Probate

Why does an estate end up in litigation and how can it be avoided?  

Preparing an estate plan is a vital legal milestone that can ultimately protect your assets from being whittled away in legal fees and court costs. Believe it or not, estate litigation cases are among the most common cases to appear in Michigan courtrooms. There were actually several thousand contested probate matters presented to the Michigan courts in 2013. The following are the top four reasons an estate can end up entangled in a lawsuit:

#4: Disinheritance:

Disinheriting a child is a dicey subject, but certainly understandable in certain circumstances. Many parents, for instance,  disinherit a child for whom they have adequately provided during their lifetime in order to leave a portion of their estate to charitable causes, preparing their children for this eventuality beforehand. In other cases, however, the disinheritance comes as a complete shock to the would-be heirs and may result in a lawsuit alleging undue influence or error in judgment.

To avoid the latter result, disinheritances must be spelled out in clear, concise, unambiguous language, without any possibility of being misconstrued. If this is done, even if the disinherited relative files suit anyway, the suit is unlikely to go far.

#3: Constant Amendments:

An estate plan can certainly be amended to reflect changes in the family dynamic. It should not, however, be updated every few months, since this may give surviving family members a cause to doubt competency. If you are considering changes to an existing estate plan, carefully consider the options and only make amendments that you are certain will be permanent.

#2: Perceived Undue Influence:

Undue influence is one of the most common claims in estate litigation, and it basically asserts that the deceased was improperly coerced to make estate plan changes in favor of a certain beneficiary. Oftentimes, the target of the undue influence claim is a child or relative who spent the most time with the deceased and/or offered regular assistance with daily tasks. If you would like to leave the bulk of your estate to a certain close relative, a competent attorney can ensure the bequests are properly drafted and there are no questions of mental competence at the time of execution.

#1: No Estate Plan at All:

Failure to make an estate plan can result in catastrophic family conflicts – particularly for non-immediate family members who were promised assets or heirlooms by the deceased during his or her lifetime. To avoid such unintended dissension, contact Andrew Byers, Attorney and Counselor at Law for skilled, knowledgeable assistance. Serving Detroit and surrounding regions of Michigan, we can be reached at: 248-301-1511 today. 

I am not sure how I would like to distribute my fine china and jewelry. Do I need to decide this at the time of drafting my will? 

When it comes to estate planning, there are two types of property: real and tangible. Basically, anything that is not land and/or a structure falls within the tangible personal property category – including cash, accounts, assets, boats, cars, jewelry, furs and so on. Generally speaking, testators (those creating a will) are pretty set on how to transfer the family home or vacation property – and, if not, will direct the executor to liquidate the property and add it to the residuary estate. 

However, when it comes to heirlooms and tangible items of great sentimental value, making the decision can be more difficult and may take more time. As well, a testator’s feelings may change over time, or the intended beneficiary might predecease the testator. Therefore, Michigan law allows for a document known as a Tangible Personal Property Memorandum (or a Memorandum of Wishes) to accompany the Last Will and Testament, which may be changed and amended over time according to the testator’s wishes. 

Basics of a Memorandum of Wishes

A Memorandum of Wishes must be signed by the testator, and may be handwritten or typed. Under Section 700-2510 of the Michigan Compiled Laws “a writing in existence when a will is executed may be incorporated by reference if the language of the will manifests this intent and describes the writing sufficiently to permit its identification”.

With regard to the first requirement, an experienced estate planning attorney can help ensure that a Will is drafted to contain a section referring to a Memorandum of Wishes, which is quite simply accomplished by including a small section explaining that any accompanying Memorandum is to be upheld along with the Will. 

Secondly, the Will must include language to assure the executor that the testator, in fact, intended to create the Memorandum of Wishes and that his or her tangible personal property should be divided based on the language of this document. Oftentimes, these two requirements are combined into one short Article contained in the Will, and a blank Memorandum will be included along with the estate plan for the testator to use as needed. 

If you would like to discuss the specifics of a Memorandum of Wishes, or would like to review your current plan, please contact Auburn Hills, Rochester Hills and Troy estate planning attorney Andrew Byers: (248) 301-1511. 

Planning Pitfall: Probate vs. Non-Probate Property

Transfer of property at death can be rather complex.  Many are under the impression that instructions provided in a valid will are sufficient to transfer their assets to the individuals named in the will.   However, there are a myriad of rules that affect how different types of assets transfer to heirs and beneficiaries, often in direct contradiction of what may be clearly stated in one’s will.

The legal process of administering property owned by someone who has passed away with a will is called probate.  Prior to his passing, a deceased person, or decedent, usually names an executor to oversee the process by which his wishes, outlined in his Will, are to be carried out. Probate property, generally consists of everything in a decedent’s estate that was directly in his name. For example, a house, vehicle, monies, stocks or any other asset in the decedent’s name is probate property. Any real or personal property that was in the decedent’s name can be defined as probate property.  

The difference between non-probate property and probate centers around whose name is listed as owner. Non-probate property consists of property that lists both the decedent and another as the joint owner (with right of survivorship) or where someone else has already been designated as a beneficiary, such as life insurance or a retirement account.  In these cases, the joint owners and designated beneficiaries supersede conflicting instructions in one’s will. Other examples of non-probate property include property owned by trusts, which also have beneficiaries designated. At the decedent’s passing, the non-probate items pass automatically to whoever is the joint owner or designated beneficiary.

Why do you need to know the difference? Simply put, the categories of probate and non-probate property will have a serious effect on how plan your estate.  If you own property jointly with right of survivorship with another individual, that individual will inherit your share, regardless of what it states in your will.  Estate and probate law can be different from state-to-state, so it’s best to have an attorney handle your estate plan and property ownership records to ensure that your assets go to the intended beneficiaries.

The Basics of Conservatorships

Sometimes, bad things happen to good people. A tragic accident. A sudden, devastating illness. Have you ever wondered what would happen if a loved one became incapacitated and unable to take care of himself? While many associate incapacity with a comatose state, an individual, while technically functioning, may be considered incapacitated if he cannot communicate through speech or gestures and is unable sign a document, even with a mark. In some cases, an individual may have no trouble communicating, but may not be able to fully appreciate the consequences of their decisions and hence may be deemed to lack capacity. With proper incapacity planning which includes important legal documents such as a durable power of attorney, healthcare proxy and living will, the individuals named in such documents are empowered to make necessary financial and medial decisions on behalf of the incapacitated person without obtaining additional legal authorization.  Without proper incapacity planning documents, even a spouse or adult child cannot make financial and healthcare decisions on behalf of an incapacitated individual.  In such cases, a conservatorship (or guardianship) proceeding is necessary so that loved ones are able to provide for their financial and medical healthcare needs.

A conservatorship is a court proceeding where a judge appoints a responsible individual to take care of the adult in question and manage his or her finances and make medical decisions. The court appointed conservator will take over the care of the conservatee (disabled adult).  When appropriate, the court may designate an individual “conservator of the estate” to handle the disabled person’s financial needs and another person “guardian” to manage his healthcare needs. One person can also serve as both. If you are planning to serve as someone’s financial conservator, be prepared to possibly post a bond that serves as a safeguard for the conservatee’s estate. Individual states have their own guidelines for conservators, so check your local rules for more information.  

To minimize the incidence of mismanagement or fraud, the court holds the conservator legally responsible for providing it with regular reports, called an accounting. Additionally, the conservator may not be able to make any major life or medical decisions without the court’s approval and consent. For example, if you have been named the conservator for a relative, you may not be able to sell his or her house without the approval of the court.

The best safeguard to avoid going through court to get a conservatorship, however, would be to establish a durable financial power of attorney, a power of attorney for healthcare, each authorizing a family member or trusted individual to act on your behalf in case of incapacity.  While your agents have a legal obligation to act in your best interest they won’t have to post an expensive bond either.  Make sure the power of attorney clearly states that it will be effective even if the principal becomes incapacitated.

Is a copy of a will sufficient?

Many people keep their important documents at home where they are easily accessible. It’s not at all uncommon to find people with a filing cabinet or even a shoe box containing passports, account statements, deeds, tax returns, birth certificates and social security cards. Wills are often added to these files once the estate planning process is completed. In choosing to store your important estate planning documents at home, however, you risk having the originals lost or destroyed in the case of fire, flooding or theft. So what happens if the original version of your will is lost or ruined?

Generally when a person dies, state law determines what must happen in the state probate proceeding. In most cases, the "original" of the will must be submitted to the probate court in the county where the person resided. If the original of the will cannot be located and provided to the court, there likely is a provision in your state's probate code that would permit the submission of a photocopy of that signed will.

In many cases, the attorney who prepared the will maintains a copy of the estate planning documents. Assuming, that the copy your attorney has could be submitted to the probate court, additional steps may need to be taken, and additional pleadings prepared in order to submit a copy.

Should you lose the original copy of your will, the best practice would be for you to execute a new will which would make things easier for your family and loved ones upon your death. In that case there would be better assurances that your wishes were followed and carried out. Preparing a new will should not take much time for your attorney. He or she likely still has the word processing file on his or her computer, and could easily modify it for you to execute again. If for some reason this is not done, you may wish to execute a document stating the original was destroyed in a flood or fire but that you did not intend to revoke it. However, it’s important to note that this may not be effective in every instance as many states have very strict requirements in terms of requiring originals and execution formalities.

To keep the originals of your estate planning documents safe, even in the face of disaster, you might consider purchasing a fireproof/waterproof safe for your home or rent a safe deposit box with a local bank where you can still easily access your documents but keep them secure off-site.

An executor's fee is the amount charged by the person who has been appointed as the executor of the probate estate for handling all of the necessary steps in the probate administration. Therefore, if you have been appointed an executor of someone’s estate, you might be entitled to a fee for your services.  This fee could be based upon a variety of factors and some of those factors may be dependent upon state, or even local, law.

General Duties of an Executor

1. Securing the decedent's home (changing locks, etc.)
2. Identifying and collecting all bank accounts, investment accounts, stocks, bonds and mutual funds
3. Having all real estate appraised; having all tangible personal property appraised
4. Paying all of the decedent’s debts and final expenses
5. Making sure all income and estate tax returns are prepared, filed and any taxes paid
6. Collecting all life insurance proceeds and retirement account assets
7. Accounting for all actions; and making distributions of the estate to the beneficiaries or heirs.

This list is not all-inclusive and depending upon the particular estate more, or less, steps may be needed.

As you can see, there is a lot of work (and legal liability) involved in being the executor of an estate.  Typically the executor would keep track of his or her time and a reasonable hourly rate would be used. Other times, an executor could charge based upon some percent of the value of the estate assets. What an executor may charge, and how an executor can charge, may be governed by state law or even a local court's rules. You also asked whether the deceased can make you agree not to take a fee. The decedent can put in his or her will that the executor should serve without compensation but the named executor is not obligated to take the job. He or she could simply decline to serve. If no one will serve without taking a fee, and if the decedents will states the executor must serve without a fee, a petition could be filed with the court asking them to approve a fee even if the will says otherwise. Notice should be given to all interested parties such as all beneficiaries.

If you have been appointed an executor or have any other probate or estate planning issues, contact us for a consultation today.

What’s Involved in Serving as an Executor?

An executor is the person designated in a Will as the individual who is responsible for performing a number of tasks necessary to wind down the decedent’s affairs. Generally, the executor’s responsibilities involve taking charge of the deceased person’s assets, notifying beneficiaries and creditors, paying the estate’s debts and distributing the property to the beneficiaries. The executor may also be a beneficiary of the Will, though he or she must treat all beneficiaries fairly and in accordance with the provisions of the Will.

First and foremost, an executor must obtain the original, signed Will as well as other important documents such as certified copies of the Death Certificate.  The executor must notify all persons who have an interest in the estate or who are named as beneficiaries in the Will. A list of all assets must be compiled, including value at the date of death. The executor must take steps to secure all assets, whether by taking possession of them, or by obtaining adequate insurance. Assets of the estate include all real and personal property owned by the decedent; overlooked assets sometimes include stocks, bonds, pension funds, bank accounts, safety deposit boxes, annuity payments, holiday pay, and work-related life insurance or survivor benefits.

The executor is responsible for compiling a list of the decedent’s debts, as well. Debts can include credit card accounts, loan payments, mortgages, home utilities, tax arrears, alimony and outstanding leases. All of the decedent’s creditors must also be notified and given an opportunity to make a claim against the estate.

Whether the Will must be probated depends on a variety of factors, including size of the estate and how the decedent’s assets were titled. An experienced probate or estate planning attorney can help determine whether probate is required, and assist with carrying out the executor’s duties. If the estate must go through probate, the executor must file with the court to probate the Will and be appointed as the estate’s legal representative.  Once the executor has this legal authority, he or she must pay all of the decedent’s outstanding debts, provided there are sufficient assets in the estate. After debts have been paid, the executor must distribute the remaining real and personal property to the beneficiaries, in accordance with the wishes set forth in the Will. Because the executor is accountable to the beneficiaries of the estate, it is extremely important to keep complete, accurate records of all expenditures, correspondence, asset distribution, and filings with the court and government agencies.

The executor is also responsible for filing all tax returns for the deceased person including federal and state income tax returns and estate tax filings, if applicable. Additional tasks may include notifying carriers for homeowner’s and auto insurance policies and initiating claims on life insurance policies.

The executor is entitled to compensation for his or her services.  This fee varies according to the estate’s size and may be subject to review depending on the complexity as well as the time and effort expended by the executor.

   

What to Do after a Loved One Passes Away

The loss of a loved one is a difficult time, often made more stressful when one has to handle the affairs of the deceased. This may be a great undertaking or rather minimal work, depending upon the level of estate planning done prior to death.

Tasks that have to be performed after the passing of a loved one will vary based on whether the departed individual had a will or not. In determining whether probate (a court-managed process where the assets of the deceased are managed and distributed) is needed, the assets owned by the individual, and whether these assets were titled, must be considered. It’s important to understand that assets titled jointly with another person are not probate assets and will normally pass to the surviving joint owner. Also, assets such as life insurance and retirement assets that name a beneficiary will pass to the named beneficiaries outside of the court probate process. If the deceased relative had formed a trust and during his life retitled his assets into that trust, those trust assets will also not pass through the probate process.

Each state’s rules may be slightly different so it is important to seek proper legal advice if you are charged with handling the affairs of a deceased family member or friend. Assuming probate is required, there will be a process that you must follow to either file the will and ask to be appointed as the executor (assuming you were named executor in the will) or file for probate of the estate without a will (this is referred to as dying "intestate" which simply means dying without a will). Also, there will be a process to publish notice to creditors and you may be required to send each creditor specific notice of the death. Those creditors will have a certain amount of time to file a claim against the estate assets. If a legitimate creditor files a claim, the claim can be paid out of the estate assets. Depending on your state's laws, there may also be state death taxes (sometimes referred to as "inheritance taxes") that have to be paid and, if the estate is large enough, a federal estate tax return may also have to be filed along with any taxes which may be due.

Only after the estate is fully administered, creditors paid, and tax returns filed and taxes paid, can the estate be fully distributed to the named beneficiaries or heirs. Given the many steps, and complexities of probate, you should seek legal counsel to help you through the process.

If you’ve been named a beneficiary in a loved one’s estate plan, you’ve likely wondered how long it will take to receive your share of the inheritance after his or her passing.  Unfortunately, there’s no hard or and fast rule that allows an estate planning attorney to answer this question. The length of time it takes to distribute assets in an estate can vary widely depending upon the particular situation.

Some of the factors that will be involved in determining how long it takes to fully administer an estate include whether the estate must be probated with the court, whether assets are difficult to value, whether the decedent had an ownership interest in real estate located in a state other than the state they resided in, whether your state has a state estate (or inheritance) tax, whether the estate must file a federal estate tax return, whether there are a number of creditors that must be dealt with, and of course, whether there are any disputes about the will or trust and if there may be disagreements among the beneficiaries about how things are being handled by the executor or trustee.

Before the distribution of assets to beneficiaries, the executor and trustee must also make certain to identify any creditors because they have an obligation to pay any legally enforceable debts of the decedent with those assets. If there must be a court filed probate action there may be certain waiting periods, or creditor periods, prescribed by state law that may delay things as well and which are out of the control of the executor of the estate.

In some cases, the executor or trustee may make a partial distribution to the beneficiaries during the pending administration but still hold back sufficient assets to cover any income or estate taxes and other administrative fees. That way the beneficiaries can get some benefit but the executor is assured there are assets still in his or her control to pay those final taxes and expenses. Then, once those are fully paid, a final distribution can be made. It is not unusual for the entire process to take 9 months to 18 months (sometime more) to fully complete.

If you’ve been named a beneficiary and are dealing with a trustee or executor who is not properly handling the estate and you have yet to receive your inheritance, you should contact a qualified estate planning attorney for knowledgeable legal counsel.

Do Heirs Have to Pay Off Their Loved One’s Debts?

The recent economic recession, and staggering increases in health care costs have left millions of Americans facing incredible losses and mounting debt in their final years. Are you concerned that, rather than inheriting wealth from your parents, you will instead inherit bills? The good news is, you probably won’t have to pay them.

As you are dealing with the emotional loss, while also wrapping up your loved one’s affairs and closing the estate, the last thing you need to worry about is whether you will be on the hook for the debts your parents leave behind. Generally, heirs are not responsible for their parents’ outstanding bills. Creditors can go after the assets within the estate in an effort to satisfy the debt, but they cannot come after you personally. Nevertheless, assets within the estate may have to be sold to cover the decedent’s debts, or to provide for the living expenses of a surviving spouse or other dependents.

Heirs are not responsible for a decedent’s unsecured debts, such as credit cards, medical bills or personal loans, and many of these go unpaid or are settled for pennies on the dollar. However, there are some circumstances in which you may share liability for an unsecured debt, and therefore are fully responsible for future payments. For example, if you were a co-signer on a loan with the decedent, or if you were a joint account holder, you will bear ultimate financial responsibility for the debt.

Unsecured debts which were solely held by the deceased parent do not require you to reach into your own pocket to satisfy the outstanding obligation. Regardless, many aggressive collection agencies continue to pursue collection even after death, often implying that you are ultimately responsible to repay your loved one’s debts, or that you are morally obligated to do so. Both of these assertions are entirely untrue.

Secured debts, on the other hand, must be repaid or the lender can repossess the underlying asset. Common secured debts include home mortgages and vehicle loans. If your parents had any equity in their house or car, you should consider doing whatever is necessary to keep the payments current, so the equity is preserved until the property can be sold or transferred. But this must be weighed within the context of the overall estate.

Executors and estate administrators have a duty to locate and inventory all of the decedent’s assets and debts, and must notify creditors and financial institutions of the death. Avoid making the mistake of automatically paying off all of your loved one’s bills right away. If you rush to pay off debts, without a clear picture of your parents’ overall financial situation, you run the risk of coming up short on cash, within the estate, to cover higher priority bills, such as medical expenses, funeral costs or legal fees required to settle the estate.

In my last post, I wrote about how Mike had purchased a power of attorney for elderly father, Robert, who has dementia, from a legal forms website, Legal Whirl.

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