Ronald Morton's Elder Law Blog

2010 Estate Tax Reform? Not Any Time Soon

Recent estate tax negotiations led by Senate Minority Whip Jon Kyl (R-AZ) and Senator Blanche Lincoln (D-AR) broke down on May 18 due to objections from several Democratic Senators who learned details of the proposal.  The collapse of these negotiations reduces prospects for action on the estate tax this year. 

Those That Amend Their Own Wills Do So At their Peril

In a recent case decided by the Mississippi Court of Appeals, a Will in which the testator apparently changed her mind and made handwritten changes was held to be a partial revocation, but her handwritten additions to the Will were ignored. In the case of in The Matter of the Estate of Laura Foster Carpenter, Mississippi Court of Appeals, 2009 -SA - 00114 - COA., decided on May 18, 2010, the decedent, in 1999, drafted a Will that disinherited one of her four children. Sometime thereafter, she scratched out of the language that disinherited her at her daughter, instead scratching out the words "will not inherit", and the changing them to "will inherent." In additionally, in another section bequeathing certain real property, the previously disinherited child was handwritten in by the testator as receiving an equal share of the real property. Additionally, she also struck through several complete paragraphs of the Will. In the resulting will contest, the Chancellor ruled that the changes to the Will were sufficient to result in its entire revocation, resulting in the property being divided equally among the children under Mississippi's Intestacy laws. However, the Court of Appeals reversed that decision, holding instead that the Will was only partially revoked, with those paragraphs completely marked through being revoked, but the additions of the previously disinherited child were held to be of no consequence, since those changes were not witnessed and therefore did not serve to be a valid codicil to the Will.

This case illustrates the importance of following the technical requirements of a Will. People that try to cut corners by doing it themselves frequently wind up with a result that at least appears to be different than may ultimately  have been intended. If an individual's legacy is important enough to them to write down, it should be important enough to them to make sure that it is done correctly. In Wills there are no "do over's." It must be done correctly the first time or an individual risks their final wishes not been carried out. Worse, the resulting dispute between these siblings will no doubt have a damaging, and if not irreparable, harm to their relationship, with the previously disinherited, but subsequently reinherited child feeling bitterness toward her siblings as a result of a cruel and ancient legal application, the importance of which was unrecognized by her mother.

Many States Alter Tax Formula for Bypass Trust Funding for 2010

The temporary repeal of the federal estate and GST taxes in 2010 has raised issues about how formula clauses in wills and trusts will operate for deaths in 2010. Such clauses generally fund the marital trust portion of the estate, which receives an unlimited marital deduction and is therefore tax-free on the death of the first spouse, with the least amount needed to result in zero tax being paid at the death of the first spouse.  When the exemption was $1 million dollars for example, a person dying with a $3 million estate would result in $1 million being funded to the family bypass trust, and the remaining $2 million funded to the marital trust, thereby avoiding any estate tax at the first death.  The problem in 2010 is that the minimum amount needed to avoid estate tax is zero, because there is no estate tax for this year only.  This means that in the above example, all $3 million would go to the family trust, and none will be passed to the marital trust.  This may leave the surviving spouse feeling destitute.  Several states have addressed this situation by enacting statutes which provide a special rule of construction under which formula clauses that refer to certain estate and GST tax terms will generally be construed as referring to the federal estate tax and GST tax laws which applied to estates of decedents dying on December 31, 2009. While Mississippi is not among them, the following states have enacted such legislation: Indiana (Indiana Code §29-1-6-1(n)), Maryland (Md. Code Ann. Est. & Trusts §11-110), Nebraska (L. 2010, LB1047),  Utah (Utah Code Ann. §75-3-917), Virginia (Va. Code Ann. §64.1-62.4), Washington (L. 2010, S6831), and  Wisconsin (L. 2010, S670).

Estate Planning Lessons from Big Daddy

Pennsylvania estate planning attorney Patti Spencer recounts in a recent blog entry about the various estate planning lessons to be learned from "Cat on a Hot Tin Roof."  Since Big Daddy was a Mississippi planter, I thought her post would be especially of interest to readers of this blog: 

"Big Daddy... What is it that makes him so big? His big heart, his big belly, or his big money?" - Brick Pollitt, character in the play

Last week my husband and I saw Tennessee William's play "Cat on a Hot Tin Roof" at the Fulton Theatre. The theme of truth vs. mendacity runs through the play as a dysfunctional family fights over an inheritance in the Mississippi Delta. Plantation owner Big Daddy has come home from the clinic on his 65th birthday. In addition to Big Mama, his sons and their families are there to welcome him and to tell him he is dying of cancer! Big Daddy favors his tormented, alcoholic, former-football-hero son Brick, married to Maggie the cat. Their marriage is childless and on-the-rocks. Brick has quit his job and taken to drinking after the death of his friend Skipper, with whom it is intimated he had a homosexual relationship. Gooper, the less-loved son, and his over-bearing wife Mae are there with their 5 children (no-neck monsters) and another on the way. Everyone except Big Daddy knows that he does, in fact, have terminal cancer. The maneuvering begins for the inheritance. What does Big Daddy own? "Close on ten million in cash an' blue-chip stocks, outside, mind you, of twenty-eight thousand acres of the richest land this side of the valley Nile!" As the family quarrels and postures, trying to gain control of Big Daddy's estate, we are given lessons in human nature, family dynamics and estate planning: 1. Make your will now. Big Daddy couldn't decide whether to leave the plantation to older son Gooper, whom he hates, or younger son Brick, whom he loves but knows is an alcoholic. "I didn't make up my mind at all on that question and still to this day I ain't made no will! - Well, now I don't have to. The pressure is gone. I can just wait and see if you pull yourself together or if you don't." The audience knows he is in fact dying - so it looks as though he will die without a will. Don't wait until there is a crisis situation to make a will. If drafted in response to a crisis, the disposition of your estate may not be the result of thoughtful, careful consideration but a knee-jerk reaction influenced by the situation. 2. Is blood thicker than water? Should it be? Big Daddy's hesitation over leaving the plantation to Brick is two-fold: 1) he is an alcoholic and Big Daddy doesn't want to "subsidize a [@#$%&*] fool on the bottle," and 2) Brick has no children so that Big Daddy's legacy will not continue past Brick's generation. An estate plan can address questions such as 1) do I need to control distributions to a beneficiary who is incapable of handling money, 2) do I want to provide for future generations or 3) are there beneficiaries other than family members I want to consider.

3. Even with an estate plan, don't think there won't be sibling rivalry. Even if your kids get along with each other and you, they may have spouses. Gooper and Mae pretend to be the dutiful, attentive son and daughter-in-law, when in truth they are driven solely by the desire for material gain. Children who keep their animosity damped down while you are around lose that inhibition when you are gone. No matter what Big Daddy does, it appears that the sequel to Cat on a Hot Tin Roof will be Cat and the Will Contest. 4. Don't try to use your money to control people. They may be nice to your face, but behind your back they will hate you. Who could expect Big Daddy's statement to Brick as to who will inherit the plantation, "I can just wait and see if you pull yourself together or if you don't," to produce anything but Brick's disdain for his father. 5. Provide for your spouse. What about Big Mama? It becomes clear that Big Daddy hates her, although he puts on a show of caring for her. What does she get when Big Daddy dies? No one seems to think she will inherit - it's only the two sons. If you are married, make sure your spouse is providing for you adequately. If your spouse dies without a will in Pennsylvania, you do not inherit the whole estate. If there are children, you get the first $30,000 and one half of the remaining amount with the kids getting the other half. 6. Bring out the skeletons. There are repressed ideas in Cat on a Hot Tin Roof that are finally revealed at the climax of the play. But in many lives, hidden secrets are never exposed. Don't assume you know and understand everyone in your family. If there are difficult situations or problems, your attorney needs to know.
The biggest lesson of all? In Big Daddy's words, "You can't buy back your life when it's finished."

Witnesses to Wills Must Know What They are Witnessing

The Mississippi Supreme Court recently issued an opinion emphasizing the importance of strict adherence to legal formalities when executing wills. In the case of In re: Griffith, the court upheld a trial court's strike of the will as invalid because the 2 witnesses to the document testified at trial that they did not realize he was a "will" they were witnessing.  Specifically, they did not deny that it was their signature, or even that they signed it under oath, but instead state only that they thought they were signing a power of attorney.  The Mississippi Supreme Court specifically looked at the issue of whether a witness to a will was required to know it was a "will"that they were witnessing, or whether the act of witnessing a non-incapacitated individual signing something was sufficient. The court, looking at both the strict language of the wills statute, together with conflicting decisions in Mississippi law dating back nearly 100 years, concluded that the witnesses' knowledge of what they were witnessing is a prerequisite to the validity of a will. Specifically, the court held:

"We find that Mississippi Code Section 91-5-1 requires that attesting witnesses to a will know the purpose of their attestation, even when the testator signs the will in their presence. As noted in our prior cases, either formal or constructive publication will ensure that this knowledge is imparted to the attesting witnesses."

This case illustrates the importance of strict adherence to formalities when executing wills. Here, the individual testator went to the trouble of drafting a will, which in all ways was apparently a valid instrument under Mississippi law, and further went to the trouble of not only having the document witnessed by the required 2 witnesses, but also had those witnesses signatures notarized, which was a statement under oath that the witnesses acknowledged that the instrument was declared to be a will, and was signed by the testate or in their presence. Nonetheless, despite following all of these formalities, and in the absence of any evidence reported in the case that the testate or lacked capacity to execute a will, the Mississippi Supreme Court struck down an otherwise valid instrument strictly on technical grounds that the witnesses' oral testimony was that they didn't know it was a will that they were witnessing.

One must wonder if the result would have been the same had the instruments been witnessed at a lawyer's office instead of the bank. While the decision does not explicitly state this was a "do-it-yourself" will, the fact that the document was witnessed and notarized at a bank leads one to that conclusion. More frequently than not, the challenges that we seek to these "do-it-yourself" documents is not the language of the documents themselves, which are almost always adequate, but rather the failure to follow a simple formality, such as in this case. The testator in this case may have well saved $500 or more by self drafting his will, and exchanged that savings for invalidating his entire last wishes for  how his estate would be handled. The end result in this case was an equal distribution of his estate to his children under Mississippi's intestacy laws. In his will, he expressed a desire to favor certain individuals over others, but those desires will now be completely moot.  Most would concede that such a trade-off is no bargain. 

Mississippi Ranks Last in Total Number of Millionaires

It should come as no surprise that Mississippi, the poorest state in the union, also has the fewest millionaires in the country.  See recent report on the top and bottom ten states here.  Excerpt from report is below:

The Fewest Millionaires: Mississippi

If you’re ever in Mississippi, hide your fat wallet or you might make someone jealous. Just more than 3% of the households in this state qualify as millionaires, and the median household income is less than $40,000 a year. But while Mississippi may be one of the poorer states in the country, it’s also the most religious state according to our list, so perhaps they can chalk it up to living a more austere life.

Total number of millionaire households: 33,792

Percent of population that are millionaires: 3.06%

Median household income: $37,818

Are Handwritten Wills OK?

An interesting article on myjourneytomillions.com explores whether handwritten wills are valid, and whether individuals are better off drafting a handwritten will than they are using a do-it-yourself service like legalzoom, or hiring a lawyer.  In Mississippi, a handwritten will, which is called a "holographic will", is legal as long as it is completely in the handwriting of the decedent.  Fill in the blank forms will now serve as a handwritten will.  The problem with handwritten wills comes in presenting them to the court for probate.  Because such wills are not witnessed, the only proof that the document was written and signed by the decedent is testemony, usually by affidavit, of non-experts that they recognize the will as being in the decednet's handwriting. If this is challenged by one of the heirs, this could lead to significant litigation, possible great expense in hiring handwriting experts, and the possible invalidity of the will. Additionally, in all but the simplist of dispositions of property, such as "everything divided equally among my children," the handwritten will is likely to be inadequate to address many of the concerns that a comprehensive estate plan will address, such as protection from divorce, creditors, or nursing home expense. 

In short, yes handwritten wills are valid in Mississippi, but with them comes some risk, and they may be inadequate to deal with the real-life issues of the heirs in all but the simpliest of estates. 

Former Mayor of Jackson Dies with Sizable Estate and no Will

The late Mayor Frank Melton died leaving a sizable estate with assets in both Mississippi and Texas. Despite his considerable means, Melton died without a will.  Texas is a community property state, whereas Mississippi is not, which may result in some differences as to how assets are distributed, depending on the state in which they are located.  It does not appear at this time that Melton had a taxable estate and lost out on significant tax savings like Steve McNair did.  However what is clear is that his estate will require probate in both Mississippi and Texas, which will increase the cost of overall estate administration significantly.  Had Melton placed his assets into a Revocable Living Trust the duplicated court proceedings could have been avoided, saving his estate thousands in legal and administration fees.  If you would like to discuss whether a Revocable Living Trust would benefit your family, please feel free to email me or call for an appointment.  

The High Cost of Failing to Plan

Steve McNair earned a reported $75 million during his 13 seasons with the Titans, and yet apparently died without a will. While it is unknown what his current estate is worth, it is almost certainly worth many millions. Under current estate tax law, the first $3.5 million of his estate going to persons other than his spouse is exempt from Federal estate taxes, and the first $1 million is exempt from Tennessee state estate tax.  As an intestate estate probated under Tennessee law, 1/3 of his estate will fall under the unlimited spousal estate tax exemption, but to the extent that the remaining 2/3 of his estate exceeds $1 million and 3.5 million, his estate will owe state and federal estate taxes of nearly 50%.  Had he drafted a will using a competent estate planning attorney, this estate loss could have been totally eliminated by leaving his entire estate to his wife, either in trust or outright.  His failure to plan will likely cost his loved ones millions.  On the brighter side, his family's loss is the IRS's gain. If you need to plan your estate, we are here to help.  Please feel free to call or email me if you have questions or I can assist with any of your estate planning needs. 

Millionaire Football Star Died Without a Will

Mississippi native and football legend Steve McNair died without a will, leaving the handling of his estate to the intestacy laws of Tennessee, the Tennesseeian reports.  His widow's petition to open the estate only identifies herself and their two sons, but omits his two other sons from a previous marriage.  Under Tennessee law, his surviving spouse will receive 1/3 of the estate, whether he has 2, 4, or more children. This result is different than if his estate had been probated in Mississippi, where his widow would only recieve an equal share with his children, which presumably is why the estate was opened in Tennessee.  It is a certainty that representatives on behalf of his other two children will intervene in his estate to ensure they recieve their share of the estate.  What is uncertain is whether other putative heirs will also assert claims.  Had McNair executed even a simple will, these issues would have been eliminated, and handled in a manner of his choosing rather than the courts.