Archive for the ‘Wills (or Not!)’ Category
Tales From The Mason Law Horror Files . . .
Once Upon A Time . . .
Margaret and Jim Anderson raised their three children, Princess, Bud and Kitten in the 1950’s and 1960’s in the Greystone area of Asheboro, North Carolina (a leafy post-WW II neighborhood of 3 and 4 bedroom homes). The three kids grew up. Bud moved to Charleston, and Kitten moved to Atlanta. Princess stayed on in Asheboro.
In 1995 Margaret suddenly died. Although Jim was bereaved, wedding bells rang in 2003 when he married Eloise Haskell, a widow from nearby Mayfield. Eloise had an only child, Eddie Haskell, who lived in Oregon. The Anderson kids had a difficult time with Eddie on the rare occasions they saw him (Eddie had a difficult time concealing his manipulative and greedy nature).
Eloise and Jim’s children maintained a friendly, but never-too-close, relationship. Things became a bit strained, especially between Eloise and Princess, when Eloise began to show some early signs of dementia in 2005 (some forgetfulness, a bit of paranoia . . . but nothing too alarming). Jim remained active and vigorous, continuing with volunteer work at a variety of charities. Then, in 2010, disaster: Jim suddenly died.
After the funeral, Princess found a copy of Jim’s old will naming Princess as executor. She made an appointment with Bob Mason and asked him “tell me what to do?”
Princess, We Have a Problem . . .
Jim’s 2004 will left a life estate in the Greystone house to Eloise and also left all household furnishings to Eloise (with the proviso that Eloise allow Jim’s kids to have whatever). The will left the rest of Jim’s estate to his children.
After some research Bob discovered that in 2005 Jim deeded a tenancy by the entireties interest in the Greystone home to Eloise (a type of estate in land in which spouses own the land together and in which the surviving spouse takes the entire interest upon the death of the first spouse to die).
Bob also noted from documents dropped off by Princess that Jim’s Acme Investment Advisors mutual fund was titled in his and Eloise’ name.
After Princess qualified as Executor, Bob discovered that two other bank accounts were jointly titled with Eloise and that she had been beneficiary of Jim’s IRA since 2005.
At a followup meeting, Bob delivered the bad news.
“Let’s Get Bud and Kitten on a Conference Call”
In an Anderson family meeting (Bud and Kitten called in, Princess spent most of the time with the tissue box in the conference room), Bob explained that the Greystone home they were raised in became Eloise’s home (outright, to do with as she pleased, and not “just a life estate”) upon Jim’s death by virtue of the 2005 tenancy by the entireties deed. The will didn’t really matter.
Bob also explained that the jointly owned accounts were now owned by Eloise, and that as IRA beneficiary she was entitled to that account. Again, the will didn’t matter.
Bud and Princess both agreed that Eloise’s son, Eddie Haskell, “had a lot of lawyer friends.” They said that Eddie had been extremely ingratiating to Jim for years and “he probably talked Jim into setting up everything that way.” Bob explained that it would be very difficult to prove undue influence or fraud many years after Jim had retitled the house and the accounts . . . especially when Jim had been so active (and obviously in command of his mental faculties) up until his death.
To Add Insult to Injury . . .
Princess called Eloise and attempted (very politely) to ask if Princess could have some of the furniture, silver and china that had been her parents. Eloise grew vague and mumbled something about “thinking about it.”
When Princess called back a few weeks later Eloise exploded and demanded that Princess leave her alone and that if she kept pestering her she would have Eddie contact a lawyer.
What Should Have Been Done?
You tell me! A copy of the 9 1/2 hour DVD set “Elder Law University” ($149 value) will be given to the best response in the comment section below. The August 1 issue of Elder Law Update (and an accompanying post here) will discuss a few of my recommendations . . . and, of course, announce a winner
So . . . post away!
PS: IF YOU ARE ONE OF MY LAWYER READERS NO YOU CAN’T PARTICIPATE!!
AND NOW . . . HEH, HEH, HEH . . . THE ANSWER
Two weeks later and here we are.
Of course, the correct answer was Don James’ (below): He should have hired ME! But since he didn’t . . .
Billie Hansen, Kelly Anderson, and Celeste Spence all mentioned a wonderful idea . . . . COMMUNICATION! What a novel idea! True, people procrastinate, but marriages at any age are a major milestone. Out of a love and kindness to both families there should have been some frank discussions ahead of time.
The problem often is that no matter how well planned a will may be, they are relatively easy to change. A properly drafted prenuptial agreement can create enforceable rights in later heirs if the parties to the prenuptial agreement specify and agree that they will maintain valid wills that make the desired dispositions to various family members. Even if they later change their wills or titles to real property there may be a cause of action available to the heirs. Prenuptial agreements do nothing, however, to protect assets if this older couple is concerned about protecting assets in the event the new bride or groom ends up in a nursing home. Medicaid counts the assets of both members of a married couple, and North Carolina has something called the “Doctrine of Necessaries.” Under that old doctrine, each of a husband and wife are legally obligated for the other’s medical care regardless of any agreement they may have had between each other (this doesn’t apply if one is on Medicaid). In those cases a “prenup” wouldn’t have mattered, although a prenup is good to establish other understandings.
If the house was the major concern (as is often the case) Jim could have established either a revocable or irrevocable trust and titled the house in the name of the trust. He could have named Bud or Princess as the trustee (or perhaps even co-Trustee with Jim). The trust could have specified that Eloise would have a life estate in the home upon Jim’s death. It could have also specified that at any time after the establishment of the trust the house could not be taken out of trust without the written agreement of all trustees (that would have prevented Jim from later adding Eloise’s name to a tenancy by the entireties title).
There really is no ONE correct answer other than Jim and Eloise, out of love for their children, should have opened up the communications channels and been willing to seek some guidance.
This was a sad story.
Don James is a CPA and hangs out with too many lawyers! (Sorry, Don) I couldn’t decide between Billie, Kelly and Celeste . . . so I’ll send each one an Elder Law University DVD set. Ladies, please send your mailing address to Stacey Kinney at: sck (at) masonlawpc.com (replace the “(at)” with an “@” and close up the spaces!
For more reading on second marriage issues go see Tying the Knot . . . Or Just Moving In?
Vacation property and “second homes” – whether in the mountains or at the beach – present a number of legal and tax planning opportunities.
Avoid Probate With A Trust
First, consider probate avoidance, particularly if the property is located in a state other than the owner’s primary residence. The problem arises when the owner dies with title to the property in her name.
In addition to a probate proceeding in the owner’s state of residence, there will need to be an “ancillary probate” proceeding in the state of the second residence. A Big Hassle.
A fairly simple revocable trust, or living trust, could completely avoid the probate process in the second state. Before the “owners” death the trust owns the property. After the “owners” death, the trust continues as the record owner. Thus, no probate.
Use A Trust To Protect Property
Certain types of trusts can be created that protect the property for the family after the incapacity of the principal owner. If the trust is irrevocable and correctly designed, the property will not count for Medicaid purposes. Start early, however, because it’ll take five years to completely protect the home for Medicaid.
While in the trust, the property will also be immune from the liabilities of the children the owner may have originally been thinking of transferring the property to.
Trusts Are Tax Smart
Further, if the property is transferred directly to the children, the parent’s “tax basis” also transfers to the children. Tax basis is simply the floor value used for calculating the “profit” that someone will realize if they sell the property.
In the hands of the person who bought the property, tax basis will be what he paid for the property. In the hands of a person who inherited the property, basis will be whatever the property was worth when the person inherited the property. Importantly, in the hands of a person who received the property as a gift, basis will be the same as the basis of the person who made the gift.
What difference does this make? Say Jack’s basis in Palm Isle is $25,000 because that is what he paid for it or because that is what dad’s basis was when he gave it to Jack. Later Jack sells the property for $100,000. His “gain” or profit is $75,000. Uncle Sam and most states are keenly interested in gain, because they tax it!
On the other hand, if Jack put the property in a properly designed trust that provided his children would receive the property on Jack’s death, and on Jack’s death the property is worth $100,000, that will be the basis in the hands of the children. If they sell the property for $100,000 there will be no (as in zero) taxable gain. Not too shabby.
Wait, there’s more. If the property is Jack’s principal residence and the trust has been properly designed, the trust will qualify for the capital gains tax exclusion that would apply if Jack directly sold his residence. To use a South Carolina term, that is “elegantly shabby”.
Tying the Knot? Or Just Moving In?
Considering a second marriage? For terribly unromantic reasons (I guess I’m the anti-cupid . . . darn lawyer!) you should plan carefully – very carefully – before going into a later-in-life second marriage. The religious prescription not to enter a marriage “unadvisedly or lightly” applies in spades to a later marriage.
“Bob,” you may ask, “are you suggesting we see an attorney before the preacher?” And I would answer: “Yes.”
Some of the biggest and most expensive messes (I like the term “elder law train wreck”) I have had to clean up have been after the death of a second spouse when there had been little or no advance planning. Adult step-siblings (who may not even know or like each other) can be counted on to be looking out for whatever it is that they believe their natural parents accumulated for them.
Most “planning” I have seen is a simple verbal agreement that “what is yours is yours, and what is mine is mine.” That won’t cut it. All couples are different, but here is a partial list of issues that may be important.
The worst plan might be simple “I love you wills” that leave everything to the surviving spouse with the understanding that she will “do right the right thing.” Even with wills that leave everything to the children of the deceased spouse, there may be problems with an “elective share” statute.
North Carolina has a mean “elective share” statute. The elective share statute enables a surviving spouse to “elect” a share of around 1/3 of the deceased spouse’s estate if he or she does not like what was left in a will.
In fact, one South Carolina case has been making waves. The deceased founder of Hooters (you know . . . the restaurant famous for . . . large burgers and chicken wings) left $1 million a year for 20 years to his fairly younger surviving spouse. She felt $20 mil wasn’t enough, so she elected for 1/3 of Mr. Hooter’s estate. Mr. Hooter’s son (not the widow Hooter’s son, by the way) objected and claimed the South Carolina elective share statute (which is very similar to North Carolina’s) is unconstitutional. Yours truly believes that argument had as much chance as a Hoot Owl in, well, Horry County. Hooter, Jr. and the widow Hooter settled for an undisclosed sum.
Get a prenuptial (or premarital) agreement. Those sorts of difficulties can be addressed in such an agreement.
The Family Home.
Naturally the newlyweds do not want to see the bride or groom evicted upon the death of the other. On the other hand, children can become quite emotional over what may be perceived as “their home.” Chances are putting the house in both spouse’s names is not a good idea. Try a life estate, or maybe a trust.
Social Security Benefits.
Remarriage can affect the Social Security benefits a newlywed had been receiving under a deceased or divorced spouse’s account. If you divorce after 10 years or more of marriage, you can collect retirement benefits on your former spouse’s Social Security record if you are at least age 62 and if your former spouse is entitled to or receiving benefits. If you remarry before age 60, however, you generally cannot collect benefits on your former spouse’s record unless your later marriage ends (whether by death, divorce, or annulment).
Annuities and Survivors Pension Payments.
You might be kissing a hefty survivor’s pension (corporate or military) goodbye when you kiss your new spouse. Check them all out before heading to the altar.
There may be some tax planning advantages to marrying if estate taxes are a concern because many planning techniques are available to married couples only. Income taxes might also drop if one spouse is earning significantly more than his or her new spouse. On the other hand, many income tax breaks phase out for couples at less than twice the phase-out level for a single person.
Long Term Care (Nursing Home) or Medicaid Planning.
A big consideration for older people considering remarriage. Medicaid rules and regulations do not care at all what sorts of plans or promises a couple has made when it comes to Medicaid and nursing home benefits. A carefully drafted prenuptial agreement is worthless. All Medicaid programs consider the assets of the couple. While rare, some couples have divorced within a few years of marriage when one spouse in declining health (usually the “poorer” spouse) has entered a nursing home.
It may be sad to see, but some couples are electing to do exactly what they would have DIED seeing their children do 30 years ago . . . moving in with a boyfriend or girlfriend!