Posts Tagged ‘transfer on death deed’

I Just Want to Put My Daughter’s Name On My Deed

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.]

“Vest Pocket” Deed Is Valid to Transfer Family Farmland

OCTOBER 25, 2010 VOLUME 17 NUMBER 33
It has been a while since we wrote about “vest pocket” deeds. That reflects the reality that they are more common in fiction and mythology than in the real world of legal proceedings, but they occasionally do crop up. The problems of validity and effect can involve lawyers after the signer’s death, even in cases where avoiding legal complications was the signer’s primary goal.

Cecil Stockwell lived all of his 91 years in rural South Dakota. He acquired and farmed land totaling over 1,000 acres in 14 parcels. He had five children; for the last twenty years of his life he lived (and was farming partners) with his son Lloyd Stockwell.

In 1992 Cecil Stockwell visited a local lawyer in Freeman, SD, about estate planning. He had the attorney prepare a power of attorney naming Lloyd as his agent, plus four separate deeds to his properties. Each deed conveyed a different number of acres of land to one of his four sons — Lloyd, for instance, would receive 594 acres, and his oldest son Cecil, Jr., would receive 80 acres. Each of the four deeds retained for Cecil the right to farm, rent or use the land; on his death the four deeds would have conveyed their respective properties to his sons.

“Would have” is the operative phrase here. Cecil never recorded the deeds, and he never gave any of them to his sons. He took them home and filed them away. They became what are sometimes called “vest pocket” or, more simply, “pocket” deeds. They would not be effective until actually delivered to the recipients or recorded; their effect if discovered after Cecil’s death would be uncertain.

Cecil did not let the deeds create that confusion, however. In 2001, after he became unhappy with one of his sons, Cecil Stockwell asked his daughter-in-law to help him redraft the old, undelivered deeds. With her help he modified the properties that would be transferred to each of his sons, with the result that Lloyd’s inheritance would be significantly larger. One son (the one he had become unhappy with) was left out entirely, one’s share stayed the same, and the fourth son’s share was reduced somewhat.

After he signed all three of the new deeds and had them notarized, Cecil returned home and handed them to Lloyd, saying “Here you go” or words to that effect. Lloyd took the deeds into his father’s bedroom (remember that he lived with Lloyd) and put them in the dresser that Cecil used.

Two years later there was more family disharmony when three of Cecil’s sons initiated a guardianship and conservatorship action, seeking to have him put in a nursing home. Lloyd helped him get a lawyer to fight the petition; in the course of that proceeding his lawyer had a videotape prepared showing Cecil’s ability to identify all of his children and describe where they lived and what they did for a living. He did get the size of his farm wrong (he said 300 acres, when it was really more than 1,000 acres), and he had trouble naming one of his grandchildren or remembering that his ex-wife had remarried.

Six months after the guardianship petition was initiated Lloyd told Cecil that it was time for him to move into a nursing home. Cecil reminded Lloyd that the deeds were still in the dresser drawer, told him to get them out and have them recorded. Then he asked to be taken on a last tour of his farmland and moved into the nursing home. Lloyd had the deeds recorded a few days later. Four months after that Cecil died.

Lloyd then filed a lawsuit — a “quiet title” action — to have the deeds validated and his inheritance confirmed. His brothers objected, saying that their father was incompetent at the time of signing and/or at the time the deed was delivered. The trial judge found that the three deeds signed in 2001 were effective, and confirmed the transfer of the farmland to three sons.

The south Dakota Supreme Court agreed with the trial judge and affirmed the verdict. One key element of that ruling: the appellate judges agreed that the deeds were delivered when Cecil Stockwell handed them to his son Lloyd — or at least that Lloyd’s deed was. That meant that the question of Cecil’s capacity had to be tested as of 2001, when the deeds were signed and handed to Lloyd, rather than 2004, when they were recorded. Interestingly, an argument could be made that the deeds to the other two sons had to be tested against Cecil’s capacity in 2004, even though Lloyd’s deed only raised questions about Cecil’s capacity in 2001. Stockwell v. Stockwell, October 13, 2010.

Could a lawyer have helped Cecil Stockwell accomplish what he wanted? Absolutely, and at a much smaller cost than his sons ended up paying to their lawyers to sort out the meaning and effect of the vest pocket deeds. With good legal advice, Cecil might have gone ahead and recorded the “life estate” deeds he signed in 2001 — though he would then have given up the ability to make further changes. A lawyer might have recommended that he transfer all of his property into a revocable living trust, which would have allowed him to retain the ability to change who would receive which parcel at his death, and even to make clear who would farm each parcel until that time. Even a will naming beneficiaries would have been less expensive than the vest pocket deeds — as it turned out, his sons filed a probate proceeding anyway, and avoidance of probate might well have been Cecil’s primary motivation.

Because Cecil Stockwell did not live in Arizona (or Arkansas, Colorado, Indiana, Kansas, Missouri, Montana, Michigan, Nevada, New Mexico, Ohio, Oklahoma or Wisconsin) he did not have one useful option available to him. An attorney in those states could have told him about the concept of a “beneficiary” deed — sometimes called a “transfer on death” or “TOD” deed — which might have been exactly what he needed. Such a deed is revocable, but makes the transfer automatic upon the owner’s death. If that had been available to him, it might have let him record his deeds back in 1992 and again in 2001 without blocking him from making later changes as his feelings toward his sons changed.

Pre-Death Transfers By Two Seniors Invalidated As Frauds

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.

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