Duties of the Executor language

[Diane1]

Jurisdiction

D.C.

Can anyone explain in simple terms the intended meaning of this "Duties of the Executor" language in a respected online will generator?

"Notwithstanding any other provisions of this Will, my Executor shall, to the extent possible, not use any property otherwise excludable from my estate for estate tax purposes for payment of any obligations of my estate, including any obligations for taxes."

 

[adjusterjack]

I suggest having a lawyer create the will.

That provision is likely unenforceable as the tax and probate laws are likely to override it.

Besides, the phrase "to the extent possible" gives the executor an out because it won't be possible to avoid liquidating estate assets to pay taxes that the estate may owe.

 

[Tax Counsel]

Can anyone explain in simple terms the intended meaning of this "Duties of the Executor" language in a respected online will generator?

"Notwithstanding any other provisions of this Will, my Executor shall, to the extent possible, not use any property otherwise excludable from my estate for estate tax purposes for payment of any obligations of my estate, including any obligations for taxes."

This is a good example of why people shouldn't rely on internet sites or computer programs that generate wills based on cookie cutter paragraphs. That paragraph is, IMO, poorly written. If you have to read it more than once to understand it the author should rewrite it to make it more clear.

Simply put it is saying that all obligations of the estate must first be paid out of those assets that are included in computing the estate tax. In the language of estate tax, these assets make up the gross estate.

There are two reasons for doing that. As to the estate tax itself, if the tax is paid from assets that were subject to the tax then beneficiaries getting assets not subject to tax won't have a bite taken out of what they get to pay a tax that has nothing to do with the stuff they are getting from the estate. The second is that some debts paid out of the pot of assets that are subject to the estate tax may provide a deduction for the estate, thus reducing the amount of estate tax paid.

Right now the unified credit effectively allow the estate to pass up $13,610,000 of assets free from estate tax. The tax bill enacted in 2017 expires after 2025, which means federal tax law will revert to what it was prior to 2018 unlesss Congress steps in next year to pass a bill to provide a different result. As things stand now, if the current is simply allowed to expire, the unified credit in 2026 will drop to approximately $5 million. See the IRS page on Estate and Gift Tax FAQs. From the comments made by various current members of Congress it seems very unlikely that the unified credit will be dropped below $5 million.

DC is one of the few jurisdictions in the U.S. that still has its own estate tax. But it only affects estates with assets of at least $4 million.

In short, unless you expect your estate to have at least $4 million in assets you don't need to worry about either the federal or DC estate tax. In that situation, the paragraph you quoted above may end up taking the expenses of the estate from the assets just some beneficiaries and not others without any obvious benefit to the estate. You might want to have the provision on the payment of expenses written differently so the burden of expenses is shared by all beneficiaries based on the value of the estate they get, which would be a more equitable result.

People who use will generating software and do not fully understand how the will the software gives them will work may end up with a result they didn't intend, but after death they can't fix it.

A basic will done by an attorney is not terribly expensive and you'll get a will that is specific to your particular situation. If you want the will to work as you intend and save as much in taxes and costs as possible, this is the best way to do that. It may also be that you'd be better off having an estate plan in which all your assets pass outside of probate, saving probate costs and reducing the time it takes to settle the estate. There are various ways to do that, and the estate planning attorney should bring any alternatives that may be good for you to your attention. A will generating program cannot do that for you.

 

[Tax Counsel]

I suggest having a lawyer create the will.

I agree an estate planning lawyer should be consulted. It may be that some other estate plan, like a trust or pay on death beneficiary designations would be better for passing the assets than a will, and the attorney should do a much better job of writing the will, trust, etc than that will generating program did.

That provision is likely unenforceable as the tax and probate laws are likely to override it.

It's not unenforceable in any jurisdiction I'm familiar with, and I used to live in DC myself. While the language is a bit clunky, all that paragraph does is specify the pot of estate assets that will be used to pay the taxes and other expenses of the estate. That kind of provision is pretty common.

Besides, the phrase "to the extent possible" gives the executor an out because it won't be possible to avoid liquidating estate assets to pay taxes that the estate may owe.

That sentence simply allows for the situation in which there are not enough assets in the gross estate to pay all the debts. In that case, that sentence provides an ordering rule in which the bills are paid first out of the gross estate before touching the assets excluded from the tax.