Disinheriting an Heir – To Include Is Not To Exclude.

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A recent case out of Nebraska dealt with a question whether a deceased father intended to disinherit his daughter in his will. The case, In re Estate of Michael R. Brinkman, 308 Neb 117 (2021), shows us the importance of clear and unambiguous writing in legal documents, including a will.

Michael Brinkman died in 2016 survived by two children, Nicole and Seth. Michael’s did not mention Nicole by name in his will. Nicole claimed that she was entitled to one-half of Michael’s estate despite the omission.

Michael’s will stated in part:

“ARTICLE I. The references in this Will to my “son” refer to my son, SETH MICHAEL BRINKMAN. The references in this Will to my “children” and/or my “issue” shall include my son, SETH MICHAEL BRINKMAN, and all children of mine born or adopted after the execution hereof.” . . . .

ARTICLE V. I give the residue of my estate to my issue, per stirpes. . . . .”

Nicole claimed that the language in the will was ambiguous regarding the term “issue.” Nicole argued the term “issue” included both her and Seth. Seth countered that the will was not ambiguous and that it disinherited Nicole.

The Nebraska county court agreed with Nicole that the will was ambiguous as to whether Michael intended to disinherit her. The court ruled that the will language did not disinherit Nicole, because it did not clearly exclude her. Simply stated, to include is not to exclude. The county court determined that Nicole was entitled to a share of Michael’s estate as one of Michael’s issue.

On appeal, the Nebraska Supreme Court focused on the words used in the will to include Seth by name, but not Nicole, and the residue clause leaving the residue of the estate to Michael’s “issue” equally.

The Court held that the use of “issue” did not exclude Nicole simply because only Seth was included in the meaning of the word “children.” The Court noted that to include someone within a class is not to exclude another from that class. The Court concluded: “No express statement disinherits Nicole or otherwise provides that she not receive from the estate.”

Courts will typically rule against disinheriting an heir when the language of a will is capable of more than one interpretation . One or two poorly chosen words, or words inartfully used can create sufficient ambiguity to defeat a will maker’s intentions. The Brinkman case illustrates the importance of careful will drafting and clear expression of one’s wishes to avoiding a will contest later.

You can read the Nebraska Supreme Court’s opinion here.

The SECURE Act Sets a Tax Trap for IRA Beneficiary Trusts.

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The newly enacted Setting Every Community Up for Retirement Enhancement (“SECURE”) Act made major changes to the distribution rules for inherited IRAs. With few exceptions, the SECURE Act replaced the old life expectancy “stretch” IRA distribution rules with a mandatory 10 year distribution rule. This creates a potential tax trap for certain trusts named as an IRA beneficiary.

People frequently designate a trust as an IRA beneficiary. These trusts, often referred to as IRA beneficiary, or inheritance trusts, are designed to control and manage IRA distributions for beneficiaries. One popular type of IRA beneficiary trust is known as an “accumulation” trust.

An accumulation trust is frequently used in situations where the trust beneficiary may be unable to directly manage IRA distributions. An accumulation trust requires the trustee to retain IRA distributions in the trust. The trust does not pay out an IRA distribution to the beneficiary in the year received. The trust dictates the if and how IRA distributions will be paid to the trust beneficiary.

With few exceptions, the entire balance of an inherited IRA must now be distributed to the trust within 10 years of the account owner’s death. These distributions will be taxed at trust income tax rates because they are kept in the trust. An IRA distribution that exceeds $12,750 will be taxed at the highest marginal rate of 37%! Unless the IRA balance is very small, taxes will take a huge portion of IRA distributions, leaving a lot less for the trust beneficiary.

The SECURE Act’s 10 year distribution rule will impose significant tax burdens on many existing trusts and estate plans. More than ever you need to work with a qualified advisor who can help guide you through all the new rules and ensure you make the right decisions with respect to any changes to your retirement or estate planning.

Do you need help determining how best to best adapt your retirement or estate plan to the SECURE Act? Give me a call, I can help.

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Considering the Stretch IRA Rules After the SECURE Act.

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As a financial and estate planning technique, the “stretch” IRA allowed the beneficiary of an inherited IRA to take distributions from the IRA over her remaining life expectancy, extending the life and income tax advantages (tax-deferred or tax free growth) of the IRA. For a very young beneficiary, this could have been a virtual lifetime. That all changed with the recent passage of the SECURE (“Setting Every Community Up for Retirement Enhancement”) Act.

The SECURE Act severely curtailed the viability of the “stretch” technique for distributions from inherited IRAs, both traditional and Roth. Under the Act, most non-spouse beneficiaries will have to withdraw all of the funds from an inherited IRA within 10 years of the death of the original account owner. The new rules apply to traditional or Roth IRAs inherited after December 31, 2019.

Beginning January 1, 2020, only an “eligible designated beneficiary” may continue to use the stretch technique for distributions from an inherited IRA. Under the SECURE Act, those beneficiaries eligible to use the stretch technique are: i) surviving spouses; ii) minor children of the account owner – until age of majority (but not grandchildren); iii) disabled individuals; iv) individuals who are chronically ill; and v) beneficiaries not more than 10 years younger than the deceased account owner.

If an individual does not qualify as an eligible designated beneficiary under one of those 5 categories, she must use a new 10 year rule – the entire account balance must be withdrawn by December 31 of the 10th year following the year of the account owner’s death. Note too, that a minor child of a deceased account owner may use the old life-expectancy distributions rules until she reaches the age of majority, and then must switch to the 10 year rule thereafter.

Of course, if an IRA owner died before January 1, 2020, the old stretch IRA distribution rules still apply.

Caveat: While this post focuses on the SECURE Act’s impact on distributions from traditional and Roth IRAs, the new rules affect distributions from all inherited qualified retirement plan accounts, including SEP IRA, SIMPLE IRA, 401(k), and 403(b) accounts.

The SECURE Act adds a thick layer of complexity to an already confusing area of tax law. As with any tax law change, one should review their financial and estate plans to better understand how the SECURE Act may affect those plans.

Do you need help understanding the impact the SECURE Act has on your current planning, or need help determining how best to adapt your financial or estate plan to the new law? Give me a call, I can help.

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How Will the SECURE Act Affect Your Retirement Savings?

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Having passed the US House of Representatives and now moving quickly through the US Senate, the SECURE (Setting Every Community Up for Retirement Enhancement) Act appears to be on its way to soon becoming law. The SECURE Act will make numerous changes to how money is contributed to, and withdrawn from retirement accounts. While many of the Act’s provisions are administrative in nature, that is, they deal with the way retirement plans are administered, several provisions will directly affect retirement savings and withdrawals. Here are some of the more important ways the SECURE Act could affect your retirement savings:

First, the Act pushes back the time when retirement savers must begin taking distributions from their IRAs and other retirement accounts. Under current law, a person is required to begin taking retirement account distributions at age 70½, whether or not he or she wants to. The SECURE Act will push the age when required distributions must begin to age 72. This means that retirement savings may continue to grow untouched and untaxed for another year and a half before distributions must begin.

Next, the SECURE Act eliminates the age restrictions on IRA contributions. Americans are living and working longer. However, under current law a person may not contribute to an IRA after age 70½, even if still working. Under the SECURE Act, a person may continue to contribute to an IRA after age of 70½ if still working.

Finally, the SECURE Act changes the required minimum distribution rules with respect to IRA and other retirement account balances upon the death of the account owner. Under the Act, distributions to individuals other than the surviving spouse of the account owner, disabled or chronically ill individuals, individuals who are not more than 10 years younger than the account owner, or child of the account owner who has not reached the age of majority, are generally required to be distributed by the end of the tenth calendar year following the year of the account owner’s death.

Under current law, a non-spouse beneficiary of an IRA or defined contribution-type retirement account [such as a 401(k) or 403(b) account] may elect to “stretch” distributions from an inherited retirement account over his or her remaining life expectancy. For younger beneficiaries, this means that the remaining account balance has a longer time to grow tax deferred before being withdrawn, and the amounts withdrawn may be taxed at lower rates. The SECURE Act will accelerate distributions from inherited retirement accounts, reducing the time horizon for tax deferred growth and increasing the taxes that must be paid on the larger withdrawals.

This change will have an impact on beneficiary designations and estate plans, especially those situations in which a trust is named as a beneficiary of a retirement account.

Insofar as the SECURE Act will affect retirement saving and distributions in these and other ways, readers should plan to meet with a qualified legal or financial professional to determine the best way forward under the Act should it become law.

If you don’t have an attorney or financial planner, but would like to work with one, please give me a call. I can help.

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NBI Seminar: What You Need to Know About Probate & Trust Administration

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The National Business Institute (NBI) is offering a day-long seminar entitled “Probate & Trust Administration – What You Need to Know About Probate and Trust Administration,” on August 19, 2019, at the Wyndham Garden in Ann Arbor, Michigan.

(Full disclosure: I am one of the presenters.)

Program Description (From NBI):

Working through issues that arise through probate and trust administration can be daunting. Are you well-equipped with the tools you need to succeed? This insightful course will take you through steps in probate administration, including information on creditor and debt issues, tax and more. You will also get valuable insight on trust administration, including the handling of accounting, distributions and taxes. Don’t miss this opportunity to hone your probate and trust administration skills – register today!

  • Take a closer looks at the initial step for filing the estate.
  • Discuss what needs to be done to handle creditor claims and debts.
  • Make sure everything is in order for the final distribution of the estate.
  • Review what issues need to be addressed concerning taxes in probate administration.
  • Get the latest information on taxation concerns associated with trusts.
  • Explore the different types of trusts and how they are used.
  • Learn ways to manage, sell and distribute property and assets in trust administration.
  • Gain a better understanding of the distinctions between trust fiduciary accounting and income tax accounting.

This basic level seminar is designed for professionals who want to be more effective in the probate and trust administration process, such as:

  • Attorneys
  • CPAs and Accountants
  • Tax Professionals
  • Financial Planners and Wealth Managers
  • Trust Officers
  • Paralegals

Course Content:

  • Probate Process and Overview
  • Assets, Creditor Claims and Debt Considerations
  • Distributions, Final Accounting and Closing the Estate
  • Tax Issues in Probate Administration
  • Trust Taxation Issues
  • What You Need to Know About Trusts
  • Accounting/Distributions in Trust Administration
  • Ethics and Estate Administration

For more information and to register, please follow the link to:

“Probate & Trust Administration.”

DIY Estate Planning – Another Cautionary Tale

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“I don’t need a lawyer. I don’t have an estate, just have a house and some bank accounts. My family can help me out, and look, here’s a form I found on the internet I can use. What can go wrong?”

Yet time and again, what appears to be a simple and effective way to avoid some legal fees ends up creating a legal quagmire costing tens of thousand of dollars to remedy. Do-it-yourselfers mostly turn to family members or the internet for help. A recent case out of Macomb County Probate Court gives us another example of just how “well” that can turn out:

In mid-2016, Martin met with several members of his family for the purpose of preparing his last will and testament. The meeting was attended by Martin’s brother, John, John’s son Paul, John’s daughter Elise, and Martin’s niece, Theresa.

John downloaded and printed a will form off the internet, and Elise completed the fill-in-the-blank form according to Martin’s instructions. The form provided that all of Martin’s assets were to be distributed equally among Martin’s 3 siblings. The family members also discussed the status of Martin’s bank accounts. After completing the form, the group went to Comerica Bank so Martin could sign the will before a notary. While there, Martin and Theresa also signed new signature cards for each of Martin’s 6 accounts at the bank to give Theresa access to the accounts as the family explained to Martin. Unfortunately, Martin died about 4 months later.

As you may have guessed, a dispute arose after Martin’s death over ownership of the Comerica bank accounts, a dispute which ended up in the Macomb County Probate Court.

At trial, Theresa asserted the funds belonged to her as the surviving joint owner. According to Comerica, signing the new cards by Martin and Theresa established them as joint owners of all 6 accounts (containing about $680,000). Martin’s niece, Elise, now personal representative of Martin’s estate, countered that the funds belonged to the estate for distribution to his siblings per the terms of Martin’s will. Martin had discussed this with the family and that certainly was his understanding and intention when he added Theresa onto the accounts. Following a bench trial, the probate judge sided with Elise that the money belonged to Martin’s estate.

Not satisfied with the probate court loss Theresa appealed to the Michigan Court of Appeals, which again sided with Elise and Martin’s estate. The court opined that although creation of the accounts in Martin and Theresa’s names was prima facia evidence of Martin’s intention to vest title of the accounts in Theresa’s name upon his death, Elise was able to overcome Theresa’s prima facia case that Theresa was entitled to survivor rights to Martin’s accounts. The court noted that Martin did not seek independent counsel and was advised only by his family. Further, the evidence at the trial showed Martin discussed creating “convenience accounts” with his family members and may have mistakenly believed that by adding Theresa as a co-owner, she was only going to be a signer on the accounts, which was consistent with what Martin and his family discussed.

Nothing is simple and straightforward when it comes to estate planning or any other legal matter. You may think you are doing one thing, but the result is something completely unexpected, which can lead to disastrous, and costly, results. (Imagine what it cost in legal fees to settle Martin’s mess.) You should look to family members for a referral, not legal advice. Yes, attorneys cost money, but you are paying for their expertise and advice, which can save you or your family much more in the long run.

Engage knowledgeable legal counsel whatever your problem. Work with an attorney you trust. Don’t be afraid to spend some money up front for good legal advice to save a lot more money later on.

The case is In re Estate of Martin Langer. You can read the full opinion of the Michigan Court of Appeals here.

The Law of Unintended Consequences – and Failure to Plan.

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According to a recent story in the Boston Globe, Marcelle Harrison’s family has lived in a three-story home in Cambridge, Massachusetts for almost 40 years, during which time four generations of her family have lived. She and her family (two generations worth) may have to vacate the home because her stepfather died intestate (without a will) in 2011 after the passing of her mother two years earlier, meaning that legally her stepfather’s blood relatives back in his native country of Barbados have a stronger legal claim to her childhood home than she.

The home was purchased by her mother and step-father in 1980 for $23,000. It is now worth over $1 million. When her mother died in 2009, her step-father continued as the sole owner of the property. When he died in 2011, without naming a beneficiary for the property, Massachusetts law allows his blood relatives to claim the house over Marcelle, a stepchild.

According to Marcelle and those close to the family, her stepfather, Noel Aimes, always wanted the house to stay in the family, and in the 1990s he built additions to accommodate his growing family.

Marcelle received the news in a letter delivered to her shortly before the end of last year. “Since you were not an heir-at-law, your appointment is in jeopardy of being set aside,” wrote the state public administrator. It appears that Mr. Aimes’s relatives in Barbados plan to sell the property as soon as the estate is settled. Marcelle is terrified and unsure where her family will live if forced out of the Cambridge property.

This story illustrates the importance of having a will. Without one, it doesn’t matter what you desire to happen with your assets. The laws of the state in which you reside will dictate the disposition of your assets. This is especially relevant in second-marriage situations. Marcelle’s stepfather may have wanted the property to pass on to her and her family, but without a will that said so, Massachusetts laws dictates it go to his distant relatives in Barbados. A sad outcome to be sure.

All it takes is a bit of planning to avoid disaster. If you don’t have an estate plan in place, hopefully what’s happening to Marcelle will motivate you to take action!

You can read the entire article here.

If your estate planning house isn’t in order, give me a call, I can help. While you won’t have to live with the oftentimes disastrous consequences of dying without an estate plan, your family will.

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Should Have Put A Ring On It.

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Pellie was in a long term relationship with Tony that lasted over 40 years. They never married. Pellie became Tony’s caretaker when his health began to fail. Tony died in 2015. Pellie had received about $300,000 in assets from Tony up to and after his death. But Pellie believed she was entitled to much, much more. After Tony’s death, Pellie filed a claim against Tony’s trust for over $2,700,000 based upon Tony’s purported promises to take care of her. The trustee disallowed the claim. Pellie sued the trust in probate court, claiming that she and Tony had an agreement that he would take care of her after his death.

At the trial, the evidence showed that over the course of their relationship, Tony had often told here that he wanted her to take care of him and in return he would take care of her needs. Tony had verbally told Pellie that she would share in his estate. Tony’s estate plan did provide some stock and other assets to Pellie, including four bank accounts owned jointly with Pellie.

The county probate court dismissed Pellie’s lawsuit. The probate court reasoned that Tony’s promises were, in effect, a contract to make a will, and since it wasn’t in writing, the “agreement” wasn’t enforceable. Pellie appealed to the Michigan Court of Appeals, and the Court of Appeals affirmed the probate court decision.

Under Michigan law, a contract to make a will or devise, not to revoke a will or devise, or to die without a will (intestate) may only be established by either: a) provisions in a will stating the material terms of the contract; b) an express reference in a will to such a contract with extrinsic evidence proving the terms of the contract; or c) a writing signed by the deceased establishing the contract.

A party seeking to enforce such a contract must prove an actual express agreement and not merely a statement of intentions. Since Pellie could not produce a writing evidencing Tony’s agreement to provide her financial security after his death or to compensate her for caretaking services, she could not prevail.

It is pretty clear from the evidence that Tony made promises of care and support to Pellie. We don’t know why Tony didn’t adjust his estate plan to fulfill those promises; Nor do we know to whom Tony left the bulk of his assets.

Their’s was a 40 year relationship. However, without the benefit of marriage or a some type of written agreement, Pellie didn’t have a leg to stand on. Purely moral obligations are not enforceable. Had they been married, Pellie may have had claims to Tony’s assets.

When it comes to the distribution of a deceased person’s assets, oral promises or intentions aren’t worth the paper they’re written on. The moral of this story is that if you are in a relationship with another — without the benefit of marriage — you need to make sure to get any promises of financial support or security from your partner in writing.

The case is Norton-Cantrell v Anthony Bzura Trust Agreement.

You can read the Court of Appeals decision here.

The Pitfalls of DIY Estate Planning, Part ?

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According to an article at news.com.au, a woman from Queensland, Australia died of cancer in 2015. In an apparent effort to save money on her estate plan, she chose to use a cheap do-it-yourself will kit. The four page document had numerous hand-written attachments and contained multiple changes. It is likely to end up costing her estate tens of thousands of dollars in legal fees and costs to sift through the numerous errors and ambiguities contained in the document.

“‘No one should attempt their own will. It is very dangerous,’’’ barrister Caite Brewer, who represented the named executors of the will. “‘This case is a good example of someone trying to save a few hundred dollars, doing their own will, which ends up costing their estate potentially twenty thousand dollars. They should see a solicitor who specialises in estate planning.’”

Couldn’t have said it better myself. Will kits are advertised as the low cost estate planning alternative to using an attorney. The will-kit publishers advertise that you will end up with a will that is legal, but never advertise that it will be right. And that’s what you pay an attorney to do, to make sure the will is right – that it accurately expresses your intentions concerning the disposition of your estate. Yes, it costs more up front, but the extra money spent to make sure your estate plan is drafted correctly will save thousands in the long run.

Read the entire article here.

Struggling with your own estate planning? Contact me, I can help.

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The Pitfalls of Do-It-Yourself Planning

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Ed owned a bank account at First State Bank. Two months before he died, he went to the bank and named one of his five children, daughter Ann, as a joint owner of the account. He specifically selected an account with rights of survivorship, which, under Michigan law, meant that the balance of funds in the account would become Ann’s property when Ed died. After Ed’s death, Ann asserted that the money was hers and did not have to be shared with her siblings. Ed’s other four children filed a petition with the local probate court claiming that Ed had added Ann’s name solely for convenience and that he actually intended for the account proceeds to be shared equally among all of his children. The probate court held a hearing and ruled that the evidence was sufficient to establish that Ed had indeed added Ann’s name to the account merely for convenience to assist with his bill paying should he die, and that he wanted the proceeds shared among all of his children after his death.  The Michigan Court of Appeals affirmed the ruling of the probate court.

Under Michigan law, when you add a child or other person’s name to a bank account, a legal presumption arises that you intend that funds in the account belong to the survivor when you die.  Even if you intend that the account balance be shared after your death, the law presumes otherwise. This presumption can be overcome, but only if it can be proved in a court of law, by “reasonably clear and persuasive proof,” that you did not intend that the account funds vest in the survivor.  This type of proceeding can cost a fortune in legal fees. What gets less attention is the emotional cost.   Battles like this, pitting sibling against sibling, wreak havoc within a family. While Ed thought he was doing good, the actual effect of his actions was quite the opposite.

It is never a good planning move to add a child or other person’s name to a bank account or other asset without first carefully considering all of the ramifications. What Ed may have thought would be a simple way to make sure funds would be readily available to pay his bills turned out to be anything but. Ed could have given Ann his power of attorney to access the account, or created a trust to hold the account and named Ann a trustee. In either scenario Ann would have been able to pay Ed’s bills out of the account, and remainder of the account would have been shared by all of his children after his death. Sure, there may have been legal fees associated with employing those techniques. But, when one looks at the emotional and financial cost of this family’s battle, it would have been money well spent.

Many things people do in their DIY planning appear on the surface to achieve an intended goal, but end up creating serious problems that are very expensive to fix. Always, always, always, work with a competent professional. Get the peace of mind that your intentions will be fulfilled using techniques that are best suited to your individual situation. The cost to do so is pretty reasonable in the long run.

The case is: In re Estate of EDWARD SADORSKI, SR., Deceased. You can read it here.

Are you looking for solutions to your financial or estate planning problems?  Contact me, I can help.

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