Taking the First Step: Filing an Estate in Probate Court
CHALLENGING THE WILL AND IMPROPER LIFETIME GIFTS
Historically, probate litigation revolved around two primary areas: (1) guardianships and (2) will contests. However, the type and scope of such litigation has increased due to an increasing elderly population. Due to this increase, many individuals are executing estate planning documents at an older age and at times when they are becoming physically and/or mentally frail. In addition, many individuals, for a variety of reasons, are making substantial lifetime gifts of property. Finally, many older individuals are delegating complete authority over their finances to one of their children which, at times, has invited serious inquiry over the exercise of such authority.
In short, will contests alone may often be ineffective. If all or most of an individuals assets have been given away or misappropriated during lifetime, a will contest could become a fight over nothing. Thus, it is imperative to know the law regarding the propriety (or lack thereof) of lifetime transfers.
Gifts can be made by one of three sources: (1) an individual, (2) an agent under a durable power of attorney, and (3) a guardian. Gifts are made for a variety of reasons including, but not limited to, the desire to minimize estate taxes, the desire to minimize exposure to long term care costs, and simple benevolent intent.
When an individual makes gifts, which are subsequently disputed, the two main causes of action are lack of donative intent and undue influence. Many of the other grounds that can be utilized in a will contest, such as fraud, forgery, duress, and coercion, can be asserted as well.
The standard for donative capacity is generally seen as broader than that for testamentary capacity. The courts of the State have held that improvident giving may be construed as indicative of mental incapacity. See Pascale v. Pascale, 113 N.J. 20 (1988). A reading of this case indicates that valid gifting must have four elements: (1) an act constituting actual or symbolic delivery of the subject matter of the gift, (2) an intent to give, (3) an acceptance of the gift, and (4) the donor’s relinquishment of ownership and dominion over the subject matter of the gift. Contests to set aside lifetime giving should reflect, where applicable, that the donor could not meet this test.
Undue influence can be raised as to lifetime giving as well. In a will contest, a presumption of undue influence arises when both a confidential relationship exists as well as suspicious circumstances. In the case of lifetime gifts, this presumption arises when there is a confidential relationship and a person in that relationship has gained an advantage due to that confidence. (See In Re Dodge, 50 N.J. 192, 227-28 [1967]; Pascale v. Pascale, 113 N.J. 20 [1988]).
(a). Gifts by an Individual
When an estate planning attorney is assisting an individual in lifetime transfers, the same precautions utilized in screening testamentary capacity and undue influence in a will contest should be utilized. If litigation arises, the attorneys contesting or defending the gifts should explore the records of the attorney to ascertain whether or not any of these steps were taken.
(b). Gifts by Agents Under Powers of Attorney
Theoretically, gifts can be made under a power of attorney. However, there are a number of concerns which should be analyzed. First, the attorney should a general durable power of attorney. Specific powers, such as banking powers of attorney or real estate powers of attorney, do not specifically authorize gifting. Gifting should be acceptable if a general durable power of attorney is utilized. However, the mere fact that a document known as a “power of attorney” or “general durable power of attorney” is executed does not mean that gifting is allowed. In addition, the law generally prohibits self dealing by individuals acting as agents under such powers.
When preparing a power of attorney, an attorney should carefully draft powers regarding gifting or creation of trusts on behalf of the principal. Such powers should discuss not only the fact that gifts can be made, but to what extent, for what purpose, and to what class of donees. Since spouse and children are typically the agents under such powers, the document should relieve the prohibition against self dealing.
The aforementioned level of detail should be analyzed when an individual has gifted under a power of attorney. The general position of the Internal Revenue Service, which has been supported by case law, is that gifts for tax planning purposes cannot be undertaken under a general durable power of attorney unless specific language is included. As such, litigating attorneys should be reasonably able to assert that the absence of such provisions in a power of attorney used to make gifting should void said gifts.
(c). Gifting By Guardians
Guardians frequently believe they have unlimited power. As such, gifts may be made by a guardian. However, gifts must be made subject to two specific sets of rules. First and foremost, the statutory law of this State clearly mandates that gifting must be made pursuant to an order of the court. N.J.S.A. 3B:12-49 and 3B:12-50 clearly indicate that the court holds jurisdiction over transfers of the ward’s property. In addition, N.J.S.A. 3B:12-58 clearly states that gifting can be done only so long as the guardian can demonstrate to the court that the ward will be protected and that the individuals or entities which would be receiving gifts are the objects of the affection of the ward. Second, any gifting must be made pursuant to the requirements of In Re Trott, 118 N.J. Super 436 (Chancery Div. 1972). The Trott case, in relevant part, states that any gifting must be made proportionate to beneficiaries under the ward’s existing will or dispositive plan. In the absence of a will, trust or other dispositive writing, the gifts will be made pursuant to the intestacy statute.
Thus, it is imperative that an estate planning attorney acquire court approval prior to undertaking any gifting. In addition, it is imperative for a litigating attorney to ascertain whether or not the court order has been acquired in any gift contest. In addition, the litigating attorney may be able to challenge a gift not only on the absence of an order, but on an order that was rendered without adequate notice to any interested parties, which would include will and intestate beneficiaries.
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