NOVEMBER 24, 1997 VOLUME 5, NUMBER 21
Two recent cases, from the courts of Wisconsin and Tennessee, set aside transfers of property made by seniors prior to their deaths. While the circumstances are different, the two cases illustrate some of the typical motivations for gifts to children, as well as the possible effects of such transfers.
The "Vest Pocket" Deed
When Acie Lee Maness married Jewell Maness in 1975, he already had three grown sons and a 330-acre farm in Henderson County, Tennessee. He and Jewell both worked (he for the City of Lexington, she for two private employers). While her income paid for food, utilities and household bills his income was mostly used to pay expenses on the farm.
Mr. Maness ran a small herd of cattle at the farm, and allowed his sons to keep a few head of their own on the property. At different times, Mr. Maness even gave each of his sons an eight-acre parcel on the edge of the farm. It was clear, however, that Mr. Maness operated the farm, with only occasional help from his sons. Until 1992, the farm income (and Mr. Maness' wages) went to pay off a mortgage on the farm as well.
Shortly after Mr. Maness' death in 1993, one of his sons informed Mrs. Maness that he had transferred the farm to them nearly ten years earlier. When she investigated, she discovered that Mr. Maness had signed a deed to the property, conveying it to his three sons, and had given the deed to his son Willie. He had instructed Willie and his wife not to tell anyone about the deed, and to hold it in their safe deposit box (such unrecorded deeds held until the death of the original owner are sometimes called "vest pocket" deeds). They had removed it and recorded it three days after Mr. Maness' death, and the title now appeared to be in the sons' names.
Mrs. Maness sued to set aside the transaction, alleging that it was fraudulent because it had the effect of depriving her of her statutory right to inherit a portion of her husband's property. In Tennessee, as in most states, a surviving spouse is entitled to at least a share of the deceased spouse's estate, and Mrs. Maness argued that the transaction deprived her of that right.
Noting the secrecy with which the deed was cloaked, the Tennessee Court of Appeals agreed with Mrs. Maness. The court also noted that even by a conservative estimate the farm constituted nearly two-thirds of the value of Mr. Maness' estate, and Mr. Maness' behavior in hiding the transaction from his wife indicated that he had intended to defraud her of her inheritance rights. Maness v. Estate of Maness, Tenn. Court of Appeals, November 12, 1997.
The Medicaid Transfer
Meanwhile, in Wisconsin, Janet D. Johnson lived with her daughter Jean during what turned out to be Mrs. Johnson's last illness. Mrs. Johnson had a will which directed that all her assets be divided equally among her four children. Shortly before her death, however, Mrs. Johnson transferred all her investment accounts into Jean's name.
At about the same time, Mrs. Johnson made an application for Medicaid benefits from the State of Wisconsin. In that application, she falsely alleged that she had no remaining assets, and that she had made no gifts during the previous 36 months. Apparently, the principal purpose of the transfer had been to attempt to make Mrs. Johnson eligible for Medicaid assistance with the cost of her care.
Mrs. Johnson died shortly thereafter, and her other children sought to have the property returned to her estate. The Wisconsin Court of Appeals ruled that Jean held the assets in a "constructive trust" for the benefit of the estate (and, ultimately, the four children). In effect, the transfer was set aside.Estate of Johnson, Wisc. Court of Appeals, September 2, 1997.