Four Good (?) Reasons to Contest a Will

Maybe it's the season, but I have gotten a lot of calls recently about will contests.  A will contest usually happens when your heirs are surprised by what your will says, or by what you have left when you go to the great beyond.  I have represented both heirs and estates, and in all cases there are some big misunderstandings about the reasons you can challenge a will.  And no, being disappointed is not a legal cause of action.

First, this post is an except from my new book Plan Your Own Estate:  Passing on Your Assets and Your Values Legally and Efficiently (Apress 2013).  Want to know more?  Click the link and 350+ pages of fun (I swear) estate planning knowledge is yours!

Sometimes, the heirs are surprised because something hinky is going on. Mom said all her life she was leaving her assets equally to her kids, yet daughter Donna took Mom to her lawyer and Mom suddenly (6 months before she died) named Donna sole beneficiary.

More ofter, when your heirs are surprised by what your will says, it could be they thought they were getting something, and you intended for them to get nothing.  If that's the case, make sure you are super clear about your intentions.  When you aren't, quite a good deal of money could go to defending your will.

From Plan Your Own Estate:  Passing on Your Assets and Your Values Legally and Efficiently (Apress 2013).

 

Four Reasons to Contest a Will

The good news is that, despite what you see on TV, there are only four limited grounds on which to contest a will:

·         The will wasn’t signed in accordance with state law. All the way back at the beginning of this book, I harped on how important it is to have a will properly executed under state law. If a will fails to meet the very stringent execution standards, then it won’t be deemed to be a will. If it’s not a will, it can’t transfer your property at death. This is one of the biggest areas of concern I have with using an online service or do-it-yourself estate planning—if you don’t get the signature section right, you don’t have a valid estate plan. This has led to many a person believing that they have a perfectly valid estate plan—but instead leaving their heirs in for a very nasty surprise because the will wasn’t executed properly.

·         Lack of testamentary capacity. This invalidates a will on the grounds that the person executing the will was incompetent to do so at the time they did it. You most often see this issue raised regarding an older person who modifies their will and removes some people who were beneficiaries under a prior will. The fact of the matter is that the level of capacity required to execute a will isn’t very high; it’s actually lower than the level of capacity needed to execute a contract. In essence, in order to be competent to execute a will, a person needs to know (1) the nature and value of their assets, (2) who would receive their assets if they didn’t have a will, and (3) the legal effect of signing the will. Someone would have a long road ahead of them to prove you didn’t have the capacity to execute your will. It’s hard to come by historic evidence of lack of capacity.

·         Undue influence. This is the biggie when it comes to will contests. The issue is that if a person is in a confidential relationship with you, then the person might be able to cause you such duress about your will that you lose your independence of thought process. What if you rely on one of your daughters to cook and clean for you, and she hints that unless she gets the house, she won’t be able to continue helping you? Or, what if a hired caregiver threatens to withhold your medication unless you change your will to benefit them? Or, perhaps your nephew helpfully drives you to his attorney to create a new will, which just happens to leave everything to him. When a will has unequal distributions, or distributions to non-family members, a court is reasonably concerned that the will was created out of fear that the favored beneficiary would cease caring for or even harm the person making out the will. Nine months before you died, were you threatened into changing your will to name your caregiver as the primary beneficiary? Or has your caregiver helped you for eight years, you don’t see your relatives, and you just got around to making out your will nine months before you died? This is such a fact-based inquiry that, again, undue influence is very hard to prove.

·         Fraud. You give a person a contract to sign, and it turns out someone slipped a will into the document and the person didn’t know they were signing a will. The will is invalid because it clearly isn’t an expression of the person’s intent. Another fraudulent situation is where somebody slips pages into the middle of the will. This is why I have the person making out a will or revocable trust initial each and every page.

 

 

Estate Administration - The 3 Stages

While each estate administration presents different facts - the terms of the Will or Trust, the amount and composition of the assets, each estate in New Jersey goes through the same 3 stages

·         Probate.  The first stage is when the Will is offered for probate at the local Surrogate’s Court.  This is a very simple process in which your executors present the Will, and then they are issued Letters of Testamentary, which will give the Executor(s) the authority to carry out your wishes as set forth in your Will.  This is done by making an appointment with the Morris County Surrogate’s Court (10) ten days after the date of your death.  Alternatively, if the Executor(s) decide to attain an attorney to assist them, the attorney’s office can often have the documents signed at their office. If there is no Will, an Administration is opened where your Administrators are issued Letters of Administration.  Letters Testamentary and Letters of Administration give your representative the power over your assets and to settle any liabilities.

·         Gather Assets; Pay Liabilities.  The second stage is gathering together all your assets, determining their value, paying any debts or liabilities (including taxes if any) and filing any necessary tax returns.  Until the tax returns are filed and approved (or a waiver is completed because no taxes are due) New Jersey has a lien on your assets and they cannot be fully distributed. 

·         Closing the Estate.  Once the tax returns are approved, New Jersey will issue a Waiver, which releases its lien on the assets.  The Executor then normally accounts to the beneficiaries what came into the estate, what went out, and what is left to distribute.  This informal accounting is coupled within a “Release and Refunding Bond” where the beneficiaries agree to their distribution, waive any claim to be entitled to more, and release the Executor from liabilities.  The accounting and “Release and Refunding Bonds” will act to close the Estate.  You should anticipate that the entire Estate Administration process will be a 14-24 month process.

The Executor/Administration has many responsibilities beyond these.  We find that since people are generally taking on the job of Executor/Administrator for the first time, it appears overwhelming.  By looking at the job in stages, it becomes more manageable and doable.  Many Executors/Administrators seek professional advice because even if they can consider the job in stages, their lack of experience in that role, and not knowing their responsibilities and questions to ask, potentially opens them up to liability and claims from the beneficiaries or tax authorities. 

Insolvent Estates - Who gets paid What when an Estates Debts are more than its Assets?

A decedent doesn't always leave assets to his or her heirs - instead there may only be a pile of debt.  An estate is known as an "Insolvent Estate" when its liabilities exceed its assets.  What to do in that situation?

When determining if there are any assets that will pass to heirs, it is first important to understand that certain assets in New Jersey are excluded from satisfying a decedent's debts.  There are special categories of assets, such as retirement plans (IRA, 401(K), 403(b)) and life insurance, that are exempt from the claims of creditors under state law in New Jersey. Accordingly, there could be beneficiaries of a 401(k) plan and a life insurance policy who will receive assets as a result of the decedent's death, but creditors will go unpaid because there are not sufficient assets outside of the retirement plan and life insurance to satisfy the decedent steps. Look to NJSA 25:2-1 regarding the exclusion of retirement plans, and NJSA §§ 17B:24-6 regarding the exclusion of life insurance.  See here for a great guide of creditor protection for life insurance in all states.  One important caveat is that if the "estate" is the named beneficiary of the retirement plan or the life insurance policy, then the proceeds will be available to satisfy the claims of creditors. Therefore, to get the benefit of creditor protection it is important to name a person or trust as the beneficiary of that asset, and not the "estate".

The next question in this case is if the person is named as the Executor under the Will wants to take on that role under the Will. If there are no assets that are distributable to heirs, and the Executor is only going to be acting for the benefit of creditors, the Executor may be concerned about taking on that role and liability.  Remember, being named as a Executor is only a nomination to that role – the Executor is free to decline for any reason.

In paying the claims of creditors, certain claims have priority over other claims. The theory behind this is that if certain claims were not paid, there will be no incentive to provide the necessary services to an estate that may be insolvent.  The priority of payment is (See NJSA 3B:22-32): 

  • Reasonable funeral expenses;
  • Costs and expenses of administration (including attorney fees, accountant fees, surrogate fees, executor commission, and other costs necessary to the handling of an estate);
  • Debts for the reasonable value of services rendered to the decedent by the Office of the Public Guardian for Elderly Adults;
  • Debts and taxes with preference under federal law or the laws of this State (including any current or back taxes, interest and penalties);
  • Reasonable medical and hospital expenses of the last illness of the decedent, including compensation of persons attending him;
  • Judgments entered against the decedent according to the priorities of their entries respectively;
  • All other claims.

If there is more than one claim in any class of claims, and insufficient dollars to pay all of that class of claims,  then the claimants of the same class will be paid in proportion to the amount claimed.  This might happen if there were six different medical bills dealing with the decedent's final illness, and not enough dollars to pay all those bills.  See NJSA 3B:22-32.

Executors dealing with insolvent estates therefore have to be very carefully aware of (1) what assets of the estate are available to satisfy claims, and (2) a plan to address a situation where there are not enough assets to pay all debts.

Who gets paid what? Executor, Administrator, Trustee and Fiducairy Commissions in NJ

If you have ever been a fiduciary (executor, trustee, administrator, guardian, attorney-in-fact) you know that being a fiduciary becomes your new part time job.  There is a lot of work involved - finding assets, consolidating and investing assets, paying debts, maintaining property, distributing property, paying taxes.  On top of the actual work, you are dealing with attorneys, accountants, financial planners, the beneficiaries (who can easily be the most demanding of all) - oh, and your own grief and loss.

Unlike other things that you do for family, being a fiduciary is a job where you can get paid. New Jersey statutes provide pay scales for fiduciaries, all of which are subject to increase or decrease by court review.  Be aware however that any compensation you receive as a fiduciary must be included in your taxable income in the year that it is paid.  On the plus side, any commission paid to you is a tax deduction against any estate tax or income earned by the estate or trust..

I must give a shout out to my colleague, Don Vanerelli, Esq., who created an an excellent paper on "Computing Fiduciary Commissions / Compensation", which I just found and referred to in doing some trust commission research.  Don's paper is the inspiration and source of this post.

Executors and Administrators (NJSA 3B:18-12 through 3B:18-17):

Income (each year):

6% of income earned by the estate each year

Principal/Corpus (one time):

5% on the first $200,000;
3.5% on amounts between $200,000 and $1,000,000; and
2% on excess over $1,000,000.

If there are Co-Executors or Co-Administrators, an additional 1% of the Principal/Corpus may be taken as an additional commission.

If the estate is lengthy, an additional annual Principal/Corpus commission of 1/5 of 1% of the value of the Principal/Corpus may be taken.

Trustees, Guardians and Conservators (NJSA 3B:18-23 through 3B:18-27 ):

Income:

6% of income earned by the trust or assets under guardianship/conservatorship each year.

Principal/Corpus (each year):

$5.00 per thousand dollars of corpus on the first $400,000; and
$3.00 per thousand dollars of corpus in excess of $400,000.

There is an annual minimum of $100, and banks are entitled to "what is reasonable".

If there are Co-Trustees or Co-Guardians, an additional 1/5 commission is granted for the additional fiduciaries.

Termination of the Trust or Guardianship:

On the termination of the trust or guardianship or conservatorship, additional commissions may be taken:

If the corpus distribution occurs within 5 years of its receipt by the fiduciary, an amount equal to the annual corpus commission allowable but not actually taken, plus 2% of the corpus distributed;

If the corpus distribution occurs between 5 and 10 years of its receipt by the fiduciary, an amount equal to the annual corpus commission allowable but not actually taken, plus 1 1/2% of the corpus distributed;

If the corpus distribution occurs more than 10 years of its receipt by the fiduciary, an amount equal to the annual corpus commission allowable but not actually taken, plus 1% of the corpus distributed.

If there are Co-Trustees or Co-Guardians, an additional 1/5 termination commission is granted for the additional fiduciaries.

Agents under a Power of Attorney (NJSA 46:2B-8.12):

You need to apply to the court for compensation.

Image: David Castillo Dominici / FreeDigitalPhotos.net

Estate Plan Basics - How Can Property be Transferred at Death?

ABC's of Estate PlanningAs part of a lecture series I am giving, I am providing attendees with an overview of estate planning (separate from tax planning or asset protection planning, which are other topics in the series).  It occurred to me that it is always good to go back to basics to provide a context both for estate planning and other foundation concepts, as they create a foundation for many of the points raised in this blog.  

There are essentially 2 ways property can be transferred upon your death - Probate and Non-Probate.

Probate transfers are ones where the transfer is of property in your own name at the time of your death, with no beneficiary designation.  Examples might include a house owned by John Smith, or a bank account in the name of Betty Peterson, with no beneficiary.

By contrast, Non-Probate transfers are ones where the property passes outside of probate due to how the property is titled or a beneficiary designations.  We say that these assets pass on a person's death "by operation of law". Examples include:

  • Joint accounts
  • Property owned as Joint Tenants with Rights of Survivor ship (JTWROS) or Tenants by the Entirety
  • Transfer on Death and Pay on Death Accounts
  • Life insurance naming anyone other than the insured's estate as beneficiary
  • Retirement Plans (IRA, 401(k), 403(b))  naming anyone other than the participant's estate as beneficiary

Probate property is distributed to beneficiaries depending on if a person died Testate (with a Will) or Intestate (without a Will).  

If a person dies with a Will (Testate), then the Will controls who gets the probate assets when the person dies.  The Will has no effect on non-probate assets.  We often run into the unfortunate situation when the Will leaves the assets to Person A, but there is a joint account with Person B.  This is great if this is what the decedent intended, but can be a mess if it was not.

If a person dies intestate, they still essentially have a Will because the state that they resided in when they died will govern who gets the assets.  The obvious problem here is that New Jersey may not leave your assets to whom you want.  For example, in a second marriage, the spouse gets essentially 50% of the assets, and the children of the decedent share the other 50%, and get them at age 18.  This may not be your plan, so you are free to create a Will to create your own plan of distribution in the event of your death.

Next in the series - A Will says:  Who gets What, When and How.

Holographic Wills and Undue Influence - Watcha talkin about Willis?

Actor Gary Coleman's life and death were tragic in many ways.  Unfortunately, some of circus that engulfed his life followed after death due to confusing estate planning, as an article by Jun Li  at Celebrity Justice highlights (quoting yours truly).  

Coleman prepared a Will in 2007 using an attorney, leaving everything to ex-girlfriend Anna Grey..  In 2007 he  purportedly hand wrote out a new will (a "holographic will') that left his estate to his then wife, Shannon Price.  He and Price divorced in 2008 but Price claims that had a common-law marriage after that point.  And you thought his exploits during life were confusing.

In some states, such as Utah (where Coleman died) and New Jersey holographic wills are legal, so long as they adhere to certain requirements (all in the person's own handwriting, witnessed by 2 persons being common requirements).  

An issue that often arises with holographic wills, especially those made when someone is ill, is undue influence.  There are very limited grounds to overturn a person's Last Will and Testament.  One of those grounds in undue influence, which is to say that a person had undue authority over another when they were making out their will which may have lead a person to name them as a beneficiary our of fear instead of desire.  This issue can arise frequently when a senior has made a handwritten will disproportionately favoring a caregiver child during a period of illness.  

For those who do wish to make a disproportionate distribution to a caregiver child, be aware that a holographic will may not stand up under scrutiny.  This may be an instance where an attorney should be involved to make sure that your wishes are fully enforced after you are gone.