Private Trusts
A private trust is a fiduciary relationship with respect to property whereby one person, the trustee, holds legal title for the benefit of another, the beneficiary, and which arises out of a manifestation of intent to create it for a legal purpose.
Trust assets do not go through probate. Revocable living trusts go into effect while the settlor (creator) is alive. Testamentary trust go into effect when the settlor dies. The presumption in California is that living trusts are revocable. It is important to note that the things in the trust belong to the trust, not the settlor.
Creating a revocable living trust
First, there must be a declaration of trust. The settlor must say “I declare that I hold X in trust” and I designate Y as trustee. It’s possible to do this orally if the SOF doesn’t require a writing. The trust becomes effective when you make the declaration.
Second, the settlor must give up at least a tiny bit of interest for creation of a valid living trust. A revocable living trust is valid even if it only transfers things at death. Even having to give written notice to yourself to revoke or change the trust constitutes some interest. Giving a beneficiary the right to sue after the trustee’s death is also an interest. If you don’t find an interest being given up, then it’s testamentary, and you must meet all the wills formalities.
Third, the settlor must specify which items go into the trust. Usually there is an appendix that lists the items in the trust.
Finally there must be ascertainable beneficiaries. For more on private trusts.
Revoking a trust (different than revoking a will)
For trusts, a simple intent to revoke (tearing it up) revokes a trust unless there are specific instructions on how to revoke in the trust documents. Specific instructions trumps intent. So if the trust documents specify how to revoke, then that is the ONLY way to revoke, EVEN IF you manifest intent to revoke and tear up the trust documents. No matter how senseless the directions are, you have not revoked the trust unless you followed the specific instructions in the trust. Note that revocable living trusts become irrevocable upon settor’s death.
This is very different than revoking a will. See previous post on revoking a will. The only way to revoke a will is by physical act, a subsequent will that expressly revokes the first will, if a subsequent will is inconsistent with the first will, or through operation of law.
Can creditors get to assets of a revocable living trust?
Just because the living trust becomes irrevocable because the settlor died doesn’t necessarily mean the creditors can’t reach it. To the extent that the settlor could have had access to the assets during his life, the creditors can too, even after the settlor's death. But creditors can only go after the trust to the extent the estate doesn’t satisfy their debt after going after the estate first.
However, if the settlor put his or her assets in an irrevocable living trust, the creditors can’t reach it (before or after the settlor's death) because the settlor can’t touch it either.
Pour over trusts (different than testamentary trust)
A pour over trust is a trust that is funded through a will. The terms of trust are in a separate document. The will simply dictates what goes into the pour over trust. For example, the will says: X to A, Y to B, Z to C, and the residue to be placed in Trust J.
In contrast, a testamentary trust is not only funded through a will, but it is also created by a will, so the terms of the trust are in the actual will itself - not in a separate trust document.
To have a valid pour over trusts, there must be a separate trust in existence. The UTATA view is that it doesn’t matter that the trust has no assets until the testator dies and the assets pour over. You may validate a trust via incorporation by reference. The UTATA view is also that you can change the trust informally in a way that doesn’t change your will. For example, you can cross out C and put D in your trust as residuary beneficiary of the pour over trust and it will be effective. Note that you can’t do this is a will, or a pour over provision because you must meet the formalities of a will change. See post on execution of wills.
Pour over trust must go through probate
A living trust avoids probate, but a pour over trusts must still go through probate. The judge must issue an order directing that you place the assets in a trust. But the advantage of a pour over trust is that assures the testator a uniform scheme of putting all remaining assets in a trust. It accounts for all assets after the testator dies. A living trust, on the other hand, must specifically name all assets, thus it’s virtually impossible account for all your assets in a living trust. The testator could acquire an asset after creation of a living trust, for example.
Revocation of pour over trusts by divorce?
In California, although divorce revokes, as a matter of law, gifts by will, it does not revoke gifts made through a trust! If you get divorced, it will not revoke dispositions made by will substitutes/trusts. However, in some states, divorce revokes a gift in a will that is part of a single testamentary scheme with a will (including pour over trusts).
Gifts
Gift causa mortis is a gift made in contemplation of imminent death. Giving money away while you are alive effectivly avoids probate. A valid gift requires (1) intent to make a gift and (2) delivery. Delivery means it must be manually handed over, if possible. Constructive delivery is where you give someone something that allows them to access the item/gift (such as a the key or a combination to a safe-deposit box). Constructive delivery is found when the donor has done everything possible to effectuate a delivery and there is no issue of fraud or mistake. Symbolic delivery is where you deliver title or pink slip to a car.
An expectation of profit or earnings can be considered property for purposes of a gift, it but it's not property for purposes of funding a trust.
Contracts with payable on death provisions
Bank accounts or securities registered in beneficiary form. There might be a payable on death provision to a contract or pension fund or part of life insurance policy that says if I die, pay X. In this case, the assets will be paid directly to X. X doesn’t have to go to court. You just get a death certificate and X gives it to the bank. This avoids probate.
Moreover, creditors can’t get these when you die.
Note you cannot change the beneficiary of a POD by will. You have to go to the bank or the insurance company and tell them you want to change the beneficiary.
Life insurance
Putting money in life insurance policy is also another way to avoid probate.
Joint tenancy
Making your intended heir a “joint tenant” also avoids probate. A joint tenant automatically receives the property and creditors can’t reach assets of a joint tenancy post-death.
Note that changing a beneficiary of a will substitute by means of a will is almost always ineffective. For example, John has a bank account that lists Ellen as the beneficiary when she dies. Later, he makes a will that gives Tom the assets in the bank account. The money in the account goes to Ellen and it does not go through probate after Ellen provides the bank with a death certificate.
Living will
A living will honors how you wish to die. There are certain life support issues that may arise. A person can express their desire through a living will. Alternatively, they can execute a power attorney (letting someone else decide).
Wednesday, July 8, 2009
Revoking a Will and Dependent Relative Revocation (DRR)
Any testator with capacity can revoke all of part of his will at anytime. A valid will, once executed, can be revoked by (i) a written instrument, (ii) a physical act, or (iii) operation of law (i.e. divorce). Dependent relative revocation (DRR) is a doctrine that can "undo" a revocation.
(i) Revocation by subsequent written instrument
Executing a valid subsequent will that 1) expressly revokes previous will or 2) is inconsistent with the previous will.
Express revocation
A will that expressly revokes a previous will will say something like “I revoke the will made on January 1, 2000” or “I revoke any will previously made.” A formally attested wills can be revoked by a holographic wills (and vice versa). An oral revocation is completely invalid
Revocation through inconsistency
Making an inconsistent disposition in a subsequent will may revoke the previous will. For example, Sam has a will giving his car to Alice, and the rest of his estate to Mel. He then makes another will giving his car to Bob. The second will partially revoked the first will and is therefore considered a codicil to the first will. The gift to Alice is revoked and Bob gets the car. Mel continues to get the rest of the estate. You must read the 2 documents together.
In another example, assume Debbie has a will giving all of her estate to Ann. She then makes another will giving all of her estate to Becky. The second will revokes the first one because it is completely inconsistent.
(ii) Revocation by physical act
There are 3 requirements that must be satisfied for a will to be revoked by physical act. First, the will must be “burned, canceled, destroyed, torn or obliterated.” It's not enough to write “void” or “cancel” in the margin. You have to mutilate it. You can write something that effects the face of the will like an X through the whole will.
Second, the act must be accompanied simultaneously by a present intent to revoke the instrument. Therefore, accidental burning will not revoke the will. Where the act of revocation is performed by a person other than the testator, the other person must act in the presence of the testator and at the testator’s direction.
Third, the act must be done by the testator or by someone in the testator's presence and at his direction.
Partial revocation
You can always revoke partially by express subsequent will, however because of fraud concerns, most states do not allow partial revocation by physical act. California is one state that allows for partial revocation by physical act.
Sometimes hard to see whether the testator intended to revoke some or all. If the testator clearly strikes out one sentence, that’s a partial revocation. If the testator puts X through paragraph that’s partial as well and the rest of the will is effective. But sometimes you can’t tell if they are trying to revoke whole thing. In that case, the judge interprets the will.
Cancellation and interlineation: you cannot informally add to a formal will
While you can informally revoke a formal will, you can’t informally add to a formal will. Assume someone crossed out Jim’s name in a will and writes in Jane instead of Jim. The crossing out is allowed as as revocation, the addition of Jane is not valid. You can’t add to a formal will by crossing out a name and adding someone else’s name, BUT you can do this with holographic wills! If you had a holographic will it can be changed informally by crossing out and adding a new name. If it’s a holographic will, crossing out a provision and adding a new one in his handwriting is both a revocation and a valid new disposition. Testator's prior signature is deemed adopted at the time of interlineation and all material terms are in the testator's handwriting.
If, in between the lines, you write “I give my entire estate to Jane” and the testator signs it, NOW there is a holographic will. There is a material provision and it was signed, so this will be an effective holographic codicil, and the gift to Jane will be carried out.
Assume the testator executes a typed formally attested will that states "I leave $10,000 to Monica." Then, the testator takes a pen and crosses out the the $10,000 and writes $15,000 above the $10,000. Testator signs his name. Do we have a valid holographic codicil on top of a formal will? No. The $15,000 gift is invalid as a holographic will because material provisions (gifts and names of the beneficiaries) are not in the testator's own handwriting. Because the $10,000 gift to Monica has been revoked by physical act (cancellation + intent), Monica takes nothing.
But dependent relative revocation (discussed below) can save this gift. Basically, we can save Monica's gift so she takes the original $10,000. The revocation is said to have been conditional on the $15,000 being effective. Since the $15,000 wasn't effective, by operation of law, the $10,000 revocation was never effective. Clearly, the testator would rather Monica take $10,000 over nothing because the testator indicated that he wanted to increase his gift to Monica. If Monica can't take $15,000, let her at least take $10,000.
However, if testator's interlineation was $5,000 rather than $15,000, dependent relative revocation may not save Monica's gift. Perhaps the testator wanted Monica to take nothing than $10,000.
Note that a cancellation will not increase a gift. If testator write "I leave my farm to X and Y" and then he crosses out Y, then X gets 1/2 of the farm and Y's 1/2 will go to the residuary.
Duplicate copy vs. duplicate original
Destruction of a duplicate copy will not revoke, but destruction of a "duplicate original" will revoke the will. Assume a lawyer has a will executed for a client and keeps the original in his office safe. He gives the client a photocopy that wasn’t signed. If the client destroys the copy with intent to revoke the will, the will still remains in effect. Sometimes, however the lawyer will make a "duplicate original" will (both documents are properly executed). If the testator tears up a "duplicate original," then the will is validly revoked.
If a will is not found at death, there is a presumption of revocation
This presumption arises if the testator is known to have will at her house and it’s in her possession. After she dies the will, the will can’t be found. There will be a presumption that the testator destroyed the will with intent to revoke the will. However, you can produce evidence to rebut. This presumption can be rebutted by showing someone had motive and opportunity to destroy the will.
If a will is found in a mutilated condition at the testator's death and when last seen it was in the testator's possession, there is a rebutable presumptino that the testator mutilated the will with the intent to revoke the will.
Codicil revocation
An act of physical revocation performed on a codicil will not revoke the will even if the testator intended to. Revocation of codicil only revokes the codicil. But, if you revoke the will, and not the codicil, the revocation of the will also revokes the codicil.
(iii) Revocation through operation of law
A will is revoked by operation of law through marriage or divorce. It is deemed that people would not want their wills to stand because of the change in circumstance. Unless you can show testator intended it to stay in effect, marriage or divorce will destroy previously made wills. This applies only to wills in California, and it does not apply to will substitutes.
(iv) "Revival" and Dependent Relative Revocation (DRR)
Revival occurs when will #2 is valid, then revoked. Will #1 is "revived." For example, will #1 is executed. Will #2 is executed, and will #1 is either expressly or implicitly revoked in whole or in part by will #2 (through a revocation clause or inconsistency). Then, will #2 is revoked. Is will #1 now admissible to probate as originally executed (i.e. is will #1 revived?). Generally no, will #1 is not revived, but in California, if the testator in revoking will #2, manifests an intent to revive will #1 to come back to existence, will #1 is revived. But you must show when will revoked will #2, the testator intended will #1 to be revived.
Dependent relative revocation is a different concept. It occurs when will #2 was never valid to begin with or does not properly effectuate the testator's inent. Will #1 is "unrevoked." Generally DRR arises when you revoke will under a mistake. DRR is also called “conditional revocation” or “second best doctrine.” The basic idea is that a revocation (will #1) is dependent (conditional) upon another disposition (will #2) being effective/valid. For example, assume testator revokes will #1 by tearing it up and drafts will #2 in its place. She thought that will #2 is valid, but it’s not -- or perhaps will #2 does not effectuate intent because of the disinterested witness rule or because it didn't meet the wills formalities. Testator would not have revoked will #1 if she knew the truth, that will #2 is invalid / ineffective. Therefore the will #1 remains in effect. The rule is this:
Under DRR, will #1 is not revoked if 3 elements are met.
First, the testator must revoke a will (usually by physical act and sometimes by a subsequent instrument).
Second, the testator must have had a mistaken belief of law or fact at time of revocation. For example, when revoking will #1, T thought will #2 was valid or that will #2 would effectuate his intent.
Third, the testator would not have revoked will #1 if he knew the truth. If the testator would rather have will #1 apply than his propert pass through intestacy, then it's good evidence that he wouldn't have revoked will #1 if he knew the truth.
DRR is really "the second best doctrine" because it won’t give the testator his first choice. It will un-revoke will #1 but your really wanted will #2. It won’t make will #2 valid. But if you’d rather have will #1 than have it go by intestacy, then DRR can help.
Promises not to revoke or promises to make a will
Promises not to revoke is governed under contract law. The non-breaching party can sue for specific performance, but there must be written evidence of the contract. CPC § 150(A)(1) ("provision of a will stating material provision of the contract, express reference to a contract in a will to a contract and extrinsic evidence proving the terms of the contract, in a signed writing by the decedent evidencing the contract"). Generally, a joint will or a mutual will won't create a presumption that it creates a promise not to revoke. However, some courts do hold that they promise not to change the joint plan.
(i) Revocation by subsequent written instrument
Executing a valid subsequent will that 1) expressly revokes previous will or 2) is inconsistent with the previous will.
Express revocation
A will that expressly revokes a previous will will say something like “I revoke the will made on January 1, 2000” or “I revoke any will previously made.” A formally attested wills can be revoked by a holographic wills (and vice versa). An oral revocation is completely invalid
Revocation through inconsistency
Making an inconsistent disposition in a subsequent will may revoke the previous will. For example, Sam has a will giving his car to Alice, and the rest of his estate to Mel. He then makes another will giving his car to Bob. The second will partially revoked the first will and is therefore considered a codicil to the first will. The gift to Alice is revoked and Bob gets the car. Mel continues to get the rest of the estate. You must read the 2 documents together.
In another example, assume Debbie has a will giving all of her estate to Ann. She then makes another will giving all of her estate to Becky. The second will revokes the first one because it is completely inconsistent.
(ii) Revocation by physical act
There are 3 requirements that must be satisfied for a will to be revoked by physical act. First, the will must be “burned, canceled, destroyed, torn or obliterated.” It's not enough to write “void” or “cancel” in the margin. You have to mutilate it. You can write something that effects the face of the will like an X through the whole will.
Second, the act must be accompanied simultaneously by a present intent to revoke the instrument. Therefore, accidental burning will not revoke the will. Where the act of revocation is performed by a person other than the testator, the other person must act in the presence of the testator and at the testator’s direction.
Third, the act must be done by the testator or by someone in the testator's presence and at his direction.
Partial revocation
You can always revoke partially by express subsequent will, however because of fraud concerns, most states do not allow partial revocation by physical act. California is one state that allows for partial revocation by physical act.
Sometimes hard to see whether the testator intended to revoke some or all. If the testator clearly strikes out one sentence, that’s a partial revocation. If the testator puts X through paragraph that’s partial as well and the rest of the will is effective. But sometimes you can’t tell if they are trying to revoke whole thing. In that case, the judge interprets the will.
Cancellation and interlineation: you cannot informally add to a formal will
While you can informally revoke a formal will, you can’t informally add to a formal will. Assume someone crossed out Jim’s name in a will and writes in Jane instead of Jim. The crossing out is allowed as as revocation, the addition of Jane is not valid. You can’t add to a formal will by crossing out a name and adding someone else’s name, BUT you can do this with holographic wills! If you had a holographic will it can be changed informally by crossing out and adding a new name. If it’s a holographic will, crossing out a provision and adding a new one in his handwriting is both a revocation and a valid new disposition. Testator's prior signature is deemed adopted at the time of interlineation and all material terms are in the testator's handwriting.
If, in between the lines, you write “I give my entire estate to Jane” and the testator signs it, NOW there is a holographic will. There is a material provision and it was signed, so this will be an effective holographic codicil, and the gift to Jane will be carried out.
Assume the testator executes a typed formally attested will that states "I leave $10,000 to Monica." Then, the testator takes a pen and crosses out the the $10,000 and writes $15,000 above the $10,000. Testator signs his name. Do we have a valid holographic codicil on top of a formal will? No. The $15,000 gift is invalid as a holographic will because material provisions (gifts and names of the beneficiaries) are not in the testator's own handwriting. Because the $10,000 gift to Monica has been revoked by physical act (cancellation + intent), Monica takes nothing.
But dependent relative revocation (discussed below) can save this gift. Basically, we can save Monica's gift so she takes the original $10,000. The revocation is said to have been conditional on the $15,000 being effective. Since the $15,000 wasn't effective, by operation of law, the $10,000 revocation was never effective. Clearly, the testator would rather Monica take $10,000 over nothing because the testator indicated that he wanted to increase his gift to Monica. If Monica can't take $15,000, let her at least take $10,000.
However, if testator's interlineation was $5,000 rather than $15,000, dependent relative revocation may not save Monica's gift. Perhaps the testator wanted Monica to take nothing than $10,000.
Note that a cancellation will not increase a gift. If testator write "I leave my farm to X and Y" and then he crosses out Y, then X gets 1/2 of the farm and Y's 1/2 will go to the residuary.
Duplicate copy vs. duplicate original
Destruction of a duplicate copy will not revoke, but destruction of a "duplicate original" will revoke the will. Assume a lawyer has a will executed for a client and keeps the original in his office safe. He gives the client a photocopy that wasn’t signed. If the client destroys the copy with intent to revoke the will, the will still remains in effect. Sometimes, however the lawyer will make a "duplicate original" will (both documents are properly executed). If the testator tears up a "duplicate original," then the will is validly revoked.
If a will is not found at death, there is a presumption of revocation
This presumption arises if the testator is known to have will at her house and it’s in her possession. After she dies the will, the will can’t be found. There will be a presumption that the testator destroyed the will with intent to revoke the will. However, you can produce evidence to rebut. This presumption can be rebutted by showing someone had motive and opportunity to destroy the will.
If a will is found in a mutilated condition at the testator's death and when last seen it was in the testator's possession, there is a rebutable presumptino that the testator mutilated the will with the intent to revoke the will.
Codicil revocation
An act of physical revocation performed on a codicil will not revoke the will even if the testator intended to. Revocation of codicil only revokes the codicil. But, if you revoke the will, and not the codicil, the revocation of the will also revokes the codicil.
(iii) Revocation through operation of law
A will is revoked by operation of law through marriage or divorce. It is deemed that people would not want their wills to stand because of the change in circumstance. Unless you can show testator intended it to stay in effect, marriage or divorce will destroy previously made wills. This applies only to wills in California, and it does not apply to will substitutes.
(iv) "Revival" and Dependent Relative Revocation (DRR)
Revival occurs when will #2 is valid, then revoked. Will #1 is "revived." For example, will #1 is executed. Will #2 is executed, and will #1 is either expressly or implicitly revoked in whole or in part by will #2 (through a revocation clause or inconsistency). Then, will #2 is revoked. Is will #1 now admissible to probate as originally executed (i.e. is will #1 revived?). Generally no, will #1 is not revived, but in California, if the testator in revoking will #2, manifests an intent to revive will #1 to come back to existence, will #1 is revived. But you must show when will revoked will #2, the testator intended will #1 to be revived.
Dependent relative revocation is a different concept. It occurs when will #2 was never valid to begin with or does not properly effectuate the testator's inent. Will #1 is "unrevoked." Generally DRR arises when you revoke will under a mistake. DRR is also called “conditional revocation” or “second best doctrine.” The basic idea is that a revocation (will #1) is dependent (conditional) upon another disposition (will #2) being effective/valid. For example, assume testator revokes will #1 by tearing it up and drafts will #2 in its place. She thought that will #2 is valid, but it’s not -- or perhaps will #2 does not effectuate intent because of the disinterested witness rule or because it didn't meet the wills formalities. Testator would not have revoked will #1 if she knew the truth, that will #2 is invalid / ineffective. Therefore the will #1 remains in effect. The rule is this:
If the testator revoked his will under the mistaken belief that a substantially identical will or codicil effectuates his intent, then by operation of law, the revocation of the first will be deemed conditional or dependent on the second will effectuating the testator’s intent. If the second will does not effectuate the testator’s intent, then the first will, was never revoked.
Under DRR, will #1 is not revoked if 3 elements are met.
First, the testator must revoke a will (usually by physical act and sometimes by a subsequent instrument).
Second, the testator must have had a mistaken belief of law or fact at time of revocation. For example, when revoking will #1, T thought will #2 was valid or that will #2 would effectuate his intent.
Third, the testator would not have revoked will #1 if he knew the truth. If the testator would rather have will #1 apply than his propert pass through intestacy, then it's good evidence that he wouldn't have revoked will #1 if he knew the truth.
DRR is really "the second best doctrine" because it won’t give the testator his first choice. It will un-revoke will #1 but your really wanted will #2. It won’t make will #2 valid. But if you’d rather have will #1 than have it go by intestacy, then DRR can help.
Promises not to revoke or promises to make a will
Promises not to revoke is governed under contract law. The non-breaching party can sue for specific performance, but there must be written evidence of the contract. CPC § 150(A)(1) ("provision of a will stating material provision of the contract, express reference to a contract in a will to a contract and extrinsic evidence proving the terms of the contract, in a signed writing by the decedent evidencing the contract"). Generally, a joint will or a mutual will won't create a presumption that it creates a promise not to revoke. However, some courts do hold that they promise not to change the joint plan.
Executing a Will: Formal Wills & Holographic Wills
There are two basic types of wills: (1) formal wills, and (2) holographic wills (informal wills).
Execution of Formal Wills
These are referred to as “tested” or “witnessed" wills. In contrast, holographic wills (informal wills) do not have to be witnessed. To have a valid formal will, five requirements must be met.
First, the will must be in writing. In California, oral wills are not valid.
Second, the will must be signed by the testator. It can be signed informally as "Dad" or if the person is illiterate, "X" is okay. If the testator is incapable of signing the will himself, he can ask someone else to sign it on his behalf, but it must be at the testator's direction and in testator's presence. The person who signs has to sign the testator's name.
Third, the will must be signed by 2 witnesses that are present at the same time who understand that the document being signed is the testator's will.
Fourth, the 2 witnesses must see the testator sign the will or they must see or hear the testator acknowledge his signature or acknowledge that this is his will. Usually witnesses will sign under an attestation clause (although not technically required). It recites what the witnesses did (which witnesses were present, who saw the testator sign the will, etc). Either the testator can say “this is my signature” or he can say “that’s my will.”
Fifth, the testator must have testamentary intent. The testator must intend that this document be his will. If you sign a formally attested, that is strong evidence that there was testamentary intent.
Who can be a witness?
The person must be competent. The witness doesn't have to know the content of the will. The witness should not be "interested" (if you receive an interest from the will, then you are interested). Under common law, the signature of interested witness didn’t count.
In California, a signature of an interested witness counts and the will is still valid, but there is a presumption (rebuttable) that the witness exerted undue influence on the testator. Unless rebutted, the witness gets nothing. What is undue influence? See my testamentary capacity post.
However, if the interested witness is someone who would have inherited by intestacy, the interested witness will still receive his or her interested shares.
Self-proving affidavits and attestation clauses
Neither are required but are typically included. Attestation clauses show intent to be a witness. Usually it will say something like “we hereby witness the will” (present tense). Attestation clauses are useful in proving due execution of a will. It makes out a prima facie case that the will was duly exercised and thus the will may be admitted to probate even though the witness predeceases the testator or cannot recall the events of execution. Self-proving affidavits say that you witnessed it already (past-tense). Usually it wills ay something like “we have witnessed the will.” This can be done by someone other than who did the attestation clause.
Components of a will
The concept of integration is important in understanding the components of a will. Generally, papers that are present at the time of execution and that the testator intends to be part of the will are part of the will. If something is physically attached, you can use doctrine of integration. The lesson is: use a stapler to attach documents you want to be considered part of the will.
For example, if the testator comes to the execution ceremony with a piece of paper that gives away some personal possessions and it is attached, through the doctrine of integration, the separate list could be part of her will and would be carried out. But if the list is not physically present when the will is executed, it is not part of her will.
Incorporation by reference
A writing in existence when a will is executed may be incorporated by reference if the language of the will manifests intent to incorporate and describes the writing sufficiently to permit its identification. CPC § 6130.
Codicils
A codicil is an amendment or an addition to a will. It must be executed with the same formalities as a will. If you have validly attested will and you created a codicil, it's okay that the codicil is handwritten as long as the codicil is valid as a holographic will. (see below for a discussion on holographic wills). The two documents must be read as a single document and will be dated on date of codicil. For example, if a woman executes a will in 1990 and in 2000, she executes a codicil to the 1990 will, the documents are read together as a single will, dated 2000.
Doctrine of republication by codicil
The doctrine of replication by codicil can help if you are trying to later incorporate a document by reference. There must be a manifestation of intent to incorporate and the document must be clearly identified.
Replication by codicil may validate a will that was previously invalid. If the first will was invalid because there was lack of capacity or perhaps it wasn’t properly executed, and then later you add a valid codicil, the valid codicil can validate the previously invalid will. Basically, if there is capacity and proper execution of the subsequent codicil, then the first will becomes valid. For example, if a woman was not competent when she executed her 1990 will, but she was competent when she executed the 2000 codicil, the proper execution of the 2000 codicil republishes or validates the 1990 will, and both docs will be carried out. A simple little handwritten sentence (codicil) can breath life into an otherwise invalid will.
Is it a codicil or a will?
Is the subsequent document a codicil to the first will or a second will? If its carefully drafted, a good lawyer will say “codicil” but sometimes you have to figure out whether it’s a codicil or a whole new will. If there is a revocation clause, you can assume it’s a will. If there is no revocation clause, but there is total inconsistency, it revokes by inconsistency and the document is probably a will. If it's only partly inconsistent, then you probably have a codicil.
Substantial compliance / clear and convincing evidence of intent
For testators dying on or after January 1, 2009, under California Probate Code § 6110(2), if a writing or document doesn’t meet the witnessing formalities of a will, the writing or document is treated as if it meeting all formalities if you have clear and convincing evidence that at the time the T signed the will, he intended the will to be his will. But we still need T’s signature and 2 witnesses signatures. So failing to have both witnesses be present at the same time the T signed the will could be overlooked.
Dispensing power
Some other states recognize dispensing power (harmless error) which is the approach advocated in the UPC, not California. Dispensing power excuses any formal requirement for executing or revoking a will if the proponent can establish by clear and convincing evidence that the testator intended the document to be his will. This is broader than CA’s rule. Thus, although the T mistakenly signed the wrong will, this would not be excused under the CA rule, but it would be excused under dispensing power.
Exception to formalities: changing a will by non-testamentary acts
You don’t need to meet the formalities requirement again if you change a will by non-testamentary acts. Acts of independent significance permit a testator to effectively change the disposition of his property without formally changing a will. If acts or events changing the disposition have some significance beyond avoiding the requirements of the will, then they are allowed.
Foreign wills
What about people who move to CA from another state? They are now domiciled in CA. CA law determines whether their will is valid. But what if they come from a state with different formality requirements? (i.e. some states don’t require that the 2 witnesses be present at the same time). In CA, a will is valid if (1) it was executed in compliance with CA law, (2) it is was in conformity of the law of the state where the will was executed or the place of testator's domicile at the time of execution.
Execution of Informal or Holographic Wills
Informal or holographic wills are valid in California and about ½ of other states. Holographic wills do not have to be witnessed. However, 3 requirements must be met to qualify a document as a valid holographic will.
First, it must be signed by the testator. Note that the provision allowing another to sign at the testator’s direction and presence only applies to formal, not holographic wills. The testator must actually sign the document. The signature can be anywhere in the document.
Second, at least one material provision must be in testator’s own handwriting. “Material” means it must have some legal effect. The best example is giving away assets. If you give money away that’s material. Other things that are material include: naming beneficiaries, revoking a previous will, appointing someone executor or guardian of your kids.
Third, the testator must have testamentary intent. For example, a man writes a letter to his daughter and he signs it “dad” and at the end he writes a P.S. that says “if anything happens to me, I want you to have my entire estate.” The P.S. is a valid holographic will. The use of “estate” and his contemplation of death shows testamentary intent. He signed it, and giving away assets is a material provisions, so this is a valid holographic will. When a writer is contemplating death or is using of legalese such as “estate,” this tends to show testamentary intent.
Extrinsic evidence is admissible to ascertain the testator's intent.
Problems of pre-printed form wills
David buys a printed will form that says “I give ___ to ___.” He fills in “$1000” and “Jane Smith” in the blanks. Here, there is no material provision in his handwriting. David's handwriting simply read “$1000 Jane Smith” -- which is meaningless. This is not a valid holographic will. To determine the material provisions you look at handwriting parts only. However, if David had instead written, “I give $1000 to Jane Smith,” this is a material provision in his handwriting.
However, to determine whether there is testamentary intent, you are permitted to look to printed part, as well as the handwritten part, to see if there is testamentary intent.
The only way to give effect to pre-printed wills is to see if it’s valid as a formal will: does it meet elements to be a formal will?
Even if it doesn't meet the requirements to be a will, if the testator told people she executed her will, then the document might be admitted into probate as her will.
Date requirement?
CA doesn’t require a date to be on the will. But failing to date can create inconsistency problems. If there is no date, there is a rebuttable presumption that it was executed before any other will, thus any other will is going to trump the undated will. So it’s not a good idea not to date. But technically it's not required.
Execution of Formal Wills
These are referred to as “tested” or “witnessed" wills. In contrast, holographic wills (informal wills) do not have to be witnessed. To have a valid formal will, five requirements must be met.
First, the will must be in writing. In California, oral wills are not valid.
Second, the will must be signed by the testator. It can be signed informally as "Dad" or if the person is illiterate, "X" is okay. If the testator is incapable of signing the will himself, he can ask someone else to sign it on his behalf, but it must be at the testator's direction and in testator's presence. The person who signs has to sign the testator's name.
Third, the will must be signed by 2 witnesses that are present at the same time who understand that the document being signed is the testator's will.
Fourth, the 2 witnesses must see the testator sign the will or they must see or hear the testator acknowledge his signature or acknowledge that this is his will. Usually witnesses will sign under an attestation clause (although not technically required). It recites what the witnesses did (which witnesses were present, who saw the testator sign the will, etc). Either the testator can say “this is my signature” or he can say “that’s my will.”
Fifth, the testator must have testamentary intent. The testator must intend that this document be his will. If you sign a formally attested, that is strong evidence that there was testamentary intent.
Who can be a witness?
The person must be competent. The witness doesn't have to know the content of the will. The witness should not be "interested" (if you receive an interest from the will, then you are interested). Under common law, the signature of interested witness didn’t count.
In California, a signature of an interested witness counts and the will is still valid, but there is a presumption (rebuttable) that the witness exerted undue influence on the testator. Unless rebutted, the witness gets nothing. What is undue influence? See my testamentary capacity post.
However, if the interested witness is someone who would have inherited by intestacy, the interested witness will still receive his or her interested shares.
Self-proving affidavits and attestation clauses
Neither are required but are typically included. Attestation clauses show intent to be a witness. Usually it will say something like “we hereby witness the will” (present tense). Attestation clauses are useful in proving due execution of a will. It makes out a prima facie case that the will was duly exercised and thus the will may be admitted to probate even though the witness predeceases the testator or cannot recall the events of execution. Self-proving affidavits say that you witnessed it already (past-tense). Usually it wills ay something like “we have witnessed the will.” This can be done by someone other than who did the attestation clause.
Components of a will
The concept of integration is important in understanding the components of a will. Generally, papers that are present at the time of execution and that the testator intends to be part of the will are part of the will. If something is physically attached, you can use doctrine of integration. The lesson is: use a stapler to attach documents you want to be considered part of the will.
For example, if the testator comes to the execution ceremony with a piece of paper that gives away some personal possessions and it is attached, through the doctrine of integration, the separate list could be part of her will and would be carried out. But if the list is not physically present when the will is executed, it is not part of her will.
Incorporation by reference
A writing in existence when a will is executed may be incorporated by reference if the language of the will manifests intent to incorporate and describes the writing sufficiently to permit its identification. CPC § 6130.
Codicils
A codicil is an amendment or an addition to a will. It must be executed with the same formalities as a will. If you have validly attested will and you created a codicil, it's okay that the codicil is handwritten as long as the codicil is valid as a holographic will. (see below for a discussion on holographic wills). The two documents must be read as a single document and will be dated on date of codicil. For example, if a woman executes a will in 1990 and in 2000, she executes a codicil to the 1990 will, the documents are read together as a single will, dated 2000.
Doctrine of republication by codicil
The doctrine of replication by codicil can help if you are trying to later incorporate a document by reference. There must be a manifestation of intent to incorporate and the document must be clearly identified.
Replication by codicil may validate a will that was previously invalid. If the first will was invalid because there was lack of capacity or perhaps it wasn’t properly executed, and then later you add a valid codicil, the valid codicil can validate the previously invalid will. Basically, if there is capacity and proper execution of the subsequent codicil, then the first will becomes valid. For example, if a woman was not competent when she executed her 1990 will, but she was competent when she executed the 2000 codicil, the proper execution of the 2000 codicil republishes or validates the 1990 will, and both docs will be carried out. A simple little handwritten sentence (codicil) can breath life into an otherwise invalid will.
Is it a codicil or a will?
Is the subsequent document a codicil to the first will or a second will? If its carefully drafted, a good lawyer will say “codicil” but sometimes you have to figure out whether it’s a codicil or a whole new will. If there is a revocation clause, you can assume it’s a will. If there is no revocation clause, but there is total inconsistency, it revokes by inconsistency and the document is probably a will. If it's only partly inconsistent, then you probably have a codicil.
Substantial compliance / clear and convincing evidence of intent
For testators dying on or after January 1, 2009, under California Probate Code § 6110(2), if a writing or document doesn’t meet the witnessing formalities of a will, the writing or document is treated as if it meeting all formalities if you have clear and convincing evidence that at the time the T signed the will, he intended the will to be his will. But we still need T’s signature and 2 witnesses signatures. So failing to have both witnesses be present at the same time the T signed the will could be overlooked.
Dispensing power
Some other states recognize dispensing power (harmless error) which is the approach advocated in the UPC, not California. Dispensing power excuses any formal requirement for executing or revoking a will if the proponent can establish by clear and convincing evidence that the testator intended the document to be his will. This is broader than CA’s rule. Thus, although the T mistakenly signed the wrong will, this would not be excused under the CA rule, but it would be excused under dispensing power.
Exception to formalities: changing a will by non-testamentary acts
You don’t need to meet the formalities requirement again if you change a will by non-testamentary acts. Acts of independent significance permit a testator to effectively change the disposition of his property without formally changing a will. If acts or events changing the disposition have some significance beyond avoiding the requirements of the will, then they are allowed.
Foreign wills
What about people who move to CA from another state? They are now domiciled in CA. CA law determines whether their will is valid. But what if they come from a state with different formality requirements? (i.e. some states don’t require that the 2 witnesses be present at the same time). In CA, a will is valid if (1) it was executed in compliance with CA law, (2) it is was in conformity of the law of the state where the will was executed or the place of testator's domicile at the time of execution.
Execution of Informal or Holographic Wills
Informal or holographic wills are valid in California and about ½ of other states. Holographic wills do not have to be witnessed. However, 3 requirements must be met to qualify a document as a valid holographic will.
First, it must be signed by the testator. Note that the provision allowing another to sign at the testator’s direction and presence only applies to formal, not holographic wills. The testator must actually sign the document. The signature can be anywhere in the document.
Second, at least one material provision must be in testator’s own handwriting. “Material” means it must have some legal effect. The best example is giving away assets. If you give money away that’s material. Other things that are material include: naming beneficiaries, revoking a previous will, appointing someone executor or guardian of your kids.
Third, the testator must have testamentary intent. For example, a man writes a letter to his daughter and he signs it “dad” and at the end he writes a P.S. that says “if anything happens to me, I want you to have my entire estate.” The P.S. is a valid holographic will. The use of “estate” and his contemplation of death shows testamentary intent. He signed it, and giving away assets is a material provisions, so this is a valid holographic will. When a writer is contemplating death or is using of legalese such as “estate,” this tends to show testamentary intent.
Extrinsic evidence is admissible to ascertain the testator's intent.
Problems of pre-printed form wills
David buys a printed will form that says “I give ___ to ___.” He fills in “$1000” and “Jane Smith” in the blanks. Here, there is no material provision in his handwriting. David's handwriting simply read “$1000 Jane Smith” -- which is meaningless. This is not a valid holographic will. To determine the material provisions you look at handwriting parts only. However, if David had instead written, “I give $1000 to Jane Smith,” this is a material provision in his handwriting.
However, to determine whether there is testamentary intent, you are permitted to look to printed part, as well as the handwritten part, to see if there is testamentary intent.
The only way to give effect to pre-printed wills is to see if it’s valid as a formal will: does it meet elements to be a formal will?
Even if it doesn't meet the requirements to be a will, if the testator told people she executed her will, then the document might be admitted into probate as her will.
Date requirement?
CA doesn’t require a date to be on the will. But failing to date can create inconsistency problems. If there is no date, there is a rebuttable presumption that it was executed before any other will, thus any other will is going to trump the undated will. So it’s not a good idea not to date. But technically it's not required.
"Testamentary Capacity"
To make a valid the will, you must have testamentary capacity. This means you must be at least 18 years of age and be of “sound mind.” To be of "sound mind," you must have the capacity to (1) understand the extent of your property, (2) understand the natural object of your bounty (i.e. spouse or domestic partner, issue, and parents), and (3) understand the nature of your act. You have to know your are executing a will, but you don't have to know all the legal technicalities of the will.
The testamentary capacity required is higher than what is required for marriage, but lower than what is required to enter into a contract.
If you don't have capacity, then the entire will is invalid. Your property, therefore will pass through intestate succession. Click here for my post on intestate succession. There is an exception if you had a valid prior will that was purportedly revoked by a second will (the one for which you did not have capacity). In that case, the first instrument will be probated because if you did not have testamentary capacity, then the second will could not have revoked the first.
Insane delusion
A will can also be attacked if at the time of execution the testator was suffering from an insane delusion. An insane delusion is a mistaken belief about something that is contradicted by the facts. A finding of insane delusion requires four elements: (1) testator had a false belief; (2) that false belief was the product of a sick mind; (3) there is no evidence to support the belief; and (4) the delusion affected testator's will.
Only that part that is affected by the delusion is invalidated. As to that part, it will go to the residuary devisee, or if the residue itself was tainted by the delusion, then it will go by intestate succession.
The analysis for finding an insane delusion is as follows:
Undue influence occurs when another person substitutes his intent for the testator’s intent. The influencer is said to have dominated the testator’s will. The elements for finding an undue influence is: (1) testator was susceptible to undue influence, (2) the influencer had motive & opportunity (such as access) and (3) the disposition was the result of the influence (causation).
If these three elements are met, a presumption of undue influence arises and the burden shifts to the defendant to rebut this presumption.
Sometimes the testator can deter challenges by putting a "no contest clause" in the will. If a beneficiary challenges your will, the beneficiary loses whatever interest she has under the will. Generally, these are enforceable unless there is probable cause for the contest.
Confidential relationship
If (1) there is a confidential relationship, (2) the influencer actively participated in the drafting of will, and (3) received substantial amount under the will, then there is a presumption of undue influence. How to rebut that presumption? You need to get the advice of independent counsel to show that the testator was not susceptible and knew exactly what he wanted to do.
Gifts to attorneys
The majority rule is that if a lawyer is the drafter of a will and the lawyer takes something under the will, there is a presumption of undue influence (unless the lawyer is married to or is a relative of the client). A minority of states apply an irrefutable presumption of undue influence.
Fraud
The elements of fraud are (1) misrepresentation of material fact known to be false by the wrongdoer, (2) made with intent to deceive, (3) for the purpose of influencing the testamentary disposition (for the purpose of getting something under the will), and (4) causation. The remedy is that the part of the will that the result of fraud is invalid. If the whole will was tainted, then then the whole will is invalidated. Usually a constructive trust is imposed.
Duress
“I’m going to kill you if you don’t name me in the will.”
Tortuous interference
Trying to get the testator not to leave something to someone. For example, Anna Nicole claimed her step brothers tried to prevent her from being named.
The testamentary capacity required is higher than what is required for marriage, but lower than what is required to enter into a contract.
If you don't have capacity, then the entire will is invalid. Your property, therefore will pass through intestate succession. Click here for my post on intestate succession. There is an exception if you had a valid prior will that was purportedly revoked by a second will (the one for which you did not have capacity). In that case, the first instrument will be probated because if you did not have testamentary capacity, then the second will could not have revoked the first.
Insane delusion
A will can also be attacked if at the time of execution the testator was suffering from an insane delusion. An insane delusion is a mistaken belief about something that is contradicted by the facts. A finding of insane delusion requires four elements: (1) testator had a false belief; (2) that false belief was the product of a sick mind; (3) there is no evidence to support the belief; and (4) the delusion affected testator's will.
Only that part that is affected by the delusion is invalidated. As to that part, it will go to the residuary devisee, or if the residue itself was tainted by the delusion, then it will go by intestate succession.
The analysis for finding an insane delusion is as follows:
- Step 1: is there an delusion?
- Step 2: To offset this delusion, the proponent must establish a reasonable basis for the false belief (minority rule) OR a rational person would have reached the same conclusion under the same circumstances (majority rule).
- Step 3: causation. But for this delusion the will would have resulted in an alternative disposition that would leave the challenger in a better position.
Undue influence occurs when another person substitutes his intent for the testator’s intent. The influencer is said to have dominated the testator’s will. The elements for finding an undue influence is: (1) testator was susceptible to undue influence, (2) the influencer had motive & opportunity (such as access) and (3) the disposition was the result of the influence (causation).
If these three elements are met, a presumption of undue influence arises and the burden shifts to the defendant to rebut this presumption.
Sometimes the testator can deter challenges by putting a "no contest clause" in the will. If a beneficiary challenges your will, the beneficiary loses whatever interest she has under the will. Generally, these are enforceable unless there is probable cause for the contest.
Confidential relationship
If (1) there is a confidential relationship, (2) the influencer actively participated in the drafting of will, and (3) received substantial amount under the will, then there is a presumption of undue influence. How to rebut that presumption? You need to get the advice of independent counsel to show that the testator was not susceptible and knew exactly what he wanted to do.
Gifts to attorneys
The majority rule is that if a lawyer is the drafter of a will and the lawyer takes something under the will, there is a presumption of undue influence (unless the lawyer is married to or is a relative of the client). A minority of states apply an irrefutable presumption of undue influence.
Fraud
The elements of fraud are (1) misrepresentation of material fact known to be false by the wrongdoer, (2) made with intent to deceive, (3) for the purpose of influencing the testamentary disposition (for the purpose of getting something under the will), and (4) causation. The remedy is that the part of the will that the result of fraud is invalid. If the whole will was tainted, then then the whole will is invalidated. Usually a constructive trust is imposed.
Duress
“I’m going to kill you if you don’t name me in the will.”
Tortuous interference
Trying to get the testator not to leave something to someone. For example, Anna Nicole claimed her step brothers tried to prevent her from being named.
Intestate Succession: what happens when you die without a will
Separate Property States
About 2/3 of the states are separate property jurisdictions. In these states, each spouse owns the property in proportion to their earnings. This is a problem in traditional relationships where one spouse works and one stays at home. But the “spousal shares” or “spousal election” concept remedies this problem. Under this concept, the surviving spouse can usually take about one third of the separate property.
Community Property States
About 1/2 of the states are community property jurisdictions. While alive, each spouse owns an undivided interest in all of the community property (i.e. both have a right to manage it). Upon death of one spouse, ½ of the community property belongs to the surviving spouse and ½ belongs to the decedent. At that point, the decedent is free to give away their half of the community property by will (but during their life they owned an undivided interest in all). See CPC § 100.
Even in a community property state, a person can still hold separate property if it (i) was inherited (but s/he must not commingle), (ii) was given as a gift, (iii) was specifically designated as separate property, or (iv) was acquired before marriage.
Quasi-Community Property
If couple lived and owned property in a separate property state, and they moved to a community property state, the properties in separate property state remains separate. What if the couple lived in Ohio (separate property state) and moves to California (community property state) leaving their properties back in Ohio? Assume husband (H) makes all the money and wife (W) stayed home. H died and W is now in California.
With respect to personal property, California rules of quasi-community property will apply, even though the things are physically in Ohio. With respect to real property, Ohio rules apply under ancillary probate. Real property will be probated in Ohio and under Ohio rules, spousal share concept will protect the wife.
So now we have established that quasi-community property rules applies to personal property, not real estate. California Probate Code § 101 refers to personal property that was earned outside California during marriage and would have been community had it been earned in California. This rule pertains only to married persons and perhaps registered domestic partners domiciled in California. This is property that is legally separate in another state, but is considered quasi-community property in CA. During probate, quasi-community property is treated like community property.
Only for purpose of intestacy, upon death of a married person domiciled in a community state, ½ belongs to surviving spouse and ½ belongs to decedent. What happens to the decedent’s ½? It goes through "intestate succession." Any part of the estate that isn’t validly passed by will is governed by CPC § 6400.
Widow's election
The widow's election arises when the testator attempts to dispose of more than 1/2 of the community property or 1/2 of the quasi community property. In such case, the widow can invoke the widow's election: the widow can "take under the will" (accept the will's terms instead of taking her statutory right to her former spouse's half of the community and quasi-community property) OR the widow can renounce all benefits under the will and confirm her statutory rights to the community and quasi-community property.
So the testator died without a will. Who gets what?
Step 1 is decide how much community/quasi-community property to give the surviving spouse. Step 2 is decide how much separate property to give the surviving spouse. Step 3 is decide what to do with the rest of separate property that isn't given to the surviving spouse (through use a parentalic distribution).
Step 1: how much community/quasi-community property to give the surviving spouse?
Let's assume the wife is the surviving spouse. At the time of her husband's death, community was split. The surviving spouse already has her half of the community and quasi-community property. This has already happened automatically.
What happens to the husband’s half of the community and quasi-community property? If he had will, he could give it away pursuant to his will but if he didn't have a will, then state intestacy law applies and the wife gets his other half of the community and quasi-community property. The result? Wife has 100% of the community property and 100% of quasi-community property.
Step 2: how much separate property to give the surviving spouse?
This depends on how many children. If husband left more than 1 child, or 1 child and a deceased child with living issue, then, wife gets 1/3 of the separate property. This doesn’t mean the children get anything! This just determines how much of the separtate property to give the wife. If the husband left behind 1 child, or 1 deceased child with living issue, wife gets ½ of the separate property (same result if no children, but had surviving parent). If decedent had no issue, parent, brother, parent or aunts or uncles (no close relatives) then 100% of the separate property goes to the wife.
Step 3: what to do with the rest of separate property that isn't given to the surviving spouse?
This step concerns people other than the surviving spouse. What do they get under intestate succession? See CPC § 6402. Distribute everything on the first relevant level:
***if all are of same degree of kinship to D, divide equally; if not, apply §240.
Some problems to illustrate how this works:
Example 1: D is survived by spouse S. D has deceased child B, who left 2 living children C and E. D and S has $200,000 in community property. D has $100,000 in separate property.
Per Capita with Representation
Whenever the issue take by intestacy, or if a will or trust provides for issue to take without specifying the manner of taking, then they take according to CEC § 240. Drop to first level where someone is alive, give 1 share to every living person and 1 share to deceased person with living issue.
Classical “per stirpes” or "by right of representation."
This is the least fair method of distribution. Only apply this method of disribution if someone has specified this way. Instead of dropping where someone is alive you divide at next level, even if everyone on that level is dead.
Establishing who is your "issue"?
Sometimes there are disputes as to whether a a person is the decedent's "issue." So what does “issue” mean? Genetically speaking, your issue is your child or grandchildren or great-grandchildren, etc.
Posthumously born children
Sometimes there are posthumously born children (children born after father died). Are they issue of that man? Under common law, the child had to be conceived before man died. In California, there is a rebuttable presumption that if child is born w/in 300 days of death of husband, then it’s treated as issue of that husband. If the child is born more than 300 days can’t take advantage of presumption.
Modern means of technology
These days, it's possible for someone to have children who are conceived after they die. For example, a man could bank semen used later by a woman to create a child. These are recognized as that man’s issue only if: (i) the man authorized the post humous use, (ii) in a signed and witnessed writing, (iii) notice was given to the personal representative (executor) of the decedent’s estate within 4 months of the death certificate, and (iv) the child was conceived in utero within 2 years of the death certificate.
Adoptions
Common law didn’t recognize adoptions, but every state today has statues that allow adopted children to be considered your issue. If someone is adopted then that child is treated as the issue of the person who adopted him or her. Adoption cuts off relationship with the natural parents. They can no longer inherit from their natural parents and the natural parents can no longer inherit from the child.
Exceptions: if the adopting parent is married to one of the child’s natural parents, then in this case, the child is the child of both the adopting parent and the natural parent who the adopting parent married. For example, if the child's natural father died, and the natural mother remarried Bob, and Bob adopts the mother's child, Bob and the natural mother are legally the parents of the children.
Another exception is that if the adoption is by a spouse (like Bob above) of a natural parent as a result of the death of the other natural parent (or divorce) then under some states' laws, adoption does not deprive the child from inheriting from and through the other parent. Bbut not vice versa: the deceased or divorced parent who left cannot inherit through their natural child.
Foster parents
Generally, foster parents must adopt to be treated as that person’s parent. But if it’s established by clear and convincing evidence that the foster child would have been adopted by the foster parent, but was prevented by a legal barrier, that the relationship began during the child's minority, and it continued throughout the parties lifetimes, then the foster parents are considered parents even though never officially adopted the foster child.
Equitable adoption (virtual adoption)
Arises when the parties hold themselves out as parent and child. If (i) there is an agreement (a person who cares for the child must have promised the real parent to adopt the child), (i) the natural parents gave them up (performance by natural parents) and
(iii) the new parents have treated the child as his own (partial performance by foster parents), then the child will be treated as the issue of the person who took care of them. But foster parents can’t inherit through their adopted children.
Adult adoptions
These are generally permissible only if its done to prevent a challenge to a will (deprive someone of standing). It’s not allowed if you want to include someone in a will who was not originally included (you can’t adopt your wife).
Establishing Paternity
If child is born to a married couple and they have a child, there is the presumption that the child is both the child of husband and wife. But what if the couple is unmarried? How to establish a parent child relationship? There may be questions about who is father.
California allows paternity lawsuits to establish paternity. There is a rebuttable presumption of paternity (and the man will be ordered to pay child support) if: (1) the man is named in birth certificate, (2) he holds out the child and being his own child, (3) he and the mother were married before the child was born (even after conception), (4) the man and woman tried to married before the child was born, or (5) the man and woman were married after child was born (or tried to marry).
About 2/3 of the states are separate property jurisdictions. In these states, each spouse owns the property in proportion to their earnings. This is a problem in traditional relationships where one spouse works and one stays at home. But the “spousal shares” or “spousal election” concept remedies this problem. Under this concept, the surviving spouse can usually take about one third of the separate property.
Community Property States
About 1/2 of the states are community property jurisdictions. While alive, each spouse owns an undivided interest in all of the community property (i.e. both have a right to manage it). Upon death of one spouse, ½ of the community property belongs to the surviving spouse and ½ belongs to the decedent. At that point, the decedent is free to give away their half of the community property by will (but during their life they owned an undivided interest in all). See CPC § 100.
Even in a community property state, a person can still hold separate property if it (i) was inherited (but s/he must not commingle), (ii) was given as a gift, (iii) was specifically designated as separate property, or (iv) was acquired before marriage.
Quasi-Community Property
If couple lived and owned property in a separate property state, and they moved to a community property state, the properties in separate property state remains separate. What if the couple lived in Ohio (separate property state) and moves to California (community property state) leaving their properties back in Ohio? Assume husband (H) makes all the money and wife (W) stayed home. H died and W is now in California.
With respect to personal property, California rules of quasi-community property will apply, even though the things are physically in Ohio. With respect to real property, Ohio rules apply under ancillary probate. Real property will be probated in Ohio and under Ohio rules, spousal share concept will protect the wife.
So now we have established that quasi-community property rules applies to personal property, not real estate. California Probate Code § 101 refers to personal property that was earned outside California during marriage and would have been community had it been earned in California. This rule pertains only to married persons and perhaps registered domestic partners domiciled in California. This is property that is legally separate in another state, but is considered quasi-community property in CA. During probate, quasi-community property is treated like community property.
Only for purpose of intestacy, upon death of a married person domiciled in a community state, ½ belongs to surviving spouse and ½ belongs to decedent. What happens to the decedent’s ½? It goes through "intestate succession." Any part of the estate that isn’t validly passed by will is governed by CPC § 6400.
Widow's election
The widow's election arises when the testator attempts to dispose of more than 1/2 of the community property or 1/2 of the quasi community property. In such case, the widow can invoke the widow's election: the widow can "take under the will" (accept the will's terms instead of taking her statutory right to her former spouse's half of the community and quasi-community property) OR the widow can renounce all benefits under the will and confirm her statutory rights to the community and quasi-community property.
So the testator died without a will. Who gets what?
Step 1 is decide how much community/quasi-community property to give the surviving spouse. Step 2 is decide how much separate property to give the surviving spouse. Step 3 is decide what to do with the rest of separate property that isn't given to the surviving spouse (through use a parentalic distribution).
Step 1: how much community/quasi-community property to give the surviving spouse?
Let's assume the wife is the surviving spouse. At the time of her husband's death, community was split. The surviving spouse already has her half of the community and quasi-community property. This has already happened automatically.
What happens to the husband’s half of the community and quasi-community property? If he had will, he could give it away pursuant to his will but if he didn't have a will, then state intestacy law applies and the wife gets his other half of the community and quasi-community property. The result? Wife has 100% of the community property and 100% of quasi-community property.
CEC § 6401(A): “as to community property, the intested share of the spouse is THE ½ of the community property that belongs to decedent under § 100.”
CEC § 6401(B): “as to quasi community property, the intested share of the spouse is THE ½ of the community property that belongs to decedent under § 101.”
Step 2: how much separate property to give the surviving spouse?
This depends on how many children. If husband left more than 1 child, or 1 child and a deceased child with living issue, then, wife gets 1/3 of the separate property. This doesn’t mean the children get anything! This just determines how much of the separtate property to give the wife. If the husband left behind 1 child, or 1 deceased child with living issue, wife gets ½ of the separate property (same result if no children, but had surviving parent). If decedent had no issue, parent, brother, parent or aunts or uncles (no close relatives) then 100% of the separate property goes to the wife.
CEC § 6401(C): “as to separate property, the intestate share of the surviving spouse OR surviving domestic partner … is as follows:
(a) entire intestate estate (100% of the separate property) if the decedent didn’t leave any surviving issue, parent, brother, sister, or issue of a deceased brother or sister.
(b) one half of the intestate estate (50% of the separate property) if (A) decedent has one living child OR one dead child with living issue or (B) decedent leaves no issue, but leaves a parent or parents or their issue or the issue of either of them.
(c) one third of the intestate estate (33.33% of the separate property) if (A) decedent leaves more than one child, (B) decedent leaves one child AND the issue of one or more deceased children or (C) decedent leaves issue of two or more deceased children.
Step 3: what to do with the rest of separate property that isn't given to the surviving spouse?
This step concerns people other than the surviving spouse. What do they get under intestate succession? See CPC § 6402. Distribute everything on the first relevant level:
- Decedent’s issue***
- Decedent’s parent(s)**
- Issue of decedent’s parent(s)*** (his bros and sisters)
- Decedent’s grandparent(s)**
- Issue of decedent’s grandparents*** (his aunts/uncles/cousins)
- Issue of decedent’s predeceased spouse*** (his stepchildren)
- Decedent’s "next of kin." See CPC § 6401(f). This is determined by degree of relationship – blood relatives. Must determine who is the closest by looking at degrees of relationships. How close are they related? Determine who is the closet common ancestors. Note parentalic preference: if you had 2 relatives in the 7th degree, they share equally. But if you have 2 in the 7th degree and one is in the 4th parentela and one in the 5th parentala, the one in the 4th parentela gets everything.
- Parents of decedent’s predeceased spouse** (his inlaws!)
- Issue of parents of decedent’s predeceased spouse***
***if all are of same degree of kinship to D, divide equally; if not, apply §240.
Some problems to illustrate how this works:
Example 1: D is survived by spouse S. D has deceased child B, who left 2 living children C and E. D and S has $200,000 in community property. D has $100,000 in separate property.
S gets all $200,000 of the community property. S also gets 50% of the separate property ($50,000). C&E share equally the remaining 50% of the separate property ($25,000 each).Example 2: Now assume D has child G by previous relationship with H (deceased).
Again, S gets all $200,000 of the community property. But because D left one child (G) AND the issue of one or more deceased children, S only gets 1/3 of the separate property ($33,333). G, C, and E share the remaining $66,666 based on kinship. G is 2nd degree kinship and C and E are 2nd degree.Example 3: D leaves S and 2 parents (F & M). No issue. D and S have $50,00 community property and D has a $100,000 inheritance.
S gets all $50,000 of the community property. As to the separate property (the $100,000 inheritance), S gets 50% (or $50,000) because D decedent leaves no issue, but leaves a parent. The other 50% (or $50,000) goes to D’s parents F&M.Example 4: Now assume that D also has 2 nephews B & C from a deceased sister A. Parents have predeceased D.
S gets all $50,000 of the community property. As to the separate property (the $100,000 inheritance), S gets $50,000 (issue of either of them) and B & C split the other $50,000 evenly if equal kinship. Otherwise, apply § 240.Example 5: Now assume sister E is alive and she has one child.
S gets all $50,000 community property. As to the separate property, (the $100,000 inheritance), S gets $50,000. B, C, and E split by degree of kinship. E is 2nd degree kinship while B and C are 3rd degree kinship. Apply § 240.System of Distribution
Per Capita with Representation
Whenever the issue take by intestacy, or if a will or trust provides for issue to take without specifying the manner of taking, then they take according to CEC § 240. Drop to first level where someone is alive, give 1 share to every living person and 1 share to deceased person with living issue.
Classical “per stirpes” or "by right of representation."
This is the least fair method of distribution. Only apply this method of disribution if someone has specified this way. Instead of dropping where someone is alive you divide at next level, even if everyone on that level is dead.
Establishing who is your "issue"?
Sometimes there are disputes as to whether a a person is the decedent's "issue." So what does “issue” mean? Genetically speaking, your issue is your child or grandchildren or great-grandchildren, etc.
Posthumously born children
Sometimes there are posthumously born children (children born after father died). Are they issue of that man? Under common law, the child had to be conceived before man died. In California, there is a rebuttable presumption that if child is born w/in 300 days of death of husband, then it’s treated as issue of that husband. If the child is born more than 300 days can’t take advantage of presumption.
Modern means of technology
These days, it's possible for someone to have children who are conceived after they die. For example, a man could bank semen used later by a woman to create a child. These are recognized as that man’s issue only if: (i) the man authorized the post humous use, (ii) in a signed and witnessed writing, (iii) notice was given to the personal representative (executor) of the decedent’s estate within 4 months of the death certificate, and (iv) the child was conceived in utero within 2 years of the death certificate.
Adoptions
Common law didn’t recognize adoptions, but every state today has statues that allow adopted children to be considered your issue. If someone is adopted then that child is treated as the issue of the person who adopted him or her. Adoption cuts off relationship with the natural parents. They can no longer inherit from their natural parents and the natural parents can no longer inherit from the child.
Exceptions: if the adopting parent is married to one of the child’s natural parents, then in this case, the child is the child of both the adopting parent and the natural parent who the adopting parent married. For example, if the child's natural father died, and the natural mother remarried Bob, and Bob adopts the mother's child, Bob and the natural mother are legally the parents of the children.
Another exception is that if the adoption is by a spouse (like Bob above) of a natural parent as a result of the death of the other natural parent (or divorce) then under some states' laws, adoption does not deprive the child from inheriting from and through the other parent. Bbut not vice versa: the deceased or divorced parent who left cannot inherit through their natural child.
Foster parents
Generally, foster parents must adopt to be treated as that person’s parent. But if it’s established by clear and convincing evidence that the foster child would have been adopted by the foster parent, but was prevented by a legal barrier, that the relationship began during the child's minority, and it continued throughout the parties lifetimes, then the foster parents are considered parents even though never officially adopted the foster child.
Equitable adoption (virtual adoption)
Arises when the parties hold themselves out as parent and child. If (i) there is an agreement (a person who cares for the child must have promised the real parent to adopt the child), (i) the natural parents gave them up (performance by natural parents) and
(iii) the new parents have treated the child as his own (partial performance by foster parents), then the child will be treated as the issue of the person who took care of them. But foster parents can’t inherit through their adopted children.
Adult adoptions
These are generally permissible only if its done to prevent a challenge to a will (deprive someone of standing). It’s not allowed if you want to include someone in a will who was not originally included (you can’t adopt your wife).
Establishing Paternity
If child is born to a married couple and they have a child, there is the presumption that the child is both the child of husband and wife. But what if the couple is unmarried? How to establish a parent child relationship? There may be questions about who is father.
California allows paternity lawsuits to establish paternity. There is a rebuttable presumption of paternity (and the man will be ordered to pay child support) if: (1) the man is named in birth certificate, (2) he holds out the child and being his own child, (3) he and the mother were married before the child was born (even after conception), (4) the man and woman tried to married before the child was born, or (5) the man and woman were married after child was born (or tried to marry).
Introduction to Wills & Trusts
So who gets your property when you die? Generally speaking, there is no right to inherit. Its only an expectancy. There is only a right to transmit your property.
“Dead Hand” Control
A decedent may condition a beneficiary’s gift on the beneficiary behaving in a certain manner as long as the condition does not violate public policy. Things that violate public policy include a complete restraint on marriage, requiring a beneficiary to practice a certain religion, encouraging divorce or family strife, or directing the destruction of property. You can require that a condition be marriage to a certain race or religion because that's only a partial restraint on marriage. One exception to the rule against the complete restraint on marriage is that a decedent can restrain a second marriage. For example, a wife can tell her husband she leaves him everything unless he remarries. That would be a valid condition. If there is violation of public policy, the provision (not the whole will) is struck down.
So who takes the decedent’s property? It depends on whether you have to go through probate. Non-probate property include: joint tenancies, life insurance, POD, legal life estates and remainders, and inter-vivos trusts among others. If you die with a will (tested) or without a will (intested) then your property will go through probate and the probate court will decide who gets what.
The Probate Process
First, some terminology. Someone who doesn’t have a valid will when they die is said to have died "intestate." When you die intestate, real property will "descend" to your "heirs." When you die intestate, personal property will be "distributed" to your "next of kin."
On the other hand, someone who does have a valid will when they die has died "testate." A male who had a valid will when they died is a "testator" and a female who had a valid will when she died is referred to a "testatrix." When you die testate, real property will be "devised" to "devisees." And when you die testate, personal property will be "bequathed" to legatees.
Exemptions from probate:
If the probate estate is less than $10,000 OR if the property is going to a surviving spouse.
What are the general steps when going through probate?
First, interested person will petition the probate court to have a will approved ("probate the will"). The court then notifies all possible heirs. Probate is conducted where the person is domiciled (where the person resides). This is not always where the will was written, but could be. There are certain exceptions. For example, if a person bought real property in Los Angeles, then that real property is probated in Los Angeles. If the testator has property outside the state, then you must open up ancillary probate in the jurisdiction where the testator has real property.
The interested person must bring the will contest within 4 months. But to contest a will, a person must have standing (a pecuniary interest in the outcome of the case) by showing that s/he will have more money if the will were struck down than if the will stands. If no one contests the wills, then the will is admitted to probate. If someone contests the will, then you go to court proceedings.
Next, the court appoints an executor (someone who carries out the will). The executor can be named or appointed. If there is no will, then the person is called an "administrator." The executor posts bond to make sure s/he won’t steal assets, but if you appoint a family member as executor then the bond requirement is usually waived.
Then the Judge issues a “certificate of authority” (letters testamentary) to executor so that when the executor deals with the bank, s/he can show authority to administer the estate assets.
The executor must then give notice to possible creditors. Generally, creditors have 2-4 months to bring a claim. Proper creditor claims must be paid off. If notice is properly given and the creditors do not bring a claim on time, then they are barred. Once the 2-4 months have passed and there are no more creditor claims, executor distributes according to the will.
Paying off creditors
In the U.S., heirs, unlike in Europe, are not liable for debts of the person who died. However the deedent’s estate remains liable. How can creditors bring claims against the estate? They must do so on time. There are 2 types of statute of limitations that begins to run against creditors. First, there are SHORT-TERM (2-3 months) SOLs which are referred to as "non-self executing" SOLs. The state action of opening up the probate process triggers the non-self executing SOL. Due process requires that in order to use a short-term SOL, you must give actual notice to known or reasonably ascertainable creditors. California requires actual notice. Second, there arae LONG-TERM (1-2 years) SOLs which are referred to as "self-executing" SOLs" This is triggered by death. Every jurisdiction has one. These are typically longer. Creditors claims are cut off after 1-2 years. No state action is required because it begins at death. There is no due process issue.
What's unique about the U.S. is that there is no concept of "universal succession" as there is in Europe or other parts of the world. In most parts of the world, if the heirs inheirt both the assets and all debts. Thus if debts exceed assets of the estate, heirs are personally liable for debt. But this is not so in the U.S.. Only the estate is liable for debts. The heirs are not personally liable for debts of the estate.
Estate planning tips
In advising a client about his or her estate plan, key objectives that the attorney should keep in mind are (1) honoring the client’s intent, (2) avoiding estate taxes, and (3) avoiding probate.
The Dreaded "Estate Tax"
The estate tax is based on your taxable estate. So what is included in your taxable estate? Joint tenancies, revocable living trusts, and the like are part of your estate tax liability because you have control over them while you are alive. There are a couple ways to avoid the estate tax. First, you can give assets away while you are living. The IRS allows about 10-12K per year you can give your kids without facing estate tax liability.
Second, there area certain "bypass trusts" that can be created. If you die this year, in 2009, the estate tax exemption is $3.5M. So if your taxable estate is less than $3.5M, then there is no estate tax. But if your taxable estate is $4M, then $500,000 would be subject to the estate tax.
If you die in 2010, there is no estate tax at all.
In 2011, the estate tax exemption drops to $600,000. So if your estate is more than $600,000 you will have to pay estate tax.
To illustrate how a bypass trust would work consider the following example. If husband (H) owned $3.5M and wife (W) owned $3.5M, and H died giving his $3.5 to W, the W now has $7M. If she passes this to her son, then there is an estate tax that will be impsoed on $3.5M. ($7M less the $3.5M exemption). To avoid this, H can, instead of giving the $3.5M to wife, place the $3.5M in a trust, giving the income to wife for life. This way, when W died, she passes her own $3.5M to son and son doesn’t have to pay estate tax.
“Dead Hand” Control
A decedent may condition a beneficiary’s gift on the beneficiary behaving in a certain manner as long as the condition does not violate public policy. Things that violate public policy include a complete restraint on marriage, requiring a beneficiary to practice a certain religion, encouraging divorce or family strife, or directing the destruction of property. You can require that a condition be marriage to a certain race or religion because that's only a partial restraint on marriage. One exception to the rule against the complete restraint on marriage is that a decedent can restrain a second marriage. For example, a wife can tell her husband she leaves him everything unless he remarries. That would be a valid condition. If there is violation of public policy, the provision (not the whole will) is struck down.
So who takes the decedent’s property? It depends on whether you have to go through probate. Non-probate property include: joint tenancies, life insurance, POD, legal life estates and remainders, and inter-vivos trusts among others. If you die with a will (tested) or without a will (intested) then your property will go through probate and the probate court will decide who gets what.
The Probate Process
First, some terminology. Someone who doesn’t have a valid will when they die is said to have died "intestate." When you die intestate, real property will "descend" to your "heirs." When you die intestate, personal property will be "distributed" to your "next of kin."
On the other hand, someone who does have a valid will when they die has died "testate." A male who had a valid will when they died is a "testator" and a female who had a valid will when she died is referred to a "testatrix." When you die testate, real property will be "devised" to "devisees." And when you die testate, personal property will be "bequathed" to legatees.
Exemptions from probate:
If the probate estate is less than $10,000 OR if the property is going to a surviving spouse.
What are the general steps when going through probate?
First, interested person will petition the probate court to have a will approved ("probate the will"). The court then notifies all possible heirs. Probate is conducted where the person is domiciled (where the person resides). This is not always where the will was written, but could be. There are certain exceptions. For example, if a person bought real property in Los Angeles, then that real property is probated in Los Angeles. If the testator has property outside the state, then you must open up ancillary probate in the jurisdiction where the testator has real property.
The interested person must bring the will contest within 4 months. But to contest a will, a person must have standing (a pecuniary interest in the outcome of the case) by showing that s/he will have more money if the will were struck down than if the will stands. If no one contests the wills, then the will is admitted to probate. If someone contests the will, then you go to court proceedings.
Next, the court appoints an executor (someone who carries out the will). The executor can be named or appointed. If there is no will, then the person is called an "administrator." The executor posts bond to make sure s/he won’t steal assets, but if you appoint a family member as executor then the bond requirement is usually waived.
Then the Judge issues a “certificate of authority” (letters testamentary) to executor so that when the executor deals with the bank, s/he can show authority to administer the estate assets.
The executor must then give notice to possible creditors. Generally, creditors have 2-4 months to bring a claim. Proper creditor claims must be paid off. If notice is properly given and the creditors do not bring a claim on time, then they are barred. Once the 2-4 months have passed and there are no more creditor claims, executor distributes according to the will.
Paying off creditors
In the U.S., heirs, unlike in Europe, are not liable for debts of the person who died. However the deedent’s estate remains liable. How can creditors bring claims against the estate? They must do so on time. There are 2 types of statute of limitations that begins to run against creditors. First, there are SHORT-TERM (2-3 months) SOLs which are referred to as "non-self executing" SOLs. The state action of opening up the probate process triggers the non-self executing SOL. Due process requires that in order to use a short-term SOL, you must give actual notice to known or reasonably ascertainable creditors. California requires actual notice. Second, there arae LONG-TERM (1-2 years) SOLs which are referred to as "self-executing" SOLs" This is triggered by death. Every jurisdiction has one. These are typically longer. Creditors claims are cut off after 1-2 years. No state action is required because it begins at death. There is no due process issue.
What's unique about the U.S. is that there is no concept of "universal succession" as there is in Europe or other parts of the world. In most parts of the world, if the heirs inheirt both the assets and all debts. Thus if debts exceed assets of the estate, heirs are personally liable for debt. But this is not so in the U.S.. Only the estate is liable for debts. The heirs are not personally liable for debts of the estate.
Estate planning tips
In advising a client about his or her estate plan, key objectives that the attorney should keep in mind are (1) honoring the client’s intent, (2) avoiding estate taxes, and (3) avoiding probate.
The Dreaded "Estate Tax"
The estate tax is based on your taxable estate. So what is included in your taxable estate? Joint tenancies, revocable living trusts, and the like are part of your estate tax liability because you have control over them while you are alive. There are a couple ways to avoid the estate tax. First, you can give assets away while you are living. The IRS allows about 10-12K per year you can give your kids without facing estate tax liability.
Second, there area certain "bypass trusts" that can be created. If you die this year, in 2009, the estate tax exemption is $3.5M. So if your taxable estate is less than $3.5M, then there is no estate tax. But if your taxable estate is $4M, then $500,000 would be subject to the estate tax.
If you die in 2010, there is no estate tax at all.
In 2011, the estate tax exemption drops to $600,000. So if your estate is more than $600,000 you will have to pay estate tax.
To illustrate how a bypass trust would work consider the following example. If husband (H) owned $3.5M and wife (W) owned $3.5M, and H died giving his $3.5 to W, the W now has $7M. If she passes this to her son, then there is an estate tax that will be impsoed on $3.5M. ($7M less the $3.5M exemption). To avoid this, H can, instead of giving the $3.5M to wife, place the $3.5M in a trust, giving the income to wife for life. This way, when W died, she passes her own $3.5M to son and son doesn’t have to pay estate tax.
Sunday, February 22, 2009
New Credit in 2009 for Homebuyers
New home buyers may be eligible to benefit from new federal and state tax credits. The federal rules and the state rules are quite different.
Under the federal plan, if you have not owned a home in the past three years and you buy a new or existing home between Jan. 1, 2009 and Nov. 30, 2009, you could get up a $8,000 federal tax credit. This credit is refundable. In other words, you can get this $8,000 credit back even if you don't earn enough money to owe taxes. The credit phases out between $75,000 and $95,000 in income for singles and $150,000 and $170,000 for couples filing jointly.
Under the state plan, if you buy a newly built home in California on or after March 1, 2009 and before March 1, 2010, you will be eligible for a state tax credit equal to 5% of the purchase price or $10,000, whichever is less. The credit must be spread over three years, and you don't have to be a first-time buyer.
Within one week of the sale, the seller must certify to the California Franchise Tax Board that the home was new and unoccupied. The state has set aside $100 million for this program and will dole it out on a first come, first served basis. There is no income limit on the credit, but it's nonrefundable. You can't benefit from it if you don't pay state taxes.
You'll have to pay back the state credit if you don't live in the home for two years, and repay the federal credit if you move out before three years.
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