Family estate planning issues arise far too often when a child takes financial advantage of a parent who is mentally incompetent because of dementia or other mental infirmities. This is why it is so important to plan our estates while we still have our mental faculties and to put trustworthy people in charge who have the necessary skills to manage our estates after we are gone.This can be seen from a recent 2018 opinion by the Dallas Court of Appeals.

In Anderton v. Green, 555 S.W.3d 361 (Tex. App.—Dallas 2018, no pet. h.), James sued his niece, Jennifer, who was raised by James’s mother, Frances, Jennifer’s grandmother. During her lifetime, Frances set up a trust for the benefit of James and his brother which later held about $1 million in assets. Frances provided for Jennifer by naming her as the beneficiary of several annuities. Frances also made Jennifer joint owner on some of Frances’s bank accounts.

In 2009, James bought his mother’s grass farm business.  James later became incarcerated. After his release, James and his wife lived on the grass farm. Whereas, Jennifer became a registered nurse and helped care for Frances in the remaining years before Frances’s death.

By 2011,  Frances suffered from dementia. On October 15, 2012, Frances’s second husband, Clarence, along with Frances’s son James drove Frances to the banks where her accounts were held and had Frances complete paperwork to remove Jennifer from the accounts. The next day Clarence took Frances to a lawyer’s office and Frances signed documents revoking powers of attorney previously granted to Jennifer and granting a new power of attorney to James. Jennifer took immediate action to have Frances reverse the account changes.

On October 19, 2012, only four days after Clarence and James had Frances change her accounts, James filed an application for guardianship of Frances, based upon Frances’s mental incapacity. During the guardianship proceedings, James testified that Frances was competent to undertake banking transactions on Monday and Tuesday but not on Wednesday and Thursday. After the completion of the hearing, the court later appointed individuals other than James to serve as Frances’s guardians.

Unfortunately, Frances died shortly afterwards on November 26, 2012. James then sued Jennifer alleging conversion of $750,000 in annuity benefits she received upon Frances’s death. Jennifer counter-sued James and asked the Court to declare that Frances’s bank accounts now belonged to Jennifer, and the October 16, 2012 power of attorney Frances signed in favor of James and any related transactions were invalid.

The court heard the testimony of 15 witnesses at the over seven-day trial. At the conclusion of the trial, the court rendered judgment in favor of Jennifer declaring that Frances lost her mental capacity prior to October 15, 2012; and all actions taken by Frances after that date, at any financial institution or attorney’s office, lacked any legal effect and were void. The court also awarded Jennifer $223,364 in attorney fees. James appealed. The Court of Appeals affirmed the trial court’s decision, except the court remanded the case back to the trial court for further consideration of attorney fees.

In the discussion by the Court of Appeals, the court states, “To have mental capacity, the person executing the instrument must have had sufficient mind and memory to understand the nature and effect of her act at the time of the document’s execution….”Capacity may be assessed by considering such factors as 1) the person’s outward conduct demonstrating an “inward and causing condition,” 2) preexisting external circumstances tending to produce a special mental condition, and 3) the person’s mental condition before or after the relevant point in time from which her mental capacity or incapacity may be inferred.”……..”Finally, expert testimony on the matter is not required since the requisite proof regarding mental capacity may reside within the common knowledge and experience of laypersons.”

The evidence included testimony from witnesses who testified that “Frances was unable to recall that she was married to Clarence; that Jennifer was her granddaughter; or that she had, one or two days prior, undertaken significant banking transactions, including moving $100,000 from one bank to another and changing her long-settled plan that Jennifer would be “taken care of” through investments managed by Mason.” There were also notations in Frances’s medical records that stated Frances’s  was “demented and cannot relate much history,” and looked “disheveled and tired.”

In its holding, the Court of Appeal’s stated: “We conclude the evidence supports the trial court’s declarations that Frances “lost her mental capacity to manage all aspects of her property sometime prior to October 15, 2012, and her loss of mental capacity to manage all aspects of her property continued uninterrupted until her death on November 26, 2012,” and that Frances’s actions on or after October 15, 2012 “at any financial institution or attorney’s office, lacked any legal effect and are invalid, null, and void.”  The Court of Appeals also held that the award of some of the attorney fees was authorized by law. However, not all of the attorney fees were recoverable, and Jennifer failed to present evidence segregating recoverable and unrecoverable fees. Therefore, the court reversed the portion of the trial court’s judgment awarding attorney fees and the case for further proceedings on that issue.

Lessons learned from this case are that it is important to do comprehensive estate planning while we are still mentally capable of managing our finances. Further, if one family member takes financial advantage of another family member who is not mentally competent, all is not lost.  Any transactions by the mentally competent family member are subject to being declared void and set aside.  To prove this, evidence will need to be presented from witnesses who knew the mentally incompetent family member and can testify that the family member was forgetful, confused or mentally incapable of managing his finances when the transactions in question were completed.  Also, medical evidence should be presented of the medical conditions in issue.  Of course, it is unfortunate that our surviving family members should have to go through the stress and expense of litigation to right the wrong.  That is why we should make sure that while we are still mentally capable that we get our estates in order.  This is a true gift of love we can give to our children and close family members.