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Lifetime Transfers Considered An Advance On Inheritance

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Under California law, lifetime transfers of property to a person will under certain conditions be treated as an at death transfer, and therefore as an advance on any inheritance.  All of the conditions require a writing.

In Sachs v. Sachs, a January 7, 2020 opinion out of California’s second appellate district, the court determined that the transferor’s record of amounts he periodically distributed to his children from his trust was a writing that satisfied the requirements of section 21135, the controlling statute.

California Probate Code Section 21135

California Probate Code section 21135 states, in pertinent part:

(a) Property given by a transferor during his or her lifetime to a person is treated as a satisfaction of an at-death transfer to that person in whole or in part only if one of the following conditions is satisfied:

(1) The instrument provides for deduction of the lifetime gift from the at-death transfer.

(2) The transferor declares in a contemporaneous writing that the gift is in satisfaction of the at-death transfer or that its value is to be deducted from the value of the at-death transfer.

(3) The transferee acknowledges in writing that the gift is in satisfaction of the at-death transfer or that its value is to be deducted from the value of the at-death transfer.

For the full statute, click here.

The Facts of Sachs v. Sachs

David Sachs created a trust in 1980. David’s two kids, Benita and Avram were the main beneficiaries. Most of the trust’s corpus was to be distributed equally to Benita and Avram upon David’s death.

The Permanent Record

In 1989 David began to keep track of the money distributed to the children from the trust, on papers he referred to as the “Permanent Record.” David told the children that each distribution would be reflected on this Permanent Record.

In 2013, David began to suffer from some cognitive issues as the result of a stroke. David hired a bookkeeper to manage his finances. David was adamant that the bookkeeper keep records of any distributions from the trust. David would often confirm that a distribution was on the record after it was made. David told the bookkeeper that “keeping the list was important so that payments made to his children could be deducted from their respective inheritances.”  In other words, David was adamant that the lifetime transfers would be considered and advance on each child’s inheritance.

Acknowledgement That Distributions Would Be Part Of Record

Later in 2013 Benita became the successor trustee upon David’s resignation. Benita found the permanent record among her father’s papers. The entries were in David’s handwriting, and listed the dates and amounts of the distributions to each child.  In 2014, the bookkeeper let the children know that the cost of David’s residential care and payments to the children were depleting the trust at a rapid rate. Avram continued to ask Benita for trust distributions, and Benita’s resistance caused friction between Avram and Benita.

In Avram’s emails to Benita requesting distributions, Avram repeatedly stated that the distributions would go on his permanent record.

In October 2015, Benita learned that Avram was now contending that the permanent record did not exist or that he was not bound by it. David’s mental condition had deteriorated to the point that David could not confirm his intention regarding the permanent record.

Petition To Equalize Distributions After Death

After David’s death, Benita filed a Petition for instructions to equalize the distribution of assets from the trust, claiming that the disparity in lifetime distributions and transfers in favor of Avram should be deducted from Avram’s distributive share of the Trust and considered an advance on his inheritance. The trial court agreed with Benita, and Avram appealed. The appellate court held that the permanent record was a writing that satisfied the requirements of section 21135, on two grounds.

Declaration In A Contemporaneous Writing

One way that lifetime transfers can be considered as an advance on an inheritance is if:

(2) The transferor declares in a contemporaneous writing that the gift is in satisfaction of the at-death transfer or that its value is to be deducted from the value of the at-death transfer.

The California court found that the Permanent Record satisfied the writing requirement, because it was:

  • In David’s hand
  • Appeared to be contemporaneous
  • Appeared to have no other purpose other than to equalize distributions between the children

The court noted that there is no special requirement that the decedent’s signature is required to satisfy the contemporaneous writing provision of section 21135(a) (2), and the court declined to expand the statute to include such a requirement.

Transferee’s Acknowledgement That Lifetime Transfer Was Part of the Record

California probate code section 21135(a (3) also provides that lifetime transfers can be considered an advance on inheritance if:

(3) The transferee acknowledges in writing that the gift is in satisfaction of the at-death transfer or that its value is to be deducted from the value of the at-death transfer.

Avram’s emails stating that the requested distributions would go on his permanent record were sufficient evidence to satisfy this requirement, despite Avram’s argument that the statement “it goes on my record” was too amorphous to constitute an acknowledgement. The court also rejected the argument that the acknowledgement had to be made to David, or contemporaneously with each advancement. Instead, any acknowledgement that a distribution goes on the record as an advancement “can reasonably be construed as an acknowledgement that prior distributions reflected on the record were also advancements.”

Under section 21135, only one of the listed conditions has to be satisfied. In this case, there was the contemporaneous writing (the Permanent Record) and the acknowledgement by the transferee that the distributions were in partial satisfaction of the at-death transfer. This opinion is notable, since a handwritten ledger, not verified or formal, can constitute a “contemporaneous writing” sufficient to declare that lifetime transfers constitute an advance on an inheritance in California.

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