What is Probate?

January 7, 2012 By Leave a Comment

Transcript:

I am attorney Jeramie Fortenberry.  In this video, we are going to talk about a question that comes up often in my consultations with clients or with potential clients. That question is: what is probate?

In simple terms, probate is a court-supervised legal process for moving assets from a deceased person to the people or the organizations that are entitled to the assets.  It is a court-supervised process, meaning that the court will be involved in the transfer and will oversee it to be sure that the right people end up with the assets and, in most situations, will make sure that there aren’t any creditors’ claims that will attach to the assets.  So in most cases, creditors’ claims are typically resolved as part of the probate process.

The goal of probate is to give the people or organizations that are entitled to the assets clear title.  This means title that a third party—such as a buyer or a lender—will accept in dealing with the property. This means that, when the probate process is finished, the people who end up with the assets will be able to deal with them as though they were their own. They will be able to, for example, sell the assets or maybe take out a loan against them and pledge the assets for security (as in the case of a mortgage of real estate). So, again, the goal is to be sure (a) that the right people end up with the assets and (b) that those assets are free and clear of any creditor claims so that the people who have the assets can deal with them without any further need for court involvement.

Now, there is some different terminology involved in probate depending on whether or not the deceased person (who is called a “decedent”) left a valid Last Will and Testament. If the deceased person had a valid Last Will and Testament, then he or she is said to have died testate. So “testate” is simply the condition of having died with a valid Last Will and Testament.

If the deceased person did not have a valid Last Will and Testament, then he or she is said to have died intestate. So, again, intestacy would be the condition of having died without a valid Last Will and Testament.

The word “probate” comes from a Latin word that means “to prove.”  The process was originally intended to prove (to establish the validity of) the decedent’s Last Will and Testament.  Well, in situations where there is no Last Will and Testament (i.e., when the person dies intestate), there is nothing to “prove” because there is no Will. In that case, the proceeding is technically called an “estate administration” or an “intestate estate administration.”

This is just a difference in terminology—nothing to really get hung up on.  But sometimes you hear these words used interchangeably.  I will often, for example, refer to an intestate estate administration as a “probate” even though, technically, we are not proving a Will.  It is just different ways of referring to the same thing.  The court processes are the same (or more/less the same, depending on your state).  The procedure for moving a Will through the court system isn’t substantially different from the procedure for moving an intestate estate through the court system.  They both have the same goal of giving clear title to the assets to whoever is entitled to the assets.  But there is some different terminology to be aware of.

There also different terminology that is used to refer to the classes of people that inherit from a deceased person.  If the decedent had a Last Will and Testament (i.e., if the decedent died testate), the people who inherit through the Last Will and Testament (the people who are named in the decedent’s Will) are referred to typically as beneficiaries. That is the term that I use that that most, I think, most attorneys and the judicial system will use to refer to people who inherit through a Last Will and Testament—the people or the organizations named in the Last Will and Testament.

If a person does not have a Last Will and Testament, then there is a system of laws that the legislatures of each state have enacted that will be a default system for distributing that person’s property.  These laws are called the laws of intestacy or the intestate succession laws, and they are basically the legislatures’ best guess as to how that property should go—the way that they think that most people would want their assets to go when they die.  It is just the legislature’s best guess.  Most of the time, it will go first to the spouse or the children and then spread out to more remote family members from there.  In that case, whoever the group of people is that inherits from an intestate estate (from a person who died without a Will)—that group of people are known as the decedent’s “heirs at law” or more commonly referred to as the “heirs.”

So if the decedent had a Last Will and Testament we are typically going to refer to the people that inherit through that Last Will and Testament as “beneficiaries.”  If the decedent did not have a Last Will and Testament, then we will typically refer to the people that inherit through the state’s intestacy laws as “heirs” or “heirs at law.”  In each case, we are just dealing with groups of people who end up with the decedent’s assets after the probate or the estate administration process is finished.

Filed Under: General Probate

A Houston Probate Bonanza? Why I am Not Moving to Houston

October 25, 2010 By Leave a Comment

I ran across an article Friday from the Houston Chronicle on what the writer portrays as high probate fees awarded in Harris County, Texas, probate and guardianship proceedings.  The article states that probate judges awarded $8.5 million and court-at-law judges awarded another $800,000 in fees in one year.  The writer calls this a “bonanza” for probate attorneys and hints that a Good Ole Boy network may be involved.

My first thought was to open an office in Houston.  If Harris County probate fees are as lucrative as the author claims, it’s a wonder probate attorneys don’t flock to Houston.

But I know something that the author apparently doesn’t: the typical probate case is not high-margin work, in Houston or anywhere else.  Simply put, probate isn’t rocket science for the average attorney who pays attention to what he or she is doing (many don’t).  Most cases on a given court’s probate dockets can be handled by many, many attorneys in that area.  This low entry barrier increases competition and, if I remember anything from undergraduate Economics, it is that more competition drives down prices.  Because so many attorneys can handle probate work, any attorney who starts raising his fees will soon price himself out of the market.

Of course there are exceptions.  A good probate litigator who deals only with taxable estates may make more than the average probate lawyer (in the same way that a lawyer that specializes in representing doctor’s wives in divorces is likely to rake in more than the guy who takes what walks through the door).  But these are folks that are carving out a more lucrative niche that requires specialized expertise that not every attorney can provide.  As a general rule, most lawyers don’t get rich off of probate cases.

So what’s going on with the Houston Chronicle article?  Take a look at the example the article draws from most heavily:

One probate judge has approved payments of $302,081 so far to attorneys involved in a single case: a legal dispute that dates back decades and involves the guardianship of Ugo di Portanova, a disabled globe-trotter and heir to a series of multimillion-dollar oil-funded trusts in Texas  ….  The grandson of famed oil baron Hugh Roy Cullen and brother of the late flamboyant Houston jet-setter Baron Enrico di Portanova, he was first declared mentally incapacitated in 1967. An attempt to end his guardianship two decades ago was unsuccessful.  As a result, di Portanova retains access to house keys and up to $1,000 in spending money. But court appointees manage his millions and make many of his decisions.  Recent costs in the case were exacerbated by a legal dispute over changes in the management of his trusts and over a proposed $10 million gift to di Portanova’s court-appointed guardian.

If this article said, “One probate judge has approved payments of $302,081 for a simple, uncontested estate involving only a home and typical assets,” I would be on my way to Houston to set up shop.  But a multi-decade legal dispute regarding millions of dollars, a disabled grandson of an oil baron, and multiple trusts involved?  Really?

The article also throws big numbers around, including the $8.5 million in total attorneys’ fees awarded in one year, $7.2 million of which was awarded by three judges.  Is this amount excessive?  Perhaps, but we don’t have enough information to make that judgment.  What is the docket load of these three judges?  How many cases did that $8.5 million cover?  And what percentage of those involved high-net worth estates that required sophisticated legal representation?  Without basic empirical analysis, it is difficult to distinguish the real picture from sensationalism.

Ford & Mathiason, a boutique law firm that handles probate matters in the Houston area, a rebuttal of sorts, pointing out some of the deficiencies in the reporting:

What the article does not tell you is that the Probate Code requires that attorneys in many probate cases and in all guardianship cases submit their fees to the Court for approval. The article also does not tell you that the Probate Courts are virtually the only Courts in the state of Texas where attorneys are required to submit their fees for approval to the Court in even the most basic and routine cases.

The firm promises post a series of clarifications that will help make sense of the article.  It will be interesting to see where this goes.

Filed Under: General Probate Tagged With: ,

Lee County Probate: IRS Battles MSTC Over Insolvent Estate

October 25, 2010 By Leave a Comment

I am close to finishing probate of an insolvent estate that has been a nightmare from the get-go.  I took this case to help out another firm and have regretted it ever since.  Lesson learned: if the estate is insolvent, let the creditors and their attorneys sort it out.

I ran across a recent Lee County Mississippi probate case that also involved an insolvent estate, but one with super-creditors.  It involved a dispute between the IRS and the Mississippi State Tax Commission over who was entitled to the approximately $24,000 left in the estate.  The IRS and the Tax Commission had each submitted claims for about $209,000 and $24,000, respectively.  The Lee County probate judge had to decide which creditor was entitled to the $24,000 available for distribution.

When no creditor has a priority claim, the probate judge will typically divide the assets pro rata in accordance with the claims submitted.  For example, if the IRS and the Tax Commission were the only creditors and neither had a priority claim, the Tax Commission would have taken about 11 percent of the total amount and the IRS would have received the remaining 89 percent.

The Lee County probate judge (chancellor) found that the IRS had a priority claim against the estate under Federal law.  But he also found that the Mississippi State Tax Commission’s claim had greater priority since the Tax Commission qualified as a “judgment lien creditor” under Federal law. This finding was based on provisions of Mississippi law that give an enrolled notice of tax lien the status of a judgment.  The Lee County Chancery Court awarded the entire amount of the estate to the Mississippi State Tax Commission.  The IRS appealed.

On appeal, the Mississippi Supreme Court noted the U. S. Supreme Court’s holdings that the need for uniformity requires that the definition of “judgment lien creditor” be determined under Federal law.  Notice of tax liens filed by the Mississippi State Tax Commission were determinations of a state administrative body, not Federal law.  So the Tax Commission was not a judgment lien creditor and was not entitled to priority.  The Supreme Court reversed the Lee County probate judge and remanded the case for distribution of the funds of the estate.

Filed Under: General Probate, Mississippi Probate Tagged With: ,

New Tax Rules for Executors in 2010

September 22, 2010 By Leave a Comment

I commented recently about the IRS’s new FAQs about the New Tax Rules for Executors for 2010 and how they provide an indicator about how the IRS views property held in revocable trusts for purpose of the 2010 basis rules.  I thought I’d follow up to summarize some of the other salient points of the FAQ.

Reporting. The IRS also clarifies (as if there were any doubt) that the estate and GST tax are fully repealed in 2010 but that the gift tax is still in effect.  Because there is no estate tax in 2010, taxpayers should not file a Form 706.  Those who do will have it returned.  But taxpayers must still file Form 709 for gifts made in 2010.  Executors are, of course, still required to file the final Form 1040 for the decedent and the Form 1041 for the estate.

The FAQ references the new tax return required to allocate the allowable basis adjustment under IRC § 1022 to property acquired from a decedent.  This return is required if the property’s value exceeds $1.3 million or if the decedent acquired the property by gift (except gifts from the surviving spouse) during the 3-year period ending on the date of the decedent’s death and the donor was otherwise required to file a return to report the gift.  The IRS is apparently still working on the form for these returns.  But they are due by April 15, 2011.

The executor must also provide a written statement of the information included on this special return to each recipient of property listed on the return.  The statement must be provided within 30 days after the filing of the return.

Assessing the Current Situation.  The FAQ states the obvious about 2011 law:  the estate tax repeal will end on January 1, 2011, and come back in with an exemption amount of $1 million; the GST tax will come back in at $1 million, indexed for inflation; and the maximum estate tax rate will be 55 percent.

The IRS assures taxpayers that they are closely monitoring the situation and will react quickly to any changes:

We are monitoring the current state of the estate, gift and GST tax law and proposed changes in Congress.   If legislation is enacted regarding the estate, gift and GST taxes, the IRS will act swiftly to assess the impact of such legislation and provide guidance to taxpayers regarding their tax obligations and filing requirements.

But in a few candid responses, the IRS admits that they are as in the dark as any of us regarding the future of the estate tax.  In response to questions about whether Congress would retroactively reinstate the estate tax for decedents dying in 2010 and whether Congress would change the exemption amount and rates for 2011, the IRS reply is “We do not know.”  It sounds like the IRS and estate planning attorneys are strange bedfellows for the time being.

Filed Under: Estate Planning, Estate Tax, General Probate Tagged With: , , , , ,

I’m Not an Estate Planning Attorney, But I Do Play One on TV

August 17, 2010 By 1 Comment

Using an unqualified estate planner can be worse than doing nothing at all

I recently posted about the dangers of cheapskate estate planning–techniques like leaving an unrecorded deed with a family member. People usually try this type of thing to save a little in attorney’s fees, and often they spend much more in the end trying to clean up the mess.  Others don’t plan at all, often leading to the high cost of dying without an estate plan.

But I was reminded today that, as bad as cheapskate estate planning or no estate planning is, it’s not the worst thing you could do.  So what is worse than a do-it-yourself hack job that carries huge financial risks and tends to breed family conflict?  Paying an “estate planner” for a pre-packaged set of forms that leave you in the same place (if you’re lucky) but cost more than consultation with a qualified estate planning attorney.

Perhaps one of the messiest probate matters that I have had to clean up involved an estate plan that was prepared by a local Mississippi “estate planner.” He was a life insurance salesman by trade, but he had been turned on to the lucrative living trust market.  He advertised to elderly clients that he was a “notary public” and thus qualified to prepare estate plans.  What qualifies a Mississippi life insurance salesman and notary public to prepare estate plans? Absolutely nothing. It was just a title that he used to dupe older people into thinking he had some sort of qualifications for selling them over-priced trust forms.

The system that he had bought is published by the Estate Plan, a group that is sadly typical of the living trust promotion industry (their site allows folks to sign up as an “Independent Advisor”).  This company is not owned by an attorney, but by a salesman with a good story to tell (I saw the horrors of probate in my parents estate and want to help you avoid it).  These were horribly-drafted forms that didn’t fit the client’s asset profile at all.  They incorporated an unnecessary GST-trust (even though all of the assets were left to the spouse and children) and used convoluted language that was undoubtedly beyond the grasp of both the “estate planner” and the client.

Although the trust package was promoted with big promises of “probate avoidance” (with the usual exaggerations and scare tactics), it was not funded during the lifetime of the client and didn’t avoid probate at all.  In fact, it led to a costly probate proceeding that took several years to resolve.  The decedent’s spouse was not the mother of his children and wanted to keep all of the assets that she could.  The children claimed that the father intended to leave them everything.  The trust documents were so unclear that it was anyone’s guess as to what the father intended.  So this mess hit the court system, with attorneys on both sides charging hourly legal fees to straighten it out.

Perhaps worse of all is the fact that the decedent actually paid a good bit for this estate plan (if I recall correctly, more than he would have paid had he come to my office).  He did this thinking that he would avoid those costly attorney’s fees, but in the end the attorneys did get their bite at the apple.  The only difference was that he paid more attorney fees in addition to the amount that he had paid the “estate planner” to avoid those fees.

The “pay now or pay later” principle applies to estate planning: either you pay up front to plan your estate properly or you let others pay more to sort it out in the end.  I have had clients who were indifferent about what was required after their death to clean the mess up (for example, clients who didn’t have close family members).  So “pay later” can be a reasonable choice for some people.  But why would anyone choose to pay now and pay later?  That could be exactly what you are doing if you allow an unqualified individual to plan your estate.

Filed Under: Estate Planning, General Probate, Trusts & Trustees Tagged With: , , ,

Gary Coleman Estate: Common Law Spouse?

July 6, 2010 By Leave a Comment

I commented last week on the estate of Steig Larsson, which involves claims by a “life partner” of the deceased author.  Another celebrity case involves an alleged common law spouse in the wake of the celebrity’s death.

A dispute over 1980s television star Gary Coleman’s final wishes is beginning to turn ugly.  Coleman’s death in late May was a sudden tragedy.  His ex-wife Shannon Price is now contesting his will, claiming that she is his sole heir. Ms. Price has filed court documents seeking to gain control over Coleman’s estate, including how his remains are to be disposed.

Coleman’s will was written eight years before he and Ms. Price were married.  According to reports, Coleman had a will drafted in 1999 and named his former manager Dion Mial as the executor and sole beneficiary of his estate. The will reportedly gave Mial, who has since barred Price from Coleman’s property, specific directions as to how Coleman’s funeral should be conducted. Coleman allegedly executed a handwritten codicil to his will shortly after the couple married in August 2007.  Coleman and Price divorced in 2008.

Mial has hired an estate attorney in Utah, where Coleman lived at the time of his death.  Mial claims that Price has no right to make a claim as an heir since the two were divorced in 2008.  Utah law states that spousal rights are nullified by divorce. Mial’s attorney is trying to establish that the codicil is invalid based on this law.

Price does not deny that she and Coleman were legally married for less than a year. But she claims that, in spite of the legal divorce, she was Coleman’s common law wife at the time of his death.  This is apparently an attempt to get around the Utah law that nullifies spousal rights at the time of the divorce. Price argues that despite the divorce, she is the sole heir because she and Coleman continued to file joint tax returns after the marriage was dissolved and she is the named beneficiary of Coleman’s pension account.

It is unclear, however, whether the claims made by Price’s estate attorney will hold up to examination. Utah law requires couples to file a formal request with the state before a common law marriage can be legally recognized. Apparently this was not done.

Price points out in her claim for common law rights that she was the only person named by Coleman to carry out life and death decisions on his behalf. Mial is using this against her, hinting at foul play as questions are raised about Price’s decision to remove Coleman from life support.  There are also claims that Price took photos of Coleman on his death bed and sold them to tabloids. One thing is certain: We haven’t heard the last of this case.

Filed Under: General Probate Tagged With: ,

Allegations of Undue Influence in Richard Pryor’s Estate

June 14, 2010 By Leave a Comment

A recent California case involves allegations of undue influence in the estate of famed comedian, Richard Pryor.  The case stemmed from a secret remarriage to Pryor’s caregiver (who was also his ex wife) in his later years.  His will left substantial assets to his wife rather than to his children. As is to be expected, one of Pryor’s children sought to set aside his will on grounds of undue influence.

Richard Pryor married Jennifer in 1981, but the couple split after only one year.  Shortly thereafter, Pryor was diagnosed with multiple sclerosis. His condition deteriorated over the years. In 1994, Jennifer began providing care for Richard, becoming his care custodian. They secretly remarried in 2001, and Pryor died in 2005.

Both before and after Jennifer and Richard remarried, Pryor revised his estate plan to leave a significant inheritance to Jennifer instead of his six children. Richard’s daughter Elizabeth contested the will. She claimed that the marriage was due to fraud and undue influence, arguing that the statutory presumption of undue influence in transfers to care custodians should apply.

The California Probate Code section limits the group of individuals to whom gifts can be made.  Specifically, a gift to a “care custodian” (someone on whom the donor is dependent upon) is invalid.   A person or agency which provides health or social services to elderly persons or dependent adults is considered a “care custodian” under the statute.

The California Probate Code’s undue influence rule mirrors the “confidential relationship” presumption of most common law states (see What is Undue Influence?).  In general, once the disqualifying relationship is established, the transfer to the caregiver is presumptively invalid.  It is assumed to have been the result of fraud, duress, menace, or undue influence.   The burden is then shifted to the caregiver to rebut the presumption.  The caregiver must care custodian show by clear and convincing evidence that the transfer was not due to fraud, undue influence, duress, or menace.

For purposes of the Pryor case, it is important to note that this presumption does not apply when the care custodian is related to the donor by blood or marriage.  This is similar to the rule in other jurisdictions, such as Mississippi (see No Presumption of Undue Influence Between Spouses).  The rationale behind this exception is simple: because relatives are most likely to be both caregivers and the usual recipients of a person’s assets, we shouldn’t invalidate gifts to relatives simply because they happened to care for the decedent.  Otherwise, gifts to relatives who neglected the decedent would be presumptively valid.  Relatives that actually cared for the decedent would be presumed to be invalid.

Pryor’s daughter (Elizabeth) argued that the marriage itself was the product of fraud, duress, or undue influence. Under this theory, Jennifer shouldn’t have been considered to be a legitimate spouse and the presumption of undue influence should apply.  Elizabeth alleged that Pryor was pushed into marrying Jennifer in his weakened state, just to get around the presumption of undue influence.

While the California Court of Appeals recognized that sham marriages could conceivably be used to get around the presumption of undue influence, it stopped short of creating a judicial exception to the Probate Code.  The California legislature had the opportunity to keep the disqualification presumption when the marriage between the care custodian and the dependent adult was obtained by fraud or undue influence, but it chose not to. Instead, the legislature maintained the spousal exception regardless of how or when the marriage took place.  In a (surprising?) act of judicial restraint, the Court of Appeals declined to act where the legislature had not.

In the Court’s rationale, a spouse or blood relative can be a caregiver to a dependent adult, that dependent adult could then draft a will leaving some or all of his assets to that person, and due to their blood or marital status, they will not be subject to the automatic presumption disqualifying them from being able to receive that inheritance.  This was exactly what happened in the Pryor case.  The Court held that Pryor’s gift of his estate to Jennifer (to the exclusion of his children) was not presumptively invalid due to the fact that Jennifer was his caretaker.

The Pryor case illustrates the important role that the presumptions play in estate litigation.  The issue was not so much whether Pryor’s gift to Jennifer was the result of undue influence—although that was the ultimate issue in the case.  The case centered on whether Jennifer was presumed to have unduly influenced Pryor.  In other words, it was all about burden of proof.  Was it Jennifer’s job to convince the court that she didn’t influence Pryor?  Or was it Elizabeth’s job to convince the court that she did?  In many undue influence cases, the battle is fought over whether the presumption of undue influence applies.

In re Estate of Pryor, 99 Cal. Rptr. 3d 895 (Ct. App. 2009).

Filed Under: Estate Planning, General Probate Tagged With:

What are “Bodily Heirs?” The Importance of Clear Drafting

June 7, 2010 By Leave a Comment

A life estate is an interest in property for the life of an individual—called a life tenant—that passes to someone else at the death of the life tenant.  The person who receives the property after the death of the life tenant is called a remainderman.  In a recent case, a Tennessee court had to interpret a will that left a life estate to a life tenant with a remainder to her “bodily heirs.”

Robert Stone’s will left a life estate to his daughter Nellie, with the remainder to go in equal shares to Nellie’s “bodily heirs.”   Nellie had three children, but two of those children died before Nellie did. One of the deceased children was survived by four children (Nellie’s grandchildren).  The question before the court was whether Nellie’s grandchildren could be considered Nellie’s “bodily heirs.”

“Bodily heirs” (sometimes called “heirs of the body”) is antiquated language for lineal descendants.  The term is intended to distinguish between a person’s natural descendants and the person’s other heirs, such as a spouse or friend.  Like most states, the Tennessee court defined “bodily heirs” to mean lineal descendants of a specific person who would inherit the property through intestate succession. “Bodily heirs” does not necessarily mean “children.”  The term includes generations, extending down to grandchildren, great grandchildren, etc.

The court held that biological grandchildren qualify as lineal descendants of their grandparents. If Nellie’s four grandchildren were her biological grandchildren (as opposed to adopted grandchildren), then they will be able to inherit the property under the terms of the will. There was some question as to which of the four were actually biologically related to Nellie or were adopted or stepchildren of Nellie’s son. The appellate court remanded the case to determine which ones were biological grandchildren of Nellie so that those individuals could inherit their portion of the estate.

Here is a lesson in the importance of clear drafting.  If Mr. Stone’s will had included clear definitions of the class of beneficiaries he intended to benefit (instead of relying on arcane language like “bodily heirs”), this confusion could have been avoided. If the will isn’t clear enough, then the courts are called on to interpret the language of the will in accordance with binding precedent.

Chambers v. Devore, No. W2008-02548-COA-R3-CV, 2009 WL 3739443 (Tenn. Ct. App. Nov. 9, 2009).

Filed Under: Estate Planning, General Probate Tagged With:

What Does it Take to Revoke a Will?

May 31, 2010 By Leave a Comment

Wills are often referred to as ambulatory documents, meaning that it can usually be changed or revoked at any time before death.  But what does it take to revoke a will?  Sometimes an individual will simply mark through a provision or attempt to modify the will with a few handwritten notes. Will that work?

A recent Ohio case addressed whether or not markings on a will were effective to revoke a will.  The case of Horst v. Horst arose out of a dispute between two siblings, Patricia and William Horst, over the Last Will and Testament of their mother, Mary Horst.

Before Mary’s death, she had marked up one copy of the will but left another copy unaltered.  The markings included drawing an “X” over about 10 lines of a page, then attempting to mark out the “X.”  She also blacked out the words “the amount of Five Hundred Dollars ($500.00)” in one section. At the top of the page she wrote “This Will is correct.”  The will contained multiple signatures by Mary placed between and around typewritten lines in the will. The second page marked out area around the final signature on the will.

Patricia argued that all of these markings show that Mary had revoked her will and that it was no longer valid.  Like most states, Ohio has a statute that defines the ways in which a will can be revoked.  The statute allows revocation in the following ways:

  1. When the testator tears, cancels, obliterates, or destroys the will with the intention of revoking it;
  2. When, at the request of the testator and in the testator’s presence, another person tears, cancels, obliterates, or destroys the will with the intention of revoking it;
  3. When a person tears, cancels, obliterates, or destroys the will at the express written direction of the testator;
  4. By way of another written will or codicil that is properly executed according to statute; or
  5. By another writing that is signed, attested to and subscribed pursuant to statute.

The Court found that Mary’s markings on her will did not qualify as a revocation of her will under the statute. Mary only put an “X” on portions of the first page of the will and crossed out some language in the margins, but she did not destroy, obliterate, tear, or cancel the entire document. Most of the document remained visible, including her signature and the date. She also left another copy of the will completely intact, without any markings at all. Moreover, the fact that Mary wrote at the top of the will “This Will is correct” further evidenced her intent that this document remain as her valid will to be probated upon her death. If anything, the markings showed that Mary intended to make some changes to a few of the provisions in the will. As such, the court upheld the validity of Mary’s will, to be probated as written.

One good lesson the Horst case teaches is that the best way to keep a testator’s intentions clear is to always consult with a probate attorney when seeking to draft, amend, revise, or even revoke a testamentary document such as a will. This avoids confusion as to the testator’s wishes and could save a lot of money in court disputes arising over the validity of will.

Horst v. Horst, No. 22993, 2009 WL 3068261 (Ohio Ct. App. Sept. 25, 2009)

Filed Under: Estate Planning, General Probate Tagged With:

No-Contest Clause May be Included in a Revocable Living Trust

May 24, 2010 By Leave a Comment

“No-contest” clauses are popular features of many wills. A no-contest clause (also called a forfeiture clause) states that if a beneficiary of the will tries to dispute anything in the will, that person will no longer be entitled to inherit under the will. Courts have upheld this type of clause in wills. Can the same type of clause be included in a revocable living trust? According to a recent Virginia case, the answer is yes. This case also examined what constitutes a “dispute” of the trust to trigger a no-contest clause.

In Keener v. Keener, Hollis Keener set up a trust-based estate planning, including a typical “pour over will” that left his property to a revocable living trust. A pour over is a special type of will designed to transfer one’s property into a trust upon the testator’s death. These wills are typically used as a safety-net in estate plans designed to avoid probate.

Hollis was the original trustee of the living trust.  Two of his sons were named as successor trustees. The purpose of the trust was to avoid probate, maintain privacy, and give Hollis more control over the distribution of his assets. Upon Hollis’ death, the trust required the trustee to distribute the trust assets to his 6 children in equal shares.

There was some acrimony in the family.  Deborah (Hollis’s daughter) found the will and trust documents and made copies of them.  A few weeks later, Hollis added language to the trust, stating that if any person objects or contests any provision of the trust at his death, then his or her portion of the trust shall be forfeited. This is a typical no-contest clause, which would normally appear in a will. But since Hollis was using a revocable living trust, the trust was the primary dispositive instrument.  This no-contest clause was added to the trust only; it was not added to the pour-over will.

Upon Hollis’ death, the trustee (his son) did not offer the will into probate believing it was unnecessary since everything poured into the trust, from which distribution to the trust beneficiaries was to be made.   As with most trust-based estate plans, there was no need to probate the will since all assets were owned by the trust and distributed in accordance with the trust.

When Deborah went to the local courthouse to determine if her father’s will had been entered into probate, she found that it hadn’t.  She tried to enter the copy of the will she had made years before, but the court rejected it because it was not an original.  Two of her siblings then told her there wasn’t a will.  So Deborah applied to have her father’s estate administered, claiming he died intestate (meaning, without a will).  She was named administratrix of her father’s estate.

While Deborah was pressing to open her father’s estate, the trustee of the revocable living trust issued 6 checks distributing the assets of the trust to his siblings. But when he learned that Deborah was seeking to open his father’s estate, he stopped payment on her check and claimed she violated the trust’s no-contest clause.

The first issue before the court in this case was whether or not a no-contest clause, such as those found commonly found in wills, could be upheld when included in a trust. A no-contest clause is a way for a testator to ensure that his heirs don’t object to his wishes as to the distribution of his property. While these clauses are typically used in wills, the same rationale applies to trusts. The court found no reason to invalidate no-contest clauses in trusts, especially since they also deal with the distribution of one’s assets according to his wishes. The court held that the no-contest clause in the revocable living trust was valid.

This did not resolve the case, however. Once the no-contest clause in the trust was found to be valid, the next question the court had to answer was whether Deborah’s conduct triggered this clause. The no-contest clause specifically stated that it would be triggered as a result of objections or contesting of the provisions of the trust. The pour over will did not also include this type of clause. Deborah simply sought to open her father’s estate as a result of her claim he died without a will.

The court found that her conduct did not specifically contest to any provisions of the trust itself. As such, the no-contest clause of the trust had not been triggered. Had the will itself had a similar clause, the answer may have been different.

This case shows the importance of having a properly-drafted estate plan.  If you are potentially involved in a will or trust dispute, it is a good idea to consult with a probate attorney before committing any acts that may result in forfeiting your inheritance or trust distribution rights.

Keener v. Keener, 682 S.E.2d 545 (Va. 2009).

Filed Under: Estate Planning, General Probate Tagged With: ,
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