Ademption by Satisfaction

When a beneficiary under a will receives their inheritance prior to the testator's death, the question then becomes whether or not the devise is satisfied. This is known as ademption by satisfaction. 

For reference, ademption is defined as property that was listed in the person's will that is not in his or her estate at the time of their death. Black's Law Dictionary 8th ed. (West Group, 2004). Of note, when I was in law school, the term used for ademption by satisfaction was "advancement." Other jurisdictions may use the latter term instead of the former.   

California Probate Code § 21135 states that if one of the following conditions occurs, then ademption by satisfaction is triggered:
(a) Property given by a transferor during his or her lifetime to a person is treated as a satisfaction of an at-death transfer to that person in whole or in part only if one of the following conditions is satisfied:
(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.
(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.
(4) The property given is the same property that is the subject of a specific gift to that person.

For example, Thomas Hobbs, a widower without any children, wrote a will that included a gift of $25,000 to his neighbor Bobby Winghart. The balance of his estate went to his friend, a famous author, Samuel Langhorne Clemens. Thomas named his uncle Elvis Hobbs as executor. 

Thomas was a wealthy man and had amassed a large fortune at the time of his death. He owned multiple properties having been a successful entrepreneur in Silicon Valley. Yet when Thomas died, his estate was illiquid, i.e. it lacked cash resources.  Thomas had tirelessly sought investments and believed that a bank account was a poor asset-maximization vehicle. Thus, his estate did not have sufficient funds to initially provide for Bobby's gift. 

One day, following Thomas' death, Elvis began sorting through Thomas' possessions. When going through Thomas' desk, he discovered that Thomas had given Bobby a gift of $25,000 the year before he died. The check read on the memo line "$25k is worth more today $25k tomorrow, enjoy!" Armed with this information, Elvis believed Bobby's gift had already been satisfied.

Elvis then filed a petition in probate court to determine entitlement to Thomas' estate, arguing that Bobby's gift had adeemed. Elvis argued that since Thomas' gift of $25k to Bobby matched the amount stated in the will and the check referenced the will, ademption by satisfaction should occur. The probate court agreed and ordered that Bobby take nothing from Thomas' estate as he had already received his inheritance.  

Probate Referee

When a petition for probate has been filed and granted, the estate's personal representative is entrusted with collecting the decedent's assets and appraising them. While the personal representative may appraise some of the items, certain items require the expertise of a probate referee.

For reference, the probate referee is appointed once the order for probate has been granted. See Q6 - Form DE-140.   

The personal representative is to appraise the items in
Prob C § 8901. These include:

(a) Money and other cash items. As used in this subdivision, a “cash item” is a check, draft, money order, or similar instrument issued on or before the date of the decedent’s death that can be immediately converted to cash.

(b) The following checks issued after the date of the decedent’s death:

(1) Checks for wages earned before death.

(2) Refund checks, including tax and utility refunds, and Medicare, medical insurance, and other health care  reimbursements and payments.

(c) Accounts (as defined in Section 21) in financial institutions.

(d) Cash deposits and money market mutual funds, as defined in subdivision (b) of Section 9730, whether in a financial institution or otherwise, including a brokerage cash account. All other mutual funds, stocks, bonds, and other securities shall be appraised pursuant to Sections 8902 to 8909, inclusive.

(e) Proceeds of life and accident insurance policies and retirement plans and annuities payable on death in lump sum amounts.

The probate referee appraises all other property which typically includes real property, business interests, stocks, etc. Prob C § 8902.

The probate referee is entitled to a fee of 1/10 of 1% of the total value of the property for each estate appraised. Prob C §8961(a). The minimum fee is $75 and the maximum fee is $10,000, although the maximum fee can be increased upon the judge's discretion. Furthermore, the probate referee is allotted reimbursement costs for associated expenses, e.g. travel costs. Prob C §8961(b).   

The following is a hypothetical example of the inventory and appraisal process.

Danny Decedent, a widower, lived at 650 Rosewood Court Los Altos, CA 94024 and had 1 savings account at Star One Credit Union. The aforementioned constituted Danny's entire estate. Danny wrote a will that named his neighbor Jim Rogers as executor. When Danny died in 2013, Mr. Rogers probated the will in Santa Clara Superior Court. Upon being named executor of Danny's estate, Mr. Rogers completed his portion of the inventory and appraisal, i.e. he appraised the value of Danny's Star One account. Mr. Rogers then mailed the appraisal to the probate referee. 

The probate referee went to 650 Rosewood Court to appraise the home. The probate referee appraised the value of the home at $1M. Thereafter, the probate referee mailed his report back to Mr. Rogers and submitted a fee request of $1,000 for the appraisal and $25 for travel costs. Mr. Rogers then filed the completed inventory and appraisal with Santa Clara Superior Court in order to satisfy this probate requirement.  

Disqualified Donee

When a person writes a will and/or trust, there are certain individuals who are generally barred from being a beneficiary of said testamentary instrument. One class of individuals is the drafter of the testamentary instrument. For example, an attorney would generally be barred from writing themselves into a client's will.

This law is designed to protect the client from an unscrupulous lawyer or other malevolent individual.
However, if the drafter is related to the client, then the transfer is permissible.

A recent Court of Appeal decision addressed when the drafter has to be related to the client, at the time of execution or at the time of death.

Estate of Lira (2012) 212 CA4th 1368

Oligario Lira married Mary Terrones in 1968. At the time of their marriage, Oligiario had 3 children from a prior marriage and Mary had 6 children from a prior marriage. One of Oligiario's children is Mary Ratcliff. Given the size of this large blended family, the Terrones-Lira family was the inspiration for the television show "The Brady Bunch." No, not really, it was just too easy to not pass up.

Ms. Terrones filed for divorce in Santa Barbara County on February 21, 2008. This divorce was not finalized until February 21, 2010. During this gap in time, Oligiario executed a will and trust on January 6, 2009. Oligario named his three children and three of his stepchildren as the primary beneficiaries of his will and trust. Oligario named his son Robert Terrones to be the successor trustee and personal representative of his estate. The drafter of his estate plan was Glenn Terrones, a California attorney and son of Robert. Oligiario later died on July 20, 2010.

Mary then petitioned for probate on August 6, 2010 and stated in her filing that Oligiario died intestate. Robert countered by filing his own petition for probate and attached a copy of the will. Mary objected to Robert's petition because Robert was related to the drafter of Oligiario's estate plan, Robert was Glenn's father, but at the time of Oligiario's death, Glenn was not related to Oligiario because of the divorce. 

The issue on appeal was at what time does the statute apply, when the client executes the document or when the client dies. If the former, then Robert's petition would be granted because Oligiario was still married to Ms. Terrones at the time the will and trust was executed. Namely, on January 6, 2009 Oligiario was still legally married to Ms. Terrones. If the latter, then Mary's petition would be granted because Oligiario was not married at his death to Ms. Terrones and thus Glenn had no familial relationship to Oligiario. Oligiario's divorce was finalized on February 21, 2010 and died on July 20, 2010.

The Court of Appeal held that the applicable time is when the client signs the document, not when the client dies. Hence, since Oligiario was still married at the time he executed his will and trust, the transfers to his stepchildren were valid because on January 6, 2009 he had a familial relationship to Glenn and thereby Robert. 

Class Gift

On occasion, a person will want to leave an inheritance for a group of relatives. This is known as a class gift. For example, a person could write a will or trust that gives $100,000 to be split amongst his "grandchildren."

If a person writes a class gift clause in a
document, there are a couple of issues to take into considerations. 

First, the person should specify what will happen if one of the beneficiaries predeceases the person. This is known as lapse. In order for a beneficiary to inherit, they must survive the person.
Assume Thierry wants to leave a gift of $100,000 to his 4 grandchildren as a class gift: Laurent, Bacary, Gael and Mathieu. Gael passes away in a tragic hot air balloon accident in 2013 . Thierry then passes away in 2014 (yes I can predict the future). 

The question then posed is whether Gael's $25,000 inheritance goes to the other grandchildren or some other person. It would be prudent for Thierry to delineate what happens to the share of a predeceased beneficiary, namely Gael. He could either state that the Gael's share goes to the surviving grandchildren, the residue of his estate or something else. Regardless, it is best to be precise because resolving an ambiguity in a will is typically arduous, lengthy and costly.

Second, the person should define the class. For instance, if the gift is to the children, they should specify how "child" is to be defined. 
For example, child does or does not include an adopted child, a step-child, a child born out of wedlock, etc. By not defining the term, relatives can conveniently come out of the woodwork and claim to be a rightful beneficiary. Money, rightfully or wrongfully, is a great motivator in life.

Third, the person should specify when the interest vests. For example, the person should mention if the inheritance is payable immediately when they die or the beneficiary must wait until a later time to collect. It is common to withhold an inheritance from a young person given the typical inclination of youth to engage in profligate spending. Hence, a clause which provides for distribution when the beneficiary reaches 25 is common.  Furthermore, it is imprudent to provide a child with a large inheritance. Generally speaking, if a child receives greater than a $5,000 inheritance outright, a court-supervised guardianship will be needed until they turn 18. This guardianship is both time-consuming and expensive.