Gifts to Key Employees in Estate Plan

The California Appeals Court recently heard a case involving a business owner who provided for his longtime employees in his trust. However, the gift was contingent upon their employment at the business at the time of his passing. The business owner then sold his business five years before his passing and did not amend his trust. Unfortunately, the trust did not state if the gift to the “employees” was to continue if the business was sold.

In this case, the court looked at the business owner’s intent and determined that the gift was a reward for past and present work as a key employee among other factors. The gift ultimately prevailed but only after years of litigation and costs. If you would like to provide for key employees at your passing through a trust instead of through employee benefits programs you should be sure that the drafting language takes into account unforeseen variables such as death of employee, sale of business, retirement, etc.

Case: Schwan v. Permann http://www.courts.ca.gov/opinions/documents/A151070.PDF