Father passed away before divorce was finalized.

Dear Len & Rosie,

My father recently passed away without a will. As far as I understand, my mother and he never finalized their divorce because the settlement agreement had not been filed, even though they filed for divorce in 1989.

My father’s wishes were that my mother would receive half of the home and my brother, sister and I were to share the remaining half interest. My mother has now retained a probate attorney and we are not sure what her intentions are.

In addition, my paternal grandmother willed some property to us three children and my mother is now trying to claim that property even though my grandmother specifically stated in her will that my mother was to be excluded and if she contested the will, she was to receive $1. Do you recommend that I retain my own probate attorney?

Janene

Dear Janene,

There are two separate cases here: Your father’s estate and your grandmother’s estate. With respect to your father, you have problems. If the divorce had been finalized then your mother would have been automatically disinherited from your father’s will, if he had one, and would not inherit any portion of the estate by intestate succession, if he had no will.

But since your parents were not divorced upon your father’s death, your mother is still the surviving spouse. The fact that they have been separated for two decades doesn’t change this. She gets to inherit whatever your father left her in his will. If he died intestate (without a will), your mother shall inherit all of your father’s community property and one-third of his separate property, because he was survived by more than one child.

As for your grandmother’s estate, your rights depend on the exact terms of your grandmother’s will, which we have not had the opportunity to review. If your grandmother left everything to your father, and then died before him, there’s a good chance that all or a portion of your grandmother’s estate shall pass into your father’s estate to be distributed to your mother in addition to your father’s children. But if your grandmother’s will left you something specifically, rather than you inheriting through your father, your father’s death and your mother’s claims should not affect your own inheritance.

You should probably sit down with a trusts and estates attorney and review both the estates of both your father and grandmother because the particular facts in your situation are important and will affect your rights. But you should know that it’s your father’s own fault that his wife may inherit so much. His wishes won’t count unless they were incorporated into an estate plan that he didn’t get around to creating while he had twenty years to complete. Don’t blame your mother for your father’s inaction.

Len & Rosie

Problems arise when gifting money to grandchildren

Dear Len & Rosie,

Years ago when our first grandchild was born, my husband and I bought a custodial account. As the years have past the parents of this grandchild are no longer married and we are not allowed to see him. I would like to close this account, as I feel that the mother will spend the money on herself when our grandson turns 18. We feel very strongly that she does not deserve any of the money. How can I cash in this account? I’m told custodial accounts are impossible to end.

Dona

Dear Dona,

Your grandson’s custodial account is an account created under the California Uniform Transfers to Minors Act, sometimes referred to as the UTMA. The primary advantage of UTMA accounts is that they are really simple. You or anyone else may give money, securities, or other assets to a minor, without the expense of creating and administering a trust.

Money in your grandson’s UTMA account is held under his Social Security Number, rather than a taxpayer identification number assigned by the IRS. Any income earned by the UTMA account is taxable to your grandson, instead of being taxed at the trust tax rate, and it’s extremely unlikely that there’s enough income to require filing an income tax return on your grandson’s behalf.

The downside of a UTMA account is that it’s no longer your money, even if you named yourself as custodian. The account is owned by your grandson. You may spend money from the custodial account on your grandchild, but you can’t take it back for yourselves. If you do so, you are committing a breach of fiduciary duty for which you may be sued, and you could even be criminally prosecuted for theft.

If either you or your spouse is the custodian, all you can do is to manage the money and turn it over to your grandson when he turns 18 unless you set up the account to hold his money until he reaches age 25. Do so discreetly and maybe his mother won’t get his hands on it. If the mother is custodian, you’re in a more difficult position. While your grandson is entitled to an accounting of his mother’s actions as custodian, you’re just the donor, and you have no rights at all. And forget about being able to fire her as custodian without cause. You need to prove that the custodian has already stolen from the custodial account.

The lesson here is that if you wish to make gifts to minors, you need to weigh the risks and benefits of each method of doing so. UTMA accounts are easy, but cannot be taken back once made. A gift made via a revocable trust is best from the perspective that you may retain the right to change or modify the gift up until your death, but the gifted money is subject to estate taxes, if you are wealthy enough, and the claims of your creditors.

A very good option is to create a 529 Plan, via www.scholarshare.com. It’s an educational fund that grows tax-free until money is distributed to pay for the educational expenses. You can also pick your own successor participant to manage the account in the event of your death or incapacity. With a 529 plan, you could have ensured that the money you gifted to your grandson would be used solely for educational purposes.

Finally, remember that it’s not your grandson’s fault that you are not allowed to see him, and that if you are the custodian of his account, there must surely be a way to get him the money without it passing through the grubby hands of his mother.

Len & Rosie