I was recently contacted by a potential home seller, Stella, a 75 year old grandmother, who was interested in selling the residence she has lived in for many years. However, Stella had an estate planning problem, one that she caused by doing her own estate planning several years ago, without benefit of counsel. This resulted in several conversations with her, the potential buyer, and the title company.
Several years ago Stella decided to put her children and 3 minor (under age 18) grandchildren on the Deed to her house. As the homeowner, she simply added them to a form of deed and recorded the document with the County Recorder herself. Her intent was that should anything happen to her, the children and grandchildren would become the homeowners, and would not have to go through probate, which she was very concerned to avoid. She succeeded in adding the children and grandchildren as joint tenancy owners, in effect making an irrevocable gift to them at that time.
Now that she is older, Stella has second thoughts about keeping the residence and would like to sell it and get something smaller and more affordable (with a smaller mortgage). She would also like to take advantage of today's excellent seller's market to take the increased equity from her residence.
Unfortunately, the minor grandchildren cannot sign off on the sale because they are under the age of majority. This is true even when the children (over 18 and parents of grandchildren) are willing to sign and even to give Mom "their" share of the proceeds. The title company is suggesting a conservatorship, since the court-appointed conservator can sign off on the sale for the 3 grandchildren.
A conservatorship is a proceeding brought in probate court to protect the interest of minor children (under 18) who are legally unable to protect their own interest. The Court will protect the minor's interest and make sure that the interest is "conserved". In other words, the funds cannot be spent, given away or otherwise "wasted". This can be done by establishing a restricted bank account or accounts, where the money cannot be taken out without a court order. If more access is needed for the funds, the Court may allow the conservator access to withdraw funds necessary for the immediate benefit of the child (food, safety, housing, education) but will apply the principal that only minimal amounts may be withdrawn and they must be strictly accounted for by the conservator.
In Stella's case we can reasonably anticipate that the funds for the 3 minors will be place in 3 restricted accounts and that, upon reaching the age of majority, each child may petition the court for the release of the funds in the restricted account to the appropriate child. Each account will be interest bearing and held in an FDIC insured financial institution. No funds will be allowed for "investing" or amy speculation where the funds are put at risk.
The conservator is a fiduciary, meaning that he or she is held to a very high standard of care in dealing with the funds of other people. Risk is to be minimized and a conservative approach to be taken in protecting and insuring the funds. The Court may also require that the conservator be bonded, and that, should any funds be misused or misappropriated, the children could collect against the bonding company (which in turn would go after the conservator for reimbursement).
Stella decided that, with one-half of the proceeds to her home being paid to her grandchildren's conservatorship, she would not have enough money to purchase another house, even the smaller less expensive one that she had hope to get. She decided that she simply could not sell her residence under the circumstances. She had no legal remedy to the situation she herself had created.
There are several lessons to be learned from Stella's story. The first is, that if you are a person living in Mesa, Tempe, Chandler or the East Valley, you should not do your own estate planning. The modest fees that you pay an estate planning professional will more than pay for themselves in getting the job done properly, without surprises or problems. The professional will provide for a smooth transfer of wealth between generations as you desire without unintended consequences. For example, Stella could have put the house into a trust, which would not require a probate, and which would not needlessly encumber the title while Stella was still living. Had she done so, she would have been able to sell the residence without needing to set up a conservatorship for her minor grandchildren.
I hope that this story has been helpful to you and given you some insight about what to do and what not to do when considering your estate plan. We are always glad to assist your estate planning needs to prevent legal problems and surprises.
Very truly yours,