means that property held jointly, with rights of survivorship, passes to the surviving joint owner regardless of what your Will may provide. Similarly, insurance policies pass to the person named as your beneficiary in the policy – even if you expressly provide for a different distribution in your Will. The same is true of IRA’s, pension plans, and annuities. They all pass to the named beneficiary, and are not part of the probate estate. The failure to reexamine your beneficiary designations from time to time could lead to unintended results at your death, and therefore are a critical step of the estate planning process.
In contrast, your estate for tax purposes includes all property, regardless of how it is held. It may be far different (larger) than your probate estate. For more information on estate taxation, visit the Estate Taxation - Federal & Vermont webpage.
Many people believe that joint ownership of property is a simple, less expensive alternative to a Will. As discussed above (see What Property is Subject to Probate?), property held jointly with rights or survivorship passes to the surviving joint owner. Clients often put their property in joint name with the eldest child subject to the understanding that this child will divide it equally with his or her siblings. Alternatively, some people put different assets in the names of different children, all in an effort to accomplish the desired division of their property.
Despite its simplicity, this type of planning is one of the single most common sources of problems in estate administration. Property held jointly with one child becomes that child’s property at the parent’s death. Often, that child will have many reasons for not sharing the property equally with siblings, and legally is not required to do so, despite the deceased parent’s intent. Putting different assets in the names of different children can also cause unintended results, since different items of property can appreciate, or depreciate, at different rates. Where estate taxes are applicable, this type of planning can also cause uncertainty regarding who must pay the tax. In fact, there are very few situations where joint ownership is an advisable alternative to having a Will.
The job of your executor is to “execute” the instructions left in your Will. Obviously, the primary consideration is to select someone (or an institution) you trust to carry out your instructions. In most cases, a close family member or friend is the perfect selection since he or she will be familiar with your affairs. Children are often selected, which is convenient, but can lead to friction among siblings.
If your estate is complex, you might not be able to identify a family member or friend who is willing or able to take on the role of executor. In such cases, institutions such as banks or trust companies are selected. The advantage to selecting an institution is that, unless the institution is somehow dissolved, it will be available at your death to perform the necessary tasks. The major disadvantages are cost (often a percentage of the assets in your estate) and the somewhat impersonal nature of the service.
Remember that the role of executor is a limited one – the executor is required by the court to follow the directions set forth in your Will. Once the estate is closed, the executor’s authority is terminated.
Even if you have not established a trust, a Trustee may be needed if some or all of your assets might pass to a beneficiary who is a minor. If you have young children, this possibility always exists. Even if your children are adults, property left to a child who predeceases you could pass to the deceased child’s children (your grandchildren) who may be under the age of 18. Under either of these circumstances, it is advisable to name an individual in your Will who can hold the assets in trust until the beneficiary reaches a more appropriate age.
The considerations for selecting a Trustee are similar to those for an executor (see Who Should Be My Executor?), except that the role of Trustee is not limited - it may continue for many years until the beneficiary reaches the age of distribution. During that time, the Trustee may need to exercise discretion on distributing funds for college, living expenses, medical care, etc. Thus, a Trustee is potentially a more important role than that of executor.
In selecting a Trustee, you should consider who the beneficiaries are, and who the guardians of those beneficiaries might be. For example, if you have chosen an individual to be the guardian of your children, you should consider whether that individual would also be the appropriate Trustee.
This may be the single most important decision you make when drafting a Will. The person(s) chosen as the guardian will make all major decisions for your children until they reach adulthood. The importance of this decision is even greater where the children are very young, since the guardian will actually raise the children for many years. Obviously, you will want to pick an adult or couple with a values similar to yours and who is responsible both personally and financially.
One decision many clients face is whether to make the guardian and the trustee the same person. On one hand, if you are giving an individual the responsibility for your children, you also want to give them the financial resources to do so. On the other hand, giving the guardian sole responsibility over both the child and the finances can lead to conflicts in interest. There is no “correct” answer to this dilemma, and much will depend on the personality of the guardian and the circumstances involved.
Planning for incompetency should be part of your estate plan. You should name an attorney-in-fact (in a power of attorney) to make financial decisions in the event you are unable to make such decisions yourself. Likewise, you should name someone (in a durable power of attorney for healthcare) to make medical decisions if you are in a situation where you cannot make your wishes known. A living will is also recommended to express your desires regarding extended life support.
These three documents empower, in advance, persons to make critical decisions for you in the event of incompetency. They are easy to prepare, and therefore add little to the cost of preparing a comprehensive estate plan.
If you have any questions regarding Wills or any aspect of the estate planning process, please contact Richard W. Kozlowski, Esq. at (802) 864-5756 or by e-mail.
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