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Wednesday, June 1, 2016

Legacy Assurance Plan Article | Man with No Surviving Children, Siblings, Parents or Spouse Leaves Behind Complicated Estate Planning Mess


Summary: Everyone has good reasons why they should create an estate plan. Depending on your circumstances, though, it could be especially important that you make sure you have a valid plan on paper. If you and your partner are not married, getting an estate plan established is extremely important. If you have no surviving spouse, children, siblings or parents, a plan is vital to make sure that your wealth goes to the people or charities you want to receive it. When it comes to creating your financial legacy, it well worth the necessary time and money to ensure that you, not the laws of the state where you live, are in control of dictating its terms.  

In March 2016, the Michigan Court of Appeals issued a ruling in the case of the estate of Kenneth Koehler. The circumstances of Koehler's death and estate planning were, while rare, not completely unique. Koehler died in early 2012 at the age of 59. According to his obituary, he left behind a girlfriend, two uncles, several cousins and a pair of dogs, Smokey and Mr. Boo. Oh, he also left an estate worth approximately one-half million dollars. 

What Koehler didn't leave behind was a surviving child, spouse, parent or sibling. He never married and had no kids. He was an only child and his parents were dead. Another thing Koehler didn't leave behind was an estate plan stating how he'd like his roughly $500,000 in assets distributed. Due to the specifics of Michigan law and the complexities of the man's family history, his estate would plunge into litigation for nearly half a decade. 

Part of the problem related to the fact that many of the Koehler's direct ancestors on the paternal side of his family tree died young. Kohler's father died at age 29. His paternal grandfather died at age 20, a few months before Koehler's father was even born. Koehler's paternal grandmother died young, too, leaving Koehler's father orphaned at age 15.   

Why did all this matter? Largely because Koehler never created an estate plan. The intestacy laws of Michigan, like those in most states, look to distribute an intestate estate to the closest biological and legal relatives that can be found. Koehler's girlfriend had neither a biological nor a legal relationship to him, so she received nothing. Koehler's children, spouse and siblings couldn't inherit, because Koehler had no such relatives. His parents couldn't take because they were already dead. At that point, Michigan law indicated that the man's estate should be split between any aunts, uncles and cousins he had, with his paternal relatives splitting one-half and the maternal relatives splitting one-half. 

While Koehler had several maternal relatives (the ones mentioned in his obituary) whom originally appeared close to splitting the entire estate, a long-lost paternal uncle (a half-brother to Koehler's father) intervened in the case and claimed that, because he was the man's sole surviving paternal relative, he should get half of the estate. The maternal relatives tried to stop him by arguing to the Michigan courts that Koehler's paternal grandfather never supported Koehler's father and that fact prohibited the paternal uncle from receiving anything due a technicality in Michigan intestacy law about "rejected" children. In the end, the paternal uncle won because the Michigan statute upon which the maternal relatives pinned their case required the parent to have "rejected" the child and Koehler's grandfather did not reject his child by refusing to support him; he merely failed to do so because he was already dead before the child was even born.

While Koehler's paternal uncle was right on the content of Michigan's intestacy laws, one has to wonder if the outcome that occurred was one that Koehler himself really would have wanted. His girlfriend got nothing, but an uncle who was not even mentioned alongside his other uncles in his obituary ultimately receives 50% of his wealth. Whether it was or was not consistent with Koehler's true wishes, it took years of litigation to finalize. All of this, including the final distribution of assets and the years of litigation, could have been avoided with an estate plan. Regardless of the quality of his relationship with any of his cousins or uncles, or the status of his legal relationship with his girlfriend, a properly drafted and executed estate plan would have allowed him to direct his assets, in the precise amounts he wanted, to exactly the people he wanted to receive them (and only to those people.) By doing nothing, he left the Michigan courts to decide what his legacy should be.

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