- The general prosperity of the American economy for the past few years has led to a situation where more individuals than ever before have been able to accumulate wealth in the form of transferable assets. The financial papers are replete with advice on how to transfer assets to relations and charitable institutions during life or upon one's death while simultaneously reducing tax liability. Most of these methods are complicated and the pitfalls are many. What happens when an attempted gift or transfer of assets misses the mark? Because such gifts or transfers often are deemed to be "incomplete" after the death of the donor, it is important to seek an experienced probate or estate law attorney who is versed in dealing with gifts and transfers. Such an attorney can help to determine which course of action is best for you.
Dealing With Incomplete Transfers During Probate
- In today's age of prosperity, many individuals attempt to keep their accumulated assets out of probate. In doing so, they are demonstrating the hope that, upon their death, their assets will go to the individuals or organizations of their choice. Unfortunately, such attempts to creatively dispose of assets often results in a transfer that is incomplete.
- Transfers deemed incomplete are probated along with the remainder of the decedent's estate. It is likely that the assets may not be disposed of as they would have been had the transfer been complete. This article will examine briefly the nature and purpose of probate, various factors that could make a transfer or gift "incomplete," and finally, it will examine the consequences of dealing with an incomplete gift or transfer during probate.
- "Probate" means the court procedure by which a will is proved to be valid or invalid. However, the term is used in common everyday conversation to refer to the legal process through which the estate of a deceased person is administered. Where the decedent has not left a will, the process is geared to carry out the directives of the state, as determined by the laws of each individual state. The purpose is to assure that property is not left unaccounted for upon the death of the original property owner.
- The probate process generally involves collecting a decedent's assets, liquidating liabilities, paying necessary taxes, and distributing property to heirs. These activities are carried out by the Personal Representative (executor) of the estate usually under the supervision of the probate court.
- "Intestate" means to die without a will. A person is said to die intestate when he dies without making a will, or dies without leaving anything to testify what his wishes were with respect to the disposal of his property after his death. Similarly, "intestacy" is the state or condition of dying without having made a valid will, or without having disposed by will a part of the intestate's property. This concept is very important for our further discussion of "incomplete gifts or transfers."
- When a property holder attempts to dispose of property before his or her death, the transfer is called an inter vivos gift or transfer. Inter vivos simply means - between the living (i.e., from one living person to another). For example, when property passes by conveyance, the transaction is said to be inter vivos to distinguish it from the case of succession or devise (willed property). Not only is an inter vivos gift or transfer one that is made when the person making the gift or transfer is living, it also provides that the gift or transfer will take effect while the person making the gift or transfer is living. This is in contrast to a testamentary gift or transfer, which as stated above, is to take effect only upon the death of the person making the gift or transfer (the "testator").
- Here are a few examples of when an inter vivos transfer is complete, and when it is not. In the first instance, let's say that there is a young college student whois about to drop out of school due to a severe lack of funds. Let's say he has the proverbial rich uncle who decides it is time to come to the rescue of the well-intentioned young nephew. Uncle Rich writes a check to his nephew for the sum of $15,000, enough to pay for tuition, books and lodging for one semester. Uncle Rich intends this to be a gift. Unfortunately, Uncle Rich dies before the nephew is able to cash the check. What happens to the $15,000? What if the uncle had not given the check to his nephew at the time of death? What if he had given the check to the nephew and the young man neglected to cash it immediately? If the nephew were to attempt to cash the check for "his" college money, he may find that he no longer has this right and that the $15,000 has remained part of his uncle's estate.
- The reason for this is that an inter vivos gift becomes complete only when the person making the gift or transfer is no longer in a position to exercise dominion and control over the gift. In other words, the person making the gift or transfer is no longer able to change the disposition of the gift. He cannot take it back or modify it.
- When someone makes a gift by check, that gift is only a completed gift upon payment. Therefore, the nephew would be out of luck, and still out of school. However, this is a tricky area, and there are some exceptions. For example, if nephew had presented the check for payment at his bank and received funds prior to his uncle's death, the transfer would be considered "complete." This would be true even if the uncle's bank did not pay the amount until after his death. Therefore, where the gift of a check is made to a non-charitable donee, the rule is that the transfer will be complete on the date that the person making the gift or transfer no longer may alter the disposition of the gift, or on the date that the person receiving the gift or transfer deposits the check or otherwise presents it for payment - which ever comes first.
- Revocable trusts are another form of inter vivos transfer that are considered "incomplete" transfers and thereby includable in the decedent's estate. This is because, during life, the decedent retained dominion and control over the assets.
- When transfers or gifts are incomplete, the property remains with the decedent's estate and must be dealt with in probate court. Then the laws of intestate succession will be applied to determine the final disposition of the property. These laws vary from state to state. However, the final effect of the incomplete transfer may be that the property in question, ultimately, goes to a party the person making the gift or transfer did not intend to benefit.
- For example, if the $15,000 from the rich uncle in the example above was not transferred successfully to the nephew, the amount would remain a part of the uncle's estate. Thereafter, the laws of intestate succession might require that the sum be granted, at least in part, to the uncle's spouse. If the uncle had been estranged, but not divorced, from his spouse and had attempted to limit their share of his assets, an intestate grant to the spouse of $15,000 could frustrate this lifetime intent.
- Another consequence of a transfer or gift that is not properly completed is that through probate any resulting transfer of the assets becomes a matter of public record, rather than a private transfer. This may cause resentment or lead to other complications in cases where the transfer seems to indicate favoritism.
- Increased estate taxes often result from inclusion of the incomplete gift or transfer in the decedent's estate. Apportionment of estate taxes is an extremely complicated exercise, often requiring large expenditures of time and emotion. In some cases, the decedent will have stipulated in his will that taxes should be paid from the sale of certain assets. However, where such a sale does not generate enough funds to cover the increase in taxes caused by the inclusion of the incomplete gift/transfer, other assets may need to be sold to make up the difference.
Incomplete Transfers in Florida
- When the owner of property dies, succession to the decedent's property may be governed by will, by contract, or by law. Succession by law happens in two instances. First, the law sometimes provides for specific property (i.e. homestead) or specific people (i.e. a spouse or child who came into existence after the will was written or a spouse's minimum share of an estate as required by law). Second, the law provides for any property of a decedent that is not lawfully disposed of by will, by contract, or otherwise as provided by law. The second instance is commonly known as the law of intestate succession. The Florida Probate Code provides that any part of the estate of a decedent not effectively disposed of by will passes to the decedent's heirs as prescribed in the Code. Accordingly, unless otherwise provided by law, where the decedent leaves no will, or where the property cannot or does not pass under a will which the decedent did leave, such property passes under the law of intestate succession if an heir survives the decedent. An invalid legacy or devise which is not disposed of in some other valid provision of a will, such as the residuary clause, passes by way of the law of intestate succession. Even though a decedent leaves a valid will, some or all of his or her property may still pass under the law of intestate succession, such as:
(1) property which the will makes no attempt to dispose of,
(2) property which is disposed of to persons who predecease the decedent with consequent lapsing of the legacy or devise,
(3) property which is incompletely disposed of, as where the testator creates a life estate without disposing of the remainder, or
(4) a disposition which is ineffective by operation of law rather than one where a specified beneficiary under the will cannot be found.
- In summary, the best solution is, as always, to avoid the problem in the first place. Incomplete transfers and gifts leave a decedent's estate vulnerable on several fronts, including complications in valuation, estate tax assessment, and tax apportionment. Most importantly, an incomplete transfer or gift could leave the very loved one, or favored institution that the decedent intended to benefit out in the cold. For these reasons, it is helpful to seek a qualified probate and estate attorney to assist in the completion of all transfers and gifts.