Increase in Exempt Property

Exempt property is property that a surviving spouse can protect from creditors of the estate. By allowing exempt property, the S.C. Code essentially guarantees a spouse that he/she will be able to maintain certain household furniture, automobiles, furnishings, appliances, and personal effects despite the amount of debt owed by the estate. The South Carolina Probate Code §62-2-401 was amended in January of this year to increase the personal property exemption from $5,000 to $25,000 making this a much greater protection. If there is no surviving spouse, minor or dependent children of the decedent are entitled jointly to the same value; however, adult children do not get the same benefit.

There are a few important points to remember if you wish to claim this exemption as a spouse or on behalf of your client.

  • This right is not automatic. You must file a claim form (435ES) to take advantage of this code section.
  • You must file your claim within a certain time period. You have eight (8) months from the date of death or six (6) months from the probate of the decedent’s last will to claim the exemption.
  • The amount claimed is subtracted from, not added to, any benefit passing to the surviving spouse; therefore, it is valuable only as a means to protect the estate from creditors – not as a way to increase their share.
  • The claimed property takes priority over all other claims other than funeral expenses and costs of administration (including attorney’s fees).
  • These rights are in addition to any right of homestead and personal property exemption otherwise available.
  • Any surviving spouse (or minor or dependent children) who fails to survive the decedent by one hundred twenty hours is deemed to have predeceased the decedent for purposes of this section.
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Do I Need a POA (Power of Attorney)?

Many of our elderly clients come in asking for a Power of Attorney. A doctor, family member or friend may have mentioned that they need one, but aren’t able to explain why or what type. This post will provide some basic information on the different types of Power of Attorney and what they allow others to do.

A Power of Attorney authorizes someone else to act on your behalf in a legal or business matter. There are different types of Power of Attorney including General, Special, Health Care and Durable.

A General Power of Attorney authorizes your chosen individual (called an “agent”) to act on your behalf in a variety of situations. These can be very broad in nature and allow the agent to perform many duties including but not limited to handling banking, buying and selling property, taking out a loan, entering into contracts, filing tax returns, applying for and handling government benefits (Social Security, Disability, etc.), making gifts and more. After consulting an attorney, these powers can be narrowed or expanded to suit the client’s needs or concerns.

A Special Power or Limited of Attorney authorizes your agent to act on your behalf only in a specific circumstance. We frequently draft these documents to authorize an agent to sell a piece of real estate, care for and authorize medical care for a child (usually when the parent is out of the country), or handle government benefits on behalf of our client.

A Health Care Power of Attorney authorizes your agent to make health care decisions on your behalf if you are not able to do so. The agent’s decisions would not supersede your own decisions and only apply if you are unconscious, incompetent, or otherwise unable to make your own decisions. This is different from a Living Will, which simply allows you to express your wishes related to life-sustaining procedures.

 A Durable Power of Attorney: This is not a unique type of Power of Attorney but instead refers to a language in a General, Special, or Health Care Power of Attorney that allows them to remain in effect even if you become incompetent. With the exception of a Special Power of Attorney, we strongly recommend that you include the appropriate language in your Power of Attorney documents to ensure they remain effective during any period of incompetency. In fact, for many of our clients the fear of future incapacity is the sole reason to have these documents.

The ability to download and create a Power of Attorney online has lead to serious issues and litigation. Often, people don’t understand that the POA becomes valid as soon as you sign it unless it’s specifically drafted not to do so. This means that your agent can immediately start making decisions and exercising the powers you have granted them. This is often not the intent. Similarly, if a POA is being executed after a diagnosis of dementia, Alzheimer’s or related illnesses, it’s important to have an attorney prepare the documents so that he or she can attest to your competency to do so. Many attorneys offer consultations at reduced rates to discuss these documents and others that might be a part of your estate planning. It’s wise to share your specific situation and get advice about exactly what you need to have in place to protect yourself, your assets and your heirs.

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Can My Spouse Disinherit Me?

Many people are surprised to learn that South Carolina law actually prohibits your from disinheriting your spouse absent their consent (i.e. a prenuptial agreement). The rights of the spouse to take from the estate will be determined by whether the will was written BEFORE or AFTER the marriage. Here are the two different scenarios.

In the first scenario, the Last Will was executed BEFORE the marriage took place. In this scenario, the law considers you an omitted spouse and presumes that your spouse simply failed to update their will to include you. S.C. Code Section 62-2-301 applies and explains that you are entitled to receive your intestate share in the estate despite what the will might say. Refer to our previous post on intestacy to see what that share would be. It’s important to know that just like most rules, there are exceptions. The omitted spouse rule may not apply if the will appears to have intentionally omitted you or your spouse has otherwise provided for you through other assets.

In the second scenario, the Last Will was executed AFTER the marriage. In this situation, the presumption is that the spouse intentionally left you out of the Last Will. Even if the spouse fully intended to leave their spouse absolutely nothing, S. C. Code Section 62-2-201 provides the spouse the ability to claim a one third share of the estate. This share is called an “elective share” as it’s not automatically given to the disinherited spouse, the spouse must elect to receive it.

Here’s an example of how these statutes might both apply to a case. Husband drafts a will prior to his marriage but while engaged to future Wife. In the will he names her as his fiancé and only provides her with a small portion of his estate, leaving the remainder to his children from his first marriage. In this scenario, the Wife should file both an Omitted Spouse Claim (which would entitle her to ½ of the estate) and an Elective Share Claim (which would entitle her to 1/3 of the estate). Should the court hold that Omitted Spouse does not apply because Husband contemplated the marriage at the time the Will was executed, then at the very least she has the right to the Elective Share.

If you are a spouse that has been disinherited, it’s crucial that you contact an attorney immediately. The attorney can give you information on how to file your claim with the court to guarantee you are protected. For example, to secure your elective share, a spouse must file a Petition with the Probate Court and the personal representative within eight months after the date of death or six months after the probate of the Last Will, whichever period last expires. Miss the deadline or fail to file with both parties and you could miss out on your inheritance. Similar time limits apply to omitted spouses. Not understanding how to value the estate’s assets when making your claim, what outside assets may or may not factor in to the estate, and how to properly file your claim could all be costly mistakes!

 

Important Note: Effective January 1, 2014 there were substantial changes in South Carolina’s Probate Code. While we’ve tried to update this blog, please note the date of blog posts and send us an email or call for a consult before relying on information written prior to January 1, 2014. We appreciate your understanding.

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Who has the CAPACITY to make a will?

Probate Courts deal daily with the issue of “capacity.” When handling Conservatorship and Guardianship cases, they determine whether or not people have the capacity to manage their own affairs. When handling disputes over someone’s last will, they are often asked to determine whether or not someone had the legal capacity to make a will in the first place. So, what exactly is capacity?

Capacity is someone’s ability or power to do, experience or understand something. That being said, this ability changes based on the question at hand. For example, the level of capacity necessary to enter into a contract is higher than the capacity to make a will. In any capacity question, it’s not enough just to ensure the person is of legal age and sound mind; you must have more information.

In South Carolina, the capacity needed to write a will is a lower standard than the capacity to enter into other agreements such as a contract. A Testator (the person making the will) must be of “sound mind” and age 18 (although some exceptions apply to that requirement when executing the will). Further, in order to prove someone has the capacity to make a will, they only have to show the following:

1. The Testator has a general understanding of his or her estate assets;

2. The Testator knows the natural objects of his affections (those who would normally receive his/her assets); and

3. The Testator knows to whom he or she wishes to leave his/her assets to through the estate.

In general, this is a rather low standard. It’s also important to remember that having dementia, Alzheimer’s or another know mental illness does not preclude someone from meeting this standard. A drug addict can be of sound mind and have capacity so long as they are not under the influence at the time of signing the will. Similarly, people who are eccentric do not necessarily lack capacity. For example, in certain situations leaving your entire estate to your dog may be sane, even if unusual.

If you or a loved one wishes to make a will but is unsure if you have the capacity to do so, it’s always best to consult an attorney. Qualified estate attorneys are trained to interview a client for capacity before drafting the documents and at the time of the execution. Having an attorney involved provides an extra layer of protection down the road should an non-inheriting family member wish to contest the document.

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What is a Life Estate?

Many clients approach us to discuss the possibility of using a life estate in their estate planning.  This post is designed to give an basic overview of the life estate. As always, please come in for a consult or schedule an appointment with your family attorney prior to changing your deeds or estate plan.

The life estate scheme divides ownership of a piece of real property between at least two parties—the Life Tenant and the Remainderman.  The Life Tenant holds ownership and enjoys the use of the property for the duration of his or her life.  The Life Tenant is responsible for the taxes, insurance, upkeep, and other expenses related to the property during his lifetime and has a duty to reasonably maintain the property while it is in his care. At the death of the Life Tenant, ownership of the property passes directly to the Remainderman (there may be one or multiple remainderman), who then owns the property outright.

A life estate can be useful in estate planning, as it is one way to keep real property from passing through the probate process.  A life estate can also be used in Medicaid planning, but this is often a risky proposition.  A life estate interest is often not included when figuring Medicaid assets, but it’s important to remember that there is a five-year look back period on transfers of this type that can often trigger a penalty.  There can also be tax implications associated with creating a life estate.

Other problems can arise in the context of a life tenancy.  In a life estate, the Life Tenant and the Remainderman are technically co-owners, so no one person has complete control over the property.  A conflict often starts when the Life Tenant fails to pay taxes on time or does not care for the property to the standards of the Remainderman.  Selling the property can also become complicated, as each interest holder may only sell what he owns.  In other words, the Life Tenant is only able to sell a life tenancy, and a Remainderman is only able to sell what will be his upon the death of the Life Tenant.  All interest holders would be required to agree to and sign off on a sale of the property in order to transfer full ownership.

Creating a life estate can be easy, but dealing with one can be difficult.  You should always consult an attorney to understand all of the pros and cons before executing a deed that creates a life estate.

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Joint Tenancy and Your Children – Estate Planning Nightmares

While my firm does plenty of estate planning, my role in the firm is to handle the “litigated cases.” This means that I step in when things have gone wrong – sometimes horribly wrong – after someone passes away. Over the past few years I’ve noticed that one of my favorite estate planning tools, the use of joint tenancy with rights of survivorship, has also become an area leading to litigation and unwanted outcomes. In an earlier post, we discussed joint ownership with spouses but here is a review of this form of ownership.

Joint Tenancy with Rights of Survivorship can apply to deeds on real property, bank accounts, car titles, and other assets. This form of ownership allows two parties to hold the asset in such a manner that when the first one passes away, the remaining owner holds 100% of the asset. In our prior example of a marital home, the deed to the home would contain certain language to create a “joint tenancy with a right of survivorship” or JTROS. In this form of ownership, if the Husband dies first, his 50% passes immediately to the remaining owner (i.e., the “survivor” of the tenants takes it all), and it does so without passing through an estate, going through probate, or anything else. It’s “automatic.” There are certain circumstances beyond the scope of this post where this doesn’t work (more than 2 owners, one joint tenant kills the other, etc.), but for the majority of situations, it’s a great tool for spouses.

So, you might be wondering why this area of the law leads to so much litigation. The reason is that our example shows how joint tenancy with right of survivorship works – and works well – with spouses. The area in which this is frequently litigated involves children. My litigated cases would decline if everyone followed one basic rule: You should not title property (this includes bank accounts, homes, vacation houses, CDs, vehicles, etc.) jointly with your child unless you are fully intending to gift that ownership to them and them alone. Here is the most common example of this disaster:

Husband and Wife were married for 30+ years and had three children; we will call them O (oldest), M (middle or mooch), and Y (youngest). Husband passes away with the marital home, a bank account, and a car held jointly with right of survivorship with Wife. Wife is so impressed that this didn’t have to go through probate that she decides to tell her middle child, M, that she is going to title these same assets with him since he lives close by and helps her manage her affairs. He agrees. She then has him promise that when she passes everything will be divided equally between O,M, and Y. To be safe, she also updates her will leaving all of her assets to be divided equally between the three children and names O as the Personal Representative.

Years later, Wife passes away. O, the Personal Representative in the will, quickly learns that most of the assets were titled jointly with rights of survivorship with M and therefore passed directly to him at death. M did not need court approval because he was the joint holder of these assets, although by all accounts he never contributed towards paying for any of them. By the time O consults an attorney, M has already taken all funds from the bank account, sold the car, and moved in to the once marital home.

O has options – but they are all costly, lead to serious animosity between the siblings, and involve lawyers, witnesses, hearsay issues, and more. And, unfortunately, O and Y will likely lose in court. The will in this situation does not add the layer of protection sought because a will does not control assets that pass outside of probate. In the end, unless you have an only child (those lucky kids), what worked great between Husband and Wife leads to unintended consequences when it comes to kids.

Joint ownership of property leads to a myriad of questions in the estate planning context. To make sure you’re putting the pieces of this puzzle together correctly, it’s always wise to get legal consultation before changing your deeds or updating your will.

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Joint Tenancy and Spouses: Understanding SC Law

In South Carolina, you have the right to title assets (this includes real property, bank accounts, car titles and more) in several ways. Today’s post will not detail ALL of the various ways we can hold title, but will discuss two different types of joint ownership and how they can be used to hold property with a spouse. To simplify this concept, we will use in this post the example of a deed to a marital home worth $200,000. Let’s begin with tenancy in common.

Tenancy in common is the legal term for ownership held by two or more people where each owner has an undivided interest in the property. In our example, this means that if Husband and Wife hold their $200,000 home in tenancy in common that each of them is a 50% owner. Under this type of ownership if the Husband dies first, his 50% (roughly $100k of equity) will pass through his estate. If the Husband has done proper estate planning and left a valid Last Will and Testament, chances are that this will not be a problem as he likely leaves his 50% back to Wife so that she ultimately owns 100% of the marital home. If, however, he failed to leave a will, his 50% will be passed through the laws of intestacy (we’ve explained this in a previous post) and Wife will end up sharing the home with other heirs. This can be a disaster if the other heirs are his children from a previous marriage, their children who are still minors, etc. This can also be a nightmare if the Husband dies with significant creditors as they can attack the 50% interest in the home in an attempt to collect on his debt. For these reasons, we commonly suggest to our married estate planning clients that they consider the next form of ownership, Joint Tenancy with Right of Survivorship.

Joint Tenancy with Right of Survivorship is a mouthful, but when understood and used properly it can be a huge benefit to South Carolina residents to protect their assets from creditors, etc. Certain language included in a deed can create a “joint tenancy with a right of survivorship” or JTROS.  In this form of ownership, if the Husband dies first, his 50% passes immediately to the remaining owner (i.e. the “survivor” of the tenants takes it all) and it does so without passing through an estate, going through probate, or anything else. It’s “automatic.” Now, there are a list of circumstances beyond the scope of this post where this doesn’t work (more than 2 owners, one joint tenant kills the other, etc.) but for the most part this is a great piece to your estate plan.

Remember that our example used a marital home but these rules can apply to almost any form of property that is titled including cars, bank accounts, retirement accounts and more. Also remember that other factors must be considered when choosing a form of ownership. For example, a couple may choose not to title an asset in one spouse’s name if they have outstanding liens or judgements against them.

Using these forms of ownership is a great estate planning tool in South Carolina. David Causey, an attorney in our office, offers both reduced consults and flat fee deed preparation to help you take advantage of these options. If you’re unsure how your assets are currently titled, its wise to determine that by getting a copy of your deed, contacting your bank, reviewing your car title, etc. Once you know how all of your assets are titled, an estate planner can better assist you in understanding how all of these pieces come together to form a solid estate plan.

One last warning, and it’s a big one, while these are excellent tools to use with your spouse, they can have disastrous outcomes when used with children. We’ll cover that in an upcoming blog post!

 

Important Note: Effective January 1, 2014 there were substantial changes in South Carolina’s Probate Code. While we’ve tried to update this blog, please note the date of blog posts and send us an email or call for a consult before relying on information written prior to January 1, 2014. We appreciate your understanding.

 

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What is a Small Estate?

In South Carolina, opening a small estate is a convenient alternative to opening a full estate.  It’s a quick and cheap option available to some depending on the value of the decedent’s property that needs to be transferred.  The small estate process, authorized by S.C. Code Section 62-3-1201, allows the person that paid funeral expenses on behalf of the estate to transfer and receive certain types of property belonging to the decedent.  The person that paid the funeral expenses is considered a creditor of the estate and is therefore entitled to reimbursement for the amount they paid.  Any assets remaining after the reimbursement will be split according to the decedent’s Will or the laws of intestacy, whichever may apply.

Upon filing the proper form with the Probate Court along with proof the funeral expenses have been paid in full, the Probate Court will issue an order allowing the payor of the funeral expenses and/or the heirs to collect the property of the decedent.  The entire procedure with the Probate Court is completed within a few days once the Court issues its order, as opposed to the year or so it usually takes to administer a full estate.

Certain restrictions apply.  Thirty days must pass after the date of death before a small estate can be filed, and the value of the entire probate estate, minus liens and encumbrances, must not exceed $10,000.00 (please note this amount was increased to $25,000.00 in January 2014).  Almost any kind of property can be transferred via a small estate, except for real property.  If the decedent held any real property in their name without the essential rights of survivorship language appearing in the deed, opening a full estate will be necessary to properly transfer the land.

The small estate process can eliminate most of the expense and frustration associated with the process of transferring the assets of a deceased loved one.  If you think the procedure may be available to you, contact your county’s probate court.  Some counties require additional documentation before they will process a small estate.  Also, remember that the court cannot issue a small estate order until thirty days have passed since the date of death.  Use that time to locate all of the decedent’s property so that everything can be addressed and transferred at one time.

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To Receive or Not to Receive – Illegitimate Children in Probate

In the 2010 Census, we learned that more than forty percent (40%) of children born in the United States are born to unwed mothers. While the issue of “illegitimate” children is certainly nothing new, it does lead to complex probate issues (usually at the death of the father).

Before the 70’s, the general rule was that an illegitimate child could not receive through his father’s estate. As the times have changed, so have the rulings. In Mitchell v. Hardwick, 297 S.C. 48, 50 (S.C. 1988), the South Carolina Supreme Court adopted the United States Supreme Court rule from Trimble v. Gordon, 430 U.S. 762 (1977), that illegitimate children could inherit from their fathers’ estates. Mitchell allowed illegitimate children to inherit from their fathers’ estates if three conditions were met: (i) innocent persons would not be adversely affected because of their detrimental reliance on the old inheritance rules (which barred intestate succession of illegitimate children from their father’s estate), (ii) the paternity of the child has been conclusively established either by court order or a decree issued prior to the death of the father or by an instrument signed by the father acknowledging paternity, and (iii) and the estate administration is subject to further resolution.

Today, we are even more willing to allow illegitimate children to inherit and have seriously loosened the Mitchell requirements that a child has to meet. South Carolina Code § 62-2-109 determines when a parent-child relationship exists for the purpose of inheriting through an estate. Luckily, the law is clear that when it’s the mother who passes away, a child born out of wedlock child is always a child of the mother for purposes of inheriting.  That child is also a child of the father if: (i) the natural parents participated in a marriage ceremony either before or after birth, even if the attempted marriage is void or (ii) paternity is established by adjudication either before the father’s death or within the proper time period after death. Similarly, if the putative father marries the mother and recognizes and acknowledges the child as his own, he becomes known as the father.

As an attorney who practices probate litigation, the call I usually get is from the illegitimate child who wants to know how to make sure they receive their share of the estate. These cases usually arise in the intestacy context (i.e. where there is no will) but can also arise when an illegitimate child is not named in the will because his/her paternity was not known at the time of the drafting of the will. The most important thing I remind these clients is that the burden falls on the illegitimate child to prove paternity. This is not the responsibility of the estate or its Personal Representative. And, the law is very clear that you can’t sit and wait to make your Petition to the court. Paternity MUST be established by an adjudication commenced before the death of the father (such as a family court child support order) or within the later of eight months after the death of the father or six months after the initial appointment of a personal representative of his estate.

Lastly, for my legal readers, it’s important to note that when representing a client in this area, the burden of proof is clear and convincing. If the Decedent didn’t acknowledge the child and you don’t have DNA tests to prove paternity, this can be a difficult burden to meet. Always make sure your client has realistic expectations (and solid evidence) before heading to your hearing.

In a future post, I will discuss how illegitimacy comes in to play when its the child who passes away; as well as the rules with regards to adopted children.

 

Important Note: Effective January 1, 2014 there were substantial changes in South Carolina’s Probate Code. While we’ve tried to update this blog, please note the date of blog posts and send us an email or call for a consult before relying on information written prior to January 1, 2014. We appreciate your understanding.

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Paying Creditor’s Claims

One of the primary duties of the Personal Representative is to manage the estate assets, which includes paying creditors of the estate. In performing this duty, there are several important things a Personal Representative should remember.

First, most creditors should not be paid until the eight (8) month creditor period has expired. The only exception are debts that MUST be paid to preserve estate assets. Examples of debts that should be paid include mortgages on real property, property taxes and insurance premiums required to maintain policies on the assets. Other bills, such as medical bills, credit card bills and other unsecured debts should not be paid until the Personal Representative can evaluate ALL claims against the estate and prioritize their payment. This is one of the largest errors made by Personal Representatives and one that can likely get you in trouble with the heirs by paying unnecessary debts. Remember, it’s the heirs money you are spending.

Once the creditor’s period has expired, the Personal Representative has a duty to pay claims made against the estate. This only includes claims that have been properly filed with the Personal Representative and Court, not simply people who have continued to send bills and make harassing phone calls. Those who do not file claims are barred from payment and should not be paid! Claims that are filed must then be paid according to an established priority S.C. Code §62-3-805. If the estate does not have enough assets to pay all the claims in full, this priority will guide the Personal Representative in which claims to pay first.

Costs and expenses of estate administration, including attorney’s fees and reasonable funeral expenses must be paid first. Next in line are reasonable and necessary medical and hospital expenses of the decedent’s last illness and/or medical assistance paid under Medicaid to certain individuals. Then, the Personal Representative must pay debts and taxes required to be paid under federal law, then debts and taxes required to be paid under South Carolina law, and then all other claims, in that order. A large portion of these claims fall in this bottom category (such as credit card debt). Legal advice from a probate attorney is often helpful in this situation. Quite frequently, the cost of a probate lawyer is less than the number of claims they can negotiate or dissolve entirely.

If the estate does not have enough funds to pay all claims within one of these classes in full, the Personal Representative may have to pay only a portion of all those claims. In order to do this properly, all claims in the same class should be treated in the same manner. A probate lawyer can guide you through the process of disallowing claims and a future post will delve further in to that topic. Lastly, these rules do not apply to the administration of small estates (those valued at less than $10,000 at the time of this post) if they are being administered through a small estate proceeding. (Update: The value for a small estate increased to $25,000 in January, 2014)

 

Important Note: Effective January 1, 2014 there were substantial changes in South Carolina’s Probate Code. While we’ve tried to update this blog, please note the date of blog posts and send us an email or call for a consult before relying on information written prior to January 1, 2014. We appreciate your understanding.

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