A will is a document that describes how its author (the “testator”) wishes his or her assets to be distributed to others at death. Wills are a practical necessity for people that own real or personal property. These documents, when properly drafted and executed, provide for an orderly distribution of property to survivors of a testator. In the absence of a will, the law of the place where the person has died will generally determine how that person’s property will be distributed. Having no estate plan, or an estate plan that is incomplete, can lead to surprises, challenges for survivors, and litigation, making the grieving process that much more difficult for survivors. Having a plan is a good plan. Here are a few common problems that you can avoid while you are planning for your estate.
Not having a will is a common problem for many people. The next best thing to not having a will is having a will that you have not properly executed (which, in Maryland, generally requires that the testator sign the will, and that there be at least two witnesses that were present and signed the document themselves; see Maryland Estates & Trusts § 4-102).
Also, the Maryland probate process requires that the original will be filed with the Orphan’s Court in order to prosecute the estate. A copy will not do. If the original will cannot be found, the court may follow the estate plan described in a prior, original will, or the intestacy statute if there is not a prior will. This may end up as a surprise for the expectant heirs if the testator changed his/her estate plan late in life.
A third variation on this theme is that the will describes beneficiaries that have died, or that otherwise fails to properly address all the property owned by the person making it. Some wills lack a “failure of beneficiary” clause which describes how assets should be transferred in the event that there are no beneficiaries based on the remaining bequests in the will. This can also create a case of surprise for the survivors.
A fourth, less common variation on this theme is that a person’s will was drafted in another state or country, but doesn’t meet the statutory minimums to be recognized in Maryland. The other dilemma with this is that the will does meet Maryland’s requirements, but the will is challenged here and the witnesses cannot be found to testify as to the veracity of the signature on the document (or the witnesses have died and therefore cannot come to court to testify).
Out of Date Will
Estate plans change over time. For example, a young person that enlists in the military would have a different estate plan (which might primarily benefit his/her parents) than a married person that has recently had a child. However, it is not uncommon for the living to write a will and forget about it for a period of time. People also may write a will when they have fewer assets, and then subsequently prosper (or buy a life insurance policy to cover a major debt, like a mortgage), but not update their will to match these changes.
Major life changes like getting married or having children also changes how your estate will be distributed if you have no will. Spouses are also treated in a special way by the law if you have excluded your spouse from your estate as a spouse has the right to an “elective share” of your estate under Maryland Estates & Trusts § 3-203 and applicable Maryland case law.
Beneficiary Not Blood Relative
As you know, as of 2011, there is no gay marriage in Maryland. As a result, gay partners that wish to protect their partner but have not written a will may inadvertently leave out their surviving partner from their estate. This can be particularly difficult on the surviving partner, both financially and emotionally during an acutely difficult time. The law is, at best, unclear as to what effect the marriage of same-sex partners in another state would have on partners in Maryland under the intestacy statute. Maryland may eventually recognize same-sex marriage (pending this year’s election in Maryland which has a ballot initiative on gay marriage), but in the interim, your estate plan should address this issue properly.
Lawyers don’t typically get a degree in math, but that’s no excuse for the math not working out properly in a will. However, this problem happens more often than you might think if the Residuary of the estate is apportioned into shares, but the shares don’t add up to 100% of the Residuary.
Long ago in Maryland, there was a single estate tax exemption set at the federal level which permitted a fixed amount of an estate to be exempted from both state and federal estate taxes ($600,000 prior to 1998). This “coupled” estate tax permitted Maryland to make a claim for a portion of the taxes collected by the federal government, without the estate having liability for a separate estate tax amount to Maryland. However, federal law changed in 2001, causing the federal exemption amount to increase to $5 million for people that died in 2010, 2011 or 2012. Maryland, on the other hand, capped the exemption from state estate taxes to $1 million. This means that an estate may be exempt from federal taxes, but have a state tax liability when the total value of the estate is more than $1 million but less than $5 million. See Maryland Tax-General § 7-309.
Maryland also has an inheritance tax based on the size of the estate and whether or not the heirs to the estate are immediate family of the deceased or a more distantly related (or unrelated) person.
Estate taxation is a complex and esoteric area of the law, and therefore an easy place to cause problems for an estate. Discussing an estate plan with an attorney can help to discuss these issues and how to manage them.
Bonds and Funeral Expenses
Absent a provision in the will, a probate court may require that a personal representative obtain a bond to serve and a probate court may cap the total funeral expenses chargeable to an estate. See Maryland Estates & Trusts § 8-106 (requiring court approval for funeral expenses over $5,000 for a small estate and $10,000 for a regular estate). See also § 6-102 regarding a bond for the personal representative (which can add expense to the administration of the estate, and confusion for the person acting as the personal representative).
A person who owns an interest in a business (for example, owns a member interest in a limited liability company, or shares in a small, private corporation) may need special advice in planning for his/her estate. One common way to address this is to enter into a buy-sell agreement so that the deceased owner’s estate is “bought out” of the business in exchange for proceeds from a life insurance policy, held by the business entity or personally by the other owners of the business. More information is available in this post.
No Beneficiary on Insurance Policies
Another common problem for estates is that the decedent died with life insurance, but did not designate a beneficiary for the insurance policy. The estate may not know to file a claim to the insurance company, defeating the purpose of paying the premiums on the policy, or if there is no beneficiary, the insurance policy may pay into the estate of the deceased, leaving the insurance money to be distributed as per the decedent’s will (if any) or the intestacy statute. This may not have been the intended result of the decedent, and may also have unintended tax consequences for the the beneficiaries of the estate.
These are just a few of the estate planning problems that may crop up. Talking with an attorney as a part of planning for your estate can help to reduce surprises and ensure that your loved ones are taken care of as you would want them to be.