How Should I Word Will to Direct Sale and Distribution of All Assets?
I would like to put some type of wording in our will that says all assets (IRAs, Retirements, Pensions, stocks/bonds and houses be sold and distributed equally between our family and our charities. How can I say that?
There are a number of ways to do this. But first, let’s consider the pros and cons of taking this step. You may decide that it makes sense to direct that your houses be sold but not your stocks and bonds. The reason to direct the sale of your real estate is that then the broker’s commission and any other expenses related to the sale can be deducted on your estate tax return. That might be irrelevant since fewer and fewer estates are subject to taxation these days, but the threshold in some states is much lower than the federal threshold, as low as $1 million in Massachusetts and Oregon.
The other issue related to sales of property is capital gain. All your property will receive a step-up in basis upon the death of the survivor of you, so there should be little or no gain, but depending on what happens to the market after that death, there could be come gain before the property is sold. It can sometimes take time for your personal representative or trustee to gain control of the assets in order to sell them. In addition, since charities don’t have to pay taxes, it could make sense for the charities to receive any appreciated assets directly rather than have them sold. So I would leave that determination to your personal representative (executor) just in case there could be some savings.
IRAs and retirement plans add a further complication. To the extent they’re payable to charities, the charities can liquidate the funds without paying taxes. If they’re payable to individuals, most beneficiaries can stretch out the withdrawals over 10 years. Certain qualified beneficiaries can stretch them out over their lifetimes. However, if the same IRA or retirement plan names both charities and individuals as beneficiaries, all the individual beneficiaries must make their withdrawals within five years. This is also true if you make them payable to your estates to be divided under your wills rather than naming specific beneficiaries. This means that it probably makes sense either not to include charities as beneficiaries of your IRAs and retirement accounts or to make them the exclusive beneficiaries of specific accounts.
Wording for Your Will (or Trust)
With that background, I would recommend that your will include a paragraph related to real estate that says something like: “I direct that any real estate in which I may have an interest at my death be sold and the proceeds added to the remainder of my estate.”
Then the will should have a paragraph dealing with the remainder of your estate. This can be written in a number of different ways. I often like to differentiate between allocation — the division into shares — and distribution — saying what happens to the allocated funds. So this could read something like this: “My personal representative shall divide the remainder of my estate into two equal shares. My personal representative will pay one share equally to the following charities: . . . My personal representative shall pay the other share equally to the following individuals: . . .” You don’t have to treat the beneficiaries equally, instead giving different percentages to different charities or individuals.
With respect to charities, you can also say something to the effect: “If any of these charities does not exist at the time of my death, my personal representative shall pay that charity’s share equally to the other charities listed above.” Or: “If any of these charities does not exist at the time of my death, my personal representative shall pay that charity’s share to a different charity that serves a similar purpose, the decision of my personal representative to be solely within her discretion and not subject to review.”
With respect to the individual beneficiaries, you also have a choice of what to do in case any of them don’t survive you. One choice is to distribute their share to the other surviving beneficiaries. The easiest way to do this is to change the language above by qualifying the recipients to those who survive you as follows: “My personal representative shall pay the other share equally to those of the following individuals who survive me: . . .” In the alternative, you can provide that the share of any individual who does not survive you passes to their children equally or you can provide specific instructions for each individual, for instance for some that it passes to their spouse.
Finally, if you would like the allocation of your estates to take into account the potentially unequal distribution of your IRAs and retirement plans, you can change the allocation sentence to read as follows: “My personal representative shall divide the remainder of my estate into two shares designated as share A and share B. Share A shall be the amount necessary to give half of my entire estate to charities, taking into account any other property that may have passed to charities and others by reason of my death. Share B shall be the remainder of my estate.” By using this or similar language, you could give all your IRAs and retirement plans either to charities or individuals, making up the difference from your non-retirement plan assets.
(No doubt you thought you would get a simple answer.)