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  • Writer's pictureJenny Rozelle, Host of Legal Tea

Cautionary Tales - Estate Mistakes that Linger... - Episode 121

Hey there, Legal Tea Listeners –This is your host, Jenny Rozelle! Today’s episode of Legal Tea is a cautionary tale, where we talk about real-life cases with real-life clients with real facts – they’re things me or my office have worked on. On today’s episode, we’re going to talk about a real-life story and client, of course, and it’s kind of a demonstration of a series of unfortunate events – all because of a slip-up that happened many years ago. So, let’s dive in, shall we?

My office recently started helping a lady, let’s call her Nancy, with her estate planning. After we presented the various options to accomplish her goals, she ultimately chose to do, what we call, an Asset Protection Trust (which is an irrevocable trust that protects assets against long-term care and Medicaid). Her main motivation in doing this type of plan was to protect her house – and honestly, that’s a frequently-stated reason for doing this type of trust. Even when people have little financial assets, they see the value in protecting their house (and if you turn a house into cash, it’s a hefty pile of cash to protect, right?). So, her primary motivation in doing the Asset Protection Trust was to protect the house from long-term care and Medicaid down the road (if she ever needed long-term care).

You see, our normal process is three of four meetings (depending on the client) and it goes a little something like this:

-          Initial Meeting – what is it?

-          Design Meeting – what is it?

o   [Mention what happens internally between DM and SM – where Funding Paralegal pulls/creates various funding documents, like a Deed]

-          Signing Meeting – what is it?

-          Funding Meeting, if applicable – what is it?

So, with Nancy, she had gotten through the Initial Meeting (where she decided to do the Asset Protection Trust) … she had gotten through the Design Meeting (where she decided who-was-going-where and where we molded the plan to her/her family) … and we had even gotten TO the Signing Meeting (where at that meeting, like I said, is when we review the documents and ultimately sign everything). And that’s when things took a sharp left turn – like, not in a good way!

Now, remember when I mentioned that in between the Design Meeting and Signing Meeting, my office starts working on the funding documents – like the Deed? Well, at that time, the Funding Paralegal pulled the latest Deed for the house and discovered the house was in Nancy’s name and another name – the Paralegal ‘flagged it’ so when Nancy came in for her signing meeting, the Attorney would remember to chat through getting this other person’s signature (to be able to move the house into the Trust). Well, Nancy shows up for the Signing Meeting and they get everything signed – and move on to discussing the Deed (and other funding things). The attorney inquires about the other person on the Deed- -- and guess who it is? Nancy’s mother … who is deceased. She actually died in 2011.

Deeds are tricky and like I’ve talked about on here before, they’re easy to mess up. That’s exactly what happened here. Here’s the quick back story – the house was actually Nancy’s parents’ house and many years ago, Nancy’s mother added Nancy’s name to the house after her husband/Nancy’s father died. They did their own Deed and didn’t seek legal assistance at all. The rather frustrating thing about real estate is that it works a bit different than, say, bank accounts. To compare, think of a joint bank account. If one of the joint owners passes away, the account naturally and legally defaults in ownership to the surviving joint owner.

That’s not how real property like a house works – instead, property gets transferred totally how the Deed is written up. And all too many people try to whip up Deeds without professional guidance (like Nancy here!) – and they get themselves in trouble because they don’t know that there are different types of ownership – and those different types play out very uniquely if an owner passes. In Indiana, and I assume in many other states, there are 3 types of property ownership for a house, land, etc. Let’s run through them quickly:

1. Joint Tenants w/ Rights of Survivorship – This means that 2 or more individuals own the property and if an individual passes, the property stays with the surviving individuals. If we have Bob, Tom, and Cliff as Joint Tenants w/ Rights of Survivorship, Cliff dies, Bob and Tom now own the property – it doesn’t go according to Cliff’s estate plan or anything.

2. Tenants by the Entirety – This operates just like the Joint Tenants w/ Rights of Survivorship, but it is exclusively reserved for married couples. So if Bob and Mary are married, Mary dies, the property automatically stays with Bob. Sometimes, on a Deed is merely says “husband and wife” – if so, in Indiana it’s presumed that it defaults to the Tenants by the Entirety classification.

3. Tenants in Common – This means that every owner owns a respective interest – so say we have Bob, Tom, and Cliff and they own a property as Tenants in Common. Bob owns 1/3, Tom owns 1/3 and Cliff owns a 1/3. Cliff dies. His 1/3 would be distributed according to his estate planning – meaning if his Will left everything to his spouse, Bob, Tom, and Cliff’s wife are about to become owners together.

The kicker is that if the Deed is silent – it defaults, again here in Indiana, to Tenants in Common. So, when Nancy’s mother died, her interest in the house should have gone through probate and the property should have been distributed according to Nancy mother’s Will. Well, that NEVER happened in 2011 … or anytime, until now. So, this all comes out in the Signing Meeting that oh my goodness, now we’re going to have to completely PAUSE Nancy’s trust to deal with Nancy mother’s ½ interest in the property. The craziness doesn’t stop there, though, my friends…

We, of course, inquire about Nancy’s mother’s Will – because Nancy’s mother’s interest in the property is going to pass through her Will. Keep in mind this house is the house that Nancy has been living in FOREVER! Fast forward some time and we get a copy of Nancy’s Will – she had disinherited her two other children and had everything going to Nancy, which would have worked beautifully if Nancy dealt with this back in 2011 when her mother died. Though, annoyingly so, Indiana has a statute/has a law that says if you don’t probate a Will within 3 years of the person dying, the Will is essentially no-good and their estate has to be distributed according to the laws that apply if someone dies without a Will (the fancy name is called intestacy laws). Which is NOT IDEAL because now Nancy’s siblings are in the mix now…even though Nancy’s mother’s Will disinherited them, the Will cannot be probated if it’s been more than 3 years since the person died.

So, that’s kind of where we are right now with Nancy – we’re starting the probate process to deal with the house and we’ll see what happens with Nancy’s siblings (the ones disinherited in the Mom’s Will). My gut says this won’t go smoothly, but we’ll see – I’d love to be wrong! Now, I think this story teaches us a few things – first, that deeds, while they seem so small and easy to DIY (do it yourself), they are really, really easy to mess up on – like I talked about the different types of ownership. That is single-handedly what people mess up on most frequently! Second, anytime someone passes away, talk to an estate attorney – even if you think “there’s nothing to do.” You want to know what’s crazy – had Nancy talked to an estate attorney after her Mom passed away, sure, it would have stunk to go through probate (which it is what is it), but then Mom’s Will would have “held up” and disinherited her other kids (to have the house cleanly pass to Nancy). We seriously would not be in the predicament we are in … had that happened.

So yeah! A lot to learn from this cautionary tale, huh. Cross your fingers for poor Nancy – I fear things are not going to go very well with her siblings, but like I said earlier, I hope I’m wrong. Alrighty … let’s wrap up this episode. Next week, we are back to the current events/current trends topic -- something I’ve seen or run across … or maybe just a timely/relevant topic … that I think would be interesting on here. Well, one of my team members is, what do they call it, a … gamer? He plays a lot of video games. Anyway, he was telling me about some game called Starfield that has a level called Last Will and Testament Quest. He was joking with me that I should talk about it on here – and maybe go into detail as to what would happen in real life if a Will cannot be found. So, let’s do it! Catch me next week talking about that. Until then, Legal Tea Listeners…be well and talk soon!



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