Do it yourself estate planning – PITFALLS!

In by Long

William Edy comments on estate planning pitfalls. Great article! – LHD
Don’t get burned by not using attorney
Do-it-yourself estate planning can backfire

Some individuals try to save money by not hiring an attorney when they should. Three of the ways they try to save attorneys fees, that elder law attorneys often see, are by trying to avoid probate, by self-help estate planning, and by doing their own Medicaid planning. I will discuss these three mistakes this week and next week. It amazes me at how many people simply do not own the real estate that they think they inherited from their parents. Recently a prospective client, Karen, was shocked to find out that the real estate that she believed she inherited from her mother, Sarah, is still owned by her deceased parent.

It amazes me at how many people simply do not own the real estate that they think they inherited from their parents. Recently a prospective client, Karen, was shocked to find out that the real estate that she believed she inherited from her mother, Sarah, is still owned by her deceased parent.

Karen showed me paperwork from Alabama, where her parents lived and died. A Cape Coral lot was originally purchased 20 years ago in the name of her parents. Her father died 15 years ago and her mother passed away 8 years ago. When her father died, Karen told me her mother had no problem obtaining sole title to the lot.

Soon after her husband died, Sarah phoned the tax collector’s office in Lee County and was told to send an original death certificate to be recorded at the Clerk of Court’s Recording Division. For the next 7 years, the real estate tax bills were sent to her mother who dutifully paid them. It worked because the deed which was titled in her parents’ names passed ownership to the surviving spouse automatically because of the tenants by the entirety, or husband and wife, character of the deed.

When her mother died in Alabama eight years ago, Karen called several attorneys in Florida who all told her she should hire an attorney to file for probate. Attempting to save attorney’s fees, she recorded the death certificate in Lee County and provided a new address to the tax collector to send the future tax bills.

Even though she had three other siblings, the four children agreed she could have the Cape Coral lot because she was the only child living in Lee County. The other three children divided various personal property among themselves in order to balance the value of the lot, which was only worth a few thousand dollars at that time.

Last year, when vacant lots in Lee County were selling for far more than ever anticipated 6 to 12 years ago, Karen received a generous offer to purchase the lot. Needing the money from a fast closing, she signed the sales and purchase agreement with the buyer’s real estate agent. It was contingent on closing in 30 days. The buyer then placed a rather large deposit with a local builder to start a new home on the lot. A few days before the anticipated closing, the title company told Karen she did not own the lot.

She soon received a letter from the buyer’s attorney notifying her that it was illegal for her to attempt to sell something she did not own and that she would be sued by the buyer for damages, including the buyer’s loss of the large deposit with the builder. The real estate agent’s attorney also sent her a letter demanding she pay the real estate commission or be sued.

How could she not own the lot when the Lee County government sent her the real estate tax bills every year? Well, it is not the Lee County government’s fault that she tried to save attorney’s fees by “doing it herself.”

The tax collector added her name to the tax bill so someone would pay the real estate taxes. And she did pay the taxes for years. The tax collector will not return your tax payments simply because you do not own the property.

What the public should know is that whenever real estate is owned only in the name of a person who is now deceased, title will not pass until a Florida probate judge says it does. That is one reason we deed the property to a trust, to avoid probate.

Sarah’s children would have to file a petition for probate administration, signed by a Florida attorney, which, since Sarah left no Last Will, would have to be joined in by all her children. That is where the problem became more complicated because one of Sarah’s sons was missing and another was deceased. The deceased son’s daughter did not agree that the lot should go to Karen. She said maybe 8 years ago when it was not worth as much, but now that it is worth over a hundred thousand dollars, the sales proceeds should be divided among Sarah’s children and the grandchildren of the deceased son and perhaps the missing son’s children. A probate judge would probably agree.

When there is a fight among the beneficiaries, one attorney is not permitted, by the ethical restrictions of the Florida Bar, to represent conflicting beneficiaries. Hence, we can expect several attorneys getting paid from the lot sale, after a Florida judge finally decides who really inherited the lot eight years ago. It makes no difference that Karen dutifully paid the real estate taxes from the bills sent her by the tax collector.

Whenever a Realtor, a mortgage broker, or a title company sees a tax bill being sent to a person in care of another person, often out of state, they should inquire about whether the original owner is still alive and also, if alive, whether the owner is competent to sign a deed. We have been reading stories about thieves who sign a fraudulent deed when they discover such a tax bill by searching on line.

If you believe you have inherited a piece of real estate from someone, but their name still appears on the tax bill, you need to make a diligent inquiry about what happened when the original owner died. If you think you inherited property, but do not have any legal paperwork to prove it, you need to consult a Florida attorney.

Once a client showed me a letter from an out-of-state attorney suggesting that the out of state personal representative sign a Quit-Claim deed to the Florida beneficiary. This deed was recorded and the tax bills sent to the “new owner” who is still not the legal owner. The out-of-state attorney who handled the probate in the northern state should have known better. He or she should have known that the deed would have no effect on change of ownership. An out-of-state probate judge cannot change ownership to Florida real estate. Only a Florida probate judge can do that.

Saving attorney’s fees by avoiding probate and just paying the taxes can backfire first, because legal fees have gone up in the last several years, as have most professional services, and second, because intervening events can further complicate the situation that additional fees may be reasonable. Trying to save attorney’s fees by avoiding probate may increase the legal fees that will be necessary to obtain marketable legal title.

Two other areas where we see persons trying to save legal fees are self-help Medicaid planning and self-help estate planning, both of which will be discussed next week.

— William Edy is a certified financial planner and tax attorney and a certified elder law attorney in Lee County. He may be contacted on line for article ideas and questions. This article should not be a substitute for advice from your own attorney.