by Gretchen R. Szydlowski¹

For many people, their primary residence is also their primary financial asset. They treat their home as an investment and want to provide for its protection. However, the emotional factor cannot be overestimated. Estates clients often know exactly which beneficiary should receive their home upon their death and express vehement emotions in this regard. In fact, even those who have other substantial investments that may be of equal or greater value than the home will focus primarily on the disposition of their home in their estate plan.

Fortunately, several estate planning mechanisms exist that can help the estate planner tremendously in approaching this crucial issue. This article will review four such devices - the simple will, the beneficiary deed, common title or joint ownership, and the trust. While the following is not intended as an exhaustive treatise, it should help the estate planner - and other attorneys who may not be as familiar with these issues - to determine which method best suits an individual client.²

I. A Will

The most traditional and perhaps most commonly imagined means of passing one's primary residence to a devisee is through a will. Most attorneys have access to simple form wills that can prove to be quite convenient, practical, and useful in devising a more simplified estate plan. In short, the client simply chooses a beneficiary and the attorney arranges the bequest inside the standard language of the client's will. In fact, ease of use is this mechanism's strongest selling point.

Of course, a will has other advantages besides ease of execution and administration. In the average simple estate, a will may be the least costly estate planning device. Many simple wills take very little time to draft, and the client therefore pays relatively little in attorney's fees at this stage of the process. Furthermore, a simple will, especially one involving few beneficiaries, may take as little as six months to administer after the testator's death. If the will is clear and uncontested, and all claims have been resolved, the estate can be closed six months after its opening was published. Thus, the will and its correlative procedures can be relatively inexpensive and condensed in time, and this may suit a particular client's needs well.

A final benefit of using a will to dispose of a client's home upon his or her death is that the testator retains absolute control over the property during his or her life. A will does not involve a present transfer of property and the client is not subject to fiduciary requirements, as he or she would be in a trust situation (see below). The testator can do with the house what he or she wishes during life. Furthermore, the will can be changed or even revoked without replacing it with a subsequent will at any time during the testator's life. Therefore, the client does not have to feel locked in to the disposition forever. This is especially true if the client is prone to change his or her mind. As a will is so easily amended or redrafted, a will can save the estate planner a great deal of future headache.

Several limitations and drawbacks do exist in bequeathing a piece of residential real property by will. First and foremost in the minds of most clients is that a will requires submission to the probate court, with all of its consequent procedures and processes. Some clients fear that the probate process will drag out extensively. Often, individuals or couples want the child(ren) who resided in the home with them to receive the home upon their passing and do not appreciate the "interference" of the court in this transition. However, when emotions run high, as they regularly do when addressing the issue of a client's home, the protective oversight of the probate court may prove to be much more of a blessing than a curse. During the initial consultation in which the client discusses his or her estate planning needs, the estate planner must listen carefully to the client's concerns. But the attorney may be able to assuage the client's worries and, if appropriate, reassure the client that he or she can come to appreciate the guidance of the probate court. This is especially true, of course, when the matter of inheritance promises to be particularly contentious or heated.

Another hindrance of using a will to devise a primary residence is that clients cannot place many restrictions on the future use of the property once it has been assigned to the beneficiary by the court. Some clients will want to leave the house to one child only if that child satisfies some condition, such as getting married, or conversely, getting divorced. However, the probate court does not tolerate unreasonable restraints on marriage and alienability in wills.³ In essence, the client must bequeath the house to a certain beneficiary or group thereof, no strings attached. Thus, if a client wishes to retain more control over the disposition of his or her home, a simple will may not be the appropriate tool to use.

The final major disadvantage to using only a will to dispose of real property is the possibility of lapse⁴ or escheat.⁵ If the beneficiary designated to receive the home in the will predeceases the testator or is otherwise disqualified, title to the home may pass under the will's residuary clause. The residuary beneficiary may or may not be the person to whom the client truly wanted to leave his or her home. Furthermore, if the residuary beneficiary also predeceases the testator or if the attorney drafted the will improperly, the bequest may lapse entirely, and the testator's home would pass through the laws of intestacy. If there are no discernible heirs, title to the home would escheat to the state. These circumstances clearly do not reflect the client's wishes and are to be provided against at all costs. Such issues can be avoided largely with proper drafting and effective representation. Unfortunately, though, this is sometimes not the case, and lapse or escheat may occur despite everyone's careful planning, as when all devisees and potential heirs predecease the testator.

Without doubt, a will may be the appropriate estate planning mechanism for a given client. The above-listed advantages and disadvantages merit close review and consideration in light of a client's needs and circumstances.

II. A Beneficiary Deed

The beneficiary deed, a relatively new addition to the estate planning canon, provides for the automatic transfer of property upon the death of the owner or last surviving owner. For many years, estate planners and their clients have employed the pay- or transfer-on-death mechanism to transfer personal property to specific beneficiaries outside of the probate process. However, prior to 1989, no such tool existed to transfer real property in this way. The Missouri legislature remedied this predicament by enacting the Nonprobate Transfers Law.⁶

The beneficiary deed is itself a very simple document, both to draft and to implement. As mentioned above, clients often know exactly which heirs or beneficiaries to whom they wish to leave their primary residence. To achieve this goal with a beneficiary deed, the attorney simply must insert this person's name and address into one of the widely available forms. The document sets forth the name(s) of the grantor(s), the grantor's specific designation as grantor of the property, the name(s) and mailing address of the beneficiary or beneficiaries, and the legal description of the property to be transferred.⁷ The document also provides for the possibility that the beneficiary may predecease the grantor. If the beneficiary is a lineal descendant of the grantor, the property would go to the beneficiary's lineal descendants, unless the grantor specifically provides otherwise in the document.⁸ Conversely, if the beneficiary is not a lineal descendant of the grantor and the grantor wishes the conveyance to pass to the beneficiary's lineal descendants, the grantor must insert language to this effect into the document.⁹

Once a beneficiary deed is executed and recorded with the recorder of deeds in the county in which the property is situated, it is immediately effective. Of course, prior to the death of the grantor or last surviving grantor, the beneficiary has no present interest or "rights in the property."¹⁰ However, once properly recorded, the beneficiary deed operates to transfer title to the beneficiary immediately upon the death of the grantor or last surviving grantor (if the property is held jointly at the time the beneficiary deed is executed). No further action is required by any party.¹¹ Delivery of the deed to the beneficiary is not necessary, nor is submission to any court.¹²

A grantor can revoke a beneficiary deed at any time, either by filing an official revocation with the recorder of deeds or by executing a new beneficiary deed that includes language revoking all prior beneficiary deeds.¹³ Further, the existence of the deed presents no problem to the grantor if the property is sold prior to the beneficiary deed's taking effect. In such a case, the beneficiary deed does not preclude or inhibit the passage of title to the property to subsequent title-holders and simply becomes ineffective when the new owners take title.¹⁴

The advantages of the beneficiary deed as an estate planning tool are evident. First, the property avoids the probate process, which clients often cite as a primary goal. Also, as mentioned above, title to the property transfers immediately upon the death of the last surviving grantor. Thus, no party faces any additional procedural requirements. Finally, the beneficiary deed is rather flexible, in that it may attach to property held jointly, may be revoked by the grantor at any time, and does not hinder the passage of title to the property.

These positive factors make the beneficiary deed very attractive for married couples with few children or other heirs, because they can be confident that title to their home will transfer as they wish with a minimum of intra-family disputes. Because the property does not pass to beneficiaries under a will, transfers via beneficiary deeds are not subject to will challenges and the entanglement and delay of such heirship and title disputes.¹⁵ Unmarried couples and single people can enjoy the benefits of the beneficiary deed, as well, both because of its ease of use and insusceptibility to challenge and because a party's marital status is irrelevant to the passing of title.¹⁶

The beneficiary deed clearly is a substantial and invaluable estate planning device. This is especially true for people with small families and those wanting to avoid the probate process.

III. Joint Tenancy or Common Title

One estate planning mechanism that may be overlooked too easily is joint ownership. Many people are quite familiar with this status in the marital context but gloss over its usefulness as an estate planning tool. This is especially unfortunate when an individual or a married couple have very few assets besides a home, because holding title to real property as joint tenants can often help a family avoid the probate process altogether.

When two people hold title to real property as joint tenants with right of survivorship, each owns an indivisible one-half share of the property. When one joint tenant dies, title to the property automatically transfers to the surviving joint tenant. No further action or procedure is required to transfer full title to the survivor.¹⁷ In fact, even if the first joint tenant to die attempts to convey his or her share through a will, the bequest is wholly invalid. The survivor then holds full title to the property and can retain the property or dispose of it as he or she desires. Often, the surviving joint tenant will record a beneficiary deed naming a child or other relative as beneficiary, thereby removing the house from the probate process when the survivor, in turn, passes away.

When married couples own real property jointly, the presumption in Missouri is that they own such property in a form of common title known as tenancy by the entireties.¹⁸ That is, both parties own the entire estate and are treated as one individual.¹⁹ This form of joint ownership is especially valuable as an estate planning tool, because a tenancy by the entireties is severable only upon divorce.²⁰ Neither spouse may convey title or a portion thereof to any third party during the marriage, nor may either party seek partition of the property.²¹ Any attempt to do so will be void. Therefore, while a couple is married, holding title to the marital home as tenants by the entireties ensures that the surviving spouse will take title to the home automatically upon the death of the first spouse.²² However, even the happiest of married couples should employ one of the other planning mechanisms to safeguard their home in the case of a common disaster or simultaneous death. But most people wish that their surviving spouse "inherit" the marital home, and holding title by tenancy by the entireties during marriage facilitates this goal.

Of course, an estate planner must counsel all clients regarding the unfortunate possibility that the couple will divorce in the future, thereby severing the tenancy by the entireties. Couples clients should understand that their estate plan would need to be revamped in such circumstances. Another mechanism would be required to allow each of them, as individual single people, to convey their respective homes as they would like.

Joint title also can be used somewhat effectively for unmarried people. Any two people (or more, for that matter) can hold title to real property as joint tenants with right of survivorship.²³ To be useful as an estate planning tool, such title must be specifically delineated as such and must emphasize that the joint tenancy is to be held with the right of survivorship. This is because the presumption in Missouri is that individuals who own property jointly do so as tenants in common, which does not provide for survivorship rights.²⁴ Therefore, if each joint tenant wishes that the other should receive title to the property automatically upon the death of the first joint tenant to die, the title holders should specify that they own the home as joint tenants with right of survivorship.

Unfortunately, title held by unmarried individuals as joint tenants with right of survivorship can prove to be somewhat less secure than a tenancy by the entireties. Property held as joint tenants with right of survivorship can be conveyed to any third party at any time without notice to the other joint tenant(s), thereby creating a tenancy in common. Therefore, if two people not legally married to each other own the home in which they both reside as joint tenants with right of survivorship, one person may convey his or her share to a third party at any time without notifying the other joint tenant.²⁵ This clearly would thwart the professed wishes of the non-conveying joint tenant and preclude him or her from conveying his or her home as desired upon death.

The advantages of holding title to one's principal residence jointly are clear. Joint ownership allows the surviving joint tenant to receive title to the property automatically upon the death of the first to die. Probate is averted, and the survivor need not petition the court or any other authority to complete the conveyance. While unmarried people who wish to own their home together find themselves less protected than married couples, a joint tenancy with right of survivorship may be used as an effective estate planning device in both cases. And for married couples, holding title as tenants by the entireties (coupled with a fallback system in case of a rather unlikely common disaster) can prove to be a superior estate planning tool.

IV. Trusts²⁶

The final and perhaps most complex mechanism for providing for a client's primary residence in his or her estate plan is the trust. While trusts can be inter vivos (executed during the life of the grantor) or testamentary (created in and by the grantor's last will and testament), to avoid the probate process altogether one should employ an inter vivos trust.

To be valid, a trust must encompass a current transfer of title.²⁷ This means that to bring a home under the purview of a trust, the grantor must transfer title of the home to the trust and name a beneficiary or group thereof who will receive the trust property as set forth in the trust document. If the grantor chooses to serve as initial trustee, the grantor must declare that he or she holds title to the home as trustee for the trust.²⁸ Further, if the grantor is not the trustee and instead chooses to name a third-party trustee, the grantor must transfer title to the home to the trustee. This is understandably a rather shocking and unnerving proposition for many homeowners. However, the grantor can retain a substantial amount of control over the property by naming himself or herself as trustee. In so doing, the grantor promises to manage the trust asset - the home - in a fiduciary capacity by preserving its value for the beneficiary. However, the grantor still may reside in the home and use it much as he or she would have before the trust ever existed.

Upon the death of the grantor/trustee, a co-trustee or successor trustee assumes ownership of the home as trust property. The successor then distributes the trust property or its proceeds to the trust beneficiary, as the grantor has provided in the trust document. Further, the terms of the trust may allow the grantor some control over the conditions of the future disposition of the home. That is, provided the grantor does not attempt to create or serve an illegal trust purpose,²⁹ the grantor can provide for the disposition of the home to a beneficiary under certain conditions or for a certain use. This ability to retain some control even after the grantor's death may prove to be a significant selling point for some clients.

Clearly, then, the grantor and his or her attorney must take great care to execute the trust documents properly to reflect the grantor's wishes as to the disposition of his or her home. The language used in the trust document must be precise and accurate to provide the trustee with specific defined guidelines as to the treatment the grantor's home is to receive. For instance, trust documents often provide that a trustee may sell any real estate held by the trust. If the grantor specifically does not want the home to be sold and instead wants to convey the house itself to the beneficiary, the trust document should so state explicitly. In short, the grantor's intent must be absolutely clear and the language of the trust must accurately reflect the grantor's wishes as to the distribution of his or her home. Absolute vigilance in this regard is required of the attorney drafting trust documents, as emotional and even financial stakes may be quite high in handling title to a client's home.

A trust disposing of a client's home is particularly attractive to certain groups or categories of individuals. First, as explored above, grantors wishing to exercise a certain amount of control over the property even after death may prefer a trust, the terms of which are somewhat malleable. Secondly, individuals or couples with considerable net worth often favor trusts, largely because of the significant tax benefits of conveying property without creating a taxable estate.³⁰ Finally, people who prefer to have their homes sold and the proceeds distributed to selected beneficiaries (or those who are indifferent to this possibility) may use a trust for any of the above-examined reasons.

Clearly, the trust is a very useful and manageable estate planning instrument in many circumstances. Especially in the case of a very wealthy client, the drafting, implementation, and management of a trust may become a highly complex process. This section only has provided an overview and some basic guidelines for use of a trust in estate planning. What is surely evident, though, is how valuable this mechanism can be given suitable conditions.

V. Conclusion

Each individual client presents with a unique set of needs and circumstances. Only in earnest consultation with the client can an estate planner ferret out the pertinent facts, preferences, and predilections as they pertain to the estate plan. While every client is different, with the right tools the estate planner can craft an appropriate program using the mechanisms herein explored and combinations thereof. Even practitioners who are less than fluent in the legalese dialect of estates can navigate these channels successfully with the above techniques.

Of course, each device has advantages and disadvantages. But each can be maneuvered, utilized, and applied effectively in appropriate situations for the benefit of the client. A certain amount of creativity is provided for within these tools, as well, and practitioners may prefer to employ combinations of two or more of these strategies, as conditions require. In sum, the above four estate planning systems, often used in tandem, provide the estate planner with a sturdy and substantial foundation upon which to construct a complete layout for each client according to his or her needs.

Footnotes

¹ Gretchen R. Szydlowski graduated from Saint Louis University School of Law in 2003. She is an associate with the Law Offices of Mary Ann Weems and focuses her practice primarily on family law and estate planning. She is a member of The Missouri Bar's Probate & Trust Law Committee, Animal Law Committee, Solo & Small Firm Committee, Solo & Small Firm Legislative Subcommittee, and Gender & Justice Committee.

² The tax consequences of each method constitute perhaps the most important satellite issue in estate planning. Tax considerations are not addressed here in any detail, as tax experts are better positioned to explain these elements. Furthermore, in estate matters, generally speaking, the average client need not worry terribly about a tax obligation, unless the client has a net worth of $1.5 million. These very wealthy clients do not constitute the primary focus group of this particular article.

³ While no definitive body of authority on this issue exists in Missouri, several cases have asserted the courts' apparent policy that unreasonable restraints on alienation will not be tolerated. See Koehler v. Rowland, 205 S.W. 217, 220 (Mo. 1918); Swain v. Maxwell, 196 S.W.2d 780, 786 (Mo. 1946); see also Kessner v. Phillips, 88 S.W. 66, 68-69 (Mo. 1905) (restriction on power to sell or subject property to indebtedness for 30 years held void); Millard v. Beaumont, 185 S.W. 547, 549-550 (Mo. App. S.D. 1916) (restriction on alienation of life estate held void); Triplett v. Triplett, 60 S.W.2d 13, 16 (Mo. 1933) (restriction against grantee selling until heirs attained age of 21 held void); Shepherd v. Spurgeon, 291 S.W.2d 162, 162-164 (Mo. 1956) (restriction against business activity on more than 300 hundred acres of land for 100 hundred years held void). Similarly, while reasonable restraints on marriage have been upheld, unreasonable restraints have been struck down repeatedly as void. The modern rule is that the purpose of the will provision governs its reasonableness and, thus, its validity. Winget v. Gay, 28 S.W.2d 999, 999-1000 (Mo. 1930). The intent to provide for an unmarried daughter or other relative, for example, has been upheld as a reasonable restriction. See Lewis v. Searles, 452 S.W.2d 153, 156 (Mo. 1970) (court upheld will provision devising entire estate to testator's unmarried niece so long as she remained unmarried, but in the event niece should marry, estate was to be divided among that niece, another niece, and a nephew); see also Winget, 28 S.W.2d at 999-1000; Williams v. Hund, 258 S.W. 703, 709-710 (Mo. banc 1924) (testamentary trust providing for son should he divorce his current wife and marry a woman "of good repute" held valid because decision within discretion of trustee); Wise v. Crandall, 215 S.W. 245, 246-249 (Mo. 1919).

⁴ "Lapse" is "[t]he failure of a testamentary gift, esp[ecially] when the beneficiary dies before the testator." See Black's Law Dictionary 885 (7th ed. 1999).

⁵ "Escheat" is "[t]he reversion of property . . . to the state upon the [testator's] death" if a will provision fails and testator has no remaining heirs. See id. at 564.

⁶ Section 461.003-.081, RSMo 2000. Section 461.025, RSMo 2000, speaks directly and specifically to the beneficiary deed.

⁷ In the City of St. Louis, the grantor's mailing address must appear in the document, as well. St. Louis, Mo. Rev. City Code, § 15.152.030 (1994).

⁸ If the grantor does not wish for the property to go to the beneficiary's lineal descendants, the grantor must insert the phrase "no LDPS" in the document. See § 461.045.1, RSMo 2000.

⁹ Section 461.045.2, RSMo 2000. Specifically, the grantor must insert the phrase "and LDPS." Id.

¹⁰ Section 461.031.1, RSMo 2000.

¹¹ The recorder of deeds may request certain further documentation, such as the filing of a death certificate or affidavit of death. However, legal title is complete with the recordation of the beneficiary deed.

¹² See § 461.025.1, RSMo 2000. Recording creates presumption of delivery. Wilkie v. Elmore, 395 S.W.2d 168, 172 (Mo. 1965).

¹³ Section 461.033.1, 2, RSMo 2000.

¹⁴ Section 461.033.5, RSMo 2000.

¹⁵ "A beneficiary designation or a revocation of a beneficiary designation that is procured by fraud, duress or undue influence is void." Section 461.054.1, RSMo 2000. Furthermore, a beneficiary who "willfully and unlawfully causes" the grantor's death will be barred from taking possession of the property. Section 461.054.2, RSMo 2000.

¹⁶ This may prove to be a great advantage of the beneficiary deed over joint tenancy, as described herein below.

¹⁷ Local procedures may dictate that the surviving tenant record a death certificate or affidavit of death with the recorder of deeds' office. The purpose of these procedures is simply to clear title unequivocally so that the survivor may sell or otherwise convey or encumber the property.

¹⁸ White v. Roberts, 637 S.W.2d 332, 334 (Mo. App. E.D. 1982); Woodworth v. Mauk, 614 S.W.2d 308, 310 (Mo. App. W.D. 1981).

¹⁹ State ex. Rel. State Hwy. Comm'n v. Morganstein, 649 S.W.2d 485, 488 (Mo. App. W.D. 1983).

²⁰ White, 637 S.W.2d at 334; Woodworth, 614 S.W.2d at 310.

²¹ Robinson v. Pattee, 222 S.W.2d 786, 787 (Mo. 1949); Clements v. Kolie, 882 S.W.2d 299, 300 (Mo. App. S.D. 1994); Kennedy v. Miles, 773 S.W.2d 519, 520 (Mo. App. W.D. 1989).

²² See In re Estate of Perry, 480 S.W.2d 893 (Mo. 1972); Zahner v. Voelker, 11 S.W.2d 63 (Mo. App. E.D. 1928).

²³ Parties must satisfy certain elements of joint tenancy. "The essential elements of a joint tenancy are: (1) the cotenants must have one and the same interest (unity of interest); (2) the interests must accrue by one and the same conveyance (unity of title); (3) the interests must commence at one and the same time (unity of time); and (4) the property must be held by one and the same undivided possession (unity of possession)." Jenkins v. Meyer, 380 S.W.2d 315, 320 (Mo. 1964).

²⁴ Section 442.450, RSMo 2000.

²⁵ Gassner v. Cromer, 704 S.W.2d 695, 697 (Mo. App. E.D. 1986); Selby v. Scott, 859 S.W.2d 898, 902 (Mo. App. S.D. 1993).

²⁶ Missouri's trust code recently has been totally revamped. Thus, case law citing to a prior enactment may be considered suspect. However, basic trust principles remain constant and it is the fundamentals that receive primary treatment here.

²⁷ Hollis v. Estate of Hollis, 845 S.W.2d 156, 158 (Mo. App. E.D. 1993); Estate of Harvey v. Luther College, 802 S.W.2d 585, 588 (Mo. App. W.D. 1991).

²⁸ See Restatement (Second) of Trusts § 17(a) (1959).

²⁹ See Restatement (Third) of Trusts § 227 (2003).

³⁰ The tax benefits of trusts are wide-ranging and, again, better suited for examination in a different context.