The Delaware Supreme Court has just reached a decision that highlights the importance of taking the time to review your estate planning documents each and every year to ensure that the documents still fit, and not inadvertently allowing your testamentary plans to be changed. The decision affirmed an August 2016 Court of Chancery opinion.
Edward J. Burke named Mildred, his wife of then 13 years, as his Power of Attorney on March 17, 1998 and on that same date, executed his Will. Under his Will, Edward left the Virginia property that he then owned to the Trustee of the Trust established under his Will. Edward directed the Trustee to allow his daughter to live on the Virginia property for three years and then directed the Trustee to sell the Virginia property. The income from that sale was to go to Mildred for life and after Mildred’s death the remaining sum was to be distributed to his four children. Edward left the residue of his estate to Mildred.
In 2012, Edward sold the Virginia property for $150,000 and deposited the net proceeds into a separate and new bank account that was in his name alone. According to his son, Kevin, Edward had repeatedly told his children that these funds were being held for them in accordance with the 1998 Will and testimony was offered to prove that Edward had repeatedly denied Mildred’s request to gain access to this account because he wanted the funds to go to his children. Edward became sick and had quadruple heart bypass surgery in January 2013. Around this time, Mildred added her name as a joint owner to the account using the Durable Power of Attorney, according to Kevin without her husband’s knowledge or consent.
Edward died on October 10, 2013, leaving to survive him, Mildred (after having been married for 28 years), and his four children from his first marriage including Kevin.
Since nothing was in Edward’s name alone upon Edward’s death, Mildred did not probate Edward’s estate and due to her retitling of Edward’s account (which held the proceeds from the sale of the Virginia property) the Virginia sale proceeds passed by operation of law to Mildred.
Kevin sued his step-mother alleging that Edward had purposefully segregated the proceeds from the sale of the Virginia property with the intent to preserve the funds for his children. Mildred alleged (and Master Ayvazian agreed) that Edward had changed his testamentary plan when he sold the Virginia property under the doctrine of ademption. Further, the Court held, that even if Edward had not known about or approved of Mildred’s adding herself to the account, and even if the Court held that Mildred had to return the money from the account to the estate, the money would have flowed under the Will into the residuary clause, thereby ending up in Mildred’s hands anyway as she was the sole remainder beneficiary.
Master Kim E. Ayvazian relied upon In the Matter of Estate of Hobson, 456 A.2d 800 (1982):
The Court in Hobson held that:
“[U]nder Delaware law, when a testator has sold real estate during her lifetime, such disposition works an ademption of the specific devise in her Will. Consequently, the rights of devisees do not attach by way of substitution to the proceeds of its sale or to other property subsequently acquired by the testator. Moreover, in Delaware the rule of ademption is not dependent on the apparent intention of the testator. In fact, the application of the rule may, in many instances, defeat the intention of the testator. ” (Emphasis added.)
What did Edward actually intend? Tough to say since Edward cannot testify. But clearly, if Edward’s intent is not important, then it really doesn’t matter. Even if Kevin could have proven that his father intended to or meant to leave this money to his children, this would not have been enough for the children to inherit the sales proceeds because:
- The Durable Personal Power of Attorney was sufficiently broad to enable Mildred to retitle the funds jointly thereby defeating Edward’s supposed intent.
- Edward had not changed his Will after the sale of the Virginia property and since Mildred was the residuary beneficiary, then the money from the sale would have flowed through to the residue to Mildred, not to the children.
Assuming that Edward wanted this money to go to his children, what could Edward have done to ensure that the proceeds from the sale of his Virginia property actually went to his children?
Edward had a smaller account with a daughter as joint owner but Mildred removed the daughter’s name from this account before Edward’s death so this account, too, went to Mildred.
How could Edward have ensured that the money went to his children?
Edward should have reviewed his Will after the sale of the Virginia property, and prepared a Codicil to leave the proceeds from the sale of the Virginia property to his children.
Edward should have also revised his Durable Power of Attorney to thwart Mildred’s right to add her name to this account. As shown by this case, Durable Powers of Attorney are powerful documents – under which it is possible to completely change someone’s testamentary scheme.
Take the time to review your estate planning documents each and every year to ensure that the documents still fit your family and do not inadvertently let your testamentary plans get changed by anyone other than you.