Today, I offer you the first in a mini-series of legal soap operas. I hope to present a light-hearted but serious look at some of the problems I see every day in my office: with the best of intentions, trouble follows ill-advised and poor planning. Although the stories are fictitious, the situations are typical of those I see on a daily basis. Your charge is to read and learn. See how many problems and lessons learned you can identify.
Scene 1: The Beauty Shop
When Betty sat down in the chair, she really had a lot on her mind. Mable could not draw Betty into their normal conversation about the Smith twins or the Rader widow. Even tattoos and short skirts seemed lost on Betty that day. All that Betty could think about was what she was going to do about the farm. With her husband, Herman, gone now for a year, and Betty just recently diagnosed with Parkinson’s, it was time to get the farm out to her kids, Sally and Jim. But it wasn’t as simple as it seemed: Herman’s kids were grown-ups when she married him married 5 years ago, nice enough while Herman was well, but they didn’t even visit when he was sick. She did not want her 200-acre farm, that her dad gave her in 1950 to go to his kids. She had to find a way to make sure that Sally and Jim could keep the farm in the family.
Lesson 1: Gifting the farm may result in several needless tax problems, e.g.
(a) federal gift tax & penalties may be imposed depending on the value of the farm
(b) the children will receive the farm at a carry-over tax basis which results in capital gains tax when the kids sell the property after mom’s death.
(c) Betty will lose her $250,000 capital gains exclusion if she sells her home during her lifetime.
She finally told Mable the problem and Mable gave her the best advice that 22 years in the people business had taught her: “You want to give that farm to Sally and Jim right way, just like Esther Wright did years ago with her kids. Esther went to Joe Futz. He’s a great attorney, been in the business for years. My husband knows him from the Elks and he’s really reasonable. He’ll just do you want without asking a lot dumb questions. He’ll just get it done”.
Lesson 2: Betty loses control of her farm when she deeds the property outright to her kids.
It was a hard decision, but Betty decided that Mable was onto something so she set up a meeting with Attorney Futz. Betty told Attorney Futz that she wanted to deed over her farm to her kids now, so he prepared the deed, as Mable had promised, wiithout any fuss. She was so relieved that she was able to keep the farm in her family. She knew that she had done right by her kids.
Lesson 3: The farm is now subject to the children’s problems and liabilities, e.g. divorces & lawsuits.
Scene 2: Stuff Happens
Betty’s son, Jim, dies suddenly in a car accident.
Lesson 4: Jim had no pre-marital agreement with respect to inherited property.
Jim met his wife, Jessica, in high school. Jessica was married to Biff, the all-star, for a few years and they had 2 children. When they broke up, Jim decided that Jessica was for him and they were married. Betty was not sure she was so happy with the “woman with a past” but she was happy when little Jimmy Junior was born. Unfortunately, Jim’s death brought with it a whole new set of worries.
Lesson 5: Betty had no plan to exclude step-children, nor did Jim.
Jim always planned to take care of Betty, nothing more had to be said – no formal contracts or arrangements were necessary; it was safe with him. The problem was that Jim died before Betty leaving all of his worldly possessions to his wife, Jessica. This included Jim’s half interest in the farm his mother, Betty, deeded to him for safe keeping. Jessica also had other plans as time went on, including reuniting with Biff, who was working at the local feed mill. Biff was a great guy but no one had given him a chance to get ahead. Biff helped Jessica see the opportunity to help him fulfill his life-long dream to own a charter boat and be a fishing guide on Lake Erie. All he needed was money for the boat, a small office building, licenses, employees … and if Jessica used the money she was entitled to from Jim’s share of the farm, they wouldn’t even need a loan. Jessica knew that this was the right thing to do.
Lesson 6: Betty never planned for The “Law of Unintended Consequences”: Betty always though she would die before her son. Now her daughter-in-law, and not her son, owns half of the farm.
Jessica called Betty, very excited about Biff’s new company and the fact that he was willing to let her be a junior partner. With her money and his expertise they would be set. All Betty had to do was give her the money from the farm … and this is where the problems really began. Betty didn’t have $650,000 to buy Jessica out, nor did Betty want to sell the farm. The farm was her home and had been in her family for generations and she wanted it to go on with her family.
Lesson 7: Any co-owner of a property (Jessica) can “partition” or force the sale of the property.
Betty called Attorney Futz. He would know what to do, surely. Attorney Futz listened carefully and was very polite but had to explain to Betty that Jim’s share of the farm now belonged to Jessica. Jessica had the right to force the sale of the entire property in order to get her one-half share, even if Betty’s daughter Sally, the other half-owner, did not want to do so.
Lesson 8: Betty can be forced to move from her home and be “on the street”.
What should Betty do? Where could she turn for a friendly, and reliable opinion? She found herself back in the chair, seeking advice once again from her best friend and hairdresser, Mable.
Lesson 9: A good friend and advisor is hard to find.
There are ways not to end up like Betty. Every problem described above could have been avoided with proper legal planning and advice. If you have a home or a farm and would like to find out some of the possible solutions,
call Lisa Nelson at our office. Lisa is one of our legal assistants. She will call you back, at no cost, and give you some general suggestions about how you might proceed, either with your existing attorney or with our office.
Our Firm’s mission statement is: “The Thom L. Cooper Co. is dedicated to building a continuing relationship with each senior client: to protect their wealth from the devastating costs of a catastrophic healthcare situation; to conserve their wealth for their use during their lifetime; to shelter their wealth from unnecessary legal expense or taxes; and to assure that their wealth is transferred to their heirs with minimal cost or delay.”
After her mother had passed away, Sharon and I met to discuss what needed to be done to settle her mother’s estate. We had previously worked with Mom, who was a widow, with the goal of protecting her children from the hassle and expense of probate. We established a Revocable Living Trust for Mom and during that process she had mentioned to us that she had a safety deposit box at her local bank. We advised her to go to the bank and have it re-titled into her Trust. When Mom went into the bank to do this, the bank teller told her it was unnecessary to retitle the safety deposit box because Sharon already had full access to the box. However, after Mom passed away, it became clear that what she had been told regarding her safety deposit box was misleading.
A few months ago, we had existing clients, Bill & Margaret come in for a review of their trust and other documents. Their concerns and questions were not so much related to their documents as they were centered around their middle aged daughter who had recently remarried. They explained they felt a certain amount of discomfort or even distrust of the new son in law, who by the way had no gainful employment. Their daughter was an only child and would be heir to about a half a million dollars at the death of her parents. Their question was simple “how can we protect our daughters inheritance?” 
Often after our clients lose a loved one they find someone else with whom they want to spend the rest of their life. Getting married again late in life can offer renewed happiness & purpose, but it can also result in heartbreak without planning.
