11 Common Myths About Wills – Do You Believe These Misconceptions?

Which of these myths and misconceptions about last wills do you believe?

Myth: I have a will, so my estate will not go through probate.

Truth: Having a will does not mean your estate avoids probate.

This myth likely persists because of a misunderstanding of what probate is. Probate is simply the process of settling an estate’s debts and transferring ownership of certain assets to the appropriate heirs. To that end, a last will actually helps guide the probate process by directing what should happen to assets that are subject to probate.

Learn more about probate in South Carolina here on our blog.

Myth: Only rich people need a will.

Truth: Wealth is not the only factor to consider when it comes to creating a will.

Distributing sums of money to various heirs is not the only function of a will. In a will you can also name a guardian to take care of your minor children, specify who should receive personal property like family heirlooms, and name a personal representative / executor to be in charge of managing and closing the estate.

Making your wishes clear in a last will can be especially helpful if you have a complex family situation like second or third marriages with stepchildren or strained relationships with would-be heirs. By recording your final wishes in a will, you can help avoid litigation and arguments between beneficiaries after your death and other ramifications of Family Malpractice™.

Myth: Only old people need a will.

Truth: You don’t know when you’ll need a will; death can come at any age.

It can be hard to face your own mortality, but that’s not a good reason to put off getting a will. No matter your age, you should have a will, especially if you have children or other dependents.

Myth: My family knows what my wishes are, so I don’t need a will.

Truth: Your family does not determine what happens to your estate after your death.

If you die without a will, aka intestate, your estate is subject to your state’s intestacy laws. It’s not up to your family members to direct where your assets go, even if they did want to honor your wishes. And in many cases, sadly, they don’t want to honor the decedent’s wishes. A valid will with valid stipulations is the only legally binding way to direct where your assets that are subject to probate will go.

Myth: I don’t need a will because my spouse has power of attorney.

Truth: Your spouse’s powers under a power of attorney cease upon your death.

A power of attorney (POA) becomes invalid upon the death of the principal. So even if you grant your spouse unlimited powers over your estate through a POA during your life, those powers disappear upon your death, and your spouse has no legal authority to direct where your assets go. You can either rely on a valid will to determine what happens to your estate after death or you can rely on your state’s intestacy laws. There is no third option.

Learn more about powers of attorney here on our blog.

Myth: I don’t need a will because my only real asset is my house.

Truth: Even more reason to have a will!

If you die without a will, intestacy laws apply. In South Carolina and many other states, that means half your estate goes to your spouse and half your estate is split among your children. This can create a few different nightmare scenarios for surviving family members, such as the creation of heirs property, or a disagreement between the spouse and kids on what to do with the house. Read more about intestacy in South Carolina and what can go wrong here on our blog.

Myth: If I die without a will, my spouse will get everything, which is what I want anyway.

Truth: Maybe, maybe not. Don’t just assume your spouse will get everything.

This depends on your situation and your state’s intestacy laws. Under intestacy laws in most states, if you have a spouse and no issue (descendants) at death, your entire estate will indeed go to your spouse. But in some states, your parents or siblings could be entitled to a share. And if you do have children or grandchildren, your estate will likely be split in some manner between them and your spouse.

Myth: If I die without a will, the government will get everything.

Truth: Your estate will go to your relatives, and only in the rarest of cases will it go to the state.

Different states have different intestacy laws, but all states pass the estate on to the heirs of the deceased. The estate will go to the government as a last resort only if no heirs, close or distant, are located. But this is rare.

For example, in South Carolina, the estate will go to the surviving spouse or be divided between the surviving spouse and issue (descendants); if none, then to surviving parent(s); if none, then to issue of a parent (i.e., siblings); if none, then to grandparents or issue of grandparents; if none, then to great-grandparents or their issue. If none, only then does the estate pass to the state (see South Carolina Code Section 62-2-105).

So you can see that it would be a rare situation in which a person’s estate would go to the government. In the vast majority of cases, some surviving heir(s) will be located first.

Myth: I am the personal representative/executor for someone’s estate, so I can do what I want.

Truth: Personal representatives/executors have well-defined responsibilities and limited powers.

Personal representatives/executors do not have carte blanche to do whatever they want. Their role is to carry out the wishes of the decedent as stated in the will and settle the estate. In that role, they have a legal duty to execute the terms of the will in accordance with state law and a fiduciary duty to act in the best interest of the estate and its beneficiaries. If they fail to uphold their legal and ethical obligations, they can be held personally responsible.

Read more about the rights, responsibilities, and risks of being a personal representative on our blog.

Myth: I have a trust, so I don’t need a will.

Truth: Even with a trust, you should consider getting a “pour-over will.”

A pour-over will is a specific kind of will that ensures any assets left out of your trust(s) at the time of your death will be transferred into the trust(s). It’s not uncommon for people to create elaborate estate plan to avoid probate and forget to include an asset in the trust, meaning in addition to the expense of the trust, the estate must go through probate anyway. Getting a pour-over will should be part of your estate plan if you are determined to avoid probate.

Read more about different types of wills.

Myth: I can make small changes to my will on my own.

Truth: Changes to your will must follow legal formalities under state law to be valid.

Changes to a will are valid only if they follow the same legal formalities as the original will, such as being signed in the presence of two disinterested witnesses. This means you can’t just strike out terms and write in new ones, even if the changes you want to make are small. Make changes to your will by adding a valid codicil or drafting a new will entirely.

Two exceptions: 1. You can make changes to a handwritten memorandum if it’s legal in your state and referred to in your original will. 2. You can make changes to a holographic will, which is a type of will entirely written in the testator’s hand without a witness or notary.

Myth: My old will must be destroyed for the new one to be valid.

Truth: A new, valid will automatically renders previous wills invalid.

There’s no legal requirement to destroy an old will to make a new one valid. While some people believe there’s value in keeping old wills, in our practice we make a point to destroy them by shredding whenever possible.

Get Help with Your Will and Estate Plan in South Carolina

Do you need help with a will or trust? Whether you need a simple and straightforward will or a comprehensive estate plan for a large or complex estate, Gem McDowell and his team at the Gem McDowell Law Group can help. Call to schedule a virtual or in-person consultation at the Myrtle Beach or Mt. Pleasant, SC office today at 843-284-1021.

Different Types of Wills and How to Choose the Best One for You

Did you know that there’s more than one type of last will and testament? Having a current, valid will is a vital part of avoiding Family Malpractice™ and ensuring your wishes are carried out after you’re gone. The right type for you depends on your individual and family circumstances. In this article, we’ll look at different types of wills and the circumstances each kind is best suited for.

Note: This list does not include a living will, aka health care proxy or advance health care directive. A living will records an individual’s wishes for medical and health care while they are alive but unable to make decisions about their own care. In contrast, a last will documents an individual’s wishes for how to dispose of their estate and only comes into effect upon their death.

Types of Formal Wills

A “formal will” is one that is written down and which the testator has signed in the presence of witnesses. There are several types of formal wills, including the following:

Simple will
Personalized will
Joint will
“I love you” will
“Brady Bunch” will
Pour-over will

Let’s look at each in turn.

What is a Simple Will?

A simple will is the most straightforward kind of will. It contains the essential parts of a will, including the declaration of the testator, nomination of a personal representative (aka executor), and instructions on distributions to beneficiaries. If you go the DIY route and get a fill-in-the-blanks will online or from a store, it’s likely a simple will without much flexibility to address unique circumstances.

A simple will is a good choice for: Individuals with no assets and no family.

Many people come to our law offices asking for a simple will, but that’s not what they need. A true “simple will” is exceedingly rare. That’s because the kind of person it’s ideal for – someone with no assets and no family – is unlikely to get a will in the first place.

A “simple will” is a misnomer because there’s nothing simple about it. Say you want to leave everything to your spouse, but what if your spouse predeceases you? What if you want to then leave everything to your minor children but you have no trust to hold their assets? How will assets be divided if you and your spouse have children from previous partnerships? Who should take guardianship of your minor children? And so on. Matters go from simple to complex quickly when considering matters of inheritance.

For most people, a standardized simple will doesn’t cut it; what they really need is a personalized will.

What is a Personalized Will?

There isn’t a standard term for a will that’s more complex than a simple will, so we will call it a personalized will, or a custom will. This is a will that’s drawn up by an attorney and is tailored to the individual to reflect their unique life circumstances, family dynamics, estate size and complexity, and wishes. While many people come into our offices asking for a simple will, what they really need is a personalized will.

A custom will can do more sophisticated estate planning than a simple will because it’s more flexible and tailored to you. For example, this kind of will might include testamentary trust provisions (to outline terms of a trust that may be established upon the testator’s death), employ strategies to protect assets and avoid unnecessary taxes, detail contingency planning for various scenarios, and much more.

A custom / complex / detailed will is a good choice for: Individuals with family, especially minor children or other dependents and/or larger or more complex estates and/or complicated family dynamics.

What is a Joint Will?

A joint will is one document containing the last wishes of multiple people. In practice, it’s most often used for couples, but theoretically three or more people could share a single joint will. These were much more common in the past but have now fallen out of favor.

A joint will is a good choice for: Nobody.

Here at the Gem McDowell Law Group, we do not draft joint wills, and we advise against them. That’s because they are inflexible; in South Carolina, after one spouse dies, the terms of the joint will cannot be changed. This means the surviving spouse must abide by the terms of the joint will, even if circumstances change through subsequent marriage, stepchildren, or other major life events.

Some states do allow for the revocation of a joint will after the death of a spouse. However, we still don’t recommend this type of will when there are better options available, such as the “I love you” will.

What is an “I Love You” Will?

An “I love you” will is a reciprocal will often used by spouses where the language is the same in each partner’s will except for the names being flipped. Each partner leaves their estate first to their spouse and then, if their spouse predeceases them, to their children. Couples who may have chosen a joint will in the past may choose an “I love you” will now, as it’s more flexible and allows a surviving spouse to change the terms of the will as needed.

An “I love you will” is a good choice for: Married couples with no children or with shared children (i.e., no stepchildren) who are on the same page and who trust each other. Read more about whether an “I love you” will is right for you here.

What about couples on second or subsequent marriages with children from previous partners? We find that an “I love you” will doesn’t adequately address the needs of blended families, but a “Brady Bunch” will does.

What is a “Brady Bunch” Will?

This is not a common term but one we use in our practice to describe wills that can best handle the needs of blended families which includes children from previous relationships. This is where issues of inheritance can become complex. For example, does each partner leave an equal share to all the children, or a larger share to their biological children? Does each partner leave their full estate to the surviving spouse, or divide it between their spouse and children? These are the types of issues that need to be discussed first, preferably with an attorney who has experience creating estate plans for blended families.

A “Brady Bunch” will is a good choice for: Married couples where one or both spouses has children from a previous marriage or partnership.

What is a Pour-Over Will?

A pour-over will is a particular type of will that directs all the testator’s assets to “pour over” into a previously established trust. Unlike the other kinds of wills discussed so far, this kind of will is not used on its own, but as part of a larger estate plan usually created to avoid probate.

A pour-over will is a good choice for: Someone with a large or complex estate who wants to avoid probate. It’s essential to work with an experienced estate planning attorney to ensure the pour-over will and existing trusts work together.

Other Kinds of Wills

The two types of wills here – holographic and nuncupative, or oral – are rare. They’re included on this list because you may have heard these terms and wonder what they mean, but we do not recommend depending on these types of wills for your estate plan.

What is a Holographic Will?

From the Greek words “holos” meaning “whole” and “graphos” meaning “written,” a “holographic” will is one that is wholly written and signed by the testator in their own hand without any witness or notary. The absence of any witness or notary is what differentiates a holographic will from a handwritten will, which is any will written in the testator’s hand.

The validity of holographic wills varies greatly by state. Only a handful of U.S. states permit holographic wills for anyone, while some states allow them only for certain individuals in certain circumstances, such as members of the Armed Forces. Some states, including South Carolina, don’t recognize holographic wills.

A holographic will is a good choice for: Nobody.

A holographic will is never a “good” choice, as they are difficult to validate and are more likely to be contested in court. However, it might be the last and only resort for someone in exigent circumstances, such as a soldier on the battlefield facing possible death.

What is a Nuncupative Will, aka Oral Will?

A nuncupative will (from the Latin “nuncupare” meaning “to declare”), or oral will, is one that is not written down but instead is spoken in the presence of witnesses. It is very rare and only allowed by some states and in some circumstances. For instance, some states allow nuncupative wills if the testator is a military member in armed conflict or if the testator is on their deathbed, and only for personal property.

A nuncupative will is a good choice for: Nobody.

As with a holographic will, an oral will or nuncupative will should be a last resort as it’s hard to enforce and much more likely to lead to confusion and litigation than a formal will.

Get a Will That’s Right for YOU and Your Circumstances

A last will is arguably the single most important estate planning document you can have. It’s the best way to ensure your wishes regarding your estate and your dependents are carried out after your death – but only if it’s tailored to your family’s needs and your unique circumstances.

For help creating or revising your South Carolina will, call estate planning attorney Gem McDowell at the Gem McDowell Law Group. Gem and his team will create a will just for you, whether you need a straightforward simple will or a highly customized will that addresses complex estate questions and complicated family dynamics. They can also help you with other estate planning documents like living wills, powers of attorney, trusts, and more, for a comprehensive estate plan that reflects your wishes.

Schedule your appointment or free consultation at the Myrtle Beach or Mount Pleasant, SC office by calling 843-284-1021 today.

What Is an “I Love You” Will and Is It Right for Me?

An “I love you” will is a common type of last will used by spouses. It’s a reciprocal will where the language is exactly the same in each spouse’s will, except that the names are flipped.

In a typical “I love you” will, each spouse leaves their entire estate to the other, then, if their spouse predeceases them, to their children. If both spouses die at the same time, their estate passes to their children.

This type of will is a simple and straightforward way to help avoid Family Malpractice™ and direct how the family’s estate should be handled after the death of one or both spouses. It’s a great choice for many families but not all. There are some important considerations, including how much you and your spouse trust each other.

Here’s what to know.

An “I Love You” Will is Not the Same as a Joint Will

While both types of wills are most often used by spouses or couples, there are some important differences between the two.

First, a joint will is one single document shared by two people. More importantly, a joint will is very restrictive. If one spouse dies, the surviving spouse is bound by the terms of the will and cannot change them, even after major life events like remarriage. (Some states allow for a joint will to be revoked, but the process can be difficult.)

In contrast, each spouse has their own distinct will with an “I love you” will. This is important, because it means an “I love you” will is much more flexible. A surviving spouse may keep the will as is (which would then leave the estate to the children), amend it, or replace it with a new will entirely.

At our law office, we don’t draw up joint wills and we don’t recommend them for anyone. An “I love you” will is the better choice between the two, providing more flexibility for the future.

However, it’s not right for everyone.

An “I Love You” Will Might Be Right for You If…

This type of will might be right for your family if you and your spouse:

Have no children or only shared children (i.e., no stepchildren)
Are on the same page about how your assets should be handled after death
Trust each other

An “I Love You” Will Might Not Be Right for You If…

This type of will might not be a good choice for your family if you and/or your spouse:

Have children from a previous relationship (where a “Brady Bunch” will for blended families is a better choice)
Don’t agree on how assets should be handled after death
Have large amounts of debt
Have an addiction or overspending problem
Are in a situation that could put the assets at risk
Don’t trust each other

Trust is Key with an “I Love You” Will: Issues to Consider

On this last point, it can be difficult to face the reality that you don’t fully trust your spouse to make good choices regarding your estate after your death. But it’s worth thinking about what could happen.

For example, one client had us write up her will, but she didn’t leave her entire estate to her husband without restrictions. She suspected he might start dating after she died and give away some assets to his new girlfriend – and that’s exactly what he tried to do. Knowing him, she had used her will to protect some assets and keep them in the family. She used a certain type of trust to essentially “handcuff” him, allowing access during his life to some of her assets while preserving the rest for the children.

Another point to consider: An individual has the right to change their “I love you” will while both spouses are still alive. This could lead to an uneven situation where one spouse leaves everything to the surviving spouse in the will, but the other spouse doesn’t. The individual changing their will has an ethical obligation but no legal obligation to inform their spouse of the changes.

Finally, you must also trust that your spouse will not spend or squander the assets and leave nothing for your children, if that’s important to you. If your spouse has issues with addiction, gambling, or overspending, leaving them all your assets could not only be detrimental to your children, but to your spouse as well.

Maybe your spouse doesn’t have an addiction or spending problem but has a lot of debt or suffers from a serious medical condition that’s expensive to treat or is in a profession (like doctor) that’s likely to be sued. These are scenarios where the estate’s assets could be at risk of being spent with nothing remaining to leave to the children.

Ask yourself:

How would you feel if your spouse remarried or dated after your death and gave your assets away to a new partner or child(ren)?

How would you feel if you found out your spouse had changed their will without telling you, and your wills were no longer reciprocal?

How would you feel if your spouse spent everything on addiction, shopping, or debts, leaving nothing for your children?

There is no right or wrong answer to any of these questions. But you and your spouse should seriously consider them before deciding to move forward with an “I love you” will.

Do You Have the Right Will for Your Family?

You can see how the apparently straightforward “I love you” will can quickly become complex. This is where it’s helpful to work with an experienced estate planning attorney who can bring up potential issues and scenarios you might have never thought of. An “I love you” will is just one type of will, and maybe a different kind of will is a better choice for your family. An experienced estate planning attorney can help you figure it out.

Whether you’re getting a will for the first time, updating an old one, or simply want to review an existing one to ensure it still aligns with your priorities, we can help. Gem and his team at the Gem McDowell Law Group help individuals and families across South Carolina create wills and comprehensive estate plans that reflect each family’s unique circumstances and wishes while avoiding Family Malpractice. Schedule your appointment or free consultation at the Myrtle Beach or Mount Pleasant, SC office by calling 843-284-1021 today.

What a Will Can and Can’t Do

A last will is an important and powerful estate planning document. However, there are many things you cannot legally do through a will. Before drawing up your own will, you should know what a will can and can’t do so you can ensure your intentions are carried out.

Note that laws regarding wills vary from state to state. Speak with an estate planning attorney in your state if you have specific questions about what is and is not allowed under the law in your state.

A will can: Direct where assets subject to probate should go.

A will can direct where assets subject to probate go. Probate is the court-supervised process that settles the estate’s debts and taxes and transfers the remaining assets to the appropriate beneficiaries. Common assets subject to probate include:

Real property solely owned or owned as tenants in common
Bank and investment accounts without a beneficiary
Personal property like cars, clothes, and furniture

Learn more about probate in South Carolina here on our blog.

**A will cannot: Direct where assets not subject to probate should go.**

A will cannot disburse assets that are not subject to probate, such as:

Real property owned as joint tenants with rights of survivorship
Payable on Death (POD) or Transfer on Death (TOD) accounts
401Ks, IRAs, and other retirement and pension accounts with a named beneficiary
Life insurance proceeds from a policy with a named beneficiary
Assets in irrevocable trusts and revocable living trusts

These assets are not subject to probate and go directly to the listed beneficiary or co-owner (in the case of assets owned jointly), bypassing probate altogether. Only if the assets are unable to go to the beneficiary or co-owner – if, for example, they predeceased you – would they end up going through probate.

A will can: Disinherit a blood relative.

A testator has the right to disinherit an adult child, sibling, parent, or any other blood relative in their will. (Whether an individual can legally disinherit a minor child depends on state law.)

A will cannot: Disinherit a spouse.

Spouses are protected under the law and are entitled to a portion of the deceased spouse’s estate after death, regardless of the provisions in the will. The only way to disinherit a spouse is to get their knowing consent in writing, and that must happen separately from the will.

In community property states, the surviving spouse is automatically entitled to the “community property share,” which is one half of the assets acquired during the marriage. Couples in these states may use a prenuptial agreement or postnuptial agreement to waive the surviving spouse’s right to the community property share.

Other states have something called “elective share,” a portion of the deceased spouse’s estate that the surviving spouse is entitled to under the law. This amount varies by state; in South Carolina, it’s one third. The only way to legally disinherit a spouse is for both spouses to sign a waiver of elective share. Read more about how to disinherit a spouse in South Carolina with a waiver of elective share here on our blog.

A will can: Put reasonable conditions on inheritance.

A testator is allowed to put legal, reasonable conditions on inheritance. For instance, a testator may say that their daughter will inherit the lake house when she turns 25 or that their nephew will inherit $50,000 if he earns a college degree by 30.

A will cannot: Put invalid conditions on inheritance.

A testator cannot make inheritance conditional on things that are illegal or that violate public policy. For instance, stipulating that a son will inherit his portion of the estate only if he marries someone of the same race or that a daughter will inherit $100,000 if she divorces her current husband will likely not be honored.

This is case-dependent and varies by state, so if you are considering including questionable stipulations in your will, discuss it first with an experienced estate planning attorney in your state.

A will can: Name individuals to certain roles.

The testator can name the people you’d like to be your personal representative / executor, guardian(s), and trustee(s). Naming people who are fit for the job and who have already agreed to take it on can save time in the probate process.

A will cannot: Obligate individuals to take certain roles.

An individual named in the will is not legally obligate to take on the role and may decline it. In that case, the probate judge will appoint someone else.

For this reason, it’s wise to talk with the individuals you choose to make sure they agree to take on the role and to include a back-up, just in case.

A will can: Help avoid Family Malpractice™.

Family Malpractice™ is a term we use for an individual whose actions or negligence have put their family in a bad legal situation. Most often, this happens as a result of not doing something that should have been done, such as not having a valid will drawn up. Dying without a will is one of the main causes of Family Malpractice™, as it can cause financial hardships, legal challenges, and family rifts for those left behind.

Getting a will is not just about carrying out your wishes after you’re gone, but about protecting your family and their future, too.

Get Help with Your Will and Estate Plan

Do you have a last will in place or are you relying on the government to decide where your assets should go after your death? If you live in South Carolina and you’re looking for help creating or updating a will, call estate planning attorney Gem McDowell. Gem and his team at the Gem McDowell Law Group help individuals and couples in South Carolina create wills and estate plans tailored to their circumstances and needs. Call 843-284-1021 to schedule an appointment or a consultation at the Myrtle Beach or Mount Pleasant, SC office today.

What Is a Will?

A last will and testament is arguably the single most important estate planning document you can have. Not having a valid, up-to-date will is a leading cause of Family Malpractice™ and can create legal, financial, and even personal problems for your heirs. If you’re an adult, you should have a last will, even if it’s a simple one.

But let’s start at the beginning:

What is a will?

A will is a legally binding document that directs what should happen to a person’s estate after death.

A last will is a legal instrument in which someone – the testator (or, sometimes, testatrix for a woman) – specifies what should happen to their estate and dependents after they die. In the United States, a will is subject to state laws, which vary somewhat from state to state.

A last will is entirely different from a living will (aka, advance directive or advance healthcare directive), which is a legal instrument outlining wishes for end-of-life care or care after incapacity. In contrast, a last will only comes into effect upon the death of the testator.

There are different types of wills, including simple wills, “I love you” wills, pour-over wills, and more. Read more about the Different Types of Wills and how to choose the best kind for you and your circumstances on our blog.

What can a will do?

A valid, up-to-date will can ensure that your intentions for what happens to your estate and your dependents after your death are known and honored.

By making your wishes clear, you can help prevent litigation, legal quagmires, and fractured relationships that can result when someone dies either without a will (this is called dying intestate) or with an invalid, unclear, or out-of-date will.

A will allows the testator to:

Direct how and where certain assets in the estate will go.

A will only directs how to handle the testator’s assets that are subject to probate, the court-supervised process of paying debts and taxes and transferring ownership of remaining assets after a person’s death. Learn more about probate in South Carolina here on our blog.

Assets subject to probate include bank accounts without a named beneficiary, real estate not owned jointly with rights of survivorship, and personal property. Assets not subject to probate include life insurance proceeds, retirement accounts, and assets held jointly, such as real property owned as a joint tenancy with rights of survivorship. These assets bypass the probate process and go directly to the named beneficiary or co-owner.

If someone dies without a will, aka dies intestate, then state statute determines what happens to their assets and children/dependents. A valid last will is the best way for you – not the government – to direct what happens to your estate after you die. Read more about dying intestate in SC here.

Make arrangements for care of dependents.

The testator can name a guardian to take on legal responsibility for any minor children or other dependents (such as an adult child who needs lifelong care). The testator may also make provisions to create a trust for minor children or dependents and name a separate trustee to manage and oversee the trust’s assets.

Name a personal representative.

The testator can name a personal representative, aka an executor (or sometimes executrix, for a woman), to carry out the intentions of the will and close the estate.

And…

Depending on the testator’s unique circumstances, a will can also be used to:

Create one or more trusts to hold assets for beneficiaries
Make donations to charitable organizations
Make arrangements for care of pets
Make final wishes for funeral/cremation/celebration of life known

On this last point, we don’t believe a last will is the ideal place to include final wishes. For one, a decedent’s will may not be located and read for several days or weeks after death, by which time it’s too late. Also, last wishes may not be legally binding. If being cremated is important to you, read about legally binding pre-authorization forms for cremation in South Carolina.

A last will has several other limitations as well. Read more about What a Will Can and Can’t Do on our blog.

Parts of a will

A will can and should be tailored to an individual’s circumstances. It may end up being simple and straightforward or long and complex, depending on the nature of the testator’s estate, wishes, and family circumstances. However, most wills typically contain the following basic sections:

Declaration of the testator. The testator gives his or her name and personal information (city and state of residence, marital status, and children), states that he or she has testamentary capacity, and states that the document that follows is intended to be his or her last will. Testamentary capacity is the legal threshold of cognitive ability the testator must meet in order to execute a valid will. This is where the phrase “being of sound mind” may occur.

Naming a personal representative / executor (executrix). The testator names someone to carry out the intentions of the will and close the estate. (Read more about the rights and roles of the personal representative in SC here on our blog.)

Settling debts and taxes. The testator directs how debts and taxes should be paid and may specify from which account or source.

Bequests/Gifts and distribution of assets. The testator lists exactly which assets should go to which beneficiary. The gifts may be specific (such as a particular diamond necklace or piece of real property) or general (such as $20,000). The testator may also specify which sources should be used, e.g., “$20,000 from my [XYZ] Bank savings account.” Alternatively, the testator may choose to divide the estate among heirs by percentages.

Note that in some states, a written memorandum can be used to bequeath personal property to beneficiaries; read more about the written memorandum below.

Appointing a guardian for children and dependents. If the testator has minor children or other dependents, he or she should name a guardian to take on legal responsibility for their care and a back-up guardian.

Signatures. The testator signs the will, often in the presence of two witnesses, though the exact requirements vary by state. Failure to follow state law here can result in the will being invalid.

Depending on an individual’s circumstances, the will may also contain sections on trusts and trustees, guardians for surviving pets, special requests for funeral or memorial services, and more.

Supplemental Parts of a Will

A testator may wish to make changes to the will sometime in the future. Having an entirely new will drawn up is one way to make changes. Alternatively, the testator may use a codicil or a written memorandum to document the changes. Here’s how these two supplementary parts of a will work and how they’re different:

Codicil. A codicil is a separate document that allows the testator to make changes to the will without drafting an entirely new will. It must be executed in the same manner as the original will (e.g., with two witness signatures) in order to be valid.

Written memorandum or personal property memorandum. Some states, including South Carolina, allow for a separate document in which the testator can bequeath personal items like family heirlooms or coin collections. A written memorandum cannot be used to distribute real property, cash, or securities like stocks and bonds. The written memorandum should be referred to in the will.

Get Help with Your Will and Estate Plan

Do you have an up-to-date last will? Having a current and valid last will is key to doing right by your family and avoiding Family Malpractice™.

If you live in South Carolina and you need to update your will or have one drawn up for the first time, contact estate planning attorney Gem McDowell of the Gem McDowell Law Group. He and his team can help you create a last will and comprehensive estate plan tailored to your circumstances, wishes, and needs.

Call to schedule an appointment or consultation at the Myrtle Beach or Mount Pleasant, SC office today at 843-284-1021.

Mortgage Due-on-Sale Clauses: What Homeowners Need to Know About Garn-St. Germain

Due-on-sale clauses are common in mortgages. A due-on-sale clause allows a lender to demand payment in full on the balance of the loan when the mortgaged property is sold, transferred, or otherwise affected. Fortunately for everyday homeowners, there are exceptions to when a due-on-sale clause can be enforced, thanks to what’s known as the Garn-St. Germain Act.

The Garn-St. Germain Depository Act of 1982 mainly addressed deregulation of savings and loans institutions and took other measures to modernize the financial sector. But it also provided protection for homeowners by forbidding lenders from requiring payment in full in many common circumstances, such as:

Inheritance by a relative
Transfer to a spouse or child
Divorce or legal separation
Taking out a second mortgage or similar loan
Renting out the property

If you own interest in a property subject to a mortgage, you should know about due-on-sales clauses and when they can and cannot be enforced. Read on for more specifics on the exceptions listed above and others.

When Mortgage Due-on-Sale Clauses Cannot Be Enforced

The exceptions listed in the Garn-St. Germain Act apply to “residential real property containing less than five dwelling units, including a lien on the stock allocated to a dwelling unit in a cooperative housing corporation, or on a residential manufactured home […]” (*Find 12 U.S. Code section 1701j-3(d) copied in full at the bottom of this post or online here [PDF].)

Situations in which a mortgage’s due-on-sale clause cannot be enforced under the Garn-St. Germain Act:

Transfer of the interest in a property to a family member upon death of the borrower. This is a common situation, as property is often inherited by a spouse, child, or other relative either through a will or other estate planning document or via intestacy laws (i.e., when there is no will). Heirs do not have to worry about satisfying a due-on-sales clause in this case.

Transfer to the surviving joint tenant(s) in a joint tenancy upon the death of the borrower. This situation is common among married and partnered couples in South Carolina who own property as joint tenants with rights of survivorship. When one dies, the property is then wholly owned by the surviving spouse or partner. Lenders cannot enforce a due-on-sales clause when this transfer happens “by devise, descent, or operation of law” – that is, through a will, intestacy laws, or automatically by law.

Note that the statute includes a type of tenant that South Carolina does not recognize, “tenant by the entirety.” Read more about tenancy types in SC on our blog here.

Transfer to a spouse or child. You can transfer your interest in the property to a spouse or child while still alive without having to worry about the due-on-sale clause being enforced.

Transfer to the borrower’s spouse upon divorce or legal separation. If you transfer your interest in the property to your (soon-to-be) ex as the result of the dissolution of marriage, legal separation agreement, or incidental property settlement agreement, the due-on-sale clause cannot be enforced.

Taking out certain loans secured by the property. You can take out a loan that’s subordinate to the primary mortgage without triggering the due-on-sale clause as long as it doesn’t relate to a transfer of rights of occupancy. This includes a second mortgage, a HELOC, or other similar lien or encumbrance.

Renting out the property for no more than a three-year term without the option to purchase. A renter may live in the property for more than three years but should not sign a single lease with a term longer than three years or the lender may be allowed to enforce the due-on-sale clause. Additionally, including an option to buy on a lease of any length means the due-on-sale clause may be enforceable.

Transfer into an inter vivos trust where the borrower remains a beneficiary and the rights of occupancy stay the same. A transfer into an inter vivos trust (also called a living trust) is protected from triggering the due-on-sale clause as long as you are and remain a beneficiary of the trust and occupancy rights don’t change.

Financing household appliances with a purchase money security interest. Getting financing for expensive household appliances through a store’s financing program is often done through a purchase money security interest (PMSI). This specific exception in the Garn-St. Germain Act stops lenders from enforcing due-on-sale clauses when a PMSI is created for household appliances.

In addition to the eight circumstances listed above, due-on-sale clauses are also barred from being enforced upon “any other transfer or disposition described in regulations prescribed by the Federal Home Loan Bank Board.”

When Mortgage Due-on-Sale Clauses CAN Be Enforced

We just went over the circumstances in which a lender cannot enforce a mortgage’s due-on-sale clause. But there are still many common situations in which the due-on-sale clause could be enforced, depending on your mortgage’s terms, which you should be aware of. Just some examples include:

Inheritance of your interest in the property upon your death by a non-relative beneficiary, including a long-term girlfriend/boyfriend
Transfer during your life to someone other than a spouse or child, such as a parent, sibling, or girlfriend/boyfriend
Transfer into a trust, except under the specific circumstances described above
Renting out the property with a lease that lasts longer than three years and/or provides an option to buy

This list is not exhaustive. If in doubt, speak to your mortgage lender and to an attorney about your situation.

What happens if the due-on-sale clause is enforced? In the worst-case scenario, the lender can begin foreclosure proceedings on the house if the borrower can’t pay. More likely, the new owner(s) can take out a new mortgage that will satisfy the old mortgage. Still, this may not be ideal, especially at times when interest rates are high.

Estate Planning, Problem Solving, and More – Call Gem McDowell

Many people do not read mortgage documents thoroughly before signing, so it can come as an unwelcome surprise to have the mortgage lender demand payment in full on the loan citing a due-on-sale clause. That’s why it’s important to know about the due-on-sale clause and when it can and can’t be enforced.

Smart estate planning can help you avoid unwelcome surprises, save your family headaches, and carry out your wishes now and after you’re gone. For help with wills, trusts, powers of attorney, and more, call estate planning attorney Gem McDowell. He and his team help individuals and families in South Carolina create up-to-date estate plans for smart planning and peace of mind. Schedule your free consultation or appointment at the Myrtle Beach or Mt. Pleasant, SC office by calling 843-284-1021 today.

*****

*Text from the Garn-St. Germain Depository Act of 1982, 12 U.S. Code Section 1701j-3 https://www.govinfo.gov/content/pkg/USCODE-2011-title12/pdf/USCODE-2011-title12-chap13-sec1701j-3.pdf, subsection (d):

(d) Exemption of specified transfers or dispositions

With respect to a real property loan secured by a lien on residential real property containing less than five dwelling units, including a lien on the stock allocated to a dwelling unit in a cooperative housing corporation, or on a residential manufactured home, a lender may not exercise its option pursuant to a due-on-sale clause upon—

(1) the creation of a lien or other encumbrance subordinate to the lender’s security instrument which does not relate to a transfer of rights of occupancy in the property;

(2) the creation of a purchase money security interest for household appliances;

(3) a transfer by devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety;

(4) the granting of a leasehold interest of three years or less not containing an option to purchase;

(5) a transfer to a relative resulting from the death of a borrower;

(6) a transfer where the spouse or children of the borrower become an owner of the property;

(7) a transfer resulting from a decree of a dissolution of marriage, legal separation agreement, or from an incidental property settlement agreement, by which the spouse of the borrower becomes an owner of the property;

(8) a transfer into an inter vivos trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property; or

(9) any other transfer or disposition described in regulations prescribed by the Federal Home Loan Bank Board.

The Omitted Spouse: When the Spouse is Left Out of the Will

What happens if you leave your spouse out of your will? Or your spouse leaves you out of his or her will?

This happens more often than you think. Many couples get married after one or both partners already executed a last will, meaning the new spouse has been unintentionally left out.

But that doesn’t mean the surviving spouse receives nothing. The law provides for the omitted spouse so that he or she is not unintentionally disinherited.

What the Omitted Spouse is Entitled To

Under South Carolina Code section 62-2-301, an omitted spouse is entitled to the same share of the testator’s estate that would have been received had the testator died without a will.

South Carolina intestacy laws determine the share of inheritance in such cases. If the testator dies with no children, the spouse inherits everything (i.e., all the assets subject to probate). If the testator dies with a spouse and children, the surviving spouse is entitled to 50% of the estate. The remaining 50% is divided according to the terms of the will.

The omitted spouse does not automatically receive the assets but must claim his or her share within a certain time frame.

When the Omitted Spouse Provision Does Not Apply – Spousal Elective Share

The purpose of the omitted spouse is to provide for a spouse left out of the will unintentionally.

But what if the spouse was left out of the will intentionally?

Under the same law cited above, if it appears that the omission was intentional or if the testator provided for the spouse through transfers outside of the will, then the omitted spouse provision does not apply.

The surviving spouse may still make a claim for elective share, however. A surviving spouse is entitled to one third of the testator’s probate estate in South Carolina even if the testator intentionally left the spouse out of the will. That’s because the only way to legally disinherit a spouse in South Carolina is to have both partners knowingly sign a waiver of elective share. (Read more about disinheriting a spouse and spousal elective share here on our blog.)

The Solution: An Intentional and Current Estate Plan

Laws regarding omitted spouses and elective share have helped many people who would otherwise have been disinherited. But having a purposeful, up-to-date will and estate plan is better than relying on the law to carry out your wishes.

For help with last wills, trusts, powers of attorney, and other estate planning documents, call estate planning attorney at the Gem McDowell Law Group. Gem and his team help individuals and families in South Carolina create estate plans that take into account unique circumstances, carry out personal wishes, and give peace of mind.

Whether you’ve never had an estate plan drawn up before or your existing plan is in need of a review, Gem and his team can help. Call today to schedule a free consultation virtually or at the Myrtle Beach or Mt. Pleasant, SC, at 843-284-1021.

I Want to Be Cremated; Does My Family Have to Follow My Wishes?

The short answer is “Yes, IF…”

Yes, If You Complete a Pre-Need Cremation Authorization Form

South Carolina law (Chapter 8 Title 32) provides that an individual may pre-authorize their own cremation. This pre-authorization is a legally binding agreement between the individual and his or her chosen crematory that gives the crematory permission to cremate the individual’s remains.

You can download the PDF of this form here or find it on the South Carolina Labor Licensing Regulation website here (scroll down to the “Forms” section, click on “Cremation Forms,” and select “Cremation Authorization – Pre-Need”).

This form must be signed in ink by the individual requesting cremation services in the presence of two witnesses. It remains enforceable unless and until the individual provides written notice to the funeral establishment and the crematory.

Are Cremation Wishes in a Last Will Legally Binding?

No. Many people choose to include their last wishes relating to funeral arrangements, burials, cremation, and so on, in their last will, but they are not legally binding. If you live in South Carolina and your wish is to be cremated, you should consider filling out the pre-need cremation authorization form linked above.

Get Help with Estate Planning in South Carolina

What will happen to your assets and your remains when you die? Decide for yourself by creating an up-to-date estate plan to help ensure your last wishes are known and followed after you’re gone.

For help with last wills, living wills, trusts, powers of attorney, and more, call Gem McDowell at the Gem McDowell Law Group in Myrtle Beach and Mt. Pleasant, SC. Gem and his team help individuals and families in South Carolina review and create comprehensive estate plans for peace of mind. Call 843-284-1021 today to schedule a free consultation or get in touch through this form.

What is a Trust Protector and When Do You Need a Trust Protector?

If you know anything about trusts, you have likely heard of the roles of settlor (aka grantor), beneficiary, and trustee. But there’s another role to know about: the trust protector.

Let’s look at what a trust protector is, who can be a trust protector, and the advantages and disadvantages of appointing one for your trust.

What is a Trust Protector and What Does a Trust Protector Do?

A trust protector, or simply “protector,” is an individual or entity whose primary role is to ensure the trust is being carried out in accordance with the settlor’s original wishes. Trust protectors were most commonly seen in asset-protecting offshore trusts in the 1980s and 1990s, but they have since become more popular for all kinds of trusts in the U.S. and many other nations.

What does a trust protector protect against? Depending on the circumstances, the trust protector may protect the trust from various threats or risks including trustee misconduct, mismanagement, or incapacity; disputes among beneficiaries and/or trustee(s); changing laws that adversely affect the trust; ill-advised financial decisions; and more.

Common powers and responsibilities may allow a trust protector to:

Oversee trust administration to ensure it’s in compliance with applicable laws and with the settlor’s wishes
Require trustee to get trust protector’s consent before taking certain actions such as investing or distributing funds
Modify the trustee’s powers
Remove or replace trustees
Change the beneficiary or beneficiaries
Adjust as needed in response to changing circumstances

A trust protector may have all or some of the powers listed above, and more. The exact powers and responsibilities are enumerated either in the trust instrument itself or in a separate document.

Who Can Be a Trust Protector?

In theory, anyone of legal age who is mentally competent can be appointed trust protector, other than a trustee. Even the settlor/grantor may serve as the trust protector (and often does). Entities such as banks, law firms, and corporations may also serve as trust protectors.

In practice, it can be challenging to find the right individual or entity to effectively fill the role. The ideal candidate should have the right experience and knowledge, including knowing relevant state and federal laws, tax and reporting requirements, and the trustee’s powers and responsibilities, for a start. A trust protector should also be an impartial third party with no conflict of interest, meaning the individual or entity should not have any financial stake in the trust or how it’s handled.

Above all, a trust protector should be someone the settlor can rely on to carry out their wishes, which is why settlors often select a family friend or close acquaintance whom they trust implicitly.

Does Every Trust Need a Trust Protector? Advantages of Appointing a Trust Protector

No, not every trust needs one, but we strongly recommend a trust protector in the following situations:

A troubled beneficiary. If the beneficiary has issues with drugs, alcohol, or excessive spending, a trust protector – such as a family friend or counselor – can be helpful in finding the right trustee to handle the trust. The two can work together to ensure the trust is not misused.
Specific investments. A grantor may wish to appoint a trust protector to help direct the investment of trust assets in a particular “family way” that the trustee might not be familiar with.

Outside of these specific circumstances, here are just some of the main advantages of having a trust protector that any trust can benefit from:

Flexibility to respond to changing circumstances. Changes in family/beneficiary situations, tax code, and estate planning laws can adversely affect a trust. Trust protectors have powers trustees don’t (and legally cannot) have that allow them to alter the trust in response to new circumstances. This can reduce tax liabilities and ensure the trust reflects the settlor’s wishes long after the settlor is gone.

Oversight over the trustee. Trust protectors can also serve as an additional layer of protection against mismanagement by the trustee(s). This is more important than ever, as the powers of trustees have grown over time. Oversight by a third party (the trust protector) can help prevent intentional or unintentional mishandling by the trustee(s) that can harm the beneficiaries’ interests and endanger the trust.

Conflict resolution. Trust protectors can also act as informal mediators when disputes arise. Beneficiaries may fight among themselves, and trustees and beneficiaries often have competing goals, which can lead to strife and litigation. (Read about how one such conflict ended up in the SC Court of Appeals here on our blog.) A skilled trust protector can step in at the first signs of conflict and resolve the matter amicably, potentially avoiding litigation and strained relationships.

Depending on your circumstances and goals, you may gain additional advantages by appointing a trust protector for your trust. This is something to speak with your estate planning attorney about.

What if you didn’t appoint a trust protector in the original trust document? That’s not a problem. A settlor can add a trust protector later.

Downsides of Having a Trust Protector

What are the risks and disadvantages of having a trust protector? Some possible downsides include:

Higher fees. Not all trust protectors are compensated for their role, but some are. Trust protectors who are fiduciaries (with a fiduciary duty to the beneficiary or beneficiaries) are typically compensated. Depending on the terms of the trust, having a trust protector can be expensive and can diminish the trust’s assets.

Potential for challenges. Trusts have been around for centuries, and by now the roles and responsibilities of the grantor/settlor, trustee, and beneficiary are clear. But the role of trust protector is relatively new, and relevant case law in South Carolina is sparse. The potential for lawsuits and legal challenges over a trust protector’s actions shouldn’t be ignored.

Needless complexity. A trust protector may end up bringing conflict, indecision, or poor judgment to the situation. This is why it’s crucial to take the time to select the right trust protector. No trust protector at all is better than an ineffective and incompetent one.

For Help with Trusts and Estate Planning, Call the Gem McDowell Law Group

Trusts are excellent instruments for estate planning, but they can be complex. For help creating or amending a trust, or for advice on appointing a trust protector for your trust, talk with Gem McDowell. Gem helps individuals and families in South Carolina create estate plans tailored to their unique circumstances and wishes. He’s also a problem solver who can help you tackle tricky family or inheritance situations and avoid mistakes.

Call Gem and his team at their Myrtle Beach or Mount Pleasant, SC office today to schedule your free, no-obligation consultation at (843) 284-1021, or reach out to us through this form.

Changing the Rules Mid-Game: What the Connelly v U.S. Decision Means for Closely Held Corporations

If you are a shareholder in a closely held corporation, you need to know about the June 2024 decision from the U.S. Supreme Court case Connelly v. United States (2024). This decision (find it here) could have dramatic consequences for your business and for you, personally, as a shareholder.

Here’s the central issue:

Should life insurance proceeds paid to a closely held corporation to buy out a deceased shareholder’s portion of the business be counted as a non-offsettable asset for the purposes of calculating the decedent’s federal estate taxes?

The U.S. Supreme Court says YES.

The issue is somewhat convoluted. The upshot is that this decision allows the IRS, in some circumstances, to essentially “tax” a portion of previously untaxable life insurance proceeds without directly taxing them. Instead, it’s done by counting the life insurance proceeds as a business asset that cannot be offset, thus increasing the deceased shareholder’s share of the company at time of death and increasing their taxable estate – and possibly creating a federal estate tax liability.

This is a drastic change from what has previously been done. It’s like changing the rules while you’re in the middle of the game; you were expecting to pass Go and collect $200, but now you owe $300.

Below, we’ll look at the background of Connelly and the court’s reasoning, then discuss what it could mean for you and the other shareholders in your closely held corporation.

Note that today’s blog is just an introduction to the topic. Since this decision is so new, it’s not clear how things will shake out; it will take some time for business owners and their attorneys to determine the best course of action moving forward. But for now, we wanted to put this on your radar. We recommend speaking with your own business attorney and/or estate planning attorney about the potential consequences for you if you are an owner in a closely held corporation. (And if you do not yet have a business attorney or estate planning attorney in South Carolina, call us at the Gem McDowell Law Group at 843-284-1021 to talk.)

Connelly vs United States (2024) Summary

Briefly: Michael and Thomas Connelly were brothers and together owned a building supply company, Crown C Supply (Crown). They had an agreement to ensure the business would stay in the family if either brother died. The surviving brother would have the option to purchase the shares first, and if not, then Crown would be required to purchase the deceased brother’s shares. The corporation purchased life insurance policies of $3.5 million on each brother to this end.

Michael died in 2013 owning 77.18% of the business (385.9 of 500 shares) at death, with his brother Thomas owning the remaining 22.82%. Thomas declined to buy the shares, so Crown redeemed them for $3 million, an amount agreed upon by Michael’s son and Thomas.

Michael’s federal tax return for the year of his death was audited by the IRS. As part of the audit, an accounting firm valued the business at Michael’s death at $3.86 million, with his 77.18% share amounting to approximately $3 million. The analyst followed the holding of Estate of Blount v Commissioner of Internal Revenue (2005) that stated life insurance proceeds should be deducted from the value of a corporation when the proceeds are “offset by an obligation to pay those proceeds to the estate in a stock buyout.”

But the IRS argued that Crown’s obligation to buy back the stock did not offset the life insurance proceeds. The $3 million in life insurance proceeds should be added to the assets of the business, the IRS argued, making the total value of Crown at Michael’s death $3.86 million + $3 million = $6.86 million. Michael’s 77.18% share of this larger amount would be approximately $5.3 million, and based on this, the IRS said Michael’s estate owed an additional $889,914 in taxes.

Michael’s estate paid these taxes, and Thomas, as Michael’s executor, later sued the United States for a refund. The case went before the Supreme Court in March 2024.

The Supreme Court’s Reasoning

In its decision, the court states two points that “all agree” on:

The value of a decedent’s shares in a closely held corporation must reflect the corporation’s fair market value for the purposes of calculating federal estate tax; and
Life insurance proceeds payable to a corporation are an asset that increase the corporation’s fair market value.

The question, then, is whether the obligation to pay out those life insurance proceeds offset the asset, effectively canceling itself out.

The Supreme Court’s answer: No.

The reasoning: “An obligation to redeem shares at fair market value does not offset the value of the life-insurance proceeds set aside for the redemption because a share redemption at fair market value does not affect any shareholder’s economic interest.” The court says that no willing buyer would treat the obligation as a factor that reduced the value of the shares.

Also, for the calculating estate taxes, the point is to assess how much an owner’s shares are worth at the time of death. In this case, it was before Crown paid out the $3 million to buy Michael’s shares. Therefore, that $3 million should be added to the value of the business’s assets and income generating potential, valued at $3.86 million.

This decision will likely affect millions of business owners and trillions of dollars. Depending on your personal and business circumstances, it could affect you, too.

What This Means for You: Federal Estate Taxes

The most important thing to know about federal estate taxes is that the laws affecting them can and do change regularly. (This is one big reason it’s important to have your estate plan reviewed regularly to ensure it’s up to date with current law. Read about the unintended consequences of an out-of-date estate plan here on our blog.)

The majority of individuals subject to U.S. taxes who die in 2024 will not be subject to federal estate taxes; only about 0.2% were expected to in 2023, according to a Tax Policy Center estimate. Currently, if an individual dies in 2024 with a taxable estate valued below $13,610,000, no federal estate tax needs to be paid. This amount doubles to $27,220,000 for married couples filing jointly.

But the “applicable exclusion amount” (also called the “unified tax credit” or “unified credit”) has not always been so high. For many years, it was just $600,000. The current unified tax credit amount is set to expire at the end of 2025, after which it will revert to a lower amount (expected to be around $7 million), unless Congress passes more legislation changing it first.

When Michael Connelly died in 2013, the unified tax credit amount according to the IRS was $5,250,000. Valuing his share of the business at death at $5.3 million rather than $3 million meant he had a larger taxable estate and owed additional federal taxes.

What does this mean for you? This makes estate planning tricky. You can’t know for sure when you’ll die or what the applicable exclusion amount will be that year. Depending on the value of your business and your personal assets, your estate may owe federal estate taxes you weren’t anticipating. The bottom line: If you have a buy-sell agreement and it is funded with life insurance, have it reviewed by an attorney ASAP.

What This Means for You: Succession Planning Going Forward

It’s common for shareholders in a family-owned closely held corporation to have buy-sell agreements that would keep the business in the family should a shareholder die. (Read more about buy-sell agreements on our blog here.) To that end, life insurance policies are often taken out on the shareholders to ensure funds are available to buy out the deceased shareholder’s shares at death.

For years, many business owners have had the corporation itself buy and maintain those life insurance policies on each shareholder. The proceeds went directly to the corporation and were not taxed. Additionally, they did not increase the value of the business, and thus the value of the deceased shareholder’s portion, at the time of the shareholder’s death.

Until now.

What does this mean for you? Now that this has changed after Connelly, shareholders in a closely held corporation may reconsider having the corporation purchase and maintain life insurance policies on its owners.

One option suggested in the Connelly opinion is for the shareholders to take out life insurance policies on each other in a “cross-purchase agreement.” The court acknowledges that this comes with its own set of problems, however, including different tax consequences and the necessity for each shareholder to maintain policies on the other shareholders.

Another potential option is to set up a separate LLC to maintain life insurance policies on the shareholders. In the event of a shareholder death, the LLC – not the corporation itself – would buy out the decedent’s share. This is one possible new solution to this new problem, but it is not yet tried and tested.

Finally, shareholders may continue to have the corporation purchase and maintain life insurance policies with the knowledge that each shareholder should create an estate plan for their personal assets that helps avoid federal estate taxes.

Watch This Space

As the dust settles from this decision, we’ll keep on top of it and come back with more information and advice.

Just remember – the law is not set in stone. Congress passes new legislation and courts render decisions regularly that can affect individuals and business owners. It can be hard to keep up with all the changes, which is why it’s important to have an attorney you can rely on to help keep your estate plan current and your business thriving.

Call Gem at the Gem McDowell Law Group in Myrtle Beach and Mt. Pleasant, SC. He and his team help South Carolina individuals and families create and review estate plans to protect assets and avoid family disputes. He also helps with the creation, purchase, sale, protection, and growth of South Carolina businesses through the creation of corporate governance documents, contracts, problem solving, and more. Call 843-284-1021 today to schedule a free consultation or fill out this form. We look forward to hearing from you.

How to Disinherit a Spouse in South Carolina Through Elective Share Waiver (Or: Pillow Talk Is Not Enforceable)

A lady came to our offices for help with her estate plan which included setting up a new trust to hold her assets. She planned to leave everything to her kids and nothing to her husband, which she said her husband had agreed to. He never signed anything on paper to that effect, but she insisted that he was okay with the arrangement.

Literally the following week, she died. Her husband then filed for elective share, which is the portion of a deceased person’s estate that a surviving spouse is entitled to by law. There was nothing barring the husband from receiving a portion of his wife’s estate, despite her wishes.

What could the wife have done differently?

Below we’ll look at elective share and how to disinherit a spouse in South Carolina.

Elective Share in South Carolina

A surviving spouse is entitled to a portion of the deceased spouse’s estate under the law regardless of the terms of the deceased spouse’s will. This portion is called the elective share, or spousal elective share. The portion the surviving spouse can claim varies by state; in South Carolina, it’s one third.

The surviving spouse may claim elective share even if the couple was estranged or in divorce proceedings at the time at the time of death. We previously covered a case on this blog in which a surviving spouse was able to claim elective share after the court granted the couple’s divorce, since the husband happened to die in between the court’s decision and the clerk filing and recording the divorce decree. [Read about that case, Hatchell-Freeman v. Freeman (2000) here.]

What the Surviving Spouse is Entitled To

In South Carolina, the surviving spouse is entitled to one third of the deceased spouse’s estate. This third includes assets that are not subject to probate, such as life insurance proceeds, retirement accounts, property owned jointly with right of survivorship, and assets in revocable trusts. The value of these and other interests due to the surviving spouse count towards the elective share first, along with the value of anything that was renounced or disclaimed. Only then is the balance due taken from the probate estate.

Claiming elective share usually means a surviving spouse will inherit assets that would otherwise have gone to other heirs named in the deceased spouse’s will. Because of this, the surviving spouse has a duty under South Carolina code Section 62-2-205(b) to inform recipients of the probate estate whose interests are adversely affected of the time and date of the hearing set to determine elective share.

Disinheriting a Spouse in South Carolina: A WRITTEN Waiver of Elective Share

The laws regarding elective share ensure that a spouse is not easily disinherited.

But an individual can fully disinherit a spouse in South Carolina. This may happen, for example, in blended families when each spouse wants to leave their assets to their own children and knows that the other spouse is financially secure. Or an individual may wish to disinherit a spouse because of estrangement or separation.

Whatever the reason, it’s important to know that drawing up a will or creating an estate plan that intentionally leaves out the spouse is not enough. The couple must take active steps to disinherit a spouse in South Carolina.

Written Waiver of Elective Share

A spouse may voluntarily agree to give up all or part of their elective share. The spouse who is to be disinherited must agree to waive the right to elective share in writing. Such a waiver is often part of a prenuptial or postnuptial agreement but may be a standalone document.

The spouse waiving their right to elective share in whole or in part must be fully aware of what they are giving up. South Carolina code Section 62-2-204 requires that the disinheriting spouse provide “fair and reasonable” disclosures of their property and financial obligations in writing to the waiving spouse.

Schedule a Free Consultation with Estate Planning Attorney Gem McDowell

For legal help and advice on waiver of elective share, prenuptial or postnuptial agreements, probate, or other estate planning concerns, call Gem McDowell of the Gem McDowell Law Group of Mt. Pleasant and Myrtle Beach. Gem and his team help families in the greater Charleston and Myrtle Beach areas create and review estate plans to help ensure their wishes are carried out.

Gem can also help you understand the consequences and potential downsides of your estate plan. Sometimes estate plans created with the best of intentions can lead to unintended consequences, disputes, and fractured relationships between family members and heirs.

If you have a complicated family situation, a large estate, or you simply want a basic estate plan put in place for your peace of mind, call Gem and his team today at 843-284-1021.

What is Family Malpractice™, and Have You Committed It?

Have you committed Family Malpractice™?

If you’ve neglected your legal responsibilities regarding your family, then yes, you have.

What is Family Malpractice™?

You’ve heard of attorney malpractice, where an attorney’s misconduct causes problems for a client, and you’ve heard of medical malpractice, where a doctor’s error or negligence causes problems for a patient. Similarly, Family Malpractice™ is when an individual causes problems for his/her family members, usually because of failure to take action on a legal matter.

Problems that are created can be legal, financial, and/or familial in nature. I’ve seen a decedent’s heirs have to go through years of expensive and stressful legal battles over how to divide up assets. I’ve seen people take a huge financial hit because of how property was handled after the owner’s death. I’ve seen families torn apart and relationships permanently ruined due to Family Malpractice™.

While it’s not something you can be prosecuted for, Family Malpractice™ is something to avoid. You can easily do so by knowing some of the common pitfalls that put your family in peril legally and financially, and how to avoid these easily avoidable situations yourself.

When You Have Children but Have No Will, That’s Family Malpractice™

Do you know what happens in South Carolina if you die without a will, leaving behind a spouse and children? When I ask this question in consultations or at live, in-person seminars, most people believe that 100% of the deceased’s probate estate goes to the spouse. This is incorrect. By state statute, the deceased’s probate estate is divided evenly between the spouse, who gets 50%, and the children, who share the remaining 50% among themselves.

This sounds reasonable and fair. But, as straightforward as it sounds, this simple arrangement can cause a lot of problems, usually for the spouse. For instance, if a husband and father dies intestate (without a will), his half of the house is divided equally between his surviving wife and children. So his wife now owns 75% of the house and the children own the other 25%. If she’s not able to keep up with the house payments and wants to downsize, she can’t sell unless her children agree. They then have leverage and can demand more than the 25% of the sales price of the home, or else simply refuse to sell.

Who would do this to their own mother, you ask? Plenty of people, unfortunately. I’ve seen scenarios like these play out many times in my 30+ years of being an attorney. Situations like these can ruin a person financially in their later years and destroy family relationships irrevocably.

The situation becomes even more complicated in blended families where one or both spouses have children from a previous marriage. Imagine then, the surviving spouse may own 75% of the house and the children from a previous marriage own the other 25%. The children from the previous marriage are not required to cooperate with the surviving spouse. They can veto a sale, refinance, etc. They essentially control the property. That is not what the decedent wanted, and that decedent committed Family Malpractice™ with regards to the surviving spouse.

In short, the way an estate is passed along and divided up according to South Carolina law may not be what an individual wants, but if they die intestate, they don’t get a choice – and their heirs have to live with the consequences.

The solution: Have a will drawn up. This is vital if you have a family and especially if you have anything other than a small estate. Dying without a will can potentially create a lot of problems for your heirs that could have been avoided with a current estate plan.

When You Don’t Probate Your Deceased Mom or Dad’s Estate, That’s Family Malpractice™

The idea of a family home being passed down from generation to generation is something many people aspire to. Passing on wealth in the form of real property to your children, and to their children in turn, and so on, is a wonderful gift.

At least, it can be. It’s not uncommon for property passed on after death to become “heirs property,” which can cause a lot of problems for the heirs. This can happen when the surviving children of the original, now-deceased homeowner continue to live in the home but don’t go through the proper legal process to put the property in the new owners’ names. That is going through the probate process. If the same situation repeats for a few generations in a row, you can end up with literally dozens of people (typically, the grandchildren or great-grandchildren of the original owner) who all have legal claims to the property, all while the property is still technically in the original owner’s name.

Why is this such a problem? Because it’s very difficult to sell a house like this, when there are so many owners and a cloudy title. A buyer interested in the property risks having the deal fall through if one of the many owners decides they want more than their proportional share of the sales price or refuses to sell altogether. Getting the title cleared takes extra time and money. Meanwhile, the family members who own the house cannot sell and take the equity in the house, and they may be barred from accessing things that require clear title of ownership, like mortgages, loans, and government programs.

The solution: Ensure your deceased parent’s estate goes through probate. The probate process does not happen automatically; it’s something the executor named in the will must carry out. If there is no will, the probate court names an executor, usually a child or close relative of the deceased.

There are a few roadblocks keeping people from ensuring a deceased parent’s estate goes through probate. One is simply not knowing that it’s needed; they may incorrectly assume that the ownership of the house legally passes from the parent to the child(ren) without having to do anything. Another reason is an aversion to having to pay a lot to probate the estate. But in SC, probate fees are not very high. For instance, probate fees on an estate worth $1 million is just $1,845, which is paid out of the estate, as are attorney’s fees. Finally, some people want to avoid dealing with the government altogether. While this may be understandable, it’s not a good reason to avoid probate. Working with an experienced probate attorney you trust can help you and ensure that your estate is handled legally and fairly.

Read more about probate here on our blog.

When You Don’t Take the 1014(e) Step-Up in Basis, That’s Family Malpractice™

A step-up in basis occurs when the cost basis of an asset, like a home, is adjusted from the original cost basis to the current fair market value upon the death of the owner.

Let’s say your parents bought a house 20 years ago for $150,000, and when you inherited it upon their deaths, it was worth $350,000. If you don’t take the step-up in basis and proceed to sell it, you’ll have to pay capital gains tax on the difference, which is $200,000. If instead you do take the step-up in basis, and have the cost basis of the house increased to $350,000 (the fair market value at the time of your parents’ deaths), then you’ll only pay capital gains tax on the difference between $350,000 and whatever you sell it for in the future.

Depending on the value of the house, and how much that value has grown over time, that can mean saving a lot of money in taxes. When someone does not take this step-up in basis, it can lead to very large tax bills when the time comes to sell the property. There are a few reasons a person may fail to do so; they may not even know that the option exists, or they may mistakenly assume that it happens automatically.

The solution: Take the step-up in basis on property in an estate that you are executor of, or ensure that the executor of your parents’ estate does so. The probate attorney handling the estate can help you. As a probate attorney, my goal is to get the largest step-up in basis possible for my clients in order to reduce their tax liability in the future.

Work with Estate Planning Attorney Gem McDowell

Wills, probate, and step-up in basis are things that most people don’t think about because it’s outside the scope of daily life. But failing to take care of these matters is what I call Family Malpractice™, and it can lead to major legal and financial hassles in the future. Even more devastating, it can cause rifts between family members as they fight over assets in and out of court. Fortunately, these issues are completely avoidable. Work with an estate planning attorney and probate attorney to ensure your estate plan is solid and current and that you’re handling your deceased relatives’ estates correctly.

If you have questions about creating or revising your own estate plan in South Carolina, or you want advice or assistance handling the estate of a deceased relative, contact Gem McDowell at the Gem McDowell Law Group today. Gem has over 30 years of experience as an attorney and has helped countless families in South Carolina create estate plans, avoid mistakes, and fix problems. He and his team can help you understand and avoid committing Family Malpractice™ that can harm your family. Call him at his Mount Pleasant office today at 843-284-1021 to schedule a free consultation.

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