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CONTRACTS TO MAKE WILLS IN CALIFORNIA
Introduction:
In California
it is possible to enter into a contract to require certain provisions to
be inserted (or not inserted) into a
Will or Trust
and to remain in effect until they become effective upon the death of the
party contracting. Typically, one sees husbands and wives entering into
agreements to mutually leave certain assets to one another or to children
in their Wills.
The
contracts, however, have special requirements to be enforceable and to
avoid basic policies of the Law, which prohibit contracts that are
illegal or promote divorce. It is vital for the person contemplating such
a contract to carefully review the law or obtain legal advice before
relying upon or creating such a contract.
This
article shall outline the basic requirements to make a binding contract
to make a Will or Trust…or NOT to make a Will or Trust.
The Basics
The
reader is advised to read our web article on
Binding
Contracts and Legal Actions Predicated on Breach of Contract
for a basic discussion of what a contract is in California
and how they are enforced. This article shall assume the reader has
already reviewed that article.
Contracts
to make Wills or Trusts are unique in several respects. First, one of the
parties is often deceased thus proof of the existence of the terms and
changes to the contract are harder to obtain. Further, quite often both
parties are deceased and the party seeking to enforce the contract is the
“third party beneficiary” of the contract, to wit, a non-party to the
contract who was to receive the benefit.
Lastly,
the contracts are often made decades before they are enforced, sometimes
forgotten by the parties, often discovered long after family relations
have changed or asset ownership has radically altered making much of the
contract impossible to enforce.
For
instance, this office confronted a contract to leave a certain piece of
property to a child in return for a reciprocal agreement to leave a sum
of money in the wife’s will to a nephew. By the time of the death of the
husband, the property had been sold and the nephew was deceased. Was the
contract still enforceable and how?
These
unique issues confronting contracts to make Wills are exacerbated by
various public policy issues that confront contracts effecting families
and marriages. Any contract that promotes divorce is void and, further,
husband and wife, parent and child, as well and many other members of a
family have a
fiduciary
duty to one another that can result in contracts being
voided if such duty is breached. Such a duty often practically requires
the parties contemplating such a contract to obtain independent legal
advice to assure that each person receives objective information about
the terms of the contract and is not overly influenced by a spouse or
member of the family.
As
one of our clients put it as she glanced around the room at the attorneys
present at the execution of the contract, “There are more attorneys here
than people signing the contract.”
Nevertheless,
contracts to make Wills or Trusts can be extremely useful and are often
the only way to assure that post death planning occurs along the path one
requires. A good example is a husband and wife who need to use a home but
both wish the home to go to a child in special need (for instance, a
child with a mentally challenged child of her own.) The surviving spouse
may be exposed to all types of temptations or alterations in life
including a second marriage, which may make the plans of the deceased
spouse invalid. Another case we confronted involved a couple who sought
to ensure that the wife’s mother would have a place to live until she
died, so they made a Will in which the home was left for life to the
mother. Upon the wife’s death, the husband, who had a weakness for
gambling, quickly sought to sell the home but we were able to stop him
due to the contract.
But
note that it was not the wife who could sue, since she was deceased and
her estate had already been closed. The mother, as a third party
beneficiary commenced her own action (in this case an arbitration since
we placed such a clause in the Agreement) and was able to protect her
interest.
California
Law Applicable
In
2000, California Probate Code 150 was repealed and replaced with
Prob.C.21700, a statute broader in scope with less stringent
requirements. Prior law governs contracts made before January
1, 2001. (Prob.C.21700(c).)
A
contract to make a will or devise or other instrument, or not to revoke a
will or devise or other instrument, or to die intestate, may be
established by one of the following:
(1)
(1)
Provisions in the
instrument stating the material provisions of the contract.
(Prob.C.21700(a)(1).)
(2)
(2)
An expressed reference in
the instrument to a contract and extrinsic evidence providing the terms
of the contract. (Prob.C.21700 (a)(2).)
(3)
(3)
A writing signed by the
decedent evidencing the contract. (Prob.C.21700(a)(3).)
(4)
(4)
Clear and convincing
evidence of an agreement between the decedent and the claimant or a
promise by the decedent to the claimant enforceable in equity.
(Prob.21700(a)(4).)
(5)
(5)
Clear and convincing
evidence of an agreement between the decedent and a third person for the
benefit of the claimant or a promise by the decedent to a third person
for the benefit of the claimant enforceable in equity.
(Prob.C21700(a)(5).)
The execution of a joint will or mutual wills does not create a
presumption of a contract not to revoke. (Prob.C.21700(b).)
Some
comments on the statue above seem appropriate.
Note that if
the agreement is in writing (the first three criteria above) the contract
is treated much as any other contract. If, however, one seeks to create
an oral agreement, then “clear and convincing” evidence of same is
needed. This burden of proof is much higher than the “preponderance of
the evidence” test normally required to prove a matter in a civil court
of law and requires the plaintiff to establish the contract by evidence
of significant probative value. (Recall that in criminal matters we have
the highest burden of proof, proof beyond a reasonable doubt to a moral
certainty.)
Further, the
concept of equity, discussed in our article on contracts, is a test of
fairness and requires the Court to apply such concepts on the terms of
the agreement.
Lastly, note
that the contract can be NOT to make a Will, to allow
intestate
succession to occur.
CONCLUSION
Contracts to make Wills were much more common before
the use of irrevocable trusts became a useful tool used by more and more
people. They still occupy a vital role for complex family situations and
often are part of the pre or postnuptial planning for couples. They are
not to be taken lightly, however. Fully enforceable if created correctly,
they can become effective decades after written, often affecting
generations not born when the contracts were made and subject to changes
in the law those decades can bring. It is strongly suggested that
competent tax and legal advice is obtained before electing to use this
type of tool for estate or family planning.
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