Amending Your Trust: A Cautionary Tale

Recently (November 13th of last year) the Court of Appeal heard a case involving a handwritten amendment made to a trust. The initial trust left the family home to the three children in equal shares with the request that the children retain the property for at least 5 years after their mom’s death and if they ended up selling the property to please sell it to a family member.

One year later, the mom (the “Trustor” in technical terms) wrote out a handwritten amendment to the trust on her own. She stated that her home was to go to the children in equal shares. However, if any of her three children wanted to sell their share of the property, they were required to sell it to one of the other siblings for no more than $100,000. At the time of her death, the family home appraised for just over one million dollars.

She had additional requirements as well: the children were supposed to be flexible on receiving the money even if it took 1-10 years (so essentially dictating an interest-free loan); the payment could be split 50/50; and “No dispute or adversary behavior among my children take place. Therefore, no contesting of my will/trust and this document. It is a gift.”

On her death the children had a few choices: keep the property for the rest of their lives; lose out on around $200,000 by following the amendment to sell the property to a sibling for $100,000; or contest the amendment.

Unsurprisingly, the three children disagreed on what to do. One sibling wanted to follow the amendment since it reflected their mother’s wishes. The other two siblings looked at the terms and concluded they were unworkable and too restrictive.

As a result, the dispute landed in court and lasted for over 3 years.

Ultimately, the court agreed with the two siblings that thought the amendment was too restrictive. It concluded that the terms imposed an unreasonable restraint on alienation of a fee simple interest which is prohibited in California Civil Code Section 711. There was an appeal and the appellate court agreed.

So in addition to not getting her wishes followed, mom’s estate was significantly diminished by attorney fees, court fees, etc. The family home didn’t stay in the family and the children received significantly less than the home was worth because so much of the estate was eaten up by the costs associated with the dispute. All of this could have been avoided.

What Could/should Mom Have Done To Prevent This Disaster?

Mom should have started by consulting an attorney – ideally the attorney who drafted her initial trust because they were already familiar with her goals and family circumstances. They could have explained a number of reasons (both legal and practical) why the approach mom wanted to take in the amendment was unworkable.

They could also have offered alternatives that might have helped accomplish some of what mom wanted. For example, she could have added an option for any child who wanted the house to purchase it for a percentage of fair market value. Or she could have given a “life estate” interest (which is different from a “fee simple” interest) in the house so any of the children who wanted to live in the house had the right to do so for the entirety of their life (with well-thought-out terms to deal with the circumstance if more than one child wanted to do so).

There are pros and cons to these different approaches and they are not unlimited in use as they can run afoul of various legal requirements if they are not carefully drafted and limited. But, taking that step could have avoided the dispute among the children entirely and gotten closer to the result that mom wanted, which was to try to keep the family home in the family.

Ultimately, this case is a reminder to be careful about DIY changes to your estate plan (or using an online service or paralegal as they cannot give legal advice and only can help you put your wishes down on paper). When in doubt, check-in with us or another Estate Planning Lawyer!