July 15, 2015

Surrogate's Court: Advance Distributions

Elder Law attorneys are frequently asked the question: "Mom/Dad gave Charlie $20,000 to help pay Charlie's mortgage; shouldn't this reduce his share of mom/dad's Estate?"  The answer to this question is: "It depends."

In the scenario outlined above, if mom/dad intended the $20,000 gift to Charlie to be an "Advancement" of Charlie's share in mom/dad's Estate, then the answer is "yes"; however if mom/dad did not intend the $20,000 gift to be an Advancement of Charlie's share in mom/dad's Estate and/or if mom/dad did not make a note or contract with Charlie indicating that such $20,000 gift was an Advancement, then the answer is "no."

What is an Advancement: the EPTL defines an advancement as "an irrevocable gift intended by the donor as an anticipatory distribution in complete or partial satisfaction of the interest of the donee in the donor's estate, either as distributee in intestacy or as beneficiary under an existing will of the donor. . . . No advancement shall affect the distribution of the estate of the donor unless proved by a writing contemporaneous therewith signed by the donor evidencing his intention that the gift be treated as an advancement, or by the donee acknowledging the such was the intention."

Put simply, in order for the $20,000 gift to Charlie to be considered an Advancement, mom/dad must have intended that the $20,000 gift to Charlie be an Advancement and either mom/dad or Charlie must have acknowledged, in writing, that such $20,000 gift was an Advancement.

To take things one step further, let's presume that mom intended the $20,000 gift to Charlie to be an Advancement and left a writing indicating as much, and let's also presume that when mom died she left a bank account with $10,000 in it and a Last Will and Testament which provides that each child of her's, who are Charlie and Alfred, will each get 1/2 of her estate. In this example, in order to calculate the share of mom's estate that both Charlie and Alfred are entitled to, we need to "add back" Charlie's Advancement to mom's estate ($10,0000 bank account + $20,000 Advancement = $30,000 estate) and then divide mom's estate between Charlie and Alfred pursuant to her Last Will and Testament ($30,000/2 = $15,000 for each Charlie and Alfred).

The math above shows what each son would be entitled to if the Advancement was not made to Charlie, but because the Advancement was made, we, quite obviously, cannot not provide each Charlie and Alfred with $15,000 from mom's actual estate (from mom's $10,000 bank account).  Instead, because Charlie would have been entitled to $15,000 had the Advancement not been made, and because Charlie actually got $20,000 as an Advancement, Charlies is not entitled to share in his mother's estate - he is entitled to none of his mother's $10,000 bank account. Despite having received $5,000 more than he should have if the advancement was not made, Charlie is not required to "pay back" the $5,000 to the estate or to Alfred. Instead, Alfred will simply get all of mom's estate - Alfred will get all of mom's $10,000 bank account and nothing more despite being "short changed" by $5,000.

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