On November 1, 2019, I will be speaking again at the King County Bar Association’s annual seminar on probate administration. The Bar Association describes it as a “comprehensive course [that] covers what you need to know from opening a probate to closing a probate and everything in between.” I will be speaking on how to open a probate, alternatives to probate, and identifying and administering nonprobate assets. The speakers include many experienced probate attorneys and the agenda includes many issues that arise when advising probate clients. Lawyers who are interested in attending can register at the King County Bar Association website.
The possession, transfer and sale of firearms and other weapons create a special set of risks for a personal representative. Unlike typical assets, such as ordinary personal belongings and financial assets, firearms can create physical risk for the personal representative, beneficiaries and others. In addition, state and federal laws impose rules that must be followed to avoid potential civil and criminal penalties. This article is intended to provide an overview of the most important rules that a personal representative should follow when handling firearms, along with some general recommendations on how to handle issues involving firearms owned by an estate.
Secure the Firearm
The first responsibility of any personal representative is to secure any weapons that the decedent might have left. Under Washington law, a person can be subject to a felony or misdemeanor for failing to properly secure a firearm that is used by a certain class of people in a crime or if the weapon is discharged. RCW 9.41.360. A firearm is properly secured if it is held in a secure gun storage location or secured with a trigger lock or similar device. RCW 9.41.360. A secure gun storage includes a locked box, gun safe, or other secure, locked storage space that is designed to prevent unauthorized use or discharge of a firearm. The firearm should also be unloaded.
Identify the Firearm
The personal representative should then identify the type of weapons that the decedent left. The state and federal rules applicable to weapons differ depending on the type of firearm involved.
Under Washington law, pistols are set apart from other weapons. Pistols are defined as “any firearm with a barrel less than sixteen inches in length, or is designed to be held and fired by the use of a single hand.” RCW 9.41.010. If the personal representative left a pistol, the personal representative must transfer the weapon within 60 days of coming into possession of the weapon. If that cannot or does not happen, the personal representative is supposed to notify the Washington State Department of Licensing to inform the department that he/she has taken possession of the pistol and intends to retain possession in compliance with state and federal law until such time as it is disposed of. RCW 9.41.113(4)(h)(ii). Typically, sixty days is too early to make distributions from an estate, given the four-month period for challenging a will. But if the personal representative believes that there is not likely to be a dispute over the weapon, there may be little risk in distributing firearms before this four-month will contest period lapses, assuming there is no significant value associated with the particular firearm. The personal representative should use a local, federally licensed firearms dealer to facilitate the sale or transfer of the pistol. The dealer will conduct any required background checks. The dealer will likely charge a fee for the services.
National Firearm Act (NFA) Firearms
The National Firearms Act (NFA) regulates several types of unique firearms: machine guns, short-barreled shotguns or short-barreled rifles, silencers, “destructive devices” (grenades, bombs, missiles), and “any other weapon” (unique weapons or devices that can be concealed on the person from which a shot can be discharged by the energy of an explosive). Generally, a typical rifle, shotgun, and pistol are not regulated by the National Firearms Act. The National Firearms Act requires NFA Firearms to be registered. To determine if an NFA Firearm is registered, the personal representative should contact a local, federally licensed gun dealer, provide the dealer with the gun’s serial number, and ask it to run a serial number search. Possession of an unregistered NFA Firearm is a crime. If the personal representative discovers that the decedent had an unregistered NFA Firearm, the personal representative should contact a local ATF office immediately.
To transfer or sell an NFA Firearm, the personal representative should use a local, federally licensed firearms dealer to help facilitate the transfer. The dealer will conduct any required background checks, and will likely charge a fee for the service. The beneficiary or buyer will need to pass an extensive background check with the ATF. Also, the transfer of an NFA Firearm may be subject to a $200 tax.
If the decedent had other types of firearms (e.g., a typical rifle or shotgun), the state and federal rules regarding pistols and NFA Firearms do not apply. Nevertheless, the personal representative should act prudently and carefully. Securing the firearm is essential. Also, the personal representative may choose to have a licensed dealer facilitate any sale or transfer and run a background check to ensure that the weapon is not transferred to a person ineligible to have a firearm.
The state and federal rules governing firearms are complex and far from clear. This article is not intended to address all issues related to the sale or transfer of firearms from an estate. If other issues arise, you should contact a local, licensed dealer or the local ATF field office for further information. For further reading on this issue, the ATF issued a letter on the transfer of firearms from an estate, which was last updated in 2006.
There appears to be a movement afoot to add qualified domestic relations orders (QDROs) as a basic estate planning tool. Admittedly, the use of QDROs could be useful in a few estate planning contexts, such as when a client wants to delay the age deadline for taking required minimum distributions by moving funds to a younger spouse, or when a client wants to remove funds from one spouse’s estate for Medicaid planning purposes. But is it legal? Clients and practitioners should tread very carefully.
For those unfamiliar with QDROs, these are court or administrative orders, decrees, or judgments issued in the context of domestic relations matters, such as divorces, legal separations, or child support cases. These orders require the administrator of a qualified retirement plan (e.g., a 401k) to assign a portion of the plan to another person. This is very useful, for example, at the end of a marriage when assets need to be divided. Ordinarily, the law that governs qualified retirement plans, known as the Employee Retirement Income Security Act (ERISA), prohibits a person from assigning his or her rights in a plan to another person. An important exception is for QDROs.
However, ERISA demands that QDROs meet certain requirements. Chief among these is that the order be entered pursuant to a state’s domestic relations law. See 26 U.S.C. § 414(p)(I)(B)(ii) (“The term ‘domestic relations order’ means any judgment, decree, or order … which … is made pursuant to a State domestic relations law….”). Absent an order issued under Washington’s domestic relations law in Chapter 26 RCW, it’s unclear how a QDRO would meet this important requirement.
Washington has a comprehensive set of statutes governing disputes and issues involving trusts and estates referred to as the Trust and Estate Dispute Resolution Act (TEDRA). Chapter 11.96A RCW. This chapter of Washington’s probate code allows parties interested in an estate or trust to enter into agreements that resolve issues and disputes between them. TEDRA is broad enough to capture all matters “with respect to any … property interest passing at death.” RCW 11.96A.030(2)(a). The agreements reached under this law do not require a court’s approval. Nevertheless, the agreements can be filed with the court and have the effect of a court order. See RCW 11.96A.230(2). Such agreements, however, are not domestic relations orders. They are entered pursuant to Washington’s probate code, not Washington’s domestic relations law. Therefore, such orders would not appear to meet the definition of a QDRO under ERISA.
Until this issue is resolved, clients and practitioner should be very careful. Questionable tax avoidance and mitigation schemes have a way of spreading for a while only to be crushed after a few years by the IRS. The net result is often financial harm to average people who have limited resources to absorb the blow. The use of QDROs in estate planning may be another variation on this theme.
The probate and estate planning department of the Curran Law Firm, which created and maintains kingcountyprobates.com, is looking to add an associate attorney who will assist the department and its clients in all aspects of estate planning and probate administration. Minimum requirements include a passion for helping others, a sense of curiosity, a commitment to the highest quality work product, and a continual desire to learn. Excellent writing skills and the ability to analyze complex legal issues, as demonstrated by good law school grades, is required. Experience in estate planning and probate law is not required, but an eagerness to learn and be part of a supportive team is. To learn more about this opportunity, send your resume and writing sample to email@example.com.
On November 2, 2018, I will be speaking at the KCTS9 studios in lower Queen Anne on general estate planning. This presentation is geared for the public, and will address general estate planning topics, such as wills and trusts, and the importance of beneficiary designations, powers of attorney and healthcare directives. I’ll talk about five of the most common myths that I hear from clients. If you are interested in attending, contact Sherry Larsen-Holmes at 206-443-6730 or firstname.lastname@example.org. My slide presentation can be found at Prezi.com.
On November 1, 2018, I will be speaking at the King County Bar Association’s annual seminar on probate administration. The Bar Association describes it as a “comprehensive course [that] covers what you need to know from opening a probate to closing a probate and everything in between.” I will be speaking on how to open a probate, alternatives to probate, and identifying and administering nonprobate assets. The speakers include many experienced probate attorneys and the agenda includes many issues that arise when advising probate clients. Lawyers who are interested in attending can register at the King County Bar Association website.
Clients sometimes ask me whether there is an advantage to placing their children, friend or another person on the title to their home to avoid probate. While this could help avoid probate, it comes with significant risks and there are different methods to avoid probate if a person’s home is the only reason a probate may be required.
It is important to remember that probate in Washington is not as bad as most people think. Washington has a relatively efficient probate system that provides a helpful court-approved structure, through which fiduciaries are protected from future creditor claims or allegations of improper distributions. At the conclusion of a properly administered probate, family members are able to feel comfortable that a loved one’s final wishes have been met and the executor will not likely face any future legal liability regarding the administration of estate.
If, however, a person’s home would be the only asset necessitating a probate, placing an heir’s name on title may avoid the need for a probate upon the owner’s death. A traditional method for transferring real property (i.e., land or a home) upon death is to add another person to the title as a “joint tenant with right of survivorship.” If this is done properly, the ownership of the property immediately vests in the co-tenant upon the death of one of the other owners. When this type of title is executed, the joint owners own an equal interest in the property. This is different than when the owners are designated as “tenants in common.” As tenants in common, each owner’s interest in the property is proportionate to their contribution to the property.
A property owner, however, should use extreme caution before adding another person as a joint owner with right of survivorship. The original property owner may not reverse this change without the consent of the new owner. The property cannot be sold without the consent of the new owner, or without going through a potentially costly legal action. Such a transfer would also likely be considered a gift for tax purposes and for future eligibility for Medicaid long-term care assistance. Also, if the new owner has any judgments against him or her, the judgment will likely attach to the property.
Fortunately, in 2014, Washington adopted a new type of deed that avoids many of the drawbacks of the joint tenancy deed. It is called a “Transfer on Death Deed” (also known as a beneficiary deed), and is authorized by Chapter 64.80 RCW. The deed has no effect on title during the owner’s lifetime. It conveys the parcel of real property to the beneficiary named in the deed at the moment the owner passes away, thereby avoiding probate at least as to that property. During the owner’s life, the beneficiary has no rights to the property and his or her liabilities can’t attach to it. This type of deed is almost always more beneficial to the homeowner than a deed creating joint tenancy.
Whether you are considering a deed creating joint tenancy or a beneficiary deed, I recommend that you consult with an attorney who can more fully discuss the pros and cons of the decision with you, as well as prepare the deed properly if you decide to go that route.
For lawyers advising clients regarding their estate plan, understanding the client’s full financial picture is vital in providing sound estate planning advice. An attorney’s guidance to a client is incomplete without a discussion and review of nonprobate assets and how these assets are titled or designated. Even though a client may execute a will giving his or her entire estate to a person or class of persons, that’s often not the full story. The client will likely have some assets that do not pass through the will. Actually, for some clients, the will might pass only a small fraction of a client’s estate. Therefore, ignoring a client's nonprobate assets or paying little attention to them could be a big mistake.
The proper use of nonprobate assets can have many advantages. Typically, nonprobate assets can be accessed quickly after a person dies, often with only an original death certificate. This can make liquid assets available quickly for certain final expenses of the decedent. Also, in the right circumstances, a person’s entire estate could be designated to pass through nonprobate assets, possibly making a probate and its costs unnecessary.
On the other hand, the improper use of nonprobate assets can lead to problems. Establishing a joint account with another person, merely for the convenience of giving that person the ability to pay bills, can lead to disagreements later when the full balance of the account passes to that person. Improper beneficiary designations of IRAs and other retirement plans can lead to negative tax consequences. Inconsistent designations, such as through the use of a community property agreement and joint tenancy, can lead to confusion and possible litigation upon the death of a client. Careful planning, review of all assets, and a thorough understanding of these assets is essential to doing estate planning right.
I will be speaking on this subject on April 19, 2018, at a continuing legal education seminar sponsored by the King County Bar Association at the Washington Convention Center. The seminar is titled "Personal Estate Planning for the 99%," and will have many experienced estate planning attorneys speaking on a wide range of topics. If you cannot attend, you can download my written materials on Planning Considerations for Nonprobate Assets and find my slides here.
When completing estate planning, many spouses execute wills that are mirror images of each other. For example, both wills say that upon the death of one spouse, everything goes to the surviving spouse. And then, upon the second death, their wills give everything to the same set of children or to the same set of people or charities. Such wills are called “reciprocal wills.” With reciprocal wills, the surviving spouse is free to change his or her will, gift assets to others, and name beneficiaries as he or she sees fit. In other words, the surviving spouse receives everything and is then free to do whatever he or she wants with it.
If the wills are “mutual wills,” however, the surviving spouse doesn’t have the same freedoms. With mutual wills, the spouses agree that the surviving spouse will not change his or her will after the death of the first spouse. Mutual wills are not as common as reciprocal wills, especially in situations where the two spouses share the same set of children, because usually both parents place the same importance in passing their estate to their shared descendants. However, this same understanding does not always exist when the spouses have children from prior marriages or one spouse brings more wealth into the marriage.
What does a “mutual will” look like? A well-drafted mutual will includes language in which both spouses unambiguously declare that they both intend to make mutual wills that restrict both spouses from changing the distribution plan in their wills after one of them dies. It is best practice to also state in the wills that either spouse can change his or her will during their lives, but only after giving adequate notice to the other spouse of the intention to do so.
However, a mutual will can still exist without any such language in the will. Without this language, though, other evidence would be required to prove that the spouses intended to be bound by the wills. Even an oral agreement would suffice, although the court would subject allegations of an oral contract create mutual wills to a high degree of proof. Portmann v. Herald, No. 49563-5-II (Wn. App. 2018); Arnold v. Beckman, 74 Wn.2d 836, 841 (1968).
Can a spouse ever change his or her will? Yes, under some circumstances. If no consideration is provided for the mutual wills, except the mutual agreement of the spouses, either spouse can change the will prior to the death of the first spouse. However, the change cannot be done in secret. The spouse changing the will must provide adequate notice to the other spouse so he or she has a chance to change his or her will too. After the first spouse dies, however, the surviving spouse cannot change the will.
Can the surviving spouse thwart the mutual will by making nonprobate designations after the death of the first spouse? No. A seemingly clever way of avoiding the restrictions of a mutual will arrangement would be to convert assets from probate assets to nonprobate assets and name beneficiaries inconsistent with the wills. For instance, a surviving spouse might create a joint bank account with right of survivorship with someone not named in the mutual wills. This strategy, however, is subject to being set aside by a court. In one unpublished case, the court rejected a surviving spouse’s attempt to work around the mutual will in this manner, and established a constructive trust on the funds placed into a joint account with right of survivorship. In re Estate of Hodgson, 2006 WL 1135035 (Wn. App. 2006) (unpublished).
Can a surviving spouse make gifts after the first spouse dies? Yes and no. A surviving spouse is free to make gifts, but cannot make gifts that are intended to undermine the agreement inherent to the mutual wills. In particular, if the gifts are made with “testamentary intent,” such as death-bed gifts, they need to be consistent with the distribution plan in the mutual wills, or the gifts can be set aside by a court. See Newell v. Ayers, 23 Wn. App. 767, 770 (1979).
Bottom Line. If you and your spouse intend to create wills that restrict both of you from changing your wills later, you should clearly state this agreement in your wills. When doing so, it’s important to keep in mind that you will each have significant restrictions later. If one of you has died and the distribution plan later makes no sense, too bad. You can’t change it, and you can’t take steps to work around it, such as by making gifts or beneficiary designations contrary to the agreed distribution plan. Be sure to consider these issues carefully before making mutual wills.
For some people, hiring an attorney can be intimidating. But it doesn’t need to be. If the attorney is intimidating, find another one. If the attorney can’t explain the legal issues in terms you understand, find another one. If the attorney can’t give you an estimate of legal fees with reasonable certainly, definitely find another one!
Fortunately, the legal fees for a probate attorney are typically considered expenses of the estate. Therefore, the administrator or personal representative who hires a lawyer and incurs legal bills in the administration of the estate can be reimbursed by the estate for those fees. Still, the administrator or personal representative has a fiduciary duty to spend the estate's funds wisely, and paying reasonable fees is part of that duty.
There are generally three types of fee arrangements you and a probate attorney might agree to.
The most traditional type of billing method is “hourly billing,” where an attorney bills a fixed hourly rate for each hour he or she works. While this billing method might work well in some situations, it has significant drawbacks for clients. The most significant being uncertainty. Often an attorney will give you an estimate of the total bill, but the attorney can’t be sure, and the monthly drip of lawyer fees can cause clients some anxiety.
A less traditional method for billing is the flat fee. This is growing in popularity among lawyers and clients, and it’s my preferred way of billing. With flat fee billing, the client and attorney agree on a set price for a project, which could be an entire probate or some limited aspect of it. The terms of the engagement are clearly spelled out in a fee agreement, which you and the lawyer sign. Flat fee arrangements have the advantage of certainty, and they avoid the monthly annoyance of lawyer invoices. Both you and your lawyer can focus on getting the job done right, and remove the issue of fees. Under this type of an arrangement, you can call your lawyer if you have a question without worrying about the clock running.
Unbundled services is also a less traditional method for billing, but it is also growing in popularity. Whether it be probates, family law, or other types of law, more and more people are trying to tackle the legal system on their own. Often this is because they don’t have the money to afford an attorney, or they believe, mistakenly, that practicing law is easy. Unbundled services is much like the flat fee arrangement discussed above, but usually on a more limited scope. For example, you and your attorney can agree that the attorney will review the pleadings and documents you’ve prepared, but that you will do everything else. Or the attorney might prepare the documents for you, and file them with the court, but then you’re on your own. Also, you could pay for a couple of hours of the lawyer’s time to get general advice and sketch out a strategy for your probate matter. Whatever you and your lawyer decide, the terms of the limited scope of services must be clearly defined in a fee agreement. Typically, these types of arrangements cost less than hourly or flat fee arrangements, but they require more work and skill from the client.