Estate Planning Goals: Distribution Of Assets

This article is the second in a series of nine articles explaining the Eight Goals of a Good Estate Plan.  This article will explain how an estate plan can help you with the first goal of a good estate plan: Appointment of Fiduciaries and Distribution of Assets. For the sake of readability, I have broken this article into two parts.  This “part A” will discuss distribution of assets.  Next week’s “part B” will discuss appointment of fiduciaries.

Distribution of Assets

In Illinois, if an individual dies without a will or a trust, state statute determines what will be done with her assets.  This is called dying intestate.  When an individual dies intestate, the assets will be distributed in equal shares to the first of the following groups that contains a living member:

1. Spouse;
2. Children – Note: If a child is deceased but has living children of her own, then the deceased child’s share passes to her children in equal shares;
3. Descendants (e.g. Grandchildren, Great-grandchildren);
4. Parents;
5. Siblings;
6. Nieces and Nephews.

Often, married couples with children seek to have their assets pass to their spouse and then in equal shares to their children.  If these are their wishes, and they do not seek to make any specific gifts of tangible property, their property will likely pass the same way whether or not the couple executes a will or a trust.

However, even in this situation, a will or a trust may be important to ensure that the correct person will be managing the distribution of these assets (discussed below); and a trust may be necessary to ensure that the assets are not reduced significantly by going through the probate process (discussed in next week’s article).Wills and Trusts are important for distribution purposes, if the client:

1. Does not wish her property to pass to the individuals described in state statute;
2. Wants to change the amount of property each heir will receive, or
3. Wants to make specific gifts of property or money to particular individuals (e.g. my car to Mary, $10,000.00 to Steve.)

The following are the most common scenarios in which changing the state statute’s distribution may be of the utmost importance to our clients:

1. The client is divorced with minor children: If the client dies without a will or a trust, her assets will pass to her minor children. However, since the children are minors, the property will not go to them but rather to their guardian, most-likely the client’s ex-spouse.  In order to avoid the divorced client’s property passing to her ex-spouse, we create a trust in which the children are the beneficiaries and someone other than the client’s ex-spouse is the trustee.  This means that the third-party trustee who the client selects, as opposed to her ex-spouse, will be responsible for managing the assets for the benefit client’s children while they are minors.
2. The client is estranged from a family member: If the client has a sibling, parent, or child from whom they are estranged, it will be important to declare the client’s wishes that the estranged family member not inherit through a will or a trust.
3. The client wants to give some of her assets to a church or charity.
4. The client wants someone outside of her family to inherit some or all of her assets: This scenario is common when the client is living with a partner, but not married.
5. The client wants to maintain control over how the assets are used after her lifetime: Trusts can be used to set preconditions for distributions of assets to the beneficiaries. Clients will sometimes specify that the assets will not be distributed unless and until the beneficiary graduates from college, marries, or reaches a certain age.

Trusts are also commonly used to allow the spouse in a second marriage to live in the family home without the right to sell it or convey it to her heirs, thus preserving the home for the client’s descendants from her first marriage.

Clients have the ability to be as creative as they would like in directing the distribution of their assets.  Almost any scenario that a client can envision can be effectuated through either a trust or a will.

In next week’s article we will discuss the use of an estate plan to appoint proper fiduciaries to handle the distribution of your assets.