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.

Contingent trust beneficiary. A contingent trust beneficiary is one who does not have the right to receive benefits under a specific trust until the occurrence of a future event.  Typically, a contingent beneficiary’s right to receive benefits under the trust would vest upon the death of one or more named beneficiaries. The question often arises as to what rights a contingent beneficiary has to protect his or her contingent rights.

Rights against trustee. In the recent case of Mayfield v. Peek, 446 S.W.3d 253 (Tex. App.—El Paso 2017, no pet. h.), the court held that the contingent beneficiary had standing to sue the Trustee of the trust.

Facts of case. This case arose out of a sister and brother—Mayfield and Bruce—fighting over an inheritance from their parents. The parents had created and placed several real properties and other assets into a revocable trust. Apparently, the parents became the vested beneficiaries of the trust upon its creation. Upon their death, the trust became irrevocable and Mayfield and Bruce would become the vested beneficiaries.  Ten years after the creation of the trust, Bruce became the Trustee.

After the parents died, Mayfield sued Bruce sued one another. Mayfield sued Bruce for breaching his fiduciary duties as Trustee.  The factual allegations included that, prior to the death of their parents, Mayfield and her brother Bruce had not spoken for 30 years. Bruce had managed to restrict his father’s access to Mayfield and others. Further, Bruce convinced the mentally impaired parents to transfer assets out of the trust for Bruce’s benefit and to terminate the trust.

Breach of fiduciary duty. Mayfield sued Bruce for breaching his fiduciary duties as Trustee by unduly influencing their mentally impaired parents into:

a. Wrongfully transferring assets out of the trust for Bruce’s benefit; and

b. Terminating the trust.

This apparently resulted in Mayfield receiving nothing from the trust after her parents died.

Jurisdictional issue. Bruce contended that Mayfield was only a contingent beneficiary of the revocable trust and as a contingent beneficiary she did not have standing to sue him. Thus, her claim should be dismissed.

Court’s holding. The appellate court held that under the Texas Trust Code both vested and contingent beneficiaries may have the right to sue a Trustee.  Under the facts of this case, the contingent beneficiary—Mayfield—had standing to sue the Trustee—Bruce—and was allowed to go forward with her claim.

The Texas legislature made numerous changes to state laws in the estate planning area including to statutory provisions that govern wills, trusts, probate, and financial powers of attorney. One substantive change to the Durable Power of Attorney Act limits the scope of the fiduciary duties owed by the appointed agent to his principal (person granting the power) under a financial power of attorney.

Continue Reading Texas Durable Power of Attorney Act Amended to Limit Agency Liability

On May 26, 2017, the Texas Supreme Court refused to recognize the existence of a cause of action for tortious interference with inheritance rights.  Kinsel v Lindsey, 15-0403, 2017 WL 2324392 (Tex. May 26, 2017).  Many  Texas courts have long considered this to be a viable cause of action since the 1987 decision of King v. Acker, 725 S.W.2d 750 (Tex. App.—Houston [1st Dist.] 1987, no writ).   In that case, the decedent’s widow forged a power of attorney to transfer stock from decedent to her while the decedent was still alive and in a coma. After the death of decedent, a temporary administrator was appointed to recover the stock for the benefit of decedent’s estate.  This caused the estate to incur additional expenses.  The decedent’s children and mother who were beneficiaries of the estate sued the decedent’s widow for tortious interference with their inheritance rights. The King court upheld the jury’s verdict for actual and punitive damages based upon the widow’s tortious interference with the inheritance rights of decedent’s children and mother.

Now, 30 years later, the Texas Supreme Court in Kinsel v. Lindsey, supra, determined that there is no cause of action in Texas for tortious interference with inheritance rights.  Does this mean that heirs who have been wrongfully cheated out of their inheritance no longer have a remedy? No, it just means that they will have to resort to more traditional causes of action like a will contest asking a court to set aside a will that has been procured by undue influence or fraud. However, even the Kinsel court seems to accept that, absent a cause of action for tortious interference with inheritance, there may be times when the heirs will not have a remedy to recover all the damages caused by someone who wrongfully interferes with inheritance rights.

A recent court of appeals discussed the significance of the fiduciary relationship created when someone signs a power of attorney authorizing another to act as their agent.  (Jordan v. Lyles, 485 S.W.3d 785 (Tex. App. – Tyler 2015)).  In this case, Bud executed a durable power of attorney appointing his stepdaughter as his agent. Subsequently, Bud, with the help of his stepdaughter, completed some forms making his stepdaughter the sole beneficiary of Bud’s bank and annuity accounts.  As a result, when Bud died these accounts vested in the stepdaughter and did not become part of Bud’s probated estate.

After Bud’s death, the stepdaughter withdrew the money from the accounts and liquidated the annuities.  Bud’s heirs sued the stepdaughter for breach of fiduciary duty.  The court held that the power of attorney created a fiduciary relationship between Bud and his stepdaughter as a matter of law. Even in the case of a gift between parties with a fiduciary relationship, the law presumes the gift to be unfair and invalid.  The recipient of the gift must prove that the transaction was fair and reasonable.

The jury found that Bud’s stepdaughter breached her fiduciary duty, under the circumstances of this case, and awarded damages to the heirs. The court of appeals upheld the jury award.