If you have not already, one morning you will wake up and finally accept the fact that one day you shall die. Not an easy thought but coming to this inevitable conclusion earlier in life has the benefit of allowing you to plan for the things that remain when you pass: Your family, friends, legacy, and money. And while you can use accounts that name beneficiary designations to transfer some property – such as retirement plans, life insurance, and transfer-on-death accounts – only Wills and Trusts allow you to transfer property at the point-in-time you desire (such as a beneficiary attaining a certain age), and include protections for beneficiaries (from creditors, spendthrift behaviors, special needs and addiction). But how much property should you leave, and under what methods should you leave it?
Here are the four “Bequests” (after-life gifts) used in Wills and Trusts, and the positives and negatives of each:
- Specific Bequests: Specific bequests transfer a specific, identifiable piece of property. You can say “my engagement ring from my second marriage” or “my real estate located at 123 Chambers Street, Nowhere, New Jersey.” The idea is that the property is unique, thus easily identifiable. You should avoid using too many specific bequests: If the property of a specific bequest left in a Will or Trust cannot be found, there is NO financial set-off to compensate the beneficiary, and the bequest “adeems” (I.e. the gift is cancelled because the property is no longer owned by the deceased person).
- General Bequests: General bequests are gifts of a flat dollar amount from any source – we don’t care where the money comes from, just that the bequest be paid. Examples are “I leave $500 to the Hump Water Buffalo Foundation of New Hampshire” or “I bequeath $1,000 to St. Gene Simmons Church.” Remember that general bequests are paid after specific bequests, but before other bequests, and since they don’t adeem (general bequests must be paid in full if there are funds available to pay them) it is important not to leave too much of your money using general bequests, or your left-over bequests will be small. Indeed, if you leave more general bequests than your estate owns the remaining amount “abates”, so if you have $20,000 in your estate but leave a $30,000 general bequest, the remaining $10,000 and any residuary bequest abates and is left unpaid.
- Demonstrative Bequests: These bequests are for unspecific assets in a specific account, such as “I leave 50 shares of my IBM stock in Unitrade Account No. 654321 to my niece Jill.” There is no reference to which exact shares (so it is king of a general bequest), but they are made from specific accounts (so also like a specific bequest). I would AVOID using too many demonstrative bequests: Your brokerage account holdings will change many times in your life, and every time you change your investments you will also have to change your Will.
- Residuary Bequests: The residuary of your estate is everything you have left after all 3 prior bequests. An example is “I leave the rest, residue and remainder equally to my niece and nephew.” Residuary bequests are the BEST way to leave property in most cases for a few reasons. First, if you want to leave some property to many people, residuary bequests guarantee everyone gets something – you can leave your spouse 80% of your residuary, and your two children 10% each – unlike general bequests, which are paid before the residuary and, since you don’t know how much property you will die with, may leave too much or too little to the residuary beneficiaries. If you are leaving all of your property to one person or equally to multiple people, the only bequest you need is a residuary bequest (“I leave my residuary to my wife, and if she does not survive me then equally to my four grandchildren”). In fact, if you have no residuary clause in your Will or Trust and have money left over after all your prior bequests, you will have to have the Court opine on who receives the rest (usually your closest family member).
Make sure you think of who you want to receive what from your estate, and work with an estate attorney when trying to figure out how much you want to leave to which people in the future.