Posts Tagged ‘reciprocal wills’

Step-Children and Disinherited Children Might Have Rights — It Depends

NOVEMBER 12, 2012 VOLUME 19 NUMBER 41
A prospective client asks: “Can my mother cut me out of her will after my father dies? His will leaves everything to the children after her death.” That deceptively simple question comes in a number of variations (like: “My mother’s will left everything to her children, but her estate was not probated. After her husband, my stepfather, died, we learned that everything went to his children from a prior marriage. Can we do anything about that?” Or: “Our father and stepmother had a joint trust leaving everything to all of their children — my siblings and my step-siblings — when the second one of them died. After my father’s death, my stepmother changed the trust to go only to her children. What rights do I have?”

To each of those questions the answer is almost certainly the same: “It depends.” That’s the classic lawyer’s answer, but it reflects a reality that we deal with whenever we talk to a new client or prospective client. We almost never have enough information to give a definitive answer after the initial consultation, and that is particularly true with these questions.

What does it depend on? State law, sometimes. The actual wording of documents, in most cases. Titling of the property, pretty often. The cost of pursuing the issue weighed against the value of the “lost” inheritance, almost every time.

Please remember that what we describe here is based on Arizona law. It’s what we know; we don’t know enough about other states’ laws to do more than speculate about whether the same answer would be true in another state. Heck, sometimes we don’t know enough to determine whether Arizona or some other state’s laws even apply to the question. So check these answers with a qualified lawyer in your state (or the state where your parent(s)/step-parent lived and died).

Disclaimers aside, let’s look at some of the more-common scenarios:

1. Herb and Vonda signed identical wills, leaving everything to one another and, on the second death, to their three children in equal shares. Herb died. No probate was even filed, since everything was owned as joint tenants with right of survivorship. All Vonda had to do was distribute Herb’s death certificate and everything was transferred to her name. Five years later Vonda changed her will to leave everything to one of the three children.

Vonda’s will might be subject to challenge based on undue influence or lack of testamentary capacity, but it is unlikely to be set aside based on Herb’s intention that his property be divided equally among his children. He left everything to Vonda — both in his will and by the joint tenancy designations. She was probably free to do what she wanted with what then became her own property.

Herb and Vonda might have signed an agreement to keep their wills the same. Their wills might have even included a provision that promised the survivor would not change her will after the first spouse died. But such a provision would be rare (not unheard of, but rare). Even if there was such a provision it’s not completely clear that it would apply in these circumstances, since Vonda did not acquire Herb’s interest in the jointly held property by his will — she got it by operation of the joint tenancy arrangement.

2. Richard and Fern signed a joint revocable trust. It provided that on the first spouse’s death, the survivor would have complete control over the trust and the property in the trust — including the right to amend the trust. If the trust was not amended, it would leave everything to Richard and Fern’s only son, Ralph. All their assets were transferred into the trust.

After Fern died, Richard amended the trust to leave everything to a neighbor. At least that’s what Ralph suspects. The neighbor is named as trustee and refuses to even give Ralph a copy of the amended trust. Ralph wants to know if he has a right to at least Fern’s half of the joint estate, and how he can find out about the circumstances of any amendment. He has a copy of the old trust showing him as beneficiary (though the copy he has does not show that it was actually signed). The lawyer who prepared that draft trust won’t return his phone calls.

Can Ralph get a copy of the new trust? Not necessarily. If he has been completely eliminated from the trust, the trustee is under no obligation to give him anything. How does he know if that’s the case? He doesn’t. He could bring a court case to have the Judge interpret the validity of the suspected amendment, but if it is as the neighbor says he will probably lose — he probably won’t get a copy of the trust document and he may end up paying the neighbor’s legal fees in addition to his own.

To be clear, if the neighbor consulted us we would advise that it’s easier to show Ralph the amended trust and be done with it. But we would also tell him (assuming Ralph has been excluded and the document appears to have been properly prepared) that he is not obligated to do so. Ralph is likely to get further by being reasonable and friendly than by being confrontational. Oh, and he is probably not entitled to any portion of “Fern’s estate,” since she appears to have left it all to Richard.

3. Grant and Julia were each married once before they got together. Grant has two children from the first marriage, Julia has three and the two of them had one child together. They signed a joint revocable living trust and transferred all their assets into the trust’s name. It provided that on the death of one of them, the entire trust estate was to be divided into two shares — with half of the combined assets assigned to each share.

One share of the trust would continue to be completely under the control of the surviving spouse (the trust refers to this as the “Survivor’s Trust Share”). The other (the “Decedent’s Trust Share”) is held in trust for the benefit of the surviving spouse (he or she is entitled to all the income and, if he or she needs it, principal of this trust share). On the death of the second spouse, according to the trust document, the “Decedent’s Trust Share” is to be divided equally among all six children. The surviving spouse is named as trustee of the Decedent’s Trust Share, but has no power to modify or amend it.

After Grant died, Julia continued to administer both halves of the trust. She never provided any accountings to any of the children, though her oldest daughter did help her keep bank records and took documents to the accountant for tax preparation every year. None of the children wanted to confront her about how she was handling the money, and so no one every challenged her.

When Julia died (more than a decade after Grant’s death), it turned out that the Decedent’s Trust Share was empty. Julia had withdrawn most of the money in the last five years of her life, and had used it to fix up her house (it was titled to the Survivor’s Trust Share) and to make substantial gifts to two of her children (including the one helping out with the accounting). She had also incurred significant medical bills, and had even paid for in-home care for most of her last two years. Most of the children — and especially Grant’s children — felt like she should have moved into an assisted living facility to save money during that period.

When Grant’s oldest son asked for more information, Julia’s daughter (who, it turned out, had been named as successor Trustee) blew up at him and accused him of just being about the money — not caring what his father would want or what his step-mother needed. He wants to know now what he is entitled to.

Can he get account information? Almost certainly — especially for the Decedent’s Trust Share. Is he entitled to information about the Survivor’s Trust Share? Maybe, if he is still a beneficiary (or if the finances of the Survivor’s Trust Share would affect what Julia had needed from the Decedent’s Trust Share).

We always encourage clients to ask themselves one more question, though: will Grant’s son be happy with any likely outcome? Probably not. The cost of pursuing his step-mother’s estate and his step-sister will likely be high, and the resolution will not give him everything he is entitled to receive. Depending on the size of the estate and the portion at issue, it might be financially worth pursuing. Basically: “it depends.”

Is a Contract Not to Revoke Your Will Enforceable? A Good Idea?

AUGUST 20, 2012 VOLUME 19 NUMBER 32
Imagine this scenario: you and your spouse have been married for thirty years, and it is a second marriage for both of you. Each of you brought children to the marriage (your two and your spouse’s three), and all five kids were raised together from their teens as if they were each the child of both of you. You want to get your estate planning done, and you want to make sure that (a) when one of you dies, everything will go to the other, and (b) when the second of you dies — whichever that is and however long he or she survives the first to die — everything gets divided equally between the five children. Can you accomplish this?

The short answer is “yes.” But there are some issues to be considered here. One of those issues is the subject of today’s installment of Elder Law Issues: contracts to make (or not to make, or not to change) a will.

First the legal details. The principle is actually fairly straightforward. Arizona Revised Statutes section 14-2514 lays out the basic rules: “…a person may enter into a contract to make a will or devise or not to revoke a will or devise or to die intestate only by:

  1. Provisions of a will that state the material provisions of the contract.
  2. An express reference in a will to a contract and extrinsic evidence proving the terms of the contract.
  3. A writing signed by the decedent evidencing the contract.”

We have written about an Arizona case interpreting the statutory requirements before, and recently. In the case we described just a few months ago, the question was whether a decedent’s changes in his estate plan violated his divorce agreement to leave a share of his estate to his children from his first marriage — a slightly different question from the one we have posed here. (The answer, in case you were wondering and didn’t want to follow the link, was “yes” — and some of the changes he made in favor of his second wife were set aside by the courts.) We have also written about similar questions in other states — notably, an Iowa case in which a couple’s reciprocal wills were treated as creating an enforceable agreement to keep their estate plan the same.

But that’s not the question we pose here. Assume a happily married couple in complete agreement about how their property ought to be distributed on the second death. Each wants to assure that the other won’t later change his or her mind. Can they prevent that change, and if so, how?

If you have been reading along with us, you already know that the couple can enter into an agreement that neither will change their will, and that the agreement might be enforceable to set aside even lifetime transfers of property. Other cases we have described make it clear that it is at least theoretically possible to prevent even transfers of property to a living trust, or creation of joint tenancy, that would have the effect of changing the ultimate distribution.

When our clients ask us about these kinds of arrangements (and they often do), we first counsel that it is difficult to predict what the surviving spouse’s property, living arrangements and even family dynamics will look like twenty, ten — or even five — years after the first spouse’s death. Will the surviving spouse remarry, and spend two or three decades with a new spouse, commingling assets and developing new family relationships? Do the happily married couple sitting in our office want to try to preclude that from happening in the event that one of them should die much earlier than the other?

We have seen many cases in which stepchildren remain actively — and positively — involved in the lives of their deceased parent’s surviving spouse. But we have seen more cases in which the relationship slowly unravels, and a few in which the death of the first spouse to die leads to a terrific explosion in the family dynamics. Are you sure where on the scale of step-family relationships your own family fits, and how many years it will stay in that position?

Assume that you have gotten past all those concerns, and you and your spouse really do want to lock-in your estate plan so that it is not changeable after the first death. Is an agreement that neither of you will ever change your wills the best way to accomplish your desired result? Probably not.

First of all, there are many changes the surviving spouse might see which would not affect the ultimate disposition. Perhaps your selection of executor and agent under your power of attorney was influenced — positively or negatively — by your familiarity with the strengths and weaknesses of your children’s spouses. If they divorce, or one or more spouses die — you might want to change the sequence of appointment. Same if the surviving spouse moves to be closer to one of the children after the first death, or if the family home gets sold and turned into a small condominium, or into cash.

For those couples who want to provide for a particular distribution on the second death, we usually counsel that the best way to accomplish their goal is to create a living trust — all or a portion of which can become irrevocable upon the death of the first spouse. That means (in most cases) that the surviving spouse will be accountable to his or her step-children and children for the investment, distribution and use of the trust’s assets — possibly including the family home and other property in which the children are going to be given an enforceable interest. When clients protest that they don’t want to make the surviving spouse responsible to account to stepchildren, we have to ask: what protection are  you offering your children if you give them an interest in your marital property, but don’t allow them to have any information to monitor that interest?

This planning problem is one of the most persistently troubling issues our clients face. How do you strike the proper balance between giving the surviving spouse freedom to live life as they choose, and still protect the ultimate inheritance for children? We have some ideas and experience, but we predict that you (our client) will never be completely comfortable that you have found the correct balance.

Reciprocal Wills Enforceable After Death of One Spouse

JULY 26, 2010 VOLUME 17, NUMBER 23
Imagine a couple, each married for the second time. Perhaps each has children from a first marriage. Perhaps the couple has been married for years — even decades. They think of all the children as “their” children, even though they fully understand that the other spouse’s children are stepchildren.

One of the spouses — let us say the husband — dies. He leaves his interest in the family home, together with all the couple’s accumulated wealth, to his widow; his will specifies that on the second death all of the children share the estate equally. His children remain in contact with their stepmother for the next decade, though that contact lessens over time. When she dies, what happens to the home, the bank accounts and the remaining wealth?

This scenario plays out again and again. Most often, the deceased husband’s will is irrelevant. If the property all passed to the wife without restrictions, she is free to change her will, to transfer the property into trust, to spend it or even to give it away. But that is not always the case.

Ralph and Elaine Lawson married in 1971. They owned 12 acres of Iowa land as “joint tenants with right of survivorship.” They had three children between them: Ralph’s son and daughter Roger and Le Ann, and Elaine’s son Lonnie. Just to complicate things further, Ralph later adopted Lonnie.

In 1987 Ralph and Elaine signed identical wills. Each left everything to the other. On the second death, the wills provided that fifty percent of the combined estate would go to Lonnie, twenty percent each to Roger and Le Ann, and ten percent to the couple’s church. The wills contained an unusual provision: each included language that indicated the couple had agreed “that neither will change our will” without the other’s consent.

Ralph died first. The property passed to Elaine automatically because of the joint tenancy title, so Ralph’s will was not filed with the Iowa probate courts.

A few years later Elaine changed her estate plan. First she transferred the acreage to her son Lonnie, reserving a life estate for herself. Then she signed a new will, leaving the same proportions of her estate to Lonnie (50%), Roger (20%) and Le Ann (20%), but changing the church which would receive the remaining 10%. Shortly after that, Elaine died.

Roger and Le Ann sued to enforce the terms of their father’s and stepmother’s original wills. They alleged that the wills amounted to a contract, that Elaine’s transfer of the property to Lonnie violated that contract, and that the court should impose a trust upon the property to secure its return to the original beneficiaries. The trial judge reviewed the two wills and agreed with Roger and Le Ann.

The Iowa Court of Appeals upheld that ruling, ordering the imposition of a trust on the 12 acres. The language of Ralph’s and Elaine’s wills made it clear, according to the appellate judges, that their intent was to prevent the survivor from changing the estate plan by a new will or by transferring property during lifetime.

Lonnie argued, unsuccessfully, that the reciprocal wills should not prevent transfers of the acreage because it did not come into Elaine’s estate by virtue of Ralph’s will. The court dismissed that objection, noting that the language of the wills was broad enough to encompass any estate planning technique, whether it might be a will, a gift, or a living trust. The appellate judges also rejected Lonnie’s argument that his parents’ wills should not have been admitted to the court proceeding; the wills were not being admitted to probate, said the judges, but were being admitted to prove a contract. Consequently, the standards and requirements for admission were those governing contract documents rather than wills. Cunningham v. Lawson, July 14, 2010.

Would Arizona courts reach the same result? It is not completely clear, since the law of reciprocal wills (sometimes called mutual or contractual wills) is not well developed. What is clear in Arizona law is that reciprocal wills can be enforceable; what is less clear is whether they might prevent lifetime transfers of property by the surviving spouse.

One reason that the law is less than clear is that truly reciprocal wills are uncommon. Arizona’s probate code makes clear that the mere fact that wills are identical does not mean they embody a contract not to change the terms; in order to make the agreement binding it must be expressly stated in the wills or in a contractual document. Because that is uncommon, there is little law interpreting such terms.

What is more clear is that the question we hear so often is usually easy to answer. “Does my stepmother [or stepfather] have the right to leave the house she inherited from my dad [or mom] to her kids from her prior marriage?” Absent a clear contract not to change the will, or a trust provision prohibiting the transfer, the answer is likely to be: “I’m sorry, but yes.”

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