Estate Planning Notes

Informal Posts for Everyone

Default Takers: Unmarried Decedents

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In estate planning, “default takers” are the beneficiaries under a Will or Revocable Trust who “take” (that is, who receive the assets controlled by one’s Will or Revocable Trust at his or her death) when all of the named beneficiaries have predeceased the testator or settlor and there are no alternate beneficiaries described in the document.  (By named beneficiaries, I mean not only a person who is identified by his or her particular name but beneficiaries who are named by class, such as “my children” or “my descendants.”  I also mean beneficiaries who take under certain statutes called “anti-lapse” statutes, which I will discuss in another post.)  Some Wills and Trust Agreements do not identify  “default takers.”  In that case, the default distribution of the decedent’s assets is controlled by the “laws of intestacy.”  My view is the every Will or Trust Agreement should expressly name the “default takers,” even if it seems highly unlikely that such a clause will ever be needed.   Here is an illustration of the problem in the case of someone who died unmarried:

Several years ago, a probate judge appointed me as personal representative of an estate in which the decedent’s Will named only her next-door neighbor as the beneficiary.  The problem was that the next-door neighbor had predeceased the decedent and the Will did not describe any alternates.   In that case, Florida’s intestacy laws took over, just as if the decedent had died without a Will.  Here is the priority order in which those laws would identify the default beneficiaries in that case:

  1. All her descendants.  But the decedent had no descendants.
  1. Then to the decedent’s father and mother equally, or to the survivor of them. But neither of the decedent’s parents survived her.
  1. Then to the decedent’s brothers and sisters and the descendants of deceased brothers and sisters. But the decedent was an only child.
  1. Then to the decedent’s grandfather and grandmother equally, or to the survivor of them. But they also had predeceased the decedent.
  1. Then to uncles and aunts and descendants of uncles and aunts of the decedent. The decedent’s father was an only child, but the decedent’s mother had two sisters.

Although both aunts had passed away, there were cousins who survived our decedent.  One of the aunts had one child and he survived. The other aunt had six children and they also survived.

One might expect, then, that the decedent’s estate would be divided into seven equal shares, with one share distributed to each cousin.  But Florida directs that “descent shall be per stirpes,” whether to descendants or to “collateral heirs.”  The cousins were collateral heirs.  Thus, the cousin who was the only child received one-half of the estate and the six cousins who were brothers and sisters each received one-twelfth of the estate.  The six were unhappy.  But that’s how the matter fell out under the intestacy laws.  This result could have been avoided had the decedent, when she undertook her estate plan, been mindful of the contingency that her named beneficiary might predecease her.

Some of my clients take the matter of the default takers very seriously.  They may name a list of friends or charities or some friends and some charities or some charities alone.  In the case of our decedent, perhaps none of her cousins had been a particular favorite.  She could have directed that if her aunts did not survive, the distribution to her cousins was to  be per capita and not per stirpes, so that each would have received an equal share.

What if the decedent’s two aunts had died childless? Had the decedent been a widow, then her estate would have gone to the kindred of her last deceased spouse as if that spouse had survived the decedent and then had died intestate himself.  But our decedent had never been married.  What then?  In that case, Florida law requires that the escheat to the State of Florida.  There is, then,  no further genealogy tracing.  We do not, for example, jump up to the decedent’s great-grandparents and start down the family tree from there.  But note the following.

At one time Florida law stated that if any of the descendants of the decedent’s great-grandparents were Holocaust victims as defined in s. 626.9543(3)(a), including such victims in countries cooperating with the discriminatory policies of Nazi Germany, then the estate was to be distributed to the descendants of the great-grandparents.  However, that extension of the laws of intestacy applied only to proceedings filed before January 1, 2005.

Acquisition of an Asset by a Maiden-Name Couple: Another Estate Planning Event

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During the late 60s and the decade of the 70s, women who married retained their maiden names more often than they did in prior years.  Sometimes the couple hyphenated their surnames during those times, but in a lot of cases the non-traditionalist wife simply carried on the surname that her parents used.  (Last year, a column in the New York Times asserted that Maiden Names, [are  Now] on the Rise Again.)  I will refer to such couples as “maiden-name” couples.

However a married couple intends to be known, they should always be careful of the estate planning implications of having both of their names appear on the documents that evidence ownership.  But this is especially true in the case of maiden-name couples.  In such cases, those who document “title” or ownership (for example the clerk in the bank or brokerage firm) may be misled in completing the forms for a married couple who do not have the same last name. Title-documenting people may wrongfully assume that the couple is not married.

Such was the case of the maiden-name couple Peter Sanchez and Amy Friedman.  Peter and Amy opened an on-line brokerage account “in both their names,” Peter told me, and each of Peter and Amy from time to time thereafter deposited funds into that account.  Then Amy died suddenly.  Who owns the account as a result of Amy’s passing away?

The general rule in Florida is that if two or more people own an account together, each of them owns an undivided fractional interest in that account, unless the account agreement with the financial institution or the title document states otherwise.  They are “tenants in common” in relationship to that account and each other.  When one of them dies, the decedent’s interest becomes part of his or her estate; it does not get re-divided among the surviving tenants.  There is no “right of survivorship” simply based on the fact that the owners own  the asset together.

There is an exception, however, where there are just two owners, the two acquire the asset together, they are married to each other at the time, and they remain married until the death of the first.  Where that death occurs, the result is that the entire asset is owned by the surviving spouse with often little more necessary than a death certificate pertaining to the first spouse.  That kind of ownership is called “tenants by the entireties” or “TBE.”

As far as the on-line brokerage firm was concerned, however, Peter and Amy owned the account as “tenants-in-common.”  Nothing in the documentary history of the account indicated that Peter and Amy were married to each other at the time they opened the account.  As far as the brokerage firm was concerned, half of the account belonged to Peter and half, as a result of Amy’s death, belonged to Amy’s estate.  Thus, the brokerage firm insisted that Peter commence probate proceedings with respect to Amy’s “half” of the account so that the firm could deal with Peter as her personal representative.  (In fact, they didn’t even want to speak to Peter about Amy’s half of the account without his being her personal representative.)  The brokerage people missed the fact that Peter and Amy were married to each other when they first opened the account. The fact that Peter and Amy did not have the same last name threw them off during the account opening process.  The firm did not know and they did not ask about the relationship, and Peter and Amy said nothing about.  (Increasing the risk of this misunderstanding was the fact that  most of the account opening process took place on-line and on the phone.)

In Florida, however, the law appears to be that title need not say explicitly say “as tenants by the entireties” or “as husband and wife,” when a married couple acquires ownership for that ownership to be TBE ownership.  See Section 689.15 of the Florida Statutes.  It is enough that they are married at the time that title is created.  It may in some cases take a court proceeding to prove that the couple were married at the time of the creation of the account and were continuously married until the death of the first spouse, but it is very likely that the surviving spouse will prevail in such proceedings.

The problem, of course, is that no one wants court proceedings involved; no one wants probate proceedings.  They are too expensive.  It is even more painful to realize that those proceedings could have been avoided if the brokerage firm had picked up that Peter and Amy were married. Or if Peter and Amy inquired of the firm to be sure that, if one of them died, the other “inherited” the estate without probate.

The fact is that the acquisition of the account by Peter was an “estate planning event.”  People tend to think that the estate planning event, the event of primary, maybe transcendent importance is the signing of Last Wills.  But as to a given asset the estate planning event of primary importance is usually its acquisition.

The situation with same-sex married couples in Florida is similarly fraught.  In acquiring an important asset, at the time of acquisition such couples must be sure to make the appropriate disclosures and inquiries. They need to confirm that at the death of the first of them, the decedent’s interest will go where they intend it to go and in a way that is efficient and effective.  Yes, they are entitled to the presumption that when both names appear in the title documentation, both names without any other name, then they mean that at the first death, the survivor takes all.  In other words, they mean TBE.  But why risk misunderstanding?

(Married couples who acquire an asset as “tenant by the entireties” acquire that asset in a form that will also protect that asset from the creditors of one or the other of them.  Thus, TBE asset acquisition by a married couple, in addition to being an “estate planning event” is also an “asset protection event,” as we will  discuss further in a future post.)