Posts Tagged ‘law of intestacy’

Failure of the Imagination in Seven-Decade-Old Trust

SEPTEMBER 6, 2016 VOLUME 23 NUMBER 33
Why involve an attorney in your estate planning? Partly because they know the rules — and not just the rules about how to prepare a valid and comprehensive document, but also the rules about taxes, trust limitations, and all of the related concerns you might not focus on without professional assistance. But lawyers are also good at imagining unlikely scenarios, and covering all the possibilities.

At least they usually are. Sometimes even lawyers suffer failures of imagination. Our training and inclination leads us to consciously consider unlikely scenarios, but sometimes even lawyers get caught up in the language or the particular desires of the client. And sometimes it takes years — or even decades — to find the flaw in the language.

Consider Darthea Harrison’s trust, signed in March of 1947 in Kansas. For context: living trusts were quite rare before the middle of the twentieth century. Most lawyers of the day might only have prepared a handful, and few state laws dealt specifically with trust interpretation. By contrast, wills were commonplace, and benefited from centuries of developed law addressing questions of interpretation. That might be why Ms. Harrison’s lawyers made the mistake they did.

The trust Ms. Harrison signed provided that she would receive all the income from trust assets for the rest of her life. After her death, her son (and only child) William would be entitled to the income for the rest of his life. After that, the trust principal was to be distributed to Ms. Harrison’s two brothers or, if they were no longer living, to their children.

That seems straightforward enough, but the failure was one of imagination. What actually happened: Ms. Harrison died in 1962 and her son William died in 2013 (without ever having had children). When William died, both of Ms. Harrison’s brothers had already died — and so had all of their children (they would have been Ms. Harrison’s nieces and nephews). But the nieces and nephews did leave a total of eight children of their own.

What should happen to the remaining trust principal? Should it be given to the grandchildren of Ms. Harrison’s two brothers? Should it go to Ms. Harrison’s estate (which was probated in 1964, and would have to be reopened to determine who would receive her “new” estate)? Should it “escheat” to the State of Kansas (where Ms. Harrison died) or to the State of Missouri (where the trust was administered)? What about the fact that Ms. Harrison’s husband — who survived her — was not the father of her son, and in fact married her after the trust was executed?

This uncertainty could easily have been resolved if, back in 1947, the attorneys drafting Ms. Harrison’s trust had simply provided that upon the death of her brothers their share of her trust would devolve not to their children, but to their descendants. Alternatively, she could have considered the possibility and decided that she would then want to benefit a charity, or more distant relatives, or someone else close to her.

If Ms. Harrison had signed a will with the same language as used in her trust, both Kansas and Missouri law would have filled in the blanks for her. Arizona law, incidentally, would have handled it the same way. In that case, five centuries of will interpretations have determined that leaving something to your relatives presumably includes their descendants if the relative dies before you — or before the future date when distribution is determined.

The Missouri probate court decided that the trust had failed, and that its remaining assets should be distributed to Ms. Harrison’s estate, which would thus need to be reopened. The Missouri Court of Appeals disagreed, and reversed the probate court holding. Instead, according to the appellate court, the interests of Ms. Harrison’s brother’s children had “vested” before they died — and the probate court should have determined where each of those beneficiaries’ shares should go now.

In some cases, that should mean that the nieces’ and nephews’ children should receive their shares. In others, it might mean that a will, or a surviving spouse, might change the outcome. In any case, the Missouri probate judge will need to conduct hearings to determine the final recipients of Ms. Harrison’s trust. Alexander v. UMB Bank, August 23, 2016.

Today, more careful drafting is commonplace. When your lawyer insists that you consider the possibility that your beneficiaries die in unlikely sequences, or that unanticipated children come into a family (by birth or adoption), or that odd combinations of simultaneous deaths occur, she is thinking about Ms. Harrison — even if she has never heard the story.

The Difference Between an Heir and a Beneficiary

APRIL 18, 2016 VOLUME 23 NUMBER 15

Your estate is simple, your family relationships clear, your intentions easy to understand. Why can’t you just write your own will, and save the legal fees?

Because of Esther Hill, that’s why. Actually, that’s not her real name — we change the names of most of the people we write about, because we don’t particularly want later internet searches for their name to turn up our articles high on the list. But her story doesn’t depend on her name.

Esther had two children — a daughter Leslie and a son Leonard. Leslie and her mother were very close — they visited regularly, went on shopping excursions together, and had a strong relationship. Leslie had two daughters, and they visited their grandmother regularly.

Leonard was not married, and lived with his mother in her home in Saratoga, California. She helped support him, and she tried to involve him in family events — but he chose not to participate.

Leslie became sick and died in 1991, and Esther was devastated. Just three weeks after Leslie’s death, Esther hand-wrote her own will. She wrote (with name changes in order to keep our intended level of anonymity):

I, Esther Hill, aka as E. Hill; declare this will, is my only and last testament.

I, name my son, Leonard Hill, as sole heir and executor to manage estate affairs.

In the event of any challenges to said estate, I hereby authorize said Executor to dispense the amount of $1.00, one dollar, to any claimant.

I am confident that my son, as Executor, will also subscribe to my wishes, along lines that were discussed previously and privately in the past. A simple cremation, without ceremony is the wish of Esther Hill.

It turned out that Esther’s estate was worth a little more than $10 million. Leonard filed the will with the California probate courts, and got himself appointed as executor of her estate. He didn’t rush to wrap up her estate, though — three years after her death, he hired a woman to come to the home and help him organize and purge old business files. Two years later, he and the woman who helped him became romantically involved, and ten years later they were married. Still, though, the estate was not closed.

Leonard himself died in 2009, but without having closed his mother’s estate (or making distribution of the remaining assets, after payment of considerable estate taxes). His widow asked the probate court to appoint her to finish up the estate administration, and to determine who should receive Esther’s assets.

Can you see the problem? It’s in the language of that handwritten will, in which Esther names Leonard as her “sole heir.” The difficulty: “heir” has a specific meaning under probate law, and Leonard wasn’t her sole heir.

An heir is a person who would be entitled to a share of the decedent’s estate if the decedent died without issue, and under California law that would mean Leonard and his two nieces. If Esther had not left a will, half of her estate would go to Leonard, and one-quarter each to the two nieces. (Arizona law would be the same, as would the law of most — if not all — other American jurisdictions.)

Did Esther mean to name Leonard as her sole “beneficiary”? Or, perhaps, “devisee”? That last is the word lawyers and judges use to identify a person named as a beneficiary in a will. If she had written that she named Leonard as “sole beneficiary” or “sole devisee,” then he would have been clearly entitled to her entire estate, and his widow would receive Esther’s assets through his estate.

Esther’s granddaughters (Leonard’s nieces) objected. They argued that Esther was simply identifying Leonard as her sole surviving child, and that they should be entitled to one-half of her estate (they acknowledged that Leonard’s widow would receive the other half).

In the contested probate proceeding, various witnesses testified about Esther’s relationships with Leonard, Leslie and the two granddaughters. Some witnesses observed that Esther (and, for that matter, Leonard) talked to the granddaughters from time to time as if they would eventually inherit the property, and others testified that Esther sometimes didn’t seem to approve of her granddaughters. Because the probate court decided that the use of the word “heir” was ambiguous, it considered all that evidence — and ruled that Esther had meant to leave half of her estate to be divided between her granddaughters.

The California Court of Appeals disagreed. It ruled that the word “heir” as used by Esther was unambiguous — she clearly meant “beneficiary.” That was true, according to the appellate judges, because it would make no sense for Esther to write, in effect, that “I name Lester, my son, as my only son”. Furthermore, the final sentence (in which she indicates that she trusts Lester to carry out her wishes) does not change the result, and does not create what the Court of Appeals calls a “secret” trust for the benefit of family members.

What about the effect of Esther’s attempt to create an in terrorem or no-contest provision? If, for example, the will was construed as disinheriting the granddaughters, would they be entitled to receive $1.00 just because they objected? The Court of Appeals acknowledges that Esther’s attempt at creating a no-contest provision was clumsy, but it does not indicate that she intended to give a larger share of her estate to her granddaughters.

One of the three appellate judges disagreed with the other two. In that judge’s mind, the probate court had gotten it right — and the ruling in favor of the granddaughters should be upheld. That judge was outvoted by the other two, however. Estate of Hinz, March 22, 2016.

Posthumously Conceived Twins Denied Survivors Benefits

MAY 28, 2012 VOLUME 19 NUMBER 21
The United States Supreme Court doesn’t very often weigh in on Social Security rules, so when it does those of us in the elder and disability law community pay attention. Last week’s decision by the Court, interpreting Social Security regulations as applied to posthumously conceived children, addressed interesting questions of law, science and public policy.

Here are the bare facts: Robert and Karen Capato lived in Florida. Robert was being treated for esophageal cancer, and before chemotherapy and radiation treatment began the couple preserved a sample of Robert’s sperm. That way, Karen would be able to conceive another child (the couple had one child together already) by Robert even if his treatment left him infertile — or even if he died.

Robert Capato did die of cancer. Nine months after his death Karen became pregnant using his banked sperm. Eighteen months after Robert’s death she delivered twins.

Karen applied for Social Security survivors benefits for the twins. Citing Florida law on inheritance rights, the Social Security Administration denied the benefits (presumably the couple’s child conceived and born before Robert’s death qualified for benefits). The federal District Court agreed with Social Security, but the federal Court of Appeals reversed that decision and ruled in favor of Karen and the twins. The U.S. Supreme Court sided with Social Security, reversed the Court of Appeals and sent the entire case back for a final determination. Astrue v. Capato, May 21, 2012.

But what’s most interesting about the Supreme Court’s decision may be what it doesn’t decide. It does not rule that no child conceived and born after the death of the child’s father can ever receive Social Security benefits on that father’s work record. It does not bar careful planners from preserving future benefits for children born as a result of in vitro fertilization. Instead, it holds that the basic test is whether state law — usually the state law where the father dies — controls whether the posthumously conceived child is entitled to Social Security survivors benefits.

The Court unanimously ruled that Social Security is only available to survivors who are determined to be heirs of the deceased worker. In Florida, said the Justices, that would not include children conceived after the death of their father. Florida’s probate code expressly excludes after-conceived children, and Robert Capato’s will did not make reference to children who might be conceived after his death.

But does Florida law apply in this case? Probably — but the Justices left open the possibility that the trial judge could find otherwise after a new hearing. Interestingly, Karen Capato moved to New Jersey while pregnant with the twins, and she argued (unsuccessfully, so far) that New Jersey law should apply to the determination of paternity.

Can we infer the answers to some of the obvious questions you might ask? Perhaps — but not conclusively, of course.

If Florida changed its law to make posthumously conceived children entitled to intestate inheritance, would that change the result for the Capato twins? Probably not — but it should change the result for future Florida residents in similar circumstances.

If Robert Capato’s will had specifically mentioned the children he might have in the future, would that have changed the outcome? Hard to say, but tantalizingly interesting. Apparently, Robert and Karen specifically mentioned their intention to preserve sperm for future in vitro fertilization to the lawyer who prepared Robert’s will. Should he of she have included the unknown future children as beneficiary’s of Robert’s estate? Perhaps that would have changed the result.

What if Robert Capato had lived — and died — in Arizona? It’s not clear. Arizona’s probate code does not expressly define posthumously conceived children as either included or not included in the list of intestate heirs. No Arizona appellate case has decided the question, either (though there is at least one reported Arizona case involving the status of sperm intended to be preserved for possible future in vitro fertilization).

What about the laws of intestate succession in other states? Well, we’re not qualified or inclined to render legal opinions about other state laws. But we will note that the Supreme Court specifically pointed to the intestacy laws of several states as dealing with posthumously conceived children. Among the states with some treatment of the question (in addition to Florida) the Court included California, Colorado, Georgia, Idaho, Iowa, Louisiana, Minnesota, New York, North Dakota, South Carolina and South Dakota. There is no mention of New Jersey law — the law Karen Capato would like to apply to the twins’ claim.

Want to read the entire opinion — or even listen to the oral argument before the Supreme Court? Look to the excellent Oyez multimedia website maintained by the IIT Chicago-Kent College of Law.

Where There Is No Will, Is There Still A Way?

JULY 1, 1996 VOLUME 4, NUMBER 1

When someone dies without having signed a Will, family members may worry that costs of settling the decedent’s estate will be higher, or that the government will end up with some share of the estate. In fact, there is little cause for concern.

In the absence of a Will, the law of “intestacy” decides who receives a decedent’s estate. In effect, the state has written a sort of Will for each us, to take effect in case we never get around to writing our own. In Arizona, the law of intestacy dictates that property will pass to:

  1. the decedent’s spouse (unless there are children who are not also children of the surviving spouse),
  2. if there is no spouse, to children of the decedent,
  3. if there are no children or spouse, to the decedent’s parents (and, if they are also deceased, to their descendants–in other words, to the decedent’s brothers, sisters, nephews and nieces),
  4. if none of the above exist, to the descendants of the decedent’s grandparents or up to five generations back.

[Note: though states tend to have similar rules, they may vary. The list here is specific to Arizona decedents]

In other words, almost everyone’s estate will pass to someone, even though they may be very remotely related. In those rare circumstances where a decedent is not survived by any relatives closer than descendants of great-great-great-grandparents, then their estate will “escheat”–a fancy word for property which goes to the state.

Absence of a Will does not effect how much tax an estate must pay. Frequently, it will not effect the administrative expenses of settling the estate. Unless there is difficulty determining who the decedent’s relatives may be, absence of a Will should not make the process more difficult or time consuming. Nor will the presence or absence of a Will determine whether a probate is necessary (in Arizona, the necessity of probate proceedings is determined by the value of assets owned by the decedent alone–not in joint tenancy, for example–and not by the marital status, family relationships or presence of a Will).

So why bother to write a Will? Many people will choose to leave property to someone other than those favored by the law of intestacy. This is particularly true for those who have both a surviving spouse and children from a prior marriage; Arizona law assumes such people wish to divide their property between their spouse and children, and experience suggests that few wish to make distribution in that manner. In addition, a Will can name a Personal Representative (the person who used to be called an Executor), and can waive bond for that person.

Most people’s estates are never subjected to the probate process (and hence their Wills are not utilized). Among those who do go through probate, many (perhaps most) have not written Wills, or their Wills can not be found. Even among those who do write Wills, most make provisions very similar to the laws of intestacy.

Still, preparing a Will can provide peace of mind, and usually at a modest cost (for details about costs of preparing Wills and related estate planning documents, visit FLEMING & CURTI’S website at the address below, or contact our office for a fee schedule). Estate planning should also include consideration of a durable power of attorney and a health care directive; both documents will frequently accompany a Will.

Preparing a Will permits one to consider small items (family heirlooms, for example) which should pass to particular individuals. A consultation with a qualified lawyer will give you an opportunity to consider all these issues.

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