Estate planning, poor planning and no planning - part 1

How many folks in their 30's, 40's and 50's give much thought to death? Certainly they may think about their parents' dying or their aunts and uncles dying, but thinking about the possibility of their own deaths is typically not even remotely on their radar.

As a rule, people who are younger than retirement age are so immersed in their day to day activities that tending to their own future estate planning is the farthest thing from their minds. Not that anyone plans to leave this world before they reach a ripe old age, it does happen and, when it does, without a comprehensive and well thought out estate plan, it can cause nightmares for the decedent's survivors. 

Take Michael Jackson for instance. At 50 years old, he certainly was expected to be around for many more years. Perhaps as is typical of an individual with many years ahead of him, he may or may not have a valid will and a well thought out estate plan. We won't know for sure for quite some time as the California courts sort this out. Rather than trying to critique Michael Jackson's estate plan at this point in time, it will be much more informative to look at three differrent levels of estate planning (no planning, some planning and good planning) and then see how each respective level worked out in the actual cases of some famous and/or wealthy individuals. Analysis based on facts is much more instructive than analysis based on rumor and innuendo.

Looking first at the scenario of no estate planning, we can safely assume that when someone dies without a will, the lack of a will is a result of the failure to plan and is not the result of a carefully thought out plan. When an individual owning assets dies without a will, State intestacy statutes dictate exactly how that individual's assets will be distributed and who will be the Personal Representative (a/k/a Executor or Administrator) of the Estate. In Florida the law provides that a person dying intestate (without a will) will have their estate distributed as follows:

"732.101 Intestate estate.--

(1) Any part of the estate of a decedent not effectively disposed of by will passes to the decedent's heirs as prescribed in the following sections of this code.

(2) The decedent's death is the event that vests the heirs' right to the decedent's intestate property.

732.102 Spouse's share of intestate estate.--The intestate share of the surviving spouse is:

(1) If there is no surviving descendant of the decedent, the entire intestate estate.

(2) If there are surviving descendants of the decedent, all of whom are also lineal descendants of the surviving spouse, the first $60,000 of the intestate estate, plus one-half of the balance of the intestate estate. Property allocated to the surviving spouse to satisfy the $60,000 shall be valued at the fair market value on the date of distribution.

(3) If there are surviving descendants, one or more of whom are not lineal descendants of the surviving spouse, one-half of the intestate estate.

732.103 Share of other heirs.--The part of the intestate estate not passing to the surviving spouse under s. 732.102, or the entire intestate estate if there is no surviving spouse, descends as follows:

(1) To the descendants of the decedent.

(2) If there is no descendant, to the decedent's father and mother equally, or to the survivor of them.

(3) If there is none of the foregoing, to the decedent's brothers and sisters and the descendants of deceased brothers and sisters.

(4) If there is none of the foregoing, the estate shall be divided, one-half of which shall go to the decedent's paternal, and the other half to the decedent's maternal, kindred in the following order:

(a) To the grandfather and grandmother equally, or to the survivor of them.

(b) If there is no grandfather or grandmother, to uncles and aunts and descendants of deceased uncles and aunts of the decedent.

(c) If there is either no paternal kindred or no maternal kindred, the estate shall go to the other kindred who survive, in the order stated above.

(5) If there is no kindred of either part, the whole of the property shall go to the kindred of the last deceased spouse of the decedent as if the deceased spouse had survived the decedent and then died intestate entitled to the estate.

(6) If none of the foregoing, and if any of the descendants of the decedent's great-grandparents were Holocaust victims as defined in s. 626.9543(3)(a), including such victims in countries cooperating with the discriminatory policies of Nazi Germany, then to the descendants of the great-grandparents. The court shall allow any such descendant to meet a reasonable, not unduly restrictive, standard of proof to substantiate his or her lineage. This subsection only applies to escheated property and shall cease to be effective for proceedings filed after December 31, 2004."

As one can see from the above, dying without a will can be a complicated process with unintended consequences. The most obvious one is the treatment of the spouse where there are lineal descendants. Except for situations where (1) tax planning is driving the result, and/or (2) step-children are involved, in all of my years of practice I have never drafted a will where the spouse splits the decedent's assets with their children. It is always "I leave everything to my spouse. If my spouse shall predecease me I leave everything to my children". It is never "I leave one half of everything to my spouse and one half to my children." This is why it is so important to have a will and have everything pass in accordance with your wishes. 

Another big reason to have a will is to minimize the potentially sizeable legal fees that will arise out of estate litigation proceedings. A very famous example of expensive estate litigation was the Estate of Howard Hughes. Though Hughes was ultimately ruled to have died intestate the Estate Administrator first had to deal with a handwritten will that was purportedly written by Mr. Hughes. The purported will brought great notoriety to the proceedings as one of the purported beneficiaries of the $2.5 billion estate was Melvin Dummar, an unknown gas station owner. Mr. Dummar claimed that his connection to Mr. Hughes was that one day Dummar found a disheveled Hughes lying on the side of the road in Nevada and Dummar helped Hughes by picking Hughes up and giving him a 150 mile ride to Las Vegas. For all of this "friendship" Dummar was rewarded with a bequest of $156 million in the purported will. After a lengthy jury trial the Court threw out the purported will and ruled that Mr. Hughes had died without a will.

For More Information:
Bruce R. Glassman, JD, CPA/PFS
Email: Examiner@AnywhereLegal.com
Website: Anywhere Legal - The Virtual Law Firm