The Court of Appeals of Iowa recently ruled that children who received lifetime gifts from their parents may need to reimburse the estate when their parents pass away.
The judges sitting, IN THE MATTER OF ESTATE OF HADSALL, applied Iowa’s “confidential relationship” rules when it affirmed a son’s close and trusting relationship with his mother required him to return the gifts he received while the mother was alive.
Loving Son Ordered to Return Cash Gifts
John Hadsall, a licensed attorney, took over his mother’s financial affairs after his father passed away in 2007. A sibling rivalry developed soon after and continued until the mother passed away in 2016. During probate, an estate accounting revealed that John received numerous cash gifts from multiple joint accounts held between John and his mother.
Court records showed that the mother was of sound mind at the time of the gifting and personally directed her accountants to transfer the cash gifts to her son. Nevertheless, John’s two brothers and sister immediately filed a probate dispute after learning about the money conveyances, claiming that John unduly influenced their mother into making the gifts.
The District Court for Warren County found that John held a confidential relationship with his mother and instructed John to prove that his mother gifted him under “free, intelligent, and voluntary assent.”
Unfortunately, John was unable to overcome this heavy burden. The court thereafter ruled that the cash contributions resulted from John’s undue influence, ordering him to return the assets to the estate for proper distribution in probate.
Non-Vulnerable Parties May Form Confidential Relationships
In HADSALL, the doctrine of confidential relationships applied because John’s kind and considerate treatment of his mother established an inherent “influence” over her. Simply put, John gained the confidence of his mother. In return, she relied on and trusted him to handle her personal, healthcare, and financial affairs. A confidential relationship therefore existed between the two parties despite the mother holding full mental capacity during her lifetime.
Confidential relationships thus relate to “trust” and acting on another’s behalf, according to the Court. John’s mom trusted her attorney son to assist her in financial affairs, and he willingly accepted the task.
The mother’s gifts to her son after that became more meaningful in a legal sense. In court, John had to show that he was always acting in his mom’s best interest and that his mother consented to the gifting. John’s mother was not around to testify about her consent, and John’s testimony alone without collaborating witnesses was insufficient to prove that his mother authorized the gifts.
Had John retained an estate attorney to document his mother’s consent and handle his mothers gifting during her lifetime, John most likely could have defended the probate dispute against his mother’s estate successfully.
How Confidential Relationships Affect Probate Disputes
Estate dispute attorneys in Altoona and Des Moines arguably litigate more probate cases evolving confidential relationships than any other type of lawsuit. While every situation is unique, probate disputes almost always include allegations that a party unduly influenced the deceased and that the influencer was in a confidential relationship with the decedent.
The frequency of these lawsuits has motivated the Iowa courts to define legal confidential relationships and lay out the parameters in which contesters can assert said relationships existed.
In Iowa, a confidential relationship is any situation where a person uses their family connection, influence, superior knowledge, skill, or expertise to invoke trust from an individual. The recipient (usually the weaker party) must have also relied upon the influencer’s dominance during the relationship.
Confidential relationships exist as a “matter of law” when the dominant party agrees to take a fiduciary position over a weaker party (i.e., guardian-ward, accountant-client,
Parties can also form confidential relationships, as a “matter of fact,” under the holdings found IN THE MATTER OF ESTATE OF BAYER. In BAYER, the Iowa Supreme Court ruled the particulars of the affiliation among parties may likewise form confidential relationships (i.e., child-parent, caregiver-recipient, boyfriend-girlfriend).
Burden Shifting Among Claimants and Defendants
According to the KLINE Court, interested parties bringing undue influence action always bear the burden of proving via preponderance of the evidence that the defendant was in a legal confidential relationship with the deceased.
However, after claimants successfully establish said confidential relationship, the burden shifts to the defendants to explain the circumstances surrounding the relationship between themselves and the decedent. Defendants must also show through clear and convincing evidence that the deceased voluntarily conveyed the bequest received and that the inheritance was fair, according to KLINE.
John Hadsall was in a confidential relationship with his mother “as a matter of fact” and could not clearly show the court through direct evidence that the cash gifts he received from his mother were voluntary and fair.
In MATKOVICH V MATKOVICH, the Court of Appeals of Iowa allowed an exception to the burden-shifting rules mentioned above. When the defendant shares a close family relationship with the deceased, the courts cannot infer that a confidential relationship existed and thus cannot automatically shift the burden to the defendant.
The MATKOVICH Court held that “family duty is inexplicably intertwined in [said] relationship[s].” However, an exception to the exception exists when evidence shows the presence of “suspicious circumstances” between a defendant and the deceased.
An Example of How Accepting a Gift Can Get You Into Trouble
Let’s examine how helping out a loved one in kindness can provoke complex and expensive estate dispute litigation.
While taking care of your elderly father, you accompany him to his doctor’s appointments, take him grocery shopping, and help clean his house. As a thank you, your dad gifts you cash and a boat he no longer uses. This is fair, right?
According to Iowa estate law, accepting the gifts may be improper; acceptance could cost you money when your father’s Will enters probate.
Iowa estate law affirms that caring for an elderly or vulnerable person will cause legal confidential relationship formation if one party conveys total confidence and trust to the other. Said reliance creates a “quasi fiduciary position,” where the law imposes high legal obligations onto the dominant party to always work in the weaker party’s best interests.
Thus, kind acts like buying groceries or paying bills for an elderly parent may impose fiduciary legal duties on you if the parent entirely relies on your services.
However, not all good faith and loving deeds place you in a compromising confidential relationship with a loved one. The courts must consider the totality of circumstances when hearing undue influence cases, including examining the recipient’s age, mental capacity, business experience, etc.
Back to Our Example
Imagine now that your elder father showed signs of dementia and held several debilitating medical conditions before his death. Your sister, who lives in California, rarely visited or helped your father. So, your dad preferred to gift you the cash and boat instead of your sister.
After dad passes away, your sister feels you took advantage of your father and claims you unfairly hijacked her inheritance by accepting gifts from the estate. Spiteful litigation soon follows where you now must defend receiving gifts from your dad, who subsequently was mentally and physically ill at the time of the gifting. Most likely, the courts will order you to return the assets to the estate for proper probate disbursement among heirs.
Most parents give legitimate gifts to their loved ones during their elder years. But to avoid problems like John Hadsall faced, which occur more often than less, you should consult with a probate litigator before accepting gifts from someone you care for. Doing so will ensure that the bequeaths you receive are well documented and include transparency, reducing your legal risk and you facing an expensive probate dispute lawsuit later on.