Fall 1995

Joe Longhours is a successful executive with the Business Company. He and his wife Joanne had their Wills done a few years ago. The Wills provide for a trust to be formed for the surviving spouse, to provide support and at the same time make optimum use of their combined $1.2 million exemption from estate taxes. This allows the maximum amount to pass on after their lifetimes, tax-free to their children. The Wills provide that the inheritance of any child under the age of thirty is to be held in trust. The children are now teenagers.

Mr. and Mrs. Longhours's largest asset is their retirement plan, a profit sharing account with the Business Company. The beneficiary designation provides that, in the event of Joe's death, the benefit would be payable to Joanne if she survived him, and, if not, to their children. This seemed to make the most sense when Joe was filling out the forms. However, this seemingly sensible arrangement could cause serious problems. The problems arise because the beneficiary designation takes precedence over the Wills:

1. If Joe dies and the whole retirement benefit is paid to Joanne directly, this could undermine the tax-saving trust arrangement in the Wills. It could mean that the family gets only one $600,000 exemption from estate taxes, rather than two.

2. If Joanne does not survive Joe, the benefit would be payable directly to the (now young) children. This is contrary to the children's trust arrangement, which has been inserted in the Wills to encourage the children's proper development.

As indicated by this brief example, one important aspect of estate planning is to coordinate the direction of assets, like retirement benefits, which are "outside the

Will." If you'd like to discuss this or any other aspect of your estate planning, please call the attorney with whom you work, or any of the members of our Trusts & Estates Group. Thanks.

P. S. Those of you who are (or should be) making annual gifts to reduce your taxable estate - don't forget to do so before the end of the year!