15.7 Will, Trust, and Premarital Agreement

• Library: A Lawyer's Guide to Estate Planning: Fundamentals for the Legal Practitioner (ABA) (2018 Ed.)

15.7 Will, Trust, and Premarital Agreement

This planning approach is easily illustrated in the example of a young widow who has two children ages 6 and 9. She has recently inherited an estate from her husband that includes the proceeds from a large life insurance policy, in addition to the residence, automobiles, and various items of personal property. The widow has normal concerns of providing for the children's needs, should she die while they are still young. She is also aware of the rights of inheritance of a second spouse, should she remarry and predecease her second spouse. She wants to be protected from that potential problem.

The forms that follow include a will in which the widow can name a guardian for her children, should she predecease them while they are under the age of 18. She has established for the children an inter vivos trust from which their financial needs can be provided. The trust also will enable the inheritance to be held, managed, and used for the children until they are more mature, such as at age 25 or 30. The trustee will normally be a corporate trustee, but an individual trustee can be used. Any insurance or retirement benefits should be made payable to the trust by filling out beneficiary designation forms for each policy as follows: "The proceeds shall be paid to the insured's Trustee, __________, pursuant to a trust entered into by and between the insured and the Trustee on the __________ day of __________, 20___, and including any amendments thereto." If the widow does not die prematurely, she can later change the beneficiary designations to the children equally. The trust should then be amended or revoked.

The widow's concern over the rights of inheritance of a new spouse can be solved with a premarital agreement entered into by the couple before their marriage. (A sample agreement follows the will and trust.) Because the widow may find a premarital agreement a difficult matter to discuss with a prospective new spouse, another approach is for the widow to transfer her property into the inter vivos trust at the present time. The forms that follow are drafted with this approach in mind. A helpful ABA publication is L. Ravdin, Premarital Agreements: Drafting and Negotiation (2d ed.; ABA, 2017).

The widow can transfer her property into the trust during her lifetime, act as trustee, and be succeeded by a corporate trustee on her death or resignation. The trust will be for the benefit of her and her children. The trust should be protected from the claims of a new spouse because the trust is not a probate asset. Any claims of fraud by the new husband, such as that the trust was an improper device used to defeat his rights of inheritance, should not be successful if the trust is established and funded well before the marriage. However, the law among the states is not uniform on this issue. The lawyer must be certain of the law in his or her own state.

LAST WILL AND TESTAMENT OF MARY JANE DOE

I, Mary Jane Doe, a resident of Madisonville, Hopkins County, Kentucky, make this my Last Will and Testament, hereby revoking all prior wills and codicils.

ARTICLE I

I direct that my just debts, funeral expenses, costs of administration, and all estate, inheritance, or other transfer taxes that become payable by reason of my death, be paid out of my residuary estate as soon as practicable after my death.

ARTICLE II

I bequeath and devise all the rest, residue, and remainder of the property, real or personal, and wheresoever situated, which I own or in which I may have an interest at my death to the Trustee under a Trust Agreement executed by me on __________ day of __________, 20___, and in full force and effect on the date of the execution of this Will.

? Comment: A pour-over will is normally a permissible testamentary instrument; however, the trust must be in existence before the execution of the will. This simply requires that the trust be executed first and then the will. The practitioner must be certain of the effect of a pour-over will under state law.

ARTICLE III

I nominate and appoint __________ as guardian of any of my children during their minority. In the event this guardian ceases to act for any reason, then I nominate and appoint __________ as successor guardian. I direct no bond or surety shall be required of these guardians.

ARTICLE IV

I nominate and appoint __________ as Executor of this my Last Will and Testament. I grant my Executor full power and authority to compromise or otherwise settle or adjust any and all claims, charges, debts, or demands against or in favor of my estate, as fully as I could do if living, and with full power, without order of court, to sell, transfer, or convey any of my property, real or personal, for the purpose of administration, division, or distribution in carrying out the terms of this Will.

I also expressly empower my Executor to sell to the Trustee under the Trust Agreement referred to hereinabove, for cash, any assets in my estate which in the sole discretion of my Executor may be necessary or expedient in order to produce cash for the payment of taxes or costs of administration, such sale to be at the prevailing market price or fair and reasonable market value at the time of said sale. My Executor may determine, without regard to any rule of law, what assets shall be sold in order to produce cash for the purposes hereinabove set out.

I nominate and appoint __________ to be the successor Executor. Either my Executor or my successor Executor shall be allowed to serve without surety on their bond and without performing any formalities in the settlement of my estate as are not mandatory under the law.

IN TESTIMONY WHEREOF, I have hereunto set my hand on this the __________ day of __________, 20___

__________

Mary Jane Doe

We, whose names are hereto signed as subscribing witnesses, have at the request of the Testatrix, __________, witnessed the execution of this Will, consisting of this page and __________(___) preceding pages, and each has signed as subscribing witness in the presence of the Testatrix and in the presence of each other on the __________ day of __________, 20___

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Witness

__________

Address

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Witness

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Address

[ADD SELF-PROVING NOTARIZATION AS PROVIDED BY STATE LAW]

TRUST

THIS TRUST AGREEMENT entered into by Mary Jane Doe, of Madisonville, Kentucky, as Settlor and Trustee.

WITNESSETH

I will hold and administer all assets transferred to this trust in accordance with the following terms and provisions.

ARTICLE IIdentification of Beneficiaries

1.1 The term "children" shall be understood to mean my children, whose names are __________, __________, and __________.

ARTICLE IIRight during lifetime

2.1 During my life, all or such part of the net income and principal of the trust as I may direct shall...