Last Wills and Testaments: Common Will Provisions and Their Purposes

Common Will Provisions

Last Wills and Testaments are documents executed by “testators” that set forth their wishes upon death. The Will is fundamentally an exception to the rule that gifts must be completed by living donors. Wills are mechanisms by which gifts can be completed posthumously. But the transfer of gifts is not the only task that wills can accomplish. Wills can set up family trusts, support tax planning and even appoint guardians for minor children. In this presentation, we will discuss some of the most common will provisions, their purposes and the considerations that go into their inclusion in wills.

Gifts of Property

            The gift of property represents the central utility of the will. Gifts can be directed to individuals or classes of people, and contingent beneficiaries of gifts may be named in the event that the initial beneficiaries die prior to the death of the testator.

            Gifts of real property in wills are called “devises” while personal property gifts are called “bequests,” though there is little legal difference between them. Gifts take three forms:

-          Specific, which identifies the property gifted. A specific bequest, for example, might read “I give my 2017 Toyota Camry to my daughter, Jane.”

-          General, which purports to gift a sum of money, for example “I give $25,000 to my son, Joe.”

-          Demonstrative, which is a bequest of cash that identifies its source. For example, “I give $50,000 from my brokerage account at Fidelity to my neighbor, Kim.”

In another presentation covering ademption and abatement, we examine the legal significance of these distinctions.                      

Residuary Clauses

            A residuary clause gifts the remainder of the estate after the other gifts have been distributed. Because it’s virtually impossible to know the precise amount that will be in an estate in advance, residuary clauses are ubiquitous and critical. In fact, many wills have no gifts of identified property, but give the whole estate via residuary clauses to the heirs, usually a spouse or children.

            Like other gifts, residuary gifts can be earmarked for individuals or for classes of people. For example, a residuary clause can specify the testator’s “children, in equal shares” or can distribute the estate unevenly, such as 40% to one child and 60% to another.

Residuary clauses should also specify backup beneficiaries in case the initial beneficiaries are dead or renounce their interests in the estate. Otherwise, the residuary gift will be distributed in accordance with the rules of intestacy if the primary beneficiary is no longer around.

Testamentary Trusts

            Just as people can set up trusts during their lifetimes, known as inter-vivos trusts, wills can also set up trusts, which are known as testamentary trusts. These are common in scenarios where the testator wants to protect the assets from the creditors of her beneficiaries. For example, assume the testator has a child who has run up enormous debts and is likely to be sued. If that child suddenly has a large infusion of cash, that cash is likely to be accessible to the creditors. Similarly, the parent of a child in a bad marriage may not wish her child-in-law to potentially get access to her assets as part of a future divorce proceeding. In either case, holding the child’s assets in a trust with another party controlling the assets as trustee can ensure that they are used to benefit the child and not his creditors or estranged spouse.

Trusts can also be established for purposes of minimizing transfer tax or to ensure the continued eligibility of beneficiaries for asset or income-based government assistance. These goals and how they are best accomplished are covered in detail in our presentations on trusts.

Designation of Fiduciaries

            A will should designate a person (or multiple people) to serve as administrator (also sometimes called executor) of her estate. After death, it will be this person’s responsibility to get court permission to access the testator’s assets, gather them, distribute them and pay the necessary expenses. While this role is often bestowed upon a close relative or friend, it is also important that the administrator be someone who is competent and energetic enough to oversee a sometimes-complex probate process. While the administrator can, and probably will, retain the services of professionals, such as attorneys and accountants, to assist with the process, oversight and ensuring that the rights and interests of the heirs are properly accounted for often takes diligence, skill and wisdom. As in the case of beneficiaries, backup administrators should be appointed to allow for the possibility that the initial administrator is unavailable.

Minor Beneficiary Provisions

            While testamentary trusts can be used to achieve a variety of familial goals, it is standard to include provisions to cover the possibility of beneficiaries who are minors. This is true even if the primary beneficiaries are adults, as predeceased primary beneficiaries with children can often cause components of estates to vest in the ownership of minors.

            Minor beneficiary provisions grant the executor or administrator the authority to hold assets for the benefits of minor beneficiaries. These provisions often give the administrator a variety of choices to cover a minor beneficiary. The administrator is given the power to establish a trust for the benefit of the minor or to establish a bank account, under the Uniform Transfers to Minors Act, which behaves similarly to a trust.  

Guardianship Designations

            Finally, wills can be used to express the testator’s preference for guardianship of her minor children. Typically, these provisions are phrased so as to kick in if neither of the children’s parents are alive. It must be noted that these provisions are not binding, as courts make guardianship decisions based on the best interests of the child at the time, and will not make guardianship decision based on the parents’ instructions if the court does not believe that such is in the child’s best interests. Nevertheless, instructions set forth in legally operative documents such as wills carry a lot of weight with courts, and will generally be respected. It is self-evident, however, that a surviving parent will have guardianship preference over a non-parent named in a deceased parent’s will.

Conclusion

            While these are some common will provisions, they are by no means exhaustive. Provisions to pay debts, dictate funeral and burial arrangements, stating how family businesses should be treated and stating other requests or instructions also find their places in many wills. In this presentation, we have covered some of the most common and most important will provisions.