Friday, March 28, 2014

Failure of Consideration and Promises to "Care for Grandma for the Rest of Her Life"

This semester I'm teaching Contracts, which always provides interesting opportunites to introduce "Elder Law" concerns in a traditional course.

This week I offered a not-so-hypothetical fact pattern, where Grandmother deeds house to Grandchild, in exchange for Grandchild's "promise to care for Grandma for the rest of her life."  Whenever I use this hypo, I pick one of a number of reasons the agreement does not work out as planned, such as the individuals don't get along with each other, grandchild gets pregnant or ill, etc.  This week's reason was "Grandma needs more specialized care" but cannot afford it because she's given away her primary resource. Grandchild doesn't want to sell the house, now that it is "hers," and she doesn't want to take out a mortgage. House

I ask the students to brainstorm Grandmother's options.  Almost always, someone suggests Medicaid, and we talk about whether Medicaid will provide adequate assistance and whether there are potential barriers to eligibility for public benefits, such as the five-year look back period. 

Students sometimes suggest Grandmother is subject to "undue influence," which if proven would be grounds for potential rescission.  Good job!  Except that I am usually careful in my hypo not to make Grandchild overtly manipulative.  And in truth, many of these arrangements begin more because of the desires of the aging individual, than because of any greed on the part of the younger person. We also explore "incapacity" and "duress" as possible grounds for rescission.

This week, students also suggested "failure of consideration" as grounds for rescission.  There is an interesting line of cases, perhaps a hybrid of Property and Contract law, that treats "support deeds" as a specific analysis, potentially justifying relief. Examples include:

  • Gilbert v. Rainey, 71 SW. 3d 66 (Ark. Ct. App. 2002), permitting mother to rescind deed for failure of consideration, and admitting mother's parol evidence to show daughter promised life care in exchange for the conveyance of the home, to show that conveyance was not a completed gift;
  • Frasher v. Frasher, 249 S.E. 2d 513 (W.Va. 1978), granting cancellation of deed from grandparents to grandchildren, on the grounds that where discord arises between the parties to a "support deed" between an aged grantor and a younger family member, the property should be restored "if it can be done without injustice" to the younger family member. 

After class was over, some of my students stopped by to chat, offering variations on the hypothetical, sometimes from examples within their own extended families.  In both of the sample cases above, the court attaches special meaning to the concept of "support deeds" going from older to younger generation, but most of the cases along this line are fairly old.  The fact that my students were offering modern variations on the fact pattern suggests there may be good reason to revisit this area of the law. 

Perhaps any resurgence in this topic is another sign of our "aging" times. So, that leads to my question, does your state recognize failure of consideration, tied to "support deeds," as grounds for rescission of a conveyance?

Cognitive Impairment, Current Affairs, Estates and Trusts, Ethical Issues, Health Care/Long Term Care, Housing, Medicaid | Permalink

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I speak from the non-legally-educated peanut gallery here. The example of grandma signing over the deed of her house to a grandchild ….. doesn’t signing over a deed require grandma to file gift tax returns? I’ve heard anecdotal stories of these sign-overs occurring, and I don’t think the parties even thought about the tax angle…. or maybe it’s a non issue? Does executing a later reversal (2nd case cited in the post here) then also require a gift tax return for the grandchild?
I found it interesting that law students bring up Medicaid as a possible “solution” --- it sort of reminds me of what I call very common thinking: let the government be the pooper-scooper when individuals don’t adequately plan for themselves. Ask the people who criticize “big government” and contend that “government shouldn’t determine my medical care” if they have a plan for their own long term care. I have asked, and they’ll say, “I’ll just let the state figure things out and carry me out feet first” or some other shrug-off.

Posted by: Jennifer Young | Mar 28, 2014 7:01:52 AM

The facts described are fascinating as a matter of contract law. Grandma signs over her home as consideration for a Grandchild’s “promise to care for Grandma for the rest of her life." That creates a continuing care contract, which has certain implications.

First, if it’s a contract then it’s not a gift, as Jennifer suggests, and hence not subject to gift tax.

Second, many states require that a lifetime continuing care contract be in writing, which then raises the question whether a Court would enforce a mere parol contract in the face of a statutory requirement that such an undertaking be in writing.

If the continuing care aspect of the contract is then rescinded, does that leave the transfer of the house still intact since it was achieved by a transfer of the deed from to the Grandchild?

If it is then determined that the deed transfer was valid, but that the contract that it was intended to finance was invalid, then does the house constitute a gift? Critical to this determination would be that the Grandchild did not solicit the continuing care contract, but that instead it was little more than an understanding between Grandmother and Grandchild, and the law does not generally enforce mere understandings.

The Grandchild’s lack of intention eliminates a finding that the Grandchild was fraudulent in obtaining the house. The Grandchild’s failure to fulfill the mother’s expectation is merely an ethical breach but not a contractual breach, assuming that the Court finds that there was no contract and no meeting of the minds.

This could create the semblance of an inadvertent gift, but the gift value would merely be the residual value of the home assuming that the Grandmother is allowed to live for the rest of her days in what is now the Grandchild’s house.

Aside from the value of her right to residency, Grandmother might now be able to meet the poverty thresholds to qualify for government assistance under Medicaid, Supplemental Security Income (SSI), or other poverty assistance programs (Program of All-Inclusive Care for the Elderly – PACE, etc.).

Given this outcome the burden on the Grandchild would not be a legal burden, and it would be very sad for it to have to be played out in the Courts, but it would be a burden of conscience. How could a beloved Grandchild, who was so benefitted by a loving Grandmother, consign the Grandmother to such an unsavory end to a life dedicated to family?

Posted by: Jack Cumming | Mar 28, 2014 9:24:05 AM

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