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How Estate Planning Affects Your Business Agreements With Family Members

Doing business with family members is always complicated. It can get even more complicated if one family member dies before a business transaction is completed. Most of us are understandably reluctant to push a legal matter, even one involving estate planning, when a relative is ill or possibly dying. Unfortunately, California judges cannot allow whatever sympathy they might feel for the family to override the law.

Sister Waits Too Long After Brother’s Death to Enforce Contract

Consider this recent case from right here in San Diego. A woman and her husband entered into a real estate deal with her late brother. The brother was in the business of “flipping” properties. The sister and brother-in-law were looking to buy a house for themselves.

The brother identified a rental property that he owned but that was facing foreclosure. The brother initially signed a contract to sell the property to his sister and brother-in-law. But they later “orally” modified the contract. Under the modified terms, the sister and brother-in-law made the mortgage payments, but the brother would retain title to the property until a pending loan modification application was approved by one of the mortgage holders.

About a year later, the brother fell ill. He still had not transferred title to the property. The sister said she did not press the issue due to her brother’s “progressively worse health.” Another year passed, by which time the brother died, “still holding the property,” according to court records.

More than a year after his death, the sister and brother-in-law filed a petition with the Probate Court to receive title to the property pursuant to their original contract with the brother. But the brother died without a will, and one of the heirs entitled to inherit his estate under California intestacy law objected to the petition. Specifically, the heir pointed out that when seeking to enforce a claim against a deceased individual, there is a one-year statute of limitations commencing with the date of death. Since the sister and brother-in-law waited more than a year, their claim was barred as a matter of law.

The courts accepted this argument. The California Fourth District Court of Appeals said in an unpublished opinion, “We sympathize with the position Petitioners were in, and we respect their selflessness and compassion during [the brother’s] illness.” But they still had a “full year” after his death to assert their contractual rights against the estate. The court also rejected the notion that the brother was actually holding the property “in trust” for the sister and brother-in-law. Under California law, no such trust was created because the brother already owned the property when he entered into the contract.

Do Not Handle Estate Planning by Yourself

The trial judge who initially denied the sister and brother-in-law’s petition observed that it was “unfortunate and sad” they did not consult with a qualified California estate planning attorney before entering into their contract with the brother. When people do their own estate planning, the judge said, “It comes out badly very often.”

Having a proper estate plan is probably the most compassionate thing you can do for your family. The last thing any of us want is for our relatives to deal with costly and unnecessary litigation after we pass away. If you need with preparing an estate plan, contact the Law Office of Scott C. Soady today.

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