San Diego Estate Planning Lawyer Blog
When you name someone as a beneficiary of your last will and testament, you are effectively making a gift to that person (conditional on your death). A testamentary gift can take the form of cash, property, or even forgiveness of an outstanding debt. For example, if you loaned your child $10,000 during your lifetime, you may include a clause in your will canceling the loan, thereby absolving her of any legal duty to repay your estate.
Sisters Continue Lengthy Fight Over Father’s Forgiveness of Business Loan
California law defines a gift as “a transfer of personal property, made voluntarily, and without consideration.” If you plan to forgive a debt as part of your estate plan, it is important to do so expressly in writing. California does not recognize “verbal” gifts “unless there is an actual or symbolical delivery of the thing to the donee.”
Recently, a California appeals court addressed a case involving a purported gift to a child based on a father’s oral promise. The father was a wealthy businessman from Hong Kong. The daughter lives in the United States and assisted in the management of her father’s investments in this country. In 1995, the father loaned the daughter $30 million to purchase a ranch in Utah. The father did not loan the money directly. Instead, he used a company under his 100% control to extend a line of credit to his daughter.
In the years following the loan, the father’s mental condition began to deteriorate due to the onset of Alzheimer’s disease. In July 2003, the father apparently prepared at least two unsigned documents expressing gifts he wished to make to his children. Both documents referred to forgiving the loan made to the daughter; however, the father never actually signed a document expressly stating as such.
By 2008, the father was no longer capable of managing his affairs. The daughter successfully petitioned a Hong Kong court to appoint an outside conservator to supervise her father’s assets. The father passed away in 2012.
In 2009 the father’s company—the one that technically extended the line of credit to the daughter—declared her in default of the loan and demanded immediate repayment. The daughter said this was merely an attempt by her sister, who was effectively managing the company at that point, to punish her for bringing the conservatorship case against their father. In any event, the two sisters have been effectively litigating this issue now for nearly eight years.
A California court initially granted summary judgment to the company. But the California Second District Court of Appeal reversed that decision in October, holding there was a “triable issue of fact” as to whether or not the father ever forgave the loan. The litigation will therefore continue in the foreseeable future.
Get Help From a San Diego Estate Planning Lawyer
The lesson from the case above is to always put your intentions in writing. Had the father simply included language in his will expressly forgiving the loan, the litigation that followed would probably not have been necessary. While most of us are not in a position to loan our children millions of dollars to buy an investment property, there may be any number of smaller debts you may wish to forgive. If you need assistance from an experienced California estate planning attorney in how to forgive a debt as part of your own will, contact the Law Office of Scott C. Soady today.