NOVEMBER 5, 2012 VOLUME 19 NUMBER 40
We hear that request all the time. “I want to make it easy for her when I die — just put my daughter’s name on the deed,” client after client insists. When we resist, they think we are acting too much like lawyers.
There are no statistics out there, but we think that most of the time this arrangement works out just fine. But most of the time isn’t a very comfortable place to be. We counsel clients not to put their children’s names on the title to their property — any property, but especially real estate and most especially the home — while the client is still alive. Let us try to explain ourselves, and offer up some alternatives.
First, what do clients mean when they say something like “put my three sons’ names on the deed”? Do they mean that they want to put the property in joint tenancy, with the client and three children as co-owners? Or do they mean that they want to continue to own the property themselves, but have it pass automatically to the three sons on the client’s death? Because if they get us to put the property in joint tenancy, that is a completed gift now, not a contingent gift that becomes completed at death. If the client decides in two years to remove one of her sons, or to sell the house, or to leave one son’s share to his kids rather than his wife — it’s too late. The deed has been done, as the saying appropriately suggests. Any later change will require the agreement — and signatures — of all three sons.
That was the problem that faced Hazel Jackson (not her real name) in a case decided by the Arizona Court of Appeals recently. Hazel had asked her lawyers (not our firm) to put her daughter’s name on her deed, and they had prepared a deed transferring her Sun City winter home into joint tenancy between her and her daughter. A decade later, she figured out that she had made a mistake — she had meant, she said, to sign a “beneficiary deed” (more about those later) so that her daughter would receive the property easily at her death. She hadn’t meant to give her daughter a present interest in the home.
Hazel asked her daughter to sign over the interest that Hazel had inadvertently given to her, but the daughter refused. Hazel filed a lawsuit to compel her daughter to return the gifted interest, but the court threw out her lawsuit. The Court of Appeals agreed, ruling that unless Hazel could show that the deed she had signed was actually invalid (e.g.: not properly signed, not witnessed correctly, or the product of duress or fraud) the lawsuit was properly dismissed. Hazel’s “misunderstanding of the legal effect of the warranty deed is not a legitimate basis on which to invalidate the deed,” said the Court. Johnson v. Giovanelli, October 25, 2012.
Note that Hazel was arguing that she had signed a deed different from the one she intended to sign. Her claim would have been even weaker if she had argued “yes, I meant to sign a deed when I did — but things have changed and I no longer want my daughter’s name on the title to my house.”
The Court of Appeals decision does not explain what has changed between Hazel and her daughter to make her want to change the title to the house. We can only report that we see similar concerns raised from time to time — often because family relationships change, or a parent decides a child’s inheritance should be protected from spouses, children, or creditors.
What about the “beneficiary deed” that Hazel claimed she had meant to sign? Would that have solved the problem? Perhaps — it would at least be worth considering, and would have allowed her to change her mind a decade later.
Beneficiary deeds require some explaining, too. They are unfamiliar to many people — the very concept is only about two decades old (that’s very young in property and estate planning law, which was mostly laid down five or six centuries ago). Only about a third of the states have approved the idea — including Arizona, which was one of the early adopters, but not the first. We have written about beneficiary deeds before, and often prepare them for our clients. But they are not the perfect solution for every “put my daughter’s name on the deed” situation.
When is a beneficiary deed not the right answer? It is not the best way to handle children who can not handle money, or who receive public benefits. It can create more trouble than benefit in larger families (eight siblings owning equal interests in a property can be a formula for gridlock that even a Congressperson could admire). It may not deal very well with the possibility that a child dies before you do (would you want his share to go to his wife, his kids or back to your other children? What if he remarries first? What if he is in the process of getting a divorce?). But for Hazel, who apparently had only one child and who intended her daughter to receive everything outright, it might well have been the easiest and best answer.
What’s the other choice? A living trust. They aren’t the answer to all problems, either, but if you have lots of different pieces of property, or lots of children, or a desire to benefit children and others unequally, or a child with special needs, creditors, an unhappy marriage or other reasons not to leave property to them outright — in all of those cases a living trust is more likely to be the right answer for you. Let’s talk. But please understand that if we start the conversation with “I just want to put my daughter’s name on my deed” you’re likely to get a little pushback from us. It’s because we want to do a good job for you, and we have seen some things.
[By the way: much of what we say here also applies to your bank accounts, brokerage accounts, and other assets. We just wanted to focus on the deed to your house right now.]