January 28, 2020

Advancement or Gift

Parents commonly gift money to their children. This can take the form of an allowance when they are young, a graduation gift when a teenager or a wedding gift when an adult.

A question that arises occasionally in this context is whether the gift is really a gift or is the "gift" an advancement of the child's inheritance. A recent published appellate decision touched upon this issue.

Sachs v. Sachs (2020) ___ Cal.App.5th ___

"David L. Sachs had two children, Benita and Avram. David established a trust in 1980 when Benita was 20 years old and Avram was 12. The trust provided for small distributions to other beneficiaries, but most of the trust corpus would be distributed to Benita and Avram equally on David's death. David was the original trustee. 

In 1989 David began to keep track of money distributed to his children on papers he referred to as the "Permanent Record." When a child asked for money, David would tell the child that the distribution would be reflected on the Permanent Record. 

In June 2013 David began to experience cognitive problems due to a stroke. He hired Ronda Landrum as his bookkeeper to help manage his finances. At David's instruction Landrum continued to make distributions to Avram and Benita. Landrum said David was adamant that she keep a record of the distributions. After a distribution was made David would often confirm that the distribution was on the list. Landrum kept a list for each child in the form of an electronic spreadsheet. David told Landrum on more than one occasion that keeping the list was important so that payments made to his children could be deducted from their respective inheritances. 

In October 2013 David resigned as trustee and Benita became the successor trustee. Following her appointment, she found the Permanent Record among her father's papers. The record consists of a separate file for each child. The entries were made entirely in David's handwriting. The papers list the dates and the amounts distributed beginning when each child attained age 30. The entries were not all made with the same pen, and the papers were of different types and ages."

The appellate court held that

"Probate Code section 21135 provides that transfers of property to a person during the transferor's lifetime will be treated as an at death transfer to the person under certain conditions. All of these conditions require a writing. Here we decide that the transferor's record of amounts he periodically distributed to his children is a writing that satisfies the requirements of section 21135."