Lifetime Advances of Inheritances

          Most parents want to divide their estate equally amongst their children.  What is equal treatment at time of death can be disputed amongst the children when some children have received substantially more in lifetime gifts than the others. 

          Accordingly, Parents often decide to count substantial lifetime distributions made to their children as advanced distributions against future inheritances.  Equalizing distributions to some children are later made at death to offset (even) the disparity in lifetime advance distributions to other children.  For lifetime distributions to count as advances of inheritance certain legal requirements must be satisfied.

          In California, section 21135 of the Probate Code provides the following three different scenarios (approaches) in which lifetime distributions are counted as advances of inheritances at death: 

          (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; and (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.  Let’s discuss each scenario.

          The first scenario, involving the decedent’s estate planning documents, requires that the decedent’s will or trust expressly say that lifetime distributions are to be counted against the decedent’s future inheritance.  This approach may state a specific dollar amount or may refer to a ledger that tracks ongoing lifetime gifting; the ledger approach is often used when a child depends on their parent for ongoing support or for repaying their student loans or mortgage. 

          The second scenario, involving a contemporaneous written record of the gift, is the subject of the recent appellate court decision in Benita Sachs v. Avram M. Sachs (2020) 44 CA 5^th 59.  In Sachs, the deceased father kept track of his monetary gifts to his children on papers he called the “Permanent Record”.  His bookkeeper kept a spreadsheet listing all distributions.  The father told his bookkeeper that the list was important so that payments would be deducted from inheritances.  At the father’s death, the son had received $451,027 more in lifetime gifts than the daughter.  The son contested the daughter’s request for offsetting (equalizing) distributions based on the Permanent Ledger.

          In Sachs, the appellate court decided that the requirement of section 21135(a)(2) were met:  First, the Permanent ledger satisfied the “contemporaneous writing” requirement.  Citing earlier case law, the court stated that, “… [n]o special form or even the decedent’s signature is necessary … . … The  writing is in David’s hand and appears to be contemporaneous.”  Second, the Court found that the Permanent Ledger was properly authenticated and admitted into evidence based on the daughter’s testimony that, “… she found the Permanent Record among her father’s papers, and that the record was in her father’s hand … .”  Third, testimony was properly allowed to interpret the records’ meaning.

          The third scenario, involving a written acknowledgement by the transferee that the gift is in satisfaction of the at-death transfer, was also found to be satisfied by the Court in the Sachs case.  That is, the Court observed that the son in his emails had stated, “it goes on my record” as the son’s own written acknowledgement that the distributions to him were advancements.  Moreover, the Court said that, “… subdivision (a)(3) does not require that the acknowledgement be contemporaneous with the advancement.” 

          Given the sizable amounts involved, the father’s living trust should also have said that the lifetime distributions he made to the children — as recorded in the Permanent Ledger – were to be deducted at death from each child’s inheritance.  Doing so would have removed any argument over the decedent’s intention in keeping the Permanent Record.

          Advanced lifetime distributions to beneficiaries who are to be treated equally is a thorny and contentious area.  A person’s estate planning documents should say whether any disproportionate lifetime gifting to some beneficiaries is to be offset with equalizing payments to the other beneficiaries at death.  Doing so may reduce future disagreement and avoid costly litigation.

Dennis A. Fordham, Attorney, is a State Bar-Certified Specialist in estate planning, probate and trust law. His office is at 870 S. Main St., Lakeport, Calif. He can be reached at dennis@DennisFordhamLaw.com and 707-263-3235.