1972, September, Pg. 13. Elementary Will Drafting.

• Author: by J. Michael Farley

1 Colo.Law. 13

Colorado Lawyer

1972.

1972, September, Pg. 13.

Elementary Will Drafting

13Vol. 1, No. 11, Pg. 13Elementary Will Draftingby J. Michael FarleyJ. Michael Farley, Denver, is a partner in the firm of Holland and Hart.Too often the "simple will" drafted by the busy lawyer is not the careful and professional instrument the client is entitled to have. The client may impose such stringent time demands or length limitations that the lawyer is prevented from doing the kind of job he wants to do. Sometimes a client may even refuse to believe he needs a will at all.

This paper discusses briefly the need for a will and some basic considerations in will drafting, and presents some language which may be considered for use in testamentary instruments. This article is not intended to be a comprehensive presentation of tax considerations in estate planning or an involved explanation of complex estate planning techniques. Many other materials exist for those purposes. It is hoped that this article will assist lawyers who do not spend great quantities of time in estate planning or administration, but whose clients demand occasional attention in these areas.

Who Needs a Will?Nearly everybody needs a will---or at least nearly everybody who is 18 or over and who has any real property or personal property of moderate value, minor children, employment benefits, life insurance, a prospective inheritance, or any significant anticipation of any of these. Only a will can alter the pattern of intestate succession to property to provide for gifts to charity or to friends, or to permit the testator's entire estate to pass to his spouse to the exclusion of children. A client who claims that he doesn't need a will because all of his property is in joint tenancy with his wife should be reminded that he and his wife could die in the same accident, resulting in the necessity for an intestate administration to dispose of their joint holdings; distortion of the intended dispositions of property which might occur in the case of a common disaster will influence many to execute a will. You must remind a client of modest means that his real estate cannot pass under the Small Estates Act even if its value is not large. Similarly, the prospective beneficiary of life insurance proceeds needs to consider where those funds should go in the event she dies shortly after her insured husband, possibly in the same accident. In short, both the client and his wife need wills.

Court-supervised guardianships, which become necessary when minor children inherit real or personal property, are expensive, time-consuming, and burdened with red tape. They illustrate clearly the need for a proper and effective disposition of property. In addition, a client with minor children should be concerned about the welfare of his children, should he and his wife both die while the children are

14minors. The statute permits a parent, by will or deed, to "dispose of the custody and tuition" of his minor children, thereby avoiding many concerns about the selection of those who will care for the children if both parents die.A will really is necessary for "nearly everybody," and lawyers should be able to prepare instruments quickly and economically to take care of the basic needs of their clients, even when tax considerations are almost non-existent.

Tax Considerations Are Important, TooFor the client of some means who has not sought comprehensive estate planning service, you must be particularly aware of tax implications of the estate planning documents which you may prepare. While this paper does not discuss tax considerations in detail, the various tax laws do affect dispositions of property.

When a client puts property in joint tenancy, he may well be effecting a gift for which gift tax returns are necessary, with the possibility that gift taxes will become due as a result of the transaction. Except for real estate acquired by husband and wife as joint tenants since 1954 (and even then if an affirmative election is made by the taxpayer), a transfer or acquisition as joint tenants of such property as securities, automobiles, farm equipment, livestock, or real property produces a gift to the other joint tenant (assuming that the other joint tenant provides no part of the consideration) to the extent of one-half of the value of the property. If that one-half exceeds $3,000 in value, a federal gift tax return is necessary. The Colorado gift tax return requirements vary depending on the relationship of the joint tenants. Colorado law does not provide for the exception for joint tenancy real estate acquired by husband and wife, either. Both gift tax laws provide for lifetime exemptions as well as annual exclusions. You should be prepared to advise your clients about gift taxes.

Every practitioner should develop a working knowledge of federal estate tax, especially the marital deduction provisions. Basically, for federal estate tax purposes transfers to a surviving spouse are deductible to the extent of the value of one-half of the decedent's adjusted gross estate. That amount, known as the marital deduction, passes to the surviving spouse without imposition of federal estate tax at the time of the death of decedent. The government hopes, of course, that the one-half deducted in the first estate will exist to be taxed in the estate of the survivor. Outright transfers to a surviving spouse qualify for marital deduction treatment. A transfer to a wife which is limited requires that some fairly complicated provisions of the law be carefully followed to preserve that marital deduction. Thus, a properly drafted trust which requires that all income be distributed to the surviving spouse who also has a general testamentary or lifetime power to dispose of the property qualifies for the marital deduction. On the other hand, a mere life estate in a surviving spouse who is given no power to dispose of the property at death or no power to reduce it to possession during life does not qualify for the marital deduction. Similarly, a spouse's interest cannot terminate during her lifetime, as in the event of her remarriage, without loss of marital deduction treatment.

Other estate tax provisions are important, too. A provision of the Internal Revenue Code permits payment of certain employee benefits to beneficiaries other than the estate of the deceased employee without inclusion of those proceeds in the gross estate of the deceased employee. Examine carefully the benefits available under employee plans, for very substantial benefits which radically affect tax planning may be involved.

Clients frequently are astonished to learn that life insurance proceeds are subject to death taxes. You should be careful to remind your client that the full amount of proceeds of life insurance in which the deceased had any...