Family Settlement Agreement

Home » Agreement Articles » Family Settlement Agreement

Family Settlement Agreement

A Brief Introduction About the Family Settlement Agreement

A Family Settlement Agreement is an agreement reached by all the heirs for distributing an estate. The probate court doesn’t have the authority to approve or disapprove this agreement. Each party to the agreement signs it, and the agreement is filed with the court, thus making it binding and enforceable. Sometimes the heirs might redraft a will into this agreement in case there arise any disputes about the naturality of any heir or the right of the heirs to any asset.

There are many reasons heirs to an estate might choose this agreement, including:

  • If the will is vague or unfair
  • The division of the property is deemed biased by the heirs
  • Division of the property in its current state causes inconvenience to any of the heirs, and they want to have a different part of the estate for administrative convenience
  • A dispute regarding the right of the asset
  • Right of any heir to receive any part of the property or inheritance to the estate at all

However, for a family settlement contract to be binding, all the eligible heirs to the property must sign the agreement and give their informed consent for the agreement. If any heir later disputes the contract, he/she ought to prove that he was unduly influenced into the contract. While it is not required for the agreement to be registered, notarizing it does help in sealing the official validity of the document and preventing the right of estoppel on the agreement.

Who Takes the Family Settlement Agreement?

A family settlement agreement form is signed between all the heirs to an estate. This might include natural heirs and adopted ones, too, if they have been officially included as part of the family by the deceased individual. Alternatively, any beneficiary to the will may also be counted as heir to the property. Stepchildren are also counted under heirs unless their disinheritance is proved, and they were left out of the will consciously and with the mental soundness of the deceased individual.

The most important thing here is that since the agreement is signed outside the bounds of the court, there are no hard and fast rules regarding the signatories of the agreement.

Purpose of the Family Settlement Agreement

This agreement provides an amicable solution to the property division instead of taking it to court. Since division or re-division of assets does not count as gifts, and therefore outside the purview of taxation, this agreement becomes an internal matter. This agreement provides an easier and cost-effective way to divide the assets so the heirs can reach a settlement that mutually agrees with all the members of the family. This document also serves as evidence that all the heirs have given their informed consent for the redistribution of the property and are content with its outcome. This ensures that there are no future disputes among the heirs of the family.

Contents of the Family Settlement Agreement

A standard family settlement agreement template contains the following terms

  • The details of all the signatories to the contract and their acknowledgment that they are heirs to the estate.
  • Description of the estate that has been bequeathed as part of the will.
  • The current division of property among the members and their ownership/cost of all the assets bequeathed to them.
  • The proposed division of the property along with clear demarcation of which family member would lose which part of the property.
  • Acknowledgments from the heirs for various statements like
  • That the terms of the renewed agreement have been explained to all the parties.
  • That the contract is being signed with their consent and not under any influence.
  • Self-declaration of mental soundness at the time of signing the property.
  • That the division of property is satisfactory to the heirs.
  • That this agreement is binding and there would not be any future amendments to the contract.
  • That this contract marks the conclusion of disputes regarding the splitting of the estate.
  • That the parties shall present themselves for the registration of the agreement.
  • That the parties shall issue NOCs as and when required by any authority or third party for confirmation or representation against the new division of the estate.
  • That the division of the property shall include associate charges and costs.
  • Details of the costs that are incurred or any lien on the property and the responsibility of the parties in paying those costs or honoring the liens.

How to Draft the Family Settlement Agreement?

A family settlement agreement sample should include details like

  • Rival claim on the property before the drafting of the new agreement.
  • The cause of the dispute as any dispute may be about more than just the property. It could be about other types of consideration as well.
  • The burden of redividing the estate and the costs that are involved in it
  • The changes in the taxation of individual members after the new division of property

The court doesn’t have the authority to approve or disapprove this agreement. Each party signs it, it is filed with the court, and it acts both as a binding as well as an enforceable contract. If the agreement is properly drafted, it would be outstanding protection against upcoming legal responsibility and claims to the heirs.

Unlike several other forms of probate navigation, this agreement is often handled outside the bounds of the court. In case the heirs of a particular estate want to negotiate a settlement in which one family member gets the entire estate, then that is completely permitted, and the court cannot overrule such an agreement. The negotiation strategy would be about the property they’d want and the property they would be willing to let go.

Benefits & Drawbacks of the Family Settlement Agreement

As with many things in law, this agreement has benefits and drawbacks.

The benefits of the agreement include:

  • The opportunity towards circumventing a poorly prepared or inappropriate will
  • A fast and simple procedure without significant legal hoops.
  • An agreement that could not be disapproved by the court as family settlement agreements are solely up to the heirs’ discretion.
  • The ability to offer protection for future claims against a will.

The drawbacks include:

  • Each heir should take part; if any one heir doesn’t want to participate, the remaining heirs cannot overrule his or her rights.
  • There might be gift tax implication for property willed to you; for instance, if a widow owns her late husband’s home and she selects instead to split the home with her four children, she might owe gift taxes on the transfer of the home.
  • Parties could still raise the issue of estoppel if the agreement is not registered appropriately.

What Happens in Case of Violation?

A family settlement agreement refers to an agreement reached through all heirs as to how the estate of a deceased person shall be divided as well as distributed. In case a will is unclear, as well as poorly executed, or does not address the entirety of an estate, then this particular agreement could be utilized to assist in finalizing the probate procedure(1).

On breach of the agreement accordingly, on remand, the party seeking to enforce the agreement could file a breach of contract claim as well as attempt to enforce the agreement after adjudication of that claim. Besides, the agreement is a binding statement that declares all disputes shall end. Therefore, disputes would arise regarding consent and estoppel. In both cases, the onus is on the accuser to prove the wrongful execution of the contract.

A family settlement needs the consent of all the family members. Even if one of them does not agree, the others can’t affect this agreement. In this case, they could only approach the court for administrative powers or for the sale of the property without the consent of the other. Like an ordinary settlement agreement which serves to contractually put an end to a dispute or possible dispute amid parties, a family settlement agreement also could help individuals who might otherwise find themselves at odds in probate court to reach an amicable, out-of-court resolution for the concerns between them.