Hey there, Legal Tea Listeners –This is your host, Jenny Rozelle! Today’s episode of Legal Tea is the “cautionary tales” topic. And on these “cautionary tales” episodes of Legal Tea, we normally talk about real-life cases with real-life clients that are things me or my office have worked on -or they are things that I think are generally good things to be aware of, so you don’t turn into a cautionary tale on my Legal Tea podcast one day! Well, this episode is both – it is about transferring farmland without GOOD, without SOUND advice and the problems that doing that causes down the road – even decades later to family. I’ll talk about this through a real-life story, which involve very real people – and who are now cleaning things up decades later. Let’s start with the story, then I’ll shift into what should have happened and what we can learn from it.
For starters, I need to talk about the players involved – we have Grandma and Grandpa, let’s name them George and Margie; we have their two sons, let’s name them Chuck and Steve; and we have one of the the son’s daughter, Jessica. So, in total, we have three generations involved – Grandma/Grandpa, Their Sons, and one of the Son’s Daughter (let’s call her Granddaughter for ease). So … Many, many years ago – like 20~ or so years ago, Grandma and Grandpa started getting worried about protecting the farm against the nursing home, especially as they aged, so they went and saw the local attorney in town that does a little bit of everything. Like, the attorney does private practice work AND does some prosecutor work too. That kind of small town. If you know, you know…
Anyway, so they went to get some advice from that in-town attorney on the farm and very long story short, he encouraged them to transfer the 100 acre farm out of Grandma and Grandpa’s names and into their two Sons and one Granddaughter’s names, but they retained what is called a “life estate interest.” What does that mean? Well, it is basically a way to give someone the right to use and live on a property for the rest of their life, but with the understanding that after they die, the property automatically goes to someone else. Think of it like passing a baton in a relay race - you know exactly who gets it next. So, with this story, Grandma and Grandpa kept that right of using and living on the property – but after they passed away, the “life estate” interest would default go to the two Sons and one Granddaughter.
Well, that all sounds fine and dandy, right? Well, this would be a really short episode if the story stopped there!
So, when the attorney did the Deed, the Deed DID transfer the property ownership, except that life estate thing, to the two Sons and one Granddaughter. The property transferred the property to them as what is called “tenants in common.” The way people own property is SUPER important if any of the property owners die. One of the things to take away from this cautionary tale is that property like a house, farmland, etc. (we call it “real property” in lawyer world) operates differently than most assets. 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.
Well, that is not how property like a house or farmland works – instead, property gets transferred totally how the Deed is written up. In Indiana, and I assume in many other states, there are 3 types of property ownership for a house, land, etc. when we’re talking about humans (so let’s not talk about Deeds for properties in Trusts, businesses, 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 three people as Joint Tenants w/ Rights of Survivorship, one dies, the remaining two now own the property – it doesn’t go according to the one that died’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 we have two people who are married, one dies, the property automatically stays with the survivor.
3. Tenants in Common – This means that every owner owns a respective interest – so again, say we have three people again and they own a property as Tenants in Common. What that means is each own a specific share, and for sake of an example, let’s pretend each owns an equal one-third interest. Say one dies. That one’s one-third interest would be distributed according to their estate plan – meaning if they left a Last Will and Testament leaving everything to their spouse, well now the two surviving owners and the one that died’s wife are about to become owners together.
So, with this story here – the two Sons and Granddaughter owned the 100 acre farm as tenants in common and they each owned an equal one-third interest. Well, to all their surprise, one of the Sons, Chuck, unexpectedly dies. At that time, they didn’t know they needed to do anything with the property ownership, so they just left things as-is. Some time later, Grandpa dies, which Grandpa just had that life estate interest, as in he didn’t have an interest quite like the two Sons and Granddaughter. So, if you’re keeping track, of the five family members, we’ve lost Grandpa and Son, Chuck. Grandma, one Son, Steve, and Granddaughter, Jessica, still are with us.
Well, fast forward time, my office is actually helping the Granddaughter, Jessica, with her personal estate plan and she very casually mentioned having an ownership interest in a farm as an asset. She kind of shrugged it off and was like, “It’s not really mine…it’s my Grandpa and Grandma’s farm.” Well, at that point, we were kind of like, “Okay … well can you get us some of the paperwork like the Deeds?” Her next meeting, she came prepared with some of the Deeds and once we started piecing things together, we noticed the issues. The two biggest issues are:
1. Because Son Chuck owned a one-third interest in the house, even though his death occurred like 10 years ago at this point, a probate case needs to be opened to get his one-third interest out of his name. Right now, like this is a case unfolding right now, we don’t know if Son Chuck had a Will or not, but if he had a Will, his interest would go to the Beneficiaries in his Will or if he did not, his one-third will go to this mother – so boomerang back to Grandma and a portion to his brother, Steve! Oh goodness.
2. Also, because of this, the portions are now going to be super unequal and this is where this case turns into a funky math problem. Regardless, though, a portion will go to Grandma, who, if she needs long-term care in the future, this will “pop” and what they originally tried to accomplish …is no longer getting accomplished.
So, we just delivered the not-great news to Granddaughter, Jessica, and she was really not surprised – She was basically like, “I guarantee that attorney had no idea what he was doing and he certainly doesn’t do elder law, so how would he have really known what would work for farmland protection against Medicaid?” And she has a point. She is the kind of person that really gets the value of working with professionals, who are in their wheelhouse. Sadly, EITHER, 1) the attorney truly guided them inappropriately and this family is paying for it, or 2) the attorney explained things and Grandma and Grandpa did not understand the possible outcomes. It’s one of those two things – it was either explained or not. Period.
Let me tell you what happens a lot with farm families - they try to save a few bucks on legal work or maybe get advice from a lawyer who doesn't really know the field at-issue very well, and boy, does it come back to bite them later! It's like putting a Band-Aid on a broken arm - it might seem fine at first, but you're probably going to have problems down the road. You know, I've seen families end up in quite a pickle because great-grandpa Joe did some weird deed thing back in the day, or aunt Sue got partial ownership somehow, and now nobody's quite sure who owns what. Next thing you know, the family's stuck paying a lawyer way more money to untangle the mess than they would've spent getting it done right in the first place. We're talking thousands of dollars sometimes, plus all the headaches and possibly family tension that comes with it.
Here's the thing - when you're dealing with farmland, you've got lots of options for how to pass it down or transfer it. Maybe a life estate makes sense, or maybe putting it in a trust is better, or hey, maybe there's some creative solution that fits your family's unique situation. But you won't know unless you sit down with someone who really knows their stuff and can walk you through all the pros and cons. Think about it like planning a crop rotation - you don't just think about this year's harvest, right? You're thinking about how what you do now affects the soil for years to come. Same thing with property transfers. Good planning now means looking at the whole picture. Sure, it might cost more upfront to get solid advice, but it's a whole lot cheaper than having your kids or grandkids trying to fix a legal nightmare later on – just like Grandma, Son Steve, and Granddaughter Jessica here.
Alrighty, let’s shift to a sneak peak of next week, which we’re circling back to the “current trends” topic where we talk about things that are going on currently that impact my estate and elder law world – or maybe, things that I have stumbled upon on the news or social media that is relevant to this podcast. Well for next week, we are going to talk about a rising trend I’ve noticed with older adults and senior housing – I’m calling the episode “Golden Girls Living” because it’s when a few friends or family members decide to pool their resources and live together in their later years. So tune in for that topic next week, Legal Tea Listeners, so until then, be well and talk soon!
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