How do I document an advance on an inheritance?

Giving someone an advance on an inheritance, and documenting it properly, can be done pretty simply. But there are a few things to watch out for. The following question from a reader raises the topic:

What is the legal procedure for a testator to give an advance to a beneficiary for a portion of their inheritance? In this case, the niece of the testator is named as a specific beneficiary in the will, but is very short on money and the testator has offered to advance them some of the money that they will inherit when the time comes. I am the executor named in this will and want to make sure that this advance is properly documented so that it won't complicate my life down the road. Would a signed statement from the testator indicating the date/sum of money/fact that it is an advance on the amount specified in the will be sufficient? Or is anything more required?

It's great that everyone in this situation appears to be working together. That's more rare than you know. I completely agree that the advance should be properly documented. This should, as you say, prevent your life as executor from being harder than it has to be. After the testator passes away, it will also give clarity to other beneficiaries of the will about what is going to happen. It will give reassurance that the testator's wishes are being properly carried out.

There isn't any particular form or notice required to be prepared. The signed statement you  mentioned would be sufficient. Make sure that the note is clear that it's an advance, not a loan or a gift. It doesn't need witnesses. It would be a good idea to keep the statement with the will.

An issue to keep in mind is that of mental capacity of the testator. You haven't mentioned it or the age of the testator. The testator should understand the nature of the transaction, and understand how it impacts his or her current financial condition. In other words, the testator shouldn't be giving away money he or she can't afford to give. If there is any question of capacity, the person to assist the testator is not the executor but the person appointed under the Enduring Power of Attorney.

One final note. Make sure that the will does not say that advances are not to be taken into consideration when the estate is divided. This would directly contradict the statement signed by the testator and could end up requiring you to ask the courts for direction.