It is no secret that America’s population is getting older. In a recent housing study, researchers from Harvard note that the number of American households headed by a person over the age of 80 has risen 71 percent in the last 25 years.[ Harvard University Joint Center on Housing Studies. Housing for Older Adults, 2018 ed.] The Baby Boomers have started to retire and will continue to do so in record numbers. America’s older generations have amassed large sums of wealth that will be transferred to younger generations in the decades to come. Estate planners utilize wills and trusts as instruments to facilitate these transfers of wealth, but simply preparing a will or a trust is no guarantee that an effective transfer of wealth will take place to an intended beneficiary. Whenever there is a transfer of money, there is a risk that litigation over the transfer may result.
What does litigation involving estates and trusts look like? How do you defend a party to that litigation? Are there any drafting techniques that estate planners can utilize to prevent or deter future litigation? Our firm practices in the areas of drafting estate planning documents and probate litigation involving challenges to wills and trusts. In the space below, we answer these questions by describing the top five most common causes of action that we see in contested trusts and estates and common defenses to them. We also offer some techniques that we use in our estate planning practice to avoid future litigation over the estate plans that we create for our clients.
CAUSE OF ACTION #1: Undue Influence
In our experience, undue influence is the most common cause of action used to attack an estate plan when a deceased parent leaves assets in her will or trust contrary to the expectation that all children must be treated equally. When one child is disinherited or when one child receives substantially more assets under the terms of a parent’s will than his siblings, an undue influence cause of action is one way an unhappy child can try to set aside the will and get her “fair share” of “what Dad wanted”.
The Illinois Pattern Jury Instructions defines undue influence as “influence exerted at any time upon the decedent which causes him to make a disposition of his property that is not his free and voluntary act.”[ Illinois Pattern Jury Instruction No. 200.09] There are two ways to prove undue influence under Illinois law.[ Illinois Pattern Jury Instruction No. 200.04.] The first way is to prove undue influence is through proof of specific conduct constituting the undue influence, such as conduct that is excessive, improper, or illegal.[ Estate of Glogovsek, 248 Ill.App.3d 784 (1st Dist. 1993).] Isolation is just one example of specific conduct showing influence that is excessive. Proof of misrepresentations or concealment of material facts can also establish undue influence.[ Estate of Hoover, 155 Ill.2d 402 (1993). ] The second way to prove undue influence is through a legal presumption of fraud that arises whenever a fiduciary participated in the preparation or execution of a will or trust that provides the fiduciary with a disproportionate share of the estate or trust.[ Illinois Pattern Jury Instruction No. 200.04.] For example, if a child is acting as power of attorney for an elderly parent and arranges for an attorney to change the parent’s estate plan that benefit that child, the presumption of fraud arises. When an adult child calls an estate planning law firm on behalf of a parent, it is a good practice to ask: “why are you on the phone with us instead of your mother?’
An estate planning attorney should keep careful records of his client communications to deter future undue influence claims. In a will contest, there is no attorney-client privilege between the decedent and the drafting attorney.[ See e.g. Adler v. Greenfield, 2013 IL App (1st) 121066, ¶62.] The drafting attorney is almost always the critical witness at trial. Thus, a careful attorney should write out detailed, contemporaneous notes of all discussions with the client. Potential influencers should not be in the room when the client tells the attorney of his intentions. The first thing a plaintiff does in an undue influence case is to subpoena the records of the attorney who wrote the estate plan and tries to figure out who was at the attorney’s office with the client and who arranged the appointments. If the client states his intentions are something that someone might challenge later, such as favoring one child over another, then a careful attorney should videotape those conversations with the client’s consent. A video of a signing ceremony during which the lawyer asks open ended questions and the client provides explanations for the decisions that he made in his estate plan can become powerful evidence of the client’s wishes in the event of a challenge.
A lawyer defending an undue influence case should use discovery to determine what is “undue” about the alleged influence, particularly in cases where a husband or a wife is the alleged undue influencer, because it is expected that a spouse will influence a spouse, and there is nothing “undue” about a spouse influencing a spouse’s estate planning decisions absent some other improper conduct such as misrepresentation.[ See DeHart v. DeHart, 2013 IL 114137.] The lawyer defending undue influence should get the file from the attorney who wrote the will or trust and contact disinterested witnesses who knew the decedent and the alleged influencer. Those disinterested witnesses may provide excellent background on why the decedent made the choices that he did.
CAUSE OF ACTION #2: Lack of Testamentary Capacity.
When a person changes his estate plan toward the end of his life, a typical challenge is that the person lacked testamentary capacity to make a will. The Illinois Pattern Jury Instructions provide the elements to a lack of testamentary capacity cause of action. “A person does not have testamentary capacity to make a will if, at the time he executes the document, he does not have: (1) The ability to know the nature and extent of his property; (2) The ability to know the natural objects of his bounty; or (3) The ability to make a disposition of his property in accordance with some plan formed in his mind.” [ Illinois Pattern Jury Instructions, No. 200.05.] Please note that testamentary capacity is not the capacity to transact ordinary business. A person who has been declared disabled by a court may have testamentary capacity if he has the abilities set forth above. In fact, the Probate Act contains specific procedures to be followed when a disabled person wants to write a will.
Lack of testamentary capacity is also not a medical diagnosis. Thus, medical diagnoses like Dementia or Alzheimer’s disease must be linked to the abilities set forth above in order to be probative at trial. We have found that a great way to establish testamentary capacity at the time of signing is to have the client complete a neuropsychological evaluation with a qualified professional who prepares a written report linking the client’s cognitive functioning with the specific elements of testamentary capacity. Again, a videotaped signing ceremony with open ended questions and detailed responses can go a long way to establish a valid defense. However, when making a video at the signing ceremony, it is crucial to ask the three “capacity questions” referenced above; “who are your children?”, “how much money do you have?”, “what is your plan for distributing your assets in your will?”. It is not helpful to simply ask, “is this your will?” on the video. The best evidence of capacity is the testator himself answering the capacity questions on a video at a time that he was alleged to have lacked capacity to sign a will.
Defending a challenge of lack of capacity often requires hiring an expert in cognitive impairments of the elderly, such as a psychologist or a psychiatrist. We have found that it is often the case that the attorney bringing a challenge against a will based on lack of capacity does not understand the concept of capacity. We have seen complaints challenging wills due to lack of capacity that allege simply that the testator had “dementia”, and the attorney might embellish that word to “severe dementia” using poetic license rather than medical evidence to assert that the testator lacked capacity because the person had the word “dementia” in his medical records. However, a person with dementia can have capacity to sign estate planning documents, particularly if the dementia was caused by a temporary condition such as a blow to the head. An expert is crucial in these cases in determining whether the medical records indicate a lack of capacity at the time of the signing, which is the relevant time that capacity is required.
CAUSE OF ACTION #3: Accounting.
The first two causes of action mentioned above involve challenges to the estate planning documents themselves. The next two causes of actions involve the execution of that plan by a fiduciary. A cause of action for accounting is generally used to compel a person who is in control of the decedent’s money to disclose how that person has used the decedent’s money. There are several statutes that require accountings. The Trust and Trustees Act requires annual accountings to any person then entitled to receive income or principal from a trust.[ 760 ILCS 5/11(a).] The Probate Act requires annual accountings of estate assets to all interested persons.[ 755 ILCS 5/24-1.] The Power of Attorney Act requires an agent to produce an accounting of the assets under his control as power of attorney within 21 days of a request of any interested person to a principal’s estate.[ 755 ILCS 40/2-7(c)(1).] Illinois courts also recognize a cause of action for an equitable accounting if there is an absence of an adequate remedy at law and one of the following: (1) breach of fiduciary duty, (2) a need for discovery, (3) fraud, or (4) the existence of mutual accounts which are of a complex nature.[ People ex rel. Hartigan v. Candy Club, 149 Ill.App.3d 498, 500-01 (1st Dist. 1986)]
When a client is served with a complaint for an accounting, the client is usually serving in a fiduciary capacity with a duty to account. In most circumstances, arguing that a duty to account does not exist is not a worthwhile endeavor. Thus, in our experience, the best way to insulate a client named as a defendant in an accounting cause of action from potential liability is to outsource the preparation of the accounting to a professional CPA. That is particularly the case when a client walks in the office with a box full of receipts and bank statements and says he is being sued for an accounting. Because accountings are administrative expenses, the CPA gets paid out of the trust or estate funds for performing the accounting for the client. The client becomes protected from claims that the accounting is performed incorrectly in terms of math or formatting. We believe that using a professional CPA is an effective way to assure a sibling that things are being handled correctly. However, if the sibling persists in pursuing an accounting cause of action after a CPA sends the sibling a full accounting based on supporting documentation, then the CPA would become the star witness to prove up the accuracy of the accounting at a hearing. If the numbers add up and have supporting documentation for most things, at least the CPA can narrow the issues to the items that are not supported by documentation such as receipts.
CAUSE OF ACTION #4: Breach of Fiduciary Duty.
When a beneficiary believes that the person in charge of the decedent’s money has mishandled the decedent’s money, the most common cause of action to remedy that wrong is breach of fiduciary duty. To state a claim for breach of fiduciary duty, it must be alleged that: (1) a fiduciary duty exists, (2) the duty was breached, and (3) the breach proximately caused damages.[ Lawlor v. N. Am. Corp. of Illinois, 2012 IL 112530, ¶69.] We believe that this cause of action is most commonly used because the proof for the plaintiff’s side is relatively easy. An executor of a will and a trustee of a trust owe fiduciary duties as a matter of law. Thus, the first element is an easy hurdle to clear. Moreover, the law imposes a legal presumption of fraud in all self-dealing transactions by a fiduciary.[ Estate of Alford v. Shelton, 2017 IL 12119, ¶23.] Thus, the plaintiff simply must point to a transaction in which the trustee or executor benefits to meet its burden of proof. These transactions are generally described on an accounting or on a bank statement. Once a self-dealing transaction is identified, the burden of proof shifts to the fiduciary to establish by clear and convincing evidence that the transaction was fair and did not result from undue influence over the principal.[ Id.]
Presumptively fraudulent transactions occur frequently in the course of estate and trust administration. For example, a fiduciary may reimburse himself for expenses he advanced. The fiduciary may forgive pre-existing loans either to himself or to a relative; the fiduciary may compensate himself for services rendered, or the fiduciary may take the proceeds of a “convenience account” with joint account features that the fiduciary had been using to pay for his parents’ living expenses. If a disgruntled sibling complains about the fiduciary’s actions, then the burden of proof will be on the fiduciary to overcome the presumption of fraud for each one of these types of presumptively fraudulent transactions.
A good estate plan will build in a defense for each of these common, but presumptively fraudulent transactions. For example, a well-written estate plan may require a trustee to keep receipts for expenses and obtain multiple quotes for large dollar expenses. We generally include language in a trust that directs a trustee to forgive all unpaid loans prior to death, unless the loan is of a large amount or reflected in a promissory note. With respect to compensation for services rendered, we recommend including language specifying that a trustee is entitled to reasonable compensation and provide a formula if necessary. Whenever a client tells us that he added a child as an authorized signer on a bank account, we include a “Convenience Account Designation” or a “Gifting Document” form in the client’s estate planning documents to instruct the fiduciary of the client’s wishes for that account. We believe that these planning techniques can go a long way to help accomplish the client’s wishes and minimize the risk to the person trusted to effectuate the client’s wishes.
CAUSE OF ACTION #5: Petition for Instructions.
Sometimes, it is simply not possible to stop a disagreeable, grieving sibling from pursuing litigation over their deceased parent’s estate and trust. In those circumstances, it is often better for a trustee or executor to initiate the litigation through the filing of a petition for instructions. A petition for instructions simply requires a bona fide dispute as to the true meaning and intent of the trust instrument or as to the particular course which a trustee ought to pursue.[ Kaull v. Kaull, 2014 IL App (2nd) 130175, ¶76.] Proving a bona fide dispute can be easy when considering that disagreeable siblings tend to show their displeasure in vitriolic e-mails that span multiple pages that could be printed and attached to a complaint.
Petitions for instructions tend to lead to court orders directing a trustee or executor to take certain actions. Court orders add a layer of protection for a trustee confronting an unhappy beneficiary. In the meantime, a trustee is entitled to maintain the lawsuit at the expense of the trust estate. Thus, we believe that there is no good reason for a trustee to ever guess about what to do or to put himself at risk of breach of fiduciary duty for taking steps that a beneficiary might challenge.
Keeping in mind the potential causes of action available to attack wills and trusts as you draft the estate planning documents will serve the interests of your client and will make life easier for you as the attorney if you ever receive that subpoena.
1 Harvard University Joint Center on Housing Studies. Housing for Older Adults, 2018 ed.
2 Illinois Pattern Jury Instruction No. 200.09.
3 Illinois Pattern Jury Instruction No. 200.04.
4 Estate of Glogovsek, 248 Ill.App.3d 784 (1st Dist. 1993).
5 Estate of Hoover, 155 Ill.2d 402 (1993).
6 Illinois Pattern Jury Instruction No. 200.04.
7 See e.g. Adler v. Greenfield, 2013 IL App (1st) 121066, ¶62.
8 See DeHart v. DeHart, 2013 IL 114137.
9 Illinois Pattern Jury Instructions, No. 200.05.
10 760 ILCS 5/11(a).
11 755 ILCS 5/24-1.
12 755 ILCS 40/2-7(c)(1).
13 People ex rel. Hartigan v. Candy Club, 149 Ill.App.3d 498, 500-01 (1st Dist. 1986)
14 Lawlor v. N. Am. Corp. of Illinois, 2012 IL 112530, ¶69.
15 Estate of Alford v. Shelton, 2017 IL 12119, ¶23.
16 Id.
17 Kaull v. Kaull, 2014 IL App (2nd) 130175, ¶76.