How to Gift to Lesser Beneficiaries
Most clients know when planning their Wills who they want to name as their primary or most important beneficiary. They do struggle, though, sometimes for years, as to how to benefit others further down the line. There are ways to remember other beneficiaries at the time of your death.
For married couples, using the typical Husband to Wife, Wife to Husband Wills, with remainder to the children when the second spouse dies, children do not inherit until both parents die. Spouses either are satisfied with this result, do not realize this, or do not know how to handle this circumstance in any other way. If a parent wants to benefit his or her children, especially those by a prior marriage, he might consider some distribution to his children on death for at least a portion of the estate. If this is a second marriage, distributions may need to be considered carefully.
Taking another example, a widow or widower might favor one child over another. This treads on dangerous ground since resentments may develop if one child becomes the Will’s sole beneficiary or most assets are jointly titled with the parent. Parents agonize whether they should distribute assets evenly regardless whether one or more children have been more helpful and available to them than the rest.
Here are some suggested solutions.
- Family Agreement – Where one or more children contribute substantially more to help aging parents, a written pay-as-you-go agreement may help to adequately compensate them during your lifetime.
- Beneficiary Designations or Payable On Death Accounts. A quiet way to benefit those who help the most might be by making that person the beneficiary of life insurance or of an IRA or other asset. Life insurance has an added benefit since it is the only asset on which there is no inheritance tax. Where minor children are concerned, who cannot inherit directly anyway, life insurance to a trust for the benefit of the minor beneficiary is a practical possibility. This can either be done through a trust established by the Will or in a separate standalone trust.If the beneficiary is disabled or cannot handle money it may be better to set up a Supplemental Needs Trust or a Spendthrift Trust either of which can be funded with life insurance to handle the funds.Naming an adult child as a beneficiary of a life insurance policy can also be used as a tool to benefit one adult child without raising the problems associated with naming that child at a higher percentage under the Will.
- Gifting During Life. Individuals who want to pass on something of themselves as reminders might consider gifting memorable items during their lifetime. Jewelry and personal belongings can easily be gifted. If their aggregate value does not exceed $14,000 to any one individual in a given calendar year, no gift tax return needs to be filed and, even for more valuable items, the filing of a gift tax return except for extremely large amounts and valuable assets does not require paying any tax.
- Memoranda Under the Will. When I first practiced law, persons writing their Wills often included long lists of personal items they wanted to pass by Will. These were cumbersome and needed to be updated regularly. Today, more often, Wills contain a provision that a Memorandum may be added to the Will designating certain items to certain persons.
- Specific Bequests. A specific bequest in a Will designates specific property to designated individuals. It could be an actual dollar amount as in “I devise $10,000 to my Cousin Mary” or could name certain property or accounts. If specific property is named, it must be in existence at the time of death in order to pass to the beneficiary. If, for instance, the maker of a Will states that his car should pass to son, John and then sells that car, the gift lapses. If the maker wants any automobile that he owns at the time of his death to pass to John, then he should state “or any car that I own at the time of my death.”
These resolutions require time and thought but can be well worth the effort.
About the Author Janet Colliton
Esquire, Colliton Law Associates, P.C. Janet Colliton has practiced law for over 38 years, 37 of them in Chester County, Pennsylvania, a suburb of Philadelphia. Her practice, Colliton Law Associates, PC, is limited to elder law, Medicaid, including advice, applications and appeals, and other benefits planning including Veterans benefits, life care and special needs planning, guardianships, retirement, and estate planning and administration.