Designating Beneficiaries Using Per Stirpes or Per Capita

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designating beneficiariesIn your estate plan, properly designating beneficiaries is equally important as choosing your beneficiaries. As inferred in the article Considerations for Choosing Your Beneficiaries, choosing additional beneficiaries to designate as alternate beneficiaries in the event a primary beneficiary predeceases you would help in avoiding unintended consequences. However, there are two additional beneficiary designations available to consider in such a situation: per stirpes and per capita. 

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Considerations for Choosing Your Beneficiaries

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choose your beneficiariesAnother important step in building your estate plan is choosing your beneficiaries. As mentioned in the article How Estate Size Will Influence Your Estate Plan, the estate size will influence the size of your beneficiary pool. Accordingly, along with estate size, here are a few more basic considerations for choosing your beneficiaries:

  • Consider your marital status.
  • Designated beneficiaries on assets.
  • Using additional types of beneficiaries along with the primary beneficiary.

Although there are many intricate considerations concerning beneficiaries, these basic considerations are more typical of a common estate

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How Estate Size Will Influence Your Estate Plan

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estate sizeTo properly plan your estate, it’s important to understand how your estate size will influence your estate plan. As explained in the article The First Step to Estate Planning: Estimate Your Net Worth, your net worth will determine your estate size. By calculating your net worth, some important questions will come into focus regarding your estate plan:

  • Are there enough assets to cover your debts and other estate obligations?
  • If there are enough assets to cover the estate obligations, are the remaining assets enough to cover bequests? 
  • Do I need to plan for estate taxes or estate income taxes?
  • Do I need to plan for abatement?

Obviously, these are just a few basic questions as life circumstances can make estate planning much more complicated. However, the answers to these questions will influence how you begin to properly plan for your estate.

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Two Reasons Why a Beneficiary May Become Belligerent

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beneficiary may become belligerentThere are many reasons a beneficiary may become belligerent. However, according to the article How to Handle a Belligerent Beneficiary, one way a beneficiary acts out towards an estate is to exercise their right to contest the will or threaten a lawsuit. Moreover, there are two legitimate reasons why a beneficiary may exercise such a right: abatement or ademption.

Unfortunately, the executor must inform each beneficiary named in the will that they are part of the estate. If the beneficiary understands the bequest they may receive, the beneficiary will expect that bequest at some point. So, if abatement or ademption affected a bequest, the intended beneficiary may become belligerent. As a result, the belligerent beneficiary may contest the will or sue the estate.

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How to Avoid Abatement and Ademption

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abatement and ademptionTypically, careful estate planning will avoid abatement and ademption. However, people with common estates know little about abatement and ademption and fail to plan properly. As a result, the probate court ends up deciding the distribution of bequests through abatement or ademption.

To avoid abatement and ademption, the testator must prepare a coherent estate plan and keep it updated. If the testator uses the process described in the article The First Step to Estate Planning: Estimate Your Net Worth, then avoiding abatement and ademption is possible.

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Determining Bequest Distributions Using the Doctrine of Ademption

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doctrine of ademptionThe doctrine of ademption applies to specific bequests no longer owned by the testator at death. In general, when bequeathed property is no longer part of the estate at death, the bequest fails. As a result, the intended beneficiary receives nothing and doesn’t retain any rights to the property. 

In short, all states apply the doctrine of ademption in some form. Additionally, the following two forms of ademption make up the doctrine:

  1. Ademption by extinction – This form of ademption applies when the bequeathed property is not part of the estate at the testator’s death.
  2. Ademption by satisfaction – Concerns property given to a beneficiary during the life of the testator.

Although all states use the doctrine of ademption, not all states apply ademption the same way. The rest of this article will touch on the two forms of ademption.  

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Paying Debts and Honoring Bequests through the Abatement Process

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Abatement ProcessWhen an executor realizes the estate lacks the assets to meet estate obligations, including bequests, an abatement process occurs. The abatement process allows for the proportional payment of obligations using limited assets that result in reducing or eliminating bequests to beneficiaries.  

Initially, to determine the need for abatement, the executor will build an administration plan as described in the article The Administration Plan: A Necessity for the Executor. If the plan reveals that the estate lacks the assets to meet estate obligations, then abatement will result. Additionally, if the will excludes abatement instructions, estate law will handle the abatement process. This article will provide an overview of how estate law in Massachusetts handles abatement. 

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Close the Temporary Home Office

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close the temporary home officeAfter closing an estate, the most gratifying task for an acting executor is to close the temporary home office. Typically, after satisfying all the rules of probate in a formal probate process, the executor will close the estate. As a result, the executor becomes an acting executor responsible for closing tasks as described in the article Estate Income Tax Returns: Review and File the Returns. In the end, the one closing task an acting executor likes is the final task: the task to close the temporary home office.

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Estate Income Tax Returns: Review and File the Returns

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review and fileThe time to review and file the estate income tax returns occurred simultaneously with closing the estate. According to the article Closing the Estate: Final Tasks to Close the Estate, on October 29, 2013, I was dealing with the professionals to send a final invoice. On that same day, the fiscal year returns, both federal and state, arrived in the mail for my review. Since the tasks of closing the estate and reviewing the fiscal year returns weren’t burdensome, the timing was fortunate. The arrival of the fiscal year returns would allow me to review and file the returns while closing the estate. So, the only task remaining after closing the estate would be dealing with the short year returns.

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