AUGUST 8, 2011 VOLUME 18 NUMBER 29
Last March we told you a good story about revocation of a living trust, though we cautioned you not to use the same method. A year before that we told you about another colorful character and how he revoked his will. Both of those court cases made us scratch our heads about the behavior of the individuals, but it occurs to us that we might never have told you what you should do to revoke your will or trust. Let us take care of that oversight now.
Please remember that we only practice law in Arizona. What works here might not work, or might not work exactly the same way, elsewhere. Your best bet is always to talk with a competent local attorney about how (and whether) to revoke a will or trust — or, for that matter, a power of attorney or other planning document you might have signed. With that caveat, here are some thoughts on how it might be done:
Revoking a will
The usual way to revoke a will is to sign a new one. It is very uncommon for an individual to want or need to revoke a will without making new arrangements for disposition of his or her property. Somewhere in your will — probably in the first paragraph or two — there is probably language that says something like “I hereby revoke all other prior wills I have signed.” That’s all it takes.
It is also possible to revoke a will by physically destroying the original document. Actually, Arizona law says you can do this by committing a “revocatory act” on the document. That can include burning, tearing, or other physical acts of destruction on the will or on a part of it. There are two keys here: you must intend to destroy the will, and you must do it yourself (though it is permitted to instruct someone else to do it in your presence). It is not an effective approach to call up your brother on the telephone, ask him to go down to the basement where the will is located, tear it up and report back to you — it must be done in your “conscious presence.”
Another way to revoke your will is more subtle: you can misplace it. If after your death no one can find your original will, and it is apparent that it was once in your possession, the law presumes that you must have destroyed it. That is only a presumption — we might be able to overcome it by showing, for instance, that you told everyone your will was completed and in a safe place shortly before your death. Obviously, a better choice is to keep track of your original will, and tell your heirs and family where to find it.
Another way to “revoke” your will: get married, or divorced, or have children. Actually, these life changes do not really revoke your will under Arizona law, but they can effectively rewrite your will — and in some circumstances can change your entire estate plan. There is a presumption in either case that you just didn’t get around to making appropriate changes in your will. Once again, you can overcome that presumption by taking appropriate action. There is a high likelihood that the law’s presumption will not be accurate as applied in your facts, so after marriage, divorce or birth of a child you should get together with a lawyer to make sure your estate plan is in order.
Revoking a trust
When a client asks about revoking a revocable living trust, our first question is not about “how” but “why.” There are very few disadvantages to having a revocable living trust — the two primary problems are the cost of setting one up and the difficulty of transferring assets to the trust. If you have already incurred both the cost and the difficulty of funding, it probably does not make sense to revoke the trust. Instead, let us talk with you about revising the trust to remove whatever provisions trouble you. Is it just that you don’t want your former girlfriend’s name to appear in the document? OK — we can probably “restate” the trust, which will involve replacing the entire trust document with a new one without the offending name.
For whatever reason, perhaps you just want to revoke your revocable living trust. After all, “revocable” is in the name, right? How do you do it?
First, you look at the trust document. Does it tell you how to revoke it? Perhaps it requires a written revocation, and maybe even it calls for the signature of the trustee (these are common but not universal requirements). If the trust tells you how to do it, follow the trust’s instructions.
Is it enough to tear up the trust? No, not under Arizona law. How about misplacing the trust document? No, a missing trust does not create a presumption of revocation in the way that a missing will would do.
How about getting married or divorced, or having children? This one involves a little more nuance. Your trust might take care of the children part — a well-drafted trust will usually make provision for the later birth (or death) of a child, or even a grandchild. Sometimes that provision is by one of the legal shorthand terms “by right of representation,” “per stirpes” or even “per capita.”
Marriage may not be covered in the trust document or Arizona’s default law. Divorce is covered by the same default statute as we described above for wills — but with the added wrinkle that if your trust is a joint trust between you and your spouse, it is a little harder to figure out what happens in individual circumstances. The message here: if you have any of these big life changes (marriage, divorce, birth or death of a child or other beneficiary) get in to your lawyer’s office as quickly as you can to make the appropriate changes to your revocable living trust.
Powers of attorney
How do you revoke your power of attorney? If you have never shared the document with the named agent or anyone else, you can revoke it by simply tearing it up and throwing it away. If you have shared it, you should write a separate letter to everyone who has seen it indicating that you are revoking the power. Make sure any new power of attorney you sign deals with the older one(s): it may not be enough to just rely on the most recent document, since they don’t automatically revoke older powers of attorney in the same way that wills do.
Keeping track of power of attorney documents and formally revoking older ones is important for another reason. Unlike trusts and wills, revoked powers of attorney are still valid to the extent that your agent acts without knowledge of the revocation. Save everyone a lot of heartache, expense and confusion by having an attorney prepare your new powers of attorney and properly revoke older versions.
One final note: you can see that the effect of having older, revoked documents around can be serious and can vary between the different types of documents. Help us keep your estate plan straight, and your life uncluttered. We know that you paid good money for those old documents, and that it is hard to throw them away. Just do it. If we prepare your new estate plan, we will offer to help you revoke and destroy the old documents (and all those drafts and copies we lawyers sent you), and we’ll volunteer our shredder to make it discreet and effective.
Older individuals often get married, of course, and sometimes face legal issues as a result of separation or divorce. The legal problems associated with the end of a late-life marriage are not necessarily different from those faced by younger divorcing couples. A recent Arizona Court of Appeals decision addresses one difference that often occurs.
When Norman and Judy Flower married he was 76 and she was 55. She had a son from a former marriage, and each of them owned a home. Mr. Flower promptly transferred his home into joint ownership with his new wife; Mrs. Flower’s son was already on the title to her home, and she did not add Mr. Flower.
The couple lived together in Mr. Flower’s home for six months, while they fixed up Mrs. Flower’s residence. They took out a line of credit secured by Mr. Flower’s home and spent a total of at least $32,000 on Mrs. Flower’s home. They accumulated a total of $61,000 of debt during the marriage. After the work was done on Mrs. Flower’s home they moved into it, and her son moved into the jointly-owned home that had originally belonged to Mr. Flower.
A year after the marriage, Mr. Flower decided that his wife had been interested in him only for financial reasons and he filed a petition seeking an annulment. Mrs. Flower responded by asking for a divorce, and insisted that she was entitled to a half interest in what had been Mr. Flower’s home, all of her own (now improved) home, and no obligation to repay any of the costs of improvements to her home.
Arizona law, like that of many jurisdictions, assumes that the property division in a divorce proceeding will usually be roughly equal. The legal term, however, requires that it be “equitable,” and in rare cases that can mean something other than an equal division. The trial judge decided this was such a case.
Although the trial court denied Mr. Flower’s request for an annulment, it did grant the couple a divorce. The judge also returned Mr. Flower’s residence to him, although it required him to pay the majority of the debt the couple had accumulated. Mrs. Flower was awarded her home without any claim for the improvements made during the marriage, and she was ordered to pay $16,000 of the couple’s debts. Mrs. Flower appealed.
The Court of Appeals affirmed the unequal division of property and debts. Given the unusual facts of this case, ruled the appellate judges, the usual requirement of “substantially equal” division need not be applied. The appellate court noted that though Mr. Flower received his home, he was also required to pay most of the community’s debt incurred during a relatively brief marriage. Flower v. Flower, February 25, 2010.
Arizona, of course, is a “community property” state. Does that mean that the result in a state that did not apply community property rules would be different? Perhaps, but not necessarily. Most states apply some version of Arizona’s requirement that property division be “equitable” and assume that usually means “equal.” While Mr. and Mrs. Flowers did initially transfer his residence into “community property with right of survivorship,” the result in Arizona would not have been different if they had transferred it to “joint tenancy with right of survivorship.”
Is the result in the Flower case unusual based on unusual facts? Not really. The same day that the Arizona Court of Appeals decided the Flower property division issues, it also handled another, similar case. Retirees Carolyn and Lowell Inboden (the opinion does not give their ages) had married and purchased a vacant lot as joint tenants, but using $90,000 of Mrs. Inboden’s separate money from before the marriage. They then built a home on the lot, using $67,000 of her money, $46,500 of his, and a lot of sweat (they acted as their own general contractors).
When Mr. and Mrs. Inboden divorced a little less than two years after the marriage (and just a few months after the house was completed), the trial judge awarded her about three-quarters of the value of the home to reimburse her for her disproportionate contribution to its purchase and construction. The Court of Appeals reversed that result and returned it for further consideration.
In the case of the Inbodens’ property division, the appellate court was clear that the final result might well be an unequal division. The basis for any deviation, however, must be based on “equitable” principles, and not on a simple calculation to reimburse each spouse for their contribution of property that was previously separate. There is a presumption, difficult to overcome, that changes of title or transfers of assets are intended to be gifts, and those gifts can not be reversed if the marriage later falters. Inboden v. Inboden, February 25, 2010.
Why are these divorce issues “elder law” concerns? They are not, really — except that when older couples marry they are more likely to have property that they bring into the marriage, and less likely to have minor children. Consequently, if their later-in-life marriages fail they are perhaps more likely to present complicated property division issues and less likely to focus on child custody and support problems.
Of course, divorce is not the only venue for property division concerns. Even the popular press has begun to consider the possibility that later-in-life marriages might create property disputes between surviving spouses and children from prior marriages or relationships.
Many elders have been advised to execute Durable Powers of Attorney, both for financial and health-care decisions. The use of such powers (DPOAs, in lawyers’ shorthand) has become widespread. The opportunity for abuse has also grown.
Massachusetts resident Frank Gagnon, 85, gave a power of attorney to his daughter Joan Coombs in late 1990. Three months later he apparently reconsidered his decision and revoked the DPOA, though he did not tell his daughter he had done so.
Within a year Mr. Gagnon had found a buyer for a piece of property he owned in New Hampshire. He signed a sales contract for $750,000 and informed his family (including his daughter) of what he considered his good fortune.
Ms. Coombs did not agree. To prevent the sale of the property, and without discussing the matter with her father, she created a trust for her father’s benefit, naming herself as Trustee. Using her DPOA, she transferred the New Hampshire property into the trust’s name.
Mr. Gagnon demanded that his daughter terminate the trust and return the property to him. She refused, and Mr. Gagnon filed an action against her. At trial, the Court ruled that, since Ms. Coombs did not actually know her power of attorney had been revoked, the transfer would stand.
The Massachusetts Court of Appeals reversed the trial court’s finding. The higher court noted that Ms. Coombs had a fiduciary duty to her father, which was inconsistent with her actions in encumbering his property.
Furthermore, said the Court of Appeals, her DPOA was effectively revoked when she learned that her father had sold the New Hampshire property. She was ordered to return the property to her father. Gagnon v. Coombs, Mass. App. Ct., August 23, 1995).
Why Seniors May Be Slow To Marry
Most people who deal regularly with the elderly know that older couples often live together without getting married.Some may not realize how many legal encouragements there are for such a practice. A few of the common reasons for couples to remain unmarried:
Income Taxes. Married couples (and not just the elderly) pay a marriage “penalty tax”; two wage earners filing as single individuals pay less in income taxes than they would as a married couple.
Social Security Benefits. Upon death of a spouse who received higher benefits, the survivor’s Social Security payments will be increased to the same level. Upon remarriage, the higher benefits are returned to the lower level.
Social Security Taxes. A married couple pays taxes when the total Social Security benefit exceeds $32,000. The same couple can earn $25,000 each before paying any taxes if they remain unmarried.
Home Sales. If one member of a prospective couple has used the one-time over-55 tax exclusion for the gain from sale of a home, marriage will cause the other party to lose his or her exclusion.
Medicaid Eligibility. Marriage may expose the healthy spouse’s separate assets to long-term care costs for the other spouse in the event of nursing home placement.
And those are just the federal rules discouraging marriage.
