We have common-law marriage, right?

February 13, 2014, by

People tend to throw around the term "common-law marriage" to refer to couples who have lived together for a long time. The implication is that by living together, without getting the legal document, the spouses have acquired some rights in each other's property.

Washington does not have common law marriage. Here, you're not married unless you get the document. But courts do recognize long-term relationships. The Washington Supreme Court has said that when a relationship qualifies, and the couple splits up or one dies, the court should make a "just and equitable" distribution of property between the parties. The reasoning is that the two people living together will take care of each other's things, buy assets together, and support each other in various ways. If this goes on long enough, they acquire a partial ownership in each other's property.

So what sort of relationship qualifies? The Supreme Court has said they look at a number of factors, but the most important factor is that the parties lived together. Other factors include:

  • Continuous cohabitation
  • Duration of the relationship
  • Purpose of the relationship
  • Pooling of resources for joint projects
  • The parties' intent.

Establishing these factors and determining a fair and equitable distribution of property can be a long, painful process potentially involving lots of legal fees and possibly even a trial. Couples in this type of relationship should think about avoiding the pain by planning ahead. A cohabitation agreement, for example, describes property rights, duties and financial support, similar to a prenuptial agreement. Careful estate planning, too, can forestall after-death stress by recognizing each other's contributions to the relationship. For example, a couple in a long-term relationship may decide to execute Wills giving everything to each other, the way spouses would. Or, they might give each other significant gifts that would both recognize the relationship and make it financially disadvantageous to challenge the Will. (No, we're not going to tell you to get married. Unless you want to.)

So what is this non-married relationship called? The Washington Supreme Court in 2007 chose a new name for it: Committed Intimate Relationship, or CIR. Previously they were called "meretricious" relationships. The Court rejected the word "meretricious" for its negative connotation. In fact in 1989 the Court condemned the word "meretricious" for being "offensive, demeaning and sexist" because it is based in a word meaning "prostitute."

By the way, this is different from a State Registered Domestic Partnership. Registered DPs have many of the same rights as married couples. But note that, starting this summer, DPs will only be available to couples where one partner is 62 or older.

Update your beneficiary designations

February 6, 2014, by

When you get a new job, you have to fill out a lot of forms. There are a lot of choices to make. Often, one of those is picking a beneficiary designation for your 401(k).

Or perhaps years ago you started a retirement account with a lovely small investment firm. You may not even remember, but you probably picked a beneficiary. And an alternate beneficiary.

What about your life insurance policy? Or work-provided life insurance? If you have them, you've picked a beneficiary.

Here's today's to-do item: Check those beneficiary designations. Update them.

Those funds don't pass through your Will unless your Will is specifically drafted to override them (and even then, sometimes that "Superwill" provision doesn't work). Your retirement plan and life insurance pass directly to your designated beneficiaries.

In several situations we've had recently, a parent designated one child as a beneficiary for an account - rather than dividing it between all the children. Legally, the beneficiary doesn't have to share. The money is his or hers.

It may seem logical to designate the most responsible child as the sole beneficiary, assuming they'll handle distributing the money to their family members. But that doesn't always happen.

Worse, we've had situations where family relationships changed - but the beneficiary designations didn't. Family members left funds to exactly the wrong people.

So, go change your beneficiaries. While you're at it, it's best not to designate minors. Chances are they'll turn 18 before your death, but you never know. Financial institutions won't give funds to minors, so if something happened to you, there would have to be a court action to distribute the funds to a trustee or a custodian. A better plan: Draft a will with a trust or custodian provision for minors, and designate that as the beneficiary on behalf of your minor.

Estate planning in your 20s and 30s

January 30, 2014, by

Most people in their first few decades don't have any estate planning done, and certainly don't have it at the top of their to-do list. But there are good reasons a person in their 20s or 30s should consider putting their intentions in writing, whether in a Will or Living Trust:

  • Of course, if you have children, you can designate guardians for them. But that's just the start.

  • The death of a younger person can leave their parents with difficult questions to answer at a terrible time. Estate planning can make the process easier for everyone. It would designate who would be in charge of making decisions. And it would be a comfort for survivors to know that their loved one's wishes were being followed.

  • Estate plans can include provisions for beloved pets.

  • Estate plans can include frequently-used passwords. Even though passwords are likely to be changed or rotated, an indication of what a password is likely to be could make things easier for a Personal Representative who wishes to protect their loved one's valuable online content.

  • Estate plans can last a long, long time. We recently probated a Will that was drafted in 1961. It still met the family's needs, despite its age. And it vastly simplified the process of administering the estate.

  • A Will can include provisions for a life partner who is not a spouse.

  • Estate plans can express personal values by specifying contributions, regardless of size, to favored charities.

  • A meeting regarding estate planning can help couples understand the nature of community and separate property, and how to make plans for both.

  • If you have a child with special needs, you can protect their future with a Special Needs Trust.

We're happy to help with estate planning at any age. Give us a call or drop an email.

Keep your estate planning documents current

January 23, 2014, by

One of the most frustrating experiences for an estate planner is sending a draft set of documents to a client... and the client never returns them. That means we've drafted you a beautiful new Will, Power of Attorney documents, and everything else you need... and they sit on the shelf, never seeing the light of day.

From the client's perspective, they may have felt the urge to get their Will and Power of Attorney documents done; they met with their lawyer; documents were drafted up; now the urge is gone. But the documents were never signed and executed! In Washington, draft Wills are unacceptable, unless they're signed, witnessed and notarized per statute. Courts assume that if you haven't properly executed your Will, it's because you weren't ready to execute it yet - perhaps because something was wrong with it.

Check your Wills to make sure they were properly executed. Check them also every decade or so. Children or nieces and nephews may have grown old enough to take more responsibility in managing your estate; new children may need to be provided for; a person you may have chosen to be an executor or hold Power of Attorney may no longer be optimal for that role. Consider also whether a child may have a disability and need a Special Needs Trust. Or, have your investments done well enough that you may need tax planning? It may be a good time to talk to your attorney to find out.

A Living Will: Communicating your intentions

January 16, 2014, by

Washington law allows residents to sign a document called a "Health Care Directive" that declares whether they want to have artificially hydration and nutrition if they are diagnosed in a terminal condition or permanent unconscious condition. The document is intended to give guidance to doctors and family members if you're ever in a life-threatening coma and unable to communicate your intentions yourself. It's sometimes called a Living Will.

The Health Care Directive is a somewhat unwieldy document that doctors say doesn't always apply to every situation. One of the best uses of the Health Care Directive is to reassure your family members if they have to make a life-or-death decision about you. You can also leave clear instructions by having a good conversation with your closest family members, particularly those you've designated on a Power of Attorney Document.

What is probate?

January 9, 2014, by

As a client recently noted, many people think Wills are self-executing: That after a person dies, all their beneficiaries have to do is follow the instructions in their Will. That's not quite the case. A probate proceeding ensures the proper person is appointed executor and that the deceased person's possessions are organized, creditors paid, and gifts passed on to beneficiaries.

(Originally "probate" referred to the court process by which Wills were proven to be valid, but American probate courts have the power to manage estates whether the decedent executed a Will or not.)

In a probate proceeding, a person asks to be appointed to manage the decedent's affairs. A court commissioner or judge will evaluate whether that person is the right person. Were they nominated in a Will? Are they close family? Or is it a creditor? Does anyone object to the appointment? Is the requester a felon? If the court approves the appointment, the person becomes executor of the estate. They then must follow Washington's very specific probate rules. In some situations, the court might give the person fairly free rein to manage the estate; in other cases the court might want to closely supervise each step.

In Washington, a probate is necessary if the decedent owned real estate in the state, or if they had assets worth more than $100,000 (not including some assets that automatically transfer at death). There are a few situations in which no probate is necessary after a death. For example, if a married couple signed a Community Property Agreement, after the first death the entire estate passes to the surviving spouse - even real estate. Or, if a decedent's only assets were money in bank accounts that were co-owned with a loved one, those bank accounts would transfer automatically to the co-owner without probate. Similarly, no probate may be necessary if the decedent's assets all were held in a trust.

When people die owning less than $100,000 and no real estate, Washington law allows a family member to claim and distribute their assets without going to court to open a probate. The process for claiming those assets is described in state law at RCW 11.62.010. In short, the claiming family member must draft an affidavit to present to the bank, or employer, or whoever else is holding the decedent's assets. They must also provide it to the State of Washington - which might send the claiming family member a bill for the decedent's debts.

Avoid elder exploitation with proper planning

January 2, 2014, by

Shortly before Christmas a Lake Tapps woman was sentenced to two years in prison for stealing more than $200,000 from her elderly father, who has dementia. The woman said she was addicted to gambling and had convinced herself her father thought it was OK. It's a sad and all-too-common scenario. It's one that families can plan ahead to try their best to avoid.

The thefts were accomplished easily because her father had made her a co-signer on his bank account. While making a loved one a co-signer on a bank account can be helpful, a better solution is to execute a Durable Power of Attorney document to allow a trusted family member or friend to manage your assets if you become incapacitated. Your trusted friend could then manage your money, spend it on your mortgage or rent, your retirement home fees or nursing home care, your food and transportation, and even make gifts for you if you had an established pattern of doing so.

With a Durable Power of Attorney, family members or other interested parties have the right to request that the person managing your money - called your Attorney in Fact -provide a regular accounting. They also can ask the Court to order them to provide an accounting. The Attorney in Fact must keep careful records of how the money is managed so they can show other parties, or a judge, how the money was spent. If the Court finds problems, they may remove the Attorney in Fact and put the alternate in his place.

A Durable Power of Attorney has another benefit: You can nominate your choice of guardian, if one is needed; and often a DPOA saves you from needing a guardianship altogether.

Sharing a bank account with a loved one is problematic for a couple of reasons. For one, there's no accounting requirement. If your family members or friends think someone is stealing from you, there's no way to request an accounting; their only solution may be to call 911 or Adult Protective Services. Additionally, after you die, the contents of the joint bank account generally goes to the surviving account holder - not to your beneficiaries under your Will.

In sum, we recommend using a Power of Attorney document because of its flexibility and accountability. If you are using a Durable Power of Attorney to manage a loved one's money, contact your attorney if you have any concerns about your decision-making.

Community property, separate property, and the benefit of trusts (2 of 2).

December 26, 2013, by

two stacks of coins.pngDid Donna get to keep her separate stock in her divorce, or had she made it community and thus divisible between her and Kelly? Interestingly, the Court of Appeals didn't find it critical whether the shares were separate or community.

The key question in allocating separate as well as community property in a divorce in Washington, is what is fair, without consideration of fault in the divorce. The Court of Appeals was satisfied that the trial court was striving for fairness in making the division, so it didn't matter whether the stock was community or separate. It also discarded Donna's argument she should have had her own lawyer to make an effective community property agreement, declaring this more important in a comprehensive premarital agreement that in a postnuptial one focusing on a single asset.

Continue reading "Community property, separate property, and the benefit of trusts (2 of 2). " »

Community property, separate property, and the benefit of trusts (1 of 2).

December 19, 2013, by

stock certificate 2.jpgDonna and Kelly got married in 1986. Donna's parents had a successful business and gave stock to her. Because she received it in this way, the stock was her separate property despite the marriage. After a while Donna and Kelly became aware of certain tax advantages in agreeing that the shares should be community property instead. This they did, despite another document signed by all the company's owners that required a two-thirds vote to authorize any transfer of the shares.

The couple separated in 2002 and Donna filed to dissolve their marriage. She argued that the shareholders' agreement trumped their community property agreement and made ineffective their attempted change of the stock to community.

Continue reading "Community property, separate property, and the benefit of trusts (1 of 2). " »

Committed intimate relationships: the guy gets it wrong again.

December 12, 2013, by

marijuana.jpgRebecca moved in with Gary. He owned the house, in Arlington, Washington. She wanted to grow marijuana. He added walls and installed grow lights in his detached garage. She did the gardening.

Whether this would or would not have been legal now in Washington, it wasn't then. They got caught. Gary was charged along with Rebecca, in his case as one who "make(s) available" his house for producing a controlled substance.

Continue reading "Committed intimate relationships: the guy gets it wrong again. " »

Do two become as one? Jewelry and community property.

December 5, 2013, by

jewelry.jpgA criminal case, of all things, reminds us of the treatment of jewelry under Washington community property law. Gerardo was convicted of burglarizing the Kraut residence and stealing the husband's firearms and the wife's jewelry. He appealed his sentence because his offender score was calculated in a way that treated Mr. and Mrs. Kraut as two victims. Thus this burglary was deemed two offenses.

Gerardo argued, with some justification if someone who breaks into others' homes may be justified, that what he stole was community property. In his and his attorneys' eyes, the Krauts upon marrying had become one, later to be one victim.

Continue reading "Do two become as one? Jewelry and community property. " »

Community property: does changing title change ownership? (2 of 2)

November 28, 2013, by

property.jpgThis is a continuation of last week's blog. Son Arthur prevailed in the Court of Appeals, with his argument that the real estate his mom had bought before her marriage to Robert was separate property. Thus in her estate it would be divided equally between Arthur and Robert. Robert then took the case further, to the Washington Supreme Court. How did it rule?

Robert relied on an earlier reported case finding joint title to be indicative of community property. This caused the Supreme Court to examine its presumptions. It is pretty well settled in the law that property acquired before the marriage is separate property and remains so until clearly made community. The earlier case Robert was relying upon, confused that presumption.

Continue reading "Community property: does changing title change ownership? (2 of 2) " »

Community property: does changing title change ownership?

November 21, 2013, by

couple signing papers.jpgProperty brought into a marriage is separate property. It sometimes happens that a married person wants to borrow against his or her separate real estate, and the title is put in both spouses' names in the refinancing. This might be done so the bank can more easily pursue its remedies if the loan isn't paid. Does the change in title make the separate real estate into community property?

The Borghi case decided by the Washington Supreme Court in 2009 isn't exactly like that, but it goes a long way toward answering the question. Jeannette had bought property on a contract in 1966. In 1975, two things happened. First, she got married to Robert. Second, she got clear title to the property, meaning it had been paid off. For some reason, the development company that had sold her the property issued the clear-title deed in the names of both spouses. It wasn't recorded until 1979, when they borrowed against the property.

Continue reading "Community property: does changing title change ownership? " »

Buy REITs to diversify into real estate? (Part 2 of 2)

November 14, 2013, by

real estate aerial view.jpgWhy, despite the misgivings listed in last week's blog, does Lars invest 20% of the trust in the Vanguard index REIT? First, he likes real estate, feels it's somehow a special investment. It's kind of the old "they aren't making any more of it" thing. They don't call it real (estate) for no reason.

OK, so that's pretty subjective: what else? The REIT he's chosen is both diversifying and diversified. That is, in a portfolio of mostly stocks and bonds, real estate acts a little differently. This is good. When stocks are down, REITs might not be. And the Vanguard fund is itself spread into all kinds of real estate, so he's not betting everything on just shopping centers, or apartments.

Continue reading "Buy REITs to diversify into real estate? (Part 2 of 2)" »

Buy REITs to diversify into real estate?

November 7, 2013, by

shopping center.jpgLars as trustee has invested in an indexed REIT fund offered by Vanguard. Lars likes real estate. He has watched Uncle Nils get rich in real estate. He has seen a number of other clients do the same. He doesn't fool himself that it's easy, but it does seem to be the most common way in his medium-sized city to build a big net worth.

So in the $500,000 family trust he has 20% in the REIT fund. It's easier than buying and managing apartments, or a building with commercial tenants. Because it's less painful Lars wonders whether it's less effective.

Continue reading "Buy REITs to diversify into real estate?" »