There is a growing trend of undue influence that is less frequently written about, but is occurring with increasing frequency. When someone dies, many look to the decedent’s will to determine how the estate is to be distributed. However, the titling of the assets trumps the terms of the will. Generally, if assets are titled jointly with a spouse, as an example, then upon one spouse’s demise, that asset passes to the surviving spouse. Similarly, certain assets like life insurance, IRA’s or 401(K) plans have named beneficiaries. The beneficiary designation governs the distribution of such an asset – not the will. Often times, undue influence occurs not with the preparation of a new will, but rather with whom the accounts are titled, or how the beneficiary designation forms alter the intent of the testator or testatrix.
Joint accounts are afforded statutory protection and the courts will respect the disposition of a joint account to the surviving joint tenant so long as there is a finding of donative intent, delivery and relinquishment of control. However, if there is clear and convincing proof that a decedent did not intend for the surviving tenant to retain the property, the transfer may be set aside. In other words, the survivorship aspect of such accounts remains open to attack based upon equitable grounds such as fraud, duress, undue influence and mistake, which are matters that go to the true intent of the depositor.
Where a grantor is dependent upon a grantee and makes an improvident inter vivos transfer, stripping himself of substantially all of his assets, a presumption of undue influence arises and the gift will be declared invalid unless the donor has had the benefit of competent and disinterested counsel and it is shown that he understood and fully intended the consequences of the gift. A presumption of undue influence arises in connection with transactions inter vivos where a confidential relationship exists between the grantor and the grantee. The burden rests on the grantee to prove not only that no undue influence or deception was practiced, that all was fair, open and voluntary, but that the transaction was well understood. The purpose of this presumption is to afford protection against the consequences of voluntary action by the grantor induced by the confidential relationship, the effect of which upon the grantor’s own interest he may only partially understand.
The courts have also found that joint accounts set up for convenience purposes are subject to attack. Assets in joint accounts that are created as convenience accounts, so as to enable the other named party to pay the depositor’s bills and manage his finances, do not pass to the other named party upon the depositor’s death, but instead pass under decedent’s will.
If it can be shown that the questioned transfers were made as a result of fraud committed by the donee of such transfers, or were done by the decedent based on another’s misrepresentation or by mistake, the transfers remain subject to attack. These cases are fact sensitive and an experienced attorney should be consulted so that a case is properly evaluated before any filings are made.
Recent Cases:
Inter Vivos Gifts – Tax Apportionment
In the Matter of the Estate of Sheldon Sommers, a/k/a Sheldon Charles Sommers, deceased, 2010 N.J. Super. Unpub. _____ (Docket No.: A-3417-08T3) (App. Div. 2010). On appeal from the Superior Court of New Jersey, Chancery Division, Probate Part, Bergen County. Before Judges Rodriguez, Reisner and Yannotti.
This appeal involves a dispute between Decedent’s second wife and his nieces over Decedent’s art collection. Decedent divorced his wife in 1999. With the advice of tax counsel, Decedent gifted his art work to his nieces. An arbitration proceeding in Indiana, where Decedent resided at the time confirmed that Decedent made an irrevocable transfer of the art work to a limited liability company, and thereafter, made a valid gift of the shares in the LLC to his nieces. These transfers occurred in late 2001 and early 2002. At the time the gifts were made to his nieces, they were the primary beneficiaries of Decedent’s estate plan.
A few months later, Decedent reconciled with his second wife and they remarried in June of 2002. He also made a new Will naming his second wife as Executrix. Decedent then sued his nieces for a return of the art work. After he died a few months later, the estate continued the suit in Indiana, which it lost.
Suit was then brought in New Jersey for payment of estate taxes on the gift.
The suit in NJ did not allege undue influence and fraud, the issue which they lost in Indiana. Instead, they requested payment of $500,000 in estate taxes due to the transfer.
The lower court held that these issues were already litigated in Indiana, and were res judicata. The court also found that the Decedent intended that the gift would be fee and clear of any estate taxes. The complaint was then dismissed, without prejudice, as the IRS determined that the art work was not part of the gross estate and there should therefore be no apportionment.
Convenience Account
In the Matter of the Estate of Pasquale Suraci, deceased, (Docket No.: BER-P-284-09) (App. Div. 2010). Superior Court of New Jersey, Chancery Division, Bergen County. Before Judge Doyne.
This matter involved the trial court’s denial of partial summary judgment seeking to set aside the transfer of a joint account held between Decedent and his daughter as a convenience account.
The Court denied the motion for partial summary judgment in light of the fact that the Multi-Party Deposit Account Act (N.J.S.A. 16:16 I-5), cited by defendant, does not apply to brokerage accounts.
This case provides a good survey and explanation of the applicable law in seeking to set aside an inter-vivos transfer as a convenience account or as the product of undue influence.
Undue Influence
In re Estate of Jewell B. Sykes, deceased, 2010 N.J. Super. Unpub. ____ (Docket No.: A-1109-09T2) (App. Div. 2010). On appeal from the Superior Court of New Jersey, Chancery Division, Gloucester County.
Decedent entered into two (2) separate leases with a company owned by her son which permitted the construction of two (2) separate cell towers on her farm. Decedent’s daughter filed suit against the estate claiming that these leases were the product of undue influence and as to the second lease, Decedent lacked capacity to enter into same. After trial, the lower Court rejected the claims of Decedent’s daughter. She then appealed.
In determining whether undue influence was involved, Decedent’s daughter was required to show a confidential relationship. The mere existence of family ties does not create a confidential relationship, rather, the test involves measuring whether the relations between the parties are of such a character as to render it reasonably certain that one party occupied a dominant position over the other and that they therefore did not deal on terms of equality. Here, the Decedent’s daughter merely cited the familial relationship, which was not enough to meet her burden of proof.
A confidential relationship exists where the “relations between the parties are of such a character of trust and confidence as to render it reasonably certain that one party occupied a dominant position over the other and that consequently they did not deal on terms and conditions of equality.” Plaintiff failed to provide sufficient evidence of a confidential relationship to warrant further scrutiny of the transactions at issue.
In addition, Decedent did not relinquish dominion and control over the property as she continued to receive rent from her son under the terms of the lease. The appellate court therefore affirmed the trial court’s order. As to the issue of competence to enter into the second lease, the court relied on the testimony of various attorneys who met the Decedent around the time that the second lease was created, finding her competent to execute estate planning documents. This part of the trial court’s findings was also upheld.
Gift vs. Loan
Estate of Claudia L. Cohen, et al. v. Cohen, 2010 N.J. Super. Unpub. ____ (Docket No.: BER-C-134-08) (Chan. Div. 2010). Before Judge Koblitz.
This matter involved the trial court’s opinion on a counterclaim filed by defendant against the estate seeking the return of $10.0 million which defendant claimed was a loan and not a gift. The estate answered claiming that it was a gift and therefore part of Decedent’s estate. The court disagreed, finding the transaction was a loan.
Defendant desired to increase his daughter’s annual income, but did not want to pay gift tax. The transaction involved lending his daughter $10.0 million of municipal bonds and charging the AFR on the loan, or 1.5% in interest. The difference between the AFR of 1.5% and 5%, the rate of the municipal bonds, would be income to defendant’s daughter.
In making the transfer of the bonds, not all of the bonds were transferred timely. Defendant’s daughter also signed a Note. The estate argues that because not all of the bonds were timely transferred, that the transaction was a gift not a loan. The court found this was a mere oversight and in light of the fact that defendant’s daughter was compensated for the untimely transfer through payment of back-interest, the failure to immediately transfer all of the bonds was not fatal.
The estate also argued that defendant did not ask for the loan to be paid back until 8 weeks after his daughter died, never demanded interest payment, did not properly reflect the loan on his tax returns, and the fact that his daughter commented to friends that defendant would not require her to pay the money back. The court found that defendant’s promise to forgive the debt was conditional on predeceasing his daughter, and was of a testamentary nature required to be written in a will.
The estate bears the burden of proof to show, by clear and convincing evidence, (i) donative intent, (ii) delivery of the subject matter of the gift, and (iii) donor’s relinquishment of control of the subject matter of the gift. The court found donative intent lacking and the estate must repay the loan to defendant.
Undue Influence
In re Estate of Philomena Vicinio, 2010 N.J. Super. Unpub. ____ (Docket No.: A-4775-08T3) (App. Div. 2010). On appeal from the Superior Court of New Jersey, Chancery Division, Ocean County.
In this matter, the Appellate Court upheld the trial court’s decision removing Decedent’s son as Executor and voiding the inter vivos transfers to him from the Decedent as the produce to undue influence, finding adequate grounds for the trial court’s decision.
After the death of her husband of 53 years, Decedent’s health began to deteriorate. On April 7, 2003, Decedent executed a Will leaving everything equally to her two (2) children. Shortly thereafter, she met with another attorney who suggested that assets should be transferred to her children for asset protection purposes. While Decedent was living with her son, she transferred her liquid assets to him. She then transferred her real estate to him, to the exclusion of her daughter.
The trial court found that during the period that the transfers occurred, that Decedent was under the exclusive control of her son, and that he exerted undue influence over her, and no credible testimony was introduced to rebut the finding of undue influence. The trial court found that the Decedent’ son secreted the transfers made to him by the Decedent from her attorney. The trial court also noted that Decedent’s Last Will and Testament clearly defined her intentions to leave her entire estate equally between her two (2) children. This finding was bolstered by the evidence presented that Decedent loved both of her children equally, and that her long standing estate plan was to treat them equally. The inter vivos transfers were voided and the court directed Decedent’s son to transfer the assets back to the Estate.
Inter Vivos Gift – Pension Beneficiary Designation
Isko v. Jados, 2010 N.J. Super. Unpub. (Docket No. A-4206-08T3) (App. Div. 2010). On appeal from the Superior Court of New Jersey, Law Division, Morris County. Before Judges Skillman, Fuentes and Simonelli.
While married, husband named his wife as surviving annuitant on a joint survivor annuity. After they divorced, husband tried to remove his ex-wife as an annuitant. The court found that the designation was irrevocable, and should have been dealt with in the underlying divorce action. Husband was barred from changing the beneficiary of the excess benefit plan received from his employer, and this result could not be changed through litigation. A valid inter vivos gift was found, irregardless of the pre-nuptial agreement..
Inter Vivos Transfers – Ademption By Satisfaction
In the Matter of the Estate of Louis S. Grant, Sr., deceased, 2010 N.J. Super. Unpub. _____ (Docket No.: A-0078-09T2; A-0079-09T2) (App. Div. 2010). On appeal from the Superior Court of New Jersey, Chancery Division, Probate Part, Hunterdon County. Before Judges Rodriguez and LeWinn.
This matter involved consolidated appeals in a will contest between Decedent’s son and his two (2) daughters. Litigation between the parties involved claims of undue influence, removal of the executor and return of monies to the Estate received by Decedent’s son.
The matter was tried before the trial court and findings of fact were made. Separate appeals were taken pertaining to monies transferred to Decedent’s son prior to his death involving Decedent’s business. In his Will, Decedent devised his business to his son in recognition of the work he had performed over the years. Prior to his death, Decedent liquidated the business and transferred the proceeds to his son. The son claimed that this transfer was an ademption by satisfaction, and the Court agreed, finding that Decedent’s intent as to the disposition of the business was clear, and Decedent’s son had always maintained that the transfer was in satisfaction of the devise set forth in Decedent’s Will.
The Appellate Court remanded to the trial court for further findings on the disposition of a partnership which was set up by the Decedent during his lifetime and contained the real estate in which the business was located. When the partnership was established, the Decedent’s son signed the requisite assignments, but the daughters refused to do so. The matter was therefore remanded for a finding on Decedent’s intentions as to the disposition of the partnership.
Inter Vivos Transfers Between Spouses – Donative Intent
Miller v. Miller, 2009 N.J. Super. Unpub. LEXIS 768 (Docket No.: A-2605-07T1) (App. Div. 2009). Before Judges Parrillo, Lihotz and Messano.
Issue: Are the inter vivos Deed transfers by a husband to his wife, from his individual name to them jointly, valid gifts subject to equitable distribution where the husband owned the properties in question prior to the marriage and the Deeds were made by husband to allegedly protect his assets from medical malpractice liability?
Holding: Yes, the Deed transfers were valid gifts and the assets were properly subject to equitable distribution.
Husband appealed from a final judgment of divorce equitably distributing the parties’ jointly held primary and vacation homes, claiming they are immune assets owned exclusively by him. Husband, by way of a trust, owned the assets prior to marriage and claimed that he Deeded the assets from the trust to he and his wife, jointly, to avoid medical malpractice claims. The wife occupied the marital home for many years and contributed to the upkeep. At some point after the Deed transfer of the vacation home, it burnt down. It was rebuilt with insurance monies and marital assets, and the wife contributed to the building and upkeep of the residence. The parties did not dispute that husband individually owned the office property which he also received from his parents and was required to pay for, and that same was therefore not subject to equitable distribution.
Appellate review pertaining to the equitable distribution of marital assets is narrow. Assets owned individually prior to a marriage are immune from equitable distribution and the burden is on the husband to show that he owned the assets prior to the marriage and lacked the requisite donative intent to transfer same to his wife. The husband failed to meet this burden, (i) he failed to establish he owned the properties prior to the Deed transfer (they were owned by a trust), (ii) the parties both contributed to the upkeep of the properties for over 23 years, (iii) the parties contributed marital assets to the upkeep of the properties, and (iv) legal title was received by the wife 5 years into the marriage.
Inter Vivos Transfers – Undue Influence – Standing
Estate of Claudia L. Cohen v. Cohen, 2009 N.J. Super. Unpub. LEXIS 2353 (Docket No.: BER-C-134-08) (Chan. Div. 2009). Before Judge Koblitz.
Issue: Does a beneficiary under a testator’s Will, while the testator is alive and competent, have standing to contest certain inter vivos transfers made by the testator to his child on grounds of undue influence?
Holding: No. The testator who was found to be competent by the Court is the only one with standing to bring a challenge to the transactions at issue. The Court also found that the transfers of testator’s business interests to his son which were questioned by plaintiff were entirely consistent with testator’s estate plan.
A child possesses no interest whatever in the property of a parent when he is alive, just a mere hope to inherit. The right to inherit does not arise until the parent’s death and entitles the child to take as heir or distributee nothing except the undevised property left by the deceased parent. A parent has the right to dispose of his property as he deems fit. The child therefore does not have standing to contest an inter vivos transfer while the parent is alive and competent.
The only person having a right to bring an action to unwind an inter vivos transfer claimed to be the product of undue influence are (i) the donor himself; (ii) the guardian of that donor so long as the donor is alive; or (iii) the executor or beneficiary of the donor’s estate if the donor is deceased.