A Donor's Rights to Disposition of Assets Versus Undue Influence Protection
| Publication year | 2010 |
| Pages | 47 |
2010, October, Pg. 47. A Donor's Rights to Disposition of Assets Versus Undue Influence Protection
October 2010
Vol. 39, No. 10 [Page 47]
Trust and Estate Law articles are sponsored by the CBA Trust and Estate Section. Topics include trust and estate planning and administration, probate litigation, guardianships and conservatorships, and tax planning.
Coordinating Editors
David W. Kirch, of David W. Kirch, P. C., Aurora-(303) 671-7726, dkirch@dwkpc.net ; Constance D. Smith, of Fairfield and Woods P.C.- (303) 894-4474,csmith@fwlaw.com
About the Author
David W. Kirch has practiced law in Colorado for more than thirty-five years. His firm, David W. Kirch, P.C., specializes in all aspects of estate planning, estate administration, and real estate-(303) 6717726,dkirch@dwkpc. net. The author thanks Andrew J. Waters, an associate at David W. Kirch, P.C., for his assistance in researching and editing this article.
The law of undue influence continues to evolve in Colorado. This article provides an overview of the Krueger opinion and other court decisions, as well as recent changes to the Colorado Jury Instructions.
Charges of undue influence, fraud, and lack of capacity have increased in the past several decades where the elderly transfer their assets through inter vivos or testamentary probate or nonprobate transfers. This trend has occurred in part because individuals are living longer and their older age makes them more susceptible to debilitating (but not fatal) diseases such as Alzheimer's and macular degeneration and, thus, are more likely to need assistance and care in later years. The breakdown of family relationships-the result of the geographic dispersal of siblings-also has contributed to the increase in contested probate proceedings. Finally, the statutory trend encouraging and expediting the use of nonprobate transfers and durable powers of attorney has increased opportunities for abuse.
The law relating to will contests has long been established, but there recently has been an increase in challenges to nonprobate transfers and lifetime gifts seeking the remedy of imposition of a constructive trust.(fn1)These types of transfers have been more frequently challenged for abuse, in part because more assets are transferred by nonprobate means-for example, 401(k) and individual retirement account (IRA) beneficiary designations-with attorneys less likely to be involved in these transfers. Proving and disproving, as well as avoiding, undue influence can be difficult as to transfers where an attorney was not involved in the process.
The individuals most vulnerable to charges of undue influence are often those closest to the donor. There is a natural inclination to make gifts to those who are closest and most helpful to the elderly during their later years, including longtime friends and family members. The law might discourage volunteerism if such individuals were subject to lawsuits without a reasonable basis for challenging inter vivos and testamentary gifts.
Thus, two competing interests in such circumstances must be recognized and balanced: (1) allowing a donor to gift or transfer property to those closest to the donor and facilitating the economies involved in the use of nonprobate transfers and powers of attorney, and (2) protecting the elderly who are susceptible to undue influence, fraud, and incapacity.(fn2) The law balances these interests when it imposes a rebuttable presumption of undue influence on transfers to someone with whom the benefactor has a confidential or fiduciary relationship.(fn3) This presumption is sometimes called a "bursting bubble" presumption.(fn4)
The law regarding the presumption of undue influence and unfairness has developed in a parallel and sometimes inconsistent fashion with regard to will contests versus challenges to lifetime and testamentary nonprobate transfers.(fn5) Attention to reconciling the law in these two areas has been infrequent.(fn6)
In the past, courts in Colorado inconsistently applied the presumption of undue influence, creating considerable uncertainty in the state of the law. Colorado case law and jury instructions conflicted on whether the presumption: (1) disappeared from the case once rebutted (the bursting bubble);(fn7) (2) remained in the case even after rebuttal;(fn8) or (3) shifted the burden of proof.(fn9) The Colorado Supreme Court, in the recent case of Krueger v. Ary,(fn10) partially resolved this uncertainty in the context of nonprobate transfers, holding that the presumption disappears from the case once rebutted.(fn11)
Consistent with Krueger in the nonprobate context, in In re Estate of Schlagel,(fn12) the Colorado Court of Appeals previously held that, in the probate context, a confidential relationship raised only a rebuttable presumption of undue influence. In that case, the court concluded that an intimate, adulterous relationship alone was not enough to prove undue influence when the parties rebutted the presumption.(fn13)
Finally, the Colorado Jury Instructions (CJI-Civ.) were substantially revised in the last year with respect to inter vivos gifts and wills to conform to the Krueger decision.(fn14) As discussed below, these instructions mostly provide some helpful clarification to the law, but they also raise additional questions.
This article provides an overview of undue influence, including the presumption of undue influence. It examines the operation of this presumption and discusses the evidence necessary to rebut the presumption and the rebuttal's effect on the burden of proof. It also discusses the Krueger decision and its implications for undue influence litigation in Colorado, as well as pre-mortem probate in the context of undue influence.
Undue Influence Litigation
Undue influence has been recognized as "one of the most bothersome concepts in all the law."(fn15) To prove undue influence, the person seeking to set aside the transfer must show that the undue influence was enough to "overpower the will of the grantor to the extent that he [was] prevented from voluntary action and [was] deprived of free agency."(fn16) Undue influence generally is defined as an outside force overcoming the will of the donor.(fn17) However, "influence is not necessarily 'undue' even if gained through persuasion or kindness" and even if the influence results in "unequal or unjust disposition" in favor of a donee who has cared for the donor at the end of the donor's life.(fn18 )The key issue is whether the donor voluntarily made the gift.(fn19)
Consequently, undue influence can be hard to prove. Normally, undue influence "is not done so overtly that it can be proven with direct evidence;"(fn20) it often is exerted subtly and in private. For this reason, an undue influence claim "is often built on circumstantial evidence from which undue influence can be inferred."(fn21)
Typical circumstances providing an evidentiary basis for a finding of undue influence in the will contest context include the following:(fn22)
* a confidential relationship
* a fiduciary relationship
* undue influence present at will execution
* a relationship between attorney drafting will and influencer
* knowledge of the contents of will by influencer
* an influencer instructing the preparation of a will, making first contact with the attorney or meeting alone with attorney drafting the will
* an influencer paying the drafting attorney
* an influencer securing witnesses to the will
* an influencer keeping the will after execution
* the execution of the will is kept a secret from potential challengers
* old age of the donor
* an opportunity and motive for the exercise of undue influence
* weak physical and mental health of the donor
* a beneficiary caring for the donor during the end of donor's life
* a beneficiary treating new will execution as an urgent matter
Many of these factors also may apply to nonprobate transfers.(fn23) The circumstances of nonprobate transfers may differ from making a will* dramatic change in the testamentary disposition of assets.
A comparison of two cases involving undue influence claims regarding nonprobate transfers is instructive on the factual distinctions on which a finding of undue influence in the nonprobate context may hinge. In one case, the court found undue influence where the donee completely controlled all aspects of the donor's financial affairs and the donor was seriously ill during the time of this control.(fn24) Also, the court noted that the disposition of the assets during this time was "completely inconsistent with the way [the donor] lived her entire life."(fn25) In contrast, the court in Krueger found that undue influence did not occur based on evidence that the donor was strong-willed and naturally wished to make the gift.(fn26)
In another case, the court held that the presumption of undue influence may be rebutted by showing that either: (1) the confidential relationship had been severed before the critical events took place; or (2) the person executing the instrument received independent and critical advice.(fn27)
Most recent, in In re Estate of Hall,(fn28) the presumption arising from a confidential relationship in both the will and inter vivos gift context was overcome by evidence of the transaction. The devisee/donee was a long-time friend who was shown to have an honest character, and the testator/donor was shown to have full knowledge of his actions and their consequences. The donee used a power of attorney to place funds in an account as to which he was a joint tenant with right of survivorship.(fn29)
Some courts have identified specific factors that support a finding of undue...
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