Garland Law Offices, P.A.

Appeals Court Rules in Will Dispute between Ex-Wife and Brother

“Recently, the Indiana Court of Appeals decided the case of Trowbridge v. Estate of Trowbridge. The case involved a man, Everett, who, despite their divorce, remained on good terms with his ex-wife, Christal.”

A dispute over a will that made its way to the Indiana Court of Appeals serves as a useful lesson for the importance of having an updated will and knowing where the original will is, as reported in The National Law Review article titled “Where’s the Will? Indiana Court of Appeals Reverses Trial Court’s Presumption of Revocation for Lost Will.”

Everett Trowbridge executed a will after his divorce, in which his ex-wife Christal and his brother Michael Trowbridge were named as co-executors. The will was generous to Christal, leaving her the former marital home, 100% of one retirement account, 25% of another retirement account and all of Everett’s personal property. While Everett had received the marital home according to the dissolution order, Christal never deeded it to Everett, as was required by the dissolution order. His brother Michael Trowbridge received 75% of the second retirement account. Six years after the will was executed, Everett Trowbridge died. One week later, Trowbridge petitioned to open an intestate estate, saying that there was no will.

Christal called the estate’s attorney, Michael, and told him that she had the will. She then met the attorney at his office. She said she told him that she had the original will. Michael later said that Christal told him that Everett gave her a copy of his will and left the original in his home safe.

Michael took careful notes and said that he would have to find out whether a copy of a will could be offered for probate, before attempting to probate the will she provided.

Michael said he next contacted Trowbridge and asked if he had found a will in Everett’s house. Trowbridge said that no will was found after a search.

Michael uncovered a rule that says where a testator retains possession or control of a will and the will isn’t found at the testator’s death, the presumption is that the will was destroyed. Under this rule, the proponent of the will can rebut the presumption by introducing evidence that supports the conclusion that the will was not in fact revoked. In addition, if a copy of the will is offered for probate and contested, the contesting party, in this case, Trowbridge, has the burden of proof to establish that the will was revoked. According to Michael, once he discovered this rule, he wrote to Christal and told her he would not offer the will for probate. He also suggested that she hire an attorney.

Christal petitioned the court to probate the will, and the trial court found for Trowbridge, saying that the presumption of revocation had established that Everett revoked his will. Christal appealed, and the Indiana Court of Appeals reversed the ruling. The court held that before the presumption of revocation could apply, there must be a predicate finding that the will had remained in the testator’s possession. The only evidence to this point was from Christal, who testified that she maintained possession of the original will.

There was yet another hearing, and the trial court found that the evidence supported the finding that Trowbridge maintained possession of the original will. The court said that Michael’s testimony, supported by handwritten notes, was that when he first spoke with Christal, she said that she had a copy and Everett had the original will in his safe. The trial court applied the presumption of revocation and declined to probate the will. Christal appealed again.

In its analysis, the Court of Appeals first easily affirmed the trial court’s finding that Trowbridge maintained possession of the will, and so he received the benefit of the presumption. However, this is not the end of the question, said the court.

It’s ultimately up to the person who is contesting the will to show that it was revoked, and the trial court had ignored the evidence supporting Christal’s argument that it was not revoked. Included in the court’s decision were these facts:

Everett did not execute his will, until after he and Christal were divorced. Everett continued to list Christal as the beneficiary of his accounts, as recently as the year before he died. He also never enforced the dissolution order requiring Christal to deed the formal marital property to him.

There are two lessons here for estate planning: always know where the original copy of a will is, and be aware of the procedural rules that govern wills. There are procedural rules that shift the burden of proof from one party to another and could be the reason that the wishes of the testator are followed—or not.

Reference: The National Law Review (June 22, 2020) “Where’s the Will? Indiana Court of Appeals Reverses Trial Court’s Presumption of Revocation for Lost Will”

Five Top Reasons to Add Beneficiaries to Investment Accounts

“Losing a loved one isn’t just an emotional burden—it also carries an administrative load. There are flower arrangements to pick, eulogies to write and a stream of paperwork to sort through.”

One way to show loved ones that you care, is by having an estate plan and communicating your wishes to them clearly, notes the article “Why You Should Add Beneficiaries to Your Investment Accounts Now” from The Street. That includes adding beneficiaries to your retirement and investment accounts. This simple step will help save heirs time, money and emotional stress at a time when they are likely to be overwhelmed with grief and paperwork.

They’ll retain more of your estate and get it faster too. When beneficiaries are assigned to investment and retirement accounts, the assets pass directly to them. If there are no beneficiaries, the asset may have to go through probate, the legal process of settling an estate when someone dies.

Probating an estate usually involves going to court, which is something your beneficiaries would probably prefer not to deal with during a challenging time. A typical probate case could last a year, sometimes longer, depending on where you live. During this time, your beneficiaries are not able to access their inheritance. Going to court also means court fees, attorney fees, lost time, and additional stress.

Let’s not leave out how much of a bite probate can take out of your estate. Depending on its complexity, probate can consume anywhere from 0.5% to 5% of the estate.

Removes one stress for loved ones. Having assets transfer directly to beneficiaries lessens what can be an intense burden for heirs, while they are grieving. Once the account provider is notified of the death of the account holder, the provider typically notifies beneficiaries. The beneficiaries have to provide the correct documentation, like a death certificate, but that’s a whole lot easier than going through probate. Obtaining death certificates is usually part of the executor’s responsibility and doesn’t cost very much.

Beneficiary designations override your last will and testament. By law, a beneficiary designation determines who receives assets, regardless of what is in your will. That’s why it’s so important to make sure your beneficiary designations are up to date. What happens if you neglect to update your beneficiaries on a life insurance policy purchased when your children were young? For instance, what if you are divorced from their father, but you forget to replace him as the policy beneficiary? In that case, your ex-spouse will receive the policy proceeds, no matter how many years you have been divorced.

It’s easy and relatively painless. Updating or establishing beneficiaries is one of the easiest parts of estate planning. Start by making a list of your accounts, which you should have anyway and contact the account custodian to find out who is listed as a beneficiary. If no one has been named, get directions on how to establish the beneficiary designation and if possible, name a secondary beneficiary.

If you have an IRA or a 401(k), your account will typically offer a beneficiary form within the account. If you have investment accounts, you’ll need to request a form from the custodian.

Special rules for retirement account beneficiaries. There are rules about leaving retirement plan assets to a spouse, so if you want to leave those assets to children or grandchildren, your spouse will have to sign off on that, with a waiver. Depending upon where you live, a spouse may be entitled to have of the assets in an IRA, even if other beneficiaries are listed, unless there is written consent.

Reference: The Street (June 12, 2020) “Why You Should Add Beneficiaries to Your Investment Accounts Now”

Protecting a Digital Legacy

“The world exists just as much online, as it does offline. Failing to recognize that when planning for the end of life, can lead to unexpected repercussions for survivors.”

There’s never an easy time to talk about end-of-life planning, and a pandemic that has everyone thinking about death can make it harder, says the article “Wannabe Wired: Preparing your digital legacy,” from The Lawton Constitution. Most of us think about creating a will, making burial plans and ensuring that our loved ones are cared for when we are gone. However, planning for our digital legacy is often neglected.

You don’t have to be Bill Gates or own billions in bitcoins to have a digital legacy. In fact, most people don’t even recognize their digital assets as a new type of property. If you have bank accounts, social media, own any websites or have original music, artwork, or videos online, you have digital assets.

Prior planning can help your loved ones deal with your digital assets, as well as your traditional property.

Different online platforms have different policies about what happens to accounts owned by people who have passed. Sometimes there is an option to delete or deactivate a profile, if the owners have checked the right box. However, that’s not always the case. Many digital giants won’t allow someone who is not the owner, to gain access to their accounts or the data.

Start by making a list of user names and passwords. If you can, go through all of your accounts one by one to see if they allow users to make a plan for what happens if the owner dies. Some, like Facebook, allow the account owner to name a Legacy Contact. That person is permitted to manage tribute posts on your profile, deciding who can and who cannot post on your account and request the removal of your account. Just go to General Account Settings and click on the “Memorialization Setting.” You also have the option to have your account deleted after you die.

Not every platform makes this process so easy. Some will delete accounts, if there is no activity after a certain number of months or years. If you have a business that relies on a free email service like Yahoo!, this could cause your family to lose access to valuable information.

Once you’ve made a thorough list of all of your online accounts and passwords, talk with a trusted family member about your wishes for your digital accounts. Do not include the document with online accounts and passwords in your will! Remember that your will is likely to be a probated document, meaning that it will be entered into the public record. You don’t want people accessing your online accounts—it’s an invitation to identity theft.

Speak with your estate planning attorney about planning for your digital and traditional legacy. It will spare your loved ones a lot of trouble and provide you with peace of mind.

Reference: The Lawton Constitution (May 12, 2020) “Wannabe Wired: Preparing your digital legacy”

If I Roll All My IRA Money to a Roth, Will I Forfeit Some Tax Benefits?

“Anyone planning to roll over all their assets from a traditional individual retirement account to a Roth version, might want to pause before making the move.”

Rolling over all of your assets from a traditional IRA to a Roth IRA can mean tax-free income down the road. However, remember that you’ll also pay taxes on the amount moved. That means there will be no future opportunity to reduce your tax rate further.

CNBC’s recent article, “Moving all your IRA money to a Roth means losing some tax benefits,” says that those lost tax benefits generally relate to medical expenses, charitable contributions and business losses. In contrast, if you leave too much in the IRA, the result may not be good. You may have higher required minimum distributions and taxes.

Roth IRAs grow tax-free and withdrawals generally are also untaxed. They also have no lifetime required minimum distributions, or RMDs. However, traditional IRAs have some potential tax benefits that are gone for good, once the money is moved.

The primary concept in managing taxes in retirement is that you want to get as much money out of your accounts at the lowest possible cost. When you roll over money from a traditional IRA to a Roth, the amount moved is taxed as ordinary income. As a result, you should complete the rollover when you’re in as low a tax bracket as possible. This means tax-free income available down the road, but it also means you’ll have already paid taxes on the rollover. Thus, there’s no opportunity to reduce your rate further. However, if you leave too much in the IRA, the result may not be good. If you think that you might have these future expenses, then it might make sense to keep money in the traditional IRA.

Medical expenses. These are usually a major expense for older Americans and that’s not including the cost of long-term care. However, a tax break for medical expenses is one of the few remaining deductions available to individuals, since the new tax law in 2018. It’s limited to the amount that exceeds 10% of your adjusted gross income and you must itemize your deductions to take advantage of it. However, those with high medical bills can potentially reduce their taxes by applying it. To take the deduction, you must have taxable income to weigh it against. So, if much of your income is coming from a Roth IRA tax-free, you could be restricted in whether you can take advantage of the break. If you took money from an IRA (whose withdrawals are taxed as ordinary income) to cover those health costs, you could use the medical deduction against that withdrawal. This could result in paying less in taxes than what you had paid by rolling that money to a Roth.

Qualified charitable distributions. If you give money to charity each year, keeping money in your traditional IRA to make those donations could be wise, because contributions made through qualified charitable distributions—funds sent directly to the charity from a traditional IRA—are excluded from your taxable income. However, the tax break for charitable contributions can only be used if you itemize your deductions, and generally, a deduction isn’t as valuable as an income exclusion.

Note that this strategy is only available to IRA owners and beneficiaries who are age 70½ or older. Since that is the age when RMDs kick in, the move could reduce your tax liability on the RMD to zero. If your RMD is $5,000, but you give $5,000 to charity anyway, do the qualified charitable distribution, and you don’t have to pick up any of the income.

Business losses. These can only be claimed on your tax return, if you have income to claim them against.

General tax considerations. No matter your overall income, any amount that falls into each of seven defined brackets is taxed at a specific rate. Therefore, the more income you can get taxed at those lower rates, the better. If you could leave some money in the IRA to soak up some of those lower tax rates in the future, you may pay less in taxes on the money than if you converted it.

The current tax brackets and rates will go back to pre-2018 levels at the end of 2025, unless Congress takes action before that time. Therefore, while tax rates are low now, odds are good that they’ll be higher after 2025.

Reference: CNBC (November 27, 2019) “Moving all your IRA money to a Roth means losing some tax benefits”

What is the Keystone State Doing to Change Its Laws on a Deceased’s Digital Assets?

“State Sen. Tom Killion says most states have rules for who gets someone’s social media photos and email accounts after that person dies, but Pennsylvania is lagging behind.”

ABC27.com’s recent article “Legislators setting rules on who gets digital photos, emails after death” reports that Pennsylvania State Senator Tom Killion is looking to help change the law on who owns the social media of a deceased person. He has sponsored legislation to make changes.

“Currently, if you pass away, you can leave your house, your car, your valuables, your savings to your children or whoever you want to decide to leave it to via will or trust, but you can’t do that in Pennsylvania with your digital assets,” he said.

“Think about all of those apps that you have on your phone all of those assets contain your personal information,” said Sen. Kristin Phillips-Hill, who supports the legislation.

Killion’s legislation proposes the transfer of all digital assets to beneficiaries, in the same way physical assets are—by will, trust, or power of attorney.

“We all have lots of stuff in the cloud right now—family photos, maybe I’ve started writing a book that I haven’t finished yet, you can go on and on and on,” Killion said. “This is basically our laws catching up to what’s going on in our world.”

The state senator commented that the National Conference of State Legislatures reports 46 states have similar legislation. He says without these laws, family members are frequently in battle against large media companies to fight for ownership of that data.

Killion also remarked that the state bar association was working to get this put into law for some time.

The bill was unanimously passed by the state Senate and referred to the House Judiciary Committee in October.

“It’s something that’s really meaningful particularly for younger generations who are much more dependent on those applications,” Phillips-Hill said.

Killion would like to see the legislation get passed this session.

Reference: ABC27.com (November 28, 2019) “Legislators setting rules on who gets digital photos, emails after death”

What Do I Need to Know About Owning Property with Someone Other than My Spouse?

“It's very common for spouses to title property they own together as ‘joint with right of survivorship.’ When one passes, the other owns the property outright. It’s simple, easy and automatic. However, it can get messy when the other joint owner isn’t your spouse.”

Have you ever considered owning property jointly with a family member, friend, or a business associate? Inside Indiana Business’ recent article, “Risky: Property Owned with a Non-Spouse,” says that you should think about the negatives, such as loss of control, unknown creditor issues and tax consequences.

Loss of Control. When you choose to co-own an asset with another person, you can enter into a legal ownership agreement known as “joint tenants with rights of survivorship” or “JTWROS.” When one of the owners dies, the surviving owner automatically becomes sole owner of the property. However, you give up some control of ownership, when you own property in this way. For example, you can’t direct your portion to go to a spouse or a child after your death in your will or other estate planning documents. OK, you can, but your co-owner’s ownership title takes precedence over your estate documents. As a result, she will become the sole owner. You can also lose some control over the property, if the non-spouse co-owner transfers her interest in the property to another individual without your consent. It’s also tough to remove a co-owner from the property title without his or her full cooperation.

Creditors. Another issue with jointly held property is that it’s subject to creditors’ claims against both owners. If your brother, as a co-owner of your cabin, has financial troubles and files for bankruptcy, his ownership in the cabin could possibly be claimed by a creditor. He could also be forced to sell it to pay off his debts. So, unless you can buy out his ownership in the cabin, you may now own the property with a stranger.

Potentially Higher Taxes. Adding a non-spouse as co-owner of an asset, allows for a simple property transfer at your passing. However, it could also mean both a gift tax to you and an increased capital gain tax for your heir. By adding a non-spouse to the property title, you’re making a gift to the new joint owner. Therefore, based on the current value of the property being gifted, you could be liable for gift tax. In addition, the heir of the property may have to pay increased capital gain taxes. Property transferred at death receives a step-up in basis. This means the heir’s cost basis is equal to the fair market value of the property at your death, instead of your cost basis (the amount you paid for the property). Receiving a step-up in basis reduces the heir’s capital gain on the appreciation of the property when it’s sold. However, if you add a co-owner, only your interest in the asset has the benefit of stepped-up basis at your death, not the entire property. When the property is sold, this may mean a higher capital gain tax.

JTWROS vs. Tenants in Common. When deciding to co-own an asset with another person, you can also enter into an ownership agreement known as “tenants in common.” Here’s a key difference: holding property JTWROS with another person means that when one owner dies, the other owner receives the property outright and automatically. When owning property as tenants in common with another person, when one owner dies, the owner’s heirs receive his share in the property. A co-owner can again transfer his interest in the property without approval as the other co-owner. This loss of control may place you in a difficult position.

When considering property ownership with another party, look at the pros and cons of both JTWROS and tenants in common. The cons usually outweigh the pros. However, if owning property with a non-spouse is what you want, discuss this with a qualified estate planning attorney.

Reference: Inside Indiana Business (December 1, 2019) “Risky: Property Owned with a Non-Spouse”

What Happens to Estate Tax Benefits After 2025?

“Taxpayers can benefit from higher thresholds for U.S. estate and gift taxes, even if they don’t die until after the tax overhaul expires in 2026, the Internal Revenue Service said.”

You may recall that the 2017 Republican tax reform legislation roughly doubled the estate and gift tax exemption.

This means starting in 2019, people are permitted to pass on, tax-free, $11.4 million from their estate and gifts they give before their death. Couples can pass on twice that amount, or $22.8 million.

These higher levels expire in 2026, but those who make large gifts while the exemption is higher and die after it goes back down, won’t see the estate tax benefit eroded, the IRS announced recently via new regulations.

“As a result, individuals planning to make large gifts between 2018 and 2025 can do so, without concern that they will lose the tax benefit of the higher exclusion level once it decreases after 2025,” the agency said in a press release.

Yahoo Finance’s recent article, “IRS Says Millionaires Can Keep Estate Tax Benefits After 2025,” says that the exemption increase was a big priority for Republicans in the 2017 tax overhaul.

This exemption decreased the number of individuals who’d be subject to the 40% estate tax by about two-thirds.

The exemption was $5.5 million prior to the law change.

However, Democrats are looking to reverse those changes, if they sweep the House, Senate and White House in the 2020 national elections.

Nearly every Democratic presidential candidate would like to see the estate tax apply to a greater number of wealthy families.

Senator Bernie Sanders has called for the estate tax, to begin when fortunes are worth at least $3.5 million. He has also proposed rates as high as 77%.

Reference: Yahoo Finance (November 22, 2019) “IRS Says Millionaires Can Keep Estate Tax Benefits After 2025”

Why is the Cars’ Ric Ocasek’s Wife Contesting His Will?

“Late Cars’ singer Ric Ocasek cut his estranged, supermodel wife out of his will, claiming that she ‘abandoned’ him, the now-public document reveals.”

“I have made no provision for my wife Paulina Porizkova (‘Paulina’), as we are in the process of divorcing,” the late Cars’ singer Ric Ocasek wrote in his will.

Wealth Advisor’s recent article, “Cars singer Ric Ocasek cuts supermodel wife Paulina Porizkova out of will,” reports that the will went on to state: “Even if I should die before our divorce is final … Paulina is not entitled to any elective share … because she has abandoned me.”

Porizkova was the one who discovered her estranged husband’s body in September, as she brought him a cup of coffee. Ocasek was recovering in his New York City townhouse from a recent surgery.

The couple had two sons together but ended their marriage in May 2018, after 28 years of marriage. They first met while filming the music video for the Cars’ song “Drive” in 1984.

Porizkova said that Ocasek’s death was “untimely and unexpected.”

“I found him still asleep when bringing him his Sunday morning coffee,” she wrote in a statement published to Instagram following Ocasek’s death.

“I touched his cheek to rouse him. It was then I realized that during the night he had peacefully passed on.”

Reports say that Ocasek’s will lists his assets to include $5 million in “copyrights,” but only $100,000 in “tangible personal property” and $15,000 in cash.

The document doesn’t detail what constitutes the “copyrights” assets. Even though $5.115 million may appear low for a rock-legend like the Cars’ Ocasek, he likely had money stashed away in trusts. One reason why people use trusts, is to protect their privacy.

Ocasek’s will looks to have excluded two of his six sons, but not the children he had with Porizkova. Perhaps these two sons may have been compensated through other financial means.

The document indicates that Ocasek signed the will on August 28, just a month before his death. The 75-year-old died of heart disease on September 15.

Pulmonary emphysema, a type of lung disease, had also contributed to his death, the medical examiner said.

Reference: Wealth Advisor (November 12, 2019) “Cars singer Ric Ocasek cuts supermodel wife Paulina Porizkova out of will”

Will Medicaid be Able to Claim my Life Insurance Policy Cash if Surrendered?

“New Jersey uses an expanded definition of estate recovery, which includes any property that belonged to the deceased person at the moment prior to his or her death.”

If a person receives Medicaid benefits after taking the cash surrender from their whole life policy for funeral expenses but that policy stays in effect through continued payments by the beneficiary, who gets the remainder of the policy? Medicaid or the beneficiary? What if the Medicaid beneficiary only lived for a few more months after that?

nj.com’s recent article on the subject asks “Can Medicaid take this life insurance policy?” The article says that the rules concerning Medicaid can be very complicated.

In this situation, it looks like the beneficiary, not Medicaid , would receive the money from the life insurance policy.

Under Federal and state laws, Medicaid is required to recover funds from the estates of certain deceased Medicaid recipients for all payments made by Medicaid for services received on or after age 55.

States are able to apply a narrow probate definition of “estate” in their Medicaid recovery program. They can also define “estate” more broadly to include probate, as well as non-probate assets.

Remember that probate assets are those that pass under a will, and non-probate assets are accounts like joint checking accounts, pensions and other assets that are designated to go to a beneficiary directly and not the estate.

This also includes property, such as the deceased person’s home or share of that residence, other bank or investment accounts (whether solely or jointly held), as well as trusts, annuities, stocks, bonds and any other real or personal property.

Proceeds from whole life insurance policies are subject to estate recovery, if they’re not liquidated prior to death as required. The proceeds from any life insurance policy are subject to Medicaid recovery, when the proceeds are paid to the estate.

In the example here, if the policy was liquidated, there should be no estate recovery against the policy, because there was a designated beneficiary other than the estate.

Your estate planning attorney can help you with the specific Medicaid and probate laws in your state.

Reference: nj.com (October 29, 2019) “Can Medicaid take this life insurance policy?”

What Are the Rules About an Inheritance Received During Marriage?

“An issue that frequently arises is the treatment of an inheritance received by a spouse during the marriage. The basic rule is that any property received via gift or inheritance during the marriage is exempt from equitable distribution.”

A good add-on to that sentence is something like, “provided that it is kept separate from marital assets.” To say it another way, when an inheritance or any other exempt asset (like a premarital asset) is “commingled” with marital assets, it can lose its exempt status.

Trust Advisor’s recent article asks, “Do I Have To Divide The Inheritance I Received During My Marriage?” As the article explains, this is the basic rule, but it’s not iron-clad.

A few courts say that an inheritance was exempt, even when it was left for only a short time in a joint account. This can happen after a parent’s death. The proceeds of a life insurance policy that an adult child beneficiary receives, are put into the family account to save time in a stressful situation. You may be too distraught to deal with this issue when the insurance check arrives, so you or your spouse might deposit it into a joint account. However, in one case, the wife took the check and opened an investment account with the money. That insurance money deposited in the investment account was never touched, but the wife still wanted half of it when the couple divorced a few years later. However, in that case, the judge ruled that the proceeds from the insurance policy were the husband’s separate property.

The law generally says that assets exempt from equitable distribution (like insurance proceeds) may become subject to equitable distribution, if the recipient intends them to become marital assets. The comingling of these assets with marital assets may make them subject to a division in a divorce. However, if there’s no intent for the assets to become martial property, the assets may remain the recipient spouse’s property.

Courts will look at “donative intent,” which asks if the spouse had the intent to gift the inheritance to the marriage, making it a marital asset. Courts may look at a commingled inheritance for donative intent, but also examine other factors. This can include the proximity in time between the inheritance and the divorce. Therefore, if a spouse deposited an inheritance into a joint account a year before the divorce, she could argue that there should be a disproportionate distribution in her favor or that she should get back the whole amount. Of course, the longer amount of time between the inheritance and the divorce, the more difficult this argument becomes.

Be sure to speak with your estate planning attorney about the specific laws in your state. If there is a hint of trouble in the marriage, it might be wiser to simply open a new account for the inheritance.

Reference: Trust Advisor (October 29, 2019) “Do I Have To Divide The Inheritance I Received During My Marriage?”