Grandma’s “Simple” Will

March 2017

Grandma, bless her soul, was a generous lady. She wanted to name each grandchild in her will so that they would know how special each of them was to her. So, one day, she decides to create her will with an online program.

The Will

Keeping things simple, her will stated:

  1. All tangible property to grandson Bob (estimated value $10,000);
  2. Home (worth $200,000 – no mortgage) to grandson Don;
  3. Checking account to granddaughter Shannon ($50,000); and
  4. Residue to granddaughter Heidi ($75,000).

She knew the grandchildren would split everything equally. Granddaughter Heidi was nominated as her personal representative (PR). Luckily, the will was signed and witnessed properly because tragically the next day, Grandma passed away.

The Starting Point

Let’s assume things go smoothly and Heidi is appointed PR. Her job is to gather the probate assets (anything owned in Grandma’s individual name that does not transfer to someone pursuant to a beneficiary designation). Items 1-3 listed above are probate assets. Next, she will pay all debts and expenses. Everything that is left after this is called residue. In this case, Grandma had no debt so everyone receives the items and amounts stated.

The Issues

The major issue that arises from Grandma’s “simple” will is that she assumed everyone would split the items equally. Unfortunately and unbeknownst to Grandma, no one is legally obligated to do so. To make this wish of Grandma’s come true, there is no simple solution. To alter the will, one of more of her grandchildren would have to disclaim what they were to receive. Alternatively, they could all agree to modify Grandma’s will by entering into a settlement agreement. However, both options are an additional expense and a hassle!

What if Grandma died with credit card debt of $20,000? This is an estate asset, which means the estate is liable to pay it off. What would this mean for the residue? It would mean that Heidi’s share is reduced by that liability and she would receive $55,000 instead of $75,000.

To make matters worse, if Grandma’s debt exceeds the amount left as residue, then the PR would have to a follow a pecking order of using some of the other specific gifts to pay those expenses. However, there are special rules to protect the home from being used because it is considered an exempt asset and will distribute free and clear of creditor claims. With all of the issues above, can you imagine what would happen if Bob, Don, Shannon, and Heidi didn’t get along?

The Moral of the Story

What seems like “simple” planning usually creates a headache later. Instead of turning to the internet, Grandma should have discussed her wishes with an estate planning attorney. That would have shown her grandchildren just how special they were to her!

This post was written by Karen Schlotthauer, an attorney in our Trusts & Estates practice group. If you have questions about estate planning, Karen can be reached at karen.schlotthauer@fmjlaw.com or (952) 995-9500.