Lynn Brenner's Family Finance

Can I Challenge My Mother-In-Law's Will If She Doesn't Leave Me Anything?

Q: We’ve been told that my mother-in-law has a simple will that splits everything between her three children – my husband and his two siblings. What will happen to my husband’s inheritance if he predeceases his mother?  As his surviving spouse, would I be entitled to his share of her estate? If her will doesn't make this clear, can it be challenged, since my husband and I are the only ones who are there for her? Also, when adding up the final value of her estate, does it include everything she owned, including jewelry, furs, furniture, and bank accounts? My husband says his sister will get all the jewelry and furs, and he and his brother will split the proceeds from the sale of the house. Do we have a right to see a copy of the will? -- MA, via email

A: Nobody has a right to see your mother-in-law's will -- let alone to challenge it -- until after her death. And as her daughter-in-law, you are entitled only to what she chooses to leave you. If your husband predeceases her, you won't inherit his share of his mother’s estate unless her will says so.

Clearly, you feel morally entitled to a generous legacy. But in-laws have no legal entitlement to inherit. 

Among other things, this means you cannot challenge the will. You can only challenge a will if 1) you would be legally entitled to inherit if there were no will; or 2) you were named in the decedent's previous will, but disinherited in this one.

Besides, even a person who meets the legal requirements to challenge a will cannot get it overturned merely on the grounds that it's unfair.

Legally speaking, unfairness doesn’t matter.

To overturn a will, you have to convince a court that at least one of the following occurred:

The will was improperly executed. (It wasn't signed by witnesses, for example.) The testator lacked the mental competence to know what she was doing. (She disinherited her child because she didn't remember that she had a child.) She signed it as a result of fraud. (She didn't know it was her will, she thought she was signing an insurance policy.) She signed it under undue influence or under duress. (She disinherited her child after being persistently lied to about his character, for example, or after being told her caregiver would abandon her unless she did so.)

Believe me, none of these things is easy to prove.

Yes, a person's estate consists of everything he or she owned -- literally everything, including the loose change on the bedside table.

So much for the law. Now let's talk about the emotional subtext of your letter.

It sounds as if you feel that your mother-in-law takes your role as her caregiver for granted.

Her plan to leave her furs and jewelry to her daughter is natural enough; but under the circumstances you've described, it's also natural that you feel slighted. You understandably want her to acknowledge your importance in her life.

You and your husband should find a tactful way to make this clear to her.

For example, he might tell her how much you would one day value a personal bequest, like a favorite piece of jewelry, in acknowledgment of your special relationship with her.

But be warned: There is no surer way to destroy your prospects of such a bequest than to imply that you deserve a bigger share of her assets than her own children when she dies.

    

RESPONSIBLE FOR SON'S CHARGES on my credit cards?

Q: I let my son use three of my credit cards, and he ran up bills totaling over $11,000. He lost his job almost two years ago, and I have been trying to pay his debt. I have it down to $3,000. But I never signed anything, nor did he. Am I still liable for the remainder of this debt? -- CP via email

 

A: Yes. You may not remember signing anything, but you did.

When you signed the application forms for those three credit cards, you promised to be responsible for paying any debts that you incurred or authorized on the cards.

You authorized your son's debts by letting him use your cards. (And he clearly has a moral responsibility to pay you back as soon as he’s able to do so, even if he didn't promise in writing to do so.)

Unauthorized credit card transactions are a very different matter.

If a thief steals your credit card number, the most you can be charged for the bills he runs up is $50 -- and many card issuers don't charge  you anything. To find out your card issuer’s policy, call the customer service number on the back of the credit card. You may find you have zero liability for any fraudulent charges.

 

Who Must Pay My Debts When I Die?

 

Q: You've written that a widower isn't responsible for his wife's credit card debts if they were solely in her name, and he didn't co-sign them. That sounds as if someone could run up enormous debt and never have to pay it back. If a couple's assets are jointly owned, wouldn't the credit card debts of the first spouse to die be a liability of his or her estate? --RP, via email

A: Let's start with the general rule: You can't stiff your creditors merely by dying. But if you die broke, the law doesn’t require your survivors to pay your debts.

(A word of warning: Don't try to arrange to die broke by giving away all your money just before you expire. That's fraud; and it doesn’t work.)

 It is your estate -- not your family – that’s legally responsible for paying your creditors when you die. Your estate consists of almost everything you owned, with a few very important exceptions: Your creditors can't touch your retirement accounts or the proceeds of your life insurance policies. Those accounts and policies go to the named beneficiaries.

 In New York, your surviving spouse and children are also entitled to keep up to $10,000 worth of household furniture, appliances, computers and musical instruments, a car worth up to $15,000, and $15,000 worth of other assets.

"But assets that you owned jointly with someone else pass to the surviving joint owner, says Stephen J. Silverberg, a Roslyn Heights, New York estate lawyer.

In other words, the creditors of the wife who died with that pile of unpaid bills must be repaid out of the assets that she owned solely in her own name -- not out of the assets she owned jointly with her husband.  

"A creditor does have a legal claim on a jointly-owned asset if that asset was pledged to secure a loan, Silverberg adds.  (If the wife had pledged the jointly-owned antique silver  tea service to a money lender, for example, the lender could demand its sale in order to recoup his money. )

But a joint owner's interest takes precedence over unsecured creditors – and credit card issuers are unsecured creditors. That means they're the last in line to get paid by your estate.

When you die, your creditors are paid according to a pecking order imposed by state law. If there isn't enough money to pay everyone, the low-ranking creditors have to share whatever is left after the top-ranked debts have been paid. If there's nothing left, that's their tough luck.

In New York, the pecking order starts with your estate's administrative costs (i.e., legal fees), your funeral expenses, money that you owed to the federal or state government or to a government agency like Medicaid, and any outstanding property taxes. Next in line come the secured creditors, like mortgage banks. Unsecured creditors like credit card companies are the last to get paid.

Please send your questions to [email protected].  I'm sorry I can't respond personally to every email. Questions are only addressed online.

(c) Lynn Brenner, All Rights Reserved

 

 

 

CAN I TAKE A TAX DEDUCTION for a bad debt to a family member?

Q: Last year, I loaned approximately $50,000 to an unemployed family member. I don't believe this loan will ever be paid back. I'd like to write it off on my income taxes, but I'm concerned that the Internal Revenue Service will look at this as a gift. What's your advice? -- ESD, via email

A: Don't write off the loan if you're troubled about the possibility that the IRS will question its legitimacy. In the event that your return is audited, you'd have to overcome a fairly steep hurdle to convince them it really is a bad debt.

You're right that the IRS assumes money passing between family members is a gift. To show otherwise, you need a written agreement spelling out the terms of the loan and a reasonable interest rate.

To gain the tax write-off, you'd also have to show that the loan is uncollectible.

It's not enough to say,'He's unemployed and I know he can't pay me back.'

"How do you know the loan will never be repaid?" asks Barry C. Picker, a Brooklyn New York tax accountant. "The borrower is unemployed right now, but who knows if that will be true a year from now?"

To convince the IRS that it's a bad debt, says Picker, you must demonstrate that you've taken steps to collect the money -- like suing the borrower, for example.

But let's put this in perspective. Let's say you take the deduction and you're audited and the IRS doesn't accept that this $50,000 was a bona fide loan that you can't collect. They'll simply deny the tax deduction. We're not talking public embarrassment, dire penalties, or jail time.

And if you take the deduction and it isn't questioned, what do you stand to gain?

A non-business bad debt is a short-term capital loss, says Picker. You can use it to offset a $50,000 capital gain. Assuming that you have no capital gains to off-set, you can use it to offset the tax on $3,000 of ordinary income every year for the next 17 years.