A couple of weeks ago, I wrote an entry about how contracts are formed, and explained that, with the exception of certain specific circumstances, a contract does not need to be signed, or even in writing, to be binding on the parties. If I say to you that I will pay you $10 in exchange for you mowing my lawn on Saturday, and you accept the offer, we have a contract. Despite the lack of any written document, one of us could sue the other if the other fails to perform the agreed upon duties.

Putting your contracts into writing and signing them is still a good idea, however, because if you do end up in a dispute with the other party, the best evidence of what you agreed to do and what you are supposed to receive in exchange is the written document. But if you’ve incurred damages based on someone’s failure to abide by an oral contract, the fact that the contract was never put into writing won’t necessarily prevent you from recovering your damages.

There’s no such thing as an oral will

You may think that the same rules apply to wills. A will does sort of seem like a contract, after all. But unlike contracts, wills have very specific requirements, enshrined in state statute, that must be adhered to in order for one to become effective. Colorado’s statute requires as follows:

[dropshadowbox align=”center” effect=”raised” width=”500px” height=”” background_color=”#ffffff” border_width=”1″ border_color=”#dddddd” inside_shadow=”false” outside_shadow=”false” ](1) Except as otherwise provided in subsection (2) of this section and in sections 15-11-503, 15-11-506, and 15-11-513, a will shall be:

(a) In writing;

(b) Signed by the testator, or in the testator’s name by some other individual in the testator’s conscious presence and by the testator’s direction; and

(c) Either:

(I) Signed by at least two individuals, either prior to or after the testator’s death, each of whom signed within a reasonable time after he or she witnessed either the testator’s signing of the will as described in paragraph (b) of this subsection (1) or the testator’s acknowledgment of that signature or acknowledgment of the will; or

(II) Acknowledged by the testator before a notary public or other individual authorized by law to take acknowledgments.[/dropshadowbox]

Okay, so what happens if you fail to follow these steps exactly? You’ve got a will drafted. You’ve told your attorney it looks good and you’re ready to sign. You’ve started making changes to your assets in anticipation of your new estate plan going into effect. You’ve told your spouse, your kids, and your business partners about your new plan. Everyone who matters agrees: this is going to be your will. But then tragedy strikes and, on your way to signing your new will, you are involved in a fatal accident. Is that new will really going to be ignored?

The $200 million signature

A family in North Carolina is having the unfortunate opportunity to prove that the answer is probably yes, the instructions in the new will probably won’t be followed. Henry Faison, a prolific real estate developer, was in the process of revising his estate plan to create a charitable foundation. That charitable foundation would receive assets that Mr. Faison had left to his real estate company in an earlier will. In anticipation of the change, Mr. Faison bought life insurance for the benefit of his company to replace the assets that it was no longer going to be receiving.

But before he could sign the will making it official, Mr. Faison unexpectedly passed away. The result was that the real estate company received not only the proceeds from the life insurance plan that Mr. Faison had recently purchased, but also the assets that Mr. Faison had left to it in his old will (the one he was trying to replace). Any qualms that the company may be feeling about benefiting from this tragic turn of events have failed to surface thus far, despite the fact that the company is being run entirely by people chosen by Mr. Faison.

Mr. Faison’s sons are now suing the company to obtain the funds for the charitable foundation, claiming that the company has been unjustly enriched by the unexpected bad luck. To the tune of approximately $200 million. Painful. Presumably, the tax benefits that Mr. Faison was attempting to obtain with his new plan have also been lost.

The most important step: signing your will

The lesson? When you’re planning your estate, remember: until you have signed your will in the presence of two witnesses, you don’t have a will. In my experience, enthusiasm for creating or revising an estate plan comes in fits and spurts. Someone makes a decision about getting a plan in place and gets the ball rolling. But then life gets in the way and weeks, sometimes months, can go by without further progress. This cycle repeats itself several times before the will and other documents finally get executed.

But remember, it ain’t over ’til it’s over. Stating your wishes, whether orally or in writing, to your lawyer, your accountant, your spouse, or anyone else doesn’t ensure that they will be followed. Once you have determined that you need a plan, it’s important to maintain a certain level of urgency about getting it done. Until you’re in a room, signing your will in front of two witnesses, you’re not there.

If you are looking for an attorney to help you ensure that your estate plan documents are properly assembled and executed,  please visit my estate planning page for more information.