Unintended Consequences: What Happens When You Don’t Do Things Right
Following procedure is important when it comes to the law.
This may go without saying, yet you’d be surprised at what sometimes happens, and what the consequences of failing to follow procedure can be.
This point is well illustrated by a recent case decided by the South Carolina Court of Appeals, Forfeited Land Commission v. Eartha Dean Moody Beard. (PDF here)
Error 1: Heirs Failed to Submit the Estate for Probate
In 2005, Willis Thompson passed away. He left his home in Bamberg County, South Carolina to Coretta McMillan and his two other grandchildren.
But after his death, the estate was never submitted to probate.
As a quick refresher, probate is the process after a person’s death in which outstanding taxes and debts are settled and assets are transferred to heirs. (Learn more about what probate is and whether you should try to avoid probate here on the blog.)
Since Willis’s estate did not go through probate, the deed to his home was never put in his grandchildren’s names, and he remained the owner of record long after his death.
Error 2: A Notice of Levy Was Not Properly Posted
After her grandfather’s death, McMillan paid property taxes on the home in 2005. However, due to the fact that she didn’t alert Bamberg County that Willis had died and never provided an alternative address to receive tax notices, she didn’t receive any delinquent tax notices for the property in 2006.
When the notices were returned undelivered and stamped “Deceased,” Bamberg County then referred the property over to the Delinquent Tax Office to post a notice of levy on the property and put it up for a tax sale.
The Circuit Court and Court of Appeals later found that the tax office did not follow procedure when it came to posting the notice of levy on the residence. The notice is brightly colored and highly visible, yet there was testimony that the notice was never seen posted on the home. Also, the delinquent tax collector for the office testified that there was nothing in the tax office’s file to indicate that there had been a witness to the posting of the notice, as is procedure.
What Happened Next (The Lawsuits)
The facts of this case are convoluted, but in short, the home was sold to the Forfeited Land Commission (“FLC”) (a county commission that exists to bid on property at tax sales not otherwise sold) and then ended up in the hands of Ralph Johnson, who purchased 38 other properties from the FLC at the same time. Meanwhile, McMillan had paid some of the property taxes for certain years and had also gotten a tenant for the house, unaware that it did not belong to her.
With many players in this story, there were many lawsuits and counterclaims, but it’s not relevant to go into detail about them. The one at hand was heard by the South Carolina Court of Appeals in October 2017 after appearing before the Circuit Court in September 2014.
The Courts’ Findings
The Circuit Court found that McMillan had waited too long – more than four years – to challenge the sale to Johnson. The statute of limitations is two years, which the Circuit Court found was triggered by Johnson’s action to evict McMillan’s tenant from the house in January 2010.
The Court of Appeals disagreed. It found that McMillan’s challenge to the sale of the home was not barred by the two-year statute of limitations because the tax sale was void. It was void because the tax office was not in “strict compliance” with statute, as it had failed to provide the required notice of levy. Because the tax sale was void, the two-year statute of limitations never ran.
The decision reversed the finding that McMillan was barred from setting aside Johnson’s tax deed and remands the case back to the Circuit Court to determine if Johnson is entitled to any amount.
Where This Leaves McMillan
McMillan did win this case but the matter isn’t over for her. It’s been four years since the first trial and 13 years since the death of her grandfather, yet she still does not own the home her grandfather intended to give her after his death. This entire situation could have been avoided by following procedure and putting her grandfather’s estate through probate shortly after his death.
For Important Matters, Work with an Experienced Attorney
When it comes to matters of estate planning, procedure is vitally important, and skipping a step or making an inadvertent mistake can be costly in terms of time and money. It’s smart to work with an attorney experienced in estate planning who can guide you through the process and make sure procedure is being followed.
If you’re looking for help with estate planning in South Carolina, contact Gem and his associatess at Gem McDowell Law Group in Mt. Pleasant, SC. Gem and his associatess help individuals and families plan their estates with foresight and intelligence to avoid problems in the future. Call today to schedule an initial consultation at 843-284-1021.
The #1 Mistake People Make With Trusts
Trusts are wonderful tools for financial planning and estate planning. There are many, many kinds of trusts, each with its own purpose, pros, and cons. Trusts may be used to, among other things, avoid certain taxes, avoid probate, leave specific assets to an individual or organization, or pay for life insurance.
However, it doesn’t matter what kind of trust it is when it comes to the biggest mistake we see people make with trusts. That mistake: not putting anything into the trust.
The Basics Of Trusts
This can happen when people don’t understand what a trust fundamentally is.
A “trust” is an arrangement between three parties where the “trustor” (also called a “trustmaker,” “grantee,” or “settlor”) gives ownership of certain assets to a “trustee” for the benefit of a “beneficiary.” (Note that there may be more than one trustee and/or more than one beneficiary, according to the terms of the trust.)
The key point here is that the trustor gives up ownership of assets that go into the trust. This does not happen automatically upon signing the documents that create trust. The trustor must do it separately. Ideally, the estate planning attorney who draws up the trust will provide explicit instructions on what to do next and how to transfer assets, but that doesn’t always happen.
To transfer assets into the trust, the trustor signs over the deed of their house, title of their car, stocks and bonds, bank accounts, and any other selected assets to the trust. Which assets go in the trust depend on what the objective of the trust is. If the purpose is to avoid probate, then everything should go in the trust. If the purpose is to provide some money for the grandchildren over several years, for example, a selection of securities might be enough.
What Can Go Wrong
If someone does make this mistake, and fails to transfer ownership of assets from themselves to the trust they created, it can and likely will cause unintended consequences.
Imagine an adult child whose father said he had created a trust in order to avoid probate. Upon the father’s death, the child discovers that the trust was never funded. Everything is still owned in the father’s name at the time of his passing. Now the estate will pass through probate and, depending on the size of the estate, may be subject to estate taxes that could have been avoided. This is just one example, but there are many other ways an unfunded trust can cause unexpected problems.
Avoid This Mistake and Others With Guidance From Experienced Attorneys
Trusts are complex. For help creating trusts and understanding how they fit into your overall estate plan, call Gem McDowell Law Group. Gem is an estate planning and business attorney with over 20 years of experience helping individuals and families plan for the future. Contact Gem at the Mt. Pleasant office at (843) 284-1021 or use this contact form to get in touch and schedule a consultation today.
Should Your Estate Go Through Probate? Why or Why Not?
Last time we cleared up confusion around probate in South Carolina and looked at what probate is and isn’t.
If there’s one thing people do know about probate, it’s that they want to avoid it when the time comes. But is that really the best advice for everyone? Let’s look at the common reasons why people work to avoid probate, and why it may not be worth the effort to avoid probate after all.
Avoiding The Cost Of Probate
By avoiding probate, you avoid the associated costs. In South Carolina, the cost of probate as of 2017 is:
$1,845 for the first $1,000,000
$2,500 for every $1,000,000 thereafter
For an estate worth $2 million, for example, the total cost of probate would be $4,345, while an estate worth $10 million would have a fee of $24,345. Many people choose to avoid probate to skip paying these fees.
What to consider: Keep in mind that it can be costly to set up an estate plan that keeps assets out of probate in the first place. For smaller estates, it may not be worth it.
Maintaining Privacy
When a will is filed with the probate court, it becomes a public document. In contrast, the details of an estate handled through a trust do not become public.
What to consider: Most people do not need to worry about this. Public figures facing curiosity and business owners wanting to keep company financial info private may have a valid reason for concern, but for most people this is a non-issue.
Making Disbursements To The Heirs More Quickly
Making sure heirs get their inheritances more quickly is another reason people choose to avoid probate. Theoretically, the trustee of a living trust can begin disbursements to heirs immediately upon death. In practice, trustees will ensure that the estate’s debts and taxes are paid before disbursing money to heirs. Whether this actually means beneficiaries get their money more quickly depends on the situation.
What to consider: Estates passing outside probate are subject to creditors’ claims for three years compared to just eight months given to creditors through the probate process. This increases the chance that a creditor will make a claim after disbursements have been paid out from the trust, which can lead to lawsuits against the trustee and/or beneficiaries. The shortened time creditors have to make a claim is an advantage of going through probate.
Is Your Estate Set Up To Pass Through Probate or Avoid Probate?
Estate planning is complex. Laws change and family situations change, making old estate plans obsolete or imprudent. It’s difficult to know the long-reaching consequences of estate planning unless you speak with an experienced estate planning attorney like Gem McDowell of Gem McDowell Law Group. He don’t just provide wills and trusts, but the insight and advice from years of experience on the real-world consequences of estate plans. Call Gem today at their Mount Pleasant office at (843) 284-1021 or use this contact form to set up a consultation.
Clearing Up Confusion About Probate in South Carolina
Updated 11/27/2022
For some people, “probate” is a dirty word. Much of this attitude comes from not understanding the process, so let’s clear up the confusion.
What Probate Is and What Probate Isn’t
There are some myths out there about probate, so here’s what it’s not: Probate is not a way for the government to take the estate of someone who dies without a will. Probate is not a way to avoid any applicable estate taxes. Probate does not take many years (except in rare cases).
Probate is simply a process, overseen by the court, in which a person’s estate is settled. It’s a way for ownership of assets to be transferred from the decedent to other people and for final taxes and debts to be paid.
For an estate to go through probate, no estate planning is required. A person’s estate can pass through probate whether they died without a will or with one, as long as it has assets that are subject to the process.
For an estate to avoid probate, the deceased must own no assets subject to probate at the time of death. A common way to do this is to put all those assets in a living trust (an inter vivos trust), which stays in someone’s name and control during their lifetime and immediately passes to the named successor trustee upon death. The assets owned by the trust are not subject to probate.
What’s subject to probate and what’s not?
Assets subject to probate in SC include:
- Real estate held as a tenant in common
- Property owned solely in the deceased’s name
- Interest in a partnership, corporation, or LLC
Assets not subject to probate in SC include:
- Real estate held as a joint tenancy with right of surviorship
- Retirement accounts with named beneficiary
- Insurance accounts with named beneficiary
- Pension plan distributions
- Assets held in a trust
- Assets that are payable-on-death or transfer-on-death
Now that we know what probate is and isn’t, let’s look at the process.
The Probate Process in South Carolina
The probate process consists of a series of steps:
1. Deliver the will at death. Someone in possession of the deceased’s will must deliver it within 30 days to the judge of the probate court, or to the personal representative named in the will, who will then deliver it to the judge.
2. Personal representative is appointed. This person is typically named in the will and is officially appointed by the court.
3. Notice to intestate heirs is sent. Heirs can contest if they aren’t named or are treated differently.
4. Inventory and appraisement of the estate. This must be filed within 90 days of the opening of the estate. Professional appraisers may be needed to provide the values at the date of death for assets like homes, art, and jewelry.
5. Final accounting. This involves paying applicable taxes, outstanding debts, and ongoing expenses while settling the estate, such as legal and accounting fees. If there’s not enough money in the estate to pay all debts owed, creditors will be paid in order of priority according to South Carolina code (as described in Section 62-3-805).
6. Disbursements. If there’s money left over after debts and taxes are paid, distributions may finally be made to the heirs according to the will, or, if there is no will, according to the state.
7. Close the estate. The personal representative files a number of documents with the court after the above steps have been completed, and the estate is finally closed when the court issues a Certificate of Discharge.
Probate Fees in South Carolina
An estate going through probate is subject to probate fees as laid out in South Carolina Code Section 8-21-770. Fees are based on the gross value of the decedent’s probate estate and are set/calculated as follows:
| Gross Value of Probate Estate | Fees |
| Less than $5,000 | $25.00 |
| $5,000-$20,000 | $45.00 |
| $20,000.00-$60,000 | $67.50 |
| $60,000.00-$100,000.00 | $95.00 |
| $100,000.00-$600,000.00 | $95.00 plus 0.15% of the property valuation between $100,000 and $600,000 |
| $600,000 or higher | $95.00 plus 0.15% of the property valuation between $100,000 and $600,000 plus ¼ of 1% (0.25%) of property valuation above $600,000
= $845 plus ¼ of 1% (0.25%) of property valuation above $600,000 |
Here’s a table with sample probate fees calculated based on the value of the estate:
| Gross Value of Probate Estate | Fees |
| $150,000 | $170.00
$95.00+(0.0015*($150,000-$100,000)) = $95.00+$75.00 = $170.00 |
| $300,000 | $395.00
$95.00+(0.0015*($300,000-$100,000)) = $95.00+$300.00 = $395.00 |
| $500,000 | $695.00
$95.00+(0.0015*($500,000-$100,000)) = $95.00+$600.00 = $695.00 |
| $750,000 | $1,220.00
$845+(0.0025*($750,000-$600,000)) = $845+$375 = $1,220 |
| $1,000,000.00 | $1,845.00
$845+(0.0025*($1,000,000-$600,000)) = $845+$1,000 = $1,845 |
| $3,000,000 | $6,845.00
$845+(0.0025*($3,000,000-$600,000)) = $845+$6,000 = $6,845 |
| $10,000,000 | $24,345.00
$845+(0.0025*($10,000,000-$600,000)) = $845+$23,500 = $24,345 |
How Long Does Probate Take in South Carolina?
How long it takes an estate to go through the probate process depends on a number of things, including:
- Whether the deceased had a valid will or not
- How large and complex the estate is
- Whether the will is contested
- Whether lawsuits are filed
- How efficient the personal representative is
Under good conditions, a relatively simple estate can take approximately a year from open to close. More complex cases will take longer.
(Note that “small estates,” which contain no real property and total less than $25,000 in value, may qualify for a summary administrative procedure, a quicker and cheaper process than the regular probate process. A small estate can be settled in a matter of a few days or weeks.)
Is It a Good Idea to Avoid Probate?
Now that you know more about probate in South Carolina, you may be wondering whether it’s smart to approach estate planning with the intent of avoiding probate altogether. There are many things to consider, so that’s the subject of the next blog.
For help with your estate plan, contact Gem McDowell Law Group in Mount Pleasant. Contact Gem today at (843) 284-1021 to set up a consultation.
The Statute of Elizabeth: What You Need to Know About Transferring Assets
What if you owed someone a lot of money, but you didn’t want to pay them back? You might try to put your assets somewhere they couldn’t be touched; for example, you might gift them to a person you trust, or transfer them to an LLC.
Fortunately for your creditor, and unfortunately for you, you won’t get away with this scheme if your intention is to avoid paying your debts.
Moving assets in the way described above is referred to as “fraudulent conveyance,” after the Fraudulent Conveyances Act of 1571, aka the Statute of 13 Elizabeth.
The Statute of Elizabeth
The Fraudulent Conveyances Act, as it’s properly known, was an English act of 16th Century Parliament that many U.S. states adopted early on. Most states have since adopted the Uniform Fraudulent Conveyances Act (UFCA) or, more commonly, the Uniform Fraudulent Transfer Act (UFTA).
The purpose of the Statute of Elizabeth is to provide a way for creditors to “undo” asset transfers of their debtors when the transfers were done so fraudulently. According to South Carolina Code, “every gift, grant alienation, bargain, transfer, and conveyance of lands… for any intent or purpose to delay, hinder, or defraud creditors and others of their just and lawful actions, suits, debts, accounts, damages, penalties, and forfeitures must be deemed and taken… to be clearly and utterly void…”
How does the court know whether the transfer was, indeed, done fraudulently? If the transferor denies fraud (as you’d expect), the court can look for these “badges of fraud”:
- Insolvency or indebtedness of transferor
- A lack of consideration for the conveyance
- A relationship between the transferor and transferee
- Pending litigation or threat of litigation
- Secrecy or concealment
- Departure from usual method of business
- Transfer of debtor’s entire estate
- Reservation of benefit to the transferor
- Retention by the debtor of possession of the property
The court will look for a number of badges of fraud; one alone does not create a presumption of fraud.
If the court does find that the conveyance was fraudulent, it can be “undone,” giving the creditor recourse for collecting on its debt.
A recent South Carolina case on the Statute of Elizabeth
The South Carolina Court of Appeals heard a case on this very subject and decided in the case in February. Here’s what happened.
Kenneth Clifton borrowed $3.873 million from First Citizens Bank
Kenneth Clifton was a successful real estate developer who frequently bought land as investment properties and transferred them to LLCs. He purchased one property with Linda Whiteman in 1995, a piece of land in Laurens County, SC of approximately 370 acres, which they said was for retirement.
Clifton also regularly borrowed money to finance his purchases. He took out three loans from First Citizens Bank to finance three separate investments, totaling an initial loan amount of $3.873 million, and renewed them several times.
Around the time that the housing bubble burst, Clifton requested extensions on the loans, which the bank granted after he provided a personal financial statement demonstrating his ability to pay them back. His personal financial statement put the value of the assets he held at around $50 million, including a 50% stake in the Laurens County property valued at $1.57 million.
Clifton transferred away his interest as the bank came for its money
Before receiving an extension on the third loan, Clifton didn’t tell the bank that both he and Whiteman transferred their interests in the Laurens County property to Park at Durbin Creek (PDC), an LLC that Clifton had an interest in.
When the bank asked Clifton to come current with interest payments and provide more collateral before extending the loans again, he didn’t, and the bank began foreclosing proceedings, getting a deficiency judgment of $745,317.86 plus interest.
Meanwhile, Clifton disassociated himself from PDC and transferred his membership in it to Streamline, a company that did not yet exist and was comprised of his two daughters and ex-wife.
When the bank tried to collect on the judgment, it couldn’t, as all the assets listed in Clifton’s personal financial statement had been foreclosed on, transferred away to cover other debts, or otherwise disposed of. The bank filed suit against Clifton, citing the Statute of Elizabeth.
Fraudulent or not?
After a one-day, nonjury trial, the Circuit Court issued an order to set aside the conveyance of the Laurens County property to PDC; the conveyance of his 50% interest in the property was null and void, pursuant to Statute of Elizabeth. (The Court found many other issues with the transfer of interests to Streamline, as well.)
Clifton denied having transferred the land fraudulently, but the Court found that sufficient badges of fraud existed – six out of the nine listed above, to be exact.
The Court of Appeals affirmed the Circuit Court’s findings.
Asset protection the right way
Let’s look again at the badges of fraud:
- *Insolvency or indebtedness of transferor
- A lack of consideration for the conveyance
- A relationship between the transferor and transferee
- *Pending litigation or threat of litigation
- Secrecy or concealment
- Departure from usual method of business
- Transfer of debtor’s entire estate
- Reservation of benefit to the transferor
- Retention by the debtor of possession of the property
The two marked with an * are key. If someone knows they owe money they must pay back soon but can’t, or even if they don’t owe any money but could reasonably expect a lawsuit coming their way, then transferring away assets can look suspicious.
However, asset protection is important, and there are ways to do it correctly. This is when it’s vital to talk to an attorney with experience in estate planning. Gem McDowell of the Law Offices of Gem McDowell is a corporate, tax, and estate planning lawyer with 25 years of experience helping people grow and protect their assets. Call him at their Mount Pleasant office at (843) 284-1021 or by filling out this contact form online.
Transmutation: When Non-Marital Property Becomes Marital Property
Consider this:
Sandra and James have been married for 25 years. Once they were married, she gave up her job to become a stay-at-home mom. When the kids were old enough, she began to work in her husband’s dental practice, which he established before they married, becoming an integral part of the business. If Sandra and James get divorced, does she deserve compensation for any part of the dental practice that she helped grow?
Marital And Non-Marital Property, And How Non-Marital Becomes Marital
Before answering that question, it’s important to understand the difference between marital and non-marital property. Marital property is property that belongs to the marriage, i.e., to both spouses. In a divorce, it is subject to equitable division by the court (if the couple has not come to an agreement about how to split up the property). A common example of marital property is a house that the couple purchases together during the marriage.
Non-martial property is owned by one spouse or the other, and is not considered to belong to the marriage. In a divorce, it will remain in the hands of its original owner. Examples of non-marital property include gifts made to one spouse only, inheritance, and assets that were brought into or existed before the marriage, such as cars, real estate, and investments, to name just a few examples. Property that was excluded through a pre- or post-nuptial agreement is also considered non-marital.
Although the law gives clear definitions of the two, the application becomes difficult in situations where non-marital property becomes marital property through the process of transmutation.
How Transmutation of Marital Property Happens
If non-marital property becomes “commingled” with marital property to the point that it can’t be distinguished, or it’s used by the spouses in support of the marriage, it can become marital property.
However, determining how much commingling is enough, or what use constitutes “support of the marriage” is not straightforward. The Supreme Court of South Carolina has heard a number of cases where application of the law has depended on how and when transmutation occurs.Here are three cases from the last few years as examples:
Case #1: Wife works in husband’s business and argues that it’s transmuted
Pittman v. Pittman (PDF), Feb. 2014
Gloria Pittman separated from husband Jetter Pittman after seven years together. Over the course of their marriage, she reduced her hours at her job as a nurse and instead spent more time working in her husband’s surveying business, until she was no longer eligible for health benefits or a retirement savings plan through her nursing job. Instead, she became an integral part of her husband’s business. When they divorced, she argued that the business, which her husband owned before coming into the marriage, had become marital property.
The Court agreed. A few key factors in the decision: the husband and wife agreed that she should essentially give up her nursing career to help with his business, the wife was involved in making major decisions regarding the business with her husband, and they structured her pay to benefit the two of them.
Case #2: Wife argues that husband’s inherited land is transmuted
Wilburn v. Wilburn (PDF), May 2013
Harriet and Paul Wilburn were married for over 30 years. They had a unique situation: he had a stroke in his mid-40s that left him partially paralyzed. He granted his wife power of attorney and she took control of some of his accounts. She later got breast cancer and then decided to seek divorce. In the split, she argued that a tract of land he inherited had transmuted and was marital property.
The Court disagreed. Although the Court found wife’s testimony that she had contributed to the management of the property to be credible, that wasn’t enough to establish transmutation. The Court also found that even though income from the land was used in support of the marriage, the property had not transmuted.
Case #3: Husband argues properties are non-marital
Conits v. Conits (PDF), Mar 2016
Peggy and Spiro Conits were married over 30 years before seeking divorce. He owned a number of properties prior to the marriage. She argued that the properties should be considered marital property.
The Court agreed. The income from a property he owned in the U.S. was used to support the marriage and to extinguish debts. He also owned a property in Greece, which the Court determined was marital property. In both cases, loans taken out on the properties were fully paid during the course of the marriage.
Keeping Marital and Non-Marital Separate
With the Court’s interpretation of what constitutes transmutation varying so widely between cases, it’s hard to know exactly what will and won’t qualify as transmutation. If you want to avoid transmutation of property, there are ways you can protect certain assets, for example, through a pre- or post-nuptial agreement.
For advice on protecting your assets, and on other issues of estate planning, contact estate planning attorney Gem McDowell at his Mount Pleasant office today. He can help you create a robust estate plan that takes care of your future needs and the needs of your whole family. Get in touch by calling (843) 284-1021 or by filling out this contact form online.
Avoid the Pitfalls of Estate Planning in “Brady Bunch Marriages”
“Brady Bunch marriages” – in which spouses bring their kids from prior relationships into the new marriage – pose a number of potential problems when it comes to estate planning. Imagine the following scenarios:
- Husband and wife sign an “I Love You will” which leaves everything to the other spouse upon death. The husband dies first, and all his assets go to his wife. When she dies, all her assets go to her children, as is very common in a simple will. In this case, the husband’s children get none of his estate; they were bypassed entirely.
- Husband promises to “do the right thing” if his wife dies before him and ensure that her children get some of her money, even though he inherits it all. Upon her death, he decides to keep the money himself, giving her children nothing.
- Husband wants to leave a third of his assets to his wife, a third to his children, and a third to his wife’s children. The wife wants to leave all of her assets to her children.
You can see how any one of these scenarios could lead to legal complications. More importantly, situations like these can tear apart formerly loving families and lead to resentment, disillusionment, and anger. How can they be avoided?
Be Deliberate About Your Estate Plan
If your family situation is complicated, you owe it to yourself and your family to have an estate plan that will carry out your wishes when you die. You have many options, but here are three possible choices:
Option 1. You split your assets up in your will and give some to your spouse, the rest to your kids.
Option 2. You and your spouse sign a waiver stating that there will be no claim to the spouse’s assets upon death, nor any right to them. The kids get everything. (See below for more information on this type of waiver.)
Option 3. You put your assets in a trust which your spouse can enjoy limited privileges from during their lifetime, and upon their death, the trust automatically passes to your kids. Note there are many different kinds of trusts, so make sure you’re getting the right kind for your particular situation.
Your assets are yours to distribute as you see fit and you can use wills, trusts, and other tools to make that happen. It’s smart to have an estate planning attorney review your documents regularly so you don’t experience any unintended consequences of bad estate planning.
Spouses Are Automatic Heirs, Unless You Disinherit Them
As a married person in South Carolina, your spouse has a very strong claim on your property in the case of divorce or death. If you die without a will, they get either all or part of your estate. Even if you die with a will that says you don’t want them inheriting any of your assets, the law may say otherwise. The reason is because you cannot disinherit a spouse without their consent.
In South Carolina, you have three ways to disinherit a spouse:
1) Sign a prenuptial agreement
2) Sign a postnuptial agreement
3) Sign a waiver of elective share before or after marriage
Both spouses must sign a waiver of elective share that waives their rights to their spouse’s assets upon death, in whole or in part. However, this waiver does not waive either spouse’s rights to the other’s assets upon divorce, so it’s different from a prenuptial or postnuptial agreement.
To get a waiver of elective share, both spouses must present an accurate picture of their financial status to the other, so the waiver is made with full knowledge of what they are waiving their rights to. In cases where there’s a large discrepancy in amount of money (i.e., one spouse has a lot of money while the other one has very little), it’s wise for both spouses to retain their own lawyers.
Waivers of elective share aren’t particularly common, but they’re worth considering if you are sure you don’t want your spouse inheriting your property upon your death.
Be Explicit in Your Estate Planning
To illustrate how strong the claim a person has on their spouse’s property, consider this example.
A couple decides to get divorced. They file for divorce on January 1st. On September 1st, they have a hearing. On September 25th, the court orders for divorce. Two days later, the husband dies. A few days after that, on October 1st, the judge signs the order for divorce. In this case, even though the couple was in the process of getting divorced, the surviving wife was entitled to a portion of her deceased almost-ex-husband’s estate because on the day he died, they were still technically married.
What if you’re going through a divorce and don’t want your spouse to claim any of your assets should you unexpectedly die? At this point, it’s highly unlikely that you’ll be able to persuade them to sign a prenup, postnup, or waiver of elective share. This is all the more reason not to delay in the divorce proceedings.
Work With An Experienced Estate Planning Attorney
As you can see, estate planning gets complicated once you factor in divorce and add children from previous marriages, children from new marriages, and second (and third and fourth…) spouses. If you’re in this situation, be sure to work with an attorney who has experience with estate planning for blended families, particularly with trusts and elective share.
If you’re in South Carolina, contact estate planning attorney Gem McDowell. He has extensive experience handling estate planning for “Brady Bunch marriages” and is aware of the pitfalls of standard estate planning. He are ready to help you with your complicated estate planning needs at their law office in Mt. Pleasant. Get in touch online or call them today at (843) 284-1021 to schedule your consultation.
The Unintended Consequences of Bad Estate Planning
We always advise people to get estate planning done. If you don’t decide what will happen to your assets upon your death, the state will decide for you.
But sometimes, despite best intentions, an estate plan turns out to cause unforeseen problems. That can happen with bad planning, which is sometimes worse than no planning at all. To illustrate this point, let me tell you a story.
What John & Nancy Planned For
Imagine a man named John in the following situation. John’s wife of 50 years, Nancy, recently died. John and Nancy thought they were being smart when they got estate planning done many years ago – and they were. But it turned out to be bad planning, because it didn’t take into account the fact that laws, people, and family dynamics change over time.
When Nancy and John sat down and talked about what they wanted to happen to her estate when she died, they agreed that she would split the estate up: part of her assets would go to their children, and part would go to her husband.
First you need to know that the government allows an unlimited amount of assets to be left to a spouse tax-free upon death. But the government doesn’t allow you to leave an unlimited amount tax-free to heirs or anybody else. The amount it allows you to leave tax-free is called the “applicable exclusion amount” (formerly called the “unified credit”).
So together Nancy and John decided that they would create a trust, and into that trust would go the full amount of money up to the amount of the applicable exclusion amount, so that her children could get that money and not have to pay taxes on it. The key is that here, she didn’t specify the exact dollar amount to go into the trust, she only said that the trust was to be filled to the point of whatever the current exclusion amount was. Her husband was named as trustee to control the trust during his lifetime, and the full value of the trust would go to the children upon his death.
What was left over from her estate after the trust was “filled up” would go to John. No matter what amount that was, it would be tax-free, because they were married.
So far so good. This kind of estate planning is pretty common, and it’s a smart way to maximize the amount of money you pass on to future generations while reducing the amount of taxes paid to the government. It works out well – but not all time.
When John and Nancy made this plan, it seemed great. The applicable exclusion amount at that time was $600,000, which was the limit for many years. Her estate was worth a total of $2 million, so during the planning phase, they expected that upon her death, $600,000 would go into the trust for the children, of which John would be the trustee. The other $1.4 million would go straight to John, including her half of the house they owned together.
Had she died soon after completing the plan, it would have worked out just the way they intended. But that didn’t happen.
What John & Nancy Got Instead
By the time Nancy died in early 2015, the applicable exclusion amount was not $600,000, but $5.43 million – a much larger amount. The full value of her estate went into the trust for the children, and her husband got nothing free and clear. Not even the house.
This was not what Nancy intended. Because of bad planning, everyone is in a difficult situation. Not only are they dealing with the grief of having lost their mother and wife, the family members now have to deal with the consequences of the faulty estate planning.
As the trustee of a trust that will go to the kids upon his death, the wishes of the father are now at direct odds with the wishes of the children. John, who had no substantial assets of his own and was counting on having some of his wife’s estate when she died (which is exactly what they thought was going to happen), wants money from the trust to live on. The kids want the trust to stay as it is, so they get the full value amount upon John’s death.
John has some limited access to the assets of the trust during his lifetime. That is, he can get his hands on some of the money, but not all of it. He’s entitled to the income from that trust during his lifetime; plus a total of 5% of the value of the trust, or $5,000, whichever is greater; plus expenses related to his health, education, maintenance and support (sometimes abbreviated “HEMS”). He would ask the trustee – in this case, himself – for the money to spend on those things. If they were considered legitimate expenses, he could spend it.
But here’s the rub: whether something counts as a legitimate or not varies from person to person. The IRS determines this, and they base that on someone’s standard of living. Donald Trump’s expenses considered “legitimate” would be substantially different from those of someone who makes $30,000 per year and lives very modestly. And if the trustee (John) disagrees with the future beneficiaries (the kids) over what’s legitimate, then they have to go to court.
So if, for example, John says he needs to use money from the trust to go to France for a year because that’s necessary for his maintenance, and the children disagree, they have to sue him.
And if the father wants to sell the house to move somewhere else, he can’t do it easily because it’s not his free and clear – half of the house is in the trust. If he goes ahead and sells the house anyway, it’s likely that his children will sue him.
As you can see, the situation is very complicated and it’s begging for lawsuits.
You don’t want to be in this situation. But how can you avoid it?
Avoid This Situation With Good Estate Planning
Remember that estate planning should be based on you, your unique situation and your family. It should not be based on whatever pre-made forms an attorney has ready. It must be about you.
1. Know that you have options.
Nancy and John could have decided to do something else instead. For example, Nancy could have left everything to John, and he could have used a “disclaimer” to disclaim anything he didn’t want, and that would go into the trust for the children. That’s just one option, but there are others. The point is, you don’t have to go with the first estate planning option presented to you if it’s not what’s best for you and your family.
2. Ask a lot of questions.
You should ask yourself what you want to happen with your estate when you die, and you may include your family in those discussions if you wish. You should ask questions before choosing an attorney to help you draw up these documents. Has he done these kinds of things before? What examples can she give you of the most complicated estate planning she has done?
Ask “what if” questions about the plans you’ve created.
• What if by the time I die, the applicable exclusion amount is $20 million? What if it’s $0? What will happen to my estate and my family then?
• What if my spouse remarries after my death? Will any of my money go to the new spouse’s children?
• What if one of my children does something I disapprove of after I die, do they still inherit a portion of my estate? Can I include something in my will to prevent that from happening?
An attorney experienced in complex estate planning will be able to answer these questions clearly and will be able to pose additional questions you hadn’t thought of.
3. Review your plan periodically with an attorney.
As you’ve seen, family dynamics can be complicated, especially when children from different marriages are in the picture, and things change. The amount excluded from estate tax is not set in stone, but is determined by Congress and therefore can change in any given year. That alone could have a huge impact on how your current estate plan will play out in the real world.
Again, ask questions.
• With the way things are now, will my original intention be honored?
• Has anything significant happened in my situation (births, deaths, estrangements with family members) to affect my original intentions?
• What changes must I make to ensure that my estate is distributed the way I want?
Learn More About Personalized Estate Planning
So what about your estate plan? Is it customized to you? Would it honor your intentions? If the answer is no, or you’re not sure, contact South Carolina attorney Gem McDowell and his associatess at 843-284-1021 to discuss your own estate planning needs.
What to Know About Estate Taxes for Estate Planning
An estate tax is levied on an estate of a certain value. Because the tax rate is so high – up to 40% – it’s smart to do what you can through estate planning to reduce or eliminate the likelihood that your estate will be taxed at your death.
If someone dies in the year 2015 and their estate is worth less than $5.34 million, it will not be subject to estate taxes. If they die and their estate is worth $5.34 or more, it may or may not be subject to estate tax.
Here are some other things to know about estate tax.
Spouses and estate tax
Estate tax usually doesn’t apply if you are passing on your estate to your spouse. This is “usually” because in some cases, if your spouse is not a U.S. citizen, different rules apply. If your spouse is not a U.S. citizen, you will want to speak to an experienced estate planning attorney like Gem McDowell.
You and your spouse can combine your separate amounts together so you can freely pass $10.68 million to your heirs. And spouses can “share” the amount so as long as the couple’s combined assets are $10.68 million or less, they will not be subject to estate tax.
Remember that this amount can change so always check for the most current value when making your estate planning documents.
An experienced tax and estate planning attorney in Mt. Pleasant
This is a very simplified overview of estate taxes. To discuss your own estate, and how to best handle it to reduce or avoid taxes, contact Gem McDowell at his Mount Pleasant, SC office at (843) 284-1021. Gem is an estate planning attorney with experience in tax law, and he can work with you to develop an estate plan to meet your goals. Call today.
The 5 Essential Estate Planning Documents
When you come to Gem McDowell Law Group to work on your estate plan, we discuss five documents together: a will, a trust, a living will, a healthcare power of attorney, and a durable financial power of attorney. You may not need them all, but we can figure that out together.
Here’s some information on what each document is, what it can and can’t do, and some things you should consider as you go through the estate planning process.
The Will
A will is a document you create to decide what will happen to your estate when you die. In the state of South Carolina, it must be signed in the presence of a witness and a notary to make it legally binding.
There are a few types of wills, but for people with a relatively small estate, a simple will is a good choice. When we draw up a simple will, we tailor it to each client, but we typically include the following sections in every will:
First, the will states that your mortgage, outstanding bills, and funeral costs are to be paid from your estate. Next, all taxes are to be paid. Unless your estate is worth over $5.34 million (as of 2015), and you want to pass it on to someone other than your spouse, you will not need to pay estate tax.
Next, we’ll authorize you to draft a handwritten memorandum. A handwritten memorandum is a useful document because it allows you to supplement your will anytime afterwards with no notary, no witness, and no attorney’s fees. You can use it to leave certain assets – generally collectible assets, such as a stamp collection – to a particular person. You cannot use it to transfer real estate, cash, or stocks and bonds. Once the handwritten memorandum has been authorized in the will, you can create one later as your wishes change and your estate changes (within limits). Simply write your wish in your own handwriting (e.g., “I, John Doe, wish to leave my ancient coin collection to my son Timothy”), and sign and date it.
Then, we talk about what to do with those large assets like real estate, cash, and stocks and bonds. You may want to leave them to your spouse, if he or she survives you, or you may want to pass them on to your heirs, other relatives, friends, or charitable causes, to name a few possibilities. How you choose to distribute your assets is up to you.
Finally, you name the personal representative (aka “executor”) who will administer the will and carry out your wishes. If you have children who are not yet adults, you will name a guardian, the person who will take physical custody of them when you’re gone. And if you create a trust for some or all of your assets, you will need to appoint a trustee.
The Trust
As with wills, there is more than one kind of trust. A common type of trust used in estate planning is called a testamentary trust, and it becomes effective when the last will becomes effective – at death. It is a convenient way to keep assets in trust for a period of time after your death until they are ready to be distributed. Most often in estate planning, it’s used for leaving assets to children, especially if they are not yet adults. Depending on your situation, you may not need a trust at all.
One common way to handle an estate is to leave everything to your spouse. If your spouse has predeceased you, then everything instead goes to the children.
If you have children, you should consider not giving them their inheritance all at once, particularly if they are very young. At Gem McDowell Law Group, we typically suggest giving three “bites of the apple.” That is, they will receive their inheritance in three separate chunks, spaced several years apart. For example, if you are leaving $3 million to your only daughter, you may decide to have her receive $1 million at age 25, $1 million at age 30, and $1 million at age 35. You may also choose to allow access to the trust money outside of the inheritance for four things: health, education, maintenance, and support.
Trusts are the legal documents that make this type of distribution possible.
The trust is overseen by a trustee, whom you name in your will. If your children are not yet adults you will also name a guardian in your will. The guardian (the person with custody of your children) should generally not be the same person as the trustee (the person with access to the money).
Depending on your unique situation, we can discuss other types of trusts you may want as part of your estate plan.
The Living Will
A living will, also called an advance health care directive, gives you the opportunity to make decisions now about your own health care in the future, should you lose the ability to make decisions for yourself. For example, you can decide now, while you’ve still got the power to make decisions, whether you’d want to continue life support if you were in a persistent vegetative state. In South Carolina, the living will also addresses nutrition and hydration.
Living wills become effective only in cases where one of two things is true:
- You are in a permanent state of unconsciousness and death would occur quickly if life support were removed; or
- You have a terminal illness.
From a legal point of view, neither of those situations is a legal standard – it’s a medical one. To make such a determination, South Carolina requires that the attending physician and another, independent physician both examine you and agree on the state of your health.
This matters because family members may argue over what you really intended.
Imagine a scenario where a woman has been in a car crash and is on life support. Her husband wants to take her off life support, which is what she wished for in her living will. The children don’t want to take her off life support, and threaten to sue if he does. Unless two doctors agree on her state and the living will becomes effective, the husband may not be able to carry out his wife’s wishes.
So while a living will is very important, it has some severe limitations. Because of these limitations, you may also want a healthcare power of attorney.
The Health Care Power of Attorney
A health care power of attorney, abbreviated HPOA or sometimes HCPA, can be considered a “backup” to a living will in a sense. If you don’t have a living will, or it can’t be applied (because one of two conditions above hasn’t been certified by two doctors), then your HPOA can be used instead. Both documents should agree with each other, so that one doesn’t say to end life support while the other says to continue, for instance.
While a living will lets you make the decisions for yourself, an HPOA lets someone else make the decisions for you. But as with a living will, you can make your wishes known. You can tell the agent you appoint that you want maximum treatment or not, that you want to donate your organs or not, or that you consent to tube feeding or not. If you feel better leaving those decisions up to your agent, you may also choose to give them the power to decide at the time of treatment.
The health care power of attorney was drafted by the South Carolina Legislature. It is presented in a Q & A format and asks you to consider different scenarios and to make a decision about what you want to happen. At our law office we have you initial each choice so it’s clear that you chose every selection yourself.
The Durable Financial Power of Attorney
With a health care power of attorney, you appoint an agent and give them the power to make healthcare decisions for you according to your wishes. With a durable financial power of attorney, you appoint an agent and give them the power to make financial decisions for you according to your wishes. Depending on your situation, you may or may not want a durable financial POA.
The Peace of Mind
Estate planning documents are some of the most important documents you’ll ever sign. This is not the time to use a one-size-fits-all form. Call Gem McDowell Law Group at (843) 284-1021 to speak with Gem about your estate planning needs. Once you have a solid estate plan in place, you’ll have peace of mind, knowing that your wishes and your family are taken care of.
Should I Use LegalZoom to Create My Will?
Should you trust your estate planning documents to DIY legal sites like LegalZoom?
Short answer: Probably not.
Every person is different. Every family situation is different. And if you have children, you know that every child is different, too. DIY legal sites don’t understand your unique situation. They can’t provide you with personalized counsel based on years of experience working with individuals and families.
Having access to legal information is a wonderful thing, but it’s incorrect to assume that a one-size-fits-all form will adequately address your own wishes and family dynamics.
When can you trust your estate planning to DIY legal sites like LegalZoom?
If you are unmarried, have a small estate with very few or no assets, and have no children, a boilerplate will may be all you need. In that case, go ahead use the service if you feel like it’s a good fit for you.
But when your situation changes, it’s smart to talk to an experienced attorney who can help you achieve your goals, rather than fit you into pre-written forms.
Personalized Estate Planning in the Charleston Area
When that happens, call Gem McDowell Law Group in Mount Pleasant, SC at (843) 284-1021. Gem can walk you through the process of creating a personalized, comprehensive estate plan. Call today to schedule a free consultation.
