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 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.
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.