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George F. Bearup, J.D. Senior Legal Trust Advisor

Testator’s Oral Statements Not Binding- Elements of a Gift

Take-Away: A recent Michigan Court of Appeals decision effectively ‘punished’ a son who claimed that he was following his deceased father’s directions. The son made a gift when he testified that he was carrying out his father’s testamentary direction. From the fact, however, I am not sure we should feel sorry for the son.

Case:  In re Estate of Frederick L. Dechow, Michigan Court of Appeals, No. 346203 (October 22, 2019)

Facts: In 1993, Fred and his wife signed a Will and trust. Under the trust, all of their assets were to be divided equally upon the surviving spouse’s death among their 5 children. Fred died in 2016, after his wife. Prior to his death, Fred signed a 2015 codicil that purported to devise a parcel of real estate to two of his children: Ed and Ann. In 2016 Fred signed a new Will, which changed the distribution of his estate to his 5 surviving children, increasing the amount Ann was to receive and decreasing the amount of the 4 other children, while cancelling Fred’s 2015 codicil. Ann was named personal representative in Fred’s Will.

  • Will: Key to the litigation was the provision in Fred’s Will which directed: “Note: any other assets held jointly between myself and my children (e.g. coins, investments, vehicles, checking and savings accounts) are not part of the TRUST and bequeathed to the joint holder.”
  • Division of Coins: A month after Fred’s death a family meeting was held among his five children. Based upon what his father apparently had said to him, Ed distributed coins in his possession, that he and Fred had collected, to his siblings. Ed did so claiming that the coin distribution carried out Fred’s wishes.
  • Probate Dispute: A dispute later developed when Ann submitted the 2016 Will (under which she received more) to probate, which Ed contested. That dispute was later settled out of court. Because of the settlement, an independent Personal Representative was appointed by the probate judge and the interested parties were directed to return their portions of Fred’s estate assets to the Personal Representative, which the children did, including the coins. The Personal Representative was directed to complete discovery with regard to the validity of Fred’s 2016 Will.
  • Petition: One daughter, Mary, gave the Personal Representative a check for $4,000 because she had already distributed some her share of Fred’s estate assets to her children; the Personal Representative did not cash that check. Ann returned her portion of the coins to the Personal Representative. The Personal Representative later filed a petition to distribute all of the coins to Ed on the basis that Ed and Fred were the two joint ‘holders’ of the coins at the time of Ed’s death. That petition was objected to by Mary.

Probate Court: The probate judge found that Ed’s prior action of distributing the coins to his siblings, and his statement that he was carrying out Fred’s wishes, refuted

Ed’s contention that he was a joint holder of the coins with Fred. Consequently, the probate judge denied the Personal Representative’s petition to distribute all of the coins to Ed, finding Ed was not a joint owner of the coins. Ed appealed the probate judge’s ruling.

Appellate Court:  The Court found that the probate judge was in error, but nonetheless permitted Ed’s siblings to keep the coins that he had distributed to them after their father’s death.

  • Fred’s Intent Controls: The Court found that Ed was a joint owner of the coins with Fred. The terms of Fred’s 2016 Will demonstrated that Fred understood himself to be a joint owner of the coins, and that none of the other children had possession of the coins other than Ed. Accordingly, the probate judge had erred in relying on Ed’s conduct in distributing the coins to his siblings. “ Irrespective of what the distribution may imply about Edward’s understanding, Edward’s conduct after the decedent’s death cannot have any relevance to the decedent’s understanding and intent when the 2016 will was drafted… At the time of the May 2016 will was drafted, the decedent unambiguously expected and intended that least one of his children to be a joint holder of the coins.
  • Ed Made a Gift of ‘His’ Coins: While the probate judge was wrong in his analysis, the Court found that the probate judge apparently ‘got it right’ when he found that Ed was not entitled to receive the coins from the Personal Representative. That was because the Court found Ed to have made a gratuitous gift of the coins to his siblings. To reach this conclusion the Court found that Ed was not legally obligated to comply with Fred’s verbal wishes with regard to the coins. “Testamentary intent must be expressed in a will…Testamentary intent must now be in writing, citing MCL 700.2502 and MCL 700.2503, which require, contrary to former  Michigan laws, that verbal/oral Wills are not valid and enforceable.
  • Precatory Intent: Ed’s reference to Fred’s ‘wishes’ as opposed to an ‘instruction or directive,’ was merely precatory (non-binding) language that would also be insufficient to make a binding bequest. In short, Fred’s verbal expression of his wishes to Ed were not legally binding on Ed.
  • Ed’s Gifts to His Siblings: Ed’s transfer of the coins to his siblings satisfied the three legal elements to make a gift in Michigan: (i) the donor [Ed] possessed the intent to make the transfer of title to the coins gratuitously; (ii) there was actual or constructive delivery of the subject of the gift [coins]; and (iii) the donee [siblings] accepted the gift of the coins. The only question that the Court had to decide was whether Ed’s intent was gratuitous when he transferred possession of ‘his’ coins to his siblings. The Court found that Ed was not under any actual obligation to make the distribution of the coins, nor did Ed provide any evidence that he subjectively believed himself to be obligated to make the distribution of the coins.

“The evidence shows only that Ed distributed the coins because he believed that doing so was proper. Furthermore,….making the distribution of his own accord without going through the probate process is only consistent with a belief that he [Ed] was the sole owner of the coins and could dispose of them at his discretion…because he gave the coins as gifts.”

Conclusion: This is a strange decision in that it made its way (no doubt at considerable expense) to the Michigan Court of Appeals. Perhaps both courts got to the right answer.  However, there was no disclosure in the opinion with regard to what exactly Fred apparently said to Ed that prompted Ed to gift the coins that he owned jointly with his father to his siblings, particularly in light of the provision of Fred’s last Will that expressly excluded jointly owned assets from the distribution of his estate. Ed testified that he felt compelled to distribute the coins to his siblings, but the Court pretty much dismissed Ed’s moral obligation that he was ‘directed’ by his father to distribute the coins, without any analysis. In sum, Ed owned the coins as a joint owner with his father, he felt morally obligated to share the coins with his siblings, his sister files a ‘last minute’ Will where she receives more than she would have under earlier Wills and Codicils, and Ed decides he will keep the coins that were his immediately upon his father’s death. The ‘take-away’ from this litigation is that when clients say that they have left verbal directions as to how assets should be distributed upon their deaths, including those that are jointly owned with a child, they need to be reminded of the Court’s conclusion that oral expressions which are contrary to, or supplementing a Will, are not legally binding.

George Bearup
Senior Trust Advisor