Case Study - The Disappearing Gift. Why wasn't my will honored?

Probate court is where your Last Will & Testament goes to carry out your last wishes. If your estate plan does not avoid probate, your estate will be administered by the probate court[1]. However, you may not be aware that some of the rules of probate court could conflict with your wishes and have drastic results on your heirs.

Case 1: Step-Mother vs. Children

Max died at the age of 76 leaving behind a very small estate. Earlier in life, Max married and had two children. After their children grew to adulthood, Max’s wife died. Eventually, Max began dating and decided to marry Rose.

Shortly after his marriage to Rose, Max had his Last Will & Testament prepared. Max stated in his Will that after his death, he wanted his house to be sold if Rose no longer wanted to live there. Once the house was sold, Max wanted Rose to have the first $15,000 and for his children to have the entire balance. However, this is not what happened.

After Max’s death and learning of his Will, Max’s children were eager to put the house up for sale to get much money as possible for their inheritance. To that end, Max’s children abruptly kicked Rose out of the house and changed the locks. Max’s children felt their father’s Will gave them the upper hand. The relationship between Max’s children and Rose completely broke down; arguing and disagreements ensued. Max’s children filed the estate with the Probate Court on their own, without a lawyer. Max’s children reported to the probate court that the total value of the estate was $50,000 – which was accurate because there was still a mortgage on the house reducing its net value and the rest of Max’s belongings had little cash value.

Unfortunately, Max’s children had to learn the hard way that because of the probate court rules, they were entitled to nothing from their father’s estate, regardless of what was stated in his Will. Michigan law states that a spouse is entitled to certain items and sums of money “off the top” of a probate estate, which are called allowances and exempt property. The law protects husbands and wives when their spouse dies. Because Max did not have an estate plan that would avoid probate court, his estate had to follow all of the probate court rules. This meant that Max’s estate was required to pay allowances and exempt property to Rose first, off the top. Next his estate would have to pay for his funeral and pay all of his last debts. Then, if there was any money left over, Max’s gifts stated in his Will would be honored, i.e. the first $15,000 to Rose and the rest to his children.

As the surviving spouse, Rose was entitled to three provisions: the homestead allowance, the family allowance, and the exempt property allowance. All three of these totaled $64,000, off the top. (The amounts are set by Michigan law.) Remember when Max’s children reported to the court that their father’s total estate was only worth $50,000? Since there was not enough value in the estate to pay Rose her total $64,000 in allowances, it meant that one-hundred percent of the estate would be awarded to Rose, off-the-top as her allowances. There would be nothing left to pay any of Max’s debt or to give anything to Max’s children as he directed in his Will. Max’s gift to his children completely disappeared.

As a result, Rose was entitled to Max’s entire estate and all of his belongings. Max’s children were left at the mercy of their step-mother to receive any mementos of their father. It would have been wise for Max’s children to meet with a lawyer and learn this before kicking Rose out of the house and making an enemy out of her.

No one knows for certain if this is the outcome Max wanted and intended for Rose and his children. However, if this was not Max’s intent and he would have met with an attorney familiar with these laws prior to his death, there are a number of steps Max could have taken to ensure his exact wishes were carried out and avoid having the probate court rules applied to his estate.

Case 2: Disinherited? . . . maybe not

Shirley died at the age of 68, leaving three children. Shirley left a Last Will & Testament disinheriting all of her children and directing that they should receive nothing from her estate. Shirley directed that her entire estate would be divided up among three friends. Because Shirley did not take steps to avoid probate court, the probate court rules applied to her estate.

Typically, the Michigan family allowance and homestead allowance are only paid to a spouse or minor children. Shirley did not leave behind a spouse, only adult children. Therefore, none of Shirley’s children qualified for the family allowance or homestead allowance to take “off the top.” However, the Michigan law for exempt property states that when there is no spouse, a child of any age, whether they are a minor or an adult, has a right to choose property valued at up to $15,000 to take “off the top” of the estate.

Shirley’s personal representative denied the adult children’s request for $15,000 in property, stating that Shirley’s last wishes were for her children to receive nothing. Shirley’s children took the matter to court and to the Court of Appeals, which agreed with the children. The court ruled that the adult children were entitled to their exempt property right despite what their mother wrote in her Will, and they were awarded property valued at $15,000. This also meant that Shirley’s three friends received $15,000 less than what was stated in Shirley’s Will.

No one will know if Shirley was aware of this rule and if this is the outcome she intended. However, if Shirley’s final wishes were not carried out because of this nuance in the law, it is unfortunate. Like Max, there are a number of steps Shirley could have taken to assure her exact wishes were carried out and she could have avoided probate court and its rules.

Take Home Points

One purpose of the probate court process is to make sure that all of the gifts you have written in your Will go where you have directed, of course, after all of your final debts and bills are paid. However, the gifts you write down in your Will also take a back seat to allowances and exempt property as determined by Michigan law. When you are completing your estate planning, you need an attorney who can explain these to you so you can be sure the law is consistent with your plan. If the allowance and exempt property laws would frustrate your plan, you need to be aware and take the necessary steps to avoid them.

[1] Probate court can be avoided using a number of estate planning strategies, such as ensuring your trust is properly funded or by utilizing beneficiary designations and special types of deeds to property. The rules governing probate court apply when you die leaving property only in your name and without estate planning specifically designed to avoid probate court. A Will alone does not avoid probate court.