When you’re in a confidential relationship with someone and you accept inter vivos gifts or take from the person’s will, the Iowa courts will presume you unduly influenced the grantor/testator if somebody sues you to reclaim the asset.
This means you must prove you did no wrong, and if you fail, you’ll have to return the gift or your inheritance.
Such a policy may sound unfair to innocent beneficiaries, but the dogma has pretty much been the legal norm for over seventy years ever since the Supreme Court of Iowa ruled In re Behrend’s Will (Iowa 1943).
The Behrend Court however provided an out for the will challenge defendant, holding a grantee/beneficiary may avoid the presumption if the “preponderance of evidence” reveals the grantor/testator:
- was not vulnerable to undue influence;
- donated/distributed assets from his/her own free will;
- understood what he/she was doing and appreciated it; and,
- received independent legal advice before the bequest.
Beneficiaries wrongly accused of undue influence can now count on a new standard after the Supreme Court of Iowa’s recent decision allowing asset conveyance between parties in a confidential relationship even when the defendant held the opportunity to apply influence and the grantor/testator was susceptible to it.
To get a better understanding of the reasoning behind the seemingly contradictory ruling, we must take you back about fifteen years when Kathleen Jackson sued her sister Janice Schrader, claiming Janice unduly influenced her mother into making inter vivos gift transfers and changing her will before passing away.
Jackson v. Schrader (Iowa 2003)
Kathleen Jackson disliked her parents—she had them arrested for trespassing in the 70s, and she sued her mom and dad several times in the 80s for defaulting on loans and for conversion of property.
Janice Schrader on the other hand enjoyed a loving relationship with her mom and dad, which is one reason why she was the sole beneficiary found in her parent’s properly executed will of 1974. The parents also named Janice as principal on their life insurance policy, and they gifted their daughter with valuable certificates of deposit and $28,000 in cash throughout the 90s. When Kathleen’s father passed away in 1992, her mother changed the family will, leaving the entire estate to Janice and only $100k to Kathleen (to avoid a will contest).
The family’s estate attorney further testified at trial that the mother held testamentary capacity when she executed her 1992 testamentary documents and that she added a power of attorney to her estate plan, naming Janice as the agent.
Janice’s mother further granted eight $10k cash gifts to her daughter from 1992 to 1999, all in bank checks that the mother signed except for two that Janice signed over to herself using her power of attorney.
Finally, just before passing away in July 1999, the mother repurchased the maturing CDs and executed new ones in joint tenancy with Janice for nearly $400k.
Probate Court Orders Sister to Reimburse the Estate
Kathleen immediately challenged her mother’s will, claiming lack of testamentary capacity and undue influence by her sister for looting the estate prior to the mother’s death.
Testamentary Capacity
Court records showed the mother suffered from a brain tumor in 1986, which doctors treated with chemotherapy from 1990 to 1994. A psychologist also found her owning a low IQ in 1992 with “significant global impairment.” Expert witnesses and the estate attorney who drafted the will however testified at trial that the mother’s mental capacity was stable.
Unfortunately for Janice, the jury found that despite the mother performing strongly in her daily life activities, the mother’s brain tumor prevented her from properly modifying the 1992 will. The fact finders further held the mother’s illness had produced a mental incapacity to perform estate asset gifting decisions that included many (but not all) of the inter vivos gift transfers conveyed to Janice before the mother’s passing.
Undue Influence
The jury likewise confirmed Janice was in a confidential relationship with her mother based on the trust and closeness between the two parties and because she carried a fiduciary position as the agent in the power of attorney document.
When determining if Janice could meet the burden of proving undue influence did not take place, the fact finders considered the Supreme Court of Iowa’s “confidential relationship standard” found in In re Estate of Todd (Iowa 1998).
Here, Janice’s “clear, satisfactory, and convincing evidence” would have had to prove the following four elements:
- The mother was not susceptible to Janice’s influence.
- Janice lacked an opportunity to exercise undue influence.
- Janice did not willingly engage in undue influence to procure an improper favor from her mother, and
- The gifts and inheritance that Janice received were clearly not a result of undue influence.
According to the probate court, Janice could not rebut the presumption because the confidential relationship she held with her mother predisposed her to the first two elements of “susceptibility and opportunity” found in the Todd doctrine.
Janice therefore had to return the cash gifts she received from her mother totaling over $500k, according to the jury.
The daughter thereafter appealed the district court’s order to reimburse the estate, and Kathleen filed a cross-appeal, claiming the fact finders should have found a larger award.
High Court Reverses and Creates New Undue Influence Rebuttal Standard
The Supreme Court of Iowa considered the case in 2003, reversing and affirming the lower court’s rulings in part—however, in its opinion, the high court also effectively overturned Behrend and Todd after holding the rules for rebutting a presumption of undue influence in Iowa must shift from the oppressive “confidential relationship model” to a more reasonable “end result” standard.
Justice J. Carter first held the Behrend doctrine established in Todd was both “unrealistic” and “unreasonably demanding” and cannot apply to the current standard for rebutting the presumption of undue influence because it invalidates “bona fide transfers of assets” to dominant parties in confidential relationships.
According to the Court, the mother in this lawsuit “freely” gifted assets to her daughter and held the capacity to do so. In Carter’s opinion, Janice’s mother behaved in such a manner because she wanted to “reward” her daughter for her family devotion, an impulse that lied outside the scope of their confidential relationship.
Carter then introduced new rules for rebutting undue influence presumptions in inter vivos gift transfers of which only requires defendants to prove “by clear, satisfactory, and convincing evidence” that they acted “in good faith throughout the gift transaction” and that the grantor acted “freely, intelligently, and voluntarily.”
Janice had therefore successfully rebutted the presumption of undue influence for most of the gifts she received, according to Justice Carter, who subsequently ordered her return some cash assets listed in Kathleen’s cross-appeal where the mother had made the gift transfer “inside the domain of the confidential relationship.”
The New Rule in Layman’s Terms
If the “end result” was a product of undue influence, then defendants cannot quash the presumption of undue influence asserted against them.