[WSBAPT] Advancements

Mon Feb 3 22:12:32 PST 2014

By “credited to” below, I think you mean “charged to” or “charged
against,” so be sure to make that clear. 

The ultimate disposition of assets can be affected by the way the personal
representative does the math. 

I would specify the amount in the will, with a method specified for
memorializing  any future advances or forgiveness. E.g., “Child x has
received $y as an advancement on his share of my estate, which shall be
included in making calculations, and charged to his share for purposes of
distributions.” 

The “included in” language is affects the impact the reduced estate size
will have on the individual distributions: 

Without inclusion of advancement. Say, decedent dies with a $2,000,000
estate, after $90,000 previously advanced to child x. 4 children, to
receive “equally.” $2,000,000/4 = $500,000 each. Child x’s share is
charged $90,000, which is split between the other children, leaving child
x with $410,000 and each other child with $530,000. That is one way to do
it, but that way assesses a penalty to child x.

With inclusion of advancement. Consider the result if the advancement were
never made. The decedent’s estate size would be $2,090,000. If the $90,000
is added back to the total for purposes of calculating the distributions,
then divided by 4, the result is different; $432,500 to child x, and
$522,500 each to the others: $2,000,000 + $90,000 = $2,090,000 / 4 =
522,500 per child. Child x’s share is charged $90,000, leaving her with
$432,500. $2,000,000 -$432,500 = $1,567,500, which divided by the three
remaining children = $522,500 each.  Each child receives ¼ of what the
estate would have been without the advancement, but child x is not
penalized by receiving a reduced share while recontributing the full
amount of the advancement. This is the method I prefer, and have
incorporated into clients’ estate plans, because I think it is the fairer
of the two. 

Promissory notes. Please be aware that the impact of bankruptcy can
dramatically affect the outcome on promissory notes. Parents sometimes
lend money to children, with the expectation that the “loan” will not
actually be a loan but will reduce that child’s share of their estate,
similar to an advancement. (In theory, this avoids the need to file a gift
tax return, but in law it also can result in imputed interest to the
lender, followed by a gift of the unpaid interest, and a post-audit
reduction in unified credit, if the amounts involved are significant.) 

In the above scenario, if the $90,000 were made as a “loan” to be repaid
at death, and the child receiving the funds were to declare bankruptcy,
the outcome would be far different. The loan would be discharged, and no
longer an obligation of the child to the estate, meaning that child x
would receive a full share of the remaining $2,000,000, or $500,000, while
not having to repay the $90,000. When clients make such loans, a provision
should be included in their wills/living trusts which has the desired
outcome irrespective of a discharge under bankruptcy laws (i.e., treat the
amount as a charge against child x’s share, with the desired method of
calculation, in all cases). 

This message is offered as part of discussions on an attorneys' list
serve.  It may include inaccuracies, unresearched comments, and
speculation. This information does not constitute legal advice, but is
provided solely as extemporaneous remarks. You may not rely on it, but
should instead seek advice from a skilled practitioner before attempting
to apply the information to any actual fact situation. 

Sam Furgason

Samuel L. Furgason, Inc., P.S.

Estate Practice Limited to Existing Clients

Office Address:

800 Bellevue Way N.E., Suite 400

Bellevue, WA 98004

Mail to:

PO Box 102

Medina, WA 98039-0102

Cell: (425) 445-9909 (direct line)

Office: (425) 649-1122 (receptionist)

www.furgasons.com 

sam at furgasons.com 

From: wsbapt-owner at lists.wsbarppt.com
[mailto:wsbapt-owner at lists.wsbarppt.com] On Behalf Of Lisa Schuchman
Sent: Monday, February 03, 2014 4:27 PM
To: wsbapt at lists.wsbarppt.com
Subject: [WSBAPT] Advancements

I am working on a will with a client who has given one of her (adult)
children money that she’d like credited to his share of her estate.    Has
anyone dealt with how to make a statement of an advancement as part of
estate planning?  Should she note that in her will and keep a tally
separately?  What do you do?

Lisa E. Schuchman
206-325-2801
www.lisaschuchman.com <http://www.lisaschuchman.com/> 

Education is what you get when you read the fine print.  Experience is
what you get when you don’t. -Pete Seeger

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