A summary of the rules and recent case law.
Claims of undue influence are on the rise. More wills, testamentary gifts and inter vivos gifts are challenged as being void because of undue influence. The increase is due in part to more individuals writing wills and making significant gifts at later ages. Put bluntly, the older the testator or donor, the more likely that he suffers from loss of memory or dementia. With more testators and donors being age 80 or older, more will have memory deficits or dementia, and more wills and gifts will be challenged. Although a decline in memory or even dementia isn’t conclusive evidence of undue influence, it does create possible grounds to challenge the validity of testamentary or inter vivos gifts.
Undue influence is also more often triggered because older testators and donors mean older legatees and older donees, in particular, older children. These older testators or donors often make bequests and gifts that aren’t equal among the children or grandchildren. For example, when a 40 year old writes a will, he’s likely to name his three children, ages 10, seven and five, as equal beneficiaries. The same person at age 80 will have children ages 50, 47 and 45 and, in light of the children’s circumstances, may not leave them equal shares. The child on his third marriage may be left less. The child who has a special needs child may be left a greater share of the estate. And, the child who has alcohol dependency issues may be left a share in trust with any benefits contingent on keeping sober. An unequal bequest is more likely to be challenged on grounds of undue influence.
Second marriages and later life marriages are also fertile grounds for claims of undue influence. Bequests to a spouse of a later life marriage are frequently challenged by the children of the earlier marriage. Even an equal distribution doesn’t ensure that no claim of undue influence will be made as disgruntled descendants sue to get what they believe is rightfully theirs.
How to Prove
A successful claim of undue influence requires proof of all the elements, which vary somewhat from state to state in part because some states have statutes that define undue influence while others rely on common law. Even states that use the common law have different ways of defining undue influence. However, all states define undue influence as occurring when a will, a specific bequest or a gift represents the will of the influencer and not that of the testator/donor.
Generally, although not always stated as such, four elements must be proved to successfully maintain a claim of undue influence: (1) the testator/donor was susceptible to the influence of others; (2) the testator/donor and influencer had a confidential relationship;
(3) the influencer used that relationship to effect a change in the distribution of property in the will or gift; and (4) the change didn’t express the desires of the testator/donor or, as some courts state it, was unconscionable. Although not a required element, most claims of undue influence allege that the testator/donor had diminished mental capacity and so was susceptible to being unduly influenced.
Burden of Proof
States also vary in who has the burden of proof. The Restatement (Third) of Property Section 8.3 places the burden of proof on the party claiming undue influence. Many states apply this rule on the basis that because a testator/donor is presumed to have mental capacity, the undue influence, just as with a claim of incapacity, must be proven. Other states create a rebuttable presumption of undue influence that the alleged influencer must overcome if it’s been shown that the alleged influencer was in a confidential relationship with the testator/donor.
Recent Court Decisions
The great majority of undue influence cases are decided by the facts with very few being considered by the state’s highest court. There have been, however, a few state Supreme Court cases decided recently that reviewed the elements and the law of undue influence.
The Montana Supreme Court considered whether a claim of undue influence was proven when a mother transferred the majority of the shares in a company that owned the family farm to one son at the expense of another son.1 The court held there was no undue influence despite expert medical testimony that the mother suffered from dementia and despite the fact that the son who was benefited was found to have a confidential relationship with his mother. The court held that the evidence presented was mere suspicion of undue influence. What was required was a showing of specific acts of undue influence to meet the burden of proof. The court didn’t articulate what kinds of acts prove undue influence. Apparently, the mere act of encouraging the transfer wasn’t in and of itself sufficient proof of undue influence.
What’s noteworthy is that the court cited the independent reasons that the mother had for making the gift, including divesting the company stock to avoid it being liable for nursing home care. Apparently, the mother engaged in Medicaid planning by reducing her assets by making a gift and hoping not to need to apply for Medicaid for at least five years, thereby avoiding the penalty period for gifts. The lesson is that when making gifts with an eye towards protecting assets when later applying for Medicaid, the parties should consider a possible challenge to the gifts based on a claim of undue influence.
The Virginia Supreme Court was asked to decide whether a party appointed in a will as a trustee could be found to have engaged in undue influence in order to have been named as trustee.2 The decedent executed a will and a revocable trust. Both were drafted by his brother. The trust appointed the brother as trustee on the death of the settlor. The brother wasn’t a beneficiary of the will and had no rights of distribution under the trust. As trustee, however, he was allowed fees. He was also the executor under the will and so was entitled to compensation. The decedent’s wife, who claimed the brother had engaged in undue influence, argued that the brother not only would be compensated but also that he had discretion as trustee over distributions from the trust, which would allow him to potentially distribute trust assets to his own children.
The court held that such uncertain and contingent possibility of a future benefit didn’t make the brother a beneficiary. Although the brother was in a confidential relationship, he didn’t procure the execution of a will or trust that favored him. The latter was necessary to create a presumption that he’d engaged in undue influence and so placed the burden of proof on him to overcome the presumption of no undue influence.
The Mississippi Supreme Court determined that a holder of a power of attorney (POA) could be found to exercise undue influence when she amended certificates of deposit (CDs) by naming her children as co-owners.3 An adult daughter was her mother’s agent under a financial POA. She was also her mother’s caregiver. The daughter used the power to delete named owners from the CDs and replace them with her own daughters, the grandchildren of the mother. The deleted owners sued to overturn the change. The court found that because the mother’s name was also on the CDs, the change of names wasn’t a completed gift and so couldn’t be
challenged under the undue influence doctrine.
Instead, the court found that the daughter had exercised undue influence in her capacity as agent when she used her authority under the POA to change the names on the CDs. The court found a confidential relationship between the mother and the daughter, which created a presumption of undue influence that the daughter failed to rebut. Unlike many states, Mississippi doesn’t hold that a POA in itself creates a confidential relationship. However, the court found that a confidential relationship existed because the daughter served as her mother’s caregiver and had a close bond with her. The mother’s reliance and dependence on the daughter created a fiduciary, confidential relationship. Nevertheless, the presumption of undue influence requires more. In this case, the daughter’s use of the POA to benefit her own children when in a confidential relationship was an abuse of the relationship that created a presumption of undue influence.
The court went on to state that if the daughter could show that she acted in good faith, she could overcome the presumption that she’d engaged in undue influence. She couldn’t, however, because the daughter never consulted her mother about the changes that the daughter made in secret. The court concluded that the daughter had failed to show by clear and convincing evidence that she had rebutted the presumption that her acts had constituted undue influence.
The Mississippi case is notable for applying the doctrine of undue influence to overturn the acts of an agent acting under a POA. The case also highlights the importance of who has the burden of proof in a case involving a claim of undue influence. Finally, the requirement that the individual accused of undue influence had to overcome the presumption by clear and convincing evidence, and not just by a preponderance of the evidence, underscores the importance of who has the burden of proof.
Endnotes
1. Larson v. Larson, 406 P.3d 925 (Montana 2017).
2. Kim v. Kim, 807 S.E.2d 216 (Va. 2017).
3. Johnson v. Johnson, 237 So.3d 698 (Miss. 2017).