"Boilerplate" provisions in a contract, will, or other legal documents are sections of apparently routine, standard language. The term comes from an old method of printing. Today, "boilerplate" is commonly stored in computer memory to be retrieved and copied when needed. A layperson should beware that the party supplying the boilerplate form usually has developed supposedly "standard" terms (some of which may not apply to every situation) to favor and/or protect the provider.

In the late 1800’s and early 1900’s, "boilerplate" or ready to print material was supplied to newspapers. Advertisements or syndicated columns were supplied to newspapers in ready-to-use form as heavy iron, prefabricated printing plates that were not (and, indeed, could not) be modified before printing. These never-changed plates came to be known in the late 19th century as "boilerplates" from their resemblance to the plates used to construct boilers. Eventually, any part of the paper that rarely changed (such as the masthead) came to be called "boilerplate." If you were the linotype machine operator, you loved boilerplate; instead of setting type for an article, you could just drop the big square piece of lead in the page setup. Maybe you could fill up a whole page that way!

The term "boilerplate" was later adopted by lawyers to describe those parts of a legal document that are considered "standard language," although any good lawyer will tell you to always read the "boilerplate" in any document you plan to sign.

In a will or trust, the choice of boilerplate is crucial. Let me give you a few examples.

Wills should contain a tax clause. A tax clause is a provision that says where the executor should get the money to pay federal and state death taxes. A common boilerplate provision could provide that all taxes are to be paid from the residue of the probate estate. Maybe your will says that.

What if some of the decedent’s property was jointly-held or payable pursuant to beneficiary designations and passed outside the will? Let’s say that a decedent held bank accounts jointly with a son and that the decedent has a will that leaves the remaining property to a daughter. On decedent’s death, the son (as surviving joint owner) becomes sole owner of the bank accounts. The will, when probated, gives the rest of decedent’s property (if any) to the daughter. But, the will says (in the boilerplate) that all death taxes are to be paid by the executor from the estate. This means that the estate and inheritance taxes payable on the bank accounts passing to the son are paid out of the property that passes to the daughter. Son pays no inheritance tax, but daughter pays the tax on his share as well as on her own. Is that what was intended? Probably not. But that result is mandated by the "boilerplate" provision that was used in the will.

Boilerplate is often used in a will or trust to provide definitions. For example, the will may refer to children, grandchildren, descendants or issue. Who is included? Is a stepchild included in the class? Is an adopted child included in the class? Are children born of unmarried parents included? If there is a definition in the boilerplate, it may exclude stepchildren as beneficiaries. Is this intended? Perhaps. Then again, perhaps not. This is a case where the definition in the boilerplate goes to the heart of the matter–who is a beneficiary and who gets a share of the estate.

If you name a bank or trust company as executor or trustee, do you want them to be able to invest your money in their own stock? If they invest your money in mutual funds, can they have a fee from the mutual funds as well as from your trust? Often boilerplate provisions provide that the answer is yes. Is that what you want?

If you name an individual or a bank or trust company as a trustee, can the beneficiaries ever remove that trustee? Thirty years later when the trustee’s fees are high, investment performance is poor, and there is inadequate customer service, can the trust be moved? It depends on what it says in the boilerplate.

All boilerplate is not equal. The choice of the boilerplate that is appropriate to the circumstances and is in accordance with the intentions of the parties is very important. There is no standard, across-the-board language for anything. It is all written by someone, the words have meaning, and they are binding. The quality of the attorney is often reflected in the quality of the boilerplate. Never skip over something saying "it’s just boilerplate."

How many families do you know who fought over the settlement of their Mom and Dad’s estate? In my experience, these family feuds are often over things – not money. Who gets the sterling flatware and who gets the drop-leaf table are points of contention that rip apart the family fabric.

Mom and Dad, why on earth do you think that children who fought over who gets the last cookie and, as recently as last week, fought over who gets to stay in the beach house the third week in August will somehow miraculously change when you die? I have news for you. When you’re gone, they will fight worse than ever. Face up to it now.

Even in estates where there are no tax issues – let’s say the total value of the estate is less than $3.5 million – disputes over personal property can cause permanent schisms. Each child wants the teapot that was the center of every family dinner and embodiment of all memories of childhood love. The executor has to decide who gets it. What a job that is! The only way for an executor to escape with his skin is often to sell the piece – then everyone can be equally angry.

If tempers can flare over items of sentimental value, watch out when the monetary value of the disputed items rises or when the estate exceeds the federal exemption for estate tax.

Mom and Dad, don’t bring this problem on yourselves. You may have heard at bridge club that you shouldn’t mention these things in the will because then your heirs have to pay tax on them. Even worse, some estate planners might tell you that too. This is wrong. A decedent’s property owned at death is subject to estate and inheritance tax. It doesn’t matter whether the property is specifically mentioned in the will. What these "advisors" really mean is that if it isn’t mentioned in the will, it’s easier to cheat on the taxes by omitting to report the item. This is tax fraud, pure and simple. The same tax is due on a $10,000 bank account as on a $10,000 oriental rug, and it is absolutely fair and just that it be so.

Tempers may also rise when you or your Executor low-ball the value of valuable items, asking for "low" appraisals for "estate tax purposes" to try to reduce taxes. Then the property is divided up among the children using the appraised value. Surprise, surprise — a child sells the breakfront that was part of his share for double the appraised value and his siblings call foul.

The IRS is not as dumb as you think. Most people who have valuable collectibles – jewelry, artwork, antiques – realize that they must be insured. Your average homeowners insurance policy doesn’t cover the loss of these items unless they are separately listed and valued. If you don’t report the jewelry all the IRS has to ask for is a copy of the homeowner’s policy. The IRS knows that if you live in a $300,000 house, have three expensive cars, belong to the Country Club and have a winter place in Florida then your household furnishings are worth more than a couple of thousand dollars.

If you’re afraid to talk to your kids about it, how do you think your executor (who may be one of the kids) is going to feel about it? The best thing you can do is make list of items, and who should receive them. Allow your children to have input. You be the one to settle the disputes. Then make the list part of your will or at least make it a non-binding memorandum, mentioned in your will.

If you can’t bear to talk about it, at least put a mechanism in your will for the division of the property. Maybe each child selects items in rotation. Who gets first choice is determined by lot.

Keep this in mind too: putting someone’s name on an item with a tag is legally meaningless. All property is passed under the will or under the intestacy statute if there is no will. It doesn’t matter if "Mom promised it to me" or if "Dad told me it would be mine." If all the other beneficiaries agree, you may be ok. But if there is any dispute, such oral representation, tags, notes, and letters are completely without any legal effect.

Also, there are the people who say "Grandma gave it to me years ago, I just left it in her house until she died." Even if this is true, the IRS takes the view, that this is not a completed gift. A completed gift of personal property, like a corner cupboard, requires delivery. How can you prove delivery in this instance? Even if you can prove delivery by some ingenious means, to the IRS, it still looks like a transfer with a retained right to the use of the property for life and is still subject to tax in the estate.

If you have a $40,000 grand piano, by all means, dispose of it in your will. If you want your daughter to have it, bequeath it to her. The best gift you can give to your beneficiaries is to make a clear and incontestable disposition of all your property, including jewelry, furniture, collectibles and artwork. The last thing you want to bequeath to your children is a battle that will drive them away from mutually supporting each other.

When your client owns property in foregin countries, estate planning and tax issues can be complex.  This is an excellent article discussing inheritance in the European Union nations centering on the issue of forced heirship.  It is a concept strange to Americans who strongly believe they have a right to disinherit their children.

Thank you to blogger Joel A. Schoenmeyer at Death and Taxes Blog.

I love this post from Gerry Beyers’ Wills, Trust and Estates Prof Blog:

Testamentary gift conditioned on method of body disposition.

It reminds me of the Jewish Halachic Will which utilizes exactly the same methodology: the testator getting his way by using his will to impose a legally enforceable severe financial penalty for not following his wishes.

Background:  The primary scriptural sources for the laws of inheritance will be found in the Books of Numbers and Deuteronomy (Parshas Pinchas (Numbers 27, 1-11) and Zelophehad’s daughters). The second census of the population of the individual tribes took place just before entering the Land of Canaan (see Numbers, Chapter 26), and portions of the Promised Land were to be allocated, by lot, to each tribe in accordance with their population.

The tribes of Reuben and Gad were permitted to "inherit" and settle the land East of the Jordan River due to their great "multitude of cattle" (see Chapter 32). Each sub-tribal "family" was to be given a specific portion of land for a perpetual inheritance. In this context, the collective "petition" presented by the daughters of Zelophehad resulted in the promulgation of specific statutes comprising the earliest inheritance law in the Bible.

Maimonides, Mishneh Torah, 13th book, the Book of Civil Law (Sefer Mishpatim) contains five treatises, the fifth of which is entitled "Laws Concerning Inheritance.

The order of inheritance is as follows (taken from The Code of Maimonides, Book Thirteen, The Book of Civil Laws, translated from the Hebrew by Jacob J. Rabinowitz, New Haven: Yale University Press 1949. The Order of Inheritance is stated in Treatise Five: Inheritance, Chapter I, p. 259 – 260.):

1.      If a person died, his children shall inherit him, and they are prior to everyone else, and males are prior to female.

2.    A female never shares in the inheritance with a male. If the decedent left no children, his father shall inherit him; but by a rule derived from Tradition a mother does not inherit her children.

3.     Whosoever is prior in the order of inheritance, his issue is also prior. Therefore, if a person, whether a man or woman, die leaving a son, the son shall inherit everything. If there be no son living, we look to the son’s issue. If there be a son’s issue, whether male or female, even a son’s daughter’s daughter’s daughter, to the end of time, they shall inherit everything. If there be no son’s issue, we resort to the daughter. If there be no daughter living we look to the daughter’s issue. If there be a daughter’s issue, whether male or female, to the end of time, such issue shall inherit everything. If there be no daughter’s issue, the inheritance resorts to the decedents father. If the father is not living, we look to the father’s issue, that is to the decedent’s brothers. If there be a brother of the decedent or a brother’s issue, he, or they, shall inherit everything. If there be no issue of a brother or of a sister, seeing that there is no issue of the decedent’s father, the inheritance resorts to the father’s father. If the father’s father is not living, we look to the issue of the father’s father, that is to the decedent’s father’s brothers. The males are prior to the females and the issue of the males are also prior to the females, just as in the case of the issue of the decedent himself. If there be no brothers of the decedent’s father no issue of such brothers, the inheritance shall resort to the father’s father’s father. And in this manner the inheritance continues to ascend up to Reuben. {Query: why Reuven?] . . . ."

4.    The first-born takes a double portion in his father’s property. For it is written To give him a double portion (Deut. 21:17).

5.     " . . . . The daughters right to maintenance is one of the rights of the ketubbah. When the amount of property left the father is large, the daughters are entitled to their maintenance and the sons inherit everything, except that the daughters are to be endowed with one tenth of the value of the property each, in order to enable them to wed. When the amount of the property is small the sons take nothing and everything goes for the maintenance of the daughters.

6.     One may not constitute as an heir him whom the Law does not constitute as his heir; nor may one remove the inheritance from an heir – although this is a matter pecuniary – because in the division of Scripture treating of inheritances it is said And it shall be unto the children of Israel a statute of judgement (Num 27:11), that is to say: this Law is not subject to change and a condition qualifying it is not valid. Whether the decedent gave his instructions while he was in heath or while he was lying sick, whether orally or in writing, they are not valid.

7.     All this applies only if he uttered his words in the language of inheritance, but if he gave by way of gift, his words shall stand. Therefore, if one divided his property among his sons by word of his mouth while he was lying sick, giving more to one and less to another, or giving to the first-born a share equal to that of the other brother, his words shall stand. But if he utters his words in the language of inheritance, they are of no effect

It has been clear since talmudic times that Jews have wished to deviate from this stated succession wish to will assets to wives, daughters, charities and friends. Today, the influences of secular culture on the Jewish community and the modern idea of private property and individual rights has made this more common.

This is one of the ways for a testator to comply with halacha and yet distribute his estate the way he wants:

In a technique commonly referred to as a "Halachic Will." the testator creates an indebtedness in favor of those he wishes to benefit, e.g., wife and daughters, by executing a promissory note in their favor. Under halacha, this note is valid even if no loan was given. A debt for a huge sum, well in excess of the total value of the estate is created, but does not mature and is not payable until one hour before death. The huge sum is not going to be paid, but will be used as leverage for carrying out the terms of the will. The note, by its terms, gives to the halachic heirs (the sons) the option of paying the debt or receiving a stated legacy in lieu of having to discharge the debt. The legacy is the amount willed to the chosen beneficiary who holds the note.  Thus, the halachic heirs chose to be beneficiaries under the will which deviates from the Jewish law of inheritance.

 Writing your will is not a do-it-yourself project.

Words are important. The words that are in your will are very important. That is one of the reasons you should not try to write your own will. Even preprinted forms and computer programs can lead to problems. Take the case of Mr. Tate, recently decided in Somerset County.  Tate Estate (O.C.Div.Som.), 28 Fiduc. Rep. 2d 264.

Mr. Tate died leaving an estate consisting of $700 in household goods, certificates of deposit, a checking account, money market account, life insurance policy dividend and cable refund with a total value of $39,300.

Mr. Tate died leaving a will that was apparently prepared by a local notary (practicing law without a license) who used a pre-printed form and filled in the blanks. Mr. Tate’s will said: "I give, devise and bequeath all my personal property, jewelry and furniture, to my niece, Valarie Nichols." . . . "I give, devise and bequeath all the remainder of my estate, which I may own at the time of my death or to which I may thereafter become entitled, to my friend, Janet Geisel."

So what’s the problem? The question is who gets the $39,300 – Valarie Nichols or Janet Geisel? Why is this a question? Because personal property, as understood in the law, means any kind of property other than real property. Thus, bank accounts, certificates of deposit and other cash items are personal property.

The will says all personal property goes to niece Valerie Nichols – which would mean she would get all of the assets – bank accounts, certificates of deposit, etc. Janet Geisel, the other beneficiary disagreed. She said that since the decedent had no real estate she would get nothing and that what the decedent meant was tangible personal property should go to niece Valarie and everything else should go to friend Janet..

The first point I want to make is that if there has to be a lawsuit over a $39,000 estate, how much do you think is going to be left for any beneficiary? 

What do you think? What did Mr. Tate intend? And how do we know? We can’t ask him.

In this case, the court applied a doctrine of construction called "ejusdem generis" to reach their holding. "Ejusdem generis" is Latin for "of the same kind." As applied to Mr. Tate’s will, this phrase means that "where general words follow enumerations of particular classes or persons or things, the general words shall be construed as applicable only to persons or things of the same general nature or kind as those enumerated." In other words, since the will said "all my personal property, jewelry and furniture" the general words "personal property" should be interpreted to mean property of the same type as jewelry and furniture.

So Janet Geisel gets the $39,300. . . . minus the costs of the lawsuit.

Moral of the story: Writing wills is not for amateurs. You may think youa re being clear, covering all the possiblities, and complying with all the legal requiresmtns. And maybe youa re – but there is no way you can know for sure that what you have written willa ccomplish what you want.

Thank you to the editors of he August 2008 issue of Fiduciary Review, 60 East Penn Street, Norristown, PA 19404 (610) 275-8200.  The August 2008 issue of Fiduciary Review contained a report on the Tate Estate.

In a decision filed April 17, 2008, the Pennsylvania Superior Court turned what we know about wills and joint property on its head.  In In re Estate of Amelia J. Piet, the court ruled that joint accounts did not pass to the surviving joint owner because the accounts were made joint after the execution of a will that would have provided a different disposition.

The concept of a ‘convenience account’ has long been part of the law of the Commonwealth.  20 Pa.C.S.A. §6304 of the Multiple Party Accounts Act provides:

"(a) Joint Account. – Any sum remaining on deposit at the death of a party to a joint account belongs to the surviving party or parties as against the estate of the decedent unless there is clear and convincing evidence of a different intent at the time the account is created."

The Allegheny County Orphan’s Court, after hearing, found that for the accounts in question, there was no evidence to overcome the statute’s presumption and that the accounts passed to the surviving joint owner.

The Superior Court said they would not "blindly adhere" to the section 6304(a) ownership presumption, because  the testamentary intent of the testator would be frustrated.    (In other words, they are  not going to follow the statute.)  The court held that the previously executed will "trumps" the joint registration of the bank accounts.   Have you ever heard of anything like that?

The court cited In re Estate of Novosielski (a troubling case in its own right – see an excellent discussion of Novosielski and of the Piet case by Attorney Thomas K. Johnson II in Dechert LLP’s newsletter) to support its holding even though that case can be readily distinguished on its facts as pointed out in the dissenting opinion.

In a lone dissent, Judge Maureen Lally-Green says "It has been the law for centuries in the Commonwealth that regardless of what is devised in a will and to whom it is devised, a testator can gift away any or all assets during his or her lifetime as long as donative intent and delivery are present.  The gifting can occur in many forms from an outright inter vivos gift to a gift that occurs in a joint tenancy with rights of survivorship by the death of one joint tenant and the passing of the gift to the survivor.  All such gifts take effect outside of the estate that passes by will."

Further:  "I do not believe that the creation of a joint account with a right of survivorship alters the testamentary scheme.  Rather, such an account alters the amount of the estate,  The execution of a will does not prevent the testator from subsequently altering the amount in the estate as he or she sees fit. such as by the creation of a joint account or through inter vivos gifting."

What do we do now?

Does this mean that whenever we administer an estate we must determine when joint property is created and if it is after the last Will, we must seek to recover it for the estate?  Does the same thing apply to beneficiary designations? 

Here is the advice of Attorney Thomas K. Johnson II: 

"It seems likely that the Pennsylvania Supreme Court or the Legislature will have to address this issue in the near future.  For now, however, attorneys, financial institutions and joint account holders need to be aware that they may need to change their current practice to carefully document the creation of any joint account as consistent with a prior will or to anticipate the issue when drafting wills and address the issue of after-created joint accounts by expressly stating that such accounts may be created and are not inconsistent with the testator’s wishes."

 Thank you to Lancaster Attorney Will Campbell for pointing out this very troubling decision.

 

 

Growing Old and Issues of Diminished Capacity

The law assumes that adult individuals have mental capacity, that is, they are capable of making rational decisions on their own behalf. Note we say they are “capable” of making rational decisions. The law doesn’t expect or require that they actually make rational decisions. Competent individuals of all ages, old and young, have the right to make foolish, eccentric or idiosyncratic decisions. For better or worse, all of us are free to make bad decisions.

People Vary
A persons’s capacity may change from day to day (or even during the day), depending on the course of the illness, fatigue and the effects of medication. Some folks have good days and bad days. Some are more alert in the morning; some have their best time in the afternoon. Legal competency is not something that a person either has or doesn’t have –it can be quite variable.

Standards Vary
Whether or not a person is legally competent depends on the purpose for which the capacity is being determined. The law provides a different standard of competency for 1) making contracts, 2) making wills, 3) having a guardian appointed, 4) and giving informed consent to medical treatment.
Whether or not a person is competent is a legal determination, not a medical one. Medical testimony is important, and is always sought by a court in making the determination of capacity. Since the law has many different defined standards depending on the action being taken, the determination of whether or not a person is competent to do a certain thing is always a legal decision.

Lowest Standard
What surprises most people is that the capacity to make a will, called testamentary capacity, is the lowest level of capacity in the law. All that is required is that the person making the will (1) understand in a general away, the nature of his property, (2) knows who are the “natural objects of his bounty,” that is, the persons who would normally be his heirs, and (3) must be able to comprehend that he or she is making a will.

A person who has had a stroke, or is diagnosed with Alzheimer’s disease, may still have sufficient capacity to make a will even though there is some impairment of speech, some impairment of thought processes, and/or some physical impairment. The fact that a client does not know the year or the name of the President does not necessarily mean that she can not make a will. Since signing a will does not require a great deal of capacity, the fact that the next day the person does not remember the signing of a will does not invalidate the will if he had the minimum required capacity the day before when he signed it.

Continue Reading Capacity to Make Will

We usually think of a person’s will as a financial document used to make sure his or her estate is distributed according to his or her wishes. The will can also be used as a constructive tool or a destructive weapon to reach other goals, which often do not involve money.

Eddy M. Elmer, in his article, “The Psychological Motives of the Last Will and Testament” describes the use of wills. Used positively, a will can be used to foster a sense of continuity for the survivors and to preserve family relationships. Used negatively, through imposed conditions, disinheritance, unequal treatment, and attaching “strings,” a will can be used to control from the grave and continue dysfunction in a family.

With the power to make a will comes the right to disinherit. By the common law, anyone may give his estate to a stranger, and thereby disinherit his heir apparent. In the words of Mr. Elmer, “disinheritance is one of the more vengeful goals of will-writing.”

Most states include protections for a surviving spouse so that the spouse cannot be completely disinherited, although in Pennsylvania, the spouse has a right to receive only one-third of the deceased spouse’s estate. In all the states except Louisiana, children can be disinherited.

When it is the intention of the person making the will to disinherit a child or someone who is an heir at law, it is important to make it clear that the omission of the person from the will is not a mistake or oversight. For this reason, sometimes wills provide “I give my son John $1.00.” Leaving someone a dollar is not intended to be a gift to them. It is a formal statement of disinheritance. Similarly, a will could provide “I leave nothing to my son John,” or “I am leaving nothing to my son John, for reasons known to both of us."

Questions can arise about these provisions. If John predeceases the parent who made the will, do John’s children inherit? Is the disinheritance of John to be assumed a disinheritance of his children also? The will must be drafted to make the answer to this question clear.

It is best not to give a reason for the disinheritance. If a reason is given, and it is proven to be a mistake of fact, then there could be a dispute about the validity of the disinheritance. For example, a will could provide “I give nothing to my son John because he is a convicted felon.” If John is not a convicted felon, is he still disinherited?

A writer of a will can also disinherit anyone who challenges the validity of the will in what is called an "in terrorem" clause. "I leave anyone who challenges this will or any part of it one dollar." Sometimes these clauses are called “no contest clauses.”

An in terrorem clause (pronounced (in tehr-roar-em) is from Latin for "in fear." It is any provision in a will which threatens that if anyone challenges the legality of the will or any part of it, then that person will be disinherited or given $1.00, instead of receiving his or her stated bequest in the will.

An in terrorem clause is intended to discourage beneficiaries from legal battles after the testator is deceased. However, if the will is challenged and found to be invalid (perhaps because of lack of capacity or undue influence), then the in terrorem clasue which was part of the failed will fails as well. Whether or not to challenge the will then becomes a calculated risk.

An in terrorem clause is not much help to disinherit a child or other beneficiary entirely. It is most useful when the child or other beneficiary receives something meaningful under the will, but just less than what he or she might feel entitled to. If you completely disinherit someone, and include an in terrorem clause in the will, there is not much of a threat. If the person you are concerned about challenging the will is not a beneficiary, he or she has nothing to forfeit (and nothing to “fear”). So an in terrorem clause would have no effect on him or her. For the clause to work, you have to leave enough to the disfavored beneficiary so that the beneficiary has too much to lose if the challenge fails.

In Pennsylvania, under the 1994 changes to the Probate Estates and Fiduciaries Code, “[a] provision in a will or trust purporting to penalize an interested person for contesting the will or trust or instituting other proceedings relating to the estate or trust is unenforceable if probable cause exists for instituting proceedings.” Probable cause, in general, is when a reasonable person, properly advised, would conclude that there is a substantial likelihood that the will contest will be successful. The policy behind allowing this probable cause exception is to ensure that a person is not intimidated into remaining silent out of fear of losing a bequest where there is a good faith belief that the will is invalid.

An in terrorem clause may be viewed favorably as a means of discouraging frivolous litigation. On the other hand, courts tend to construe the clauses strictly because their enforcement causes a complete forfeiture of the claimant’s interest, a harsh result. There are many court cases on what should be the fair boundaries of the power to condition a gift on not contesting a disposition. The law frowns on a provision which seeks to repress a search for the facts surrounding a disposition in a will. Florida and Indiana have statues that completely void the use of in terrorem clauses.

It is unhealthy for the living as well as the dead if we use our death as an occasion to get even and settle petty accounts — with our own children, no less.