ISSUE: Concerns About Behavior of Beneficiaries.

 When a testator creates a trust for young beneficiaries, or a potentially long-term trust for such beneficiaries, the testator may express concern that if the beneficiaries exhibit what the testator would consider inappropriate behavior, payments for that beneficiary should be suspended.

1 Clause To Address The Following Issue:

CLAUSE 1: Suspension and Resumption of Payments to a Beneficiary Exhibiting Bad Behavior.

ISSUE: Discretionary Withdrawals by Beneficiaries.

 A testator may wish to create a trust in a Will for a beneficiary with all of the limitations on distributions that a trust typically provides, but may also wish to allow that beneficiary to have a limited right of withdrawal from the trust that is not subject to the discretion of the trustee. If such a right is drafted too broadly, it may constitute a general power of appointment over the trust which would cause the trust property to be included in the estate of the beneficiary. The law does provide an exception, called a “five and five” power which allows the beneficiary to withdraw limited amounts of property from the trust annually without being deemed to possess a general power of appointment over it.

1 Clause To Address The Following Issues:

CLAUSE 1: “Five and Five” Withdrawal Power of a Beneficiary.

Even if the testator includes in the Will appropriate provisions protecting the expected beneficiaries until a supposed age of maturity is reached, it is always possible that an unanticipated order of deaths will create a beneficial interest in someone not anticipated who is a minor for whom no special trust provision was created, or it is possible that as the result of illness, injury, addiction or some other unanticipated problem, a beneficiary may be legally incompetent at the time the beneficial interest is to vest. Where any of these possibilities may occur, it is a good idea to have a “catch-all” clause in the Will that allows property otherwise passing to a minor or incompetent beneficiary to be held by fiduciaries for that beneficiary for so long as the period of minority or incompetence may continue.

1 Clause To Address The Following Issue:

CLAUSE 1: “Catch-all” Clause for Minor or Incompetent Beneficiaries

There are essentially two types of asset protection available in a Will, namely spendthrift protection and discretionary trust protection. A spendthrift clause protects against the creditors of a beneficiary attaching the assets at the estate or trust level and forcing a distribution in satisfaction of the creditor’s claim. Discretionary trust protection is based on the fact that a beneficiary lacks an enforceable right to a distribution and has nothing more than an expectancy that cannot be attached by creditors.

2 Clauses To Address The Following Issues:

CLAUSE 1: Spendthrift Clause

CLAUSE 2: Discretionary Trust Distribution Language

A situation may arise where a testator desires to specifically exclude one or more persons from inheriting property under the testator’s Will. Since many wills refer to broad terms such as “children”, “issue”, “descendants”, “family”, etc., it is possible that the undesirable beneficiary will fall into one of these general categories. Simply omitting a person without discussion is often not an effective way to deny that person an inheritance. Accordingly, a specific reference to that person and a specific exclusion of that person as an heir becomes a necessary provision in the testator’s Will.

2 Clauses To Address The Following Issues:

CLAUSE 1: Disinheritance of Potential Beneficiary

CLAUSE 2: Clause to Discourage Will Contest – “In Terroram” Clause

When preparing a Will where the children or grandchildren of the testator are to be beneficiaries at some point in time – perhaps upon the death of the testator or perhaps after the death of a prior beneficiary, such as the spouse of the testator or the parent of the designated beneficiary, it is possible that such children or grandchildren are to receive their shares of the testator’s estate outright. In such a case, the drafting of such a provision is simple. However, in many cases an outright distribution is not desirable, often because the testator wants to be comfortable that a future beneficiary has reached an age of at least supposed maturity. Where this is the case, a continuing trust is typically created, allowing the interest earmarked for the beneficiary to be held until the desired age is reached. Again, the testator has decisions to make. Should the beneficiary’s interest simply be held in trust until a designated age is reached, or should there be a series of distributions at designated ages so that the trust property held for the beneficiary is distributed in increments as various milestone ages are reached?

2 Clauses To Address The Following Issues:

CLAUSE 1: Distribution Plan for Beneficiaries in Two Increments

CLAUSE 2: Distribution Plan for Beneficiaries in Three Increments

ISSUE: Disposition of Real Estate

In many Wills, there is no separate or special clause addressing the disposition of the testator’s real estate interests. Often, these interests are jointly-owned, so they do not pass as part of the probate estate. Even where real estate interests are separately owned, they are frequently allowed to pass as part of the residuary estate without any specific directives. 

3 Clauses Are Included To Address The Following Issues:

CLAUSE 1: Outright Disposition of Residential Real Estate to Specific Beneficiary

CLAUSE 2: Direct the Sale of the Residential Real Estate

CLAUSE 3: Create a Life Estate in the Residence for a Chosen Beneficiary

 

For a married client, the marital deduction provision will likely generate the largest deduction from federal and state estate taxes. Accordingly, it needs to be addressed carefully in every Will. There are three commonly used variations of marital deduction clauses.

3 Clauses Are Included To Address The Following Issues:

CLAUSE 1: Marital Share Outright to Surviving Spouse

CLAUSE 2: Marital Share Using General Power of Appointment Trust

CLAUSE 3: Marital Share Using Qualified Terminable Interest Property Trust (QTIP Trust)

Every well-drafted Will includes a powers clause setting forth the various powers granted to the fiduciaries named in the Will. In some cases, this is a long clause setting forth multiple powers, in other cases it is a short clause incorporating by reference a state statutory provision granting specific powers not necessarily included in the statutory provision. It is recommended that a listing of powers clause be included in a Will, making certain that the fiduciaries have broad authority to manage the assets of the decedent’s estate. It is suggested that this is preferable to assuming (perhaps incorrectly) that a state statute is broad enough to permit the action the fiduciary desires to take.

3 Clauses To Address The Following Issues:

CLAUSE 1: Broad Powers Clause for the Fiduciaries of the Estate; Self-Dealing by a Fiduciary Prohibited

CLAUSE 2: Special Powers Clause Addressing Closely-Held Business Interest

CLAUSE 3: Instructions Regarding S Corporation Interests Held by the Testator