An Overview of North Carolina Probate

Estate administration refers to the process of probating the estate of a decedent, which generally includes collecting, inventorying and appraising assets; gathering and paying debts; filing and paying estate taxes; and distributing any remaining assets to beneficiaries. An experienced Raleigh probate and estate administration attorney can help simplify this complicated process. If you need help in the administration of an estate, contact Evan Lohr at (919)348-9211 or at evan@lohrnc.com.

Probate

The estate is the total amount of property that is owned by the decedent at his or her death (excluding real property unless it is necessary to pay creditors) and that has not already been set up to transfer automatically (such as transfer by joint tenancy or payment to a named beneficiary of an insurance policy). If there is a will, the clerk of court will determine if the will is valid and then oversee the administration of the estate by the executor (the person appointed in the will by the decedent to oversee the estate). If there is no will or the will is determined to be invalid, the clerk of court will appoint an administrator and the decedent’s property will be distributed according to North Carolina’s intestacy statute.

Executor’s Duties

The executor is the person named by the decedent in the will to administer the estate. The executor has many important functions to complete, including:

• Gathering and inventorying all assets of the estate
• Appraising the assets
• Collecting any payments or debts owed to the estate
• Paying any valid debts owed by the estate
• Filing and paying local, state and federal taxes
• Distributing assets to the beneficiaries according to the will or state law

The executor owes fiduciary duties to anyone who has an interest in the estate. This means that the executor owes a duty of loyalty and must act in the best interests of the estate. For example, if the executor mismanages estate assets and causes the estate to lose value, he or she can be held liable for these actions and may have to repay the estate the amount of the lost value.

Preserving Estate Assets

An important but sometimes neglected responsibility in administering an estate is to look for opportunities to preserve assets for distribution. Reducing estate taxes is one way that an estate can retain more of its wealth for the decedent’s heirs. Some of the ways to accomplish this are:

• Consider whether administration expenses and casualty losses should be reported on the estate tax return or on the estate’s income tax return
• Consider whether there are income tax savings opportunities on the decedent’s final return (such as whether or not a joint income tax return should be filed with the surviving spouse)
• Consider whether assets should be valued at the date of the decedent’s death or six months later (or, if assets have been distributed prior to six months after the decedent’s death, the date of the disposition of the assets)

Probate and Non-Probate Assets

Probate assets are subject to court administration. Probate can be an expensive and long process, and beneficiaries may have to wait anywhere from one to two years to receive the property left to them in the will. Probate assets include assets owned only by the decedent that do not have a named beneficiary.

Non-probate assets do not have to go through probate. These assets are typically distributed more quickly to the appropriate beneficiaries since a probate proceeding is not required. Non-probate assets generally include:

• Property owned in joint tenancy  with right of survivorship or by tenancy by the entirety
• Payment on Death (POD) bank accounts
• Transfer on Death (TOD) securities
• Life insurance policies that designate a beneficiary other than the decedent’s estate
• IRAs, 401(k) accounts, and other retirement plans that name a beneficiary other than the decedent’s estate

Speak to a Probate Lawyer

Guiding an estate through the probate process and effectively administering that estate requires a thorough understanding of North Carolina probate procedure and tax laws. If you need assistance administering an estate, contact Evan Lohr at (919)348-9211 or evan@lohrnc.com.

Lack of Capacity to Make A Will In North Carolina

One of the grounds upon which a North Carolina will may be successfully contested is that the testator (person making the will) lacked the mental capacity to do so. In North Carolina, a person has sufficient capacity to make a will if he  (1) comprehends the natural objects of his bounty; (2) understands the kind, nature, and extent of his property; (3) knows the manner in which he desires his act to take effect; and (4) realizes the effect his act will have upon his estate. In re Womack, 53 N.C.App. 221, 280 S.E.2d 494, disc. rev. denied, 304 N.C. 391, 285 S.E.2d 837 (1981); see generally 13 Strong’s N.C. Index 3d, Wills, § 22; Wiggins, Wills and Administration of Estates in North Carolina, § 43 (2d Ed.1983). The law presumes that a person who made a will possessed capacity to do so, and those who allege otherwise have the burden of proving by the preponderance or greater weight of the evidence that he lacked such capacity. In re York, 231 N.C. 70, 55 S.E.2d 791 (1949).

Proving a lack of capacity is often difficult and typically requires medical records of the testator. In order to have standing to bring a successful case, a plaintiff must have been named a beneficiary under a prior will revoked by the contested will or have been an heir at law of the testator prior to the will’s execution. Contact North Carolina probate litigation attorney Evan Lohr at (919)348-9211 or evan@lohrnc.com to discuss your potential case.

The Dead Man’s Statute – NC Rule of Evidence 601(c)

Estate litigation poses significant challenges to parties and practitioners, not the least of which is that the person whose wishes should dictate the distribution of the property at issue in a dispute is dead. In many cases, parties seek to introduce purported statements of the deceased as evidence to support their claims. Rule 601(c) of the North Carolina Rules of Evidence applies in these circumstances and serves to render a witness incompetent “when it appears (1) that such a witness is a party, or interested in the event, (2) that his testimony relates to … a communication with the deceased person, (3) that the action is against the personal representative of the deceased or a person deriving title or interest from, through or under the deceased, and (4) that the witness is testifying in his own behalf or interest.” In re Will of Lamparter, 348 N.C. 45, 51, 497 S.E.2d 692, 695 (1998)(quoting Godwin v. Wachovia Bank & Trust Co., 259 N.C. 520, 528, 131 S.E.2d 456, 462 (1963)). The text of the rule is as follows: “Upon the trial of an action, or the hearing upon the merits of a special proceeding, a party or a person interested in the event . . . shall not be examined as a witness in his or her own behalf . . . concerning any oral communication between the witness and the deceased person . . . .” N.C.G.S. § 8C-1, Rule 601(c).

Both propounders (the person submitting the will for probate) and caveators (the person challenging the validity of the will) may be considered interested persons. In re Will of Hester, 84 N.C. App. 585, 595, rev’d on other grounds, 320 N.C. 738 (1987). However, the named executor is not. Id. at 595–96. The effect of the rule is to prohibit testimony by interested persons regarding oral communications between themselves and the decedent about the will, the decedent’s intent to make a new will or to change the beneficiaries of his will, or about the desired disposition of his property.

In conducting discovery and examining witnesses, practitioners asserting the protection of the rule must be careful to avoid waiving it. In a long line of cases, including Wilkie v. Wilkie, 58 N.C.App. 624, 294 S.E.2d 230, disc. rev. denied, 306 N.C. 752, 295 S.E.2d 764 (1982), the appellate courts have held that when a party elicits incompetent evidence under the Dead Man’s Statute, the party then waives any protection afforded by the Statute.  Id. at 627, 294 S.E.2d at 231.   In that case, the plaintiff answered interrogatories implicating the Dead Man’s Statute and there were no objections made by either party to the interrogatories themselves or the answers given.  Id. at 626, 294 S.E.2d at 231. Counsel may avoid a situation such as the one in Wilkie by not asking questions that elicit evidence of oral communications between the deceased and the opposing party and by promptly objecting to, and moving to strike, answers given that concern such communications.

Evan Lohr is a trust and estate attorney with Lohr and Lohr PLLC. He can be reached at (919)348-9211 and evan@lohrnc.com.

Applying for Probate in North Carolina

Any executor named in a will may, at any time after the death of the testator, apply to the clerk of the superior court to have the will admitted to probate. If no named executor applies to have the will proved within 60 days after the death of the testator, any beneficiary named in the will, or any other person interested in the estate, may apply upon 10 days’ notice thereof to the executor. For good cause shown, the clerk of superior court may shorten the initial 60-day period during which the executor may apply to have the will proved.

The clerks of the superior court in North Carolina are required to notify by mail, all beneficiaries whose addresses are known, designated in wills filed for probate in their respective counties. The expenses associated with such notification are chargeable to the estate.

In the event that a party has the will and will not file it with the clerk of court, every clerk, on application by affidavit setting forth the facts, will, by summons, compel any person in the State, who has possession of the will to present the will for probate. If the person refuses or refuses to inform the court where the will is located, he may be held in contempt of the court or be committed to the jail of the county until the will is accounted for or produced.

On application for probate to the clerk of the superior court, he must ascertain by affidavit of the applicant –

(1)        That such applicant is the executor or devisee named in the will, or is some other person interested in the estate, and how so interested.

(2)        The value and nature of the testator’s property, as near as can be ascertained.

(3)        The names and residences of all parties entitled to the testator’s property, if known, or that the same on diligent inquiry cannot be discovered; which of the parties in interest are minors, and whether with or without guardians, and the names and residences of such guardians, if known.

The affidavit shall be recorded with the will and the certificate of probate thereof, if the same is admitted to probate.  Once the will is admitted to probate, the named executor or person presenting the will for probate may be appointed personal representative of the estate by the clerk and issued letters testamentary, allowing them to act on behalf of the estate.

Evan Lohr is an estate attorney with Lohr and Lohr PLLC in Raleigh. He can be contacted at (919) 348-9211 or at evan@lohrnc.com.

 

 

Pitfalls to Avoid in Estate Planning

Several online web sites provide forms for people to create their own wills for a fee less than that of hiring a typical attorney.  Earlier this year, a member of the Florida Supreme Court called that approach “penny-wise and pound-foolish” in a case that developed after Ann Aldrich died in October 2009. Five years before her death—in April 2004—Aldrich executed a Will that she drafted leaving essentially all of her property, including a life insurance policy and a Fidelity IRA, to her sister. In the event of the sister’s death before Aldrich’s own, the Will provided that the property would be distributed to Aldrich’s brother.  For whatever reason, Aldrich failed to include a residuary clause, and that omission became problematic when Aldrich’s sister died in 2007, leaving her own assets—both cash and real property—to Aldrich, who opened a new, separate Fidelity account. Apparently, in an effort to provide for the distribution of the inherited property, Aldrich subsequently signed another document—arguably a codicil—that said she wanted to “reiterate that all my worldly possessions pass to my brother.”  But that document only had one witness, and Florida law, like most jurisdictions, requires two witnesses for both a Will and a codicil to be valid. The question, then, became how the predeceasing sister’s property should be distributed:  to the surviving brother whom Aldrich named in her Will, or to the nieces of another, predeceased brother, including Laurie Basile, the plaintiff, under the state’s intestacy laws. The trial court ruled in favor of the surviving brother, but the Court of Appeals reversed, ruling that the property Aldrich inherited should be distributed to the nieces. The state’s Supreme Court agreed with the appellate court, and affirmed.

The law of North Carolina regarding witnesses to the execution of a will and residuary clauses is substantially similar to the law of Florida, and it seems likely that the North Carolina Supreme Court would decide a similar case in the same way as the Florida Supreme Court did. To avoid unwanted results, it is best to consult an experienced attorney to assist with estate planning matters.

The case is Aldrich v. Basile, No. SC11-2147, FL 3/27/14.

Evan Lohr is an attorney with Lohr & Lohr PLLC in Raleigh, NC. He handles estate disputes and helps clients prepare estate plans. He can be reached at evan@lohrnc.com or at (919) 348-9211.

“In Terrorem” Clauses

Many wills include provisions that are referred to as “in terrorem” or “no contest” clauses. An example of this type of clause may read, “In the event that any provision of my last will and testament is contested by any of the parties mentioned herein, the portion or portions of the estate to which such party or parties would be entitled shall be disposed of in the same manner as though their name or names had not been mentioned herein.” Essentially, the goal of an in terrorem clause is to attempt to dissuade a beneficiary from contesting a will in court. It should be pointed out that these clauses have no effect on someone who is not a beneficiary under the will submitted for probate – if they have no beneficial interest under the will as it is written, then they have nothing to lose by contesting the will.

Moreover, the presence of a no contest clause does not necessarily mean that a beneficiary will lose their inheritance if they file an action to contest the will. In Ryan v. Wachovia Bank & Trust Co., 235 N.C. 585, 70 S.E.2d 853 (1952), the North Carolina Supreme Court found that in terrorem clauses would not be enforced when the caveat is based on good faith and probable cause. In addition, it is generally held that the provisions of a “no contest” clause are to be strictly construed and not extended beyond their express terms. Haley v. Pickelsimer, 261 N.C. 293, 134 S.E.2d 697 (1964).

If you are a named beneficiary in a will that contains an in terrorem clause and want to contest the will, it is advisable to consult with an attorney prior to doing so, to ensure that contesting the will does not result in the loss of your interest under the will.

Evan Lohr is an estates attorney in Raleigh. He can be reached at evan@lohrnc.com or at (919) 348-9211.

A Primer on North Carolina Living Trusts

Most clients who seek me out for estate planning advice generally ask for help in drafting and executing a will for them. While a will is a necessary part of an estate plan, a trust can also be a very important part of that plan – and not just for the wealthy. The various benefits of trusts – discussed below – often provide valuable results for people of all income levels.

The most widely used type of trust is referred to as a living trust (also referred to as an “inter vivos” trust). A trust is a legal arrangement where a person called the “grantor” transfers property to be held by an individual called the “trustee” for the benefit of a third party, referred to as a “beneficiary.”  While many times the grantor, trustee and beneficiary are different people, that is not always be the case. Sometimes, the grantor, trustee and beneficiary can be the same person.

A living or inter vivos trust is one that is created during the lifetime of the grantor. In most cases, the grantor is both the trustee and the beneficiary during their lifetime. Usually, the grantor reserves the right to revoke the trust. After the death of the grantor, the terms of the trust control the disposition of the assets. In the usual case, the grantor’s spouse, if living, will receive the assets of the trust, either outright, or through distributions of the trust. If the spouse is not living, the grantor’s children or other chosen beneficiaries will receive distributions from the trust. These distributions can be made either by giving the property to the beneficiaries outright or by a successor trustee continuing to administer the trust until the time that the grantor specified that the beneficiaries are of a sufficient age to receive the remainder of their share.

The primary benefits of incorporating a living trust into your estate plan are avoiding the expense and hassle of probate in North Carolina, privacy, and avoiding ancillary probate in another state in which you own real property. When property passes via a will, a probate proceeding must be opened. The process can sometimes be time-consuming and expensive, and documents filed in a probate proceeding are public record which can be viewed by anyone, including a person intentionally disinherited under the terms of the will. Also, if you own property in another state, an ancillary probate proceeding must be opened in that state, which can be costly and burdensome to an executor. A trust avoids this problem because the trust, not you, owns the property, which passes pursuant to the terms of the trust. A revocable trust also provides a measure of planning should you become incapacitated. In that event, your successor trustee assumes responsibility for the administration of the trust and can manage the property held by it.

Evan Lohr is an estates attorney in Raleigh. He can be reached at evan@lohrnc.com or at (919) 348-9211.