Avoiding Erosion of Testamentary Intent in Wealth Transfers: Best Practices for Contractual Transfers

Jul 31, 2020 10:00:00 AM

  

testamentary-intent

By Mary E. Vandenack, founding and managing member of Vandenack Weaver LLC

Significant amounts of wealth are likely to be transferred over the next 25 years. The United States has an aging population in control of an estimated $59 trillion in assets. A growing area of case law in the United States has been that of tortious interference with inheritance. Tortious interference with inheritance occurs when an individual, by fraud or duress, or other tortious means, intentionally prevents another from receiving an inheritance or gift that he would otherwise have received. Tortious interference is rooted in and related to other concepts such as undue influence and fraud. 

Not all states recognize tortious interference with inheritance. Such states typically take the approach that adequate remedies exist in actions that can be brought in probate courts; however, probate remedies are not always sufficient. In Wellin v. Wellin, 135 F. Supp 3d 502 (D.S.C. 2015), the decedent's children sufficiently pled a plausible claim for intentional interference with inheritance because they pled a valid expectancy that they would inherit the vast majority of their father's estate, that the wife intentionally interfered with that expectancy through tortious conduct, that, but for the wife's conduct, there was a reasonable certainty that the expectancy would have been realized, and damages.

One of the famous cases on the issue was Marshall v. Marshall, 547 U.S. 293 (2006), involving Vickie Lynn Marshall (defendant), better known as Anna Nicole Smith. After a long history of lawsuits and challenges between Vickie and J. Howard Marshall II’s son, the Supreme Court ruled that the son’s behavior was willful, malicious and fraudulent, that the interference claim was personal in nature, and that such claim was rightfully within the jurisdiction of the US Bankruptcy Court rather than the Texas probate court. Vickie was awarded nearly $450 million in compensatory damages and $25 million in punitive damages..

 

Learn more about testamentary intent by registering for our next Thought Leader Series webinar, Best Practices for Preserving Testamentary Intent in Wealth Transfers on August 25, 2020.

 

The elements of tortious interference are: the existence of an expectancy; defendant’s intentional interference with that expectancy; conduct that is tortious in itself, such as fraud, duress, or undue influence; and, a reasonable certainty that the expectancy would have been realized but for the interference. 

Some common examples of tortious interference are:

  • Daughter uses undue influence or fraud to induce donor to make lifetime transfers to Daughter that deplete the estate. For example, Daughter commences taking withdrawals from an annuity that names her sibling as beneficiary. Some of the amounts are used to pay for Mom’s care but other amounts are transferred to a joint account owned by Daughter and Mom.  Daughter is the personal representative of the estate. Personal representative is unlikely to pursue a recapture of assets and likely to impede the victim’s efforts to reclaim wrongfully transferred assets.
  • Son attends meetings with Dad. Dad establishes a trust specifying that assets are to be distributed equally among five beneficiaries. Dad names Son as power of attorney and authorizes Son to change beneficiary designations of retirement accounts and insurance policies. The testator’s plan is that the trust will be named beneficiary of such accounts and policies. Instead, Son names himself as the beneficiary of the policies. Testator dies.
  • Client establishes a trust benefitting his three children from his first marriage. Client names his second spouse as the beneficiary of his IRA. When Client is very ill, Daughter gets Client to sign a power of attorney allowing her to change beneficiary designations. Daughter changes the beneficiary of the IRA from Client’s spouse to herself. 

The skilled estate planning attorney can adopt best practices to prevent tortious interference by building in planning protections and spotting situations where interference may be ripe to occur. Spend time identifying and documenting clients’ estate planning objectives. A draft document doesn’t provide evidence of a testamentary plan but a long history of discussion of objectives can do so. 

Exercise due diligence in obtaining client information. Good information is the foundation of a good estate plan. Obtain comprehensive family information and details about all non-family beneficiaries. Engage in due diligence regarding financial assets. Obtain detailed financial information. Create understandable summaries of the information and review the same with the client. Ask about unique asset types (guns, pets, artwork, gold bars under the bed, etc.). Obtain details of agreements regarding business interests, life insurance, and other contractual assets. 

In the process of clarifying a client’s objectives, create easy-to-follow illustrations and flowcharts. Review the asset flow with the client and make it clear how much each beneficiary will receive, and when, based on current asset values and structure. Create illustrations that are client specific. Make the complex simple and note client feedback regarding their testamentary plan. Become familiar with facts that can indicate undue influence; for example, is one beneficiary bringing the client to meetings and sitting in on them? If undue influence is suspected, then take steps to address it. 

Before a client signs estate planning documents, request that the client explain the structure to verify the client’s understanding. Ask about any unusual property distributions and document the reasons. Videotaping the discussion process prior to signing, as well as the signing process itself, can help preserve client testamentary intentions. 

Provide specific direction to the client as to how assets will be coordinated with the estate plan. To the extent possible, title assets in a way that avoids the need for a power of attorney to do so when the client is incapacitated. Provide detailed direction on contractual assets and request confirmation of any changes made by the client. If confirmation is not received, follow up with the client. If there are financial assets that you do not fully understand, seek the help of an advisor who does.

Insist on team coordination — the advisor roundtable. A coordinated annual meeting of advisors can make all the difference in preserving client testamentary intent.


Learn more about testamentary intent and see Mary Vandenack speak on the topic by registering for our next Thought Leader Series webinar entitled, Best Practices for Preserving Testamentary Intent in Wealth Transfers. 

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