This is Rick Harmon and welcome to episode 19 of the Gordian Knot Show where we talk about inherited property, tangled trusts and estates in chaos.
In this episode, I want to introduce a new term for a phenomenon I have seen for some years, but there’s never been a name applied to it, so let me give you the fact pattern. Mom and dad buy a property back in the 1940s or 50s, long time ago. Dad dies, leaves the property to mom and then mom dies. Their children probate the estate. That’s simple, but in our scenarios, mom and dad buy the property, dad dies, mom passes away, and the children do nothing. And then over a period of time, perhaps decades, what happens is that another generation live in the property and some move away in some cases, but there’s maybe one of the individuals, one of the adult children continues living in the property using their residence. And now they die and they have children, adult children who have lived in the property, maybe they’ve even moved out.
But the scenarios creates a cascading problem that I’m going to call a cascading estate. What happens is each of the successive generations’ interests typically will have to be probated absence some other kind of a plan, depending on how they own the real estate. So in an unusual pattern that I’ve noticed over the last few months, I’m seeing more and more of these matters come to me. And of course I am not an attorney, so most of my clients are referred to me from attorneys. I’m a lender who works with these pieces and has to assemble them through title. However, what I’m noticing is that it’s a much more common incident that I’m seeing them.
And so in a matter, several months ago, an individual owned a property, left the property by way of a will to her caregiver. Well, that’s not real unusual. Sometimes it’s questioned, especially by other family members, but in this particular case, the family members were non-existent. And so the caregiver received the property by way of a will. The will was admitted to court. The caregiver was appointed as the executor of the will and then unfortunately the caregiver died, of course without a will.
Then the next scenario is the caregiver’s adult son takes over to become appointed administrator of the original estate and then that has estate property was going to flow through his mother’s estate and then on to him and to his adult sister as the two heirs, the two legal heirs. Unfortunately he dies too in a tragic accident and so yet a third party has to be appointed and that is the adult daughter.
So now we have several different estates. We have the original estate leaving the property to the caregiver and under a will and then we have that caregiver’s estate intestate, meaning without a will, now that has to be probated and distributed to actually get another estate. So that’s going to be divided up among an adult man who unfortunately, to further complicate the matter, has a minor child, and then the other one half will go to a living individual who is being appointed as the administrator.
So there’s multiple estates and these are being considered as flow through interests. But I use the term a cascading estate.
In another matter last week I had someone call me from the courthouse and his scenario was somewhat similar and that property was actually distributed by way of a court order back in 1963, over 50 years obviously, and one half it went to one individual and the other half went to the estate of yet another individual. However it’s unclear how the other one half estate was ultimately distributed. We cannot find deeds or other probating. So what we have is a one half ownership of the property that ultimately rests in a very ancient estate.
So how do you clear those up? Well, there’d probably be a quiet title action depending on whose interest was there. You can’t do an adverse possession if you are a fiduciary or a heir. So then the question is going to be how will they clear it up? Well time will tell.
In other cases we have seen flow through cascading estates being pretty straight forward; one individual dies, leaves the property to perhaps one other individual that’s pretty straight forward, and then that individual dies and yet leaves another single heir. Unusual that it’s that clean and simple, but we do see that and that’s fairly straight forward. But what needs to be done is the probating of the original estate interest is going to flow through into the second estate and then the second estate will flow through into the third individual who’s going to receive the assets in particular, usually it’s a single family house.
So that’s most common scenario where we’ll see these cascading estates, but it does have to be dealt with and title insurance is going to be the only way that anybody’s going to sell a property and consider it marketable at least from that standpoint, regardless of the condition of the property or to obtain a financing such as a fiduciary mortgage from closed probate.
One of the most common scenarios that we see is where families have assumed possession of the property without probating it. Very common.
In another matter that’s active in our files, we had somebody bring us a matter where there’s also a questionable fraudulent transfer or questionable in the sense of a party that had a questionable capacity many, many years ago, and then that flowed through multiple heirs and later was a distributed.
So then the question is going to come down to, is that in fact a marketable title? I guess time will tell on this too. But there’ll probably have to be a number of things that’ll be resolved if it ultimately turns into litigation absence counterparties agreeing to something.
That’s the lesson today. I hope you’re enjoying the podcasts and we’ll be continuing with interviews coming up shortly and be talking to legal industry of vendors, title people, genealogists, investigators, experts in the field, people who hang around the courthouse and pull data and a number of other interesting interviews that I think you’ll find useful in applying it to your practice.
Thanks for joining me.
This episode is brought to you by closeprobate.com, loans and solutions for cash poor California estates and trusts.
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