How Do I Treat Loans and Gifts to One Child When My Trust Splits Everything Equally?
Say what counts in your trust, in plain words, and keep a record of it. If you don’t, a court will read your clause by its words, and what you privately meant won’t matter.
That’s the lesson of Sandford v. Sandford (Sept. 2, 2026, G064699, G065223) ___ Cal.App.5th ___, a published decision from the Fourth District Court of Appeal, Division Three. It was also covered in the Times of India in October. On October 1, 2026, the court denied rehearing and modified the opinion without changing the judgment. As of November 3, 2026, it had no official reporter citation yet.
What happened in Sandford?
A mother’s restated 2000 trust split her estate equally among five children. It also had an equalization clause. Any unpaid loan to a child “shall be distributed as part of that child’s share.” Unequal gifts “shall be treated as advances toward each child’s equal share.”
After she died, two daughters petitioned in 2018 against three siblings, aiming chiefly at their two brothers. All five children had been named successor co-trustees. The trial court found the elder abuse and breach of fiduciary duty claims were time-barred. It then used the equalization clause anyway. After a 22-day trial, it audited about 20 years of family finances and charged rental income and sale proceeds against the brothers’ shares as early distributions.
The Court of Appeal reversed those orders and the attorney fee awards. The clause, it said, “permits a reduction for unpaid loans and gifts, but nothing more.” Rent, sale proceeds, and anything else that wasn’t a loan or gift fell outside it. A trial court can’t get around a statute of limitations with a reading that conflicts with the trust’s plain language.
What did the court say about unpaid loans?
It left those in place. The court affirmed charging unpaid loans against a child’s share, even old ones the statute of limitations would bar a lawsuit over, relying on Cook v. Cook (2009) 177 Cal.App.4th 1436. In Cook, a trust that told the trustee to allocate debts owed to the parents against the borrowing child’s share reached a loan about 20 years old, because the parents hadn’t limited the clause to debts still collectible. The Sandford court agreed: a settlor can offset time-barred debts if “the trust clearly reflects that intent” (citing Prob. Code, § 15203).
The trial court had found that the mother “did not want her children to fight over her money,” and the Court of Appeal quoted that finding. In its view, that was inconsistent with a 20-year audit of informal arrangements. She wanted peace and ended up with a 22-day trial.
| What the trial court charged | What the Court of Appeal did | Why |
|---|---|---|
| Unpaid loans to one brother, Michael, including loans too old to sue on | Affirmed | The clause names unpaid loans, and Cook v. Cook (2009) 177 Cal.App.4th 1436 lets a trust offset time-barred debts |
| Rental income from family properties, going back to 2002 | Reversed | Rent isn’t a loan or a gift, so the clause doesn’t reach it |
| Proceeds from property sales, and other items that weren’t loans or gifts | Reversed | Same reason, and any claim over them was time-barred |
| Attorney fee awards | Reversed | The reversal changed who won what, so the fee awards had to be redone |
What counts as a loan or a gift?
Most parents who’ve helped one child more than another can’t answer that cleanly. Was the down payment a loan? Was the rent-free year in the guest house a gift? Did you forgive the balance at Christmas?
If you don’t decide, someone decides after you’re gone.
The clause in Sandford covered loans and gifts. It didn’t mention rent, use of property, or sale proceeds. Those were the items the trial court reached for, and the Court of Appeal said the words didn’t stretch that far.
How do I write this into my trust?
Start with these.
Decide what counts. Loans, gifts, forgiven amounts, living in or using your property rent-free, and payments of a child’s debts are separate categories. Pick which ones you want to equalize and say each one by name.
Say how to value it. Dollar amount when given, or adjusted for interest, or adjusted for inflation? A house a child lived in for ten years has no obvious number. Name the method, such as fair rental value or a flat annual amount.
Say who decides, and what proves it. Many trusts say a written record signed by you controls. A promissory note controls over memory. That gives the trustee something to follow and keeps the beneficiaries from arguing over recollections.
Keep a ledger. A one-page list works. Date, child, amount, and whether it’s a loan, a gift, or forgiven. Update it when something changes, and keep it with your trust documents.
Then tell your children the rule. You can keep the dollar figures private if you want.
California’s default rule points the same way. A lifetime gift generally counts against what a child later receives only if the trust provides for the deduction, you declared it in a contemporaneous writing, the child acknowledged it in writing, or the gift was the same property the trust left to that child (Prob. Code, § 21135). The firm’s Bank of Mom and Dad guide covers how to paper a loan so it stays a loan, and trust distribution disputes covers what happens when the paper is missing.
| If your trust says | What a trustee can equalize |
|---|---|
| “Unpaid loans” only | Documented loans still owed at death, even old ones |
| “Loans and gifts” | Loans and gifts. In Sandford, rental income and sale proceeds were neither one. |
| Each category by name, with a valuation method | What you listed, valued the way you said |
| Nothing | Nothing, unless § 21135 applies: a contemporaneous writing, a written acknowledgment, or a specific gift of the same property |
What should I do next?
Sit down this week and list every dollar and every benefit you’ve given one child that you haven’t given the others. Mark each as loan, gift, or something you’d want counted. If you can’t tell, that’s the part your trust needs to settle.
Then read the equalization language in your trust, if you have it. Does it name loans only? Gifts only? Does it say how to value anything? If it’s silent, it’s worth fixing while you can explain what you meant.
Talk to a real California estate attorney
If your trust has an equalization clause, or you’ve helped one child more than the others and haven’t written it down, I’ll review the language with you and tell you what it reaches. Talk to Eric Ridley is a free 30-minute consultation by phone or Zoom, anywhere in California. Or call (805) 244-5291.
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Frequently asked questions
What is an equalization clause in a California trust?
An equalization clause tells the trustee to adjust each child’s share for money a parent already gave or lent that child, so the children come out even. In Sandford v. Sandford (2026), the clause covered unpaid loans and unequal gifts, and the Court of Appeal held it reached those and nothing more.
Can a trustee deduct an old, time-barred loan from a child’s inheritance?
Yes, if the trust tells the trustee to charge loans against the borrowing child’s share. Cook v. Cook (2009) 177 Cal.App.4th 1436 allowed it for a loan about 20 years old, and Sandford (2026) affirmed the same kind of offset.
Can rent or property income be charged against a child’s share as an advance?
Not under a clause limited to loans and gifts. In Sandford, the Court of Appeal reversed orders charging rental income and sale proceeds against two brothers’ shares because those weren’t loans or gifts, and claims over them were time-barred.
Do lifetime gifts automatically reduce a child’s inheritance in California?
No. Under Prob. Code, § 21135, a lifetime gift counts against what a person receives at death only if the instrument says so, the giver declared it in a contemporaneous writing, the recipient acknowledged it in writing, or the gift was the same property left by specific gift.
How should I document a loan to one of my children?
Use a signed promissory note and keep a dated ledger of each loan, gift, and forgiven balance with your trust papers. Then say in the trust which categories the trustee should equalize and how to value them.
Want a straight read on where you stand?
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