wills
A common question regarding farm transition planning is: “should I have a will or trust for my plan?” Like most legal questions, the answer is “it depends”. Sometimes a will is adequate for a plan while other plans should include a trust. Knowing which you need requires an understanding of wills and trusts and the factors that should be considered when deciding which to implement.
A new publication, Is a Will or Trust Better for Your Farm Transition Plan?, discusses the differences between wills and trusts and provides nine factors to consider when deciding which to use for your plan. The factors to consider are:
- Legal fees
- Complexity of the plan
- Probate
- Concerns about heirs
- Second marriages
- Transition of farming operation
- Taxes
- Privacy
- Control
The publication analyzes each factor and how it relates to a will and trust. After reviewing the factors, an informed decision can be made regarding implementing a will or trust into a farm transition plan. This publication is part of an extensive library of farm transition bulletins and publications available at farmoffice.osu.edu.
Robert Moore, Attorney and Research Specialist, OSU Agricultural & Resource Law Program
When we think of estate planning our thoughts usually go to a will or trust. However, in some situations, an effective estate plan can be implemented without the use of a will or trust. Using transfer on death or payable on death beneficiary designations, for some people, can be an adequate estate plan.
A transfer on death or payable on death designation can be added to almost any asset with a title. Transfer on death is used more for tangible assets such as land and vehicles while payable on death is used more for intangible assets such as financial accounts and life insurance. Both designations do the same thing – upon death, ownership is transfer from the deceased to the designated beneficiary outside of probate. This process of transferring ownership at death is usually simple and relatively easy.
The strategy of using beneficiary designations as the primary estate planning tool is best used when the distribution plan of assets is simple. For example, when the deceased’s assets will be divided equally among their children. Distributions plans that include more involved schemes such as unequal distributions, buy outs, leases or rights of first refusals are too complicated to use just beneficiary designations. In those situations, a trust-based plan will likely be needed. Using beneficiary designations as the primary estate planning strategy only fits a narrow band of farmers, but for those farmers and it can be an effective and relatively inexpensive plan.
Consider the following example. Mom and Dad’s farming operation is an LLC that holds farm machinery, livestock, and crops. They own 200 acres in their names. Their other assets include a bank account, retirement account and life insurance. At Mom and Dad’s death, they want all of their assets to go to their two children equally. Their net worth is $4 million.
In this example, the first thing to notice is that Mom and Dad are well under the federal estate tax limit. So, their estate plan does not need to be designed around minimizing estate taxes. Second, their plan is simple. Everything goes to their two children equally. Lastly, the assets they own are all titled assets that can include death beneficiary designations.
Mom and Dad can title their LLC ownership transfer on death to the children. Upon their deaths, the LLC ownership interests will transfer to the children outside of probate. The transfer is done with a few pieces of paper. The land can be made transfer on death by recording a Transfer on Death Affidavit. Upon Mom and Dad’s death, the children will record an affidavit with a death certificate and title is transferred – again, without probate. The children can be added as the payable on death beneficiaries of the financial accounts and life insurance. After death, the children will file paperwork with the financial institutions and funds will be transferred to them outside of probate. A $4 million estate has been transferred without the need to use a will or trust and probate has been avoided.
While this strategy does not use a will or trust for the transfer of assets, it is still a good idea to have a will as a backup. In the above example, Mom and Dad execute wills that state all of their assets go to their children equally. The will is there in case a beneficiary designation is in error or an asset is overlooked and must go through probate. The goal is not to use a will but there should be one as a backup just in case Mom and Dad forgot to add a transfer on death designation to the old livestock trailer that they haven’t used in five years.
The following assets can all have transfer on death or payable on death designations added to their title: vehicles, titled trailers, trucks, boats, real estate, bank accounts, financial accounts, life insurance, stocks, and business entities. Assets such as livestock, grain, crops and machinery are untitled so a transfer on death designation cannot be added. However, transferring those untitled assets into an LLC is a great way to essentially convert untitled assets to titled assets. After the untitled assets are transferred to the LLC, the LLC ownership can include a transfer on death designation.
When considering estate plans, farmers who have relatively simple plans and can add death beneficiary designations to all or most of their assets may not need a complicated will or trust. The beneficiary designations can be the primary estate plan with a simple will as backup. This strategy is effective, minimizes legal costs and avoids probate. As stated above, this strategy is not for everyone, but it should be considered. For more complicated plans or for high-net-worth individuals, a trust may be needed.
Tags: wills, Beneficiary Designations, probate
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Just when you think estate planning can’t get any more complex, we see a court case that proves us wrong. The case below arises out of a dispute about a devise in a will to a beneficiary that died before the testator. The central issue was whether Ohio’s anti-lapse statute protected the devise or if the devise lapsed and became part of the testator’s residual estate. Believe it or not, the answer to that question lies within the word “means.” Below we discuss the Third District Court of Appeals’ decision and how it reached its conclusion that the word “means” narrows the definition of devise in Ohio’s anti-lapse statute which may create an outcome for families and loved ones that the law or legislature did not intend.
What it means to “lapse” and Ohio’s anti-lapse statute. To understand the context and importance of this case, it helps to have a little understanding of Ohio’s common law lapse rule and anti-lapse statute. Traditionally, at common law, a devise given to a person who predeceases the testator is said to “lapse.” Devise, as used here, is a general term that is used to mean “the act of giving property by will.” This is an important distinction to make because, as you will learn later, the court had to interpret devise differently under Ohio’s anti-lapse statute.
If you think about it, it makes sense that a devise would lapse when the beneficiary predeceases the testator because you cannot give property to someone who is already dead. But under the lapse rule, all surviving heirs of that predeceased beneficiary also lose out on any assets that the beneficiary would have been entitled to. Instead, the lapsed devise will either become part of the testator’s “residual estate” – where it will be distributed pursuant to the terms of a residuary clause contained within the testator’s will – or it passes through intestate succession.
The common law rule of lapse has been criticized for the harsh results that it produces. This is especially true when the lapse rule is applied to wills containing a devise to a child or close relative that predeceases the testator. For example, Farmer A has no children and wants to give the farm to a family member that will continue the farming operation. Farmer A’s siblings, however, hope that they get the farmland to sell for a premium price. Farmer A decides to execute a will that gifts the farm and all associated assets to his nephew who has been helping him on the farm for the past few years. Farmer A probably hoped or believed that after he was gone, his nephew was going to continue the farming operation and prepare his sons to take over the farm and keep Farmer A’s legacy alive. However, Farmer A’s nephew was in a horrific tractor accident and passed away shortly after Farmer A executed his will. Not long thereafter, Farmer A’s health declined, and Farmer A passed away. In this scenario, the nephew’s sons would not be entitled to the farm because the lapse rule essentially voids the gift to the nephew. Instead the farm is likely to be passed to Farmer A’s siblings and will be sold.
To remedy the harsh results, Ohio enacted its anti-lapse statute which can be found in Ohio Revised Code Section 2107.52. In the event that a beneficiary dies before the testator, Ohio law “protects” the devise and prevents the devise from being extinguished by the common law lapse rule.
However, Ohio’s anti-lapse statute only applies in certain situations. First, a devise must be to:
- a grandparent;
- a descendant of a grandparent (descendants of a grandparent include your siblings, children, parents, aunts, cousins, etc.); or
- a stepchild of the testator
If any one of the individuals listed above (also referred to as “devisees”) dies before the testator and leaves surviving descendants, then two situations can occur:
- If the devise is an individual devise (i.e. the devise is not to a group or class of individuals like “my children” or “my grandchildren”) a substitute gift is created in the devisee’s surviving descendants. The surviving descendants are entitled to the property that the devisee would have been entitled to, had the devisee survived the testator.
- If the devise is in the form of a class gift, a substitute gift is created in the surviving descendants of any deceased devisee.
Ohio’s anti-lapse statute requires any devise that fails to become part of the testator’s residue or “residual estate.” If the devise cannot become part of the residue, then it passes by intestate succession. This overview of Ohio’s anti-lapse statute is very brief and does not cover the many nuances that are contained within the statute. If you have more questions regarding Ohio’s anti-lapse statute you can visit the statute here or contact a knowledgeable estate planning attorney.
Case Background. Now we get to the reason for this post. We will first discuss the background information of the case before diving into the court’s analysis and holding. In 2019, Theodore Penno passed away leaving a validly executed will which read:
ITEM II. I hereby give, devise and bequeath my farm located in Butler Township, Mercer County, Ohio, and any interest that I may have in any farm chattel property to my brother, JOHN PENNO.
ITEM III. All the rest, residue, and remainder of my property, real and personal, of every kind, nature, and description, wheresoever situated, which I may own or have the right to dispose of at the time of my decease, I give, devise, and bequeath equally to my brother, JOHN PENNO and my sister, MARY ANN DILLER, absolutely and in fee simple, share and share alike therein, per stirpes.
***
ITEM V. I hereby appoint my niece, LINDA PENNUCCI and my niece, PHYLLIS DILLER, or the survivor of them, as Co-Executors of this my Last Will and Testament.
John Penno, Theodore’s brother, passed away approximately three years before Theodore. The only sibling to survive Theodore was his sister, Mary Ann Diller. John is survived by his two children, David Penno and Linda Pennucci. Mary Ann filed a complaint for declaratory judgment and for construction of Theodore’s will. Mary Ann argued that Theodore’s gift to John in Item II should lapse because John passed away before Theodore and the farm and farm property should become part of Theodore’s residual estate and be distributed according to the terms of Item III. John’s children argued to the contrary and asked the court to find that Theodore’s farm and any farm property be distributed to them alone.
The issue. The issue in this case was whether the devise to John in Item II lapsed and became part of Theodore’s residual estate. If the devise did not lapse, then only John’s children would be entitled to the farm and farm property. If the devise did lapse, then the farm and farm property become part of Theodore’s residual estate and is then distributed according to the terms of Item III, which would entitle Mary Ann to some portion of the farm and farm property. The probate court and the trial court found that the devise in Item II did not lapse, and John’s children were entitled to the farm and farm property alone. Mary Ann then filed her appeal to the Third District Court of Appeals.
The court’s interpretation of “devise” in Ohio’s anti-lapse statute. At the center of this case is the definition of “devise” contained within Ohio’s anti-lapse statute. The statute provides that:
“Devise" means an alternative devise, a devise in the form of a class gift, or an exercise of a power of appointment.
The word "means" is bolded and underlined here because it becomes very important to the court’s interpretation of the statute.
Like the court, Mary Ann and her daughter, Phyllis, also thought the word “means” was very important. They argued that the gift of Theodore’s farm and farm chattel in Item II was not a “devise” under Ohio’s anti-lapse statute and therefore, the gift to John lapsed when John predeceased Theodore. Mary Ann and Phyllis reasoned that Theodore’s devise to John was a primary devise and Ohio’s anti-lapse statute only protects an alternative devise, a devise in the form of a class gift, or an exercise of a power of appointment. The court eventually agreed with Mary Ann and Phyllis.
The court explained the difference between a primary devise and the other meanings of devise contained within Ohio’s anti-lapse statute. According to the court, the different definitions are as follows:
- Primary devise – “is a devise to the first person named as taker.”
- Alternative devise – “is a devise that, under the terms of the will, is designed to displace another devise if one or more specified events occur.”
- Class gift – “is a gift to a group of persons, uncertain in number at the time of the gift but to be ascertained at a future time, who are all to take in definite proportions, the share of each being dependent on the ultimate number in the group.”
- Power of appointment – “is a power created or reserved by a person having property subject to disposition, enabling the donee of the power to designate transferees of the property or shares in which it will be received; esp., a power conferred on a donee by will * * * to select and determine one or more recipients of the donor’s estate.”
The court examined the definition of “devise” as written in the statute and concluded that the definition only meant alternative devise, class gift, or power of appointment. The court reasoned that the use of the word “means” conveys that the definition of “devise” in Ohio’s anti-lapse statute is intended to be an exhaustive definition and that the three kinds of testamentary gifts following the word “means” are the only kinds of testamentary gifts capable of qualifying as “devises.” To help reinforce their conclusion, the court compared the word “means” to the word “includes” and concluded that “means” indicates that there is only one meaning whereas “includes” conveys the idea that there are other items that can be included in the definition of a word, even though they are not specifically stated.
Based on the court’s findings and conclusions, the court ruled that Theodore’s gift to John was a primary devise and was not protected by Ohio’s anti-lapse statute. The court found that the gift to John must become part of Theodore’s residual estate or pass through intestate succession.
The court’s ruling may seem counterintuitive to the purpose of the anti-lapse statute, and the court admitted as much. But the court reiterated the concept that it is not the court’s place to change the meaning of a statute as it is written – that obligation is left to the legislature and the legislature alone. The court argued that if the court’s ruling is an unintended consequence resulting from how the statute is written, the legislature can change the words of the law to more accurately reflect the purpose of the anti-lapse statute.
Conclusion. This case demonstrates how one simple word can drastically change the meaning of the law and how that small word can affect a lot of people. This case is also a great reminder about the importance of planning for all possible scenarios. Many times, when we create our own estate plan, we must face the reality of our own deaths. Facing that reality is quite uncomfortable. But we must also come to terms with the even more uncomfortable possibility that our loved ones pass away before us. This is why it is important to speak with an experienced and knowledgeable estate planning attorney as you plan for the future. A good attorney will address not only the immediate needs you have for transferring your assets but will also help you plan for all possibilities so that your intentions are carried out.
This case is also a good example of why we should update our estate plans when major life events occur. The death of a beneficiary is definitely one of those instances where you should contact your attorney to update your estate plan so that there is no doubt your loved ones are taken care of when you are gone.
To read the court’s decision, please visit the Ohio Supreme Court’s website.
Tags: Estate Planning, Anti-lapse Statute, wills, Lapse
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Do you have a will? Was your will executed formally? Do your parents have a will? Was their will executed in accordance with Ohio’s laws? What happens if your parent’s friend claims they are entitled to a portion of your parent’s estate because they have a handwritten note saying as much? Recently, the Ohio Supreme Court decided a case to help clarify Ohio’s laws regarding will execution.
In re Estate of Shaffer
Dr. Joseph Shaffer – a psychologist and part owner of successful sleep clinics – executed a formal will in 1967. Dr. Shaffer’s formal will instructed that if his wife were to pass away before him, his estate would pass through trust to his two sons. Dr. Shaffer’s wife, unfortunately, did pass away before him. On July 20, 2015, Dr. Shaffer also passed away. Dr. Shaffer’s formally executed will was admitted into probate in 2015.
In January 2016, Juley Norman – a friend and caretaker of Dr. Shaffer – filed a creditor’s claim against Dr. Shaffer’s estate claiming that she was entitled to a portion of his estate because of the care and services she provided to Dr. Shaffer before the end of his life. Ms. Norman attached a copy of a handwritten 3x5 notecard signed by Dr. Shaffer in 2006. No signatures other than Dr. Shaffer’s were present on the notecard, which read:
| Dec 22, 2006 |
| My estate is not |
| completely settled |
| all of my sleep network |
| stock is to go to |
| Terry Shaffer |
| Juley Norman for |
| her care of me is to |
| receive 1/4 of my estate |
| Terry is to be the |
| executor. |
| This is my will. |
| [signed by Dr. Shaffer] |
Zachary Norman, Juley’s son, filed an application asking the probate court to treat the notecard as a will and recognize his mother as a will beneficiary. At an evidentiary hearing to determine whether the notecard should be admitted as Shaffer’s will, Norman testified about her close relationship with Shaffer and the circumstances surrounding the notecard. She stated that only she and her son witnessed Shaffer write and sign the notecard and that Shaffer directed her son to keep it in a safe place. The probate court held, however, that there was not clear and convincing evidence that the notecard was intended to be Shaffer’s will.
Ohio's Sixth District Court of Appeals disagreed, overruling the probate court and allowing Juley to be added to the list of beneficiaries of Dr. Shaffer’s Estate. Dr. Shaffer’s son sought the Ohio Supreme Court’s discretionary review of the matter after the appellate court’s reversal.
In reaching its unanimous decision to reverse the court of appeals, the Ohio Supreme Court analyzed the relationships between three Ohio laws, as follows:
ORC § 2107.03 – Formal Will Making Requirements
Ohio law states that a document admitted to probate as a formal will must meet be:
- In writing;
- Signed at the end by the testator (or in some circumstances someone else at the testator’s direction); and
- Attested to and subscribed to by two or more competent witnesses who saw the testator sign the will.
The Ohio Supreme Court confirmed both lower courts’ decisions that Dr. Shaffer’s notecard cannot be considered a formal will. No witness signatures were present on the notecard and thus the only way to admit Dr. Shaffer’s will is through an exception in Ohio’s laws regarding will making formalities.
ORC § 2107.24 – Exception to the Formal Will Making Requirements
R.C. § 2107.24 provides a narrow exception to the formalities required in R.C. § 2107.03 and recognizes a will even though no witness has signed the purported will. A probate court must hold a hearing to examine whether an advocate of the nonconforming document establishes by clear and convincing evidence that:
- The decedent prepared the document or caused the document to be prepared;
- The decedent signed the document and intended the document to constitute the decedent’s will; and
- The decedent signed the document in the conscious presence of two or more witnesses.
This statute is central to the issue between the Normans and the Shaffers. The Ohio Supreme Court found that under this law, the court’s role is to determine whether a document should be admitted to probate, not to determine the validity of the will’s contents. Therefore, the Ohio Supreme Court found that the probate court should have admitted the will into probate based on the above requirements. Even though the specific bequests contained within the will may be stricken once the will is admitted, the 2107.24 evidentiary hearing is not the proper mechanism to determine the validity of the contents of the will.
However, the Ohio Supreme Court also analyzed Ohio’s “Voiding Statute” which eliminates any specific bequests to an interested witness to the will.
ORC § 2107.15 the “Voiding Statute”
Ohio’s “voiding statute” states that if a devise or bequest is made to a person who is one of only two witnesses to a will, the devise or bequest is void automatically. The witness, however, will be able to testify to the execution of the will, as if the specific devise or bequest to that witness had not been made.
Essentially, if a witness stands to take a portion of a testator’s estate under a will and if the validity of that will hinges on that witness acting as one of the two essential witnesses necessary to create a valid will, then that person’s interest under the will is void as a matter of law. This law does not control whether someone is competent to be a witness in order to establish a valid will, it only governs whether a devise or bequest in an already admitted will is valid. Therefore, this law comes into effect only after a will is determined to be valid and is admitted to probate.
The Ohio Supreme Court found that the voiding statute applies to witnesses under both R.C. § 2107.03 and § 2107.24. The Court held that Juley Norman could not take ¼ of Dr. Shaffer’s estate because she is one of the two witnesses required to establish a valid will, and thus Dr. Shaffer’s devise to her is void.
Conclusion
Sadly, Dr. Shaffer is no longer with us to tell the Ohio Supreme Court what his wishes were. The only people who can testify to the validity of the notecard stand to gain something from that notecard being admitted to probate. Dr. Shaffer may have intended to provide Juley with 1/4 of his estate, but he did not take the legal steps necessary to ensure that Juley would be a beneficiary of the will. Historically, others in Juley’s position have not been honest when it comes to claiming an interest in someone’s estate, which is why the law prohibits witnesses from also being beneficiaries of the will.
The Shaffer case illustrates why it is important to consult with an attorney to ensure that your wishes will be carried out as you intend and your estate plan is in order. If you want to change your will, an attorney will ensure that the new provisions are in accordance with Ohio law. Doing so can keep your family and friends out of court.
Useful links: The Ohio Supreme Court's slip opinion In re Estate of Shaffer.
Tags: estates, wills, Estate Planning, Ohio Supreme Court
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Have you ever sent an email or text message that seemed perfectly clear to you, but the recipient read it differently than you had intended? It happens all the time in everyday life. We know what we mean in our head, but the message we send contains ambiguities. While we can hopefully fix ambiguities in an email or text message quickly, wills can present a different story.
Once a person has passed away, fixing an ambiguity in a will is not easy because the best person to ask about intent cannot be called to testify. Unfortunately, many families learn about the problems posed by ambiguities the hard way.
Take a recent example from Mahoning County. In April, an Ohio appellate court upheld a probate court’s decision on how to distribute the assets of a Salem area farmer (“the farmer”). This happened five years after the farmer passed away, and after two appeals of his estate. He had a will, but it contained an ambiguity that resulted in years of litigation and delayed closure.
His will made one specific bequest, and the rest of his property would go into a general pot for his named beneficiaries to divide among themselves as they or the executor saw fit. The specific bequest read, “I give, devise, and bequeath to my brother […], the real estate at […] together with all contents of said real estate, if owned by me at the time of my death.” The court had no problem with the real estate because the will provided an address; however, what did the will mean by “all contents of said real estate”?
At the time of the farmer’s death, the real estate contained a residence, family heirlooms, valuables, household goods, farm equipment, and vehicles. The brother argued that the specific bequest included farm equipment and vehicles because of their physical presence on the real estate. The general beneficiaries disagreed, believing that the bequest applied to pieces of personal property like heirlooms within the house. Looking only at the will, the probate court agreed with the general beneficiaries. The brother appealed the decision.
The appellate court viewed “all contents of said real estate” as ambiguous, and sent the case back to the probate court to re-examine the will. The law generally disfavors testimony about what a decedent intended because the law assumes that the will provides the best evidence of what the decedent wanted. When a court finds an ambiguity in a will, it may consider evidence beyond the will, such as testimony or other documents; however, the law considers this evidence less authoritative because it is not directly from the decedent.
After the first appeal, the brother and attorney who drafted the farmer’s will testified in probate court about conversations with the farmer before he passed away. The brother claimed that conversations with his brother about ideas to grow the farm meant that the farm equipment should go to him; however, the attorney claimed that the farmer intended only for the brother to receive family heirlooms within the house. The court believed the farmer’s attorney, and again decided that the specific bequest did not include the equipment.
For a second time, the brother appealed the probate court’s decision. This time the appellate court was satisfied with the probate court’s actions and upheld the probate court’s interpretation of the will. Click HERE to read the court’s opinion, which is cited as Bogar v. Baker, 2019-Ohio-1762 (7th Dist.).
It took the family in the Bogar case five years to have a legal determination of what their loved one meant in his will. One clause resulted in lots of costly litigation, not to mention the stresses on the family.
No family wants a contentious probate. Losing a loved one is hard enough without having to go to court to fully litigate the contents of a will. Fortunately, this is a problem that can be avoided, or at least minimized, with an effective plan.
Here are some tips to minimize ambiguities in your will:
- Identify who you want to have specific pieces of your real and personal property. For personal items such as family heirlooms, antiques, and art, you may leave a directive that names specifically which person receives what items.
- Read through your will. Does it make sense to you? Does it sound like what you want to happen?
- Consider showing your will to your executor and ask what he or she thinks your will says. How would the executor carry out your will if you were gone today? If he or she says something that you did not intend, you can still fix your will to more clearly align it with your wishes.
- If you are concerned about beneficiaries challenging your will, you can include a no-contest clause that gives the executor final authority to interpret how to distribute your estate and penalize beneficiaries who challenge that distribution. When included in a will, these clauses often prevent a beneficiary who challenges a will from receiving any property from the estate.
These tips do not guarantee a challenge-free probate process, but can help make your will as clear as possible. If a question about your intent would still arise, having a couple of witnesses who can attest to your wishes will help the court get as close to your wishes as possible. However, this requires you to tell each of these people the same thing and in a clear manner. If you make any changes, you need to communicate that to your confidants.
Stay tuned in the next couple of months for new resources from our team about estate and business transition planning. Until then, take a moment to review your estate plan!
