Thursday, October 17, 2013

What Happens if your Name isn’t on the Deed and your Spouse Dies?

William Irish’s home is now owned by his stepchildren. This isn’t what he wanted when he signed a deed in 1990. Here is how it happened.

William and Janet Irish were married in 1982. Janet was a widow and had 3 children by her prior marriage. In 1987 William and Janet purchased a home in Corry, Pennsylvania.  
Tenancy by Entireties Property
Both William and Janet contributed towards the purchase price of the Corry property. At the time of purchase they had it titled in both their names as tenants by entireties (T/E). This is a form joint ownership by a husband and wife who are effectively treated like a single legal entity for purposes of the ownership.
One of its primary characteristics of T/E property is the right of survivorship: neither spouse can independently transfer their interest in the property to a third party by will. The property passes by law to the surviving spouse. Another consequence of T/E ownership is that debts and judgments against one spouse only do affect property held by the entireties. Thus, T/E ownership can serve as a form of asset protection.
In Pennsylvania, unless there is clear evidence to the contrary, property owned jointly by a husband and wife is presumed to be owned as T/E.   
After William retired in 1987 he started a small business, “Irish Air,” which was devoted to airplane maintenance. William was concerned about his potential liability resulting from the business’ operation. He consulted his lawyer who told him that the Corry home would not be subject to attachment by William’s creditors because it was owned as T/E.
Despite his lawyer’s advice, in 1990 William deeded record title to the Corry property into Janet’s name alone. He did so to protect it for liability purposes and also as a way of providing for Janet in the event he predeceased her. (He perhaps did not understand that the property would pass automatically to Janet upon his death under the prior T/E ownership). He would come to regret the day he disregarded his lawyer’s advice.
Janet’s Will
In 2003 Janet signed a Will that left $20,000.00 to William. She left the residue of estate to her three children. Her children were named to be executors of her estate.
Janet died in 2009. She and William had remained married until the time of her death. After Janet’s death her children, as her executors, sought entry into the Corry home. William refused. He claimed the property was his. He also claimed that an automobile should be his even though it was titled in Janet’s sole name. The children claimed that the real estate and automobile had passed to Janet’s estate and that ownership should now be transferred to them as part of the residue of her estate.
Constructive Trust
Since the property was titled in Janet’s sole name, it became an asset of her estate and subject to the terms of her Will. There was nothing in writing that showed that William and Janet intended that the Corry home should pass to William if Janet died first.
This meant William had to be creative in trying to come up with an argument as to why ownership should pass to him after his wife’s death. He asked to court to find that he was being wrongfully deprived of the property and to impose the remedy of a “constructive trust” over it. This would mean that Janet’s estate would be required to convey the home to him.
The lower court found in favor of the children and against William. It found that he had made a gift of the real estate to Janet, and that the constructive trust remedy was inapplicable.
William appealed to the Pennsylvania Superior Court which upheld the lower court’s decision. Irish v. Warnshuis (PA Superior Court, October 10, 2013).
The appeals court noted that
Generally, a “constructive trust” is defined as:  
a relationship with respect to property subjecting the person by whom the title to the property is held to an equitable duty to convey it to another on the ground that his acquisition or retention of the property is wrongful and that he would be unjustly enriched if he were permitted to retain the property.
William’s argument that there should be a “constructive trust” required him to show the existence of one of the following:
(a)          that the property transfer was procured by fraud, duress, undue influence or mistake, or
(b)          the transferee (Janet) at the time of the transfer was in a confidential relation to the transferor, or
(c)          the transfer was made as security for an indebtedness of the transferor (William).
William acknowledged that reasons (a) and (c) were inapplicable but he argued that the transaction involved a confidential relationship. That relationship arises when one party places confidence in the other with a resulting superiority and influence on the other side. Once it is determined that a confidential relationship exists, the burden of proof shifts to the transferee to show that she did not abuse that relationship.
But both lower and appellate court rejected William’s argument and found that there was no confidential relationship in this case. The appeals court noted that a marriage does not create a confidential relationship as a matter of law. William would have needed to prove it existed during this transaction, which he did not do.
Presumption that Gift was Intended
In general, the law in Pennsylvania establishes a presumption that a transfer of property between husband and wife is a gift. This presumption applies where property held in T/E is transferred to the wife alone. It can be rebutted only with clear, explicit and unequivocal evidence that the transfer was not intended as a gift.     
Lessons Learned
The result of the Irish case is that ownership of the surviving spouse’s home and car passed to his step-children.  It’s a pretty good guess that this was not what William intended when he deeded his interest in the home to his wife.
This rather sad result could have been avoided with a little more attention and advance planning. There are some lessons to be learned from this case:  
-       Be careful how you title your property. It can determine who will inherit it when the owner dies.
-       Consider the effect of how your property is titled (and beneficiary designations) when you prepare your Will.
-       Use written agreements to confirm understandings regarding property ownership.
-       Ignore your lawyer’s advice at your peril.

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