The Functions of a Will

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	The Functions of a Will Personal Finance Advisor by Deloitte & Touche OnLine February 14, 2000

Wills can't do it all. Here's what they can and can't cover.

A will allows an individual to decide what will happen to certain of his/her property after death. If a person dies without a will, he/she dies "intestate." In this case, the decedent’s property will be distributed according to the laws of the state where he/she resided at the time of death.

Transfer of Property: A will does not govern the disposition of all of a decedent’s assets. As a general rule, a will provides for the transfer of property owned by an individual, including their interest in community property titled in the name of the other spouse. Specific bequests of tangible personal property (for example, jewelry, furniture, china) can be included in a will or a memorandum to the document. Certain other property will be distributed by operation of law or contract, rather than by the provisions of the decedent’s will:

Property held in a joint tenancy with the right of survivorship (for example, real estate, bank/brokerage accounts) will pass to the designated survivor.
Property subject to a contract (for example, life insurance, IRAs, 401(k) plans) will pass to the designated beneficiary.

An individual’s estate plan must integrate ownership rights to property and beneficiary designations with the terms of his/her will. In many cases, it will be necessary to modify legal ownership of assets between spouses in order to maximize estate tax savings. In 2000, an individual can transfer up to $675,000 in assets to non-spouse beneficiaries free from federal gift and estate taxes (this exemption increases to $1 million in 2006). If all of a married couple’s property is owned by one spouse, the other spouse’s exemption may be lost or under-utilized. However, if each spouse owns property at least equal to the exemption amount, the couple could transfer $1.35 million without paying federal gift and estate taxes.

Unless the will establishes a trust for the benefit of the decedent’s minor child, property distributable directly to a minor will be held in a Uniform Transfers to Minors Act (UTMA) account. At the age of majority (which is 18 in some states), the child will have complete access to assets in a UTMA account.

Appointment of Fiduciaries: A will should appoint fiduciaries (for example, executor, trustee) for the estate, and specify the fiduciary powers (the will may provide powers in addition to those permitted under applicable state law). If a trust is established in a will, initial and alternative trustees should be appointed. If the trust is of a significant duration, a corporate trustee should be considered. Additionally, the will should (1) specify the appropriate compensation, if any, to which the fiduciary is entitled; (2) identify the circumstances under which a beneficiary may replace the fiduciary; and (3) waive the duty of the fiduciary to post bond/security otherwise required by the court (if appropriate).

Appointment of Guardians: Parents with minor children can establish who will care for the children (and the children’s property) in case of simultaneous death of both parents, or the death of one parent and the inability of the surviving parent to care for the children. A will also can provide for guardianship of an adult dependent who is incompetent. If a guardian is not specified in the will, the state will determine who will care for the minor or other individual. It is not necessary that the guardian of the person and the guardian of the property be the same individual. Guardianship is a significant responsibility. Therefore, parents should discuss the matter with potential guardians and verify their willingness and ability to assume the role.

Date and Signature: A will should contain a clause establishing that the decedent executed the will with full and complete knowledge of the document, and with the specific intention that the document be his/her last will and testament. The will must be dated and signed in accordance with state law. Particular attention should be paid to the formalities that are necessary in execution of the will so that the document will be valid.

Powers of Attorney: In addition to a will, individuals should consider establishing two types of powers of attorney: (1) durable general power of attorney to delegate the ability to make and implement financial decisions; and (2) durable power of attorney for health care to delegate the ability to make and implement medical decisions. The powers that can be delegated in these documents and the form of the documents differ greatly by state.

A third document that should be considered is a living will (sometimes known as an advance directive). A living will describes the type and extent of life-sustaining medical treatment that an individual would prefer in the event he/she is unable to communicate those preferences and there is no reasonable expectation of recovery. A health care power of attorney differs from a living will in that a living will expresses the individual’s wishes, while a health care power of attorney grants the power to implement those wishes. Some states permit both of these issues to be addressed in the same document. Family members and/or doctors should be aware of these documents (and their location) so they can be accessed in case of an emergency.

Your Deloitte & Touche financial advisor also can provide information and should be consulted before any action is taken.