Bequests

What Are Bequests?

A bequest is a gift of personal property or assets made to an individual or organization through a will or other estate planning instrument. These distributions are fundamental components of estate planning, allowing a person to designate how their possessions will be transferred after their death. Bequests can include a wide range of assets, such as money, real estate, securities, or tangible personal property. The individual or entity receiving the bequest is known as the beneficiary.

History and Origin

The concept of transferring property after death has ancient roots, predating modern legal systems. Early forms of testamentary dispositions can be traced back to ancient civilizations, including Egypt and Mesopotamia, where provisions for possessions were made in anticipation of the afterlife or to ensure family continuity. The Romans significantly formalized these practices, with their "testamentum" allowing citizens to designate heirs and distribute property. Roman law introduced the idea of a comprehensive will, including the appointment of an executor and specific instructions for asset distribution.⁹, ¹⁰, ¹¹, ¹², ¹³

In England, early wills were often oral declarations. A significant shift occurred with the Statute of Wills in 1540, during the reign of Henry VIII, which granted individuals greater freedom to dispose of their land through written wills. This marked a move away from strict feudal inheritance rules. Further formalization came with the Wills Act of 1837, establishing requirements for a valid will, such as being in writing, signed by the testator, and witnessed. These historical developments laid the foundation for the structured approach to bequests and probate seen today in many common law jurisdictions.⁴, ⁵, ⁶, ⁷, ⁸

Key Takeaways

• Bequests are gifts of personal property or assets made through a will or other estate planning document.
• They allow individuals to specify how their wealth will be distributed to designated beneficiaries after their death.
• Bequests can be specific (a particular item), general (a sum of money), or residuary (the remainder of an estate).
• Effective planning for bequests can help minimize potential estate taxes and avoid intestacy.
• The legal validity and execution of bequests are typically governed by state or national laws.

Interpreting Bequests

Interpreting bequests involves understanding the specific language used in a will or trust document to ensure the testator's (the person making the will) intentions are accurately carried out. Bequests can take several forms:

• Specific Bequest: This designates a particular item to a named beneficiary, such as "my antique watch to my grandson."
• General Bequest: This is a gift of a certain amount of money or a certain quantity of an asset, without specifying a particular item. For example, "I give ten thousand dollars to my niece" or "I give 100 shares of XYZ stock to my brother."
• Demonstrative Bequest: Similar to a general bequest, but it specifies the source from which the gift should be taken, such as "I give ten thousand dollars from my savings account at ABC Bank to my nephew."
• Residuary Bequest: This refers to the remainder of the estate after all specific, general, and demonstrative bequests, debts, and expenses have been paid. For example, "I give the rest, residue, and remainder of my estate to my spouse."

The clarity of the language used in drafting the bequests is paramount to avoid disputes among legal heirs and ensure the smooth administration of the estate.

Hypothetical Example

Consider Jane, who is creating her estate plan. She owns a house, a diversified investment portfolio, a collection of rare books, and several bank accounts.

In her will, Jane includes several bequests:

1. Specific Bequest: "I bequeath my collection of first-edition novels to the local public library." This is a tangible item specifically named.
2. General Bequest: "I bequeath one hundred thousand dollars ($100,000) to my sister, Sarah." This is a sum of money from her general assets.
3. Residuary Bequest: "I bequeath all the rest, residue, and remainder of my estate, both real and personal, to my children, equally." After all other specific gifts, debts, and expenses are settled, whatever remains of her house, investments, and bank accounts will be divided among her children.

Upon Jane's death, her executor would be responsible for identifying these assets, paying any outstanding obligations, and then distributing the specified bequests according to her wishes.

Practical Applications

Bequests are central to personal financial planning and have several practical applications:

• Wealth Transfer: The primary use of bequests is to transfer wealth and assets from a deceased individual to their desired beneficiaries. This ensures that personal property, financial holdings, and real estate are distributed according to the testator's wishes, rather than state intestacy laws.
• Charitable Giving: Many individuals choose to include charitable bequests in their wills, leaving a portion of their estate to non-profit organizations, educational institutions, or other causes. This can provide significant financial support to these entities. For instance, in 2023, bequests accounted for a substantial portion of total charitable giving in the United States.³
• Tax Planning: Strategic planning of bequests can be a critical component of tax planning for an estate. For example, charitable bequests can reduce the taxable value of an estate, potentially lowering or eliminating federal estate taxes. The Internal Revenue Service (IRS) provides detailed guidance on estate tax regulations.²
• Legacy Building: Bequests allow individuals to leave a lasting impact, whether by supporting family members, funding research, endowing scholarships, or preserving historical sites.
• Estate Administration: Clear and precise bequests simplify the probate process, providing clear instructions for the executor or personal representative responsible for settling the estate. Many states have adopted versions of the Uniform Probate Code to streamline this process.¹

Limitations and Criticisms

While bequests are a powerful tool for asset distribution, they are subject to certain limitations and potential criticisms:

• Legal Challenges: Bequests can be contested in court, particularly if the will's validity is questioned due to issues like undue influence, lack of testamentary capacity, or improper execution. Such challenges can lead to lengthy and costly legal battles, diminishing the estate's value and delaying distribution to beneficiaries.
• Clarity and Specificity: Ambiguous language or a lack of specificity in describing assets or beneficiaries can lead to misinterpretations and disputes. If a bequest is vague, its execution may require court intervention, potentially overriding the testator's original intent.
• Tax Implications: While charitable bequests can offer tax advantages, other bequests might be subject to estate taxes, inheritance taxes (in some states), or capital gains taxes for beneficiaries, depending on the asset and jurisdiction. A lack of proper tax planning can significantly reduce the net value of a bequest.
• Creditor Claims: Bequests are only distributed after all legitimate debts and expenses of the estate have been satisfied. If an estate is insolvent (debts exceed assets), beneficiaries may receive less than expected or nothing at all, despite explicit bequests in the will.
• Changes in Circumstances: A will, including its bequests, can become outdated if not regularly reviewed. Changes in family relationships (e.g., divorce, births), financial status, or beneficiary needs can render existing bequests impractical or unintended.

Individuals should consult with a qualified financial advisor or estate attorney to ensure their bequests are legally sound and align with their overall estate plan.

Bequests vs. Legacy

While often used interchangeably in casual conversation, "bequests" and "legacy" have distinct meanings within the context of estate planning. A bequest is a specific, legally defined gift of personal property or assets designated in a will or similar document. It refers to the tangible items or financial value transferred upon death. For example, leaving a sum of money to a university or a piece of jewelry to a family member are both bequests. The term is precise and pertains to the actual property being given.

In contrast, a legacy is a broader concept. While it can include financial and material inheritance (bequests), it also encompasses the intangible impact, reputation, or influence an individual leaves behind. A legacy involves the traditions, values, memories, and contributions that endure after a person's lifetime. For instance, a person might leave a legacy of innovation in their industry, a legacy of community service, or a legacy of ethical conduct, alongside any financial gifts. Bequests are a component of a financial legacy, but a legacy extends far beyond monetary or property transfers.

FAQs

1. What is the difference between a devise and a bequest?

Historically, a devise referred specifically to a gift of real property (like land or a house) through a will, while a bequest referred to a gift of personal property (like money, jewelry, or stocks). In modern legal practice, especially with the simplification of terminology, the term "bequest" is often used broadly to refer to any gift made in a will, whether it's real or personal property.

2. Can bequests be conditional?

Yes, bequests can be made conditional, meaning the beneficiary must meet certain requirements or fulfill specific criteria to receive the gift. For example, a bequest might state that a grandchild receives funds only upon graduating from college. However, such conditions must be legal, not against public policy, and clearly defined to be enforceable. An executor has a fiduciary duty to ensure these conditions are met.

3. What happens if a beneficiary of a bequest dies before the testator?

If a beneficiary named in a bequest dies before the testator, the bequest typically "lapses" or fails. The gift would then usually fall into the residuary estate and be distributed to the residuary beneficiaries, unless the will specifies an alternative beneficiary or a state's anti-lapse statute applies. Anti-lapse statutes vary by jurisdiction and often protect gifts to certain relatives.

4. Are bequests subject to taxes?

The tax implications of bequests depend on the jurisdiction and the type of asset. In the United States, federal estate tax may apply to large estates before distributions are made to beneficiaries, but beneficiaries generally do not pay federal income tax on the value of the bequest itself. However, some states impose inheritance taxes on the beneficiary or estate taxes on the estate. It is advisable to consult a tax planning professional or financial advisor to understand specific tax liabilities.

5. Can I change bequests in my will?

Yes, bequests within a will can be changed through a legally executed amendment called a codicil, or by creating an entirely new will that revokes the previous one. It is crucial to follow all legal formalities for amending or creating a new will to ensure the changes are valid and enforceable. Regularly reviewing your estate plan is recommended to ensure it reflects current wishes and circumstances.