You’re Never “Done” with Your Legal Documents
So, congratulations…you have all of your estate documents done!
Just a reminder, this isn’t just your will. It also includes medical and legal powers of attorney, medical release forms, and any trusts you need.
It’s a lot of work. You’re probably to sit back. Never think about legal stuff again. Enjoy the moment.
Well, sorry…the moment’s passed. Your life keeps changing. And out-of-date legal documents can be as little help as not having them at all.
If you don’t believe me, here is a real example from my own case files (and yes, I’ve changed the names!).
I like to call it…
The Case of the Runaway Wife
My client Bob (not his name) owned a rental house he inherited from his grandmother. He was also married to a lady named Carol. Bob also had two grown children from a previous marriage.
When they got married, Bob added Carol as a co-owner of the rental house.
Everything was great for a while…then Carol decided she needed to “find herself” and moved to California with her yoga instructor.
Six months went by. Bob was pretty sure the marriage was over but never got around to filing for divorce. To be honest, being separated but not legally divorced didn’t cause him any problems.
Bob wanted to sell the house. Owning the rental house had become more of a burden than he liked, plus with the kids grown up (and Carol gone) he was ready to move on with his life.
Plus, it was a really hot real estate market.
And as luck would have it, he found a potential buyer who was all ready to close on the deal.
One problem, though. The buyer wanted to close in three days.
And the title company said that, as a property owner, Carol needed to be present at closing to sign for her half of the property.
What Can Bob Do Now?
Bob’s legal options are limited if he wants this sale to go through. Legally, Bob’s wife is entitled to half of the proceeds.
A “quickie” divorce really isn’t possible in three days…even in Texas where the divorce laws are fairly flexible.
- First, have his attorney draw up what’s called a partition and exchange agreement, which separates the rent house as only belonging to him.
- Next, have Carol give him power of attorney for the sale
Three problems with this approach:
- Bob is assuming Carol will give up her rights to half of the rent house sale (at the very least, they will need to have a separate deal to compensate her)
- The title company may still insist on issuing the check to both Bob and Carol, so Bob would have to enforce the partition and exchange agreement in the divorce (assuming they get divorced)
- Carol can basically blackmail Bob for her share of the rent-house sale (or more) because she can hold up the sale
So…What Should Bob Have Done?
Okay, hindsight is 20/20…but this case shows why it’s critical to update your estate documents and property every time you have a major life event.
Just to review, major life events are things like:
- Birth of a child (or grandchild)
- Marriage or remarriage
- Change of address
- Sale of property
When Bob and Carol got married, Bob could have had his attorney draw up a prenuptial agreement which specifically named the rent property as his instead of community property.
Or…they could have kept their property and finances completely separate. Basically, this is the “what’s mine is mine and what’s yours is yours” approach.
Bob could also have divorced Carol after she left him. At the divorce proceedings, his attorney could go back to his grandmother’s will and prove that Bob inherited the rental property.
Bob’s case will be even stronger if he kept the rental property separate from community assets (say, by forming a separate trust).
The Bottom Line?
Any time you have some kind of a change in your life, you should make sure your estate documents are still set up to protect you and your loved ones.
Even as long ago as when Bob inherited the rental property, his attorney might have advised him to set up a trust to keep that separate from the rest of his estate. He could still use the proceeds any way he wanted.
The same goes for a prenuptial agreement. Both Bob and Carol might have had assets that needed to be kept separate. Or at least they needed to have that discussion before they got married.
A quick call to your attorney can save you a lot of money and stress.
Concerned your estate documents aren’t up to date anymore. Let’s take a look and see what’s changed about your situation.
Remember: we can’t predict your future, but we can help you protect your legacy.