Selecting and Protecting Beneficiaries

A maker of a Will must be competent, must know the natural objects of his bounty and must know basically what he owns before he makes a Will to distribute it.

There are three main areas to consider in making a Will: the dispositive provisions; provisions appointing the fiduciary; and the powers of the fiduciary. Wills should be clear and concise and reflect the testator’s intent.

1.Spouse

In general, we can leave our estate to anyone we desire to. There is only one person we cannot “write” out of a Will and that is our spouse. Ohio Revised Code Section 2106.01 sets out the elective share of a surviving spouse.

A surviving spouse has the option to elect to take against the Will (take an intestate share) rather than under the terms of the Will. To elect against the Will means you are taking by the statute of descent and distribution, ORC 2105.06.

Maximum Share: The surviving spouse may not take more than one-half of the decedent’s net estate, unless two or more of the decedent’s children survive, in which case, the surviving spouse may not take more than one-third of the net estate. (§2106.01(C)).

ORC §2107.33 basically rewrites a testator’s will when a divorce or separation occurs. The Will is by operation of law amended to omit the spouse.

2.Minors

In general, it is not the best kind of planning to make large gifts to a minor. A child under the age of 18 will require a guardianship. The alternative, if there is no language providing distribution at various ages to the minor, distribution may be made under the Ohio Transfer to Minor’s Act which will distribute the assets for the benefit of the minor beneficiary until they reach the age of 21 versus the age of 18. This is governed by ORC § 5814.01.

If a gift to the minor is substantial, it is wise to create a trust to receive the gift. This allows the testator to keep control of the assets in a manner which would be consistent with their goals. Other considerations for minor children is whether or not to create a single trust or separate trusts. Consideration should be given to the size of the estate and whether or not a common pot or single trust is used versus separate trusts for the children.

The cost of administration is a major factor in determining the cost effectiveness in the different kinds of plans.

Most Corporation Trustees do not want to administer a trust which are $100,000 or less because of the costs involved. A will can provide and authorize a fiduciary to transfer assets under the Ohio Transfers to Minor Act.

3.Disabled Beneficiaries

There are several options for a disabled beneficiary. The following is a list of trusts that are available for the disabled. The best option depends on the need and basis of the trust.

  • Support trusts provide a standard to support the beneficiaries, such as health maintenance, support and education. These trusts are not a good option for a disabled beneficiary who is receiving government benefits.
  • The Discretionary Trust is a better option. The option provides absolute control by the trustee over the assets. This kind of trust, if drafted correctly, should allow the beneficiary to retain Medicaid eligibility and allows a third party to create this trust without a Medicaid Payback Provision.
  • The Special Needs Trust or (d) (4) (A) Trust, is managed and created to protect assets of a disabled beneficiary so they do not interfere with the benefits. This Trust must be established by a parent, grandparent, legal guardian or a Court and must have a payback provision. Typically this is created after the receipt of an inheritance or settlement.
  • The Pooled Trust or (d) (4) (c) Trust is a trust created by a non-profit organization for the disabled individual. A separate account is maintained for each disabled beneficiary.

*** This is only a brief synopsis of trust options for the disabled. A more detailed overview of options will be forthcoming in upcoming newsletters. ***

4.Choosing Beneficiaries Is Not Enough

Determining who should inherit your assets is a surprisingly difficult task for many of us. However, with time and due consideration, an answer comes. Now you are ready to tell the world who should inherit your assets and who should not get anything. This seems relatively straightforward. However, things often are not as simple as they superficially appear.

So, even though Mary had expressly stated that she wanted nothing else to go to Deborah, the court decided otherwise. Why? Mary’s will was ambiguous. Mary’s will should have spelled out what should happen if Mary’s husband did not survive her.

5.Disinheritance Is A Serious Option

Most people are seeking the best way to get assets to their loved ones. However, sometimes the best way to do that is by disinheriting or threatening to disinherit someone.

Perhaps the most common form of disinheritance in estate planning documents is an “In Terrorem” or “No Contest” clause. Literally, an In Terrorem clause is designed to instill terror in anyone considering challenging the will or trust which contains it. Such a clause can be useful if you expect your heirs to challenge your wishes. No contest clauses are particularly useful when the risk of challenge is particularly high, such as: Leaving assets unequally to children, leaving assets to a spouse who is no the parent of your children, leaving assets to a same-sex partner, etc.

With such a clause, if someone challenges the document which contains it, they receive nothing from you under that document. A No Contest clause works best when you leave something to the potential challenger. If the challenger would receive nothing anyway, he or she would have nothing to lose by challenging your wishes. A bequest that is significant under the circumstances might make the challenger think twice before challenging your wishes.

You may also choose to disinherit someone if they do something destructive. For example, William Garland, Jr. had a son, Richard, and two daughters. Richard had been very irresponsible during his teens and William was concerned that he might have a criminal future. In order to discourage Richard from a life of crime, William put a clause in his will that disinherited Richard if he was convicted of a felony prior to attaining age thirty. In fact, Richard did get into trouble and pled guilty to a felony drug charge. Ten years later, Richard had cleaned up his act and was a respected, law-abiding citizen. Pursuant to Arkansas law, Richard was able to have his prior felony conviction “expunged” or removed from his record. Richard sought to receive his share under William’s will, but his sisters challenged him. The trial court found in Richard’s favor but the Arkansas Court of Appeals ruled against Richard, finding that he had been convicted of a felony even if it had later been expunged. The Garland family situation underscores the need to be careful when you intentionally disinherit someone.

Disinheritance also can be inadvertent. In Ohio, adoption of a child automatically severs the child’s inheritance rights from his or her biological family and establishes that child’s rights to inherit from the adopted family. It is important to keep this in mind when drafting your will and trust.