A mess...a will, divorced parents, declined inheritance and my BK. need advice

[HHM]

This is not as simple as one would think. As we sit here today, Icy IS NOT entitled to anything as Icy is not named in the will. Icy may (and I stress the word "may" as this turns on State law) be entitled to an inheritance if and when the named beneficiary (mom) renounces her right to the distribution. If my interpretation is correct and the right to the distribution is controlled by mom, then if mom holds off renouncing her inheritance for 181 days after Icy filed then it would be outside of the scope of "property of the estate".

Icy needs to discuss the timing issues and whether or not there is an "inheritance" for the purpose of 11 USC 541(a)(5) not only with bk counsel but also with a good probate attny especially if mom holds off renouncing her right to take the distribution.

Des.

That is the "argument" that this debtor will need to make, but by no means do I think the trustee would just roll over on that issue. Unless there is some specific case law on an issue like this, I think the point is arguable as to what constitutes the triggering event. It is pretty hard to get around and argue that the "death" is not the "but for" cause of any right the debtor may have.

My first question, is mom in the will? I suppose I will take the OP's statement of their state law at face value, but generally, once divorced, there is no right to intestate inheritance to the ex-spouse and unless the Will was ratified by the deceased (that is, re-executed) after the divorce to still include the Ex, the Ex-spouse is written out of the will. I suppose the Divorce Decree may contain something (but that would be odd). So, what is the controlling document or law that is giving her a 50% share?

[tobee43]

So, what is the controlling document or law that is giving her a 50% share?

although directed at des, this really is my question as well???

i was also wondering if the father died intestate, as i'm wondering why an ex would be entitled to 50%...and maybe the state is taking the other 50. just speculation which; sorry Icy, you would know and understand the details much better than i. i know some people leave their property to ex's as well, just not a usual happening in most cases i have seen. (again, not suggesting it's unheard of).

[justbroke]

i'm not certain about that? only because why would the call be made to OP yesterday, it could have been in probate and this was the probates courts resolve? so OP, this is such speculation on my part, i'm sorry if i'm reading far more into your situation

The OP said that there was a will, and that there appears to be a distribution, so that's not intestate. I was referring to "what" is the date of entitlement, which was my original post.

If the mother already disclaimed the inheritance and we are within the 180 days, does this become property of the Estate immediately, or is it after probate declares so.

I do agree with Des that this is all going to be based on the date. I have just been saying that if the person doesn't care about the money, and it's a relatively small amount, then exempt what you can, and just let it happen. But Des is much more qualified to answer most of the questions on this. I was involved in a probate case with similar issues, although it was an intestate estate with a living estate and the successor died as well. Just a mess.

[tobee43]

The OP said that there was a will, and that there appears to be a distribution, so that's not intestate. I was referring to "what" is the date of entitlement, which was my original post.

If the mother already disclaimed the inheritance and we are within the 180 days, does this become property of the Estate immediately, or is it after probate declares so.

I do agree with Des that this is all going to be based on the date. I have just been saying that if the person doesn't care about the money, and it's a relatively small amount, then exempt what you can, and just let it happen. But Des is much more qualified to answer most of the questions on this. I was involved in a probate case with similar issues, although it was an intestate estate with a living estate and the successor died as well. Just a mess.

yes, i know jb, i just was throwing stones because i couldn't figure it out as to why the ex was named. that's not really usual, although i have certainly seen it. i agree with des as well, it's all going to depend on the actual date. i still handle a rather large trust for a firm in calif, and it's much easier when it's all spelled out paragraph after paragraph, it makes everyone's life much easier. i just know i'm doing everything i can not to make it a mess for the family or their future. which means amending almost on a monthly basis etc. and in this case it's just a pour over will, so the will means nothing.

personally, for me, no amount is too small LOL!

[Icyshades]

My parents were married for maybe 35 years, and divorced maybe a decade ago. My mom had never worked, and two of my grown siblings are disabled. As I understand, my dad redid his will at retirement about a year ago, and kept my mom in so that she would get a little retirement money, and the rest would help if there was an emergency where she would, say, have a medical expense for one of my siblings that are dependent on her.

The more I think about it, I would be thrilled if it could go to my kids, who are both in college. I barely bring home $3k a month. To those of you who are attorneys or otherwise knowledgable about BK, thanks for the continuing input!

My mom is being somewhat cryptic, and I think it's because she doesn't really understand this either, other than the fact that one of my sibs has told her she would have to pay extra taxes as an ex. Last night, I read that she would have to decline her portion within 9 months, so maybe if she waits, are you saying it might be less likely to impact me? Wher would I try to find case law?

[spidge]

In the first line of the OP second paragraph she became aware on Saturday 8/11 and later in the post stated it was after the 180 day mark. She new all along that she was not included in the will so did not expect anything from the beginning as explained in the first paragraph.

[tobee43]

icy, here's some "general" info for you in relation to the tax liability for your mom. looks like there could be some depending on the amount of the estate. again, i would speak to a probate, estate atty about this if it were me best of luck!

" An inheritance tax is a state tax on an inheritance, whether it is property or cash, that you receive from a deceased person's estate. Inheritance taxes are based on the value of the inheritance and the relationship of the person receiving the inheritance to the dead person. Inheritance taxes and estate taxes are both called death taxes because they both tax the estate of a deceased person. However, the estate tax is a federal tax imposed on a deceased person's entire estate while the inheritance tax is a state tax and it is imposed on a person's inheritance once it has been bequeathed from the estate. When a person dies, his or her estate is taxed first by the federal government before it is distributed. It is then distributed to the beneficiaries where it is taxed again based on the laws of the state where the beneficiary lives.

Exemptions

Depending on the state where you live and how close your were to the deceased person, you may be able to exempt a portion or all of the inheritance tax. Beneficiaries fall into three classes. Class A beneficiaries are close or blood relatives, including spouses, children and adopted family members. They are either exempt from inheritance taxes or are taxed at the lowest rate if only a portion of their inheritance is exempt. Class B beneficiaries are brothers, sisters, daughters-in-law and sons-in-law. Their inheritance tax rate will be higher and only a portion of their inheritance will be exempt. Class C beneficiaries include everyone else. These more distant relatives will pay a higher inheritance tax and have the lowest, if any, tax exemption for their inheritance.

State Variations

Inheritance tax laws differ from state to state. Some states may allow a deduction for class A beneficiaries and none for other classes. For instance, Pennsylvania allows a $3,500 family deduction. So $3,500 of an inheritance is tax free and the remainder is taxed at Pennsylvania inheritance tax rate. Other states may allow for a larger family exemption. Tennessee, for instance, allows inheritances under $1 million to be exempt from the inheritance tax. You will need to fill out your state's form for inheritance taxes to calculate the correct amount.

Tax Rates

Inheritance taxes have their own forms and are not included on income tax forms because they aren't considered income. The tax rates are also usually higher than income tax rates, which is why many people are upset about them. They are also progressive so, like income taxes, the more the inheritance is, the larger the portion of your inheritance is taxable. Many people don't like this because they feel the government is taking a large part of their gift from the deceased person.

States That Tax


According to Retirementliving.com, 11 states still levy an inheritance tax. These states are Connecticut, Indiana, Iowa, Kansas, Kentucky, Maryland, Nebraska, New Jersey, Oregon, Pennsylvania and Tennessee.

State Estate Taxes

Inheritance taxes are dependent on the worth of an estate as calculated for federal estate tax purposes. The trend, however, has been toward phasing out the estate tax by increasing the exemption amount and lowering the rates. This has caused the amount collected in state inheritance taxes to shrink, so many states have opted to create their own estate taxes by decoupling their inheritance taxes from the federal estate tax and calling it a state estate tax. In this way, an estate may have two different values--one for federal estate taxes and one for state estate taxes."


and here's a bit just a quick search on your state:



"If you’re a Minnesota resident (or own a lot of property there), the state may impose its own estate tax on the assets you leave at death, if they have a total value of more than $1 million, or $5 million for qualifying small businesses and farms. That means that even if your estate isn’t large enough to owe federal estate tax, it may still owe the separate Minnesota estate tax.
Who Must File a Minnesota Estate Tax Return

Under current law (affecting deaths in 2012), if the gross estate of a Minnesota resident has a value of more than $1 million, the executor must file a Minnesota estate tax return. (In 2012, federal estate tax returns are required only for estates worth more than $5.12 million.)

That doesn’t mean the estate will necessarily owe tax. Property left to a surviving spouse is exempt from state estate tax, no matter what the amount. Some expenses can be subtracted from the gross estate, lowering the value of the taxable estate. If the taxable estate’s value is less than $1 million, no tax will be due. Also, certain small businesses and farms are exempt up to $5 million, as discussed below.

Nonresidents may owe Minnesota estate tax, too. The state taxes nonresidents’ assets that are physically in the state. So if you don’t live in Minnesota but own valuable real estate there or keep other tangible assets in the state, your estate might have to file a Minnesota estate tax return.

The Minnesota tax return starts with your gross estate, as it's calculated on a federal estate tax return. It includes whatever you own at your death:

Real estate
Bank accounts
Investment accounts and securities
Vehicles and other tangible items
Proceeds from life insurance policies on your life, unless you didn’t own the policy
Retirement account funds
Your interest in a small business (sole proprietorship, limited liability company, or small corporation)

It may also include:

Taxable gifts you made during life (more than the annual exclusion amount from federal gift tax, which is currently $13,000 per year per recipient),
Life insurance proceeds, if you transferred the policy to an irrevocable life insurance trust within three years of your death.

Assets are included in your estate, for tax purposes, even if you held them in a living trust. The taxing authorities don’t care whether or not the assets go through probate.

The $5 Million Business and Farm Exemption

Some small businesses and farms qualify for a $5 million exemption from Minnesota estate tax. To qualify, a business must meet several requirements, including:

It must be closely held (not publicly traded)
It can have no more than $10 million in annual gross sales
You or your spouse must have been participating in the business
You must have owned the business for at least the three years before your death
You must leave the business to a family member
The relative who inherits the business must participate significantly in its management for three years after your death

Many of the requirements are the same for a farm, but there are some additional hurdles to clear. The farm must also be your "agricultural homestead," and it will be classified as a family farm only if you meet detailed rules about ownership. Talk to an experienced estate planning lawyer if you think your farm or business could qualify for the special $5 million estate tax exemption; this is complicated stuff.
The Minnesota Estate Tax Return

If a Minnesota return is necessary, the executor must file it 15 months after the date of death (nine months after the death plus an automatic six-month extension). A federal estate tax return must be prepared and attached, even if it doesn’t have to be filed with the IRS. Professional help (someone experienced with estate tax, not just regular income tax) will be necessary to prepare these extremely complicated tax returns.

The estimated tax must be paid nine months after the death. Penalties and interest accrue on the unpaid amount. The state may accept installment payments if the estate is also paying federal estate tax in installments. If the IRS grants the estate an extension to pay federal tax, the estate won’t have to pay a late payment penalty on any tax due Minnesota that’s not paid by the regular due date."

[despritfreya]

This is wonderful. Look at all of the input. A unique situation calls for many responses on all levels. I thank this board for making this thread interesting and showing that its members 1) do care and 2) have a combined intelligence that would put an MIT think-tank to shame.

Oh, and JB, I am not more qualified to answer this thread than anyone here who has tried. I have never had a case with this issue and I know squat about probate.

I still think the entire thing turns on when Icy's rights to any of the estate materializes. That would be based upon state law. My gut tells me that such a right springs into existence if and when mom renounces as, until that time, Icy has no claim to anything.

Tb, I think that an intestate decedent is a bit different. If one dies intestate the rights of the heirs materialize on the date of death, just like a beneficiary of a will. The distribution will be based upon state intestate law which, as far as I know, is just a statutory succession to the division of property. As such a Trustee in bk would step into the shoes of the debtor if the death occurred within the 180 days no matter how long it takes for the state to finalize the distribution. The Trustee would have the right to take whatever the debtor could have taken. Hope that made sense and somehow addressed your question.

Icy does need to consult both with his bk attny and a probate attny. However, as JB pointed out, if what would not be exempt is not major dollars, it probably does not pay to try to fight the issue. And, as HHM pointed out, a Trustee, no matter what, will look at this.

Des.

[HHM]

okay, that makes more sense.

I still think it is arguable on whether the date of death or the date of mom's renunciation of the inheritance will control for BK purposes. I think the BK court would have a hard time with a fact patter potentially in play.

Debtor files BK.
A few days later, dad dies.
On day 181 (or whatever date), mom renounces inheritance thereby creating an intestate inheritance for debtor.
It is too blatant and I think the BK court would try to find a way to claw the debtor's debtor's inheritance into the BK estate.

I think the trustee would argue something along lines of "relation back" to the date of death and that the debtor here has a contingent, unliquidated claim to the decedent estate. There is some sort of "right" that sprang into existence at the time the father died, but the claim is contingent on mom renouncing, and it is unliquidated because we don't know the value. If the mom doesn't renounce, the value is zero, but that doesn't mean there is no "claim."

I am not saying I agree, but do think the point is highly up for grabs

[despritfreya]

I think the trustee would argue something along lines of "relation back" to the date of death and that the debtor here has a contingent, unliquidated claim to the decedent estate. There is some sort of "right" that sprang into existence at the time the father died, but the claim is contingent on mom renouncing, and it is unliquidated because we don't know the value. If the mom doesn't renounce, the value is zero, but that doesn't mean there is no "claim."

Yes. . . exactly the counter-argument which may or may not turn on state law. Does a renunciation relate back to the date of death for the purpose of the next in line under state law????? The million dollar question.

Des.

[LadyInTheRed]

The more I think about it, I would be thrilled if it could go to my kids, who are both in college.

If your mother disclaims and you become entitled to the inheritance, you will not be able to disclaim if it is an asset of the BK estate.

My mom is being somewhat cryptic, and I think it's because she doesn't really understand this either, other than the fact that one of my sibs has told her she would have to pay extra taxes as an ex. Last night, I read that she would have to decline her portion within 9 months, so maybe if she waits, are you saying it might be less likely to impact me?

Minnesota law regarding the deadline to disclaim changed in 2010: http://mnestatelaw.com/2010/01/01/mi...-effect-today/. There is no longer a deadline under MN state law. However, there is a 9 month deadline for federal tax purposes. So, a disclaimer after 9 months becomes a gift from your mother for federal gift tax purposes. That only becomes an issue if it results in gifts totaling over $13k from your mother to any one person within a year, in which case she would have to file a federal gift tax return but would not have to pay any gift tax until she has given gifts worth more than $5M during her lifetime. This is how the federal gift tax law stands in 2012. It is in a state of flux and the numbers will probably change in 2013, depending on what, if any, action congress takes.

In the first line of the OP second paragraph she became aware on Saturday 8/11 and later in the post stated it was after the 180 day mark. She new all along that she was not included in the will so did not expect anything from the beginning as explained in the first paragraph.

When the OP became aware of the entitlement to an inheritance is irrelevant. The question is when did she become entitled to the inheritance, the question I raised in my first post. Des' opinion is that she became entitled to the inheritance when her mother disclaimed it. That makes sense to me, but HHM made a good point that the trustee is not likely to roll over and accept that argument. Now that I looked at MN disclaimer law, I think the trustee could win here. From Minn. Stat. Section 524.2-1108:

(b) The disclaimer takes effect as of the time the instrument creating the interest becomes irrevocable, or, if the interest arose under the law of intestate succession, as of the time of the intestate's death.

The instrument here is a Will which becomes irrevocable upon the testator's death. So, according to MN law, no matter how long Mom waits to disclaim, the disclaimer is effective as of date of Dad's death. I would raise that as an argument if I were a trustee trying to get my hands on the inheritance.

My mom is being somewhat cryptic, and I think it's because she doesn't really understand this either, other than the fact that one of my sibs has told her she would have to pay extra taxes as an ex.

This concerns me a bit. Make sure your mother gets competent advice from an estate administration attorney before she disclaims. It sounds like she is talking about estate or inheritance tax. Inheritance tax is only an issue in MN if the estate is worth over $1,000,000 and for federal estate tax if it is worth over $5,000,000 (for 2012 deaths). It doesn't sound like you are talking about that valuable an estate. More importantly, under Federal estate tax law, an ex wife would be treated the same as a child. An inheritance can go to a current spouse tax-free, but not to an ex spouse or a child. From my quick research, it appears the same is true for MN inheritance tax: http://www.house.leg.state.mn.us/hrd...ss/ssesttx.pdf It would be ashame for your mother to give up the inheritance because of misinformation about taxes.

There could be income tax issues if your father had retirement assets that would make it preferable for the assets to go to children than an ex-spouse. So, if your mother is disclaiming an interest in an IRA or other retirement plan, she should consult with a CPA before disclaiming to make sure it really is advantageous for her to disclaim.

If your father had real estate, there also could be MN real property tax laws that would make it preferable to transfer real estate to a child. There are in California, but it is very specific to the California re-assessment rules. Check MN real estate tax laws if there is real estate involved.

[LadyInTheRed]

Just seeing the last 3 posts after finishing my last one.

This is wonderful. Look at all of the input. A unique situation calls for many responses on all levels. I thank this board for making this thread interesting and showing that its members 1) do care and 2) have a combined intelligence that would put an MIT think-tank to shame.

I second that!

Icyshades, I hope you will keep us informed on what happens.

[despritfreya]

I believe LadyInTheRed has found the answer. . . .

"The disclaimer takes effect as of the time the instrument creating the interest becomes irrevocable, or, if the interest arose under the law of intestate succession, as of the time of the intestate's death."

The instrument here is a Will which becomes irrevocable upon the testator's death. So, according to MN law, no matter how long Mom waits to disclaim, the disclaimer is effective as of date of Dad's death.

So, if this is what state law so provides then under state law if dad died within 180 days of the bk filing and mom disclaims the bk Trustee is the rightful owner of the asset. Hat’s off to you Lady.

Des.

[LadyInTheRed]

Yes. . . exactly the counter-argument which may or may not turn on state law. Does a renunciation relate back to the date of death for the purpose of the next in line under state law????? The million dollar question.

Des.

I believe LadyInTheRed has found the answer. . . .

[snip]

Hat’s off to you Lady.

Des.

I'll PM you the address where you can send my million dollars.

[despritfreya]

I'll PM you the address where you can send my million dollars.

Sure. . . I'll write you that check today but you can be sure it will go bouncy, bouncy tomorrow. How many zeros was that?????

Des.