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.
In an effort to avoid probate litigation, estate planning attorneys should seek to implement an estate plan that is tax efficient, provides for spouse and/or children adequately, both in terms of timing and amounts in hopes that the plan promotes harmony. In the event that a family member or spouse is to be cut out, care should be taken to document the testator’s intent so that a Court can read into the reasoning behind the omission. Additionally, attention should be given to the titling of assets so that there is clarity as to what assets are to pass by Operation of Law as opposed to being distributed through the probate estate under the will. Finally, in the event of a subsequent marriage, a prenuptial agreement should be implemented that deals specifically with the elective share claim, or the waiver of said claim, such that the parties document to what extent, if any, they are to share in their respective spouse’s estate. In the absence of the above, the likelihood of probate litigation increases dramatically.
Joint Account Set Aside in Light of Confidential Relationship and Undue Influence
Henry Mangarelli, Jr., Individually and on Behalf of the Estate of Henry A. Mangarelli v. Ruth E. Snyder, 2012 N.J. Super. Unpub. ____ (Docket No.: A-4577-10T4) (App. Div. 2012). On appeal from the Superior Court of New Jersey, Law Division, Passaic County. Before Judges Parrillo and Grall.
Defendant appeals from the trial Court’s entry of a judgment against her in the amount of $176,959.98 finding that she exerted undue influence inducing her father, Henry, to establish and fund a joint account with her prior to his death contrary to the terms of his Will which named his son, the Plaintiff herein, as sole beneficiary.
Henry died on January 29, 2008 at the age of 90. He lived independently and managed his affairs until 2004, when he exhibited signs of degeneration such as loss of the sense of time and the inability to recall where he placed his personal belongings. In January of 2005, Henry was hospitalized. Plaintiff, Henry’s son, visited Henry in the hospital at a time when Henry gave him several things for safekeeping, including $11,000 consisting of cash and two checks that he had received after withdrawing funds from his accounts. Henry endorsed the checks and Plaintiff deposited the checks into his own account, and put the cash in his safe. After Henry was released from the hospital, he did not recall making the withdrawals and did not believe Plaintiff when he reminded him about the checks. Plaintiff returned the monies months later after receiving a letter from Henry’s new estate planning attorney requesting the return of the monies.
By Christmas 2005, Henry and Plaintiff resumed communications but Henry refused to talk about the checks. During 2005, Defendant saw Henry more frequently than she had in the past, she went to the bank with him, and took Decedent to an attorney who had represented her in the past to redo his Will. The attorney advised Henry that they should meet alone, but Henry insisted that Defendant attend the meeting. The attorney subsequently drafted a new Will and Power of Attorney in favor of Defendant. The attorney also explained to Henry how money could pass outside the Will, and it was his understanding that Henry wanted to transfer funds to Defendant by establishing a joint account to ensure that Plaintiff received nothing.
In early 2006, Henry was hospitalized again. After he was discharged, Henry and Defendant went to a financial advisor, opened a joint account with Defendant listing Defendant’s address, and transferred a majority of his assets into the joint account. From June 2005 until Henry’s death in January of 2008, Plaintiff and his family were in regular contact with Henry but never discussed financial matters. Other than a truck, the joint account held with Defendant was the only remaining asset of the Estate.
Plaintiff filed suit claiming that the transfer of Henry’s accounts to the joint account were the product of undue influence. Based on the evidence, the trial Court concluded that the essential elements of a confidential relationship were present, including Henry’s confidence in and dependence on Defendant, who benefited from the transfer. Henry consulted with Defendant’s former attorney and Defendant accompanied Henry to meetings with the attorney and the financial advisor. Defendant was also named as attorney in fact under Henry’s Power of Attorney months before he established the joint account. Based on this evidence the trial Court found that Defendant had a confidential relationship with Henry, and also found that there were suspicious circumstances giving rise to a presumption of undue influence. The Court deemed it suspicious that Henry did not transfer the monies to a joint account with Defendant until more than six months after he signed his new Will naming Defendant as sole beneficiary.
The Court went on to hold that Defendant exerted undue influence and a judgment of $176,959.98 was entered against her. Defendant appealed, claiming that the Court erred in determining that she had a confidential relationship with her father at the time the transfer occurred, which created a presumption of undue influence. The Appellate Division affirmed, finding that the trial Court’s findings were adequately supported by the evidence.