Tuesday, December 30, 2014

Law lets you provide for pets after death -- trust me on this

From the mailbag: “I don't much care for my children. Can I leave my entire estate to my Miniature Schnauzer, Wolfgang, and my tabby cat, Mitzi?" /s/ Pet Lover.
   Dear Pet Lover: You cannot leave your estate to your pets. Animals are legally incapable of taking title to property. Even if they could, they'd probably sell off your shares of Amazon and invest in Meaty Bonz. (Schnauzers never pay attention to price-to-earnings ratios.)
            The law does allow you, however, to establish a trust to provide for the care of your pets after you die. But you need to address your issues with your children. I recommend counseling.
At least, that's what my fellow advice columnists recommend when they want to sound authoritative and don't want readers to suspect they're just winging it.
Speaking of winging it, you can include birds in your trust for animals, since they are vertebrates. That is one of the requirements contained in the Washington probate code (Chapter 11.118, Revised Code of Washington) authorizing trusts for animals: The beneficiary must be a "non-human animal with a vertebrae." Sorry, jellyfish owners.
Before the statute went into effect a few years back, the administrator of your estate could have found him or herself in a real dogfight, so to speak, trying to enforce testamentary gifts (those made in a will or trust) to animals, which have been disfavored in American case law. According to the American Bar Association Journal,
“The common law courts of England looked favorably on gifts to support specific animals. This approach, however, did not cross the Atlantic. Attempted gifts in favor of specific animals usually failed for a variety of reasons, such as for being in violation of the rule against perpetuities because the measuring life was not human or for being an unenforceable honorary trust because it lacked a human or legal entity as a beneficiary who would have standing to enforce the trust.”
Regarding the “rule against perpetuities” – the bane of law students and bar exam candidates for generations – the less said, the better. The rule, designed to prevent “the dead hand” from controlling a family's wealth for generations on end, is itself essentially dead in Washington. One of its requirements was using an identifiable human life to determine if a trust was valid. That requirement is gone. The Washington Trusts for Animals statute specifically authorizes a trust “for the care of one or more animals” and provides that the trust will terminate “when no animal that is designated as a beneficiary of the trust remains living.” As long as Wolfgang and Mitzi are around to annoy each other and take up space on the couch, the trust will be enforceable.
Moreover, any person designated to care for the animals, any person having custody of the animals, or “any person appointed by a court upon application to it by any person” – opening up the field to just about anyone, has legal standing to enforce the terms of the trust. Again, Schnauzers are excluded from the list.
The trust needs to identify what animals it is intended to benefit. I recently drew up a trust as part of a will that incorporated by reference a separate list of the animals the client then owned, including breed, description and name, and I also included a provision that the trust was to benefit "any house-pets or other animals as defined in RCW 11.118.010 that [the client] may acquire after the execution of this instrument." But any offspring of those animals born after the client's death were specifically excluded, providing a disincentive for any named custodian to begin an aggressive breeding program in order to keep the trust income flowing.
Speaking of aggression, I think Mitzi just sunk her claws into Wolfgang. Some kind of territorial dispute on the couch.
Are you sure you don't want to trade them for a jellyfish?

Tuesday, December 16, 2014

‘TOD’ deed – piece of paper that could keep ‘the lawyers’ out of your heirs’ lives


“The first thing we do, let's kill all the lawyers.”
-- Dick the Butcher, Henry the Sixth, Part 2, Act 4, Scene 2

Contrary to what you might have heard, that oft-quoted line by Will Shakespeare is NOT part of the statement of legislative intent preceding the text of Washington’s new "Transfer On Death Deed” act – but the thought may have crossed the lawmakers’ minds. At least, the non-lawyer lawmakers.
The purpose of the legislation – officially known as Second Engrossed Substitute House Bill 1117 (see link below for full text) – is to uncomplicate the settlement of estates where real estate – basically, the family homestead – is the only asset of value. Executing a “transfer on death” deed allows a person to pass real property automatically, without a probate – the court-administered settling of an estate. Bye, bye, lawyers.
Actually, those of us who practice in the area of probate and estates aren’t taking it personally. We often work with clients trying to figure out a “workaround” alternative to doing a full probate of an estate where there is real property with equity, but little or no “working capital” to pay for attorney’s fees and other costs. Attorneys often take on probate cases with the understanding that their fees and upfront costs, such as filing fees, will be paid when the property is sold. But that can take time, especially in a down market.
Enter the Transfer on Death Deed, which operates essentially like the beneficiary designations you may have filled out for your IRA or 401-K accounts, or for life insurance proceeds. Many brokerage and other financial accounts are also set up with “transfer-on-death” provisions that take them out of the probate process. The named beneficiary produces proof of the asset holder’s death, and his or her proof of ID. The asset is transferred without resorting to the courts.
The Transfer On Death Deed, in form, is like any other deed transferring an interest in real property, with the same formalities required (the most important being acknowledgement  -- or signature – by the grantor and recording with the county auditor). Upon the grantor’s death, the interest in the property vests immediately in the named beneficiary. The transfer of equitable title to the property is automatic, unlike bank accounts or life insurance proceeds, where the physical transfer of the funds is not accomplished until the procedural requirements are met. Unlike a quitclaim deed executed during the property owner’s lifetime (often with a life estate reserved), the Transfer on Death Deed can be undone unilaterally at any time during the grantor’s lifetime (assuming he or she still has to mental capacity to do so).
Helping your heirs avoid having to probate your estate, and knowing you can change the named beneficiaries – or revoke the deed altogether – are the two main selling points for Transfer on Death Deeds as a “will substitute.”
But there are some potential downsides. For one thing, if you carry this whole “I-don’t-want-anything-to-do-with-shyster-lawyers” bit to an extreme, you could end up executing and recording a document with legal errors that could nullify the whole exercise. Failing to provide for what happens if a named beneficiary predeceases you could be one sin of omission that consulting with an estate planning attorney would have helped you avoid. Just sayin’ …
Image source.
There is also the issue of novelty. This is a brand new statute, at least in Washington; it became law on June 12, 2014. There is no case law yet to deal with ambiguities or omissions in the statutory language.
We often fear what we don’t know. Third parties – in the form of buyers, lenders and title companies – with no familiarity with the new statute may balk at purchasing, lending or insuring title on the property in the absence of the tried-and-true probate proceeding and the court’s official stamp of approval on the transfer. The sky has not fallen in the 20 other states – plus the District of Columbia – that previously enacted Transfer on Death Deed statutes. But there’s always that bit of trepidation that comes with being out front on anything. What do they say about pioneers? Those are the guys with the arrows in their backs.
But on the whole, the introduction of the Transfer on Death Deed should help streamline the process of passing real estate to heirs in cases where there is no other reason to open up a probate. It should save families money and speed up the settlement of the decedent’s affairs – all good things,
And don’t feel sorry for us probate lawyers.
There are always other practice areas we can move into if business slows down too much.
Say, is that a siren I hear?
  
To see the complete text of the new statute, codified as Chapter 75, Title 64, Revisded Code of Washington, go to: http://apps.leg.wa.gov/documents/ billdocs/2013-14/Pdf/Bills/ House%20Passed%20Legislature/ 1117-S.PL.pdf