Fiduciary positions have evolved over the years. What was formerly an easy-to-identify traditional fiduciary role now takes some investigation and scrutiny to discover whether an individual was in a confidential relationship with another party.
Moreover, implied confidential relationships are harder to recognize given the many events that have to happen before they can fully develop.
In this blog post, we’ll examine real life probate disputes and discover how the courts and lawmakers sorted them out to get a better understanding of how informal confidential relationships function in estate law.
Defining Confidential Relationships in Iowa
The Iowa courts have been protecting vulnerable parties from dominating individuals who control their personal lives or business affairs ever since the state created its first county in 1834.
- In re Lundvall’s Estate (Iowa 1951): A daughter sued to have her mother removed as executor, claiming she abused her confidential relationship with the testator to defraud the estate. (“A confidential relationship, in which one is the dominant and the other the subservient party, may exist between husband and wife… but also can exist in informal relationships where one party reasonably trusted another.”)
- First National Bank in Sioux City v. Curran (Iowa 1973): A bank executor contested bank deposits transferred from a testator’s personal account into a joint tenant account held by the deceased and his caregiver. (“By the very nature of a confidential relationship, one person has achieved influence over another… either by contract or implied in law from the surrounding facts of the relationship.”)
- Matter of Estate of Herm (Iowa 1979): An executor sought to set aside the inter vivos gift transfers made from an incapacitated aunt to her caregiver nephew. (“A confidential relationship arises whenever a continuous trust is reposed by one person in the skill and integrity of another,” and may arise when “the latter justifiably expects his welfare to be cared for by the former.”)
The sea of lawsuits that addressed confidential relationships and their heavy legal burdens consequently prompted lawmakers to code over one hundred years of fiduciary litigation court rulings beginning in 1964, which eventually became the current Iowa Probate Code and the Iowa Trust Code of 1999.
Both Codes now narrowly define fiduciary assignment and guide the courts on how to act when controversies among parties in confidential relationships arise.
According to today’s law, there are two capacities in which parties can form confidential relationships when addressing estate and trust law matters:
- Express. Fiduciary relationship and duties created by contract, through testamentary documents or through the courts (i.e. estate lawyer-client; trustee-beneficiary; court-appointed executor-heirs).
- Implied. An informal confidential relationship stemming from a social or personal association between the parties (i.e. child-elder parent; caregiver-incapacitated adult).
Implied Fiduciary Relationship Formation
Knowing when someone owes another fiduciary duties may be unclear when a contract does not expressly state the fiduciary obligations at hand.
Years of precedent law however tells us that informal confidential relationships almost always arise when a private trust relationship develops between two parties.
- In Re Matter of Estate of Ames (Iowa 2008): A testator’s heirs and personal representative brought undue influence action against a non-relative beneficiary. (“Informal confidential relationships exist whenever one person trusts in another’s skills and reasonably relies on the other’s superior expertise or knowledge.”)
- Matter of Estate of Clark (Iowa 1984): Siblings brought suit against their brother to add three gifted bank accounts to the estate inventory in probate. (“An implied confidential relationship does not arise solely from blood relationship … and a mere trust in another’s competence does not suffice; the gist of the doctrine of confidential relationship is the presence of a dominant influence under which the peculiar reliance in the trustworthiness of another is required.”)
As indicated by the above rulings, implied fiduciary duties will arise regardless of blood relation, contract, statute, or formal writings and will develop when vulnerable individuals rely upon others to act on their behalf and perform in their best interests.
Lawmakers have had difficulty coding an all-encompassing rule that fully defines informal confident relationships, since a countless array of circumstances may contribute to their formation.
During estate dispute litigation however, the courts have consistently shifted the burden of proof onto defendants who assumed a trustee-like position over a testator’s estate and held discretionary power over his/her interests and over the inheritance of his/her heirs.
Examples of Informal Confidential Relationships
Let’s consider some modern court cases where the fact finders determined an implied-in-law fiduciary position existed.
- Caregiver/Elder Adult. In re Estate of Masterhan (Iowa 2002): Caregiver formed an implied confidential relationship with an elder testator because she lived with the incapacitated recipient for over 15 years and held joint tenant bank accounts with him. (“[The testator’s] virtually complete dependence on [the caregiver] combined with her involvement in his financial affairs rendered [the testator] susceptible to undue influence.”).
- Family Members/Incapacited Senior. In The Matter of Estate of Kline (Iowa 2019): A daughter was in an informal fiduciary relationship with her father because she controlled her father’s gifting intent when he transferred bank funds and CD accounts into her name before death. (“[The daughter] had [the father’s] trust and confidence so that she exercised control over the father….she managed his finances and accompanied him to doctor and attorney appointments… for these reasons, the burden shifts to [the daughter] to negate the presumption of undue influence.”)
- Estate Lawyer/Intended Beneficiaries. Sabin v. Ackerman (Iowa 2013): An estate attorney hired as an executor consultant held informal fiduciary obligations with non-privity, third party beneficiaries to perform his consultation carefully and diligently. (“While generally an attorney is only liable to a client, there has been a relaxation in the privity requirement… a court will recognize a duty to a third party, such as a beneficiary or heir, when the testamentary instrument is rendered invalid as a direct result of attorney error.”)
- Financial Advisor/Beneficiaries. ST. MALACHY ROMAN CATHOLIC CONG’N v. Ingram (Iowa 2013): An implied fiduciary relationship formed between a financial advisor and third-party beneficiaries in a trust because their inheritance depended on the advisor’s knowledge and diligent performance to invest trust assets for the grantor before he passed away. (“Despite the lack of an business-client relationship with the advisor in question, [the beneficiaries] could recover if they established they were “specifically identified, as an object of the grantor’s intent”).
Informal confidential relationships attach to individuals who assume dominance and authority power over people’s interests without an express agreement, statute or court order allowing them to do so. Readers should further recognize when implied fiduciary relationships develop and diligently monitor the person’s trustee-like performance for possible breaches of legal duty as the contact among parties progresses.