Posts Tagged ‘Colorado’

Intestate Succession Rules Can Be Tricky to Apply

APRIL 4, 2016 VOLUME 23 NUMBER 13

March was “Write-a-Will” month (sometimes referred to as “Why a Will” month). Though we’ve never understood the difference, August will be “Make a Will” month again this and every year.  In the United Kingdom, every March and October are “Free Wills” months. Or is it April?Or is that only in Canada?

With all the emphasis on the importance of getting estate planning done, you’d think people would actually get around to writing a will. It turns out that any month is a good one for illustrations about why making a will is important.

Consider Kent Konrad (not his real name), who died in Michigan in February, 2012 — just weeks before his 60th birthday. He never wrote a will. His estate became embroiled in a fight about who was entitled to receive his property.

Kent never married, never had children. Both of his parents had died before him. The Michigan rules for “intestate succession” (the default distribution for people who have not made a will) directed that his estate should be distributed half to the descendants of his maternal grandparents, and half to the descendants of his paternal grandparents.

That seems fairly straightforward, but there was a wrinkle. Kent’s father was a posthumous child. In other words, Kent’s grandfather (Karl) died before Kent’s father was born. In fact, Karl died as a result of a fight over the affections of Kent’s grandmother; the couple had quarreled, and Karl had threatened anyone who might try to date his girlfriend. When another man attempted to kiss her, Karl knocked him down with a single blow — the suitor got up and stabbed Karl to death. Karl died in 1931; Kent’s father was born three months later.

Kent’s grandmother never had any other children, so under Michigan law his paternal relatives’ share would go to Karl’s other descendants — a son Ernest. Except for the wrinkle.

Kent’s maternal relatives argued that Ernest should not receive any share of Kent’s estate. Why not? Because Karl never acknowledged Kent’s father, and never agreed to support him. Under Michigan law (Arizona has a similar statute), that permitted an argument that Karl could not inherit from his son or his son’s children — and that arguably would cut Ernest out from receiving any share of Kent’s estate.

Nonsense, ruled the Michigan probate judge. Not only was Ernest the closest relative in Kent’s paternal lineage, he should receive half of Kent’s estate. The other half would be divided among Kent’s cousins on his mother’s side of the family.

The Michigan Court of Appeals agreed. The fact that Karl died before ever even meeting his son did not amount to a refusal to acknowledge or support him, according to the appellate court. Although one of the three appellate judges deciding the case disagreed, the court upheld the probate judge’s ruling by a 2-1 vote. Estate of Koehler, March 24, 2016.

It is important to keep in mind that the legal dispute over Kent’s estate could easily have been addressed. All Kent needed to do was to sign a will. The precise relationship of his uncle and cousins would then have been unimportant. He could have left his estate in shares, or all to his uncle, or all to his favorite cousin, or all to his girlfriend, or to charity. He could have left some or all of his estate in trust to take care of his two dogs — or any variation or combination of those choices.

If Kent had signed a will, could his uncle, or his cousin, have challenged the will? Well, yes — but will challenges are very rare, and even more rarely successful. It would not be enough to show that there was confusion over his family relationships — anyone contesting the will that Kent should have signed would have to show that he was incompetent, or mistaken, or unduly influenced.

Why do people not get around to signing wills? Reasons vary, of course — some people don’t think it’s important, some just can’t get focused on their own mortality, some mean to make that appointment but just don’t get around to it.

Don’t wait for a pre-set month to get your will written. Don’t wait for inspiration, or discounts, or free clinics. If you don’t have a will, this would be a really good month to get the task done.

Disappointed Heirs Not Permitted to Make Claim Against Dad’s Lawyers

JANUARY 25, 2016 VOLUME 23 NUMBER 4

Like a lot of Americans, Fred Brown (though that’s not his real name) had a complicated family life. He had been married twice, and had two daughters — Martha and Sally — from his first marriage. He was still married to Barbara, and she had two children from her first marriage (Patty and Richard). Fred needed to do estate planning, and he did — he hired a Colorado law firm to prepare his will.

The will his lawyer wrote for him followed his wishes: it left the condominium he and Barbara lived in to Barbara, and a $10,000 bequest to each of the four children (both his and Barbara’s). Everything left over after that would go into two trusts for Barbara’s benefit; on her death, the trusts would be equally divided among the four children.

Fred died in 2003, and Barbara hired her husband’s lawyers to handle the probate. Fred’s daughters Martha and Sally asked about their inheritances, and the law firm told them that they would each receive their $10,000 and that they would share the money in the trusts on Barbara’s death. The lawyers also told Martha and Sally that they represented Barbara, not the whole family, and that if Martha and Sally had any questions about the probate they should get their own legal advice.

Barbara properly established the trusts called for in Fred’s will; they totaled just under $1 million in value. She also hired the same lawyers to prepare her will, which left her condo to her daughter Patty and the rest of her estate to Patty, Martha and Sally.

When Barbara died in 2009, Martha and Sally were upset that they did not receive an equal share of the condominium once owned by their father. They complained that Patty had ended up with about 70% of Barbara’s assets, while they each received only about 15% (it apparently did not bother them that Richard did not receive anything from his mother’s estate). They acknowledged that they would still share the remainder in the trust established under Fred’s will, but objected that Patty would get about $3.2 million in total inheritances from Fred and Barbara, while they would only receive a little under $1 million each.

Martha and Sally sued the law firm that had prepared Fred’s estate plan, alleging that the lawyers had committed malpractice by not ensuring that Fred’s wishes were carried out. They also complained that the lawyers had failed to disclose all the information about the property ownership they had needed to protect their alleged right to receive a share of Barbara’s inheritance on her death.

After a series of motions, the trial court dismissed Martha and Sally’s lawsuit. The judge ruled that even if they could prove that a mistake had been made, Fred’s lawyer did not owe Martha and Sally any duty giving rise to a claim. The Colorado Court of Appeals affirmed the dismissal, and the state Supreme Court agreed to review the entire matter.

The Colorado Supreme Court upheld the dismissal of Martha and Sally’s claim. Colorado strictly applies the doctrine of “privity” to prevent lawsuits against lawyers by non-clients in most circumstances, and these facts did not persuade the state’s high court to modify its rules. Besides, as the Supreme Court Justices noted, it looks like Fred got exactly what he wanted: his home went to his wife, $10,000 went to each child on his death, and the rest of his estate stayed in trusts that got divided into four equal shares on his widow’s later death. Baker v. Wood, Ris & Hames, Professional Corporation, January 19, 2016.

Would a similar case be dismissed in Arizona, as it was in Colorado? The answer is uncertain. Arizona does not have cases expressly upholding, modifying or rejecting the “privity” doctrine. A growing body of law across the country indicates a general move toward higher liability for attorneys, but it is not clear whether that trend will likely come to Arizona.

Should Fred’s lawyers have been liable to Martha and Sally? Not if they followed Fred’s wishes, regardless of how unhappy his daughters might have been. The difficulty in such a case would be to establish with clarity what Fred wanted. Did he clearly contemplate what might happen between his own death and the death of Barbara six years later — and of course Fred did not know with certainty that he would die first, much less how long Barbara might survive him.

This is one of the challenges we face when counseling clients about estate planning. Married couples may be able to imagine what might happen after the death of the first spouse to die, but neither spouse is likely to have contemplated what their survivor’s life might look like six, or ten, or twenty years after the death of the first spouse. It’s impressive, actually, that Fred and Barbara got as much right as they did — many widows in Barbara’s situation might begin to modify the disposition of their assets more quickly than the six years Barbara left things (more or less) as they were.

Arizona Legislature Changes Format For Beneficiary Deed

APRIL 3, 2006  VOLUME 13, NUMBER 40

Five years ago the Arizona Legislature adopted an interesting new law. Modeled on a similar law in Missouri, the “beneficiary deed” statute permitted property owners to designate who would receive their property on death—much like a “payable on death” bank account. Now the state legislature has revisited beneficiary deeds, and made them even more flexible and useful.

One unanswered problem arose a handful of times under the previous law. What would happen if a person named to receive property by a beneficiary deed died before the original property owner? If, for example, a parent signed a beneficiary deed to “my two children, John and Mary,” and Mary died before the parent leaving children of her own, did that mean that her children would receive her share, or that son John would own the entire property on the parent’s death?

Effective this fall (the date is not yet set and won’t be known until the legislature adjourns) beneficiary deeds can solve that problem. Under a law signed by Governor Napolitano on March 24, 2006, all new beneficiary deeds must include a paragraph indicating which of two choices the owner prefers. The language required by the new law:

If a grantee beneficiary predeceases the owner, the conveyance to that grantee beneficiary shall either (choose one):

[] Become null and void.

[] Become part of the estate of the grantee beneficiary.

There are still a number of important issues to remember in the use of beneficiary deeds, and it will not be appropriate in every case to use this approach to transfer property. With some of the following limitations in mind, however, it may be that the beneficiary deed is a simple, inexpensive and useful method to avoid probate, especially in small estates. Among the remaining limitations for beneficiary deeds:

  • They are not available in every state. As of this writing, only Arizona, Arkansas, Colorado, Kansas, Missouri, Nevada, New Mexico and Ohio permit the use of beneficiary deeds.
  • An individual using a beneficiary deed will need to coordinate his or her estate plan as to multiple assets—it may, for instance, be necessary to keep track of beneficiary designations on multiple properties, several bank accounts, and a number of insurance policies and brokerage accounts. Anyone with more than a handful of assets should probably consider a living trust instead.
  • A beneficiary deed can be changed by a surviving owner, so in the case of a husband and wife (for example), the final distribution is not set until the second death.
  • The beneficiary deed provides no estate tax planning benefits for larger estates.

And what about individuals who signed an Arizona beneficiary deed before the new law was passed? Nothing in the law requires them to change their deeds, but they would be well-advised to consider updating the language to clarify what would happen if a beneficiary died before them. For those who might sign a beneficiary deed between now and the effective date, the best approach is less clear. Both the existing law and the new version require that beneficiary deeds be “substantially in the following form”—and then the form changes. Our advice: if you plan on signing an Arizona beneficiary deed in the next few months, expect to sign an updated version this fall.

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