Rodney Dangerfield once joked that “my wife and I sleep in separate rooms, have dinner apart, and take separate vacations - we're doing everything we can to keep our marriage together!” But what if your wife didn't live with you and still wanted to inherit your property after your death?
The Michigan Supreme Court recently had to decide whether a spouse was still entitled to inherit from her husband's estate or whether her marital rights had been severed by her "willful absence" from him for more than a year before he died.
James and Maggie were married in 1968, had four children, then Maggie moved out in 1976. They never lived together again. James died in 2012, without a will. A child from James' first marriage asked the probate court to determine that Maggie was not his surviving spouse and therefore not his heir.
The Michigan Supreme Court determined that "willfully absent" cannot be defined solely by physical separation since spouse may be separated for a job or military service. Rather, the Court must determine whether a spouse's physical absence brought about a practical end to the marriage or an "emotional absence".
The Court found that in 2010, James and Maggie had joined together as plaintiffs to sue James' employer. They proved that Maggie was entitled to health insurance as part of James' retirement benefits. James made clear in that lawsuit that Maggie was still his wife and that they had an ongoing relationship.
The Court found that James' daughter had the burden of proving that Maggie was "willfully absent," and the daughter's proof (of only physical absence) was not enough to sever Maggie's rights as James' wife.
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A Lady Bird deed allows an owner “the best of both worlds”. He can maintain control of all legal rights regarding his home until his death. Upon death, the home transfers to the beneficiary without the need to go through probate court.
The problem with simply adding a loved one to a deed as a joint owner is that then the added co-owner cannot be removed without his consent. Also, the house can be vulnerable if the added co-owner goes through a divorce, a bankruptcy proceeding, or has judgments outstanding against him.
The Lady Bird deed lets the original homeowner change his mind and remove the beneficiary he has added onto the deed. The homeowner maintains complete control to subsequently sell the house or borrow against it without the consent of the beneficiary.
The name "Lady Bird Deed" comes from Lady Bird Johnson, President Lyndon Johnson’s wife.
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You may have heard that it is wise to always title assets in the name of two people, or “owners.” In the event of the death of one owner, the asset passes directly to the surviving owner and avoids probate court. However, did you know that in some cases, including an additional owner on an asset can result in an unnecessary capital gains tax?
For example, if a child is named a co-owner on a stock portfolio while a parent is living, upon the death of that parent, the child’s “tax basis” in the stock is based on the amount that the parent originally paid for the stock. In other words, when the child sells the stock, he or she will pay tax on the gain from the date the parent bought the stock until the date of sale. All of the appreciation during the parent’s lifetime will be taxed, potentially resulting in thousands, if not tens of thousands of dollars in unnecessary capital gains tax.
On the other hand, if a child inherits a stock portfolio upon a parent’s death, the child’s “tax basis” on the stock begins the day that the parent died. Therefore, when the child sells the stock, he or she will only be taxed on the gain from the date of the parent’s death until the date of sale. Any appreciation that occurred during the parent’s lifetime completely escapes tax.
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It is common practice to always name at least two owners on any asset. When one owner dies, the asset passes to the surviving owner and probate court can be avoided.
However, problems can arise if a parent adds only one of his children as a co-owner on an asset. The parent and child may have an “unwritten agreement” that the asset will be split equally among all siblings upon the parent’s death. Yet it is not uncommon for the child named on the asset to keep all of it for himself. Often, this is justified as a repayment for all the help that the child provided to mom and dad during their lives, and there is nothing the other siblings can do to enforce the original “unwritten agreement.”
Even if a parent adds all of his children to an asset, there is a risk if one of the children predeceases him. When surveyed, most people said they would give the inheritance of a deceased child to any grandchildren from that child. However, if only the children are named on an asset, and a child has predeceased his parents, those grandchildren have no legal right to share in that asset. They are at the mercy of a unanimous agreement between their aunts and uncles to give them a share.
Estate plans can eliminate these and many other potential problems. Whether you use a simple will or a revocable living trust, the right legal document can ensure that you don’t leave these types of problems for your children. Contact Legal Strategies to learn more about our customized estate plans.
Many people like to plan their estates by having two names on every asset. That way, when one owner dies, the asset automatically passes to the surviving owner, thus avoiding probate court.
Once a person is added as an owner to an asset, that ownership takes effect immediately, and all owners have equal claim to the asset. Because of this, it is critical to consider carefully who is being named as an additional owner to your assets.
Consider the following scenario: Mr. Smith is named an owner on his mother’s savings account and is currently involved in a divorce. Divorce proceedings require a full disclosure of financial assets. Because he is an owner, his mother’s savings account will be factored into the divorce. Even if Mr. Smith believes that the asset belongs to his mother, in the eyes of the law, he is an OWNER. Failure to disclose the asset can be considered fraud. Taking Mr. Smith’s name off of the asset right before he files for divorce can also be considered fraud. The asset must be disclosed and thus becomes part of the divorce proceeding. (The same result would occur if Mr. Smith were in bankruptcy.)
In addition, if a child and his parents have assets at the same bank (which is common), there is another danger if the child falls behind in repayment of any loans from that bank (car or boat loans, a home equity line, etc.). Loan documents almost always provide that the bank may use the money in other bank accounts to pay any past due loan payments. Some parents have had all of their bank accounts seized because a child who was a co-owner on their accounts had fallen behind on his loan payments.
Because of these and similar circumstances, consider adding a person as a beneficiary to your account rather than as an owner. This way, you maintain full control of your assets, but upon your death, the asset passes right to the beneficiary and avoids probate court.