Home Grown Estate Planning

by Nicholas Walsh, PA

Not long after I started my law practice an older lady found her way to my door. She had three grown children and her husband was gone. After she was widowed she worried about what would happen to her Portland home when she passed away. The home was her only asset.

She and her husband had owned the home in “joint tenancy.” That meant when her husband died, my client automatically became the sole owner of the house, with no probate and no matter what the husband’s will said.

Property owned in joint tenancy goes to the surviving owner, who is typically the spouse but doesn’t have to be, and the property bypasses probate. Because of this feature married couples very often own their homes in joint tenancy. The alternative, if both will own the home, is for them to own the property as “tenants in common.” That means each one owns half – same as in joint tenancy – but that half does not automatically go to the surviving spouse upon death. Instead the half is distributed as the will directs, or as the law of probate directs if there is no will.

My client came to me because after her husband died she deeded half the home to her daughter in joint tenancy. That meant on my client’s death her daughter would own the real estate outright. Now my client was having second thoughts: she wanted to treat each of her three children equally, and to do that she needed to unwind the deed.

The transaction could not be unwound – the daughter did not want to deed her half back to Mom – but with some magic words on a new deed we could destroy the joint tenancy and create a tenancy in common. That way daughter would still own half, but on Mom’s death Mom’s half would go, by will, to her other two kids. That was the best I could do.

Deeding property to a child in joint tenancy as a means of estate planning is rarely a good idea. In my client’s case, her daughter could have sold her half interest in the home to a stranger, who could have made all kinds of difficulties for my client. Daughter could have insisted on moving in with her drug addict boyfriend and a few kids. And down the road maybe my client would need the money represented by the half interest she’d given away.

Many estate planning problems are caused by the older person’s desire to shed assets so the money won’t go to the state to pay nursing home costs. That can be a good idea, if undertaken with legal advice, although the state look-back period is now five years. I know of one instance where an elderly man deeded his home to his son, with the understanding that Dad could live in the house as long as he liked. For some dark reason son evicted Dad, an event so awful the old man ended his own life.

One solution here would have been for Dad to deed the property to his son but retain a life estate, so in effect Dad would own the property until his death. Another would have been for the deal to include a life lease to Dad, giving him the right to stay. Both of these options have pitfalls and neither should be undertaken without advice from a good lawyer and maybe not even then: there may well be better options. And by the way, if any lawyer suggests he or she can be on both sides of such a transaction – that a single lawyer can act for both elderly parent and adult child in such a conveyance – run for the door.

Powers of attorney can also be traps. A power of attorney (POA) gives another person the power to act for the person making the POA. Sometimes they are used to allow another person to undertake financial management for an elderly person who is afraid of becoming incompetent. The POA may, if correctly drafted, allow the elderly and now incompetent person to give away assets to kids and maybe avoid a state nursing home lien on the eventual probate estate. But POAs downloaded off the web or bought in a store lack specific language required by Maine law, and without that language the POA is worthless. Typically the flawed POA isn’t discovered until incompetency occurs, and then it’s too late for a correct document to be executed. Please don’t execute a POA without a lawyer’s advice!

Some couples are so clever as to create a trust using a downloaded form, and then deed money and property into the trust. One dies and likely now the trust is irrevocable: it can’t be undone. Maybe that could make all kinds of sense if there are tens of millions of dollars involved and an expensive law firm does the drafting, or if there is a disabled child or other special circumstance, but if the estate is modest and routine, a trust will create expensive and pointless administrative difficulties down the road. Please don’t make a trust without getting legal advice.

If there is a takeaway, it is this: Only rarely is it a good idea for an elderly parent to give away major assets during life. If you think you may want to do that, or if you think you need a power of attorney, trust, or other instrument, please hire a lawyer.

Estate planning is not in my practice area, although I do get involved when there is a will contest or other probate litigation. For this column I am indebted to my friend Barbara Carlin, who runs a great law firm in Portland specializing in estate planning.

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I am clerk for a few dozen Maine corporations. Annual reports are now due. One of my clients is called, let’s say, “Concrete Systems of Maine, Inc.” But the check my client sent me said just “Concrete Systems.” If I were a lawyer seeking to bypass my client’s company, so I could sue the owner personally, that check would be Exhibit A.

Please, if you do business as a corporation or LLC, use the name, exactly as it is registered, on all your checks, invoices, contracts and other official documents. If you want to use another name, register the name with the Secretary of State. It’s easy.

And stay out of trouble.

Nicholas Walsh is an admiralty attorney with an office in Portland, Maine. He may be reached at 207-772-2191, or nwalsh@gwi.net.