Contested Gifts

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 assets trumps the terms of a 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.

In the area of probate litigation, there are a growing number of cases wherein spouses, children, siblings or friends, through the creation of joint accounts, are frustrating the intentions of a decedent. In analyzing such transfers, the courts have held that once a confidential relationship between decedent and the donee is established, a presumption arises whereby the burden of proof shifts to the donee of such transfers to show, by affirmative proof, that a gift was intended by the decedent. Absent such a showing, the transfer will be set aside.

The statutory provisions governing joint accounts provides that “[s]ums remaining on deposit at the death of a party to a joint account belong to the surviving party or parties as against the estate of the decedent unless there is clear and convincing evidence of a different intention at the time the account is created.” N.J.S. 17:16I-5; Cziger v. Bernstein, 33 N.J. Super. 404 (1955) (courts will respect the disposition of a joint account so long as there is a finding of donative intent, delivery and relinquishment of control); In the matter of Estate of Del Guercio, 206 N.J. Super. 159, at 162, (N.J. Super. L. 1985) (gifts between spouses have higher protections); Trotta v. Trotta, 103 N.J. Super. 295, (App. Div. 1968); Tucker v. Tucker, 121 N.J. Super. 539 (1972).

Although this result cannot be changed by will, a review of the case law makes it clear that the survivorship aspect of such accounts remains open to attack based “upon equitable grounds such as fraud, duress, undue influence and mistake”, i.e. “matters going to the true intent of the depositor.” Sadofski v. Williams, 60 N.J. 385, 290 A.2d 143 (1972), citing Bauer v. Crummy, 56 N.J. 400 (1970); Ward v. Marine National Bank of Wildwood, N.J., 38 N.J. 132 (1962) (as to defense of “mistake”).

The majority of cases on this subject center around the claim of undue influence. The New Jersey Supreme Court has defined “undue influence” as “‘mental, moral or physical’ exertion which has destroyed the ‘free agency of a testator’ by preventing the testator ‘from following the dictates of his own mind and will and accepting instead the domination and influence of another.’” Haynes v. First Nat. State Bank, 87 N.J. 163 at 176 (quoting In re Neuman, 133 N.J.Eq. 532, 534 (E. & A. 1943). See also In re Liebl, 260 N.J. Super. 519 (App. Div. 1992), certif. denied, 133 N.J. 432 (1993).

In Haynes, supra. the court also pointed out the different standards used in determining undue influence in the context of inter vivos gifts as compared to a will contest. The Haynes court concluded that “in inter vivos transfer cases, where one is giving away what one can still enjoy, the presumption of undue influence is raised more easily than in cases involving wills. [In inter vivos cases] [a]ll that is needed is a confidential relationship.” Id. at 176. New Jersey law is clear that the presumption of a right of survivorship in inter vivos gifts shifts in instances where a confidential relationship exists. See also In the Matter of the Estate of Penna, 322 N.J. Super. 417 (NJ Super AD 1999); Bronson v. Bronson, 218 N.J. Super. 389 (App. Div. 1987); Pascale v. Pascale, 113 N.J. 20 (1988).

“The nature of a confidential relationship is difficult to define, but encompasses all relationships ‘whether legal, natural or conventional in their origin, in which confidence is naturally inspired, or, in fact, reasonably exists.’” Pascale v. Pascale, 113 N.J. 20, 34 (1988), quoting In re Fulper, 99 N.J. Eq. 293 (Prerog. 1926). A confidential relationship “includes not only cases of technical, legal, fiduciary relationship, such as guardian and ward, principal and agent, trustee and cestui que trust, but also all cases where trust and confidence actually exist.” Id. at 134.

A confidential relationship arises where confidence is reposed by reason of weakness or dependence or where the parties occupy relations in which reliance is naturally inspired or in fact exists. The essentials of a confidential relationship are a reposed confidence and dominant and controlling position by the beneficiary of the transaction. A confidential relationship exists when circumstances make it certain that the parties do not deal on equal terms, but on one side there is an overmastering influence, or, on the other, weakness, dependence or trust, justifiably reposed, which does not exist where parties deal on terms of equality. See In re Stroming’s Will, 12 N.J.Super. 217 (N.J.Super. A.D. 1951); Croker v. Clegg, 123 N.J. Eq. 332, (N.J.Err. & App. 1938).

“[T]he person in whom the confidence is reposed and who has acquired an advantage, is required to show affirmatively not only that no deception was practiced therein, no undue influence used, and that all was fair, open and voluntary, but that it was well understood.” In re Dodge, 50 N.J. 192 (1967) quoting In re Fulper’s Estate, 99 N.J. Eq. 293, 302 (Prerog. Ct. 1926). See also Haydock v. Haydock, 34 N.J.Eq. 570, 575 (E. & A. 1881) (“the influence which is undue in cases of gifts inter vivos, is very different from that which is required to set aside a will”). See also Seylaz v. Bennett, 5 N.J. 168 (1950); Slack v. Rees, 66 N.J. Eq. 447 (E & A 1905).

In Bronson, supra, an aged and ill mother’s transfer of substantially all her assets into joint accounts with her son, upon whom she relied for transportation and daily care, raised a presumption of undue influence. The mother became seriously ill and moved in with her son in May of 1985. Prior to moving in with her son, she had a Will naming both of her sons as equal beneficiaries. At such time, she also had approximately $25,000 held in joint accounts. At her death in November of 1985, she had in excess of $200,000 titled in joint name with the son with whom she was living. The court determined that the burden was on said son to show that his mother understood and desired all her assets to pass directly to him rather than under her will. The Appellate Court in Bronson determined that sufficient evidence existed for a finding that a confidential relationship existed and, accordingly, held that the son had the burden of proving that his mother intended to make the gifts to him through the transfers into joint name and that his mother acted without undue influence.

The principles governing an inter vivos undue influence case are clearly laid out in In re Dodge, 50 NJ 192 (1967):

“[T]he common law has always imposed a heavy burden of proof in most instances of claimed inter vivos gifts, even where the donor is not shown to have been mentally incompetent at the time of the transaction. The principle has been expressed frequently that “in all transactions between persons occupying relations, whether legal, natural, or conventional in their origin, in which confidence is naturally inspired, is presumed, or, in fact, reasonably exists, the burden of proof is thrown upon the person in whom the confidence is reposed and who has acquired an advantage, to show affirmatively not only that no deception was practiced therein, no undue influence used, and that all was fair, open and voluntary, but that it was well understood.” In re Fulper’s Estate, 99 N.J.Eq. 293, 302 (Prerog. Ct. 1926).

In the application of this rule it is not necessary that the donee occupy such a dominant position toward the donor as to create an inference that the donor was unable to assert his will in opposition to that of the donee. As Chief Justice Gummere observed in Slack v. Rees, 66 N.J.Eq. 447, 449 (E. & A. 1904), the doctrine has a much broader sweep. “Its purpose is not so much to afford protection to the donor against the consequences of undue influence exercised over him by the donee, as it is to afford him protection against the consequences of voluntary action on his part induced by the existence of the relationship between them, the effect of which upon his own interests he may only partially understand or appreciate.” In our judgment, whenever it appears that the relations between the parties to an inter vivos gift are of such character that in reasonable probability they do not deal with each other on terms of equality … equity should regard it as voidable at the instance of the donor or his representatives. In such a situation the donee must show by explicit and convincing evidence that the donor intended to make a present gift and unmistakably intended to relinquish permanently the ownership of the subject of the give…. And where death or incompetency of the donor has intervened between the alleged gift and the making of the claim, which generally facilitates the making of false and non-meritorious claims, the common law has long recognized a particular need for compliance with the burden of proof: …” 50 N.J. at 227-228, 234 A.2d 65.

The court reaffirmed these principles in Pascale v. Pascale, 216 N.J. Super. 133, (App. Div. 1987), certif. granted, 108 N.J. 183 (1987). In Pascale, the court held that “[w]e are convinced that in the present day it is equitable and just to require only that it be proven that the donor has reposed such trust in the handling of financial and legal affairs in the donee that a confidential relationship exists. Once this has been established the donee must carry the burden of affirmatively demonstrating that there was no deception or undue influence and that all was open, fair and completely understood. 216 N.J. Super. at 140.

Thus, despite the statutory provisions of N.J.S. 17:16I-5, the courts will entertain actions to set aside an inter vivos transfer of individual assets into joint accounts based on grounds of undue influence. Through proof of a confidential relationship between donor and donee, the burden shifts to the donee to show that a gift by the donor was intended. In these cases, a potential litigant should seek experienced counsel in dealing with such matters to ensure that their rights are protected.

Recent Cases:

Ademption By Satisfaction

In the Matter of the Estate of Louis S. Grant, Sr., deceased, 2011 N.J. Super. Unpub. _____ (Docket No.: A-0078-09T2; A-0079-09T2) (App. Div. 2011). On appeal from the Superior Court of New Jersey, Chancery Division, Probate Part, Hunterdon County.

This matter is an appeal of the lower court’s order on remand to determine whether a gift of Decedent’s limited partnership interests were made to his son, Louis Grant, Jr. On remand, the lower court held that the transfers of limited partnership interests were valid, finding clear and persuasive evidence that the decedent intended to make the gift and performed an act of delivery. The court found significant the filing of gift tax returns and the consistent income tax treatment by the decedent and his son, in recognition of the gifts. On appeal, the Appellate Division affirmed, rejecting appellant’s factual arguments.

Suit to Set Aside Beneficiary Designation of Decedent

In the Matter of the Estate of Hirokazu Sano, 2011 N.J. Super. Unpub. _____ (Docket No.: BER-P-442-09) (Ch. Div. 2011). In front of the Superior Court of New Jersey, Chancery Division, Bergen County, Judge Peter E. Doyne, A.J.S.C.

This matter involves an attempt by decedent’s wife to set aside a change in beneficiary designation in favor of decedent’s long-time employee and girlfriend, which was made prior to decedent’s death.

Decedent was the owner of several bakeries in New Jersey/New York area. On September 27, 2002, decedent obtained a $2.5 million life insurance policy naming his business, Parisienne, Inc. as primary beneficiary, and naming his wife, the plaintiff, as secondary beneficiary. On January 22, 2004, decedent changed the beneficiary in favor of defendant, whose sister acted as decedent’s life insurance agent. Both sisters had known decedent for many years and were the sisters of decedent’s former business partner. Decedent and defendant were engaged in a romantic relationship since 1992.

Decedent died intestate on July 23, 2008, and the proceeds of $2.5 million were transferred to defendant. Defendant spent down approximately $1.5 million, and the court subsequently issued an injunction seeking to preserve the remaining funds.

Plaintiff’s underlying complaint alleges that defendant procured the change in beneficiary by exerting undue influence. Plaintiff filed an amended complaint adding defendant’s sister as a co-defendant, alleging that she conspired with defendant to secure the change in beneficiary. Plaintiff failed to provide an affidavit of merit against defendant’s sister, the insurance agent.

The parties filed competing motions for summary judgment. The court denied the motions as to a majority of the claims, but granted summary judgment on the claims of breach of fiduciary duty and negligence on the counts alleged against the insurance broker as no affidavit of merit was supplied. The court found that there remain inconclusive facts as to whether a confidential relationship existed between decedent and defendant, and summary judgment was therefore denied.

Misappropriation of Decedent’s Funds

In the Matter of the Estate of Mildred B. Trocolor, deceased, 2011 N.J. Super. Unpub. _____ (Docket No.: A-5005-09T3) (App. Div. 2011). On appeal from the Superior Court of New Jersey, Chancery Division, Probate Part, Bergen County. Before Judges Lisa, Reisner and Alvarez.

Defendants appeal from two orders entered by the trial court requiring them to pay back $240,000 which defendant son misappropriated from his mother without her knowledge or consent. Defendant orchestrated a reverse mortgage of decedent’s residence and used a majority of the funds for his own benefit. Before trial, the lower court had warned each party that if looting was discovered, the court may bar the ability to inherit from the estate. Although defendant produced a “gift letter” from the decedent, the trial court found the letter to be a forgery, and ordered defendant to pay the estate back the money he looted, to pay punitive damages and legal fees. The court removed defendant son as executor and ordered that he had no claim against the estate. In upholding the decision, the Appellate Division found that the trial court’s conclusions were amply supported by the record.

Undue Influence – Shifting Burden of Proof on Joint Accounts

In the Matter of the Estate of Ignazio Del Bagno, Deceased, 2011 N.J. Super. Unpub. ____ (Docket No.: A-3789-09T2) (App. Div. 2011). On appeal from the Superior Court of New Jersey, Chancery Division, Monmouth County. Before Judges R. B.Coleman, Lihotz and J. N. Harris.

Plaintiff appeals from the lower court’s grant of summary judgment in favor of defendant which dismissed plaintiff’s claims of undue influence pertaining to certain inter vivos transactions which benefited the defendant. On appeal, the Appellate Division reversed, holding that a hearing on credibility issues was required.

Plaintiff, a daughter of decedent, sued her sister, the defendant, alleging that decedent did not intend that his joint checking and savings account be transferred to defendant at his death. Plaintiff also alleged that the sale of decedent’s commercial property, the proceeds of which were deposited by defendant into the joint savings account, were not intended to pass to defendant at decedent’s death. Defendant admitted she did not get decedent’s direction or consent to deposit the monies in the joint account, but that “this is what decedent would have wanted her to do”. After discovery, defendant moved for summary judgment which the court granted. Finding that the bank depository act required plaintiff to show, by clear and convincing evidence, that decedent did not intend for the joint account to pass to defendant at his death. The court went on to find that there was no challenge to the assertion that decedent used joint accounts as an estate planning tool, and was aware of the consequences. There being no facts in dispute, summary judgment was granted.

The Appellate Division overturned this decision, finding that the lower court did not properly shift the burden of proof on the undue influence claim in light of defendant’s confidential relationship with the decedent. The court set out the burdens of proof as follows:

  1. when examining joint accounts, the presumption that the assets pass to the joint account holder is rebuttable;
  2. the assets are assumed to be property of the joint account holder unless there is clear and convincing evidence of a different intention at the time the account is created;
  3. this burden of proof is modified when the moving party can prove by a preponderance of the evidence that the surviving joint account holder had a confidential relationship with the donor who established the account;
  4. if a confidential relationship exists, there is a presumption of undue influence, and the surviving joint account holder must rebut the presumption by clear and convincing evidence;
  5. if the survivor carries the burden of proof, the statute (NJSA 17:16I-5(a)) controls the disposition of the account and the objectant can offer additional evidence of undue influence to defeat the statutory presumption of survivorship.

In this case, once the confidential relationship was established, the burden shifted to defendant to establish that the accounts were not convenience accounts and that the proceeds of sale of the commercial property were intended to be transferred to defendant at decedent’s death. This involves credibility issues and a plenary hearing was required before summary judgment may be granted.

Undue Influence

Pass v. Kirschner, et al., 2011 N.J. Super. Unpub. ____ (Docket No.: A-4002-07T3) (App. Div. 2011). On appeal from the Superior Court of New Jersey, Chancery Division,HudsonCounty. Before Judges Cuff, Payne and Waugh.

Defendant appeals from the lower court’s ruling setting aside certain pre-death transfers of partnership interests in a family limited partnership which benefited the Defendant.

Alfred and Etta Kirshner, the parents of Plaintiff and Defendant, established a family limited partnership (FLP) and a family trust to benefit their children equally. Over the years, Alfred and Etta gifted their interests in the FLP to their children and their families. During Alfred’s lifetime, Plaintiff and her family in turn gifted their interests in the FLP to Defendant, at the request of Alfred and Etta. After Alfred died, Defendant continued to own the interests in the FLP and Etta amended the family trust to disinherit Plaintiff and her family in favor of Defendant. The underlying estate plan and the changes over the years were made by the attorney for Alfred and Etta, who also acted as Defendant’s attorney. Plaintiff sued, seeking to aside the transfers to Defendant and the amendment to the family trust, claiming unauthorized transfers, undue influence and breach of fiduciary duty.

The trial court held that Defendant shared a confidential relationship with Etta and exercised undue influence over her, placing specific emphasis on Defendant’s reluctance and failure to produce documents and records and his penchant for unresponsive answers to simple questions posed to him at trial. The court found that Defendant orchestrated the change in disposition, and vacated the amendment to the family trust and the transfer of the FLP interests. Defendant also breached his fiduciary duty as general partner of the FLP by making disbursements for his own benefit. The court awarded a money judgment for the amount of the transfers, together with interest and attorneys’ fees.

Defendant appealed, and the Appellate Division upheld the lower court’s findings, remanding the matter for recalculation of the prejudgment interest on the damage award. The Appellate Division found that the trial record supported the court’s findings, Etta stated she was dependent on Defendant; when Defendant told her to stop seeing Plaintiff, she complied; Defendant refused to allow Plaintiff to see her mother; Etta had impaired vision and Defendant read her all of the documents; Defendant made all of Etta’s appointments with her lawyers and doctors and spoke directly to her estate planning attorney; all of Etta’s calls were forwarded to Defendant’s office; and the file was replete with “suspicious circumstances” pertaining to the change in disposition, the gift-back program; Defendant’s discussions with Etta’s estate planning attorney; Defendant’s attempt to buy out Plaintiff’s share in the FLP; the documents which purportedly disinherited Plaintiff; the doctor visits and videos; Defendant’s harassing phone calls to Plaintiff; and Defendant’s thorough involvement with instructions to Etta’s estate planning attorney. This created a presumption of undue influence which could not be overcome by Defendant.

Undue Influence – Entire Controversy Doctrine

Tina Raia, Administratirx CTA of the Estate of Edward Rodenbough v. William Rodenbough III, 2011 N.J. Super. Unpub. ____ (Docket No.: A-1421-09T1) (App. Div. 2011). On appeal from the Superior Court of New Jersey, Law Division, Bergen County. Before Judges A. A. Rodriguez and C. L. Miniman.

Plaintiff appeals from the lower court’s dismissal of her complaint seeking to set aside certain death-bed beneficiary changes to Decedent’s insurance policies as the product of undue influence exerted by Defendant. It was also alleged that Defendant mismanaged Decedent’s Estate while he was the administrator. The Appellate Court affirmed the lower court’s decision dismissing the Complaint based on the entire controversy doctrine, finding that Plaintiff had multiple opportunities to challenge the beneficiary changes during the pendency of prior litigation between the parties, but failed to do so.

Decedent was a veteran of World War II. Before being deployed, he signed a Will leaving his sisters his estate, and naming his mother, then his sisters, as beneficiary of any life insurance. These documents were signed in 1943. Upon his return from battle, Defendant was placed in a psychiatric facility where he remained for the rest of his life. His mother was named as guardian, and upon her death, his brother William. Upon William’s death, William’s son agreed to look after Decedent.

Decedent’s Will and life insurance designations were held by his mother until her demise in 1968, and then given to plaintiff’s mother and to plaintiff, who held them for 36 years without telling Decedent she had them.

On January 16, 2002, Decedent executed a change in beneficiary of his life insurance naming Defendant, his nephew and guardian as beneficiary. He died nine days later.

Upon Decedent’s demise, Plaintiff filed a Complaint seeking to be appointed as administrator of Decedent’s Estate. She believed that insurance policies should have been collected by the Estate. Defendant also sought appointment as administrator. The Court appointed Defendant as administrator, as the Court found that as guardian he had more information about Decedent’s Estate. Defendant filed a Court ordered informal accounting disclosing insurance policies and other assets payable on death to him as beneficiary.

Plaintiff filed a second Compliant on September 6, 2005 on behalf of Decedent’s sister, who predeceased Decedent and was named as a beneficiary under the original life insurance policy, seeking to set aside the change in beneficiary designations made by Decedent days before he died, at a time when he was incompetent. She also alleged the changes were the product of undue influence. The Court dismissed the Complaint finding that Plaintiff lacked standing as Decedent’s sister predeceased the Decedent. Plaintiff did not appeal the dismissal or amend the Complaint as beneficiary of Decedent’s intestate Estate.

Plaintiff’s third Complaint seeking to admit Decedent’s 1943 Will to probate was filed on July 24, 2006. Plaintiff did not amend this Complaint to request that the beneficiary designations be set aside. On August 21, 2008, Decedent’s 1943 Will was admitted to probate.

On May 18, 2009, Plaintiff filed a fourth Complaint seeking to set aside the beneficiary designations. Plaintiff never took exception to Defendant’s original informal accounting listing the transfers, and the Court therefore dismissed the matter based on the entire controversy doctrine. The facts alleged by Plaintiff in the second and fourth Complaint are nearly identical. Plaintiff had multiple opportunities to raise her claims to the insurance policy as an interested party in Decedent’s Estate, and application of the entire controversy doctrine was therefore proper under the circumstances.

Tax Apportionment

In the Matter of the Estate of Sheldon Sommers, a/k/a SheldonCharles 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 ClaudiaL.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 PhilomenaVicinio, 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.

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 ClaudiaL.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.