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by Randy Gardner, J.D., LL.M., CFP®, CPA; and Leslie Daff, J.D.

Randy Gardner, J.D., LL.M., CFP®, CPA, is a tax, retirement, and estate planning attorney. He is co-author of 101 Tax Saving Ideas and The Closing Wealth Transfer Window. (Email Randy Gardner)

Leslie Daff, J.D., is a state bar certified specialist in estate planning, probate, and trust law and the founder of Estate Plan Inc., a professional law corporation. (Email Leslie Daff)

John Grisham’s recent book, Sycamore Row, which depicts a legal contest over a decedent’s right to pass property to whomever he pleases and his family’s right to inherit property without having to worry about the undue influence of a caretaker, may be fiction but it appropriately highlights themes being discussed in state courthouses across the country. Probate attorneys constantly field phone calls with facts similar to these:

Mom died. Dad is depressed, starting to show signs of dementia, and in need of increasing amounts of personal care. The children are busy with their lives and cannot provide care. An unrelated caregiver, or perhaps one of the children, provides care to dad. Dad dies. Astonishingly, dad’s wealth is gone or he has left the bulk of his estate to the caregiver (the “favored beneficiary”). The others (the “harmed beneficiaries”) are distraught and want their inheritances. 

What can be done? In many states, there is a presumption the caretaker exercised undue influence, and the prior estate plan (hopefully there is property left in the estate) is restored. In other states, a competent decedent’s validly executed will or trust is upheld, and the harmed beneficiaries appear out of luck. Sometimes the case concludes with a financial settlement between the caregiver and the children. 

A summary of four legal trends related to undue influence and will and trust contests is shown in the table.

Tortious Interference with Expected Inheritance

The California decision in Beckwith v. Dahl (2012) represents the first time California recognized the tort of intentional interference with expected inheritance, although the tort is recognized in numerous other states. The facts were: MacGinnis and Beckwith were in a long-term committed relationship, but were neither married nor domestic partners. MacGinnis was estranged from Dahl, his sister and only living relative. Prior to his death, MacGinnis showed Beckwith a will he intended to execute. The will left half his estate to Beckwith and half to Dahl. Dahl told Beckwith she would have attorney friends draft a trust instead of a will for her brother. MacGinnis died from surgical complications without executing either. Dahl inherited everything under the intestate statutes, and Beckwith sued to claim his half. 

The court decided in favor of Beckwith because there was: (1) an expectation of receiving an inheritance; (2) intentional interference with that expectancy by a third party; (3) interference which was wrongful; (4) reasonable certainty that, but for the interference, the harmed beneficiary would have received the inheritance; (5) financial harm to the beneficiary; and (6) no standing to be heard in probate court. Within these guidelines, it is possible to bring claims based on wrongdoing that occurred prior to or after the decedent’s death. 

Financial Abuser Statutes

In trust and estate law, the almost universal “slayer rule” prohibits inheritance by a person who murders someone from whom he or she will inherit. But a growing number of states, including California, Washington, Oregon, and Arizona, now treat financial abusers as if they were slayers, voiding any inheritance by the abusers from the victims who were financially abused. More technically, any person who participates in the willful and unlawful financial exploitation of a vulnerable adult will be treated as if he or she murdered the vulnerable adult.

Marriage: A New Form of Elder Abuse

If the decedent marries the caregiver, do elder abuse and undue influence arguments still apply? In some states, the answer is “yes.” For example, in In Re Estate of Haviland (Washington, 2013), the decedent met the financial abuser when the decedent was 85 and the caregiver was 35. They began dating and married. He suffered from dementia but immediately transferred $450,000 to her, changed his estate plan to exclude his children, and left the estate $45,000 in debt. The court applied Washington’s financial abuse slayer-style statute in favor of the children. 

However, in In Re Estate of Pryor (Cal. Ct. App., 2009), the spouse prevailed. Jennifer was married to Richard in 1981, but they divorced in 1982. Jennifer served as Richard’s caregiver from 1994 to 2001, when they “secretly” remarried (under California’s confidential marriage statute) without informing the children, who were subsequently disinherited. Although California requires a certificate of independent review by an independent attorney attesting to the competence of the decedent and lack of undue influence by a caregiver for a transfer to a caregiver to be valid, transfers to spouses do not require a certificate of independent review; and the claim of undue influence typically does not invalidate a marriage. 

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Clauses May Endanger Crummey Powers

Harmed beneficiaries who want to bring legal action to reclaim their inheritances may face no-contest or mandatory arbitration clauses in the decedent’s will or trust.

No-contest clauses (also referred to as in terrorem clauses) typically provide that a beneficiary who legally contests the distribution scheme in the estate planning documents or brings a legal action against the trustee or personal representative loses his or her share of the estate. Mandatory arbitration clauses discourage expensive, post-death litigation by requiring beneficiaries to use alternative (sometimes binding) dispute resolution methods.

Estate plan drafters include these clauses in documents to avoid estate contests and to promote harmony when they anticipate discord. However, the Uniform Probate Code, which has been adopted in most states, raises the question as to whether no-contest clauses work when it provides: “A provision in a will purporting to penalize an interested person for contesting the will or instituting other proceedings relating to the estate is unenforceable if probable cause exists for instituting proceedings.” Recent court decisions have gone both ways with regard to the validity of no-contest clauses, but the trend seems to be to allow contests if probable cause exists. 

Tip: No-contest clauses do not work if someone is completely disinherited and has nothing to lose by contesting the estate plan; so leave enough of a bequest to a disfavored beneficiary to have him or her think twice about bringing a contest and risk forfeiting the bequest. 

IRS internal legal memorandum 201208026 raises another concern when no-contest and mandatory arbitration clauses are included in documents. Because a beneficiary may be punished with disinheritance if he or she contemplates a civil enforcement suit, the IRS intends to treat Crummey withdrawal rights in documents containing such provisions as illusory, meaning no gift tax annual exclusion is available. 

Historically, mandatory arbitration provisions in trust and estate documents have been considered unenforceable. However, the Texas Supreme Court, in Rachal v. Reitz (2013), held an arbitration clause in a trust was enforceable against the beneficiaries because federal and state policies favor arbitration as an approach to resolve disputes. 

Protecting Clients from Undue Influence

According to psychologist Ira Turkat, Ph.D., author of the article “Psychological Aspects of Undue Influence,” numerous factors commonly seen in the elderly increase their susceptibility to manipulation. The factors include: death of a spouse, depression, isolation, lack of attention from family members, anxiousness, dependency, and diminished mental capacity. Techniques used to increase vulnerability by caretakers with bad intentions include: increasing dependency needs, restricting access to loved ones, relationship poisoning, and self-promotion. 

Steps to be taken to avoid the appearance of wrongdoing depend on whether you work with a favored beneficiary or a harmed beneficiary. If you work with a favored beneficiary, it is most important for him or her to be able to prove the decedent was legally competent. The written opinion of one or more physicians with regard to competence at the time documents are executed, along with a certificate of independent review where or when appropriate, is probably the best approach.

If you work with family members concerned about losing their inheritances, encourage them to protect themselves by carefully screening and selecting caregivers, continuing a close relationship with the elder, periodically asking the elder about the caregiver relationship, and remaining financially vigilant by controlling the checkbook and monitoring financial accounts. If the elder has already died with a revised estate plan, encourage family members to contact an attorney, identify individuals who may have witnessed manipulation, and locate the estate plan, including the attorney who drafted it, the witnesses, and the notary.

The legal developments described here indicate the courts are open to hearing the concerns of battling beneficiaries.

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