Cautionary Tales - The Danger of Last-Minute Planning - Episode 235

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, that way you don’t turn into a cautionary tale on my Legal Tea podcast one day! So… today’s episode demonstrates perfectly why waiting until the last minute to get your estate planning in order can create enormous problems for the people you love most. This story involves a family that thought they were doing the right thing, but a series of small missteps turned into a cascading series of problems that could have been completely avoided. So let's dive in…

Here's what happened. So, meet the Smith Family (which Smith is of course not their name)—a mom, a dad, and two adult children. The mom had been ill for several months. This was not a sudden, unexpected illness. She had been declining over time, and the family could see it happening. But like so many families, they kept putting off the estate planning conversation, or just did not want to have it. Maybe they thought they had more time. Maybe it was too painful to confront. I see this all the time, and I get it—it's hard.

Finally, they reached what I call the "11th hour." Mom's condition had deteriorated to the point where they realized they needed to act immediately. So they started calling attorneys to get documents, like Power of Attorney and Deeds, in place. But here's the problem: the shortest wait time they could find was two weeks. And based on Mom's condition, two weeks might be too late. She might not have the mental capacity to sign documents by then, or worse, she might have already passed away. So, feeling desperate and out of options, they did what a lot of people do these days—they went online and got a Power of Attorney form. Mom signed it while she still had capacity. Then, acting under that Power of Attorney, one of the children signed several deeds to transfer farmland—not just a house, but multiple parcels of farmland—out of Mom's name.

Now, they got the deeds signed, but here's the critical detail: they didn't get them recorded at the county recorder's office before Mom passed away. In my state, that's actually okay in some circumstances, again SOME circumstances. You can record certain types of deeds after someone dies, as long as they were validly signed before death. So technically, they were still in the game.

Now, to clarify, the family didn't come our way until after Mom had already passed away. One of the children came in for help recording these deeds. And right away, I saw red flags everywhere. I advised them strongly—and I mean strongly—not to record these deeds. Why? Two big reasons. First, these "deathbed transfers" just don't look good. When you transfer property in the final days or weeks before someone dies, especially using a Power of Attorney, it can raise serious questions. Were they really acting in Mom's best interest? Was there undue influence? It opens the door to challenges from other family members or creditors. But second, and this is huge: taxes. If they recorded those deeds and the transfers were valid, those properties would not receive what's called a "step-up in basis" at Mom's death. Let me explain what that means in plain English.

When someone inherits property, the IRS typically resets the "basis"—basically, the value for tax purposes—to whatever the property is worth on the date of death. So if Mom bought farmland for $50,000 decades ago, and it's now worth $500,000, when the kids inherit it at her death, their basis becomes $500,000. If they sell it for $500,000, they pay zero capital gains taxes. That's the step-up in basis, and it's one of the most valuable tax benefits in estate planning. But if Mom transferred the property to the kids right before she died while she was alive, they would take Mom's original basis—that $50,000. If they later sell it for $500,000, they're looking at capital gains taxes on the gain. We're talking about a lot of money in unnecessary taxes, depending on the size of these farm parcels.

So I explained all of this. But they insisted. They wanted to push forward. Okay, so we move ahead with their wishes (after of course, I paper my file with why this was NOT a good idea!). To record the deeds, we first had to record the Power of Attorney—because the deeds were signed by someone acting as Power of Attorney, and the recorder's office needs to see the authority for that signature. So we submit the Power of Attorney to the county recorder's office. And it gets rejected. Completely rejected.

Why? Because the online form they downloaded did not comply with our county's specific recording requirements. It was missing an affirmation statement about Social Security numbers being redacted. It did not have the proper "prepared by" language. Mom’s POA listed her middle name, but she didn’t sign it with her middle name. There were multiple technical formality issues that the recorder's office requires for any document to be recorded in the official records.

Now, here's the thing about county recorder's offices: they are notoriously particular about formalities. Every county can have slightly different requirements, and they will reject documents for what might seem like minor issues. But these requirements exist for important reasons—they protect the integrity of the public record. So I had to go back to the family and explain: "We cannot record these deeds because the recorder's office won't accept the Power of Attorney. And without the Power of Attorney on record, we can't record deeds that were signed under that Power of Attorney…”

So, at this point, the properties are going to have to pass through probate and according to Mom's Will. And here's where things got even more complicated (like they weren’t already…). The Will named Dad as the first executor. Remember Dad? He's still living, but … well he's in hospice. He's in no condition to serve as executor of an estate. He can't make decisions, he can't sign documents, he can't manage property—he's simply and sadly not capable. The Will also named a second executor, an attorney. So we asked the kids: "Do you know this attorney? Have you been in contact with them?" And they had no idea who this person even was. They'd never heard the name before.

So now, these adult children—who thought they were going to own this farmland, who tried to get it transferred before Mom died—they have no control over the situation at all. They have to track down this attorney who's named as executor, and that person is now in charge of dealing with Mom's estate and these properties. We couldn't help them anymore. And that’s about where the story stops – at least right now. We had to sort of send them on their way. They were so sad they could not work with us because we had helped them so much, but the Will named that attorney executor and he’s the one calling the shots – not them.

Okay, so what can we learn from this? I've got three major takeaways for you, and I really want you to hear these because they apply to so many families.

Takeaway Number One: Do not wait until the 11th hour to do your estate planning. This is a big one. Mom was ill for months—months. Not days. This wasn't a sudden heart attack or a car accident. The family had time, maybe things were crazy and time was flying, but they did not act until it was too late. And when you wait until the 11th hour, your options become extremely limited. You may not be able to get in to see an attorney quickly—we're often booked weeks in advance. You might not have time to consider all your options or implement the best strategy. You may be making rushed decisions under enormous emotional stress. And if the person loses capacity before you can get documents signed, you may be out of luck entirely. The time to do estate planning is when everyone is generally healthy and thinking clearly. That's when you can have thoughtful conversations, look at all your options, consider tax implications, and put together a plan.

Takeaway Number Two: Be very careful with online forms. Look, I understand the appeal. They are often cheap, convenient, you can do them from your couch at midnight. But here's what you need to understand: estate planning is heavily governed by state law, and sometimes even by local county rules (as we saw with this story). I am an attorney who focuses on estate planning in one state, and it's a lot of work just keeping up with changes in my own state's laws and the quirky requirements of the different county offices I deal with. There is no way the providers of these online forms can stay on top of all the local variations and technicalities. It's nearly impossible. And as we saw in this case, those technical formality issues can completely derail your plans. Beyond that, a form does not give you advice. It does not warn you about tax implications. It does not explain what a step-up in basis is or why you might not want to transfer property right before death. You're flying blind, and you don't know what you don't know.

Takeaway Number Three: Communication is critical. The kids in this case had no idea they weren't named as executors in Mom's Will. Their Mom had never mentioned anything about the attorney named in the document. But at the end of the day, they were blindsided by this information after Mom had already passed away, when it was too late to ask questions or make changes. This happens so often, and it causes so much unnecessary stress and conflict. They don't necessarily need to know every detail—you don't have to tell them exactly how much money they're getting or read them the entire Will—but it’s not a bad idea to share the basics.

When people die without having these conversations, families are left guessing. Mom clearly knew this attorney who was named as executor—she chose that person for a reason. But she never communicated that to her children. If she had, they would have at least known who to contact. They would have understood the plan. It would have saved confusion and frustration at an already difficult time.

So here's the bottom line. This family tried to do the right thing. They recognized that Mom needed some legal/estate help. They took action when they realized time was running out. But because they waited too long and took shortcuts, things are a bit of a mess, to say the least. The tough thing is this … All of this was completely avoidable with proper planning done at the right time with qualified help.

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 today was SUPPOSED to be about next week’s topic, but I switched it up on you – so NEXT week is going to be about about a couple articles I found – talking all about things like 23 and Me (like those DNA tests), and how those are playing into estate and inheritance issues. So, until then, Legal Tea Listeners, be well and talk soon!

Sources:

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