Why Selling the Lake House Can Rewrite Your Will

0:00What happens when your will gives the house that you no longer own? Today, I walk through a real scenario where selling a lake house doesn't cancel the gift. It transforms it into cash. But how much cash? That's where the law gets murky and family conflict takes hold. Welcome to the Death Readiness Podcast. This is not your dad's estate clinic podcast. I'm Jill Mastriani, former state attorney, current realist, and your guide through Will's, trusts, probate, and the conversations no one wants to have. If your Google search history includes, do I need a trust? What exactly is probate? And am I supposed to do something with Mom's will? You're in the right place. There are a few things in my life I was absolutely certain I would never do. I was never going to be an attorney, but I went to law school and graduated in 2012.

1:00My very first day of work after the bar exam. I boss told me he wanted me to become the go-to tax person. I panicked. I did not want to be a tax attorney. Fast forward to 2019, and I'm graduating from NYU with the Masters in Tax Law. In 2023, my husband and I have bought a small house in Michigan, so we could visit his family more easily. It was never meant to be our permanent home. After all, I wasn't licensed to practice law there. The trust laws were different. My life was in Tennessee. Today, I live in Michigan. In my last big, never, I was never going to start my own law practice. I'll share more about that in the coming weeks, but that's my newest plot twist. Life has a way of laughing at our certainty. We think we know where we're headed, what we'll own, where we'll live, and then everything changes. And that's exactly what happens with the state plans. They're written for one version of our lives, but they often have to operate

2:01in a completely different one. Before we get into today's episode, I want to tell you about something you can order to deal with situations exactly like the one I'm talking about today. It's my new book, The Death Readiness Playbook, where your real life meets your legal documents. It helps you organize what you own, what you've promised, and what your family would actually need if something happened tomorrow. Because as you'll hear today, one sold house can rewrite an entire will. You can grab your copy at deathreadiness.com slash playbook. That's deathreadiness.com slash playbook. Today's Tuesday triage question comes from Judy and Michigan. Judy is in her early 80s and has three adult daughters. She signed her will about 15 years ago, back when she still owned a home on Lake Michigan. In that will, she left the lake house to one daughter, and then left her other two daughters cash equal to the value of that house

3:01at the time she wrote her will. Everything else in her state was divided equally among her three daughters. Now the house is gone. Judy sold it. And Judy wants to know, do I need to update my will, or does the child I named to receive the lake house get cash just like her sisters? I love this question because it highlights something I see a lot. Life moves forward, but our state plan stay frozen in time. 15 years may not seem like a long time, but in a state planning it's an eternity. Assets change, values change, and families change. The rest of the estate plan ages right along with the will. But for today, we're going to stay focused on the lake Michigan property itself. I've lived in Michigan for about a year and a half, but I still haven't made it to Lake Michigan. I live near Detroit. If Michigan is a mitten, I'm down at the bottom of the thumb on the east side of the state. Lake Michigan stretches along the entire western edge of the state. And here's a fun fact.

4:01Lake Michigan is the only great lake located entirely within the United States. The other four are shared with Canada. Okay, back to Judy. For purposes of this episode, let's call her daughter Donna Susan and Michelle. And let's assume Donna was the one Judy named to receive the lake house. The very first place I'd look is the will itself. I check whether the will says what happens if Judy no longer owns the lake house at her death. Because good estate planning doesn't just say, here's who gets the lake house. It also answers this follow-up question. And what happens if there is no lake house? I recently worked with a couple who wanted the lake house to go to one of their daughters. They fully expected they'd live out their final years there and never sell it. But life doesn't always cooperate. So we built in Plan B language that spelled out exactly what should happen if they didn't own the property at their deaths. Now, let's assume Judy's will doesn't have that kind of backup language.

5:04The outcome under Michigan lost surprise me. Because it's not the same as Tennessee law, where I'm licensed. When I first got Judy's question, my gut reaction based on the Tennessee rule was, Donna doesn't get anything. And that reaction has a name. It's called redemption. Ademption is the rule that says, if a will makes a specific gift like my house on Lake Michigan to my daughter Donna. And the person dies not owning that asset anymore. That specific gift fails. In plain English, you can't give away what you don't own. So the gift disappears. But Michigan doesn't follow that same approach. It used to. But as of April 1st 2000, it doesn't anymore. Judy lives in Michigan. So Michigan law controls. I don't have Judy's actual will. So to walk through this scenario, let's assume her will read something like this.

6:04I give my house at 123 Lake Michigan Drive, Sutton's Bay, Michigan to my daughter Donna. I give the sum of $2 million to my daughter Susan. I give the sum of $2 million to my daughter Michelle. I divide the remainder of my estate equally among my three daughters. Here's a quick disclaimer. This is not good drafting. Please don't copy it. I'm simplifying on purpose so you can see how the law applies without waiting through too much legal language. In this example, Judy made three specific gifts. The Lake House to Donna and $2 million each to Susan and Michelle. Everything else called the Residuary Estate gets split equally among all three daughters. If I saw a will structured like that, I'd assume that 15 years ago the Lake Michigan house was worth about $2 million. And Judy was simply trying to equalize things by leaving Susan and Michelle the same amount in cash.

7:05Fast forward to today. If Judy sold that property recently, it almost certainly increased in value. Lakefront property doesn't usually go backwards long term. I hopped on Zillow and found what could be a comparable home in Sutton's Bay, Michigan for $3.2 million. Five acres, a guest house, a studio, the whole Michigan package. So let's assume Judy sold her Lake House for $3 million. Now here's the real question. If Judy died today without updating her will, what happens? To answer that, we have to look at Michigan law specifically section 700.2606. The statute begins by saying, quote, a specific dev IZ has a right to the specifically devised property in the testators estate at death. That's a bit of a legal mouthful, so let's translate.

8:06A specific dev IZ just means the person named to receive a specific item. In Judy's will, that's Donna. She's the one who is supposed to get the Lake House. The specifically devised property is the Lake House itself. So the law is saying, Donna has a right to that Lake House if it's still in Judy's estate when Judy dies. But here's the problem. There is no Lake House in Judy's estate. She sold it for $3 million. Let's go back to the Michigan statute and keep reading because this is where we find out what Donna gets. If anything. The law says that the specific dev IZ, Donna has a right to the specifically devised property at death and all of the following. Then it lists subparts a through F, which basically act like backup rules when that exact property isn't in the estate anymore. For Judy's situation, the key is subpart F.

9:09This is the catch all that tells us what happens when the property is gone and none of the earlier exceptions apply. I'm going to read it to you and yes, it's a little dense, but it hang in there because it matters. This is what Donna gets. Unless the facts and circumstances indicate that redemption of the device was intended by the testator or a redemption of the device is consistent with the testator's manifested plan of distribution. Donna gets the value of the specifically devised property to the extent the specifically devised property is not in the testator's estate at death. Here's what that means in plain language. Unless there's evidence that Judy meant to cancel Donna's gift by selling the Lake House, Donna is entitled to the value of that property instead. That's the Michigan twist. The gift doesn't just disappear. It turns into money and this rule doesn't just apply to real estate.

10:11It applies to any specifically gifted property. We don't have any facts here suggesting that Judy intended Donna's gift to be a deemed, meaning wiped out entirely and treated as if it never existed. So under Michigan law, Donna doesn't lose her inheritance. Instead, the gift changes. She's entitled to the value of the Lake House. But Michigan law creates a gray zone that can easily lead to litigation. The statute never defines what value actually means. When is the value determined? At the time, Judy sold the house? Or at Judy's date of death? Under our facts, Judy sold the Lake House for $3 million. Is entitled to the value? Does she now receive $3 million while Susan and Michelle each still receive their $2 million specific cash gifts? I think it does. Even though that's a huge shift from Judy's original intent to equalize.

11:11Now let's tweak the facts and watch how messy this can get. Imagine the real estate market tanked after Judy signed her will and the Lake House's value dropped to $1 million. Judy panicked and sold it for that $1 million. Fast forward to Judy's death? The market has exploded that exact same property is now worth $4 million. But Judy doesn't own it anymore. So what is Donna entitled to? The $1 million Judy actually received? Or the $4 million that the property is worth at Judy's death? The statute doesn't say. It simply promises Donna, quote, the value of the specifically devised property and leaves everyone else to fight about what that word means. Donna would read it one way. Susan and Michelle would read it another way. And Judy's equalizing plan becomes a probate battle. Let's change the facts again. Remember, the will said,

12:11I give my house at 1, 2, 3 Lake Michigan Drive, Sutton's Bay, Michigan to my daughter Donna. Now, imagine Judy sold that Sutton's Bay House for $3 million. But before she died, she bought another home on Lake Michigan. Let's say she purchased a Lakefront property in Manesty, Michigan for $750,000 the year before her death. So now we're back in the statute because Michigan anticipated this type of scenario, sort of. Subpart E of the Michigan statute says the specific devisee is entitled to any real estate the test data required as a replacement for the specifically devised property. And that one word replacement becomes the battlefield. Was the Manesty House a replacement for the Sutton's Bay House? Or was it just another Lake property Judy happened to buy later in life?

13:11Donna would almost certainly argue it was not a replacement. Why would she want a $750,000 property instead of the $3 million cash value she believes the statute promises her? Susan and Michelle would argue the opposite. Of course, it's a replacement. It's another Lake Michigan home. They'd much rather Donna received the smaller property than a multi-million dollar payout. Donna, Susan and Michelle would fight it out in probate court. A painful portion of Judy's estate would get eaten up paying attorneys to argue about what Judy must have meant. And the sibling relationship? What relationship? All because Judy didn't update one paragraph in her will. So Judy, yes, you should update your will. Otherwise, you'll leave your daughters to interpret your intent and a judge to decide what's right. We can't control how legislatures draft statutes. I've been part of the legislative process in Tennessee and trust me.

14:14It's far messier unless precise than people imagine. Although you can't control the law, you can control your instructions. Use precise language in your will. The clearer your words, the calmer your family's future. Today's story isn't really about a lake house. It's about what happens when your life moves forward and your documents don't. Without clarity, your family isn't grieving. They're guessing, arguing, and paying lawyers to interpret your silence. That's why I created the death readiness playbook. It helps you prevent exactly this kind of mess by keeping your wishes aligned with your actual assets and decisions. It's the tool I wish every client had, and you can find it at deathreadiness.com slash playbook. Your family will be very glad you did. That's deathreadiness.com slash playbook. And if you have a question you'd like me to answer on a future Tuesday triage episode,

15:15submit it at deathreadiness.com slash Tuesday triage. That's deathreadiness.com slash Tuesday triage. Thanks for listening today. This is deathreadiness. Real messy and yours to own. I'm Jill Masteryani, and I'm here to help you sort through it. Especially when you don't know where to start. Hi, I'm April Jill's daughter. Thanks for listening to the deathreadiness podcast. While my mom isn't a trainee, she's not your attorney. The deathreadiness podcast is for educational and entertainment purposes only. It does not provide legal advice. For legal guidance, Taylor's your unique situation. Consult the lessons attorney in North State. To learn more about the services my mom offers, visit deathreadiness.com.