Part I: Disposition of Property
It is estimated that nearly 60% of adults in the United States have never completed a will to address where their property will go when they die. Of course, sitting down and planning for one’s death is not necessarily an activity one looks forward to and it can even be a source of anxiety and dread for many. However, there is an invaluable peace of mind that comes with the knowledge that, when that day inevitably arrives, your last wishes will be faithfully and properly carried out. Too often, grieving families can become embroiled in disputes over asset distribution when a family member passes without executing a will or, worse yet, with a poorly drafted will. These disputes can be costly and emotionally draining, and can even permanently fracture family relationships—surely not what the decedent intended. To avoid these issues, everyone should consider their options and have an estate plan in place.
Intestacy v. Probate
Generally speaking, upon death, a person’s property may be disposed of by intestacy or probate. Intestacy is the framework for disposal of a person’s property where no valid will exists and may also be the method for disposal of property that is not addressed in a decedent’s valid will. Intestacy is a statutory regime for disbursement of property that generally distributes property to relatives or, in some cases, the state. Intestacy rules can be thought of as the “default rules.” In contrast, probate is the process by which a person’s property is distributed according to their wishes as outlined in a valid will.
What is a Will?
A will is the document executed by a person (generally referred to as the “testator”) that sets forth his or her wishes for the distribution of his or her property upon death. The law has great reverence for carrying out one’s final wishes and, accordingly, a properly drafted will generally allows a testator to dispose of his or her property in whatever manner he or she sees fit. The ability to control exactly how one’s property is addressed after death makes a will a far more attractive option than intestacy.
Requirements for Wills in North Carolina
In order to be valid, every will in North Carolina must follow certain basic criteria. For instance, only those who are 18 years or older may create a will. Additionally, the testator must be of “sound mind,” which generally means that he or she is mentally competent and not subject to any undue influence at the time that the will is made. Ideally, the will should be in writing—North Carolina only recognizes oral wills in extremely limited circumstances—and must signed by the testator or, if the testator is physically incapable of signing, by someone at the testator’s direction and in his or her presence. Finally, there should be two witnesses who sign the will after either witnessing the testator sign the will or witnessing the testator acknowledge his or her signature on the will. Although not required, it is strongly recommended that the witnesses to the testator’s signature be people who do not stand to inherit anything under the will.
Considerations When Drafting a Will
First and foremost, the hallmark of a proper will is its clarity. A will should be carefully drafted so that the testator’s intent is clear and unambiguous. Oftentimes, the language of a will is challenged during probate due to vagueness or ambiguity. This can be especially likely if a relative is excluded from the will. A disgruntled relative might still attempt to challenge the will, but having clear and unambiguous terms makes it far more likely that such challenges will fail.
It is also important that a testator fully take stock of everything that he or she owns. As discussed above, probate only applies to property that is addressed by a will. Any of the testator’s property not addressed in a will passes outside of probate and through the intestacy laws. Similarly, some types of property—by their very nature—will not pass through the probate process. For example, life insurance policies are contracts between the insured and the insurer and have no relation to a will. If a testator was to name someone as the beneficiary to that life insurance policy in their will, it would have no effect. Instead, the beneficiary would need to be named pursuant to the terms of the life insurance policy itself. Inventorying your property will allow you to identify which items may pass through probate, and which will not, and will allow you to make other arrangements as needed.
A will should also be reviewed periodically to ensure that it is thorough and remains in line with the testator’s intentions. It is generally recommended that a will be reviewed about every five years, however, any significant life change could trigger the need for a more frequent review. Routine review is necessary because life is not static—we dispose of old property and we get new property, family members die and new ones are born and, for various reasons, we no longer wish to provide for someone in our will. All of these life changes have an impact on previously drafted wills and, thus, periodic review and amendment is crucial.
For younger testators, it is also important to think about your wishes should you die with minor children. Oftentimes, a will is an excellent place to designate who you want to serve as the legal guardian of your children should you die while they are still minors. That ability underscores the importance of drafting a will—particularly for younger people. Most young people don’t see the point in drafting a will, given the fact that they tend to have little to no assets; however, wills do more than just devise property and—as all parents would agree—planning for your child’s future is paramount.
Another popular and flexible estate planning tool is a trust. A trust is separate and distinct from a will, but the two are often interrelated—particularly when it comes to the disposition of assets upon death. The basic idea behind a trust is as follows: certain property is delivered to a person called a Trustee, who holds and manages the property “in trust.” Essentially, the trustee handles how and when the trust assets are disposed of and does so according to the instructions given by the creator of the trust. As an example, let’s assume you have a grandson to whom you want to leave a large sum of money. Let’s also assume that your intent in leaving him that money is so that he can pay for his college education. Let’s further assume that you have legitimate fears that, instead of using that money for college as you intended, he will use it to purchase an expensive sports car. Instead of giving your grandson the money outright, you can set up a trust that instructs the trustee to disburse the money only to pay his tuition bills. Then, in your will, you would gift that tuition money to the trustee. From there, the money would be disbursed according to the terms of the trust. Because of their ability to further control the disposition of assets, trusts have become increasingly popular estate planning tools.
Whether it is a simple review of an existing will or wholesale creation of an estate plan, it is recommended that you consult an attorney to ensure that your final wishes are fully and accurately addressed and carried out. If you are currently involved in the probate process of a loved one’s will, attorney representation can be important to ensuring that you receive what you are entitled to under the will. The attorneys at Bennett Guthrie Latham, PLLC have decades of combined experience in the estate planning process, offer a variety of estate planning services, and are standing by to assist you. Please call our office at (336) 765-3121 to set up an appointment today!
This is part one of a three-part estate planning series. Please check back soon for parts two and three of this series, which will discuss end-of-life arrangements such as power of attorneys and advance directives and how to have these often difficult conversations with your loved ones.