What is an Ethical Will? 

Kay Dee Cole

September 14, 2017

Your estate is much more than just your physical belongings and financial assets – it’s all the pieces of your life you’ve collected over the years.

A great way to ensure your wisdom, memories and messages are passed onto your loved ones is to collect them in what’s known as an ethical will.

What is an Ethical Will?

An ethical will – not to be confused with a legal document, such as a living will or a last will and testament – is a legacy document given to your friends and loved ones. It’s an opportunity to share your thoughts, dreams, stories and reasons for your decisions.  You can use an ethical will to pass on personal life lessons or heartfelt wisdom – not just your assets.

Ethical wills have been around for centuries. Originally, they were an oral tradition used by Jewish people to pass on life lessons and ethics, such as the importance of charitable giving. Today, they have several uses. For example, an ethical will might be used to explain to future generations how the family money was made and how it is to be used.

They do not blame or say anything negative or painful and should not conflict with the contents of a standard will. Rather, an ethical will should be considered a love letter from the heart to those you love.

How to Create an Ethical Will

Unlike a standard will, you don’t need a lawyer to prepare an ethical will. However, some law firms use professional videographers to capture the patriarch/matriarch of families speaking to assist with conveying strong personal messages and even to help avoid family conflict.

With today’s technological capabilities like videos, DVDs, digital scrapbooks, smart phones, social media, and even PowerPoint, ethical wills are easier than ever to create. Increasingly, they have become part of many people’s estate planning toolbox!

Related: What Updates Should You Make to Your Estate Plan After Your Spouse Dies?

5 Things to Include in Your Ethical Will

If you would like to make an ethical will, here are some things to consider:

1. Your true and positive feelings. If there was ever a time to speak honestly, it’s now. This is the last memory of you your loved ones will carry for the rest of their lives, and possibly share with future generations. What do you want your legacy to be?

2. Words of praise. This is a chance to speak directly to your children, spouse or other close family members. What have they accomplished that you are most proud of? What do you hope they continue to succeed with after your passing?

3. Apologies and requests for forgiveness. Everyone makes mistakes, and sometimes you’re waiting for the right moment to make amends. Although an in-person apology is best, an apology through your ethical will may offer some closure to the recipient.

4. Offerings of forgiveness. Do you have any grudges you’ve been holding that you don’t want to take to the after life? Now’s a great time to forgive and forget.

5. Words of wisdom. You’ve learned several lessons throughout the course of your lifetime, but which are most important? What advice do you think future generations could benefit from?

When you take the time to share thoughts, reflections, personal wisdom, thoughts and reflections your loved ones will think it’s the most important thing you’ve ever done for them!

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Just Found Out You’re the Beneficiary of a Trust? Here’s What You Need to Know

Just Found Out You’re the Beneficiary of a Trust? Here’s What You Need to Know

If you have been named as a beneficiary of a trust, you probably have many questions about what comes next. Trusts can take many forms and may be governed by unique provisions established by the creator of the trust or “grantor.” As a trust beneficiary, you have certain rights. But to ensure that your financial and other interests are fully protected, you need some basic information about different trust structures and their management.

Trust Basics

At their most basic, trusts can be grouped into two broad categories – living trusts and testamentary trusts. A living trust is created by an individual during his or her lifetime. The grantor transfers property to a trust that is managed for the trust beneficiaries by a trustee. The grantor may act as trustee, or he or she may appoint another family member or family advisor, such as an attorney or accountant to be the trustee. A testamentary trust is established by will upon the death of the person whose assets it represents. Testamentary trusts can be used for many purposes; chief among them to provide for current and future beneficiaries.

In either case, it is the trustee who is charged with administering the trust in strict accordance with its terms. If this so-called fiduciary duty of the trustee is breached in some way, beneficiaries have the right to protect their interests by taking legal action against the trustee.

Role of the Trustee

Following is a brief overview of the trustee’s role and responsibilities.

• Asset collection and protection – Two of the trustee’s key responsibilities are collecting assets earmarked for the trust and ensuring the protection of those assets. For instance, if real estate is included as a trust asset, the trustee is responsible for the maintenance and upkeep of the property and maintaining appropriate insurance on the property. In the case of financial assets, such as cash or securities, the trustee must maintain one or more separate accounts on behalf of trust beneficiaries.

• Investment oversight – The trustee ensures there is a plan in place to address the needs and interests of current and future beneficiaries. Typically, trust investments are expected to generate income for beneficiaries while also retaining and reinvesting principal. In some cases, the trustee may have the authority to make distributions of principal to beneficiaries.

• Taxes – The trustee reports all income generated by trust assets and pays tax on any undistributed income as well as capital gains realized by the trust. In addition, the trustee informs beneficiaries of the amounts that they must report on their personal income tax returns as a result of trust distributions.

• Recordkeeping – The trustee is responsible for documenting every transaction that takes place in the trust accounts. Prior to final settlement, the trustee must demonstrate to the beneficiaries that all assets and income have been properly administered and distributed.

Beneficiary Right to Action

In addition to regular accounting of trust assets, beneficiaries have a right to request a special accounting from the trustee if there is reason to suspect a problem with the trustee’s performance of his or her fiduciary role. If it is found that the trustee is in violation of his or her responsibilities or fails to provide proper documentation of trust activity, then the beneficiary has the right to take legal action, including removing the trustee and requesting a replacement. Such action is normally handled by filing a petition with the local probate court.

Revocable vs. Irrevocable Trusts

Living trusts may be revocable or irrevocable. As its name implies, property held in a revocable trust may be “revoked” at any time; the terms of the trust may be changed and assets returned to the grantor. He or she can establish detailed instructions as to the handling of trust assets during his or her life and ensure continuity of management upon incapacity or death. Revocable trusts need not be filed in probate court after death, thus maintaining family privacy. However, the grantor will be subject to income and estate tax as if the property were owned outright.

In contrast, assets placed in an irrevocable trust are permanently removed from the grantor’s estate, and any income and/or capital gains taxes owed on assets in the trust are paid by the trust. Upon the grantor’s death, the assets in the trust are not considered part of his or her estate and are therefore not subject to estate taxes.

Irrevocable Trusts Offer Lifetime Giving to Beneficiaries

While requiring some loss of grantor control, a properly drafted irrevocable living trust allows individuals of substantial wealth to begin transferring assets to beneficiaries during their lifetime without incurring gift or estate tax. (Please note that a three-year survival period may be required in certan situations).

For example, the normal annual limit on tax-free gifts is $14,000 per beneficiary in 2015, an amount that may be indexed for inflation in future years. Under some circumstances, a taxpayer may include amounts above that in his or her unified estate and gift tax exclusion amount ($5.43 milliion in 2015 for an individual, twice that for a married couple, and subject to indexing for inflation in subsequent years). In addition, upon the grantor’s death, appreciation on the remaining trust assets is not subject to estate tax (assuming any three-year survival requirements are met).

Being named as a beneficiary of a trust is indeed a welcome event, but not without its complications and, if handled improperly, unfortunate consequences. For help understanding your rights and protecting your inheritance, it may be wise to engage the services of an experienced trust attorney.

Financial Planning Association
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