Saturday, 13 April 2024

Estate planning: Will contracts

Will contracts are agreements to dispose of property by will in a specified manner (such as gifts to relatives and friends), not to revoke an existing will (or wills) or not to make a will at all (and so allow one’s property go to one’s intestate heirs).

When used at all, a will contract often is between persons contemplating marriage (e.g., regarding premarital property agreements); married persons (e.g., in order to protect children from prior relationships); persons involved in dissolving their marriage (e.g., as part of a settlement agreement); or between someone who is receiving personal services and the care giver involved (e.g., involving compensation for a personal services contract).

An example would an agreement between husband and wife that the surviving spouse shall leave everything equally between the deceased spouse’s children (50 percent) and the surviving spouse’s own children (50 percent). Another example is an agreement by someone receiving personal care at home (say cleaning and companionship services) to leave a significant gift to the caregiver.

Will contracts are valid under California law; they are governed by the law of contracts, not the law of wills. Therefore, to be enforceable the contracting parties must have mental capacity to contract and voluntarily give their consent (i.e., without coercion); have a lawful objective (i.e., not an agreement to do something that is unlawful or contrary to public policy – such as to require that a beneficiary marry inside of a certain religious faith in order to inherit). In addition, the contract must be supported by consideration; that is, each party must get something.

Presuming a valid contract, its terms and provisions can ideally be established by a written contract signed by the parties; otherwise, without such an independent writing, by means of a will that either contains the material provisions of the contract or an express reference to the contract, with the terms of the contract proved by external evidence.

Failing that, when necessary to prevent an injustice, clear and convincing evidence of an agreement or a promise that is enforceable in equity (i.e., fair play and justice require enforcement) is also allowed.

Will contracts, not surprisingly, are very difficult and expensive to draft. They involve describing the property interests subject to the contract, defining the rights of the parties to use or dispose of the properties (and any income), providing remedies to any breach of contract, and providing flexibility to respond to unanticipated future circumstances.

Often such planning results in lawsuits, such as over whether the surviving party may consume or gift away the property received from the deceased party to the detriment of the deceased party’s intended purpose.

Also, controversy may result over tracing the proceeds from the sale of certain property that was part of the contract. Thus, while lawful, will contracts are undesirable and should be avoided. Fortunately, much better alternatives such as trusts or reciprocals wills exist. These alternatives are controlled by the law of trusts and wills.

That is, instead of using a will contract, the parties could use a trust and become co-trustees. The trust could either start out as irrevocable or become irrevocable on the death of the first party to die.

Alternatively, the parties could execute reciprocal wills – with identical dispositions at each death – and establish a testamentary trust at the death of the first party to die.

Drafting these types of documents is less expensive and the results are more predictable, due to the controlling statutory and case law being better defined. Thus, litigation is less likely, a definite plus.

Dennis A. Fordham, attorney (LL.M. tax studies), is a State Bar Certified Specialist in Estate Planning, Probate and Trust Law. His office is at 55 1st St., Lakeport, California. Dennis can be reached by e-mail at This email address is being protected from spambots. You need JavaScript enabled to view it. or by phone at 707-263-3235.

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