Cary A. Lind, P.C. - Arlington Heights Probate Attorney

THE SAGA OF THE UNDERTAKER'S FAMILY - PART 4

Cary A. Lind, P.C. - Arlington Heights Probate Attorney

THE SAGA OF THE UNDERTAKER'S FAMILY - PART 4

Hall vs. Eaton - Part 2.

Hall vs. Eaton is like the force in Star Wars. When it is used for good, it can be powerful, but it has a dark, evil side. The first part of the opinion dealing with the accounting was correct and in line with other Illinois cases. After that, however, the court went astray.

The conveyance of the property in issue from the parents to the children took place in 1972. From 1972, when Linn, Jr., first began managing the cattle herd, all income from those activities was included in the family farm records, and no separate records were kept. Beginning in 1983, when Linn, Sr., died, the money was put into two joint accounts in the names of Linn, Jr., and Mildred, with Mildred's Social Security number on the accounts. All income was reported on Mildred's income tax returns. There were no records of the deposits. In 1988, after Mildred had a stroke, Linn, Jr., moved in with her to assist her, took over the accounts, and began to split the income from both farms between himself and Mildred.

In her suit, Cynthia sought an accounting from Linn, Jr., beginning in 1983. The trial court began the accounting in 1988. In order to determine when the accounting should begin, the appellate court reviewed three different theories to analyze the transactions beginning in 1972. It found first that the parents' deed to their children was a not a completed gift, since both parents continued to reside on and work on the farm until their respective deaths. Linn, Jr., testified that he considered all income to belong to his parents until 1988 and received no income from his parents. The court found that the parents never relinquished "all present and future dominion and power over the subject matter of the gift." As plaintiff, the court said that Cynthia had the burden of proof to show that there was a completed gift by clear and convincing evidence. She did not do so. Therefore, the gift was not completed until Mildred's death in 1991.

The court next analyzed the facts based upon Cynthia's claim of a resulting trust and determined that the parents could be beneficiaries of a resulting trust until 1988, so that the trial court's choice of that beginning date was correct. The court finally analyzed the case in light of 765 ILCS 1005/4a (accounting among co-tenants - see prior articles). The court held that that section did not apply until it was shown that one co-owner actually received proceeds or benefits in greater proportion that his ownership interest in the property. The appellate court found that that first took place in 1988, so that the accounting period chosen by the trial court was correct on that basis as well.

The court's analysis of §1005/4a was proper and would have been sufficient by itself to decide the beginning of the accounting aspect of the case. Both of the other analyses took the court to the dark side.

The law on resulting trusts says that the theory should apply only to the initial purchase of property when one person furnishes the consideration to purchase the property but title is then taken in the name of another. In Hall, the parents owned the property prior to 1972, so the conveyance in 1972 did not fit the requirements for a resulting trust. Also, there was no basis given to decide that the resulting trust continued until 1988. The argument should have been readily rejected by the Court.

In ruling that the deed of record might not be a completed gift, the court potentially did much worse, launching a death star against the foundations of Illinois real property law. The ruling meant that a deed of record in proper form and duly recorded might not actually convey the described real estate because it was an uncompleted gift. The Hall court did not say if the deed was a warranty deed or a quit-claim deed, so the ruling could apply to all deeds. That could potentially make every deed suspect because of issues not of record in the Recorder's office and could result in any deed being nullified as an uncompleted gift.

It does not take much thought to follow that ruling to just some of its potential devastation:

  • It would effectively destroy the certainty of record ownership of real estate. Clearing title if possible at all would be much more difficult. Title insurance rates would skyrocket.

  • Section 1 of the Lifetime Transfer of Property Act (755 ILCS 25/1) provides that a transfer of an interest in real estate is not invalid or illusory in the absence of intent to defraud. That statute would be rendered irrelevant.

  • Thousands of gifts every year between spouses would almost certainly not be completed gifts. One of the most common techniques of estate tax planning today is the division of a couple's assets into two separate "pots" in order to "double up" on the Federal Estate Tax exemption. Most living trust plans, with or without tax planning, involve deeding the marital home to one or both spouses' living trusts. If those conveyances are not completed gifts, then the I.R.S. can challenge all of those estate plans because the grantor remains living in, in dominion over, or otherwise in control over the marital home.

  • Invalidation of gifts of real estate to a non-spouse could result in adverse estate and gift tax results.

  • Apart from tax issues, living trusts would be severely affected. Probate estates might have to be opened to void the invalid transfers, which would wreak havoc on many plans and increase the costs of all of those plans. While the assets should ultimately still wind up in the trusts, the goal of avoiding Probate will be defeated.

  • The adverse outcomes could then include the partial invalidation of thousands of estate plans under Illinois law alone, millions (or more) of additional dollars due in taxes, interest, and penalties, a flood of unintended Probate administrations, and a multitude of ensuing malpractice cases against Illinois lawyers and others because of failure to complete intended gifts. Those results are inconceivable.

The court in Hall did not address any of these issues. That suggests that the issues were never presented to the Hall court, that Hall was based on specific unidentified factors in that case rather than being a broader statement of existing law, or that the case was decided wrong. Besides Hall, there is only one other Illinois case that used a similar analysis, and that case is distinguishable. On the opposite side, there are a number of cases with much stronger facts showing similar "incomplete gifts" in which the court upheld the validity of transfers without any suggestion that the gifts might not be complete or that the result would be different. Taking everything into account, these aspects of Hall are not proper statements of Illinois law.

While the Fourth District was lured to the dark side, other courts declined to follow that path, and Hall stood essentially alone in its analysis. That did not, however, deter Helen's attorney.

Helen's Motion to Dismiss.

When Helen's attorney read Hall, the parallels to our case were obvious. Helen and Jozef went from being two co-owners of the chapel property to Jozef's being a co-owner with only Marlene. Both Helen and Jozef continued to live in the second floor and to operate the funeral chapel in the first floor. Just like in Hall, Helen's attorney contended that the transfer to Marlene was an uncompleted gift by both her and Jozef. Helen filed a motion to dismiss based on Hall.

In response, Marlene raised the points set forth above, some additional arguments, and many questions:

  • In Hall, there was one deed from the parents to the children. In this case, there were two deeds. The first deed was from Helen to Jozef. Was that an uncompleted gift? If so, why was it done? That was a major hurdle in applying the Hall analysis to these facts. The second deed was from Jozef to Jozef and Marlene. Was that an uncompleted gift with regard to Helen? Even if that was an uncompleted gift from Jozef, it became complete on Jozef's death. How would Helen then have privity or any right to attack the transfer from Jozef to Marlene? The only way to do that would be for the court to ignore the fact that there were two deeds and to collapse the two deeds into one transaction. What legal theory would allow that to be done?

  • Hall was an aberration. It was based on bad facts that created bad law. Any one of the reasons cited above would be sufficient for any other court to distinguish Hall and refuse to follow it.

  • Appellate decisions from the Fourth District are not binding on First District trial courts.

The court agreed with at least one argument and denied the Motion to Dismiss. It then directed Helen to answer.

Helen's Affirmative Defense and Counter-claim.

Despite the trial court's decision not to follow Hall, Helen's attorney was not ready to let go of the case. Helen filed an affirmative defense and counter-claim which relied heavily on Hall. Marlene moved for partial judgment on the pleadings claiming that the affirmative defense and counter-claim were legally insufficient.

Helen first pleaded a resulting trust, claiming that she and Jozef still owned the property. As noted above, that claim should not apply here as it should not have applied in Hall, because a resulting trust relates only to events that took place when the property was first purchased.

Helen next claimed that she was entitled to a constructive trust to return the property to her. Marlene responded that a constructive trust was only a remedy imposed by a court and that a proper underlying cause of action was still necessary for a constructive trust to be imposed.

Helen claimed that she had homestead rights in the property. Marlene's response was that homestead rights were a defense against creditors but not an independent right. Also, Helen waived her homestead rights in her deed to Jozef. That leads to more questions: If a party waives homestead rights and continues to reside in the property, do those rights ever return? If so, when and how? Helen did not say.

Helen also claimed marital rights. Marlene responded that the purported marital rights were not specified and would not apply here, that any marital rights would arise only in case of divorce, and that no divorce took place here.

The court denied the motion on procedural grounds but ordered Helen to file a new pleading.

New Developments

During the time the above pleadings and rulings were taking place, Helen and Marlene reconciled. Marlene visited Helen first in the nursing home where she was then living and then later in the hospital when she became ill. However, the reconciliation did not affect the ongoing case for reasons not set forth here.

During the same period, as noted in a prior article, Helen finally consented to the sale of the property. Her children moved out all of Helen's personal property, and the sale closed. Prior to the closing, the attorneys discussed how to and where to escrow the proceeds of sale in order to earn a greater yield than would be available in low interest bank accounts. At the time of the closing, no final agreement had yet been reached on that issue.

On the evening of the day the sale closed, Helen died. Without a client, Helen's attorney could not consent to any arrangements for the sale proceeds. On motion by Marlene, the court directed that the proceeds be deposited with the Clerk of the Circuit Court. Upon Helen's demise, except for depositing the sale proceeds, all proceedings in the case stopped awaiting further developments.

©2004 by Cary A. Lind, all rights reserved.

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