Nothing to lose but your estate plan
February 1, 2022 | View PDF
Today I want to talk about Marx.
No, not the guy who wrote the Communist Manifesto. Not the comic with the big eyebrows either. Not even the ‘80’s rocker.
I want to talk about a Marx you probably haven’t heard of. His name was Lawrence Marx, he lived in Southeast Alaska, and he died a few years back. And oh, did he leave a mess.
Lawrence and his wife had a living trust. It had fairly typical terms; it was for their benefit while they were alive, and then it left everything to their two sons, once the second of them died. But then some things changed. The wife died first. One of their sons also died. The other son ended up in prison in Louisiana.
At that point, Mr. Marx decided to make a change. Rather than leave the estate to his inmate son, he decided to leave it to his brother. So he changed his will.
At this point, if you are familiar with how estate planning works, your ears might have perked up. He changed his will, but not the trust? Yes, he rewrote his will but did not amend the trust. That led to problems.
When Lawrence died, he left behind a trust which still left assets to his son in prison. But he also left a will which gave everything to his brother. So, which one controls? The answer depends on what assets are in the trust.
You see, when you create a trust you have to “fund” the trust. Funding the trust just means putting stuff into the trust. But Lawrence and his wife had not really funded the trust. They had signed an affidavit which listed the assets of the trust, but that isn’t enough.
They had a number of financial accounts, but the accounts were just in their own names, not in the name of the trust. They could have made the trust the POD (that is, the death beneficiary) on those accounts, but they didn’t do that either. There was no POD on the accounts. That meant that the accounts belonged to the probate estate, since they were never put into the trust.
There was also a piece of real estate. The affidavit said that this real estate was in the trust, but they never actually deeded the property to the trust. Real estate is transferred by recording a deed with the State. That never happened. The trial judge found that since the property was never deeded to the trust, it belonged to the probate estate. That meant it would go to the brother.
The jailbird son, representing himself, appealed to the Alaska Supreme Court. He lost on most of the issues, but on the question of that one piece of property, the Supreme Court sent it back to the trial court. They made the suggestion that possibly the affidavit could be recorded as if it was deed. On the day this case was reported, a loud “clopping” sound could be heard throughout Alaska; that was the sound of a lot of attorneys’ jaws hitting the floor.
This is a very recent case (decided December 8 of last year) and so we don’t know what the final outcome will be, but I suspect that they are going to realize, at some point, that the affidavit is not something that can just be recorded to transfer the property. There are a lot of requirements for a deed, and most likely the affidavit won’t meet those requirements. And that means everything ends up going to the brother, not to the son in prison.
So what can we learn from this, other than the fact that members of the Alaska Supreme Court have no idea how fussy and particular the people who work in the recording offices can be?
First, if you have a trust, you have to properly fund it. You have to actually take the steps to get the things which should be in the trust, into the trust. If you want your bank account to go to the trust, you need to go down to the bank and take care of that. If you want your home to go into the trust, you need to record a quitclaim deed. If you don’t do what is necessary, those assets do not belong to the trust. For things like furniture and jewelry you can just list them and say they are in the trust, but that doesn’t work for assets, which are handled more formally.
Second, the will and the trust should be consistent. Normally when you have a trust, the terms for who gets what are in the trust. You have a will just in case something slips through the cracks, but the will says that everything goes to the trust (lawyers call this a “pour-over will” because it pours over into the trust). That way if you want to change it, you amend the trust but you don’t need to change the will. If you have dispositive terms (saying who gets what) in the will, you may end up with an inconsistency between the will and the trust, and then you could have a fight over whether something actually got into the trust. Which is exactly what happened in this case.
If your estate planning isn’t done right, you have nothing to lose but your plan. Then it’s just a bunch of horse feathers, and it don’t mean nothing. Sorry, but I had to get those Marx references in there.
Kenneth Kirk is an Anchorage estate planning lawyer. Nothing in this article should be taken as legal advice for a specific situation; for specific advice you should consult a professional who can take all the facts into account.