Pitfalls to Avoid in Estate Planning

Several online web sites provide forms for people to create their own wills for a fee less than that of hiring a typical attorney.  Earlier this year, a member of the Florida Supreme Court called that approach “penny-wise and pound-foolish” in a case that developed after Ann Aldrich died in October 2009. Five years before her death—in April 2004—Aldrich executed a Will that she drafted leaving essentially all of her property, including a life insurance policy and a Fidelity IRA, to her sister. In the event of the sister’s death before Aldrich’s own, the Will provided that the property would be distributed to Aldrich’s brother.  For whatever reason, Aldrich failed to include a residuary clause, and that omission became problematic when Aldrich’s sister died in 2007, leaving her own assets—both cash and real property—to Aldrich, who opened a new, separate Fidelity account. Apparently, in an effort to provide for the distribution of the inherited property, Aldrich subsequently signed another document—arguably a codicil—that said she wanted to “reiterate that all my worldly possessions pass to my brother.”  But that document only had one witness, and Florida law, like most jurisdictions, requires two witnesses for both a Will and a codicil to be valid. The question, then, became how the predeceasing sister’s property should be distributed:  to the surviving brother whom Aldrich named in her Will, or to the nieces of another, predeceased brother, including Laurie Basile, the plaintiff, under the state’s intestacy laws. The trial court ruled in favor of the surviving brother, but the Court of Appeals reversed, ruling that the property Aldrich inherited should be distributed to the nieces. The state’s Supreme Court agreed with the appellate court, and affirmed.

The law of North Carolina regarding witnesses to the execution of a will and residuary clauses is substantially similar to the law of Florida, and it seems likely that the North Carolina Supreme Court would decide a similar case in the same way as the Florida Supreme Court did. To avoid unwanted results, it is best to consult an experienced attorney to assist with estate planning matters.

The case is Aldrich v. Basile, No. SC11-2147, FL 3/27/14.

Evan Lohr is an attorney with Lohr & Lohr PLLC in Raleigh, NC. He handles estate disputes and helps clients prepare estate plans. He can be reached at evan@lohrnc.com or at (919) 348-9211.

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“In Terrorem” Clauses

Many wills include provisions that are referred to as “in terrorem” or “no contest” clauses. An example of this type of clause may read, “In the event that any provision of my last will and testament is contested by any of the parties mentioned herein, the portion or portions of the estate to which such party or parties would be entitled shall be disposed of in the same manner as though their name or names had not been mentioned herein.” Essentially, the goal of an in terrorem clause is to attempt to dissuade a beneficiary from contesting a will in court. It should be pointed out that these clauses have no effect on someone who is not a beneficiary under the will submitted for probate – if they have no beneficial interest under the will as it is written, then they have nothing to lose by contesting the will.

Moreover, the presence of a no contest clause does not necessarily mean that a beneficiary will lose their inheritance if they file an action to contest the will. In Ryan v. Wachovia Bank & Trust Co., 235 N.C. 585, 70 S.E.2d 853 (1952), the North Carolina Supreme Court found that in terrorem clauses would not be enforced when the caveat is based on good faith and probable cause. In addition, it is generally held that the provisions of a “no contest” clause are to be strictly construed and not extended beyond their express terms. Haley v. Pickelsimer, 261 N.C. 293, 134 S.E.2d 697 (1964).

If you are a named beneficiary in a will that contains an in terrorem clause and want to contest the will, it is advisable to consult with an attorney prior to doing so, to ensure that contesting the will does not result in the loss of your interest under the will.

Evan Lohr is an estates attorney in Raleigh. He can be reached at evan@lohrnc.com or at (919) 348-9211.

A Primer on North Carolina Living Trusts

Most clients who seek me out for estate planning advice generally ask for help in drafting and executing a will for them. While a will is a necessary part of an estate plan, a trust can also be a very important part of that plan – and not just for the wealthy. The various benefits of trusts – discussed below – often provide valuable results for people of all income levels.

The most widely used type of trust is referred to as a living trust (also referred to as an “inter vivos” trust). A trust is a legal arrangement where a person called the “grantor” transfers property to be held by an individual called the “trustee” for the benefit of a third party, referred to as a “beneficiary.”  While many times the grantor, trustee and beneficiary are different people, that is not always be the case. Sometimes, the grantor, trustee and beneficiary can be the same person.

A living or inter vivos trust is one that is created during the lifetime of the grantor. In most cases, the grantor is both the trustee and the beneficiary during their lifetime. Usually, the grantor reserves the right to revoke the trust. After the death of the grantor, the terms of the trust control the disposition of the assets. In the usual case, the grantor’s spouse, if living, will receive the assets of the trust, either outright, or through distributions of the trust. If the spouse is not living, the grantor’s children or other chosen beneficiaries will receive distributions from the trust. These distributions can be made either by giving the property to the beneficiaries outright or by a successor trustee continuing to administer the trust until the time that the grantor specified that the beneficiaries are of a sufficient age to receive the remainder of their share.

The primary benefits of incorporating a living trust into your estate plan are avoiding the expense and hassle of probate in North Carolina, privacy, and avoiding ancillary probate in another state in which you own real property. When property passes via a will, a probate proceeding must be opened. The process can sometimes be time-consuming and expensive, and documents filed in a probate proceeding are public record which can be viewed by anyone, including a person intentionally disinherited under the terms of the will. Also, if you own property in another state, an ancillary probate proceeding must be opened in that state, which can be costly and burdensome to an executor. A trust avoids this problem because the trust, not you, owns the property, which passes pursuant to the terms of the trust. A revocable trust also provides a measure of planning should you become incapacitated. In that event, your successor trustee assumes responsibility for the administration of the trust and can manage the property held by it.

Evan Lohr is an estates attorney in Raleigh. He can be reached at evan@lohrnc.com or at (919) 348-9211.