What happens when the long-standing estate plan of a parent is changed shortly before their death to benefit someone new? Every year the inheritance plans of an alarming number of elders goes awry in the final months of their life without any notice or warning to the unsuspecting family members. It could be a neighbor, a caregiver, a child, a grandchild, or a more distant relative that benefits from the change, and likely had a hand in that change, prior to death. Don’t be a part of any inheritance horror stories.
In the State of California, there are close to 45,000 new probate matters filed each year. This includes trust and will contest cases where parties are challenging a trust, trust amendment, will, or will codicil (fancy word for a will amendment). Tens of thousands of Californians are the victim of inheritance theft every year.
Here’s how it typically plays out. A parent, or parents, create an estate plan using a revocable living trust. The plan is simple. Everything will pass equally to the children upon the death of the parent(s). The eldest child is usually named as the trustee to manage the trust estate after the death of the last parent to die, if the couple is married, or after the death of the parent, if single. An easy plan to understand, administer, and ultimately distribute to the children equally when the times comes.
But after the parent dies the children discover that a trust amendment was created and signed by the parent without any notice or warning to the unsuspecting children. For example, Bob and Helen create a trust. They will leave everything they own to their four children equally upon their death. Bob dies first and the trust continues for Helen. When Helen passes, the oldest child, named Robert, becomes trustee and sends a copy of the trust to his siblings. But Robert also includes a “new” trust amendment that Helen signed six months before she died. Under the trust amendment, each of the children (other than Robert) are given $20,000 each and then the remainder of the estate passes to Robert. Helen died leaving an estate worth $4.5 million.
Of course, the other children are shocked. They went from having an equal share in $4.5 million (approximately $1,125,000) to having specific gifts of $20,000. The children don’t understand how this could have happened without them being notified of the change. They also don’t believe that Helen ever would have voluntarily decided to give them less than an equal share. What can they do to right this wrong?
The disinherited children seek out a trust litigation lawyer and here’s what that lawyer (me) would say. First, revocable trusts can be amended without giving notice to the named beneficiaries. This is sad but true. So, not having received notice of the amendment is not unusual nor is it a grounds to attack the amendment. But there are over claims you can make.
Lack of Capacity Claim
First, a lack of capacity claim. If Helen is deemed by the court to have lacked capacity at the time of signing the trust amendment, then the amendment can be invalidated and the prior version of the trust leaving all assets equally to the children would apply. The problem with lack of capacity claims is that it takes surprisingly little capacity to create a trust amendment, or a will for that matter. Basically, Helen would only have to have known three things:
- That she had children
- A general understanding of her property (but nothing specific), and
- That she was signing an amendment to her trust.
This is a much lower standard than the capacity required to contract. Under contract capacity, the settlor must understand:
- The rights, duties, and responsibilities created by, or affected by, the decision
- The probable consequences for the decision-maker and, where appropriate, the persons affected by the decision
- The significant risks, benefits, and reasonable alternatives involved in the decision
Think about the differences between these two standards. There is no requirement that Helen understood the consequences of her decision in created a trust amendment or how it would affect her children. She also did not need to know the rights and duties created nor the risks and benefits. And most surprising, she did not need to know reasonable alternatives involved in the decision. The two standards of capacity are miles apart in terms of the level of cognitive functioning required of the person taking that action.
As you can see, trying to overturn a trust amendment based on lack of capacity is quite difficult. Helen would have to either be in a coma, or have some type of severe mental deficit, such as acute dementia, Alzheimer’s disease, or stroke symptoms (to name a few examples).
Undue Influence Claim
The more common claim brought to overturn a trust amendment is undue influence. This claim does require that Helen be in a vulnerable state that makes her susceptible to undue influence. But that vulnerable state is much different than lack of capacity. The other elements of undue influence focus on the actions of the person who helped create the trust amendment. Overall, undue influence is a very different claim.
There are four elements to undue influence:
- the vulnerability of the victim
- the influencer’s apparent authority over the victim
- the actions and tactics of the influencer
- the inequity of the result
When it comes to vulnerability, that element can be satisfied based on illness, disability, age, education, impaired cognitive functioning, emotional distress, isolation, or dependency. The best undue influence cases usually have both impaired cognitive functioning of some sort coupled with isolation. But to have impaired cognitive functioning is far different from lack of capacity because the impairment need not be severe. Even mild to moderate dementia can be sufficient to establish that the victim was susceptible to undue influence.
The most interesting part of undue influence is the actions and tactics element because it puts the focus on the bad actor. In our example from above, what did Robert do to unduly influence his mom? Did he control her necessities of life, control her mediation, control her finances? Did Robert keep his mom isolated, use threats or intimidation? Were there changes to property rights in haste or in secret? Here is a great example of the secrecy coming to bear on the case even though notice of the trust amendment was not required to be given (as far as legitimate trust amendments go). But changing mom’s trust in secret can be used to evidence the actions and tactics of Robert.
Of course, it ultimately is up to a judge to decide if undue influence occurred or not. It is impossible to predict how a judge might decide. Having said that, the more evidence you find, the better.
What Cannot Be Done
Here is a final caveat that you should know. The court does not have the freedom to waive a magic wand and arrange mom’s estate that way it sees fit. The court can either uphold the trust amendment or invalidate it. The estate would then pass under the prior existing documents. In our example, this is no big deal because the prior trust (before it was amended) left everything to the children equally. But if you have a situation where there is a prior trust amendment that does not favor you, then you either must contest that amendment too or choose not to contest at all. And if there are a string of amendments that do not favor you, then you have a hard case on your hands.
The court can approve or invalidate documents, but it cannot recreate the estate plan as it sees fit. For example, let’s say Helen’s trust originally left her assets to three of her children, her youngest child Todd was disinherited because he was never in her life. And then Robert unduly influenced Helen to leave the assets to only him. However, when the lawsuit was filed to contest the trust amendment no one could find a copy of the original trust. That alone does not revoke it, but it makes it impossible to administer it even if you win the case against Robert.
Let’s say further that the court agrees with your position and invalidates the trust amendment, but still no copy of the original trust can be found. What typically occurs in this situation is the assets will pass by the intestacy statute–meaning the assets will pass equal to all four of Helen’s children.
What about the disinheritance of Todd? It won’t apply if the original trust document cannot be found. Even if all the children testify in court that Helen wanted to disinherit Todd, it won’t happen. The court cannot recreate the estate plan. It can only approve of documents, invalidate documents, or follow the intestacy laws.
It is important to know the limitations of the court because it helps you understand what actions to take and what actions are simply not possible.
Don’t be a part of any inheritance horror stories
Albertson & Davidson, LLP has focused on trust and will litigation for over 18 years. We are the leading contingency trust and will litigation firm in the State of California. Our attorneys have successfully handled hundreds and hundreds of trust and will litigation cases and have obtained over $300 million in verdicts and settlements for our clients. We have the talent and we have the resources to handle your case and resolve any inheritance horror stories.
