Court of Appeals: Statute of Frauds Does Not Nix Unsigned Agreement to Convey Property Upon Death

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The Wisconsin Court of Appeals recently adjudicated a dispute about the legal standard applicable to a decades-old contract to transfer property after the owner’s death. See Haug v. Greve, 2015AP54 (April 26, 2016). The case involved the common law statute of frauds, as well as two Wisconsin statutes adopted at the very end of the twentieth century. Ultimately, the court of appeals affirmed the lower court’s holding that a contract to devise real property upon death which is governed by Wis. Stat. § 853.13 is exempt from the statute of frauds, both under the common law and as codified in Wis. Stat. § 706.001.   

Robert Greve died in 2002. After his second wife, Bernice, died in 2012, a dispute arose between Robert’s estate and his children from his first marriage. The conflict centered on ownership of a riverfront cabin property. The Estate contended that the property should devise as provided in Robert’s will, while Robert’s children claimed that title passed to them under an earlier deed.

In 1960, Robert’s mother, Mildred, had deeded the cabin property to herself and to her son as joint tenants with a right of survivorship. In 1972, Mildred deeded her interest in the cabin property but reserved a life estate “to enjoy the use of the property in connection with Robert Greve and his family.” The 1972 deed also contained evidence of a contract that stated “Robert Greve does further agree, that he will, in the event he owns the [property] at the time of his death, devise and bequeath [the property] to his children in equal shares.” Mildred signed the deed, but there was neither a signature nor a signature line for Robert. In 1999, Robert executed a will that left ninety-five percent of his estate to Bernice, and divided the rest between his two children. The 1999 will did not mention the cabin property. 

Robert’s children maintained that the terms of the 1972 deed provided that the property devised to them. But Robert’s Estate disagreed, arguing that the provision of the 1972 deed devising the property to Robert’s children at the time of his death was invalid. The invalidity argument rested on the statute of frauds, which has traditionally applied to contracts to make a will to transfer real property. The statute of frauds, which has deep origins in the common law, requires that contracts to transfer property must satisfy several criteria, including being set forth in writing and signed by all parties to the agreement. See, e.g., Stuesser v. Ebel, 19 Wis. 2d 591, 120 N.W.2d 679 (1963). In 1999, Wisconsin codified the statute of frauds in Wis. Stat. § 706.001. The codified version conforms to the common law in requiring written, signed agreements to transfer land. See Wis. Stat. § 706.02(1). Here, because Robert had not signed the 1972 deed, the Estate argued that any agreement the deed evidenced to pass the cabin property to his children was unenforceable under both the common law and the codified versions of the statute of frauds.

The Circuit Court for Forest County held the 1972 deed constituted an enforceable contract to devise property. Relying on Wis. Stat. § 853.13(1)(d), the court found that clear and convincing extrinsic evidence established the existence of a contract. The court also found that Robert subsequently breached that contract by failing to uphold his promise to convey the property to his children. The evidence on which the trial court relied included the deed itself, as well as testimony by Robert’s aunt (Mildred’s sister-in-law) that she was present during two separate conversations between Robert and Mildred regarding their intent that the cabin would convey to Robert’s children. The trial court reasoned that the agreement was exempt from the statute of frauds codified in Wis. Stat. § 706.001 because the contract itself was not an interest in land, but instead a contract to make a will. Such contracts fall within the scope of Wis. Stat. § 853.13.  

On appeal, the Estate argued that Wis. Stat. § 853.13’s provision allowing clear and convincing evidence to prove the existence of a contract to devise property was inapplicable to the 1972 deed, because the deed preceded the creation of the statutory provision by a quarter-century. The Estate urged the appellate court to follow the common law principles in effect in 1972, under which the statute of frauds governed contracts to transfer real property upon an owner’s death.  The Estate argued that the agreement between Mildred and Robert became irrevocable upon Mildred’s death in 1976, which was more than 20 years before the enactment of either Wis. Stat. § 853.13, governing the creation of contracts to devise property, or Wis. Stat. § 706.001, codifying the statute of frauds.

The appellate court rejected this argument, holding that Robert and Mildred’s agreement did not become irrevocable until Robert’s death in 2002. Prior to his death, the court reasoned, Robert had unilateral authority to convey the property to anyone. However, by not exercising this authority, Robert allowed the 1972 agreement to become irrevocable when he died. The agreement thus took effect in 2002 and was governed by the law in effect at that time. As a result, the agreement was subject to Wis. Stat. § 853.13(1)(d) rather than the statute of frauds, either as established by the common law or as codified in Wis. Stat. § 706.001.  The appellate court also made clear that it considered Robert and Mildred’s 1972 agreement worthy of protection, noting that, even if the statute of frauds governed, the court would have used its equitable authority to enforce the 1972 agreement.

The implications of the court’s approach are yet to be seen in other Wisconsin property transfer cases. It is notable that the determination of which legal regime applied to the dispute was resolved by looking to the date on which the agreement at issue became irrevocable; for that reason, future cases with different facts may continue to argue for the application of the common-law statute of frauds or other legal authority predating Wis. Stat. §§ 706.001 and 853.13. While the Haug court’s rationale for enforcing the 1972 agreement can be read as favoring leniency about the formal requirements for contracts to transfer real property, the case is fact-specific and does not establish a broad rule. As a result, the case does not relax the burden Estates or other individuals face when making arrangements for future transfers of real property.

Law clerk Syed Madani assisted in researching and writing this post. 

Recent Case Highlights the Importance of Clarity and Follow Through In Avoiding Family Disputes

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The recent Wisconsin Court of Appeals decision In the Matter of the Living Trust of Margaret Sheedy and Patrick Sheedy highlights not only the importance of clear drafting, but also follow through in avoiding family disputes in estate planning.  The case involves a dispute between six siblings regarding the treatment of their parent’s cabin in two successive trusts.  The first trust, drafted in 1995, in essence divided the cabin between all of the sisters, while a subsequent 2004 trust directed the cabin to be distributed to only one child as a specific bequest.  That trust was later further amended, changing the distribution to back to shared interest to be divided between the children.  The 2004 did not indicate whether it was intended to revoke the 1995 trust.  Although the parents created both trusts together, one parent completed four amendments to the 2004 trust after the death of the other parent.  It was not clear from the 2004 trust whether one of the grantor parents had the ability to amend the trust following the death of the other.

At the time of the surviving parent’s death in 2012, the cabin was titled in the name of the 1995 trust, and it was unclear which of the trusts or trust amendments governed its disposition.   A group of the siblings argued that it was the 1995 trust that controlled the cabin’s disposition because of the title. Unsurprisingly, the sibling who was to receive the cabin outright under the 2004 trust argued that, though that trust did not explicitly revoke the 1995 trust, the 2004 controlled.

Ultimately the Court of Appeals concluded that the 2004 trust revoked the 1995 trust, the cabin title to the 1995 trust was not dispositive, and the surviving parent was able to amend the 2004 trust after the death of the first grantor. The sisters are to share the cabin equally.  However, the real lesson from the Sheedy case is that each of the disputes between the siblings could have been avoided had the trust documents been explicit about their intentions.  The language of the 2004 trust could have easily stated it was revoking the 1995 document.  A simple addition could have also confirmed the ability of a surviving grantor to amend the document.  The additions of these two sentences might have helped avoid prolonged litigation between siblings after the death of their parents. Additionally, the dispute about the ownership of the cabin property by the trust could have been avoided by follow-through on updating the title after the 2004 plans were in place. 

If you have questions about estate planning, please contact a member of the Stafford Rosenbaum Trust and Estates team.  

Facebook Legacy: After-Death Settings

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As we reported in Estate Planning for Your Digital Assets, the law is rapidly developing at the intersection of death and social media.  Facebook has announced it will now enable users to direct the disposition their accounts.  Other platforms are likely to follow suit.

Facebook users can now plan what happens to their account at their death. The options include: choosing a “legacy contact” to manage the account, deleting your account permanently after death, or  keeping your account as it is. Previously, family or friends had to notify Facebook that a user had died. Upon verifying the death, Facebook would “memorialize” the account, meaning the account could be viewed but it could not be edited or managed.

Under the new system, the legacy contact may make one last post on your behalf when you die, respond to new friend requests, update your cover photo and profile, and archive your Facebook posts and photos. The legacy contact will not be able to log in as the deceased or see the deceased’s private messages.

Follow these steps to designate a Facebook legacy contact:

  • On the right side of your Facebook page, click on the downward-facing arrow to show the drop-down menu. Click on “Settings.”
  • Choose “Security,” then “Legacy Contact” at the bottom of the page.
  • Choose your legacy contact from your friends list. Choose the options you want your legacy contact to have.
  • You will be offered an option to send a message to your selected legacy contact.

If you have questions about planning for your digital or non-digital assets, please contact a member of the Stafford Rosenbaum Trust and Estates team. 

Coauthored by Holly J. Wilson and Eileen M. Kelley.

Estate Planning for Pets

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An often overlooked component of the new Wisconsin Trust Code, Wis. Stat. § 701.0408 authorizes pet trusts in Wisconsin for the first time.  The new statute creates a new estate planning mechanism for furry family members. 

Previously, a Wisconsin pet owner hoping to direct funds for the care of pets in the event of his or her death had to leave funds indirectly.  The enforceability of a trust created for this purpose was not clear.  But the new law confirms the validity of pet trusts to fund the care of animals in Wisconsin.

A pet trust can be created as a standalone trust or as part of a broader revocable living trust.  An individual can be appointed to carry out the terms of the trust. This need not be the same person selected as trustee of a revocable living trust.  The trust terminates upon the death of the last surviving animal it was designed to care for.  Funds not used for the pets are distributed to the trust’s creator or his or her successors.

Funding is an important consideration for ongoing care of pets. Pet trusts can provide funds for an animal’s needs, including food, toys, and veterinary care.  Pet trusts can also document instructions for care and the trust maker’s wishes for major decisions for the pet.  However, it’s not clear yet how these wishes will be treated by a Wisconsin court. This is why in addition to the funding provided in a pet trust, estate planning for pets should also involve confirming the guardianship of pets and discussing your wishes with your potential pet guardians.  

To speak to one of our animal loving attorneys about providing for your pets in your estate plan, please contact one of the members of the Trust & Estates Team. 

Mr. Fritz, the author's Miniature Schnauzer.

Same-Sex Couples May Now Benefit from Portability of Estate Tax Exemptions

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Since 2011, married couples in Wisconsin are able to use portability of estate tax exemptions.  This means that upon the first spouse’s death, their unused estate tax exemption would “port” over to the surviving spouse.  In 2014, each person has an estate tax exemption of $5.34 million, so a person can transfer $5.34 million free of estate tax.  Any amounts over the $5.34 million exemption would be subject to estate tax.  Portability allows a married couple to combine their estate tax exemptions for a total of $10.68 million.  For example, Spouse A dies this year with an estate worth $4 million.  Spouse B would file a federal estate tax return for Spouse A using $4 million of Spouse A’s estate tax exemption and porting over the remaining $1.34 million to Spouse B.  Spouse B now would be able to exclude $6.68 million from estate tax at Spouse B’s death.

On October 6, 2014, the U.S. Supreme Court declined review of the Wolf v. Walker, 986 F.Supp.2d 982 (W.D. Wis. 2014), thus providing marriage equality for same-sex couples in Wisconsin.  Prior to that decision, many same-sex couples prepared estate plans that closely approximated a marriage-like relationship, but likely they did not have portability of estate tax exemptions as part of their estate plan.  With the law change in Wisconsin, same-sex couples should review their prior estate plans to see if planning to use estate tax portability is a good fit. 

Like most estate planning tools, portability has advantages and disadvantages.  One major benefit of portability in estate planning is that it takes advantage of the stepped-up income tax basis of assets twice:  once when the first spouse dies and again when the surviving spouse dies.  Two step-up basis increases in assets that are held for a long time could provide substantial tax savings to a couple.  In contrast, prior to the availability of portability, one typical estate plan was to divert assets equal to the then existing estate tax exemption to a credit shelter trust.  The credit shelter trust estate plan allows for one step-up in income tax basis.  Another benefit of using portability is that it is a simple method of planning without the use of complex trusts. 

As mentioned earlier, there are some disadvantages to portability.  First, in order to use portability, the surviving spouse must file a federal estate tax return.  The filing of a federal estate tax return can be time consuming and costly.  Second, portability planning only provides tax advantages to the spouses and does not take into consideration shielding the assets from taxation for future generations. 

Each couple must weigh the potential advantages and disadvantages of using portability as a method of reducing estate tax.  It is important to discuss whether or not to make changes to your estate plan with an estate planning attorney.  If you have questions about your estate plan, please contact a member of the Stafford Rosenbaum Trust and Estates team.

The Best Laid Plans: Avoiding Three Common Estate Planning Mistakes

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For many clients working with estate planners, the finished product is carefully packaged and centered around either a Will or Revocable Living Trust.  After leaving the estate planner's office, seemingly innocent decisions can undo the work done to the Will or Trust and negate clients’ intentions.  Three of these common estate planning mistakes are described below. 

Creating Joint or Payable On Death Property.  

For both financial accounts and real property, joint ownership or completing transfer on death designations can quickly create contradictions with an estate plan.   By law, jointly owned property automatically passes to the surviving joint owner upon an owner's death.  This is true both of bank accounts and real estate titled with rights of survivorship.  A Transfer on Death designation directs the account holder to transfer the asset to a specific designee upon the death of the owner.  Both joint accounts and transfer on death designations remove the account or property from the probate estate of the original owner and in many cases this may be a desired result.  But often such designations are undertaken without regard for the overall estate plan and create inconsistencies that frustrate the carefully created plan.   For example, if an individual's Will leaves a certain gift to charity, but the individual later changes his or her bank account to a joint account, there may no longer be funds available in the probate estate to complete the gift in the Will.   Similarly even if a trust leaves a residence to all of the owner's children, if the property is in fact held in joint tenancy with just one of the children, the property will pass to automatically to that child.

Not Updating Beneficiary Designations.

Many people’s largest asset are retirement accounts and life insurance policies. The disposition of these accounts as a general rule is not governed by a Will or Trust.  Instead upon an individual's death, these accounts will be distributed according to the beneficiary designation on file with the account or policy holder.  Often these accounts and policies are employer sponsored meaning beneficiary designations are completed  upon starting a new job and promptly forgotten about.  It's not uncommon to find beneficiary designations directing that benefits be paid in a manner that is vastly different from the disposition in a more recent estate plan.  Therefore, updating beneficiary designations is an essential part of any overall estate plan and ongoing diligence is required to be sure that later beneficiary designations complement the overall estate plan.

Failing to Fund A Revocable Living Trust.  

A Revocable Living Trust only governs the disposition of the assets that are transferred to the Trust. This is typically accomplished by retitling assets, including bank accounts and real estate into the name of the trust.  For many, one of the primary goals of a revocable trust is probate avoidance, but this is only accomplished if all of the assets that otherwise would have been probate assets are instead held in the name of the trust at death.

 

If you have questions about how to structure your accounts and beneficiary designations to match your estate plan, please contact a member of the Stafford Rosenbaum Trust and Estates team.

Estate Planning for Your Digital Assets

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So your estate plan carefully addresses disposing of your home, car and bank account.  But what about your digital assets? 

There are two different types of digital assets.  One type is assets such as bank and investment accounts that you manage online which are really no different than accounts you manage with a paper trail.  The biggest difference is how these accounts are accessed.  The other type of digital assets are those that only exist digitally – iTunes, Shutterfly, Google.docs., etc.

There is real value in our digital assets.  Think of the amount of time and money you’ve spent building your iTunes or Kindle library.  A 2011 study by McAfee, Inc. revealed that U.S. consumers placed an average value on their online presence at $55,000.00.  And, of course, many people have gone paperless in managing financial accounts – bank accounts, investment and retirement accounts are frequently handled online.  There is non-monetary value associated with our digital assets too.  What about the volumes of information and photos on Facebook? 

Many people have both types of digital assets and should consider addressing both in an estate plan.  As is typical, laws lag behind reality.  There is very little activity in the Wisconsin legislature or the courts regarding disposition of the ever-growing area of digital assets.  Despite the legislative void, you can, nevertheless, take steps to provide for your digital assets at your death or incapacity. 

The first step is to make an inventory of your digital assets and determine what is important enough to address in estate planning.  This would, of course, include bank and investment accounts, but you may not care if your Pinterest account dies with you.  With this inventory, you should include usernames, passwords, PIN’s, security questions (and answers) – whatever a personal representative or other fiduciary might need to access the digital asset.  This inventory could simply be kept on a piece of paper with your estate planning documents.  There is also a growing availability of online services that purport to safely store all information regarding online accounts in one place.  So although you have wisely used a different password for every online account you have, your personal representative only needs the one username and password to access the online password storage service.

The second step is to review the online accounts to determine if the service itself has provisions or even requirements for dealing with the account at the holder’s death or incapacity.  For example, Google introduced a service in April called “Inactive Account Manager.”   This feature allows a user to designate up to ten people to be notified (after notice to the account holder) when a Google account remains inactive after a certain period of time, and what happens to data stored through Google.  Many websites also include provisions for inactive accounts in the Terms of Service (TOS) language.  You may have unwittingly agreed to such provisions by clicking “I Agree” when you signed up for the online service. 

One current Wisconsin statute allows a person to leave a “separate writing” for tangible assets.  This is typically used to leave a sentimental tangible item to a specific person, without committing to the bequest in a will.  For example, a person might leave a piece of heirloom jewelry or specific artwork to a particular child.  Separate writings may be easily changed from time to time, without the more tedious process of modifying a will or trust.

Although digital assets are not exactly tangible assets (you can’t pick up and move an iTunes library), a separate writing to document and dispose of digital assets may be a viable option.  And like the separate writing for tangible personal property, a separate writing should be kept with your will.  But note that such a separate writing is only as good as you UPDATE it.  Online services often require you to change your password – this also requires an update to a separate writing. 

At the very least, it is advisable to incorporate some type of mechanism in your estate plan for informing your personal representative (or executor), trustee and agent of your digital assets.  The bottom line is that estate planning requires a person to get their financial house and Internet house in order.