Test of Wills

Divvying up the inheritance can stress any family. So plan ahead.

By Joan Tupponce

test_of_willsDivorce cases are some of the most intensely emotional legal cases. But attorney Kimberly Skiba-Rokosky finds that emotions connected to estate issues “are at times more highly charged than intensive divorce cases.

“There is always a level of emotion with them,” says Skiba-Rokosky, partner at Owen & Owens PLC in Chesterfield.

Many of the emotional issues connected to estates can be avoided by having an estate plan. The plan gives you the opportunity to outline what you want to happen with your assets after your death. It will spell out who gets what and when.

“If you don’t have a will and/or trust or designated beneficiaries for your assets, you are leaving it up to the Code of Virginia to distribute your estate,” says Scott Stovall, attorney and principal at CowanGates in Chesterfield. “The Code section lays out who your heirs are, and that is who gets your assets.”
Issues can arise as early as the drafting stage of the estate plan, especially if an elderly parent brings his or her children to the meeting. “I just want to talk to the parent,” Skiba-Rokosky says. “The children may not have the best of purposes so I try to separate them.”

Complications multiply when someone dies without a will, known as dying intestate. If a parent dies intestate and was divorced and remarried, for example, the current spouse will only be entitled to one-third of the estate. “All of the kids will split two-thirds of the estate,” Stovall says.

“That’s an eye-opener. When I talk to new spouses you see them nudge their husband and say, ‘We need to get something in place.’ You can streamline the administration of the estate and get the assets distributed quicker if you have something in place.”

The situation can even get even stickier if, for instance, a divorced and remarried husband never drafted a will and never put his second wife on the house deed. “Everyone might not get along, and you have the kids telling the second wife to get out,” says Hayward Taylor of Taylor, Taylor & Taylor Inc. in Henrico. “Those people need a will or their estate ends up in litigation or a family fight.”

Tense situations are not uncommon when it comes to estates. “Whether you have a plan or not, if you have family dynamics, you will see issues surface,” Stovall says. “Sometimes you will have a kid who has been living with the parents and takes personal, tangible property out of the house. Then people don’t understand what the assets were. You can’t plan around people doing unscrupulous things.”

You can have issues even with a will in place if the inheritance is not split equally among the children. That can happen intentionally or unintentionally, especially if you designate beneficiaries on financial accounts. “If you have a beneficiary for certain assets, that trumps what you have in your will,” Stovall says.

It is a misconception that a will takes care of everything. That’s not always true. “It only takes care of stuff solely in your name,” Taylor says. “A house that is jointly owned with survivorship has beneficiary designation payable on death and passes to the recipient without will intervention.”

If parents open a financial account with one of their children as a beneficiary, that child will get all the money in that account even if the will shows equal distribution. “That’s not what mom and dad wanted,” Taylor says of the unequal amounts. “If you don’t review beneficiary designations on your assets, your will could be ineffective.”

A child who is a beneficiary has a moral obligation but not a legal obligation to share the money. That money is not part of the estate.

“If the will shows a 50/50 split, you can take the money and share with your sibling even though it is legally yours,” Taylor says. “That always creates the biggest disaster when someone gets more than the other person or somebody got something they were not supposed to get. The nonreceiver thinks it’s a theft. When people don’t do their moral obligation that is where Christmas vanishes. I have seen it vanish over less than $10,000.”

Procrastination can derail a plan as well. Often people will have their documents drafted, but they don’t have them set up properly and don’t follow through.

“When you get the document prepared you have to take extra steps to put that document in place,” Skiba-Rokosky says. “I see people sign the documents and not follow through with the necessary steps such as updating beneficiary designations. Sometimes people that are intended to inherit money don’t because the beneficiary hasn’t been changed.”

The same type of issues can arise when people go online to do their documents and don’t understand exactly what they are doing. “They try to save money, but it costs more money, and the end document is only as good as the information put in,” Skiba-Rokosky says.

She had one client who did a will online but didn’t understand that the document had to be typewritten. “It was half typewritten and half handwritten. It didn’t do what he wanted,” she says. “If he had gone to a lawyer or had the document reviewed by a lawyer, he would have been in a better position. It’s unfortunate because people left behind get so upset.”

Inheriting money in an estate “can be like a pot of gold,” Taylor says. Many people who inherit money don’t know how to handle the sudden windfall.

“With inheritance, one of the most common mistakes is the money gets spent,” Stovall says. “A fairly large percentage gets spent within a year of the person passing. That is the most common.”

If someone who is married inherits money and then uses it to buy something for the good of the marriage, “there are issues,” Stovall says. “The inheritance that would have been the person’s can become marital assets.”

Logic and planning often go out the window. People will sometimes buy something extravagant or take an expensive trip. “They do those type of things that won’t create value for the long term,” Taylor says.

People also don’t often think about taxes when they inherit money, but they should. For example, if you inherit a 401(k) and cash it in, it is considered a 100 percent taxable event.

“I tell people if you have assets like that, you need to talk to someone so you don’t make the wrong tax move,” Taylor says. “Most people cash everything in, and that is a huge mistake. A small amount of planning a couple of weeks after the death can generally eliminate 90 percent of your problems or at least eliminate going in the wrong direction. It’s complicated depending on the investment.”

Planning ahead and sharing information with the people who will be inheriting an estate will alleviate a multitude of issues. Parents should tell their children what assets they have and where they are to avoid any confusion with the estate. “My best advice is to talk to a lawyer to get your estate in order,” Skiba-Rokosky says. “Then follow up and change beneficiaries. Make a list of assets and leave that with the will. If you do an online will, draft it out and print it and bring it to a lawyer.”