How to Make Most of Your Heirs Mad

Occasionally I will get an estate planning client who wants to leave all of his or her property to one child in the belief that  it will somehow make their estate easier to probate and that the chosen child will “know what to do.” This is a recipe for disaster. I have never prepared an estate plan that does this because I always talk the client out of it. I have two main objections: (1) the child is not obligated to follow the decedent’s instructions, and (2) if the child does follow the decedent’s instructions then they may be liable for gift taxes. 

Both objections come down to one basic problem. Once you have left all of your estate to a person, that person owns it and is not obligated to give it away. If they do give it away, then they may be liable for gift taxes for any amount in excess of $14,000 for the year (as of 2014). The First DCA confirmed that this was the case late last year. If you leave all of your estate to one person, that person has the discretion to honor your wishes or not. 

As you can imagine, this is a recipe for litigation. It is much better to take the time and effort to decide exactly how you want your estate divided than to kick off a fruitless and expensive battle between your heirs. Even if your heirs choose not to fight, you will have done extensive, probably irrevocable damage, to their relationships. 

The Importance of a Health Care Surrogate

A client recently came to see me because her husband’s son from a previous marriage had himself appointed his father’s emergency temporary guardian. This was done with no notice to her, as allowed by Florida law. I recently received a distraught call from her because her husband was in the hospital, and she had just heard that her husband’s doctors would not discuss his condition with her. The Order appointing her stepson as emergency temporary guardian (ETG) gave him the right to make all health care decisions for his father and he had instructed them not to discuss her husband’s care with her. Just to make matters worse, the son who is now calling the shots had been estranged from his father.

The guardianship laws require that the judge shall determine whether the ward, prior to incapacity, has executed any valid” advance directive naming a health care surrogate. If an advance directive exists, then the judge is required to “specify in its order and letters of guardianship what authority, if any, the guardian shall exercise over the surrogate.” Generally, the judge will provide that the guardian shall have no authority over the health care surrogate pending further order of the court. See, Fla. Stat. sec. 744.3115 

It is unclear whether the client has a health care surrogate directive from her husband. If she has one, then we could probably get the judge to modify his previous order appointing the ETG. The judge could not modify or revoke her authority as the health care surrogate without finding grounds under Florida Statute section 765.105. Therefore, in all likelihood, she would have the right to make the health care decisions and to discuss her husband’s care with his doctors.

If there is no directive naming her as her husband’s health care surrogate, then the client may not gain back control of her husband’s health care. However, at a minimum, the judge will probably require that she be kept informed of her husband’s care and treatment.

This situation highlights the importance of proper estate planning, including a directive naming a health care surrogate.

You’re Not Married Until The Paperwork Is Finished

When I first heard of this case, I thought it was an interesting but isolated case– the sort of thing that happens but is not common.  I may have been wrong.  In one of those serendipitous coincidences, I met a lady at a speaking engagement who told me about a situation involving several of her friends.  Several couples at a club that she belonged to had recently been “married” by a notary who also belonged to the club.  They had ceremonies, but failed to get licenses.  Apparently, the notary informed them that a license was not necessary.  WRONG!

Florida outlawed common law marriages in 1967. Since then no amount of playing house together can make you husband and wife in Florida, as discovered by Kimberly Hall and Roberto Maal.  Ms. Hall and Dr. Maal had the full ceremony, represented to the world that they were husband and wife, purchased a home as “husband and wife,” and even had two children.  However, one small detail was never attended to; i.e., they failed to obtain a marriage license, solemnize the marriage before an acceptable official, and return the license to the clerk of the court for recording.  The completed step one (i.e., they got a license), but failed to complete steps two and three.  See, Fla. Stat. sections 741.01 to 741.212 Years later when trouble arose, Ms. Hall was denied a “divorce” because she and Dr. Maal were never married.

A failure to obtain a license and be properly married can have serious consequences in a number of situations besides divorces.  In a divorce, it can cause a loss of rights to marital property and alimony.  Moreover, in an estate, it could cause a loss of rights to a life estate in a homestead, an elective share, and family allowance.  If there is no marriage, then there is no surviving spouse.  If  the purchasers of real property are not married, then they do not acquire the property as tenants-by-the-entireties and have no creditor protection and no survivor rights.  The forgotten marriage license is the opposite of the forgotten spouse problem.  Either one is serious though.

Death Is Sure But Maybe Not The Taxes

The Economic Growth and Tax Relief Reconciliation Act of 2001 substantially revised the estate, gift, and generation skipping taxes.  One provision was that the estate tax and generation skipping tax would disappear in 2010.  If nothing is done before 2011, the estate and generation skipping taxes go back to where they were before 2001; i.e., a lower exemption and higher rate.  I’ve always maintained that this compromise was at least in part a bet by the Democrats that they would be in control of Congress before 2010 so they could rewrite the tax as they preferred.  A bet that they won.  No one expected the tax to actually lapse in 2010.  However, health care reform has apparently distracted Congress and so no new estate tax bill has been passed.  Consequently, if you’re one of the 5,500 Americans to whom the estate tax might have applied, 2010 is a good year to die.  In fact, according to “The Wall Street Journal” some very ill wealthy Americans have been trying to hang on until January 1, 2010.  Theoretically, Congress could try to pass a law during 2010 making the tax retroactive to 2010, but that may not pass constitutional muster.

A Lawyer’s Dream: Michael Jackson’s Estate

Michael Jackson was as much a corporation as a person.  Like any major celebrity or company, he had ongoing litigation and business operations.  “The National Law Journal” has an article detailing the myriad suits Jackson and his company, MJJ Productions, had at the time of his death.  These suits will continue being litigated by his corporation or his estate.  The corporate suits will proceed with nary a hiccup.  The corporation’s existence is unaffected by Jackson’s death.  Unlike a very small corporation that may be little more than a one man band, MJJ Productions probably has full time professional management.  That management will continue to run the company.  However, there may be issues as to who runs MJJ.  Assuming Jackson owned most, if not all, of the shares of MJJ, the person who controls the estate and eventually his heirs will have control of MJJ as well as his other personal assets and business. 

It is unknown whether Jackson had a will or a trust (or trusts).  According to one attorney,most celebrities have living trusts.  If he has a will or if he died intestate, there is likely to be a delay while a personal representative (a/k/a an executor) is appointed.  If he had a living trust, then the successor trustee can more or less immediately take control of all the assets in the trust.  However, if he had some assets in the trust and some not in the trust, then he may still need a personal representative to manage assets outside the trust. 

Numerous sources estimate his debt at $500,000,000.00.  His spending habits were legendary.  The good news is that his one-half interest in the music catalog that includes 250 Beatles tunes is estimated to be worth as much as $500,000,000.00 to $1,000,000,000.00, but may already be encumbered with a $300,000,000.00 loan.   Other sources say the music business is so bad that Jackson’s assets may not cover the debts.  It is also possible that a fire sale could be forced for the Beatles catalog if creditors get greedy and over anxious.

However, Jackson’s estate may earn even more than Jackson.  Even as I write this, radio stations and TV stations are playing Jackson songs and videos and the royalties are pouring in. Itunes is probably sellng Jackson’s music at a record rate and CDs and posters are flying off the shelves at WalMart.  This income is likely to go further without Jackson to spend it faster than it comes in.  It is likely to support an army of lawyers and accountants and still be able to pay debt and a legacy for his three (3) children.  Elvis Presley’s estate earned $52,000,000.00 last year, which may be more than Jackson earned while living.  Jackson’s estate may do better than Presley’s for the next year or two.  On the other hand, a rush is on for refunds of the tickets sold for his upcoming concert tour.  At least some of that is insured, but one wonders whether there will be suits for the lost profits and money spent in expectation of the tour.

We won’t know for some time just how things will shake out.  One thing is for certain, whether Jackson’s estate proves to be flush or broke, his confused finances and personal life are likely to be a bonanza for a cadre of lawyers on both sides of the issues.

Why Guardianship Avoidance Tools Don’t Always Work

I had some clients come in recently in need of a guardianship for a family member.  The family member was a retired professional.  He had all the right tools in place to avoid a guardianship — durable power of attorney, health care surrogate, and revocable living trust.  So why did he need a guardianship?  Because he was suffering from dementia and refused to cooperate with his family in making rational decisions that were in his own best interests.  Unfortunately, it seems to me that dementia often magnifies the worst personality aspects of some people.  When you combine a cantankerous, domineering personality with paranoia and delusion, it makes for a difficult situation.

A durable power of attorney lets you manage the person’s property, but not the person.  Sometimes I hear people say, “I’ve got power of attorney over my Aunt Ethel.”  No they don’t.  They have a power of attorney that allows them to deal with Aunt Ethel’s property.  A revocable living trust also allows the management of property but not of a person.  In the narrow area of health care and treatment decisions, a health care surrogate or medical power of attorney does give some control over the person assuming that third parties agree and cooperate.  Therein lies the rub.  Without an adjudication of incapacity, third parties my be reluctant to accept the authority of the attorney-in-fact or surrogate.  This is especially true if the incapacitated person insists that he or she is not incapacitated.  The presumption is that people are competent unless declared incompetent.

Sometimes the alleged incapacitated person has lucid moments or is able to “fake it” for significant periods of time.  This makes third parties even more leery of accepting instructions solely from the attorney-in-fact or surrogate.  Third parties who do not spend a lot of time with the incapacitated person are the most easily deceived.  Thus, you can plan and have all the right tools and still not avoid a guardianship.  The good news is that although you may not avoid a guardianship of the person, you may still avoid a guardianship of the property if you have a properly funded living trust in place.

Be Clear or Shut Up! The Importance of Communication

I recently had conversations with a couple of lawyers who also practice probate litigation. We agreed that probate litigation is often the result of poor communication. Specifically, parents tell their children what the children want to hear or use ambiguous phrases like “don’t worry you’ll be taken care of.”  The same goes for other relatives and friends who might be expected to be remembered by you with money or assets when you pass away.

Here is one example of muddled communications — A decedent’s nieces and nephews sued their aunt’s beneficiaries claiming undue influence. The nieces and nephews said their aunt called the beneficiaries the “cleaning lady” and “the lawnman.” The beneficiaries said the decedent disliked her nieces and nephews, but the nieces and nephews swore the aunt loved them and promised to “take care of them” when she died. I believe both sides were telling the truth. The decedent had a prickly, cranky, insecure personality and had told each side what they wanted to hear and whatever made her feel important. Coupled with the fact that she waited to do her estate planning until she was on the way to the hospital where she died, it was a perfect recipe for a lawsuit.

Children often overestimate the wealth of their parents when they don’t know what their parents actually own. They may not realize that dad obsesses over MSNBC and Bloomberg because he enjoys it and that $100,000.00 in 10 or 20 stocks is all he has. They think he’s obsessively monitoring his millions. A phrase like “don’t worry I’ll take care of you” is ambiguous enough to cause problems. For the parent it may mean, “I’m leaving you $10,000.00,” but for the kids it may mean. “Don’t worry I’ll make sure you’re set for life.”

Here are some tips to make sure your legacy to your heirs and beneficiaries isn’t a lawsuit:

  • Be clear. Make sure that your children and other beneficiaries know what to expect from you at your death.
  • Don’t just tell people what they want to hear. You don’t have to tell people you hate them, but you shouldn’t misrepresent your relationships with others either/
  • Don’t wait until the last possible moment to meet with a lawyer and plan your estate.
  • Don’t wait until you’re incapable of making your appointments and arrangements to visit a lawyer before planning your estate.
  • If you remarry and have children from a previous marriage, get a prenuptial. If you later decide to ignore or revoke the prenuptial, do so in writing.
  • Don’t share your estate plan with someone or promise to “take care of them” and then set up all of your accounts and beneficiary designations so they pass outside of the estate plan that leaves everything to someone else.
  • Don’t make misleading or false promises to people you don’t intend to “take care of” in your estate plan.

This list is far from comprehensive. The bottom line is to be honest with yourself and others. Do what you can to not make misleading statements or promises or to give false hopes or expectations. You may save your heirs and beneficiaries a lot of headaches.