«ESTATE PLANNING A Simplified Guide for Oklahoma Farm and Ranch Families Circular E-726 Oklahoma Cooperative Extension Service Division of Agriculture ...»
• A will may be poorly prepared and fail to carry out the wishes of the owner. Thus, making of a will alone does not necessarily provide a satisfactory way of transferring property. What goes into a will is what counts. The contents of the will are important - the choice of words; the contingency clauses; freedom from ambiguity; avoidance of contradiction; special bequest provisions.
• It permits an owner to direct the use of the property for many years after his death. This sometimes causes hardship for heirs as a result of changing economic and family circumstances.
• Neglect, inefficiency, and indifference in farm operations may be produced because heirs are uncertain as to how and to whom the property may be distributed. This uncertainty may be avoided by transfers made during lifetime of the owner.
General Provisions Applying to All Wills
General provisions that apply to all types of wills include:
• A spouse may dispose of all his or her separate estate by will, without the consent of the other spouse.
• A will cannot take precedence over:
1. A written antenuptial agreement. An antenuptial agreement is one made up between a man and woman prior to their marriage in which each agrees upon death of the other to take less property or different interest than which the law allows the surviving spouse.
2. A spouse’s elective share. The amount of property a spouse may receive under the laws of succession cannot be reduced by will without approval of the surviving spouse. If by chance this happened, the surviving spouse could elect to receive property under the state laws of succession which would, in effect, invalidate the distribution provisions to him or her under the will.
Types of Wills The only type of will recommended for estate planning is a formally executed will drawn by a lawyer. The law recognizes other types of wills, but these other types are best used only in emergency situations. A nuncupative will is an oral will which can be made only by a person in military service and in fear of death connected therewith. The estate must not exceed $1,000 and cannot include real estate. The will must be proved by two witnesses. A holographic will is one that is entirely written, dated, and signed by the hand of the testator himself. It need not be witnessed. This type is not recommended for use under normal circumstances, because it is usually drawn without the counsel and assistance of a lawyer.
• Formally Executed Will. Every will, other than the two types described in the endnote, must be executed and attested as follows:
1. The will must be signed at the end by the testator himself, or he may direct someone in his presence to sign his name thereto. (Usually this would happen only if the testator is physically unable to sign).
2. The signing must be in the presence of at least two witnesses.
3. The testator must at the time of signing the will advise the witnesses that the instrument is his will.
4. The two witnesses at the testator’s request and in his presence must affix their signatures and should write their addresses in their own handwriting at the bottom of the will.
• Self-Proved Will9. Oklahoma law now permits testators to make their wills self-proving. Influenced by Texas procedure, Oklahoma has adopted the practice of allowing the execution by a testator and the attestations by the witnesses to be acknowledged. This will excuse testimony by the witnesses at the time the will is offered in probate unless the will is contested. In absence of contest, this feature will save time and costs in the probate proceeding.
• Mutual or Joint Will. A formally executed will that is executed jointly by two persons with reciprocal provisions is called a joint will. It may be revoked by either of the testators in like manner as any other will and may be executed as a self-proved will. If two separate wills are executed with reciprocal provisions, they are called mutual wills. In either case, wills that contain reciprocal provisions should generally state whether or not they were executed pursuant to any agreement. Wills executed pursuant to an agreement (contractual wills) should generally be avoided since the potential for litigation is high in such cases.
Simultaneous Death The will may provide that testator’s spouse shall be presumed to have survived the testator if both should die in a common disaster under circumstances that make it uncertain who died first. If the will does not contain such a simultaneous death clause, Oklahoma’s statute (Title 58, Oklahoma Statutes Annotated, Section 1001) directs that in event of such common disaster causing the simultaneous death of both husband and wife, it shall be ruled by the court that neither spouse shall have survived the other. The estate of each then would pass to his or her respective heirs or in accordance with their respective wills. The statute would disqualify the marital deduction savings on federal estate taxes if this provision is not included.
Changing or Correcting a Will A supplement to a will, consisting of revisions, additions, or alterations made after the will has been made, is known as a codicil. The codicil must be executed (signed, witnessed, etc.) in the same manner as the will being amended.
Corrections should not be made in a will by erasures, insertions, or cross-outs. All corrections or other changes should be made by codicil and in many cases it may be preferable to execute a new will.
If a new will is made, it should state that all prior wills are revoked. It may also be desirable to physically destroy a previous will to avoid any possible confusion later.
Importance of Legal Assistance By all means, consult a lawyer in planning and writing your will. If your will is not executed as the law prescribes, or if it attempts to do illegal things, it may be declared invalid. An untrained person is likely to use inaccurate or ambiguous language in drawing his will that when contested would be subject to the interpretation of the courts.
A lawyer is equipped by training and experience to help accomplish what you desire. Tell your lawyer what you want done and allow him to put your wishes into draft form and have him explain the language and effect to you. Careful thought should be given in drafting a will. Remember, at the time the will goes into effect, you will not be around to explain what you meant to say.
Transfer by Law of Descent When a person dies without leaving a valid will, his property is distributed according to the law of descent. The law designates who will receive ownership of property and the shares received by each heir. It is possible that your plan for disposition of your estate after death would exactly coincide with the Oklahoma laws of descent. But the law of descent is complex and it would definitely be necessary to consult a lawyer before assuming that the law would carry out your wishes.
The laws of descent vary from state to state. The distribution made of Oklahoma property of an owner who dies without a valid will10 is described briefly in Property Distribution According to Laws of Descent in Oklahoma on page 35.
Of course, not all conditions are presented. For example, an antenuptial agreement made prior to a marriage may affect distribution of property under the laws of descent.
Title 84, Oklahoma Statutes 1953, Section 232, provides that the surviving spouse may have one automobile that belonged to the deceased spouse at the time of his death if he dies intestate. If the deceased Spouse owned more than one automobile at the time of his death, the surviving spouse may choose one of the automobiles. For the surviving spouse to obtain a title transfer, it would be necessary to obtain an order of the probate courts finding him or her entitled to have the car under this statute.
Survivor’s Homestead Rights Homestead rights in Oklahoma may consist of an estate in land and personal property as well as exemption from certain debts. The homestead of any family living in a rural area shall consist of not more than 160 acres. It may be in one or more parcels to be selected by the owner. The homestead in a city or town, or platted area, and occupied as a residence only shall consist of not more than one acre of land. The statute limits an urban homestead to a value of $5,000, but in no case will it be reduced to less than one-quarter of an acre. Some of the personal property not subject to administration proceedings are family pictures, church pew, lot or lots in a burial ground, Bible, school books, other books not in excess of a value of $100, clothing, food and fuel for one year, and household and kitchen furniture. This property is to be delivered immediately by the executor or administrator to the surviving spouse and children, if any.
Upon the death of either the husband or wife, the survivor may continue to possess and occupy the whole homestead. It is not subject to administration proceedings until it is disposed of according to law. Also, upon the death of both the husband and wife, the children may continue to occupy the homestead until the youngest child reaches the age of majority. The homestead right is similar to a life estate. It comes into play when one spouse owns the homestead and dies.
The surviving spouse may occupy the homestead until death. At the death of the surviving spouse, if there are no minor children, the property will pass to the heirs of the spouse who owned the homestead. The homestead rights are designed to prevent the spouse or minor children from being ejected from their home at the death of the spouse who held title to the property. The homestead is also not subject to the payment of any debt or liability contracted by either the husband or wife, except for liens such as mortgages on the homestead.
Qualified Disclaimers With reference to the estate tax, gift tax, and generation skipping transfer taxes, if a recipient makes a qualified disclaimer with respect to any interest in property within the estate of decedent or donor, the property will be treated as if it had never been transferred to the recipient.
An example of when this might be used wisely is as follows: John Doe dies unexpectedly and his will leaves everything to his wife and the will was written 30 years ago. If the wife now owns considerable assets in her name, she might prefer that part of the property in her husband’s estate pass to their children instead. By properly disclaiming some of the property designated to pass to her, she could reduce her estate taxes at her death (see an attorney for details on how this can be done).
Payable On Death (POD) or Transfer On Death (TOD) Registration Savings accounts may be made payable on death of the owner to a named beneficiary, if living.11 Securities may be registered in beneficiary form that indicates the present owner and the intended beneficiary who will become the owner upon the death of the present owner.12 Sole owners or multiple owners with right of survivorship may use this form to designate a beneficiary to take ownership at the deaths of all owners. This form is created by using the words “transfer on death” or “TOD” or “pay on death” or “POD” after the name of the registered owner and before the name of the beneficiary. On proof of death of all owners and compliance with other requirements of the registering entity, the security may be reregistered in the name of the beneficiary. If no beneficiary survives the owner, the security belongs to the estate of the owner. Debts, taxes, and expenses of administration, including allowances to the surviving spouse and minor or dependent children take precedence over the beneficial owner’s interest if other estate assets are insufficient. Registering entities are not required to offer this form, but many do offer it.
Estate Planning Aids Services provided by banks, insurance companies, and similar institutions are often helpful in making and carrying out an estate plan. The following section describes some of these services.
Annuities An annuity is an amount of money payable each year for a specified period. A life annuity usually refers to a sum of money to be paid yearly for the rest of the person’s life. Annuities, which can be used in a farm transfer plan, can be purchased from life insurance companies. The person buying the farm would pay the cost of the annuity to the insurance company; the company would then make payments to the seller of the farm. The person receiving the payments is called an annuitant. There are many variations of annuities, such as straight life, cash refund, joint, and deferred. Annuities can be purchased in a lump sum or in units over a period of time. An insurance company is in a much better position to assume the obligation of paying a lifetime annuity than is an individual.
Private Annuities A private annuity differs from a commercial one in two respects. First, ordinary property other than cash, normally real estate, is used to acquire the annuity and, second, the promise to make the payment is made by an individual, often a son or daughter rather than an insurance company. Payments under a private annuity are payable periodically, but they usually cease upon death of the annuitant.
A private annuity can be used if a parent wants to transfer a farm or ranch to a child in exchange for a guaranteed income for life. However, no mortgage or other security (except life insurance in the event of death) may be given to the parent to guarantee payment of the required annual amount. Some parents might consider such an arrangement a serious drawback. In addition, there may be adverse income tax consequences to the child should he sell the real property acquired by the annuity prior to the annuitant’s death. The tax basis becomes the sum of all annuity payments.
Generally, private annuities are discouraged in estate planning; however, there may be exceptions. If a child agrees to pay to the parent a fixed payment for the farm for the rest of the parent’s life and if the parent dies prematurely, the child buying the farm receives a windfall that may make the other children unhappy. On the other hand, if the parent lives longer than a normal life, the child purchasing the farm pays in excess of the property’s value. An insurance company usually is in a financially better position to fund a lifetime annuity than is an individual.