PROBATE CORNER
Validity of Contracts To Devise Property Upon Death
DAVID M . GARTEN
Where contracting parties expressly agree on the disposition of property upon death ( i . e ., “ business contracts ”), that agreement generally controls over a testamentary disposition of the property . Refer to the following examples :
In Blechman v . Estate of Blechman , 160 So . 3d 152 ( Fla . 4th DCA 2015 ), the issue was whether the decedent ' s membership interest in a limited liability company was subject to the decedent ' s will or whether the provisions of the operating agreement for the LLC (“ operating agreement ”) immediately passed the interest to the decedent ' s children upon his death . The court held that by virtue of a default provision in the operating agreement , the deceased ' s membership interest immediately passed outside of probate to his children upon his death thus nullifying his testamentary devise under his will .
In Finlaw v . Finlaw , 2021 Fla . App . Lexis 5289 ( Fla . 2d DCA April 16 , 2021 ), the court , citing in part to Blechman , held that the decedent ' s attempt to leave her partnership interest to a grandson by will was contrary to the terms of the controlling partnership agreement requiring the decedent to instead pass the interest to her son .
In Murray Van & Storage , Inc . v . Murray , 364 So . 2d 68 ( Fla . 4th DCA 1978 ), the minority stockholders of Murray Van & Storage , Inc . (“ appellants ”) entered into a buy-sell agreement ( agreement ) with the principal stockholder who later died without a leaving a surviving spouse . By a will , the decedent left his entire estate to his surviving sons . The appellants claimed the right to buy the stock under the terms of the agreement which provided that if the surviving spouse of a stockholder is not entitled to the stock , the personal representative shall first offer the stock to the corporation and then to the remaining stockholders . Appellee , individually , and as personal representative of his father ' s estate , argued that the portions of the agreement affecting testamentary disposition were not applicable in this case because they only addressed the situation of a stockholder with a surviving spouse . The appellate court ruled that the obvious intent of the agreement was to inhibit testamentary disposition ; therefore ,
the terms of the agreement controlled the disposition of the stock and not the terms of the decedent ’ s will .
STATUTE OF WILLS / EXEMPTIONS : Does § 732.701 ( 1 ), F . S . ( commonly referred to as the “ Statute of Wills ”) apply to business contracts ? Maybe not ! The Statute of Wills does not apply to inter vivos gifts , totten trusts , joint tenancies , tenancy by the entirety , life insurance , employee benefit and other annuity beneficiary designations , payable on death or transfer on death accounts . Such contracts transferring a property interest upon death are not testamentary but are instead evaluated under contract law . See In re Estate of
Combee , 601 So . 2d 1165 ( Fla . 1992 ). Why aren ’ t business contracts exempt from the Statute of Wills ?
In Michaels v . Donato , 4 N . J . Super . 570 , 67 A . 2d 911 ( N . J . Super . 1949 ), the decedent and the defendant had agreed in their articles of partnership that , upon the death of either , the surviving partner should pay $ 1,000 to the other ' s estate and thereupon would become the sole owner of the business . The decedent ' s portion being worth much more than that sum , his representative claimed the agreement to be invalid . The representative claimed that the partnership clause in question was testamentary in nature and void because not drawn in conformity with the Statute of Wills . The court , in holding the partnership agreement to be binding , reasoned :
“ Of course , if the provision is testamentary in nature , it is void , because not executed in conformity with the statute of wills . [ citations omitted ]. The confusion results from the attempt to attach to the transaction characteristics of both a will and a contract . These characteristics are , however , entirely distinct . A contract operates immediately to create a property interest in the premises while a will is revocable , or , more properly speaking , inoperative or ambulatory until the death of the testator , at which time it operates to create a property interest in the beneficiary ." Yale Law Journal , Vol . 27 , Part 1 , p . 542 ; 57 Am . Jur ., Wills , § 15 , p . 48 . The undertaking of a party under a contract is made in consideration of something to be paid or done by or on behalf of the other party , so that the obligation to and the right to require performance are reciprocal . A contract creates a present , enforceable and binding right over which the promisor has no control without the consent of the promisee , while a testamentary disposition operates prospectively . 57 Am . Jur ., Wills , § 40 , p . 67 . An instrument which does not pass any interest until after the death of the maker is essentially a will . But not every instrument which provides for performance at or after death is testamentary in character . If the instrument creates a right in the promisee before the death of the testator , it is a contract . " A will is dispositive ; a contract promissory . A will is gratuitous ; while a contract … requires consideration ." 1 Page , Wills , ( Lifetime Ed .), § 83 , p . 179 . " There is nothing in the Statute of Wills that prevents the creation by contract of a bona fide equitable interest in property and its enforcement after the death of a contracting party , even though the date of death is agreed upon as the time for transfer of the legal title ." Legro v . Kelley , 311 Mass . 674 , 42 N . E . 2d 836 ( Sup . Ct . Mass . 1942 ). The great weight of authority is to the effect that " an otherwise sufficient contractual instrument , based on consideration , by which the promisor agrees , in substance , that ownership of or a designated right in property owned by him shall pass to the promisee at the promisor ' s death , is not rendered testamentary in character merely because of a provision naming the death of the promisor as the time for the transfer of the legal title to the promisee . If the instrument does invest him , in proesenti , with an irrevocable contractual interest in the property , it is not testamentary ." Note , 1 A . L . R . 2d 1207 . Specifically , " a provision in a partnership agreement that on the death of one of the partners his interest in the partnership shall become the property of the other partners is not invalid as testamentary in nature , and therefore inoperative because of failure to conform to the requirements of the Statute of Wills . [ citations omitted ].”
Followed Bendit v . Intarante , 70 N . J . Super . 116 , 175 A . 2d 222 ( N . J . App . 1961 ).
PBCBA BAR BULLETIN 18