Contrary to the movies, most people do not make their wills on their deathbed. Indeed, most wills and trusts are created many years before death, often a decade or more. And during that period of time, what is actually owned by the deceased can radically alter. Indeed, one reason it is wise to consult with your attorney or CPA every few years is to update your list of assets in the estate plan so that what you own still conforms to your estate plan.

Most people do not do that. Most people finish their estate plan and put it aside, not to be reviewed again without some remarkable event occurring that forces them to pull out the myriad pages for review. And if that event, be it death of a loved one or moving to another state, does not occur, they die with an estate plan listing assets they may no longer own. 

This article discusses what happens in such a case and, most particularly, when the decedent gives an asset to one person in the will or trust which he or she has already transferred or given away to a different person.

Basic Law:

With the exceptions noted below, the essential law to remember is this: you cannot bequeath to someone something you do not own. This obvious truth means that if you give something away in your will or trust that you have already transferred, the will or trust will have no effect on ownership at all. The gift in the will or trust is null and void. The gift you made while alive will be the valid one. 

But note that the usual dispute is whether a completed gift was made at all. Often, the heir in the will or trust will claim that no gift was made, the asset was either only loaned to the person holding it or was made conditional on certain events occurring which have not occurred. For example, an automobile was not gifted to X but only loaned so he or she could commute to work and only if they kept that job. Even if the pink slip was given to X, the heir in the will argues that it was to be transferred back upon death or if the job was lost.

Proving a completed gift is often difficult. Various people will have differing memories as to what gifts were made and if they were irrevocable. If title documents exist, such as the pink slip, it supports the argument that the gift was complete but still leaves open the argument that there were conditions on retaining the gift. If gift tax was paid that also supports the concept of a completed gift, as does paying the property taxes or registration fees. But one can still make the argument and waste time and money fighting over any sizable gift in court. Even a small fight will cost tens of thousands in fees and expenses and given that the economic value of the gift is often less than the emotional value of a gift, we have seen fights which cost a family a hundred times more than the value of the gift.

The lesson is simple: if you make a gift, communicate that fact to anyone who might be interested and confirm it in a writing that can be used to cut such a fight short.

Equally confounding is when a decedent made a gift to more than one person. During the weeks or months before death, the decedent is often on powerful drugs and in a confused state of mind. Memories can be confused and a desire to please relatives by making gifts can be overwhelming. One client gave the same diamond broach to two nieces and a daughter, none of them aware that the gift was made, one being given the broach, the other two told to expect it upon her death. Luckily for her family, when each discovered that not one, but two others had been gifted the broach, they laughed together about it and drew straws to determine who owned it.

But another family we knew was torn apart when an ugly antique ink stand was given to two different people. For over a decade they did not even speak to each other, and thousands were wasted on attorney fees arguing over an object worth less than fifty dollars.

The key is for the person gifting to make clear in writing who is getting what. If the person is not able to create the writing, the recipient would be wise to create a written record of the gifting to use if needed later on. Writing to the other heirs as to what gift was made would be wise but many recipients are nervous that such notice will cause problems and dispute. But if there is a dispute now, it will only get worse if the discovery is made after death. A writing, ideally signed by the decedent, specifying the gift is the most powerful evidence one can have.

And if you are the person making the gift you owe it to your heirs to be clear and precise as to the gift. It need not be a long rendition or seek to justify the gift. Simply state, “I, X, am gifting to Y the following asset during my life: (name of asset.) I am doing this out of love.” And sign it. 

And understand that during your final months and weeks it is quite possible that your mind, once capable of handling your affairs, will be less and less capable of doing so. As one elderly client advised the writer in an e mail: “I do not think as I used to. I know that. At times I do, but not always. And to be honest, I am not sure I am motivated as I used to be. When you are facing eternity, the family disputes seem petty.” If you truly love those in your family (why else make the gift?) then make the effort to avoid the turmoil that uncertain gifting can create.

The ideal solution is to update your will or trust to remove the asset entirely and/or noting that the asset was already gifted to a particular heir. That document would cut later disputes off in all but very unusual circumstances. It takes time and money to do this; but it is by far the best way.

Exceptions: When the Gift Can No Longer Be Made: 

Irrevocable and Completed Gifts:

When a gift is completed, such as transferring an asset into an irrevocable trust, then the trustor no longer owns that gift and cannot give it to anyone else. Indeed, if the trustor seeks to reclaim the gift already made to the irrevocable trust, then even if the recipient so agreed, a gift tax would be due since it is a transfer of an asset back to the trustor. Two gift taxes would have to be paid! 

Our office has seen litigation in which the transferor to an irrevocable trust did not bother to alter the deeds of the property transferred and, instead, some years later, sold the property to a buyer and kept the money for himself. The transferor had his reasons. He felt the daughter did not appreciate the gift and had not done various acts he felt were required to receive the property, but the simple fact is that he had no right to reclaim the asset without her consent after the transfer to the trust was made. He did it anyway and litigation ensued.

A completed gift is irrevocable without the consent of the party that received the gift. It can be made outright or to a trust and if that trust cannot be altered by the trustor (“irrevocable”) the giftor no longer has any right to claim ownership in the asset or transfer the asset. Note that if the gift was made to a revocable trust, the trustor could always revoke the trust and reclaim the asset.

Promissory Estoppel

Another example as to when a gift no longer can be made is when it is subject to the doctrine of promissory estoppel. In brief, that doctrine states that if a party reasonably relies on a promise to perform to that party’s detriment, then the party making the promise can be compelled to keep that promise. 

As an example, assume you promise me the right to live in your home rent free for two years if I move myself and my family to your state and work for you during that time and you will then allow me to purchase the home at a twenty percent discount. All I need to do is move to your locale where you want to hire me for my expertise. I move to your distant state, my family joins me, arranges to alter schools, etc. When I arrive, I discover you have now sold the home due to a need for cash flow. Even though I did not offer you any consideration for the home, the fact that I moved my entire family to your locale expecting free rent and the right to buy the home could make that into an enforceable agreement since you are “estopped” from claiming that it was a voluntary gift on your part.

In the context of estate gifts, assume I advise you after I receive the doctor’s advice that I have three months to live that I am leaving my home in Hawaii to you in my will and you then alter your own employment and plans so that you can move to that state, learning at some expense the tourist industry, taking courses, obtaining business licenses, etc. so that you can build a new life in Hawaii. Upon my death you discover to your horror that I have, instead, transferred the home to my new wife who told me she wanted to live in Hawaii. You would then have a claim against the estate assuming you could prove the promise was made and that your reliance on my words was reasonable. 

The estoppel theory to void a gift, or force one, is a very real danger when the decedent, during his or her last days, expresses hope for how a gift will alter an heir’s life. One client simply commented, “Now you will be able to go to college,” during the last visit with her niece, but the estate had already been depleted to the point where such funding was impossible. That error on the decedent’s part led to years of acrimony in the family as the niece argued that this clearly was an effort to make a gift before death, thus lowering what was going to the heirs other than herself.

Avoiding the Turmoil: 

One client we discussed this issue with laughed and said in an e mail, “I’m dead when the thing explodes. What do I care? Let them fight it out. It’s mine to do with as I like.”

While all that is true, another client, when told the above story, shook her head, and commented, “It’s not a game. It’s not for fun. These are transfers that can change lives and if I love my family, I should make sure they happen without anger and hatred and blaming.”

And recognize that the sooner you create a clear written record of your gifts, the better. The days and weeks before death are not the time you want to spend allocating gifts and explaining what you want. It is not pleasant to contemplate death and to give things away you love in anticipation. But making a clear and appropriate record may be your greatest act of love for your family.