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You Can't Estate Plan By Writing Your Kids A Check

Kentucky Supreme Court Decision Highlights The Need For Estate Planning For Blended Families.

Before Christmas, I posted two entries emphasizing the need for blended families to have proper estate planning. (Estate Planning for Blended Families, Part 1, Part 2) Last month, the Kentucky Supreme Court in the matter of the Wethington Estates.[1] Issued an opinion that is illustrative of how estate planning can prevent family disharmony or at the very least avoid significant legal bills.

In the Wethington case, James and Nannie Wethington had been married for about 27 years at the time of James’ death in early 2017, and Nannie died shortly after that. Both died without a will, and each had children from previous marriages.

James was gravely ill, and approximately a month before his death, James gave his son a signed blank check and told him, “fill it out and take every dime he had. That’s the only way we was [sic] going to get anything.”[2] His son followed his father’s instructions, and a couple of days before James passed, he filled in the check to withdraw the remaining $38,500 from the account in question. The account’s balance represented more than half of James’ estate and almost the entirety of his liquid assets. Nannie had access to the account and only became aware of the withdrawal of the funds when her checks started being returned for insufficient funds.[3]

Citing both recent and longstanding cases,[4] the Court found that James’ use of the check to transfer the money to his children represented a fraudulent gift and an attempt to avoid Nannie’s dower rights. The Court emphasized that while James was permitted to make gifts to his children from common funds, the reasonableness of such gifts is based on the condition of the parties and the surrounding circumstances.

In this case, James’ son’s testimony stated James made to remove the assets from Nannie’s control and assure that the funds passed to James’ children and not Nannie’s. The remedy, in this case, was the unwind the gift to the extent of Nannie’s rights in the property. Because the facts on appeal were insufficient to determine James’ total estate value and what portion of the check represented a reasonable gift that James was permitted to transfer, the Court remanded the case to the Circuit Court to determine the extent of Nannie’s estate’s interest in the gift.

The situation could have been easily avoided. Had James and Nannie agreed to the division of their estate and put a plan in place to accomplish that agreement, there would have been no need for James to attempt to circumvent the process. Their marriage was a long one, the step-siblings had known each other that entire time, but their parents’ failures put them on a collision course to conflict.

James, knew that he had no will, and when he passed, the money would go to Nannie in whole.[5] Furthermore, it seems apparent that he knew Nannie did not have a will and that upon her passing, the rules of intestacy would result in Nannie’s children alone inheriting any remaining assets.

Think about this, the issue represents about $20,000 (1/2 the original gift). To determine which party had the right to those funds, both parties paid for lawyers to represent them in the Marion Circuit Court, the Court of Appeals, the Supreme Court, and now back to the Circuit Court. While I do not know what the total legal fees will come to, I would not be surprised if the fees don’t ultimately represent an amount nearly equal to, or perhaps even exceeding, the gift’s value.

[1] Mitzi Simpson and Karen Hill as Co-Administrator of the Nannie Catherine Wethington Estate v. Kerry T. Wethington and Jeremy Wethington Individually and as Administrator of the James Patrick Wethington Estates, ___ S.W.3d ____, 2020-SC-0567 (Ky. 2022). [2] Id. at *3. [3] It is unclear from the facts in the opinion whether it was a true joint account or whether the account was in James’ name alone and Nannie merely had signature rights. Based on James’ belief that it would all go to Nannie on his death, it appears to have been a joint account. In the end, how the account was titled does not appear to be a material factor in the Court’s analysis. [4] Murray v. Murray, 13 S.W. 244, 246 (Ky. 1890), Manikee’s Adm’x v. Beard, 2 S.W. 545, 546 (Ky. 1887), Payne v. Tatem, 33 S.W.2d 2, 3 (Ky. 1930), and Bays v. Kiphart, 486 S.W.3d 283, 287 (Ky. 2016) [5] This fact is why I suspect the account was a joint account and interestingly, even if James had a will, he could not have left an interest in that account to his children. But James could make reasonable gifts from the account.

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