How a Defective Deed Can Lead to Probate Problems Later

One goal of estate planning can be to reduce the size of your probate estate. For example, you might decide to transfer your house or other valuable property to a trust before your death. This way the house is not considered part of your probate estate, although it may still be treated as your property for tax purposes.

Court Rules Federal Government Has No “Claim” to Deceased Florida Man’s House

One thing to note is that under Florida law, a deed transferring title to real property normally requires at least two witnesses. This is similar to the requirements for making a valid last will and testament. If a deed is not properly witnesses, its validity may later be challenged in court.

But there is another Florida law that states a defective deed “shall be held to have its purported effect” five years after its recording. Here is what this means in plain English. Let’s say John Smith signs a deed transferring a property into his trust, but he only had one witness. Despite this defect, John recorded the deed in March 2013. After John died in April 2018, a family member challenges the transfer to the trust was invalid due to the defective deed. Under Florida law, that does not matter–since more than five years have passed, the deed is considered a valid transfer of title.

Now let’s look at an actual example of how this law works. In this case, Saccullo v. United States, a man signed a deed in 1998 transferring his home into an irrevocable trust for the benefit of his son. The deed only had one witness.

After the man died in 2005, his son became trustee of the irrevocable trust. The federal government then imposed an estate tax of approximately $1.4 million against the father’s estate, which the government believed still included the house. Based on this assumption, the IRS seized the property and unsuccessfully tried to auction it off.

The son then filed a lawsuit in federal court to “quiet title,” or reclaim the property from the federal government. The government argued that since the father’s original deed was not properly witnessed, the house was never transferred to the trust. The son pointed out that since more than five years had elapsed since the defective deed was recorded–that deadline passed in 2003, even before the father died–the transfer was valid.

The U.S. 11th Circuit Court of Appeals agreed with the son. It held that under Florida law, once five years had passed, the law “not only shields a once-defective deed from judicial attack, but also—of its own force—affirmatively mends it back to health.” In other words, the deed became valid in 2003, and no separate judicial proceeding was necessary to make it so.

The 11th Circuit further rejected the federal government’s argument that state law cannot invalidate a federal claim to property. While that is true, the Court said, in this case the government’s “claim” did not exist until the father died, which triggered the estate tax liability. Since the property already belonged to the irrevocable trust at this point, it fell outside the scope of the father’s probate estate.

Speak with a Florida Trust & Estate Lawyer Today

Even the most careful estate plan can be undone by an inadvertent mistake. That is why it is critical to work with an experienced Fort Myers estate planning attorney. Contact the Kuhn Law Firm, P.A., at 239-333-4529 today to schedule a free consultation with a member of our estate planning team today.

Sources:

m.flsenate.gov/Statutes/95.231

scholar.google.com/scholar_case?case=4265193304412987703

https://www.kuhnlegal.com/do-i-have-to-leave-my-house-to-my-spouse-or-children-after-i-die/