Friday, November 02, 2012

Iowa Spousal Elective Share - It is Official Now

In a ruling issued today by the Iowa Supreme Court, the Court ruled that a spouse can be cut out of an elective share by utilizing a non-probate transfer.  In the Myers case, the decedent had placed beneficiary designations on a checking account, CD and an annuity to her children and not her husband.  The trial court initially had ruled that those assets, despite the beneficiary designation, were still subject to the spousal elective share based on earlier court rulings.

However, on appeal, the Iowa Supreme Court determined that the statutory language of the spousal elective share provisions (Iowa Code § 633.238) specifically limits the elective share to ONLY the probate property.  Thus, payable on death (POD), transferable on death (TOD), or any other account that has beneficiaries listed upon death could be passed on to other beneficiaries and exclude the spouse.  In other words, if you want to disinherit your spouse, this is how you accomplish that result.

This ruling at least clears the issue in Iowa, for now, as there have been conflicting cases, including one I wrote about a few years ago.

An interesting fact that may have played a role in this case--or maybe not--was that the surviving spouse had assigned his elective share rights to a judgment creditor and it was the judgment creditor that was seeking to enforce the elective share rights.  If this was a destitute surviving spouse living on cat food and government support programs, would the court have made the same decision?  Probably will never know.  Sometimes bad facts create bad law.

Friday, September 07, 2012

Surviving Spouse Rights in Iowa Still Evolving

The rights of a surviving spouse (male or female) in Iowa are not exactly "clear cut".  When you have numerous methods on how property can pass at death (named beneficiary, joint ownership, will, trust, intestate) and sprinkle in second marriage situations with kids from an earlier relationship, you can create a minefield of problems.  I have written previously on a court's allowance of the disinheritance of a spouse in a December 2009 district court case.  In a different district court, another court has taken a different approach.

Betty Rich was the surviving spouse of William Rich.  William Rich had three daughters from a prior marriage and none from his marriage with Betty.  Mr. Rich's will & trust combo created the standard AB trust with the QTIP provisions.  (Another future blog post.)  Betty wasn't thrilled with what she was receiving under her husband's estate plan (or from the insurance policies) so she proceeded to opt for her elective share.  She sought to obtain her spousal share from IRAs, securities, annuities and the trust assets.  Mr. Rich's children responded by claiming that Betty had agreed to keep their assets separate.  However, the court responded that separate assets doesn't necessarily mean a waiver of their spousal rights.

What becomes interesting in the ruling is the assets that were given to Betty.  Mr. Rich owned some IRA's in which Betty was not the named beneficiary.  The court held that the IRA's were exempt property and as exempt property, the spousal elective share provides that ALL of the exempt property goes to the spouse.  As to the other personal property (checking account, CD, annuities and investment account) Betty was entitled to 1/3 of those assets.

There was also some life insurance where Mr. Rich's children were the named beneficiaries.  The court found, based upon some old Iowa law, that life insurance is excluded from the elective share.  (I do have some questions on that piece of the ruling based on recent Iowa cases.)

I take no position as to whether this was the right or wrong outcome.  However, it does reinforce the potential value of a prenuptial agreement and the benefit of allowing for postnuptial agreements.  Without either, some Iowa courts may be willing to provide broad application for spousal rights that may not result in the understanding of the parties.  But that's why we have lawyers, right?

Thursday, September 06, 2012

Iowa Will Contest Rejected by Iowa Court of Appeals

The Iowa Court of Appeals issued a ruling today affirming a ruling of an appeal in a will contest case.  The contestants to the will were basing their argument that the testator (decedent) lacked sufficient capacity to execute her will as she suffered from certain delusions as to certain family members/beneficiaries.  According to the ruling, certain medical evidence was properly excluded as the proposed evidence related to medical information after the execution of the will, and not during the time period the will was executed.  In other words, any evidence concerning the testator AFTER the signing of the will may not be relevant in determining capacity at the time of signing the will.  In this case, the testator was diagnosed with cancer after signing the will and was under medication for that treatment.  The contestants also objected to the jury instructions used in referring to the delusions.  The Court rejected the appeal and affirmed the findings of the jury.

The will contestants also made the claim that the testator was unduly influenced, but the jury didn't agree.  Not a lot of facts provided in this ruling as to the evidence that was presented.

Monday, July 02, 2012

Old Trust, New Trust? Iowa Trust Code Applies to All Trusts

Okay, let's assume person D had a will executed in 1980, then dies in 1987.  Will says 'all my assets in trust to my wife for her life, then to our 2 kids when she dies.'  Child #1 dies in 2002 and then wife dies in 2008.  Child #2 is alive, child #1 has a surviving widow and a surviving daughter.  Who receives the remaining assets at the death of the wife?  Is it: (a) daughter of child #1 (b) widow of child #1 (c) child #2 or (d) the attorney.

If you guessed (d), I like the way you think, but unfortunately you are wrong.  If you guessed (a), you are correct!!  Congratulations on your first star to being a junior lawyer.  The Iowa Court of Appeals affirmed this position in an opinion issued June 13, 2012.  (See the opinion here.)  One of the issues in this case involved the issue of whether the Iowa Trust Code, which became effective in 2000, applied to trusts that were in existence prior to that time.  (For example, a trust established in 1987.)  The Iowa Trust Code is pretty clear that it does, and it is a little more clearer now.

If you guessed (b), don't be too hard on yourself as that very well could have been the position prior to the Iowa Trust Code.

(In case you were wondering, I am related to the attorney that represented the successful party in this appellate is me.  So yes, I'm sort of tooting my horn.)

Sunday, February 26, 2012

Minors Inheriting Property in Iowa

My daughter Maggie
I recently have had a couple of situations where minor children are heirs of a parent that passed away.  As a result, the minor children are beneficiaries of their parent's estate.  However, in Iowa, it can be a challenge when a minor is inheriting money/assets.

Iowa law provides that if the amount of the inheritance is above $25,000, it is necessary that a conservatorship be opened for the minor.  A conservatorship, while beneficial in handling the assets for a minor that can't handle those assets, can be a challenge and potentially frustrating experience.  Some issues associated with a conservatorship:

  • Annual reporting requirements - each year (or occasionally other periods) a report is filed and review by the court for all income and expenses of the conservatorship.
  • Annual expenses - there are annual court costs and potentially attorney fees to handle those reports.
  • Bonding requirements - a conservator has to post an insurance bond before they can be appointed.  This can be difficult to get for many people.
  • Limitations - Want to change the investments? Need a special disbursement?  You'll have to go to court first.
  • "Handcuffs" off at 18 - When the child turns 18, all of the money is immediately theirs.  Buy a new car with 412 hp? (I love that car.) Purchase a ton of new clothes?  All are options as the child can do anything they want.  Not sure how many 18 year olds could handle that responsibly.
There are ways to avoid a conservatorship when a minor is a beneficiary, but it takes action and planning ahead of time...not from the grave.  
Get a will - and set up a trust for your kids.  

You avoid nearly all of the headaches with a conservatorship.  

Monday, February 13, 2012

Inheriting Iowa Farmland

With a recent ISU survey showing Iowa farmland values continuing to skyrocket, there is an increase in attention to dealing with the big values involved.

Some issues to keep in mind when your estate involves Iowa farmland:

  • "Death Taxes" - For 2012, the federal estate tax exemption amount is $5M, which excludes are large portion of the individuals dying in 2012.  However, for the larger estates, or estates with significant life insurance or retirement plans, there may be some issues.  Also, in less than a year, the exemption amount is scheduled to be reduced back to $1M.  With just a 150 acre farm, at average values, you potentially have estate tax exposure.
  • Disputes - Handling the farm if there is more than one child can be challenging.  What if there is one child that is involved in farming and one that isn't?  What if neither are involved?  What if the kids don't get along with each other? How will decisions be handled in the future when there are multiple owners?
  • Expenses - Probate fees and costs in handling your estate may be a substantial expense for some situations.  Plan for that contingency or consider alternatives.
  • Education - Discussion with family members about information in dealing with the farm can be critical.  Are there leases involved?  Where are the abstracts located? Why you formulated the estate plan that you did?

There are plenty of problems that are involved, and not always easy answers.  With careful planning with an experienced planner, you can hopefully alleviate many of the problems, or at least deal with them the best way possible.

Sunday, February 12, 2012

Time Period to Administer a Probate Estate in Iowa

Iowa law limits the time period in which to administer an estate of an Iowa decedent.  Iowa Code section 633.331.  If an estate is not opened up within 5 years after death of the decedent, it will not be able to opened up.  Iowa currently does not recognize any exception to this rule.

What does that mean? If there is a will and you wait more than 5 years after death before doing anything, you've waiting too long.  Good luck on the headaches of transferring any assets at that point.

This doesn't mean that you always have to probate an estate, but if there are any possible assets that may need to be distributed, don't wait.