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Issue 43 – December, 2023

“Messing” with Mom’s Estate – A Lawyer’s Guide

By Douglas H. Frazer, JD*
* Douglas H Frazer, Northwestern 1985, is a shareholder in the Metro Milwaukee Office of DeWitt LLP. He focuses his practice on estate, trust, and tax litigation and controversy.

Introduction. Interference with or manipulation of an estate plan is common. This article will explain the principal ways it happens and suggest how it can be recognized and corrected.

Illustration. Anne, a widow, died. Charles, her son and the middle child, believed Anne had money stashed away and would leave it in equal shares to the adult children, Barb, Charles, and Diane.

However, in Charles’s estimation, Barb had ‘messed’ with mom’s estate.

The terms of the will were unremarkable. Specific bequests of the jewelry to Barb and Diane, the guns to Charles. Several $25,000 bequests to other relatives and $100,000 to designated charities F, G, H, and I. The remainder would be distributed in equal shares to the children.

Anne nominated Barb as the personal representative (PR).

One twist. Six months before she died, Anne executed a codicil substituting charities J and K for charities H and I.

Barb lived near Anne in Oshkosh. As Anne declined, Barb got more involved in Anne’s financial life, which seemed reasonable because Anne needed help. Charles was in another state.

The youngest, Diane, who also lived near Anne and Barb could not be of much help because she was a single mom of two young children and just getting by.

After Anne’s death Charles was able to theorize how Barb interfered with their mother’s estate plan. There were several steps.

First, Barb asked for, and Anne had signed, a financial power of attorney designating Barb as the agent.

Eder, it turned out, was Anne’s lawyer who drafted Anne’s Will. Later, Eder told Charles about the existence of a Trust, and certain related bank and brokerage accounts of Anne’s. He also told Charles Anne had executed a “transfer on death” deed leaving her home to Diane.

Charles expected Barb to sell Anne’s house, the family cottage, and marshal the accounts. Eder told Charles, in so many words, that before Anne died Anne had taken care of most of this. The result, Charles saw, favored Barb.

Charles began to suspect skullduggery on Barb’s part in relation to their mother’s will.

Estate plan skullduggery, a short digression

The issue of manipulating estate plans is not new. It comes up early in the Hebrew Bible. Consider the story of Jacob and Esau. Fraternal twins, Esau was the oldest, an outdoors kind of guy. Jacob was the pious and studious homebody—dwelling among the tents. Isaac, the father, liked Esau better. Rachel, the mother, favored Jacob. At stake was the family inheritance.

Jacob caught Esau hungry and off guard and persuaded him to sell his birthright for a hot meal. However, neither Jacob nor Esau told Isaac what had happened. Then, on Isaac’s deathbed, Jacob and Rachel conspired to trick Isaac, old and blind, to confer the blessing of the first born on Jacob. This was an oral will. On Isaac’s death the blessing gave Jacob status as the family head and entitled Jacob, even in his disguised persona as the “first born” to—as custom provided—a double portion of the inheritance.

Esau returned to his father intent on claiming his birthright, the conveyance to Jacob notwithstanding. When Isaac understood Jacob’s deception—and that Esau himself was scheming to claim the birthright he gave up, Isaac understood he was twice deceived.[1]

However, in the end Esau was left holding the bag. Jacob got the birthright because his conduct, said the commentators, was opportunistic and deceptive but not illegal.

Back to the Illustration

Barb, it seemed, had a similar playbook to Jacob’s. Anne had been in decline and according to Diane, Barb told Anne it would be easier to help their mother by adding Barb to Anne’s various accounts. This was step two. Barb’s pitch to Anne was deceptive, but from Anne’s point of view it made sense. What Barb did not explain—or the bank officer— was that Barb was going on as a co-owner.[2] The “default rule” is that when Anne died, each account would belong to Barb.[3]

Barb engineered a similar strategy with the house. Barb knew Diane wanted the house because it was Diane’s only shot at home ownership. Barb got Anne to sign a transfer on death deed in Diane’s favor. Barb probably told Anne this was a way to avoid or streamline probate which was partially correct. What Barb likely did not tell Anne was the transfer would mean Diane would not be required to share the value of the house with her siblings.

Barb left Anne’s big investment account alone. There was a reason for that. The account would provide Anne, as PR, a pool of money (“kitty”) to pay administrative expenses—including attorney fees to defend her conduct.

Then there was the Trust. Forty-five years before her death, after Barb was born, Anne and her husband set up a revocable living trust. However, they did not fund the trust, meaning that—not having retitled assets in the name of the trust—it sat dormant.

When her husband died, Anne did not need to open a probate. All the assets were held jointly, and Anne became the sole owner.

But Anne never terminated the Trust. She probably had forgotten about it. Barb likely found the trust document and stayed quiet because the trust document designated Barb, then the only child, the sole beneficiary. Barb, Charles suspected, made one more discovery: Anne and her husband signed documents designating several of their investment accounts to “transfer on death” to the Trust.

The inventory of Anne’s assets according to Barb included:

  • An investment account titled in the name of Anne worth $1,500,000
  • Bank accounts titled jointly with Barb worth $750,000
  • Anne’s residence with a transfer on death deed recorded in favor of Diane worth $400,000
  • A family cottage titled in the name of Anne worth $350,000
  • Bank accounts titled in the name of the trust worth $150,000

If Charles’ suspicions of Barb’s manipulation of Anne’s estate plan were true, Barb was unfairly going to come out on top. Charles’s question was this—could such chicanery defeat Anne’s intentions as expressed in the Will? Was Barb’s conduct, like Jacob’s, opportunistic and deceptive but not illegal?

The lawyer

Charles found a lawyer and discovered he was in for a fight. The lawyer explained that this situation, or variations of it, has become routine in the estate planning field.

Charles could assert claims against Barb alleging breach of fiduciary duty, undue influence, lack of capacity, and tortious interference with inheritance.  However, the claims, the lawyer explained, are fact specific and difficult to prove.

If Anne knew what the “default rule” result would be, the various account and transfer on death designations would supersede the terms of the Will. If Anne did not know, as Charles suspected, the will would prevail.[4]

One fact in Charles’s favor was that Barb held Anne’s financial power of attorney. This created a fiduciary and confidential relationship—meaning Barb would be held to a higher standard in connection with her interactions with Anne.[5]

The circumstances of Anne’s activities were suspicious. The question was how to establish the deception.

Paying the lawyer

However, how to establish the deception was not really the first issue. The first issue was practical. How could Charles afford to pay a lawyer to advance his claims? To many individuals the cost is daunting.

The PR defending the estate against a claim of wrongdoing is usually able to draw against the assets of the estate (the “kitty”) to pay the lawyer representing the PR. This is the case even if the PR is principally benefiting from the defense or alleged to have engaged in the “bad” conduct.[6]

Stated in another way, it is common that the individual serving as the PR is the principal beneficiary of the estate. This does not mean that the PR must pay a portion of the estate’s legal fees out of the PR’s own pocket. The PR’s fiduciary duties are to the estate—and if the PR indirectly benefits from those duties, that is simply a function of how the statute works.[7]

The law provides that the “personal representative shall be allowed all necessary expenses in the care, management and settlement of the estate.” [8] The fees the PR incurs litigating to add property to—or preserve property of—the estate are necessary expenses in the care, management, and settlement of the estate, because the estate’s receipt of the property benefits the estate by increasing the total property subject to administration. In other words, the litigation must be reasonably calculated to yield a net benefit to the estate.[9]

To Charles, this meant the following:

  • Charles could file a petition against Barb in probate court on his various claims but Barb, in her capacity as PR, likely could use the kitty to hire a lawyer to defend the suit. If Charles prevailed, the judge could “surcharge” Barb the cost of the defense and make her pay it back—but it is a discretionary judicial determination.
  • Independent of the probate proceeding, Charles could bring a claim against Barb for tortious interference with inheritance. On this claim, Barb might have to front the defense fees out of her own pocket. The “American Rule” is each party bears its own costs.
  • Barb, as PR, might have a claim against Attorney Eder in connection with drawing up Anne’s Will by failing to investigate or discover the Trust and the investment accounts that Anne and her husband had designated to be paid to the Trust upon the second to die.
  • As beneficiary of the Will, Charles might have a claim against Attorney Eder on the same grounds.[10]
  • Charities J and K, wanting the gifts, would be inclined to align with Barb. For the same reason, Charities H and I would be inclined to align with Charles.
  • Diane, wanting the house, would align with Barb so financial concerns aside, moving against Barb could impair Charles’ relationship with Diane.

Bottom line. Barb had a kitty to pay lawyers. Charles would have to proceed out-of-pocket—his prospects uncertain and his family relationships in jeopardy. Charles’ attorney estimated his chances of prevailing on any of the claims at 50-50.

Conclusion. Lawyers and their clients—and family members of older adults in general—should be on guard. Whether the underlying act by a family member or friend is innocent or manipulative, a well-drawn estate plan (or even expectations based on the laws of intestacy) can be defeated by the careless signing of what may be presented as a benign document. Watch out for joint accounts. Watch out for transfer on death deeds or account-related pay on death arrangements. Watch out for unfunded or nonterminated trusts. Watch out for eleventh hour changes to the governing instruments. Fighting back can be expensive. In litigation, the PR or trustee, with control of the “kitty,” often holds a financial advantage. Finally, property is not the only thing on the line. Relationships are too.

[1] Genesis, 27:1-46.

[2] Despite that such a change can conflict with and upend an estate plan, financial institutions generally have no duty to explain to the principal owner the consequences of a joint or transfer on death account. This problem is ripe for legislative correction.

[3] Wis. Stat. § 705.03 (ownership of joint account during lifetime); Wis. Stat. § 705.04 (right of survivorship); Russ ex rel. Schwartz v Russ, 2007 WI 83, ¶ 31.

[4] Individuals commonly put a close relative or trusted friend on their account as an “accommodation” (i.e., simply to help the account owner out) rather than with the expectation that it will control ownership at death.

[5] Russ at ¶ 28 (POA agent has a fiduciary duty to the principal and “is usually prohibited from self-dealing unless the power to self-deal is written in the POA document.”).

[6] An interested person could move for an order prohibiting the PR from paying from the estate attorney fees or costs for defending the claim pending resolution of the matter. Courts typically have wide discretion on these questions.

[7] The existence of a fully funded trust may obviate the need for a probate—and therefore the probate forum would be unavailable to assert claims alleging interference with an estate plan. The answer might be a stand-alone claim for tortious interference with inheritance.

[8] Wis. Stat. § 857.05.

[9] In re Est. of Christopherson, 2002 WI App 180, ¶ 37-43.

[10] MacLeish v. Boardman & Clark LLP, 2019 WI 31; Auric v. Cont’l Cas. Co., 111 Wis. 2d 507 (1983).