Wednesday, October 15, 2008

Equitable Adoption Doctrine in Iowa Probate

People, for a variety of reasons, procrastinate on a variety of legal matters. A recent survey indicated that 55% of adult Americans do not have a will. Another legal issue that some individuals procrastinate on is adoption. If you place these two puzzle pieces together, you have the potential for an unfair picture.

For example, assume this scenario: H & W have a child together, C. Shortly thereafter, W dies and H remarries W2 while C is still a young child. Together, H & W2 raise C and treat C as their own child, even though W2 never formally adopts C as her own child. Later in life, H dies and all of his assets pass to W2 as joint assets. C continues to care for and treat W2 as their mother. W2 then passes away without having executed a will. Who inherits W2's estate? Or, more importantly, who should inherit?

Under the intestacy laws, C would not inherit from W2 as there is no legal status of a parent-child relationship as required to inherit under the intestacy laws. However, over the past 80-some years, the Iowa courts, as well as 26 other states, have considered and adopted a theory called "equitable adoption", sometimes called "adoption by estoppel" or "virtual adoption" or "constructive adoption". Basically, a good summary of the theory stated by the Missouri Court of Appeals in Gardner v. Hancock:
An adoption by estoppel is an equitable remedy to protect the interests of a person who was supposed to have been adopted as a child but whose adoptive parents failed to undertake the legal steps necessary to formally accomplish the adoption; the doctrine is applied in an intestate estate to give effect to the intent of the decedent to adopt and provide for the child.
In other words, the law won't punish a child for the mistake of the "parent" in failing to formally adopt the child through the legal system.

As the number of second marriages increase, in addition to "informal adoptions" and extended families as a result of cultural differences, as noted by Professor Higdon, and economic limitations, the argument of equitable adoption can be expected to increase in the court system.

Sunday, October 05, 2008

Compensation for Executor in Iowa Probate

In Iowa, the fee for the executor is set by the court and is based upon a state statute. Their fee is also based upon the size of the estate, as reported on the inventory filed with the probate court. Iowa Code section 633.197 provides that the personal representative (executor or administrator) fee shall not exceed $220.00 for the first $5,000 of probate assets, and then 2% on all assets over $5,000.00. All assets of the estate are included in the fee determination, with the exception of life insurance payable to others.

Any compensation received by a personal representative is taxable income to that individual. Thus, if a personal representative is a beneficiary, they may want to consider whether to waive their fee and thus increase their inheritance, which may be free of tax, or to take their compensation and pay income tax on that amount.