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To Deed or Not To Deed?

On Father’s Day in 2013, Frank surprised his three children by turning tradition on its head. Instead of waiting for his kids to give him a Father’s Day present just like they’d done time and again over the years, he gave them a gift they weren’t expecting. After church, while sitting around the table for a huge lunch, he passed each of his three children a copy of a life estate deed. He explained that he and their mom had decided to sign their house over to the three of them.

The children acted confused and concerned, so Frank explained that he and mom weren’t getting any younger, and to be honest, mom’s mind was starting to slip. Frank was worried about what would happen to the house if his wife had to go to a nursing home, and a buddy of his recommended that he get it out of their names. He trusted his children, and he certainly didn’t want to risk losing the house. Deeding it to the kids seemed like a good solution.

At first, he told them, he thought he would just pull a deed form from the internet to save some money because, as they all knew, he was more than a little frugal. He quickly realized, though, after a couple of searches that he didn’t know what he was doing (to no one’s surprise) so he called a lawyer to set up an appointment. At the appointment, he told the lawyer that he wanted to deed his house to his children. The lawyer saw no problem with Frank’s request, but he did suggest that they use a life estate deed instead of a quitclaim deed so that the couple could retain lifetime use rights to the property. “Tax advantages,” the lawyer explained. Twenty-four hours and $250 later, and the deed was done. Frank was relieved.

Fast forward four years.

Frank reflected on how much had changed in his life since that Father’s Day in 2013 as he waited in his new lawyer’s waiting room. There had been plenty of good times, but it felt like the bad outweighed the good – and it was about to get worse.

Frank’s wife died about a year ago. As it turned out, she never needed a nursing home. Then Frank’s youngest son died nine months later. For the past three months, Frank knew he had some business to take care of, but he just couldn’t bring himself to do it until now.

When he sat down in his new lawyer’s conference room, he explained that he needed to “undo” a deed. He described what he had done four years earlier and why. He described what had happened since then. Because he was no longer worried about his wife’s possible need for a nursing home, and especially now that his youngest son had died, he wanted to make things simple – all he wanted was to put his house back in his name.

But it wasn’t simple, his lawyer explained. Frank could not “undo” the deed he signed four years earlier. Frank’s children would have to deed the property back to him. “No problem,” Frank said. They were good kids and would sign whatever he asked. But again, his lawyer explained it wouldn’t be as simple as Frank thought. Frank’s youngest son could not sign the property back over to his father – he was no longer with us. As a result of his death, all property owned by Frank’s youngest son was now in the son’s estate, and only a probate court could approve a real estate transaction like this. Frank wondered how much the attorney’s fees would be for something like that, but he soon learned that was the least of his problems.

The complicating factor, Frank learned, was that Frank’s son died after a battle with cancer. He had been unemployed and without insurance because of his illness, and he had medical bills in the six figure range when he died with no money in the bank to make a dent in those bills. Frank’s new lawyer explained that no probate court would allow property to pass out of his son’s estate back to Frank without protecting those creditors. Four years earlier, Frank had a better option. With an asset protection trust, Frank could have met all of his goals without being exposed to this risk. But Frank wouldn’t have considered that option, even his first lawyer had mentioned it, because it would have been more expensive.

Frank was stuck. There was no easy way to get his home back in his name, but he couldn’t afford to leave things like they were either. In the end, one of Frank’s other children would be forced to purchase this interest out of his deceased brother’s probate estate to accomplish his father’s wishes and protect the home. Frank learned that the simplest and cheapest solution is often not the best when life does not unfold the way we expect.

 

 

 

 

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