Estate Planning Scenario: Death During Real Estate Sale

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real estate keys to house

It’s National Estate Planning Week (I know you’re as excited about it as we are!) which is a good excuse to bring up a hypothetical scenario: what happens, in terms of estate planning, if either the buyer or seller in a sale of real estate (like a house or land) dies before the closing?

It’s a situation that is fairly improbable, but it can and does happen. Plus, it’s good to explore just in case you ever find yourself dealing with this as the executor of a loved one’s estate.

Let’s say that you’re buying a house and you’ve already executed the contract (a purchase agreement) with the seller. Before the closing date, the seller passed away. What happens to the property? How does it fit into the seller’s estate plan? What is the executor responsible for? It’s easy to see how this can be a complicated conundrum.

National Estate Planning Awareness Week & a Brief History Lesson

Equitable and Legal Title

At this point, after the purchase agreement is drawn up and before the closing, you as the buyer hold an equitable title in the real property (the house). Equitable title is legal parlance meaning here that the buyer has a right to obtain full ownership of a property (or property interest). Equitable title comes with certain rights. For example, the seller can’t sell the property to a third party or subject the property to an encumbrance or a lien that would interfere with the buyer’s property interest.

Legal title, in comparison, is actual ownership of the land. In the period between the sale agreement and the closing, the seller holds the legal title to the property being sold. Legal title transfers to the buyer when the final payment is made (typically this is done at the closing or through an escrow process when the buyer receives the property deed in exchange for the payments made).

Like our hypothetical, if the seller dies during this point in the sales process this legal title in the property is a part of the seller’s estate. That means the seller’s estate can still sell the property (and is contracted to do so), collect the profit from the sale, and then disperse the profits as part of the decedent’s total gross estate to the beneficiaries.

Think Estate Planning is Just for the Wealthy? Think Again!

What About the Seller’s Heirs?

The seller’s heirs-at-law and/or estate plan beneficiaries may have expected to inherit the house. But, if the seller entered into a valid contract for sale before they died, the estate’s executor is bound to honor the contract.

Note that sometimes there are required waiting periods where the executor must wait before executing documents for the estate (such as the sale of real estate). So, as the buyer, you can anticipate a reasonable time delay (think 30 days) compared to the schedule set out in the purchase agreement.

Of course, there are many rules of real estate and contract law that come into play, but in terms of property and how it plays into the estate planning process, these are the basics!

Ultimate Estate Planning Checklist

Enlist an Estate Planning Attorney to Help Everything Run Smoothly

If you do find yourself in the position of being the executor of a seller’s estate and that seller died in the midst of a real estate sale, don’t hesitate to enlist the expertise of an estate planner to help guide you how to best accommodate and fulfill your fiduciary duties.

9 Reasons You Need a Lawyer to Write your Estate Plan

On a related point, if you sell your house or purchase a new property, it may necessitate updates to your estate plan! Review your plan and then schedule a free consult to ensure all of your assets are properly accounted for in your plan.

Any questions about your specific estate planning situation? Contact GFLF at gordon@gordonfischerlawfirm.com or by phone,515-371-6077.

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National Estate Planning Awareness Week & a Brief History Lesson

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this week calendar

Believe it or not, National Estate Planning Awareness Week is a very real thing and we’re celebrating October 21-27! Let’s kick it off with a brief history on the Week and estate planning in general.

Background on National Estate Planning Awareness Week

National Estate Planning Awareness Week was an effort spearheaded by the National Association of Estate Planners & Councils (NAEPC) and Rep. Mike Thompson (D-CA) (with 49 other Representatives on board).  In September 2008, Congress passed H. Res. 1499 which designated the third week in October as a week for assisting the public in understanding the importance and benefits of estate planning, as well as how to assemble a qualified team of experts to assist in the process.

In general, it’s in the best interest of society when the transfer of wealth and property is as seamless and as close to the decedent’s intent as possible. That’s where estate planning comes in and why it’s so essential.

Sure, you won’t see decorations for sale for National Estate Planning Awareness Week…but you can still celebrate by discussing your estate planning needs and goals with a qualified, experienced estate planning attorney. This goes for your first (much needed) estate plan, but also revisions on existing estate plans. (Remember, estate plans never expire!)

5 Scenarios for Estate Planning Revisions

Time Warp: A Brief History of Estate Planning

For as long as people have had property, that property has been distributed or passed along in some manner or another. In early cultures property was considered to be owned collectively by a family or tribe and when a leader of the group perished the assets were divided in accordance with family/tribal customs.

Estate planning was apparent in ancient Rome under the Code of Justinian which recognized oral and written wills that were approved by a public official. In the Anglo-Saxon period of England, royalty had to approve land transfers. That changed in the 12th century when property would automatically pass to the eldest son. Under English law, the Statute of Wills was established in the 16th century which allowed a landowner to pass along their land as they wished, whether that was to the eldest or not.

Current state intestacy laws are a modern iteration of British common law in which property inheritance passed to the spouse and children in pre-defined percentages.

Unfortunately, women were often excluded entirely from estate planning; assets were only distributed amongst male heirs at law and women were disinherited. At certain points throughout history, women (such as a wife or daughter) could be provided for through a trust upon the death of the husband/father, but often that trust was dissolved if/when the woman married/remarried. Thankfully policy and society progressed, and now women and men have an equal right to inheritance and ability to convey assets.

(Legal) Word of the Day: Trust

To that point, the individual American citizen of today has the freedom to plan for the distribution of property as wished without approval needed or mandate defining who can and cannot be a beneficiary.

Estate Planning in the United States

Statue of Liberty

In U.S. history, estate planning has been intricately linked with estate taxes because estate planning techniques are tools to reduce or even eliminate the Federal estate tax. To understand that in full you could go all the way back to the Stamp Act of 1797, where a tax was passed to fund the Navy in an “undeclared war with France.” The estate tax was subsequently abolished and then reinstated with corresponding wars including the Civil War and Spanish American War.

The estate tax, more or less as we think of it today, was instituted in association with World War I in 1916. To bypass this, people would gift parts of their estates to their families to which the lawmakers responded to by passing a gift tax in 1924. It was briefly repealed and then re-enacted in 1932 and remained that way until 1976 when the gift and estate tax were consolidated.

In modern political history, the estate tax has seen a few major changes; it was entirely revoked in the 2010 calendar year after 2001 legislation phased out the tax. However, that didn’t last long. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 meant a return of the estate tax but raised the exclusion to $5 million for 2011 and 2012. Then came the American Taxpayer Relief Act of 2012 which kept the $5 million inflation-adjusted exclusion figure, but increased the maximum rate of the tax to 40 percent from 35 percent. In 2018, the exclusion rate sits at $11.18 million per individual. This means an individual can leave $11.18 million to heirs and pay no federal estate or gift tax. Married couples get an exclusion for each spouse, so a couple can leave up to $22.36 to their heirs and IRS won’t collect estate tax on it.

What the New Tax Law Means for Your Estate Plan

Final Footnote

All of this history is to say that estate planning, in some form or another, has been an important aspect of societies in the world for a long time. Regardless of the size of your estate, and just like the ancient Romans or Americans of the early 1900s, you want to pass along your assets to the people you care about and want to provide for. Claim your right to distribute your property in accordance with your wishes by ensuring you have an up-to-date, quality estate plan. The best way to get started is with my free (and no obligation) Estate Plan Questionnaire. It’s a great tool for organizing all the important information you and your estate planner need to know when creating your custom estate plan.

Think Estate Planning is Just for the Wealthy? Think Again!

This is the first of a week’s worth of articles all dedicated to the topic of estate planning as a part of National Estate Planning Awareness Week. Want to discuss your estate plan or talk about the history of the estate tax? Don’t hesitate to contact me.

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5 Scary Estate Planning Excuses

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scary jack-o-lantern

It’s the season for everything pumpkin, Hocus Pocus reruns, and “accidentally” eating all the trick-or-treat candy before the actual trick-or-treaters arrive. It’s the time when I’m reminded that the scariest notion of all is not Dracula, ghosts, or even the overpriced costumes, but rather the downright terrifying reality that nearly every six out of 10 Americans do not have estate planning documents in place. Yikes. Despite the numerous benefits, advantages, and financial savings that comes with a proper estate plan, it’s all too common to push the process off. It’s like the equivalent of the dusty, cobwebby attic of your to-do list. Here are five scary excuses I’ve heard as to why people procrastinate creating an estate plan:

I’ll be dead, so I won’t be around to care.

Downright hair-raising!

A friend’s mother said this when my friend brought up estate planning. The mother has a point…I guess. Yes, after she dies she won’t be able to “care” about where her assets go. However, most of us would like to have a set plan of where our hard-earned money and personal property will go and to whom. Why? Because we care while we’re living and like to think we’re taking care of the ones we love even after we’re gone. So, why wouldn’t she (even as an act of love) take a simple measure to save her loved ones money (and time) instead of dealing with the sluggish probate process that would occur if she were to die intestate (without a will)?

graveyard with gravestones

I don’t own enough assets to need an estate plan.

I hear this one all the time and it’s terrifying to think someone would sacrifice their right to pass along their estate (as small or as big as it may be) as they choose. The fact is that having a (small) bank account, minor children, owning a home (of any size), or even having a pet is enough to necessitate estate planning…if even just to be prepared. Of course, the larger and more complex the estate, the more tools and documents may be needed, but that’s why you need to have an experienced estate planner to help determine the tools you need.

Think Estate Planning is Just for the Wealthy? Think Again!

I don’t have time right now to do estate planning.

Unnerving and chilling. Sure, estate planning doesn’t sound like the most fun thing to deal with on top of everything else you have going on in your life. But, the time it takes to create an estate plan will be significantly less than the time it will cost your family if your estate goes through probate. Additionally, most (good) estate planning attorneys will work around YOUR schedule. They are willing to make house calls and conduct conversations essential to crafting your individualized estate plan over the phone or email—whatever works best for you.

Estate Planning: Just Five Easy Steps from Start to Finish

It’s too expensive to make an estate plan. 

Eerily wrong. It will almost certainly be more expensive for your family and loved ones if you die intestate (without a will). It will not only cost them monetarily, but also emotionally as the process can be shockingly slow, tedious, and can create unnecessary conflict. Part of living is loving, so show your family, children, friends, and favorite charities the love by taking the time to craft a quality estate plan.

How Much Does an Estate Plan Cost in Iowa? Rates Should be Transparent!

I don’t even know where to start, so I’m not going to.

Getting started on your estate plan is actually incredibly easy, so continuing to make this excuse is alarmingly unnerving! Use my free (without obligation) Estate Plan Questionnaire. It’s an excellent tool for organizing all the essential information you (and your spouse, if applicable) and your estate planner need to have on hand in order to reach your estate planning goals.

Do any of these sound like you? Fear is for werewolves and zombies, not estate planning! Break the procrastination cycle and contact me via email or phone to discuss your situation.

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The Scary Tale of What Makes a Will Valid

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Halloween pumpkin

What makes a will valid? To begin, you are asking the entirely wrong question! [Cue evil sounding mwahahahaha.]

You must ask a more specific question what makes a will valid in Iowa. After all, every state can and does have different laws for a will’s validity, as well as for probate, trusts, and so on.

Iowa law has several requirements (sometimes called formalities) which must be present for a will to be legal and binding. If you miss even one formality–yes, even one!–you run the risk of your will being declared “dead.” Forever dead and invalid…which sounds like a nightmare for your loved ones.

In Writing (Can Be Blood or Ink)

ink and paper

Iowa law requires a will to be in writing. That means any oral statement of the decedent doesn’t count. This is true even if the oral statement(s) relate(s) directly to naming people who should inherit specific property. (Note that there’s a slight, teeny tiny exception to this for gifts causa mortis. But, these are super specific, situational, limited, and rare.)

Even a statement about passing of property recorded by audio or video cannot constitute a valid will.

Testatrix or Treat?

The person making the will must sign it, or direct some other person to sign the will in his or her presence. Lawyers call the person who makes the will either a testator (male) or testatrix (female).

Two Witnesses to Tell the Tale

Two witnesses to the will’s signing are also required. The person making the will, in the presence of the two people acting as witnesses, must declare the document is his/her will and request the two people to sign the document as witnesses. Then the witnesses must sign in the presence of each other, and in the presence of the testator/testatrix.

two people signing

Bearing Witness

There are also standards for being a qualified witness. A witness must be at least 16 years old and be mentally competent. A person who receives property under terms of the will may be a witness, but that person will have to forfeit any amount in excess of what s/he would receive if there were no will.

Are You Competent?

A will is valid only if the person making the will has sufficient competency at the time the will is made. In this situation, “competency” has two prongs: the testator must be of full age AND sound mind.

Full age simply means legal majority, which is age 18 (or 17 and married).

Is your mind sound?

All I can imagine with the phrase “sound mind” is the mad scientist saying “brainssss, brainsss!” But, is “sound mind” a real thing? Yes!

glass brain

A testator must indeed be of sound mind. The testator/testatrix has sufficient mental capacity if s/he:

  1. understands the nature of the instrument s/he is executing;
  2. knows and understands the nature and extent of his or her property;
  3. remembers the natural objects of his or her bounty; and
  4. knows the distribution s/he wants to make.

If s/he is unable to meet any one of these tests she cannot make a valid will. The mental capacity must exist at the actual time of the making of the will.

Did you say “natural objects of bounty?”

The natural objects of his or her bounty is a fancy legal phrase. Essentially this refers to a spouse and children, if any, or other close family members; the maker of the will should generally know and recognize his or her natural heirs.

Low Standards

This test of mental capacity is not a particularly high standard to meet. The Iowa Supreme Court declared:

“Ability to transact business, generally, is not essential to testamentary capacity. Advanced age, failure of memory, senile dementia not shown to render the testatrix of insufficient mental capacity to understand the nature of the act, to recollect the extent of her property and the natural objects of her bounty and their claims upon her, and to comprehend the manner in which she wishes her property distributed, childishness, mental weakness, and old age are not, of themselves, sufficient to deprive her of testamentary capacity.” Walters v. Heaton, 271 N.W. 310, 313 (Iowa 1937). (Note that the court’s decision was related to a female, hence the she/her, but, this standard undoubtedly applies to all will-makers in Iowa!)

Are you frightened to death of making a mistake with your will? Never fear! A qualified attorney can help guide you around the sticky spiderwebs and swamps of estate law. Email me at gordon@gordonfischerlawfirm.com or call me on my cell at 515-371-6077. I’d be happy to offer you a one-hour free consultation!

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Spooktacular Savings on Probate Fees

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person with sparkler spooky

Forget the scariest movies of all time, did you hear the unnerving tale about the will admitted to probate? Frightening stuff!

Some folks are surprised, even shocked, to learn that a will doesn’t avoid probate, but it doesn’t. Whether you die intestate (no will), or even with a will, your estate must pass through Iowa probate court. If you have an estate plan (including a will) this process is much more smooth and simple for your loved ones, because you’ve clearly told them, and the court, how you want your property dispersed. But, even with a basic estate plan, this is still a judicial process. (Plus your will becomes public record when it goes through probate.) The only practical way to avoid probate is through a revocable living trust. The “living”part of this means a trust that is established and funded by you during your lifetime.

Funding and Administering Your Living Trust

Trust in the Trust

A trust can sound somewhat elusive. And you may think it’s reserved just for the very wealthy, like that strange couple that live in the huge, dark mansion on the hill. However, a trust can be an incredibly important tool in many situations and provide multiple advantages.

spooky haunted mansion

Save Time & Money

Time

One of the major benefits of a trust is that it enables your loved ones and your favorite charities—your beneficiaries—to avoid the time and financial costs of probating a will. This is because, upon death, the property and assets are already distributed to the trust. Otherwise, the probate process can take anywhere from several months to more than a year to complete.

Fees

Probate can also be expensive considering fees. Fees and costs can reduce your estate by 4%, or even more. Executor’s fees, and attorney’s fees are both authorized by Iowa statute to be as high as 2% each, for a total of 4%, and that doesn’t include court costs. While that may not sound like a lot, it can actually equate to a good chunk of money that you would most certainly rather pass along to your heirs or to your favorite charity. Far more often than not, the cost of creating a trust is considerably less expensive than the cost of probate would be.

The Case of Frank E. Stein

bats in the sky

A simple example. Let’s suppose Frank E. Stein’s estate is worth $2 million. This may sound like a lot, and it is, but consider things like a large, expensive house, or a second home, or a vacation home, or a farm, or a family business, can rather easily push an estate into the multi-millions territory. Again, with Frank’s estate worth $2 million, a “shave” of 4% reduces the estate by $80,000. That’s $80,000 that could have gone to Frank’s favorite charity, The Home for Wayward Bats. A revocable living trust, completed by a qualified estate planner, would cost around $2,400.

Privacy

Revocable living trusts offer an additional benefit: privacy. When a will is filed with the Iowa probate court upon death, the will becomes a public record. Trusts, on the other hand, remain private documents. You may not want your friends, neighbors, monsters, and others to know the contents of your will. Like all good mysteries, some things are better left a mystery.

Start a Conversation

scary forest path

Considering all the aspects of a trust doesn’t have to feel like a twisty path through a scary forest straight out of Grimm’s Fairy Tales. I’m more than happy and willing to be your guide. Don’t hesitate to reach out; email me at gordon@gordonfischerlawfirm.com or call at (515) 371-6077.

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Scary Tale of the Estate Planner Who Ignored Community Property Law States

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cloudy moon

DON’T DARE READ THIS ALONE!

Count Dracula needed a new estate plan. After all, the Count hadn’t updated his last will in 1,400 years. After he got over a few eerie common estate planning excuses, he went to his Iowa estate planner. 

The Iowa estate planner dutifully gathered information about all of Count Dracula’s many assets. While discussing real estate holdings, however, the Iowa estate planner inexplicably failed to inquire as to whether Dracula owned real estate with his wife, in any other states.

[Blood-curdling screams]

Yes, that’s right: the Iowa estate planner simply forgot to ask about other States, including community property states. This could, unfortunately, impact the effectiveness of the Drac’s will and the dispersion of Drac’s property.

[Angry mob shouts in disbelief]

spooky castle

Iowa is NOT a Community Property State

The majority of states, including Iowa, are not community property states. There are about a dozen states which are community property states. As explained below, whether a state does or does not follow community property laws can have a huge impact on estate planning.

What are Community Property Laws?

Given our limited space I will only provide the most basic of oversimplifications. Simply put, states with community property follow a rule that all assets acquired during marriage are considered “community property.” While each community property state has its own unique and precise set of characterization rules, they all share the general rule that an asset acquired or given during marriage is presumed to be community property, until it is proven to be separate.

Bride and groom holding hands

Marital property in community property states is owned by both spouses equally (50/50). Marital property includes earnings, all property bought with those earnings, and all debts accrued during the marriage. Community property begins as soon as the couple is married and ends when the couple physically separates with the intention of not continuing the marriage.

Spouses may not transfer, alter, or eliminate any whole piece of community property without the other spouse’s permission. A spouse can manage his or her own half the way he or she wishes, but the whole piece includes the other spouse’s one-half interest. In other words, a spouse cannot be alienated from his or her one half.

Death or Divorce in Community Property States

When one spouse passes away, half of the community property passes to the surviving spouse. Their separate property can be devised to whomever they wish according to their will, or via intestacy statutes without a will. Many community property states offer an interest called “community property with the right of survivorship.” Under this doctrine, if a couple holds title or deed to a piece of property (usually a home), then upon a spouse’s death the title passes automatically to the surviving spouse and avoids probate court proceedings.

If the couple divorces or obtains a legal separation, all of the community property is divided evenly (50/50). The separate property of each spouse is distributed to the spouse who owns it and is not divided according to the 50/50 rule (but, again, there is a presumption that all property is community property, not separate property).

cert of divorce

Sometimes, economic circumstances warrant awarding certain assets wholly to one spouse, but each spouse still ends up with 50 percent of all community property in terms of total economic value. This is most common regarding marital homes. Since it is not a practical idea to try to divide a house in half, often the court will award one spouse the house, while the other spouse receives other assets with a value equal to half the value of the home.

There are exceptions to the equal division rule. The most common and well-known, thanks to popular culture, is a prenuptial agreement. Before the marriage, the couple may enter into such an agreement that lays out how the marital property shall be divided upon divorce.

Which States Have Community Property Laws?

Eight states are considered to be the “traditional community property” states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, and Washington. Wisconsin is the functional equivalent of a community property state when it adopted the Uniform Marital Property Act in the 1980s. Alaska and Tennessee are elective community property states, meaning spouses may create community property by entering into a community property trust or agreement. 

What About all the Other States?

The other states, the clear majority of states, are called “common law property” states. “ In this case, “common law” is simply a term used to determine the ownership of property acquired during the marriage. The common law system provides that property acquired by one member of a married couple is owned completely and solely by that person. Of course, if the title or deed to a piece of property is put in the names of both spouses, then that property would belong to both spouses. If both spouses’ names are on the title, each owns a one-half interest.

Elective Share Law: Can my Wife Disinherit me in her Estate Plan?

Death or Divorce in Common Law Property States

When one spouse passes away, his or her separate property is distributed according to his or her will, or according to intestacy laws without a will. The distribution of marital property depends on how the spouse’s share ownership—the type of ownership.

If spouses own property in “joint tenancy with the right of survivorship” or “tenancy by the entirety,” the property goes to the surviving spouse. This right is actually independent of what the deceased spouse’s will says. However, if the property was owned as “tenancy in common,” then the property can go to someone other than the surviving spouse, per the deceased spouse’s will. Of course, not all property has a title or deed. In such cases, generally, whoever paid for the property or received it as a gift owns it.

Man in street looking at house

If the couple divorces or obtains a legal separation, the court will decide how the marital property will be divided. Of course, just as in community property states, the prenuptial agreement is an option. The couple can enter into agreement before marriage, providing how to divide marital property upon divorce.

Why did the Iowa Estate Planner Forget to Inquire About Real Estate Located in Other States?

Some say evil men were born that way, while others say monsters learn evil. We can only guess. All we can know for sure is that the Iowa estate planner didn’t ask about real estate in other states. And that was terrible.

You Said Iowa Wasn’t a Community Property State. So, Why Does it Even Matter?

For at least three reasons a lawyer in a common-law state like Iowa needs to have a basic understanding of community property principles.

  1. A client may move to a community property state. Or perhaps there’s a divorce, one party stays in Iowa, the other moves to Washington).
  2. A client may buy property in a community property state. Perhaps the client buys a vacation home in Texas.
  3. The client’s beneficiaries (adult children, for example) may move to a community property state. For example, your daughter marries an Arizonian and they both move to Phoenix.

In all three cases, the distinction between community property and common law states needs to be carefully explained to the client. The estate plan may well need revisions, or even just an extra document or two.

Standing over yellow line in road- community property

Mob With Pitchforks Goes After Iowa Estate Planner

Ugly! Don’t let this happen to you. Seek an experienced estate planner, who knows the right questions to ask, and be sure to offer them as much information as you possibly can.

 Questions or Concerns About Community Property?

Do you have a vacation home in California? Did your son recently elope and the happy couple moved to New Mexico? It may be time to talk about community property and how it impacts YOUR estate plan. Always feel free to email me anytime at gordon@gordonfischerlawfirm.com. Or call my cell at 515-371-6077. I’d be happy to offer you a free one-hour consultation.

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Back to School: Latin Lesson on Gifts Causa Mortis

hourglass in sand
Here on the GFLF blog we talk a lot about the transfer of property made at the time of death through estate planning tools like a will, disposition of personal property document, or a trust. Everyone needs an estate plan to most effectively and seamlessly transfer real property (think land and real estate) and personal property (think jewelry, art, all of your “stuff”) to the people and charities you care most about. These are all called testamentary gifts. (Think “last will and testament” if that makes it easy to remember.)
As you probably know all too well, you can also make gifts to other people during your lifetime. These are called inter vivos gifts if you want to be lawyerly with it. This one’s easier to think about because you’ve been giving gifts for holidays, birthdays, weddings, and anniversaries regularly. You can also make gifts while living of cash, real estate, land, stocks/bonds, and other non-cash assets to charitable organizations.
One specific type of inter vivos gift doubles down on the Latin–it’s called a gift causa mortis. This type of gift is made by the donor while they’re alive in the event of impending death. Causa mortis in Latin translates to “because of death.” Sometimes this type of gift is referred to as a deathbed gift. The most common kind of gifts causa mortis tend to be small, valuable and/or meaningful gifts like a wedding ring.
To make this more salient, consider the scenario where Abe was in a severe accident and is aware that he is going to pass soon. Abe turns to his son Bob, who rushed him to the ER, and tells him that he wants him to have his watch. He takes it and gives it to his son Bob and then gets rushed into surgery. This is a simple example of a gift causa mortis.
Now, with out amateur Latin lesson complete, let’s dive into the elements of the rules related to gifts causa mortis.
woman blowing on a dandelion

Elements of Gifts Causa Mortis

A valid inter vivos gift involves:

  1. intent by the donor facing imminent to donate;
  2. delivery of the gift; and
  3. acceptance by the donor.

Delivery of the Gift

The gift must be delivered to the recipient. That’s easy if it’s something handheld like jewelry that you’re wearing, but what about anything that the donor doesn’t have on them personally? So long as the “delivery” is sufficiently symbolic, that will suffice if physical delivery at the time of the gifts is impractical.

woman giving white rose

Another Hypothetical

Let’s say a donor wanted to make a gift causa mortis of an antique piece of furniture to their niece. At the time the donor was residing in a hospice facility and very clearly toward the very end of her terminal illness. It would be impractical for the law to expect the dying donor to physical deliver the furniture to her niece. As long as the donor gave the niece a symbolic representation of the gift, such as writing out the details of the furniture’s location and details in the presence of a witness, it would likely be found valid upon the donor’s passing.

Another example that applies arose out of a case where a donor’s delivery was found to be valid where she signed the back of her car’s certificate of title to gift the automobile to her brother.

Can I Get a Witness?

To avoid post-mortem litigation by other heirs-at-law or the decedent’s estate’s executor, it’s preferable if the delivery of the gift is witnessed by a third party who can attest to the validity of the gift. Additionally, if there is an option for a piece of writing to be made out detailing the gifts and signed in the presence of a third party, that’s even better.

Revocable  & Conditional

Gifts causa mortis are revocable, which means that the donor (the gift giver) can revoke the gift at any time (while still alive). This revocation can be completed unilaterally, with only the donor. This is different than an inter-vivos gift, which when completed, is completely irrevocable.
person giving wedding bands
Gifts causa mortis are also conditional on the donor’s death, meaning the gift giver actually has to perish before the donee’s ownership is valid.
Taking it back to our story with Abe and his son Bob: if Abe gave his watch to Bob before surgery with the imminent expectation of dying soon, but ended up living through the surgery, the gift is no longer valid and automatically revoked. Of course, Abe could choose to make an inter-vivos gift to Bob if he decided to do so.
Additionally, if the recipient dies before the donor, then the gift is revoked and the beneficiary’s estate has no claim to the property.

Imminent Death

tombstone close-up
For a valid gift causa mortis, the donor has to die imminently…what constitutes “imminent death?” This has been debated in different cases. What’s clear is the gift giver doesn’t have to die immediately, like seconds after the gift is given. But, the donor must pass away from the danger or condition that was present at the giving of the gift. Plus, it doesn’t “count” if the donor has a fear that they might die at some vague point in the future.
Intervening Recovery
Additionally, there must be no intervening recovery between the gift and death.
Back to our hypothetical: let’s say Abe goes into surgery and survives from the injuries relating to his accident. At this point the gift of the watch is invalid. Abe may unfortunately go on and pass away from a different condition a few months later, but the previous gift causa mortis of the watch is not suddenly valid just because Abe eventually died.

What’s the Difference Between Gifts Causa Mortis and Testamentary Gifts?

Typically gifts causa mortis are informally made in the moment, are not planned to the same extent or formally written out like testamentary gifts. In the majority of states, gifts causa mortis are immediately transferred to the recipient’s ownership after death, whereas gifts made through a will or testamentary trust transfer ownership after the probate process is complete. Additionally, gifts causa mortis can only be made of personal property, not real property like your house or farmland.

How do Gifts Causa Mortis Fit into Taxes?

Similar to testamentary gifts, gifts causa mortis are taxed under federal estate tax law. The policy behind this is because the gifts aren’t complete until the donor’s passing. (Note well that the federal estate tax also applies to general inter vivos gifts made within three years of death. This means the value of such gifts is included in the estate in order to calculate the estate taxes.) It’s also worth noting that the federal estate tax applies to so few people now after the passage of the Tax Cuts and Jobs Act, so you don’t really to be concerned about this!
dying bouquet of flowers

Final Words on Gifts  Causa Mortis

Gifts Causa Mortis or not, there is no substitute for an airtight, updated estate plan. If you have such a plan in place, there’s no need to try and meet all the elements and intricacies of gifts causa mortis.

None of us know when our time will come, and we may not have the opportunity to give away our prized possessions via causa mortis right before death. But, we can know that estate plans never expire and can give you peace of mind that your property will be pass to the people you intend without legal contest (which can arise from gifts of causa mortis).

No questions are dumb questions when it comes to the complex world of property and estates. Don’t hesitate to contact GFLF or schedule a free consult to get your estate planning needs and goals in order.

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Legal Phrase of the Day: “Heirs at Law”

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Heirs at law on beach

Before I explain the concept of “heirs at law,” you might be thinking, why even bring this up? Of what relevance is this “Ye Olde Sounding Phraise” in today’s modern world?

It’s important for me to share the concept of “heirs at law” with you, dear GoFisch blog Reader, for three reasons.

  1. It helps explain why I, and other estate planners, ask so many darn questions. We need lots of info.
  2. The concept of “heirs at law” shows that you need to be open and honest and forthcoming with me, or any estate planner. Without complete transparency and truth, the estate plan runs the risk of being useless (the idea of “garbage in, garbage out” applies here).
  3. “Heirs at law” is yet another reason that a DIY will, or using an online service to produce your will, is just a terrible idea. You need an estate plan crafted by a trusted professional, unique to your special needs. Every family is different, so there can be no “one-size-fits-all” estate plan, and there are many moving parts to a comprehensive estate plan.

With that established, what does the term “heirs at law” actually mean?

Heirs at law are those folks who would inherit your property in the event you died without a will, which is called intestacy.1 It is critically important to determine who the heirs at law are, even for people not subject to the laws of intestacy (i.e., folks who have a will) for two big reasons.

  1. Heirs at law must be notified of the probate process.
  2. Heirs at law are allowed to challenge the will in probate court.

All in the (sometimes complicated) family

As I already stated, it’s a wise idea to work with your estate planner and provide all the information requested. As a practical matter, the extent of information you’ll need to provide your estate planner regarding heirs at law depends of the nature of your family and relatives. For instance, in the case of two people, married only to each other, with children only from that one marriage—then the spouse and children (and perhaps grandchildren) will be the obvious heirs at law.

In another example, a family could also constitute a remarriage with each spouse having children from previous relationships. In this case, the stepchildren would need to be adopted by the applicable stepparent to be considered an heir at law.

In other situations, the client relatives may be much more distant, requiring more fact investigation. For example, take the case of a client who is unmarried and without children. In such a situation, the estate planner will need to pay close attention to identifying other relatives.

The Importance of Discussing Your Estate with Your Family

Of course, with an estate plan you can bequeath your estate to whomever you choose. You don’t have to give anything to any of your obvious or non-obvious heirs at law or any other relative for that matter. (In colloquial terms we could call this “stiffing your relatives.”) Although with that said, you cannot choose to disinherit a spouse.

This point reiterates why the estate planner should know and have updated contact information of who are the heirs at law. Again, it’s required that heirs at law be notified of probate process and these heirs (unlike a non-relative work colleague or neighbor) also have the legal standing to contest the will in court.

Avoid the Worst Case Scenario: Litigation over an Estate Plan

Another reason the estate planner must have knowledge of the heirs at law is to ward off fraudulent claims if need be. This reason is particularly important if the heirs at law are distant relatives. (An unfortunate real-world example of this involves Prince and the complicated intestate process following the singer’s passing without an estate plan.)

Bottom line: heirs at law are important when it comes to the distribution of your estate (with or without a will). Of course, dying intestate is NOT optimal and you DO need a will for a number of important reasons. I’d love to discuss the topic over the phone (515-371-6077) or via email. Don’t hesitate to contact me at any time!

[1] Bonus word! If an Iowan dies without a valid will, they die “intestate” and the laws of “intestate” succession are used to determine who will inherit the estate.

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How Much Does an Estate Plan Cost in Iowa? Rates Should be Transparent!

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cash and checkbook

When estate planning you’re answering many of the unknowns for the future by deciding to whom you want your stuff—your cash assets, real estate, personal property, physical body, to name just a few—to pass to and when. You also have to consider some tough topics about your own mortality and imagine a future for your loved ones that doesn’t involve you in it. Estate planning also has a little bit of a learning curve—figuring out what strategies and documents you may need to help you meet your tax, financial, charitable giving, and estate goals and why. (Just one of the many reasons a qualified estate planner is a must.)

The one thing that shouldn’t be a mystery or an unknown cost is the cost of an estate plan. If you’re going to invest in a quality set of legal documents that never expire, tailored to your personal situation and intentions, you should know what you’re getting yourself into. Click the image below to see a cost breakdown by package. Rate Sheet Checklist

That’s why Gordon Fischer Law Firm is always transparent with estate planning package rates. You can find them at the end of my Estate Plan Questionnaire (the first of many important documents a part of your plan) and you can also find them on this (super shareable!) estate plan package rate sheet.

Don’t have an estate plan? Don’t let any questions about costs hold you back. Get in touch with Gordon at gordon@gordonfischerlawfirm.com or by phone at (515) 371-6077.

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(Legal) Word of the Day: Settlor (AKA Donor or Grantor)

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Settlor (or Donor or Grantor)

The person who creates a trust is called the settlor (sometimes called the donor or grantor). It is the settlor’s intent which is of paramount importance. It is the intent of the settlor that determines whether a trust has been created.

Here’s a great read with a rundown on the basics of what a trust is:

(Legal) Word of the Day: Trust

Intent Is Everything

If a settlor transfers property to a recipient with the intent that the recipient hold the property for someone else, then a trust has indeed been created. If the settlor transfers property with the intent that the recipient use the property for her own benefit, then NO trust has been created.

BONUS WORD! Precatory Trust

What if a settlor transfers property to a recipient with just a wish that the recipient use the property for the benefit of someone else, but does not impose any legal obligation? In such a situation, no legal trust is created. Instead, this is called a precatory trust, but is not a trust at all, because the settlor placed no legal responsibilities on the recipient. A precatory trust is, again, not a trust and is not governed by the law of trusts.

Three Easy Hypotheticals

  • Let’s look at three quick examples to make this clear. Mack gives stock to Julie. Mack intends that the stock be for Julie’s own use. Mack is NOT the settlor of a trust, because no trust has been created.

Stock market sheet

  • Grace gives a vacation house to Maddie, intending that Maddie hold the house for the benefit of Zach. Grace is the settlor of a trust. If a settlor transfers property to a recipient with the intent the recipient holds the property for the benefit of someone else, then a trust is created.

vacation home on lake

  • Thomas gives a coin collection to Parker, just wishing that Parker would hold the coins for Danna. This is a mere precatory trust, not a trust at all because the settlor is not imposing any legal responsibilities on the recipient.

coin collection

Questions? Let’s Talk.

When it comes to estate planning, I’m all about breaking down the legalese barriers. This hopefully clarified the definition of settlor, but you may have questions…which is great! Contact me to discuss further the status of your estate plan and decisions regarding your trust. Reach me by email at gordon@gordonfischerlawfirm.com or phone at 515-371-6077.

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