California Legal Implications: How Lifetime Gifts Affect Inheritance
A recent California Court of Appeal decision highlights a critical question for many families: if a parent gives money to a child while they are alive, does that money count against the child’s share of the inheritance later?
In the case of *Sachs v. Sachs*, a father maintained a handwritten “permanent record” tracking financial gifts made to his two children over the years. One child received approximately $450,000 more than the other during the father’s lifetime. After the father passed, the court ruled that these documented gifts were advancements, meaning they were effectively early inheritance payments. Consequently, the court allowed the successor trustee to deduct these amounts from the final trust distribution to ensure equal treatment of the beneficiaries. to deduct these amounts from the final trust distribution to ensure equal treatment of the beneficiaries.
This ruling underscores the importance of clear documentation when transferring wealth. For California families, understanding how to properly document these transactions can prevent years of litigation and sibling resentment.
What Qualifies as an Advancement?
Under California law, a gift made during a person’s lifetime is generally treated as a distinct gift, not an advance on inheritance, unless specific criteria are met. However, as seen in *Sachs v. Sachs*, a lifetime gift can be treated as a satisfaction of an at-death transfer (inheritance) if: (inheritance) if:
1. The instrument providing for the transfer (such as the Trust or Will) expressly states that the gift is to be deducted.
2. The transferor declares in a contemporaneous writing that the gift is to be deducted from the heir’s share.
3. The transferee (the recipient) acknowledges in writing that the gift is in satisfaction of the inheritance.
In this case, the father’s handwritten record satisfied the requirement for a contemporaneous writing, proving his intent to treat the payments as advances.
The Role of Intent and Documentation
The core issue in *Sachs* was testator intent. The father explicitly told his bookkeeper that maintaining the list was important to deduct payments from future inheritances. Because he kept a running tally of dates and amounts, the court found this “permanent record” served no other purpose than to equalize the final distribution of his estate.. The father explicitly told his bookkeeper that maintaining the list was important to deduct payments from future inheritances. Because he kept a running tally of dates and amounts, the court found this “permanent record” served no other purpose than to equalize the final distribution of his estate.
For estate planners and trustees, this serves as a reminder that formal trust amendments are not the only way to impact distribution, though they are the safest. The court allowed extrinsic evidence—evidence outside the four corners of the trust document—to interpret the father’s handwritten notes. While the court accepted the notes in this specific instance, relying on informal papers often leads to expensive legal battles.—evidence outside the four corners of the trust document—to interpret the father’s handwritten notes. While the court accepted the notes in this specific instance, relying on informal papers often leads to expensive legal battles.
Best Practices for California Families
To avoid the ambiguity that led to the *Sachs* litigation, families should formalize their intentions. If you intend for a loan or a gift to a child to be deducted from their final inheritance, it is vital to:
– Explicitly state this in your Revocable Living Trust.
– Create a signed document at the time of the gift, signed by both the parent and the child, acknowledging that the amount is an advancement.
– Keep clear, organized financial records that are easily accessible to your successor trustee..
Without clear evidence, the law generally presumes a gift is just a gift. By consulting with a qualified attorney, you can structure these transfers to reflect your true wishes and protect your family’s harmony.
About This Case
Source: Sachs v. Sachs: When Lifetime Gifts Reduce a California Trust Inheritance
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Legal Disclaimer
This article is for informational purposes only. Consult with a qualified California estate planning attorney for advice specific to your situation.