Comprehensive estate plans often include precautionary measures that ensure your assets are protected and distributed according to your wishes. Many times, many of your assets will be distributed to your spouse. However, it is important to think ahead for every possible scenario when engaging in comprehensive estate planning to prevent any unnecessary interruptions in the distribution of your assets once you have passed on. Some or all of the provisions discussed below could be a good fit for your estate plan and protecting your assets.
One scenario you may need to consider when engaging in responsible, comprehensive estate planning is one in which you and your primary beneficiary die at the same time or in a manner where it isn’t possible to determine who died first. Popular among married couples that often plan to leave a large part or all of their estate to their spouse, this type of clause allows you to appoint an individual who will be named as the first to die in situations where authorities are unable to determine who died first.
Determining the person that will be named as the first to die can have a significant impact in how your assets are distributed and the effects of such distribution on things like taxes. For example, when one of the primary beneficiaries has a larger estate than the other, that estate could be more likely to be subject to estate taxes if it is over the amount of the estate tax exemption for that year. However, if the estate belonging to the person named the first to die passes all or part of their estate tax exemption amount to their primary beneficiary’s estate, the primary beneficiary’s estate may end up subject to less taxes that the original state would have been.
Deferral of Survivorship
You may also choose to include a provision in your estate plan known as deferral of survivorship. This type of provision allows you to specify that your beneficiaries survive you for a certain period of time – like six months – before your assets will be distributed. This can help your assets avoid potentially costly back-to-back probate and may even help you avoid redundant estate taxes in some situations.
There are rare scenarios in which all beneficiaries may predecease a person that wishes to leave assets to them, or could potentially all perish simultaneously. This type of clause allows you to retain control over how your assets are distributed in such circumstances by allowing you to name a final individual as recipient of your estate in cases where all beneficiaries have also died. Unlike the simultaneous-death clauses that cover the simultaneous death of the individual that is your primary beneficiary, these clauses cover all of your potential beneficiaries.
Were you to pass on with no legal beneficiary, your entire estate could revert to the state in a process known as escheatment. It is common for individuals to use a charity for these purposes because naming a person still leaves the possibility of that person dying before being able to inherit your estate. If you name a charity, even if all individual beneficiaries die the charity is likely to still be in existence.