In This Issue

• Oops...I Forgot To Sign The Will: Should Harmless Error Frustrate the Testator's Intent?
• Take Your Financial Pulse: Key Tax Figures for 2003

Oops...I Forgot To Sign The Will:
Should Harmless Error Frustrate the Testator's Intent?

By Mark R. Reitz

When executing a will in Ohio, strict compliance must be made to the formalities of Ohio R.C. §2107.03, governing the methods of making a will. Except oral wills, every last will and testament must be in writing (either handwritten or typed) and signed at the end by the person making the will. The will must be "attested and subscribed to," in the presence of the maker of the will, by two or more competent witnesses who saw the testator subscribe or acknowledge their signature (footnote 1). Failure to comply with these elements proves fatal to having the will "admitted to probate" and could thoroughly frustrate the intentions of the testator.

A. Who Wins? Who Loses?

Imagine the surprise (not to mention the call to the malpractice carrier) when Attorney A removes Client B's will from safekeeping, some 5 years after execution, only to discover that the signature of one witness appears in attestation and subscription clause. Attorney A clearly remembers the day the will was executed, and otherwise is diligent in his office procedure of having himself and his secretary act as witnesses.

Under current law, the above described will is invalid, and Client B's estate passes by the laws of intestacy (pursuant to the statute of descent and distribution). This is true even though Attorney A and his secretary stand ready to testify as to Client B's competency, intentions and signature.

Depending on marital status, the number of children, and whether the children are natural/adoptive children of the surviving spouse, distribution of the intestate estate will vary. Rather than receiving the Client B's entire estate (pursuant to his intentions), the spouse could be limited to either one-half (1/2) or one-third (1/3) of the estate. In this case, Client B's intentions to provide assets for his spouse's care are frustrated. In addition, should the will have been part of an overall estate plan, certain estate tax benefits may be lost.

B. Proposal

The Ohio State Bar Association (the "OSBA") recently adopted procedures to allow admission of a will to probate where there has been "harmless error" in the execution. The OSBA is hopeful of picking up a sponsor and introducing this proposed legislation during the current General Assembly session.

Based on Section 2-503 of the Uniform Probate Code (footnote 2), the OSBA proposal would contain provisions for admitting a will to probate notwithstanding the fact that it does not comply with the formalities of Ohio R.C. §2107.03. The harmless error proposal provides:

A document will be treated as if executed in compliance with Ohio R.C. §2107.03, if the court on hearing finds that the proponent has established by clear and convincing evidence that: (1) the decedent prepared or caused to be prepared the document; (2) the decedent signed or attempted to sign the document and intended the document to constitute his/her will; and (3) two or more witnesses saw the decedent sign or attempt to sign the document.

C. Procedure

Upon discovering that the will does not meet the elements of a validly executed document, the proponent (generally the nominated executor and/or attorney) should file an application asking for the admission of a will to probate and setting the matter for hearing. Notice of the "harmless error" procedure must be provided to "the surviving spouse, all persons entitled to inherit under the statute of descent and distribution, and the legatees and devisees named in both the will to be admitted and those named in the most recent will known to the proponent."

The proponent has the burden of proof to offer clear and convincing evidence (footnote 3) of the harmless error. This burden is generally described as lesser than "beyond reasonable doubt," but more than by a "preponderance of the evidence."

The proponent (and opponent) will be given an opportunity to call and elicit testimony from both the witnesses to the will, and any other witness having relevant knowledge. Should the court find that the requirements of the "harmless error" statute have been met, the will shall be effectual for all purposes as if the original had satisfied all the requirements of Ohio R.C. §2107.03.

D. Practical Application

How often will the "harmless error" statute be used? Like most practitioners, we hope never to have to resort to a statute of this type, but the goal is to provide a cure for those rare instances where the decedent attempted to meet all the necessary requirements, and to provide the probate court with the ability to "admit" such a document upon proper proof. The end result is authorizing a procedure whereby the intentions of the testator can be effectuated, even if harmless error exists in the execution of the will.

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Take Your Financial Pulse: Key Tax Figures For 2003

By Michele Selig Worobiec

As you are placing the finishing touches on Uncle Sam's 2002 income tax return (or at least preparing to file that extension), now is a great time to see how your current financial status matches up with your estate planning needs.

A. Federal Estate Taxes

During 2003, the first $1,000,000 of assets owned at your death (without taking into account lifetime gifts) is exempt from federal estate tax. If your net worth exceeds this threshold, the graduated federal estate tax rate can rise as high as 49%. With careful planning now, you can make the most of your estate tax credit – and that of your spouse. Basic estate tax planning techniques involving a revocable trust are used to ensure that the first spouse to die maximizes his or her federal estate tax credit.

B. Ohio Estate Taxes

Even if your estate is not subject to federal taxation, it may still be subject to Ohio estate taxes. The State of Ohio imposes a tax on estates with assets greater than $338,333. Fortunately, even if the value of your assets exceeds this threshold, the graduated Ohio estate tax rate is capped at 7%.

C. States Other Than Ohio

Unlike Ohio, most states do not have an estate or inheritance tax that is not tied to the federal estate tax. For example, Florida's constitution prohibits its legislature from taxing estates of its residents. However, at least until 2005, the State of Florida does receive tax revenue from the estates of some deceased residents.

States without a separate estate tax are often referred to as "pickup" states because they pick up tax revenue from estates that pay federal estate tax. The IRS allows for a state death tax credit in calculating the federal estate tax. If you die as an Ohio resident, it is likely that your Ohio estate tax bill will exceed the federal state death tax credit. If the amount actually paid in state estate taxes exceeds the federal state death tax credit amount, no additional state taxes are due.

In states such as Florida, an estate that must pay federal estate tax will use a state death tax credit in determining the total federal tax bill. However, Florida does not have a state estate tax. Is a Florida estate permitted to use a credit for tax it does not pay? No. To the extent the estate's state death tax credit exceeds the amount of state estate tax paid ($0 in a state such as Florida), the estate must pay the difference to the state or states in which the decedent owned assets. Essentially, states such as Florida have a "sponge" estate tax – no transfer tax is on the books but Florida receives revenue benefits as a result of a federal estate tax credit.

Under current law, the state death tax credit is scheduled to be phased out by 2005. In 2003, an estate may only use 50% of the value of the state death tax credit in calculating federal estate taxes. That amount goes down to 25% in 2004 and is eliminated in 2005.

When the state death tax credit is eliminated, states without an independent estate or inheritance tax may be forced to implement a tax to make up for lost revenue. Amending a state statute to provide for a new tax is difficult enough. However, Florida is one state that cannot enact an estate tax without an amendment to its constitution. The double duty faced by Governor Bush and the Florida legislators will likely turn what used to be a myth — that it was cheaper to die in Florida — into a reality over the next two years.

D. Generation-Skipping Transfer Taxes

The IRS also places a limit on the aggregate amount of assets that may be transferred during lifetime or at death to your grandchildren. Generally, cumulative lifetime gifts and transfers at death to a 2nd or more distant generation that exceed $1,120,000 are subject to a flat 49% generation-skipping transfer ("GST") tax. The GST tax is in addition to estate or gift taxes.

E. Annual Gift Exclusions

During 2003, you may make gifts of $11,000 to as many different individuals as you choose without reducing your federal estate and gift tax credit (footnote 4). Any gift that exceeds $11,000 (or $22,000 if made by a husband and wife) must be reported on Form 709, which must be filed on or before April 15th of the tax year following the year of the gift. Spouses electing split gift treatment — that is, one spouse makes a gift of more than $11,000 and the other spouse agrees to treat the gift as being made ½ by each spouse — must file Form 709 even if the aggregate amount of the gifts per person is less than $22,000.

F. Retirement Savings

This year you may contribute $3,000 to your IRA or Roth IRA account. If you are at least 50 by the end of this year, you may also make an additional $500 "catch up" contribution.

For §401(k) plan participants, the maximum that can be contributed this year is $12,000. There is also an opportunity for those over 50 to "catch up" from previous years by contributing an additional $2,000 in 2003.

G. What Does This Mean To Me?

These figures may simply be refreshers for those who have recently evaluated their estate plans. For others, it could be a pleasant reminder of tax savings opportunities still available.

Particularly in light of the ever-changing transfer and income tax laws, an annual review of your financial statement and estate plan by a your advisors may provide you with the assurance that you are on the right tax track or with new ideas to take advantage of tax savings opportunities.

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1 Recently, Ohio imposed a minimum age requirement of 18 on persons acting as a witness to a will.

2 Uniform Probate Code Section 2-503 had been adopted in whole or in part by Colorado, Hawaii, Michigan, South Dakota and Utah.

3 Clear and convincing evidence will produce in the mind of the trier of fact a firm belief as to the facts sought to be established.

4 In 2003, the applicable exclusion amount for gift and estate tax purposes is $1 million. In 2004, the exclusion amount for estate tax purposes will increase to $1.5 million while the exclusion amount for gift tax purposes will remain at $1 million. Although the applicable exclusion amount for estate tax purposes will continue to increase after 2004, the exclusion amount for gift tax purposes is set at $1 million.

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