Does My Estate Plan Impact My Family Business Agreement?

GM Group, PC discusses whether or not your estate plan impacts your family business agreement.

There is a reason that people often say not to do business with family. When working directly with the ones you love, it can be difficult, as a business is just that and feelings can easily become affected. Adding to the difficulty of doing business with family is when a family member dies before you reach a family business agreement.

When one of our relatives is terminally ill or actively dying, the last thing we generally care to do is to discuss our estate plan with them. It seems insensitive and insignificant. However, while this is understandable, it does not negate the law. 

California Case Law

One such tough situation occurred in a 2017 California case in which a woman and her husband had entered into a real estate agreement with her brother. She and her husband were looking to buy a new house and her brother was an experienced “flipper.”

The brother located a property that he thought they would like. It was about to be foreclosed upon and so the brother had signed a contract that he would sell the property to his sister and brother-in-law. However, they all eventually agreed orally to a modification. The modification was that the sister and brother-in-law would make the mortgage payments, but that the brother would keep the property title until one of the mortgage holders had approved of the pending loan modification application. 

Issues Upon Death 

Sadly, about a year later, the brother became ill and passed another year later. When he died, he had not yet transferred the property title to his sister and brother-in-law. After he fell ill, the sister did not want to bring up the issue because she said that his health was becoming progressively worse. So when the brother passed, he still held the title to the property. 

More than a year later, the sister and her husband filed a petition with the Probate Court to have the property title transfer to them as was discussed in their oral modification of the contract. Unfortunately, the brother died intestate so, under California law, specific heirs were designated. One of the brother’s heirs objected to the sister’s petition, claiming that the couple had violated the one-year statute of limitations for enforcing a claim. They were prohibited from their claim as a matter of law. 

The Problem with Considering the Property Held in Trust

The California Court of Appeals for the Fourth District explained that while they admired the couple and felt for them, given their selflessness during that sad time, they still had a year after his death to file the claim. The Court also expressed that under state law the property could not be considered as held in trust for the sister and her husband since her brother was already the property owner upon entering into that contract. 

It is important to note that the trial judge referred to the case as “unfortunate and sad” in that they did not consult with a knowledgeable and experienced estate planning attorney before entering into their contract. 

The Importance of a Qualified Estate Planning Attorney for a Family Business Agreement

While the couple certainly maintained their compassion given the brother’s failing health, likely, he did not want for them to have to deal with any of the litigation or issues after he had passed away. That is why it is so important to find a qualified estate planning attorney to ensure that you have dotted your “I’s” and crossed your “T’s.” It’s in everyone’s best interest.

Posted in: Estate Planning