Here is the updated presentation for Alabama Wills and Trusts provide in a seminar yesterday.
Category Archives: Estate Planning
Do You Need a Will or a Trust?
I will be speaking on Wills and Trusts at the Shelby County Senior Health and Wellness Exhibition in Columbiana on 10/13/22 from 10:45 – 11:15. The event will be at the First Baptist Church of Columbiana, 208 N Main St, Columbiana 35051 from 9:30 – 1:00. After the presentation I will make available my slide presentation covering the pros and cons of wills vs. trusts on this web site, Facebook and our Slideshare Account.
Medicaid Estate Recovery Training
I will be providing training on Alabama Medicaid Estate Recovery on Tuesday, 09/20/22, at 10:00 a.m. Central time. If you feel like you could benefit from information on this topic be sure to register with the Middle Alabama Area Agency on Aging. Free CEUs are being offered for social workers, nursing home administrators, occupational therapists and physical therapists.
We will be examining how estate recovery works in Alabama, and who is at risk for losing property to repay benefits Medicaid pays on their behalf.
Unintended Consequences of Failing to Probate a Will
A will has no legal effect if not filed with the court and accepted as a legitimate document meeting the testamentary requirements (which is known as probate). Many people do not know this, and they do not know that a will must be probated within five years of death.
If the will is not filed within five years of death, then the law of intestacy determines where property passes, and it may result in very unfortunate consequences for the intended beneficiaries.
The best way to explain this is an example:
Mrs. Smith’s husband died last year, and she decided to update her will. They owned multiple pieces of property, most of which they owned as joint tenants with right of survivorship (meaning that when the first owner dies, the other will automatically own all of the property). But the one piece of property on which their home is located was owned by her husband without right of survivorship. Since most people don’t sit around reading deeds after the death of a spouse, Mrs. Smith did not know this until the deeds were produced to rewrite her will. Her husband’s will left everything to her, so if his will is probated, no problem. But if his will is not probated within five years, she will own her home property jointly with his children by a previous marriage. Not only will she be unable direct all of the property to pass to the children of this marriage at her death, if she wants to downsize she will not be able to sell the property without the agreement of her husband’s children by a previous marriage. And if those children agree to sell, she will only get half of the proceeds from the sale. This could have been a serious problem for Mrs. Smith if she had not found this need to probate her husband’s will within five years of his death.
The best practice is to always check to see if a will needs to be probated rather than assuming it does not. With that said, not all wills need to be probated. For instance, there may be nothing in the probate estate to pass because all assets were jointly titled in bank accounts, and the home was owned by the spouses as joint tenants with right of survivorship. But if there is property that does not automatically pass to others, take action sooner, rather than later, to determine what you need to do.
Avoid The Ultimate Co-mingling of Assets
It is standard advice to avoid co-mingle property of an older relative with your own money because it may be necessary to prove what belongs to each. For instance, if your relative needs to apply for Medicaid it may be difficult to provide a clean trail of his or her assets and expenditures for five years prior to application as is required by Medicaid.
But the ultimate co-mingling is when families live on property owned by the older relative who never partitioned the property to deed individual parcels to the children or grandchildren. It is not unusual to see families who live and operate businesses off the property of an aging mother, father, or grandparent. This can provide a great family support system and work for all parties involved. Until it doesn’t.
If the aging parent becomes sick enough to need nursing home placement and there are not enough liquid resources to pay for that, then the property will need to be liquidated to provide income to pay for nursing home care or to spend down assets before qualifying for Medicaid. This leaves the relatives living on the property in a very precarious position.
If you are in this position, get legal advice now about what you can do to protect yourself and your aging relative before it becomes an emergency.
Transfer on Death Deed (TODD) Not Valid in Alabama
You may have read a widely circulated post on Facebook that would make you think you should prepare a Transfer on Death Deed (TODD) to pass your property when you die without the need for probate. And you can download and prepare such a document at various online locations. See https://www.templateroller.com/template/2142576/transfer-on-death-deed-form-alabama.html. The only problem is Alabama does not have a TODD statute, so any such deed would have no validity.
As of January 14, 2022, twenty-nine states, along with the District of Columbia and the U.S. Virgin Islands, have some form of TODD. Alabama is not one of them, and neither is Georgia or Florida. Mississippi, bordering Alabama, does have a TODD statute, and, as of January 14, 2022, a TODD statute was pending in Tennessee.
There are other ways to pass property while avoiding probate, but be aware of the fact that the TODD is not available in Alabama.
Planning for Burial/Cremation
Alabama allows an individual to prepare an affidavit appointing an agent to deal with disposition of his or her remains at death. This can be a useful document to have when there is the potential for disputes in a blended family concerning where someone should be buried or whether to bury or cremate the remains.
I have written about this affidavit previously on this blog (see https://janneallaw.com/2017/01/06/appointing-an-agent-for-disposal-of-remains-in-alabama/), but it bears repeating due to a development I have seen in recent years.
Often unmarried significant others are making burial/cremation arrangements for a partner, and it comes as a surprise to them to learn that the funeral home will not accept the instructions of the unmarried partner to cremate. Instead the instruction must come from the next of kin. This can be especially problematic when there are estranged children, making the process even more stressful than it already is.
To avoid this problem, when preparing estate planning documents, it is a good idea to have an affidavit prepared or included in your will giving the person of your choice, especially an unmarried partner, the authority to make arrangements in the manner you wish, to include cremation.
Selling Life Estate Property
A life estate deed can be a great tool for passing property after death. A couple might give the property to their children and reserve a life estate for themselves until the last of the two dies. The couple retains their homestead exemption status for life, and at death the property will automatically belong to the children without the need to probate anyone’s will. Also the child will have a stepped up tax basis in the property which is the fair market value on the date of death of the last life tenant. An additional benefit is the fact that Medicaid will not count the life estate as a resource if the life estate deed was executed five years prior to Medicaid application, and the property would not be subject to Medicaid Estate Recovery since it will never be probate property. That all sounds like a win, win situation, right?
It is, except for one thing. If the couple decides to sell the property they will need the children to sign off on the sale because the children are now joint owners with the parents. The parents own use of the property NOW, and the children, as remaindermen, own the FUTURE use of the property.
Often a life estate deed is given with the goal of keeping property in the family, but that is not always the case. Sometimes the life tenants want to sell the property to obtain funds for any number of purposes. With this in mind, before signing a life estate deed it is important to make sure the remaindermen would be willing to relinquish their interest and sign off on any sale of the property.
The Importance of a Will in Second Marriages
If a person dies without a will, or if the will is not probated within five years of death, then property in his or her probate estate will be distributed by rules determined by the legislature, known as the law of intestacy.
The law of intestacy in Alabama requires that the estate of a person having children by a previous marriage be divided one-half to the current spouse and one-half to the child or children by a previous marriage. This can create some totally unforeseen consequences for a couple in a second marriage with children by that marriage. The children of that union will take nothing under the law of intestacy while a child from a previous marriage will take one-half.
It is important to evaluate your individual situation to determine what is at risk if you die without a will and how you can structure your assets to assure your property passes in the manner you prefer.
Legal Brief: Alabama Small Estate Summary Distribution
This is a short presentation on The Alabama Small Estate Summary Distribution available for estates that include no real property and assets not exceeding $30,245 (in 2020).
Jan Neal Law Firm, LLC 