Estate Planning attorneys frequently hear stories about the failure of home-made estate plans. Here is one I heard recently:
A man (let’s call him Carl), who was ill with a degenerative disease, moved to Florida to be near his brother (let’s call him Earl). Carl was extremely wealthy. He owned investment assets held in various accounts, other valuable properties, and his share of the co-op apartment he and his wife (let’s call her Susan) had lived in in New York. Carl had filed for divorce from Susan back in New York, but no order or judgment dissolving the marriage had yet been entered there. Legally, Carl and Susan remained married. The beneficiary designation forms for all of Carl’s financial (bank and investment) accounts still listed Susan as the primary beneficiary because, being ill, he had neglected to change the beneficiary designations.
After moving to Florida, Carl found a form for a Will on the Internet and filled it out. In the Will, Carl stated that he was unmarried. He left his estate in percentages to various beneficiaries, including his brother, Earl, whom he named as executor. Susan was left out of the Will. The Will also contained a provision that stated that anyone who challenged the Will was automatically disinherited. Earl was a witness to the Will.
After Carl died, Earl filed the Will at the county courthouse, as he was required to do within ten days. However, Earl, in violation of his fiduciary duty as executor, never opened a probate and never obtained the necessary court orders authorizing Earl to gather Carl’s assets and administer the Will. Earl could not gain control of Carl’s probate assets in his role as executor without opening a probate. Financial institutions require court authorization to release financial accounts to an executor. Without court orders, the financial institutions where Carl’s accounts were held would not release the accounts to Earl. A power of attorney is automatically extinguished at the time of death of the person who granted the power, so Earl could no longer use the durable power of attorney Carl had given him.
Moreover, the other beneficiaries listed in Carl’s Will could have sued Earl for violation of his fiduciary duty in failing to open a probate to ensure they received their shares.
If Earl had opened a probate, certain assets would have passed through the probate proceeding, while others would not have. Probate proceedings govern assets that pass under a Will. Real estate with a deed granting a right of survivorship passes to the survivor outside of probate. Investment accounts, insurance policies, and retirement accounts generally pass outside of probate to the individuals who are listed on the account “designated beneficiary forms.”
A Florida statute provides that, if a married couple divorces, Florida law treats the former spouse as having predeceased the spouse who died. In other words, if Carl and Susan’s divorce had been finalized before Carl died, the law would have treated Carl’s estate as if Susan had died first. But they were not legally divorced at the time Carl died, so this law did not come into play.
Carl’s share of their New York co-op apartment passed to Susan under their join ownership deed, because each owner had a right to survivorship, meaning after one of them died, the survivor owned 100% of the real estate. Susan was not treated as having predeceased him, because they were not divorced when he died.
Because Carl and Susan were still married when he died, and Susan was not treated as having predeceased him, she was entitled to certain rights under Florida law as the “surviving spouse.” Therefore, even if Carl had changed the beneficiary designations for his accounts, Susan would have been entitled to a surviving spouse’s 30% elective share in all of his property, including his financial accounts. She would have been entitled to that 30% elective share in all of his assets, whether an asset passed through probate or otherwise (with certain exceptions for Florida homestead passing in part to children of the deceased). The balance of Carl’s probate assets, after Susan’s elective share was removed, would have passed to his beneficiaries under his Will, if a probate had been opened, assuming the Will had been proved and validated by the Probate Court.
Even if Carl and Susan had been divorced when Carl died, Susan could have claimed Carl’s financial accounts for which she was still listed on the account beneficiary designation forms, despite their having been divorced. She would not have been entitled to her spousal elective share, however.
Recall that Carl had included a statement in his Will that anyone who challenged the Will would be disinherited. The provisions stating that any challenger would be disinherited are unenforceable under Florida law.
Another problem with Carl’s homemade Will was that he allowed Earl, as his primary beneficiary, to be a witness to the Will. This type of arrangement invites an unhappy family member to challenge the estate plan, with a claim that the Will had been signed under duress or that Carl was subject to Earl’s undue influence.
The bottom line is that everything is likely to go off the rails if we fail to engage a qualified estate planning attorney to advise us when we create our estate plans. Filling out a form Will or Trust is no guarantee that a plan will work, because the laws — statutes and/or cases– may override the terms of a document and change the outcome. The resulting disaster often includes expensive lawsuits and family resentments, or even family fights. Paying an attorney up front is a small price to pay for the assurance that an estate plan was prepared properly. Consider this an investment. In the long run, the costs of litigation and family discord far exceed the costs of hiring a competent attorney to prepare a solid estate plan. Ask any estates and trusts litigator.
And read the fine print on those form documents. All of the disclaimers should concern you.
Natalie A. Roberts