Proving Testamentary Capacity and Undue Influence

June 28, 2010 By Leave a Comment

Undue influence claims are really about testamentary capacity.  For a will to be valid, the testator (the person making the will) must have testamentary capacity. Testamentary capacity exists when a person is fully aware of his actions and understands that he is giving away his assets.  The person must also understand who his assets are being given to.

The person alleging that the will is the product of undue influence is really arguing that the influence was such that the person who made the will lacked the mental capacity to do so.  The person is claiming that the person’s mind was so overridden by the influence of another that the person didn’t have the mental capacity to execute a will.

Because these issues are so fact-specific, cases involving testamentary capacity often involve burdens of proof.  The burden of proof has to do with whose responsibility it is to prove a given fact.  The party submitting the will for probate has the burden of proving that the will is valid. Once the court establishes that the will, on its face, is valid, the party contesting the will must then offer proof to why the will is in invalid.

Evidence of testamentary capacity is judged by a standard known as the preponderance of the evidence.  Preponderance of the evidence is a standard in which the court weighs the evidence presented by each party and decides upon the most convincing. Each side’s evidence is weighed according to relevance and reliability and not merely by the amount that is presented.

A recent Mississippi appellate case illustrates the application of this standard to will contests based on lack of testamentary capacity and undue influence.  The case involved a Mississippi appellate court’s decision about the validity of a will made by Willie Ray Rutland in 2002. Willie Ray died in 2005 and was survived by his niece, Diane Rutland Nations, his cousin, Calvin Rutland, and his nephews, Rickie Dale Rutland and Todd Rutland.

Willie Ray’s 2002 will, which named Diane Rutland Nations as the sole beneficiary of his estate, was offered to probate by Calvin Rutland.  The will was contested by Rickie and Todd Rutland on the grounds that Willie Ray lacked the mental capacity to execute a will in 2002 and also that the will was executed under undue influence from Calvin and Diane. Rickie and Todd wanted the court to accept a will written by Willie Ray in 1989 in which he left all his real property to Rickie and Todd.

The lower court’s decision was a disappointment all the way around.  The lower court found that the 2002 will was invalid based on Willie Ray’s lack of mental capacity (testamentary capacity) to execute a will, but did not discuss the issue of undue influence. But the lower court didn’t like the 1989 will either, holding that Willie Ray’s estate should be administered as though he died without a will (intestate).

The parties appealed the decision of the lower court. The appellate court had to decide if Willie Ray had sufficient testamentary capacity to execute a will in 2002 will or, conversely, if the 2002 will had been the product of undue influence.

The court heard testimony from all the parties. The testimony indicated that Willie Ray signed the will at his residence in a retirement home. It was drawn up by an attorney, who was a friend of Calvin’s, and Willie Ray signed the will in front of witnesses, including Calvin and the administrator of the retirement home.  The attorney, the administrator, and Willie Ray’s doctor testified that he was fully aware of his actions and what he was doing with his assets.

Rickie and Todd testified that Willie Ray had been losing his mind since 1998 and could not have understood the gravity of his actions. But neither Rickie nor Todd had seen Willie Ray around the time the 2002 will was signed and often went months without seeing him. The court discounted their testimony, stating “testimony regarding capacity from witnesses who have not seen the testator in months will be deemed irrelevant by the Court.”  The court held that testimony that is broad or overly general will not meet the preponderance of the evidence standard when it is contradicted by specific, relevant evidence of mental capacity. The court noted that a person that generally lacks the mental capacity to execute a will can make a valid will during “lucid intervals” when capacity exists. Therefore, the court found that Willie Ray possessed sufficient testamentary capacity to execute the 2002 will.

Rickie and Todd also asserted that Willie Ray’s 2002 will was the product of undue influence by Calvin and Diane. When writing a will it is also important that you are executing the will on your own volition and not solely for the benefit of another. The court will throw out a will that has been executed under undue influence (for more on undue influence, see What is Undue Influence?). The court presumes undue influence if a confidential relationship existed between the testator and a beneficiary of the will and there is evidence that the beneficiary somehow abused their relationship. One example of suspected undue influence is if a beneficiary is an active participant in the execution of the will. However, to be considered undue influence, the will must reflect the desire of the beneficiary rather than the intentions of the testator.

The court found enough evidence to prove a confidential relationship between Diane and Willie Ray. During the period of time that Willie Ray created his 2002 will Diane assisted Willie Ray in getting around town, she held power of attorney to execute financial and legal documents on his behalf, and she had helped him with his finances since 2001. But one must prove more than just the existence of a confidential relationship. To have the will invalidated for undue influence Diane, as the sole beneficiary, must have actively participated in the execution of the will. Evidence was presented that Diane was not in the room at the time the will was executed, nor had she had any significant contact with Willie Ray’s attorney or Willie Ray regarding the drafting of the will. Based on these facts, the court held that the will was not a product of undue influence and was valid. The 2002 will was found to replace the will executed by Willie Ray in 1989 and Rickie and Todd failed to inherit from Willie Ray.

In re Estate of Rutland, 2008-CA-01671-COA (Dec. 8, 2009).

Filed Under: Estate Planning, Mississippi Probate Tagged With: , , ,

Steig Larsson’s Default Estate Plan

June 24, 2010 By Leave a Comment

Stieg Larsson, author of the immensely popular Millennium trilogy (The Girl with the Dragon Tattoo, etc.), died at the top of his game in 2004 at the age of 50. The better part of a fourth novel lies trapped in Larsson’s laptop. Will we ever get to read it?

Larsson died intestate (without a will) and left long-time partner Eva Gabrielsson with no right to his estate, estimated to be around $30 million, and no control over the rumored fourth book. Both Larsson and Gabrielsson were in the prime of their lives. Larsson had originally planned a series of ten books. He was going to give the proceeds of the last seven to charity. He had no intention of dying at age 50.

Gabrielsson claims a “moral right” to the work, but Larsson’s heirs as determined by Swedish law, his brother and his father, do not agree. Despite Gabrielsson’s hints that she may have coauthored the books, and despite the Swedish public’s sympathy, the law remains firmly on the side of Larsson’s family.

Could this happen here in the United States? Absolutely. Each states laws of intestate distribution determine who will receive his or her assets at death, and “life partners” or “significant others” typically do not count. Even though Larsson and Gabrielsson lived together for 32 years, because they were not married and had no children, she has no legal claim to his estate. The same is true in the United States — no marriage, no will, no inheritance for the life partner.

This case is a good illustration of the folly of relying or “moral” claims (there is no such thing) or common law marriage (which some states—including Mississippi—do not recognize).  The resolution is simple: get married.  Better yet, get married and do some estate planning to make sure that your assets pass as intended.  This is particularly advisable if you are planning on authoring a chart-topping trilogy of novels that will make you a millionaire.

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Estate Planning During Estate Tax Repeal: States Get Involved

June 23, 2010 By Leave a Comment

As I commented in Estate Planning for 2010, estate planning attorneys should take steps to address the (temporary?) repeal of the estate tax in 2010.  Many estate plans rely on Federal estate tax terminology—such as the marital deduction or applicable exclusion amount—to fund various components of the estate plan.  These references are designed to achieve optimal tax savings and have been part of bread-and-butter estate planning for years.

But the repeal of the estate tax in 2010 changed the landscape.  Because there is no estate tax, derivative terms like marital deduction or applicable exclusion amount no longer have meaning under current law.  Older estate plans that still refer to these terms may not function as the client intended.  Earlier in the year (here), I recommended that estate planning attorneys address any ambiguities caused by references to pre-2010 law in their clients’ estate plans, especially if those clauses could thwart the client’s non-tax objectives in 2010.

Some states have enacted legislation to provide a backup for estate plans that use out-of-date terminology.  Several states—including Indiana, Maryland, Nebraska, Utah, Virginia, Washington, Wisconsin, and Florida—have passed laws to address the problems created estate tax repeal.  Most of these statutes treat the estate plans of state residents who die in 2010 as if 2009 law still applies unless the plan contemplates the 2010 estate tax law changes.  In other words, we interpret references to the estate tax laws as though 2009 law is still in effect.

For example, suppose a client has an estate plan that was prepared in 2005 that leaves an amount equal to the “applicable exclusion amount” to a credit shelter trust.  This is common language in most AB estate plans designed to minimize estate taxes.  But what do we do in 2010, when there is no estate tax and thus no “applicable exclusion amount?”  Under the laws of most states that have addressed the issue, we simply apply 2009 law.  Since the applicable exclusion amount was $3,500,000 in 2009, we fund the credit shelter trust with that amount unless the client’s estate plan clearly anticipated estate tax repeal.

The Florida statute takes a different approach.  Florida Statute 733.1051, which was signed into law on May 27, 2010, and is retroactive to January 1, 2010, provides more flexibility but at the expense of court involvement.  If a Florida resident dies in 2010 with an estate plan that relies on the Federal tax laws to fund various components of the estate plan, the heirs have the option of asking a Florida court for a judicial modification of the estate plan.  The law does not apply to estate plans that clearly anticipate no federal estate tax in 2010. Like the laws of other states, the Florida statute does not apply if the estate plan clearly anticipates the possibility of estate tax repeal in 2010.

Of course, relying on the fallback provisions enacted by a state legislature is usually not a good idea.  Estate planning attorneys should focus on drafting flexible estate plans that address both the repeal of the estate tax and the modified carryover basis provisions that apply in 2010.  In many cases, this will require custom drafting and attention to detail.  And hopefully this will all be addressed soon by Congress.  But don’t count on it.

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Mississippi Conservatorship Can Trump Power of Attorney

June 21, 2010 By Leave a Comment

When a person becomes unable to make legal and financial decision on their own, whether it is that they are no longer of sound mind or that they are undergoing medical sedation, that person will often sign a power of attorney. A power of attorney (also called a POA) grants a trusted friend or loved one authority to act on another’s behalf in legal and financial matters.  A power of attorney can be temporary or permanent (durable) depending on the reason for executing it.

Because a POA is a voluntary contract between one person and another, a person can grant another person power of attorney to act on his or her behalf without court involvement.

But what if a person failed to execute a power of attorney or (better) trust-based estate plan that includes incapacity planning?  In that case, a court can appoint a conservator.  A conservator is a court-appointed fiduciary that oversees a person’s assets while the person is mentally or legally incompetent. A conservator is required to report back and make accountings to the court of your assets and how they have been handled.

A recent Mississippi appellate case discussed the relationship between powers of attorney and conservatorships.  The specific issue was whether a court can appoint a conservator over someone who is no longer mentally competent if that person has a POA in place.  In Ellis v. Turner, the court concluded that when a situation requires court intervention, a conservator can be appointed even when a valid POA has been executed.

Ruby Chism Ellis and Bobbie Ellis were married later in life, when both were in their sixties. Ruby has one son from her previous marriage, Jerry Chism and one granddaughter, Stephanie Chism Turner.  Two years after Ruby and Bobbie were married, Ruby was diagnosed with Alzheimer’s disease. At the time of her diagnosis, before the disease completely took over, Ruby executed a document that granted her husband, Bobbie, and her granddaughter, Stephanie, joint power of attorney over her medical and financial affairs. Within four years of being diagnosed with Alzheimer’s, Ruby became completely incapacitated by the disease and no longer knew who she or any of her family members were. Bobbie turned her daily care over to a nursing facility.

Stephanie, Ruby’s granddaughter, brought a request for the court to appoint a conservator for Ruby. Stephanie asserted that Bobbie, Ruby’s husband, was no longer acting with Ruby’s best interest in mind and therefore she wanted to be appointed her grandmother’s conservator.  Bobbie contested Stephanie’s request for the appointment of a conservator based on the fact that Ruby had executed a POA while she was still competent.

The court examined the behavior of both parties and found that Bobbie was no longer devoted to Ruby and could be failing to act in her best interest. He had a new girlfriend and may have taken money that was intended for Ruby’s care for his own personal use. For these reasons, the court felt that supervised conservatorship would best serve Ruby.

The court held that the existence of a power of attorney does not prohibit the court from making an appointment of a conservator. Where a conservatorship and a power of attorney exist simultaneously, the person with the power of attorney must answer to the conservator. In most cases, once a conservator has been appointed there is no longer a need for a power of attorney.

Bobbie also argued that, as Ruby’s husband, he should be appointed as her conservator if conservatorship were necessary.  The court rejected this argument, noting that there is nothing in Mississippi law that would give priority to a spouse.

The Ellis case demonstrates the importance of planning for incapacity.  As the population ages, incapacity issues are becoming more and more common.  While powers of attorney are useful planning tools, they don’t always do the job.  A better option for many people is an estate plan that incorporates a revocable living trust to plan for incapacity during life and possibly avoid probate at death.  If Ruby had executed a well-drafted (and there are many that aren’t) revocable living trust before her dementia set in, chances are that many of these problems could have been avoided.

No. 2008-CA-01993-COA (Miss. Ct. App. Dec. 8, 2009).

Filed Under: Estate Planning, Mississippi Probate Tagged With: ,

Allegations of Undue Influence in Richard Pryor’s Estate

June 14, 2010 By Leave a Comment

A recent California case involves allegations of undue influence in the estate of famed comedian, Richard Pryor.  The case stemmed from a secret remarriage to Pryor’s caregiver (who was also his ex wife) in his later years.  His will left substantial assets to his wife rather than to his children. As is to be expected, one of Pryor’s children sought to set aside his will on grounds of undue influence.

Richard Pryor married Jennifer in 1981, but the couple split after only one year.  Shortly thereafter, Pryor was diagnosed with multiple sclerosis. His condition deteriorated over the years. In 1994, Jennifer began providing care for Richard, becoming his care custodian. They secretly remarried in 2001, and Pryor died in 2005.

Both before and after Jennifer and Richard remarried, Pryor revised his estate plan to leave a significant inheritance to Jennifer instead of his six children. Richard’s daughter Elizabeth contested the will. She claimed that the marriage was due to fraud and undue influence, arguing that the statutory presumption of undue influence in transfers to care custodians should apply.

The California Probate Code section limits the group of individuals to whom gifts can be made.  Specifically, a gift to a “care custodian” (someone on whom the donor is dependent upon) is invalid.   A person or agency which provides health or social services to elderly persons or dependent adults is considered a “care custodian” under the statute.

The California Probate Code’s undue influence rule mirrors the “confidential relationship” presumption of most common law states (see What is Undue Influence?).  In general, once the disqualifying relationship is established, the transfer to the caregiver is presumptively invalid.  It is assumed to have been the result of fraud, duress, menace, or undue influence.   The burden is then shifted to the caregiver to rebut the presumption.  The caregiver must care custodian show by clear and convincing evidence that the transfer was not due to fraud, undue influence, duress, or menace.

For purposes of the Pryor case, it is important to note that this presumption does not apply when the care custodian is related to the donor by blood or marriage.  This is similar to the rule in other jurisdictions, such as Mississippi (see No Presumption of Undue Influence Between Spouses).  The rationale behind this exception is simple: because relatives are most likely to be both caregivers and the usual recipients of a person’s assets, we shouldn’t invalidate gifts to relatives simply because they happened to care for the decedent.  Otherwise, gifts to relatives who neglected the decedent would be presumptively valid.  Relatives that actually cared for the decedent would be presumed to be invalid.

Pryor’s daughter (Elizabeth) argued that the marriage itself was the product of fraud, duress, or undue influence. Under this theory, Jennifer shouldn’t have been considered to be a legitimate spouse and the presumption of undue influence should apply.  Elizabeth alleged that Pryor was pushed into marrying Jennifer in his weakened state, just to get around the presumption of undue influence.

While the California Court of Appeals recognized that sham marriages could conceivably be used to get around the presumption of undue influence, it stopped short of creating a judicial exception to the Probate Code.  The California legislature had the opportunity to keep the disqualification presumption when the marriage between the care custodian and the dependent adult was obtained by fraud or undue influence, but it chose not to. Instead, the legislature maintained the spousal exception regardless of how or when the marriage took place.  In a (surprising?) act of judicial restraint, the Court of Appeals declined to act where the legislature had not.

In the Court’s rationale, a spouse or blood relative can be a caregiver to a dependent adult, that dependent adult could then draft a will leaving some or all of his assets to that person, and due to their blood or marital status, they will not be subject to the automatic presumption disqualifying them from being able to receive that inheritance.  This was exactly what happened in the Pryor case.  The Court held that Pryor’s gift of his estate to Jennifer (to the exclusion of his children) was not presumptively invalid due to the fact that Jennifer was his caretaker.

The Pryor case illustrates the important role that the presumptions play in estate litigation.  The issue was not so much whether Pryor’s gift to Jennifer was the result of undue influence—although that was the ultimate issue in the case.  The case centered on whether Jennifer was presumed to have unduly influenced Pryor.  In other words, it was all about burden of proof.  Was it Jennifer’s job to convince the court that she didn’t influence Pryor?  Or was it Elizabeth’s job to convince the court that she did?  In many undue influence cases, the battle is fought over whether the presumption of undue influence applies.

In re Estate of Pryor, 99 Cal. Rptr. 3d 895 (Ct. App. 2009).

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What are “Bodily Heirs?” The Importance of Clear Drafting

June 7, 2010 By Leave a Comment

A life estate is an interest in property for the life of an individual—called a life tenant—that passes to someone else at the death of the life tenant.  The person who receives the property after the death of the life tenant is called a remainderman.  In a recent case, a Tennessee court had to interpret a will that left a life estate to a life tenant with a remainder to her “bodily heirs.”

Robert Stone’s will left a life estate to his daughter Nellie, with the remainder to go in equal shares to Nellie’s “bodily heirs.”   Nellie had three children, but two of those children died before Nellie did. One of the deceased children was survived by four children (Nellie’s grandchildren).  The question before the court was whether Nellie’s grandchildren could be considered Nellie’s “bodily heirs.”

“Bodily heirs” (sometimes called “heirs of the body”) is antiquated language for lineal descendants.  The term is intended to distinguish between a person’s natural descendants and the person’s other heirs, such as a spouse or friend.  Like most states, the Tennessee court defined “bodily heirs” to mean lineal descendants of a specific person who would inherit the property through intestate succession. “Bodily heirs” does not necessarily mean “children.”  The term includes generations, extending down to grandchildren, great grandchildren, etc.

The court held that biological grandchildren qualify as lineal descendants of their grandparents. If Nellie’s four grandchildren were her biological grandchildren (as opposed to adopted grandchildren), then they will be able to inherit the property under the terms of the will. There was some question as to which of the four were actually biologically related to Nellie or were adopted or stepchildren of Nellie’s son. The appellate court remanded the case to determine which ones were biological grandchildren of Nellie so that those individuals could inherit their portion of the estate.

Here is a lesson in the importance of clear drafting.  If Mr. Stone’s will had included clear definitions of the class of beneficiaries he intended to benefit (instead of relying on arcane language like “bodily heirs”), this confusion could have been avoided. If the will isn’t clear enough, then the courts are called on to interpret the language of the will in accordance with binding precedent.

Chambers v. Devore, No. W2008-02548-COA-R3-CV, 2009 WL 3739443 (Tenn. Ct. App. Nov. 9, 2009).

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