If you have a question about estate planning in the U.S., Jordan Waxman may have the answer.
Waxman, BA’86, JD’91, BCL’92, is co-founder and managing partner of Nucleus Advisors, a private wealth planning and management firm. Ranked as one of America’s Top Wealth Advisors by Forbes and Barron’s, he’s also a member of McGill’s new Strategic Giving Council.
“The goal of an estate plan is to have a coherent and efficient way to distribute one's possessions to beneficiaries and potentially to charity," says Waxman. For information on how that can be accomplished, Waxman shares his expertise below.
Not offering any advice or opinion
Through this “Leaving a legacy: U.S. Bequests” article, McGill University, along with the presenter concerned, offer general information (the “Information”) only. The Information is not intended as legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. While the Information presented here is believed to be factual and current, it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect those of the individual presenter concerned and are subject to change. Opinions expressed in this article are those of the interviewee and do not necessarily reflect those of McGill University or its members.
Can you prepare a will on your own, or do you need a professional?
The answer, by and large, is yes. You can prepare a will on your own; you don’t need a professional.
However, if you do use a professional you’re likely to avail yourself of all the smartest tools available – whether it be finding ways to exempt assets from estate taxation, avoiding costs associated with exempting assets from the estate, minimizing disputes when the estate is settled, or finding ways to avoid probate (the process by which assets without a designated beneficiary get distributed by the court).
A professional will also avail themselves of the potential tools on hand in the state in which the estate is settled or in which the grantor was deceased or lived – whereas doing it on your own or enlisting a free service won’t necessarily do so.
Can you handwrite a will in the United States? In what jurisdictions is this possible?
Certain states recognize handwritten wills. They’re called holographic wills.
If you have any part of the holographic will that is typed, then it’s no longer a holographic will and you must check all the boxes for a non-holographic will: notarization, witnesses, and so on.
There are cases in which an individual might think their holographic will is valid when it’s not. In this case, the will may be subject to probate or dispute; that’s another reason to use a professional.
How often should a will be updated?
The rule of thumb is every five years, or when there’s a significant life change. Examples may include the birth of a child, a marriage or divorce, a beneficiary with special needs, or trusts that come into existence.
Until you sign, notarize, witness, and execute either the will or the changes to the will, it’s not in force.
If you have an existing will and you wish to make small changes, I understand that you can prepare a codicil. Can you tell me more about this, and what the advantages are?
A codicil is an amendment to the will. So rather than having to overhaul an existing will (which includes the legal cost of unpacking the details of an existing will and writing a new one), the will is amended.
A codicil still has certain requirements, like notarization and witnessing, depending on the state you’re in.
If something has to be substituted altogether, or there’s a new trust in existence or a new charitable bequest, it may be time to rewrite the will instead.
Let’s say that you wish to do two things with your will: leave assets to your loved ones, as well as leave assets to a charity. What are your options?
There are countless ways to do this.
Commonly, people want to leave assets to their heirs. But you could also leave a percentage, or a specific dollar amount, to charity.
You can also leave a percentage or a specific dollar amount to a foundation that then gives to charity, or to a donor-advised fund that then gives to charity.
You could gift the residue or remainder of your estate – which is everything that is left in the estate after debts, taxes, expenses, and specific legacies have been settled.
You could also give a contingent gift. An example would be, ‘if my spouse doesn’t survive me, then the gift goes to charity,’ which means the charitable gift is contingent on the status of your spouse.
There are so many ways to do it.
But even before the will – which is the ultimate distribution of your assets upon death – you can set up trusts during your lifetime. Those trusts could provide annual gifts to charity with the remainder going to the family, or vice versa: an annual gift to the family and the remainder going to charity.
If you have insurance policies, you can name an heir or a charity as beneficiaries of that policy.
Leaving a gift to charity will result in a charitable tax receipt for the full amount. How is this beneficial to the estate?
Any amount of money that’s given to charity – in a will, for example – is excluded from the calculation of estate tax on the residual.
Currently in the United States an individual can exclude about $13.61 million dollars, and after that the amount becomes taxable. It’s the same for the other spouse. At the moment the estate tax rate is 40 per cent federally, and some states also have a state tax.
So if it’s a large estate, the grantor can exclude the maximum amount (currently $13.61M), put it into a marital trust their significant other can use, and give the remainder outright to the spouse. Upon the death of the second spouse, the second spouse says, ‘I’m going to exclude the certain amount that I can give away (currently another $13.61M), and the remainder goes to my heirs.’
If the remainder is $10M, it means $4M would go to the government and $6M goes to the heirs – in addition to the initial $27.22M estate-tax-free assets, plus the growth of those assets since exclusion. An individual may decide, ‘Actually, I’d like to give $5M of that to McGill University.’ That means that of that $10M taxable estate, $5M will go to charity, and the other $5M is taxed. As a result, $5M goes to charity, $3M goes to beneficiaries, and $2M goes to the government.
In other words, every dollar you eliminate by virtue of a charitable gift comes out of the estate. And it’s the same if you’re living; if you gift money to charity now, it’s no longer taxed in your estate because it’s no longer in your possession.
If you don’t want to pay any estate taxes, give your money to charity. That’s being simplistic, but you have the option to avail yourself of all of the tools to exempt assets from your estate, and then give the rest to charity.
The advantage is the ability to make an impact on a cause you affiliate with or you think is worthwhile, as opposed to leaving it to the government. It’s taking the power back into your hands.
What impact can a charitable bequest have on McGill?
The University is grateful for every gift it receives. McGill relies heavily on these kinds of bequests, and it can make a very powerful impact well past the donor’s lifetime.
When or how should I make McGill aware of my gift?
I think as soon as you make it. As soon as you put it in the document, it’s probably good to let someone at McGill know. The donor can make sure they’re comfortable with where the funds will go and how they’ll be distributed, and it’s also an opportunity to have a relationship with the University. (Note: All McGill legacy gift information is kept strictly confidential, and donors are invited to join a Legacy Society.)
If my circumstances change, can I alter my will?
Yes, of course. People do it all the time. Writing a will is a revocable act.
They’re your assets, and this is their ultimate disposition.
What does it mean to have a contingency/disaster clause?
A contingency clause or disaster clause is common. It states what will happen in the event that there’s a disaster and no heirs survive.
I have three children, and I want each to have a portion of the estate. What if one of them passes away? What if they all predecease me, and none of them have children? How does that get calculated? These are all contingencies which can be addressed in the will.
My will’s disaster clause makes McGill University the beneficiary, but there are plenty of other options.
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