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Tuesday, June 7, 2016

Legacy Assurance Plan Article | How Pocket Deeds Can Impact the Effectiveness of Your Estate Plan

Summary: Pocket deeds are one type of technique for avoiding probate, but they can be risky and unreliable. An estate plan that includes a pocket deed (or deeds) that creates one outcome and a will or trust that intends to create another can be ambiguous and leave your loved ones in a state of uncertainty as to your goals, and possibly force the courts to become involved to sort it all out. Working with reliable estate planning professionals can help you ensure that you have an estate plan where all of the pieces work together effectively.

For many years, people have sought out various means to avoid probate. While some methods like revocable living trusts and death-beneficiary deeds or account designations can, depending on your circumstances, provide reliable and effective means for avoiding probate, there are other methods that are often much less reliable. A "pocket deed" is one such risky method.  

A "pocket deed" is a nickname given to a deed that is validly executed by the owner during his/her lifetime, but not recorded until after he/she dies. This planning technique allows the transferring owner to maintain control of the property for the remainder of his/her life, and allows the property to pass outside of probate.

In a recent Michigan case, the state's courts were forced to resolve the estate of Vivian Hornak, an 87-year-old widow who lived in Saginaw County. When the woman died in the spring of 2010, she left behind two sons and several grandchildren. The woman also had an estate plan that included a will. Hornak's will left her 80-acre piece of property to a grandson, Keith Amman. The rest of her wealth she split among her two sons and the children of her two deceased daughters.

After the will was already admitted to probate, one of the sons, Kenneth Hornak, presented to the court four deeds. In the two 2004 deeds, the widow deeded all of her real property to herself and Kenneth jointly. In the two 2010 deeds, she transferred all her real property 100% to Kenneth. All four deeds were validly signed by the woman, but none had been recorded at the county Register of Deeds office. 

In this case, Kenneth lost his claim to all of the property that the deeds covered for a somewhat unique reason. Back in 2007, he filed for bankruptcy. At no time during the entire bankruptcy process did Kenneth disclose any of the ownership interests he held under these unrecorded deeds. As a result of his failure to disclose his ownership of the properties during his bankruptcy, the probate court invalidated the deeds.

Kenneth appealed, but lost. As the Michigan Court of Appeals court noted in its ruling, the estate plan the woman undertook when she signed the deeds in favor of her son seemed to be in distinct conflict with the estate plan she created under the terms of her will. It will always remain unclear which "plan" represented Vivian's true goals. That's why having a reliable estate planning team, to whom you can consistently turn for your planning needs is so important. Your planning professionals can help you make sure that all of your estate planning pieces work together in synergy to yield a plan with a single, consistent and clear set of objectives representing your true wishes for your legacy.

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1 comment:

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