Iowa Law Blog : Iowa Lawyer & Attorney : Sullivan & Ward Law Firm : Iowa Law Blog

A ruling issued today by the Iowa Court of Appeals brings to focus the necessity of clear and thorough language.  If not, your attorneys will thank you for the additional fees that you bring to them.  After all, attorneys need to eat, too.

As husband and wife, Paul and Minda had a will which provided for each other for their lives, then Minda's will provided that if she and Paul died at the same time or after her, her estate would pass to Paul's daughter Gail (Minda's step-daughter). Everything looks fine at first glance. But what if Paul predeceases Minda? What would happen then?  Minda's heirs (her brothers here) claim that the gift to Paul/Gail lapses (fails) and thus passed intestate (without a will) to them.

The appellate court agreed with the trial court that the will demonstrated a clear intent to provide for Gail after Paul's passing.  In addition, a court will typically rule in a way to avoid having property pass intestate, if possible.  The perceived demonstration of intent plus avoidance of intestate permitted Gail to receive her step-mother's estate.

It certainly would have been easier if the author of the will had put in a couple of additional words (for example, "if he predeceases me") to avoid having to go through a trial and an appeal.  So when you read our wills and think "man, these lawyers are wordy", there is a reason we are wordy.

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Once in awhile you'll come across someone that wants to disinherit their spouse.  Sometimes it isn't done with ill-will.  For example, maybe it is a second marriage situation and both spouses decide they don't need to leave anything for the survivor.  Sometimes it is ill will. 

The general rule is that you can only disinherit your spouse if he or she agrees to it.  In other words, a surviving spouse can choose (elect) after your death to basically ignore your will or trust that doesn't provide for that surviving spouse, and have basically a third of your estate go to them.  For example, if you left your entire estate to your children and not your spouse, your spouse can say "wait a second.  I don't like that idea.  I'll take one-third of the estate thank you very much."   And believe it or not, money can make people change their minds.

For a while, individuals were using trusts to get around this "election against the will", but eventually the Iowa laws corrected that "end around" planning.  But now, a recent ruling out of an Iowa district court in Pottawattamie County created another option.  In a December 2009 ruling, the district court permitted some bank accounts with a payable on death (POD)/ Transferrable on Death (TOD)  designation to escape the spouse's ability to get the one-third elective share.  The result, under this ruling, is that you can now disinherit your spouse by using the POD/TOD designation on these accounts.  While this ruling is not the law of the state, the court creates a roadmap for a valid argument to properly disinherit your spouse.

TOD and POD accounts are very easy and flexible planning tools.  In fact, they can be almost too easy.  If this ruling continues to stand, it may result in some unintended consequences contrary to the intent of the spousal election laws.  The court places the burden on the Iowa legislature to correct the statute if they don't want this type of "loophole".  Time will tell.

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Former NFL football player Steve McNair is just another too-common of an example of someone who failed to plan their estate with so much at risk.  As Todd Ratner on the Estate Planning Bits blog noted in his post, there are several legal issues associated to the unfortunate demise of Steve McNair that will likely result in significant cost and struggle to his family.  Fame and fortune alone won't guarantee you a structured estate plan.  And you don't have to be a Steve McNair to have the same issues and risks that he did.

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In Iowa, there are a few ways to challenge a will as not being the valid distribution of someones estate after their death.  The two most common reasons are (1) undue influence and (2) lack of mental capacity.  Each of the challenges to a will have a different set of requirements.  The person(s) challenging the will has the responsibility to prove certain requirements to have the will set-aside.  The evidence will be presented to either a judge or a jury.  The elements of each challenge are shown below.

• Undue Influence - Undue influence is the situation where someone improperly places their intentions for distribution under a will in lieu of the person actually signing the will.   For example, placing a gun to someones head and having them sign their will is an extreme example.   What about the situation where one child is helping a parent in all matters of their life, including taking them to the attorney's office to sign the will, and the will leaves a greater part of the estate to that particular child.  In order to assert a claim of undue influence the person challenging the will must prove (1) the person signing the will (called the testator) was susceptible to undue influence, (2) the influencer had an opportunity to exercise undue influence and effect a wrongful purpose, (3) the influencer had a disposition to unduly influence to procure an improper favor, and (4) the result was clearly the effect of undue influence.  It is not unusual for circumstantial evidence evidence to be used to support a will contest as direct evidence for undue influence is difficult to produce.  Also, it is not necessary to show that a person lacks mental capacity, although such evidence of diminished capacity shows their susceptibility to influence.
• Lack of Capacity - If a person does not have the necessary mental capacity to execute a will, the will can be challenged as an invalid document.  The level of competency to sign a will is a low level - lower level than that necessary to sign a legal contract.  Specifically, a person must know (1) they are making a will, (2) appreciate the extent of their assets, (3) identify their natural heirs, and (4) understand how the will distributes their assets. A person who suffers from a mental disease or defect, such as Alzheimer's or other form of dementia, may still possess sufficient capacity as long as their compromised mental status does not influence the will.

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Todd Ratner of the Estate Planning Bits has a good post about the dangers of using estate planning software to prepare your estate plan.  Like the old adage goes, "you get what you pay for."  I have probated wills for individuals who drafted wills on their own and more often than not, mistakes were made, or believed to be made as it was unclear what the decedent intended.  When it comes to selling your house, performing surgery or handling your investments, most people don't try to do it themselves - they get an expert.  Putting together an estate plan that distributes your wealth, plans for your incapacity, and cares for your family is just as important and should be handled by an experienced attorney, not a "point and click" software program or on-line service.

Of course, I know there are cynics out there that believe that "you lawyers" just say these things to make money.  To which I respond - the cost and attorney fees in any court battle will quickly dwarf the cost of drawing up and executing a well-drafted will.  So go ahead, do your own estate plan and then have your family spend your money fighting over the money you "saved".

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Intestate is the "estate plan" for everyone who dies without a will.  Intestate is a term which refers to the state statute that each state has which dictates who receives your assets upon your death, if you don't direct otherwise by a will.  A common misconception is that the state gets it all.  That isn't necessarily true.  In fact, that very rarely ever happens.

However, many people may be surprised what does happen in certain situations under application of the intestate statute.  For example, assume John Smith is married to Mary Smith for over 30 years and have four kids together, including two that are still minors.  It is the second marriage for John and he has one child from his prior marriage.  John dies without a will owning assets in his name.  Who receives those assets as an inheritance from John's estate?

ANSWER:  Mary Smith, as the surviving spouse, only gets some of the assets, even though it was a long marriage and they have several kids together.  In fact, Mary would only receive, generally speaking, one-half of the real property and one-half of the personal property.  See Iowa Code 633.212.  There is a minimum of $50,000 that the surviving spouse gets to keep, so she might get more than half, depending on the assets and their values.  But you can imagine the interesting situation where the child from the first marriage is entitled to one-half of the property.  John is lucky he is dead as Mary probably isn't really thrilled with his procrastination to see a lawyer about getting his will done.

Doesn't seem fair or right? Maybe it isn't, but every individual can avoid that scenario by executing their own estate plan and avoiding surprise endings.

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A common question that I get asked is about "breaking a trust".  By breaking a trust, someone typically means doing away with a trust for some reason or changing its terms.  Is it hard to do?  Can it be done?  Yes, it certainly can be done.  The difficulty of doing so depends on the circumstances.

Terminating or Modifying a Trust in Iowa

The general background is that a trust will run its course until its objectives are reached.  However, there are situations which may be applicable that affect the trust.  Under the Iowa Trust Code, which is still relatively new and untested in Iowa, there are several statutory options that are available for consideration.

Terminating a Small Trust in Iowa

If the amount of the trust is relatively low and incurring costs in its administration, it is possible to terminate the trust and distribute the assets to the beneficiaries, even if the trust terms provide for the trust to continue into the future.  A court would need to approve such a termination after either the trustee or a beneficiary request the court to terminate the trust.  Iowa Code sec. 633A.2205 (2007).  Whatever "low" value means depends on the costs involved, the argument presented to the court and the court's opinion as to what is "low enough".

Modifying a Trust in Iowa

it is possible to change an irrevocable trust.  If the settlor (the person who created the trust) is still alive, so long as they consent and all the beneficiaries consent, a trust could be modified or even terminated.  Court involvement is not necessary.  Iowa Code 633A.2202.  If the settlor is dead, there is a different procedure involved.  If ALL the beneficiaries are in agreement and it isn't necessary for the trust to carry on with the same terms, a court can permit the trust to be modified or even terminated.   The difficult component is getting the consent of each beneficiary.  The Iowa Trust Code does provide some relief when dealing with minor beneficiaries.  Iowa Code 633A.2203.

Replacing the Trustee of an Iowa Trust

This provision has some unresolved questions that may need to be clarified in the future through some legislative changes.  Historically, it was difficult to remove a trustee from a trust.  However, the relatively new (& untested) Iowa Trust code does provide some "gray area" that may be used to change the trustee.  There is also the possibility that a trust could be amended by insertion of a provision in a trust permitting a procedure to remove a trustee.  At least one court in Iowa has permitted this change.

 

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Tracy Ellis has a good post and solution on an alternative method to dividing up personal property items.  As I frequently tell clients, its not the division of the bank accounts or stocks that cause family rifts, but the division of the personal family mementos and heirlooms.  Edivvyup provides an alternative method for dividing the family items amongst the family members in the form of an on-line auction.  Rather than using your own money, you are given a certain number of credits and through the the private on-line bidding process, you can use your credits to secure the family items.

To avoid any bidding or fighting over your personal items, preparation of a list for distribution of your personal assets is the ideal planning method.  No method is perfect and sometimes a fight cannot be avoided, but attempting to equitably divide the assets and preserve family harmony are important goals that an attorney should aim for.

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Following a controversial decision by the Iowa Supreme Court and after some wrangling in the Iowa legislature, Governor Chet Culver signed SF 473 into law on April 11, 2008.  Effective July 1, 2008, this new chapter to the Iowa Code (chapter 144C) authorizes an individual to designate an individual to make decisions over the disposition of their bodily remains following their death. The designation does not indicate how a person wants their body remains to be handled, only who has the authority to make those decisions that are "reasonable under the circumstances".

Now, what is "reasonable under the circumstances"? Under the definitions section, consideration should be given to the deceased's financial situation, religious beliefs and cutural or family customs.

Also, if the designee doesn't promptly step forward and assume their responsibility, they forfeit their rights. In fact, the designee has either 24 hours after notification or 40 hours after death to exercise their authority. Iowa Code section 144C.8 After, that, the power is gone and moves to the next person on the priority list.

This new law also covers situations beyond immediate funeral arrangements. For example, disinterment or decisions about an autopsy.

I imagine most attorneys will begin placing appropriate designations on their medical power of attorney forms. Here is the suggested language to use for the declaration:

I hereby designate ................ as my designee.  My designee shall have the sole
responsibility for making decisions concerning the final disposition of my remains
and the ceremonies to be performed after my death. 

This declaration hereby revokes all prior declarations.  This designation becomes
effective upon my death.  My designee shall act in a manner that is reasonable under
the circumstances.

I may revoke or amend this declaration at any time.  I agree that a third party
(such as a funeral or cremation establishment, funeral director, or cemetery) who
receives a copy of this declaration may act in reliance on it.  Revocation of this
declaration is not effective as to a third party until the third party receives
notice of the revocation.  My estate shall indemnify my designee and any third party
for costs incurred by them or claims arising against them as a result of their good
faith reliance on this declaration.
     
I execute this declaration as my free and voluntary act.

This new chapter is a needed step by the Iowa legislature. Unfortunately, for the Stark family, it is too late. However, like many aspects of an estate plan, the usefulness of this chapter is only beneficial if the plans are communicated to those key individuals. Knowing where the document is, who the designee is and what one's wishes are can be critical to putting your final affairs in order.

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A couple of recent posts here and here serve as good reminders of the importance on open discussions with your parents or grandparents as to their assets and plans.  While it may difficult to bring the topic up, a brief moment of discomfort may help to avoid future headaches and family disputes.  Once you broach the topic, it get becomes easy to cover some of the key points.  Some possible openings to consider:

• "Mom/dad, we just completed our own estate planning and wanted to let you know that we used ******** to help us with our planning in case something happens to me.  Who have you used to handle your affairs?"

• "Isn't that awful about the situation that ********** is in with his parents.  I understand that it has been a  nightmare to get those issues sorted out.   I hope you have taken steps  so that we don't have a similar experience."

• "Mom/dad, you're no longer a spring chicken.  Let's talk about how much money I'm getting when you croak and discuss your spending habits."

And for you parents, don't leave it up to your kids to make that first move.  Take advantage and promote a dialogue.

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Besides taxes, the other sure thing in life is that it comes to an end eventually.  A common question becomes "what's next?"  (I'll skip the whole afterlife heaven and hell discourse and stick to the worldly issues.)  And of course you have the whole "what to do with the body issue".

Depending on the planning that was done beforehand will dictate a lot that will be done afterwards.  For example, if the decedent properly used a revocable trust, it may not be necessary to go through the probate process.  Good planning and organization prior to our "time" is important in helping to alleviate the work that our family and friends are forced to go through.

Transfer of Assets

If all of the assets were held jointly, it may not be necessary to go through the probate process, although there may be some other advantages with going through probate.  Also, if the asset has a named beneficiary (e.g. life insurance, IRA, etc.), that asset will pass automatically and not subject to any will, trust or other dispositive document.  Otherwise, other than joint assets or named beneficiaries, the estate plan of a will, trust, or the state's plan will determine where those assets go. (And it might not matter that you're the child from the first marriage or dad liked you the best.)

Payment of Bills/Claims

Depending on financial situation of the decedent, there may be certain bills and expenses that need to be paid.  Through certain publication processes in the probate process, all potential claims can be "pulled out of the woodwork" in order to determine how much should be paid and whether it is a valid debt or not.   Also, if the decedent was receiving certain public assistance benefits (e.g. Medicaid) during life, of if the decedent's predeceased spouse received such benefits, there may be a lien against any remaining assets that follows those assets.

Taxes

In Iowa, if the only beneficiaries are a surviving spouse, children, grandchildren, parents or other lineal descendant or ascendant, there is no Iowa Inheritance tax and no need to file an  Iowa inheritance tax return.  There are some issues if there have been certain gifts within the past three years which should also be examined.

Federal estate taxes are normally not applicable for estates less than $2,000,000 (for 2008).  If the estate is below that figure, typically it is not necessary to file a federal estate tax return.  Again, gifts during life of the decedent are important to review also.

Summary

This list is not meant to be exhaustive, but mainly as a guide of some items to consider when it becomes necessary, and hopefully help you choose to do some proper planning ahead of time.  You should consult with an experienced attorney when it becomes necessary to sort through all of these items.

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All of the glamor and attention of Hollywood celebrities provide an effective example of how important proper estate planning can be and how even the rich and famous can fail to properly plan, despite their vast resources.  I've previously mentioned mistakes and oversights by Heath Ledger and Anna Nichole Smith.  As Steve Follet with the Arizona Estate Planning & Probate blog points out in his post, Britney Spears failed to properly fund and maintain her trust that she established.  Now, with the "issues" in her life, court involvement and publicity will continue to provide fodder for entertainment shows...and estate planning attorneys.  You gotta love Hollywood.

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Surely celebrities take their estate planning seriously, don't they?  Millions of dollars, easy access to legal advisers.  Well, not Heath Ledger, who recently passed away from an accidental prescription drug overdose.  Unfortunately, after executing his will in 2003 leaving his estate to his sister and parents, he failed to make any updates to his will after the birth of his child in 2005.  When news of his will was made public in a New York filing, Heath's father was quick to note that they would take care of Heath's young daughter (Matilda Rose) and his ex-fiance.

However, recent reports confirm that if there is money involved and poor planning, legal battles will ensue.  It is being reported out of Australia that Heath's uncles are now getting involved in a fight over the inheritance from Heath's estate.  Apparently, brotherly love between Heath's father and Heath's uncles is strained as a result of some alleged improprieties by Heath's father concerning the mismanagement of Heath's grandfather's estate.

This is a simple reminder that it doesn't matter whether you're famous or not, your estate plan is important and should not be overlooked as part of your periodic life review.  Especially as you marry or have young children, it becomes even more significant to get your plan updated and reviewed.

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MSN Money and Bankrate.com have an excellent article about how to leave a mess for your heirs.  So many of the points ring true with many people.  With as much research people put into buying a toaster, they should do as much research into their estate plan and organizing their affairs.  As the article states, estate planning isn't fun and I can't make fun.  However, unless you truly don't like your family, take some relatively simple steps to get your affairs in order.

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Not everyone has an idyllic marriage, and some have much less.  One issue to keep in mind as you plan your estate is that in Iowa, you can't entirely cut your surviving spouse out of an inheritance, unless they consent to it.  The Iowa Code provides surviving spouse with many rights which are not affected by the testamentary documents.

For example, if you execute a will that leaves all of your assets to your secret lover, your spouse can "elect against the will" and receive basically one-third of your probate assets.  Iowa Code § 633.238 (2007).  It doesn't matter if you've been married one day or ten thousand days.  It doesn't matter if the surviving spouse is a billionaire and you're just trying to leave your small estate to your children.  The result is the same - the surviving spouse can elect out of the disinheritance under your will.

Leaving your spouse out of your will doesn't invalidate the will, but don't expect it to be binding.  You might think you got the last laugh, but your spouse will be laughing last.  If you have any concerns or special matters, you should contact your legal advisor. 

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