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EXCLUDED HEIRS MAY STILL INHERIT

When Elizabeth was born out of wedlock in the 1950s, she was adopted soon afterwards by another family. As a young adult, she located her birth mother and formed a long‑lasting relationship with her. Elizabeth also discovered that, through her mother, she was related to the beneficiaries of a large fortune. Two multimillion dollar trusts had been established to provide income to Elizabeth’s mother during her lifetime. The remaining principal was to go to her “descendants,” according to one trust, and to “each then living child of hers,” according to the other trust.

Following a long battle, a court has found that Elizabeth is entitled to share in the fortune, notwithstanding the argument by her mother’s other heirs that she was not her mother’s “child” or “descendant” because she had been adopted out of the family. Looking at the applicable state law when the trusts were created, the court determined that, at such times, nonmarital children could be included as descendants or children of their biological parents for purposes of inheritance. There also was an overarching constitutional issue, as some courts have held that treating children born out of a marriage differently from marital children is a denial of equal protection of the law.

In Elizabeth’s case, the issue would have been more clear‑cut in her favor had the trust instruments simply included her as a beneficiary, either by more inclusive language or by using her name. Of course, up to a point, the creator of a trust or will has leeway in deciding which of his or her children to include as beneficiaries. But the law has been known to step in on behalf of children to achieve a measure of justice and fairness.

A case in point, which has yet to play out to a resolution, concerns the estate of Anna Nicole Smith. In her will, Smith left all of her estate, which could be greatly enhanced by many millions of dollars from her late husband’s assets, to her son. Only months before both Smith and her son died, she gave birth to a daughter. Whether the omission of any future children from Smith’s will was intentional or merely a drafting error, it is probable that Smith’s daughter will inherit the estate.

Under the “omitted child” doctrine followed by a majority of courts, when a parent has a will and then has children, those children are treated as if they were born prior to the will, and they are afforded the same treatment as any other siblings. If, for whatever reason, the Smith estate passes outside of the will, the daughter still will likely receive the estate.

Update Your Estate Planning Documents
Your estate planning documents should be reviewed with a professional on a regular basis and kept current with your life changes. Birth, death, marriage, and divorce are but a few life changes that can significantly affect your estate planning. Don’t wait until it’s too late to revise your plans to reflect your wishes and circumstances.

“ARM” BORROWERS BEWARE!

After a period in which eligibility criteria for prospective borrowers were stretched to the breaking point, the chickens are coming home to roost in what is sometimes euphemistically called the “subprime” home mortgage market. Millions of new homeowners who got an adjustable‑rate mortgage (ARM) with terms that they could handle in the early years now face sharply higher payments as the interest rates are reset at higher levels.

While it may be human nature to want to lay low and take cover when the financial strains mount and you begin to make late payments or miss them altogether, the better course is to be up front about your situation—first, with a legitimate housing counselor, and then with the lender. Communication is the first essential step in climbing out of the hole.

Foreclosure occurs when the borrower defaults on the loan and the lender asserts its right to sell the home to raise money to pay the borrower’s debt. It is an outcome to be avoided by the borrower if at all possible. Not only is it an obvious setback to lose one’s home, but the negative ramifications of a foreclosure reach far into the future. A foreclosure likely will wreak havoc with your credit rating, and it could also create an impediment to getting a job or insurance.

Among other things, a legitimate housing counselor can offer advice and assistance on avoiding foreclosure. The emphasis should be on “legitimate,” because, unfortunately, there are many credit‑repair scam artists out there preying on people who can least afford to be ripped off. Consumers can steer clear of such outfits by consulting a list of reputable housing counselors that is maintained by the federal Department of Housing and Urban Development. The advice should be either free or at a low cost.

As for communication with the lender itself, do not give in to any temptation to ignore the lender’s telephone calls or to toss its letters. Borrowers under stress may be surprised to learn that prompt and forthright communications with the lender could open the way to refinancing or restructuring the loan with terms that are more manageable and that will allow the borrower to stay in the home. After all, the lender, no less than the borrower, has an interest in seeing that the loan is paid off, one way or another. In the bargain, you just may get to keep the home of your dreams.