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Choosing non-relative beneficiaries over relatives

by Legacy Plan | May 29, 2017

When you decide to create a legacy that favors non-relatives over relatives, there are several possible risks involved. One is that your relatives will decide to challenge your plans in court. Another is that, depending on how you go about making your distributions, you could create possibly harmful tax implications for your estate and your beneficiaries. Proper estate planning may be able to help you minimize or avoid some or all of these risks. Your estate planning attorney can help show you what techniques will best serve your objectives.

Calvin was a single man living in Colorado. Near the end of his life, one of the primary things on Calvin's mind was who would own his home after he died. Eventually, Calvin decided to sign a deed that gave the property to three of his closest friends. When Calvin died, he had no estate plan — no living trust and no will. This meant that Calvin's estate would pass according to Colorado's intestacy laws.

Colorado's intestate succession rules, like most states, seek to distribute assets to the closest living relatives of the deceased person. Calvin had no living spouse or children. In fact, his closest living relative (under the standards of the intestacy laws) was his half-sister. This was true because the statute only looks at levels of kinship, not personal relationships. In real life, Calvin and his half-sister were far from close. They last spoke at their father's funeral, which took place more than 20 years before Calvin died. Nevertheless, the half-sister asked the probate to name her as the personal representative of Calvin's estate, and the court granted the request.

After becoming the personal representative, the half-sister sued to invalidate the deed Calvin executed transferring his house. The deed was executed before Calvin died, meaning that the house was not part of his intestate estate. However, if the court wiped out the deed, then the ownership would revert back to his estate and would go to his sole legal heir, the half-sister.

Ultimately, the friends prevailed in the courts. The trial court stated that the half-sister's case was "groundless" and backed up by a "dearth of evidence."

In this case, the deceased man's estate planning goals were upheld. His planning, as limited as it was, involved getting his home into the hands of his three friends, which was what happened in the end. Whether Calvin had executed a deed a few months before his death, or a will a few months before his death, the legal standard would have been the same: did he or did he not have testamentary capacity when he signed the document?

Nevertheless, Calvin's approach was still less than ideal. Simply giving his home to his friends by signing a deed meant that the friends lost the possibility to receive the "stepped up basis" in the home. This loss could be costly if they chose to sell the property, as it would likely mean that they would owe a much greater amount of capital gains taxes. Additionally, simply deeding over the home could also have potentially negative gift tax implications, as well. Had Calvin merely executed a will or a living trust that directed his trust or estate to transfer the home to the three friends, Calvin could have achieved the same goal without same degree of potentially harmful tax implications.

How do I create an estate plan?

There are numerous options and scenarios to consider when developing an estate plan that protects your legacy and achieves your objectives, and important decisions should be made with the advice of qualified lawyers and financial experts. Membership with Legacy Assurance Plan provides members with valuable resources and guidance to develop comprehensive estate plans that take life's contingencies into consideration and leave a positive impact for generations to come. Legacy Assurance Plan members also receive peace of mind that a team of trusted, experienced professionals will assist them in developing legal, financial and tax strategies that will meet their needs today and for years to come through periodic reviews.

This article is published by Legacy Assurance Plan and is intended for general informational purposes only. Some information may not apply to your situation. It does not, nor is it intended, to constitute legal advice. You should consult with an attorney regarding any specific questions about probate, living probate or other estate planning matters. Legacy Assurance Plan is an estate planning services company and is not a lawyer or law firm and is not engaged in the practice of law. For more information about this and other estate planning matters visit our website at

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