Wills, Trusts and Estates – Part 3

Church Law and Tax 1989-05-01 Recent Developments Wills, Trusts, and Estates Richard R. Hammar, J.D.,

Church Law and Tax 1989-05-01 Recent Developments

Wills, Trusts, and Estates

A Florida state appeals court upheld the validity of the state’s “mortmain” law. The mortmain law permits a surviving spouse or child to invalidate a will that leaves a gift to charity if the will was executed within six months of the decedent’s death. The law was enacted primarily to prevent “deathbed gifts” to churches. One court has observed that such laws are designed to “prevent a testator during his last illness from being importuned or otherwise influenced, by hope of reward or fears of punishment in the hereafter, to leave his estate in whole or in part to charity or to the church.” The court emphasized that the Florida law (1) contained a “savings clause” that upheld testamentary gifts to charity even though made within six months of a decedent’s death if a similar gift was contained in a previous will, and (2) invalidated testamentary gifts to charity made within six months of death only if challenged by a surviving spouse or child. These two factors prevented the law from being unconstitutional, the court concluded. Zrillic v. Romans, 535 So.2d 294 (Fl. App. 1988).

Wills, Trusts and Estates – Part 4

Church Law and Tax 1989-05-01 Recent Developments Wills, Trusts, and Estates Richard R. Hammar, J.D.,

Church Law and Tax 1989-05-01 Recent Developments

Wills, Trusts, and Estates

Sometimes, disputes arise between churches and heirs regarding lawful ownership of estate assets. Such a dispute was resolved in a recent California appeals court decision. A decedent’s will left her most valuable asset (an 18-acre tract of land) to a relative, and left any “residue” of her estate (i.e., assets remaining after the payment of specific gifts, expenses, and taxes) to a religious organization. The decedent entered into a contract to sell the 18-acre tract a few weeks before her death, but the closing did not occur until three days after her death. The religious organization claimed that since the property was not in the decedent’s estate as of the date of her death, the gift of the property to the decedent’s relative failed (“adeemed”) and the relative had no claim to the sales proceeds. Rather, the religious organization was the rightful owner of the proceeds, since the sales proceeds were properly characterized as part of the residue of the decedent’s estate. The court rejected this argument, and awarded the sales proceeds to the relative. It acknowledged that as a general rule “if a will makes a gift of specific property and the property no longer exists at the testator’s death or is no longer part of the estate, the gift is said to be `adeemed’ (revoked). No monetary equivalent is substituted for the gift, with the result that the [gift in the will] is nullified.” However, because of the “harsh effects” of ademption, the “California courts have sought to avoid ademption whenever possible” by applying various exceptions. One such exception provides that a gift of specific property will not be adeemed “where there are unpaid sales proceeds.” Accordingly, though the property specifically given by the decedent’s will to a relative was no longer part of her estate at death, the unpaid proceeds from the sale of the property were payable to the relative rather than to the religious organization that was to receive the residue of the estate. Of course, this same principle can work to a church’s favor if (1) it is given a specific gift of property in a will, (2) the property has been sold prior to the decedent’s death, and (3) not all of the sales price had been paid. Estate of Worthy, 252 Cal. Rptr. 462 (Cal. 1988).

Related Topics:

Wills, Trusts and Estates – Part 2

Church Law and Tax 1989-05-01 Recent Developments Wills, Trusts, and Estates Richard R. Hammar, J.D.,

Church Law and Tax 1989-05-01 Recent Developments

Wills, Trusts, and Estates

A Louisiana state appeals court refused to recognize a provision in a last will and testament that attempted to bequeath the decedent’s home to a church. The will left the decedent’s home to a sister, and then provided that “in the event of my sister’s death after mine … I do hereby bequeath said residence to the First Presbyterian Church” (of which the decedent had been a member). The court observed that “it is apparent that although the decedent intended to donate property to the church, she clearly attempted to do so in a prohibited fashion.” The court quoted Article 1520 of the Louisiana Code in support of its ruling: “Substitutions are and remain prohibited …. Every disposition not in trust by which the donee, the heir, or the legatee is charged to preserve for and to return a thing to a third person is null, even with regard to the donee, the instituted heir, or the legatee.” The contested will provision, concluded the court, was “an attempt by the decedent to give ownership to one, to have and to hold for a lifetime, and then to will it to yet another. This clearly fits the section 1520 definition of a prohibited transfer.” Succession of Flowers, 532 So.2d 470 (La. App. 1988).

Wills, Trusts and Estates – Part 1

Church Law and Tax 1989-05-01 Recent Developments Wills, Trusts, and Estates Richard R. Hammar, J.D.,

Church Law and Tax 1989-05-01 Recent Developments

Wills, Trusts, and Estates

Can a church that is named as a beneficiary under a charitable trust challenge the sale of trust property on the basis of inadequacy of sales price? Yes, concluded a Michigan state appeals court. A decedent had established a charitable trust, naming an Episcopalian diocese and a local church among the beneficiaries. The major asset of the trust was a 315-acre estate that included a large residence. The trustees sold the estate (for $3.25 million) in order to obtain cash to pay trust expenses. The diocese and church challenged the sale on the following grounds: (1) the trustees breached their duty to notify the beneficiaries regarding this important aspect of trust administration; (2) the trustees failed to obtain an appraisal; (3) the trustees failed to adequately market the property; and (4) the sales price was inadequate. A probate court agreed with these contentions, removed the trustees from office, and awarded monetary damages to the beneficiaries. The trustees appealed, and a state appeals court affirmed the ruling of the probate court. The court began its opinion by emphasizing that trustees have certain “fiduciary duties” toward trust beneficiaries, which include acting with care, diligence, integrity, fidelity, and sound business judgment. The court concluded that the trustees had violated these duties by failing to keep the church and diocese “reasonably informed of the trust and its administration,” failing to obtain a “sound appraisal,” inadequately marketing the property by failing “to bring the property’s availability to the attention of a wide spectrum of potential purchasers,” and “selling the property for less than its fair value.” The court upheld the dismissal of the trustees, and the award of $1.9 million in damages. This case will be of interest to any church or denominational agency that is named as a beneficiary under a trust or will. Remember this—as a beneficiary under a will or trust, a church or denominational agency has the right to be informed regarding the administration of the estate or trust, and to receive a fair value for any sale of estate or trust assets following a reasonable marketing effort. Don’t be reluctant to ask questions. Matter of Green Charitable Trust, 431 N.W.2d 492 (Mich. App. 1988).

Wills, Trusts, and Estates – Part 1

Church Law and Tax 1989-03-01 Recent Developments Wills, Trusts, and Estates Richard R. Hammar, J.D.,

Church Law and Tax 1989-03-01 Recent Developments

Wills, Trusts, and Estates

Several states have adopted “mortmain statutes” that permit heirs to invalidate gifts made to churches and other charities in the will of a donor who dies within a prescribed period of time following the execution of his or her will. To illustrate, a Florida statute makes it possible for a spouse or “lineal descendant” (i.e., a child or grandchild) to avoid charitable gifts made in the will of a decedent less than six months before the decedent’s death. Such gifts cannot be challenged if the decedent’s previous wills (executed more than six months prior to death) left substantially similar gifts to charity. In a recent case, a Florida court was asked to determine whether this law permitted the daughters of a decedent to challenge a gift made by their deceased father 26 days before is death. Here are the facts. The decedent executed a “revocable trust” and a will in 1979. The will distributed the decedent’s personal effects to his wife, and then “poured over” the residue of the estate into the trust, which was specifically referred to in the will. The trust benefited the decedent’s adult daughters. In 1986, just 26 days before his death, the decedent amended his trust to substitute several religious organizations as the ultimate beneficiaries of his trust (rather than his daughters). Following their father’s death, the daughters attempted to invalidate the charitable gifts on the basis of the mortmain law. The charities argued that the mortmain law only permits heirs to challenge gifts made in wills within six months of a donor’s death, and not gifts made in trusts (even if the trust is specifically referred in a will). The daughters maintained that logic requires that a trust referred to in a will, and into which the will “pours over” or distributes assets, must be subject to the mortmain law. The state appeals court agreed with the charities, and upheld the validity of the gifts. It reasoned that the mortmain law, by its own terms, only permitted heirs to challenge charitable gifts made in wills, and therefore it could not apply to charitable gifts made in a trust even though the will distributed a portion of the decedent’s estate into the trust. Churches can assist potential donors avoid the impact of mortmain laws by encouraging members to prepare their estate plans while they are in good health. A future issue of Church Law & Tax Report will summarize the mortmain laws in all 50 states. In re Estate of Katz, 528 So.2d 422 (Fl. App. 1988).

Wills, Trusts, and Estates – Part 3

Church Law and Tax 1989-03-01 Recent Developments Wills, Trusts, and Estates Richard R. Hammar, J.D.,

Church Law and Tax 1989-03-01 Recent Developments

Wills, Trusts, and Estates

Are $525,000 in attorneys’ and executor fees incurred on behalf of an estate benefiting several charities excessive? That was the question before an Illinois state appeals court in a recent case. A decedent died in 1983, leaving a will that distributed her estate to various charities by means of a charitable trust. The estate was submitted to probate, and a lawsuit was filed seeking an interpretation of the will. The lawsuit eventually was settled out of court. Attorneys demanded $400,000 in fees, and the executor demanded an additional $125,000. The charities who were named as beneficiaries under the will, as well as the state attorney general, challenged the fees as “wasteful, duplicative, and unjustifiable,” and based on “inadequate itemization of work performed” and for “services not compensable by the estate.” The charities later agreed to settle the fee dispute, but the state attorney general refused to do so. The attorney general demanded a hearing to determine the reasonableness of the fees, but a trial court rejected this request on the ground that the attorney general did not have a sufficient interest in the case. A state appeals court reversed the trial court’s decision, voided the fee agreement, and ordered a hearing to determine the reasonableness of the fees. Under Illinois law, concluded the court, the attorney general “is the ultimate [beneficiary] to any charitable bequest in all actions concerning the enforcement or administration of a charitable trust,” and can intervene in any case where it appears necessary to preserve the assets of a charitable trust. Matter of the Estate of Laas, 525 N.E.2d 1089 (Ill. App. 1st Dist. 1988).

Wills, Trusts, and Estates – Part 2

Church Law and Tax 1989-03-01 Recent Developments Wills, Trusts, and Estates Richard R. Hammar, J.D.,

Church Law and Tax 1989-03-01 Recent Developments

Wills, Trusts, and Estates

A South Carolina court rejected a claim that an elderly decedent’s will, which left the bulk of her estate to the Lutheran Church in America (“LCA”), was the product of “undue influence” and accordingly invalid. The decedent executed her first will at the age of 78. This will left 10% of her estate to her local church, 40% to various relatives, and 50% to another charity. At the age of 87, the decedent began changing her will. The fourth and final amendment of her will, executed when she was 88 years old, placed the bulk of her estate in a charitable trust, the income from which was distributed to the LCA. The final will was challenged by a beneficiary whose share of the estate had been reduced. The beneficiary argued that the final will was invalid since it had been the product of undue influence. The court acknowledged that undue influence can invalidate a will, but it denied that the decedent’s final will had been the result of undue influence. The court observed that undue influence must be proven by the person challenging a will, and that it consists of “influence amounting to coercion destroying free agency on the part of the [decedent]” so that the will was the result of “force and fear.” The court, in rejecting the allegation of undue influence, observed that the final version of the decedent’s will had been executed “when she was in reasonably good health, and during her latter years [when] she continued to work in her yard, talk with her neighbors, do some cooking and go to a grocery store ….” In short, she still possessed sufficient independence and health to support the conclusion that “she was the ultimate decision maker.” Accordingly, the allegation of undue influence was rejected and the validity of the will upheld. Many wills leaving substantial portions of estates to churches and other charities have been challenged by “disinherited heirs” on the basis of undue influence. Persons bringing such lawsuits often recognize that they have a weak case, but they sue anyway, hoping that the church will quickly “settle” with them in order to avoid the potential “adverse publicity” associated with such lawsuits (what church wants to be accused publicly of coercing elderly members into making gifts to the church). If your church receives a gift under a will that is challenged on the basis of undue influence, be sure to bear in mind a couple of considerations. First, undue influence usually is very difficult to prove, particulary when the decedent was in reasonably good mental and physical health at the time the will was executed. Second, in many states, undue influence must be proven by “clear and convincing evidence”—a more difficult burden of proof than the ordinary “preponderance of the evidence” standard. A church that becomes aware that an elderly or infirm person is considering leaving a portion of his or her estate to the church can reduce the possibility of undue influence even further by ensuring that the person obtains the independent counsel of an attorney in drafting the will or trust. First Citizens Bank & Trust v. Inman, 370 S.E.2d 99 (S.C. App. 1988).

CourtĀ Invalidated a Gift to Charity in the Will of a Decedent on the Ground That it Had Been Made Within Six Months of Death

Many states have laws that invalidate gifts to charity contained in wills executed within a

Many states have laws that invalidate gifts to charity contained in wills executed within a prescribed period prior to a donor's death. Such laws, often referred to as "mortmain statutes," are designed to prevent "deathbed gifts" to churches.

One court has observed that such laws are designed to "prevent a testator during his last illness from being importuned or otherwise influenced, by hope of reward or fears of punishment in the hereafter, to leave his estate in whole or in part to charity or to the church."

A Florida state appeals court invalidated a gift to charity in the will of a decedent on the ground that it had been made within six months of death. A Florida statute (section 732.803 Florida Statutes) provides that an heir can contest such a gift, unless a prior will of the decedent (executed more than six months prior to his or her death) made a gift in substantially the same amount to the same charity.

Obviously, this problem can be avoided in most cases by encouraging church members to execute their estate plans during their most productive years.

Gorn v. Temple B'Nai Israel, 526 So.2d 118 (Fla. App. 2nd Dist. 1988)

Court Ruled Elderly Widow Was Not the Victim of “Undue Influence” in Executing Her Will

Courts occasionally invalidate wills found to have been the result of "undue influence." While charities

Courts occasionally invalidate wills found to have been the result of "undue influence." While charities ordinarily are the ones accused of exerting the undue influence in order to obtain testamentary gifts, they sometimes are themselves the victims of undue influence. Such was the case in a recent Minnesota lawsuit.

An elderly widow executed a will leaving most of her sizable estate to the Salvation Army and another church agency. Later, while in her mid-90's, she developed a relationship with a physician who showed a special interest in her. The two saw each other socially, and the widow viewed the relationship as romantic. The widow thereafter amended her will to leave her entire estate to a medical foundation.

Following her death, the church organizations objected to the admission of her will to probate, arguing that it was the result of undue influence by the physician. In rejecting this contention, the court observed that "undue influence must be shown by clear and convincing evidence. That evidence must go beyond suspicion and conjecture and must show that the influence was so dominant and controlling of the testator's mind that in making the will the testator ceased to act of his or her own free volition and became a mere puppet of the wielder of the influence."

The court pointed to six factors to be employed in determining whether or not undue influence has occurred: "(1) the opportunity to exercise an influence; (2) active participation in the preparation of the will by the party exercising the influence; (3) a confidential relationship between the will-maker and the party exercising the influence; (4) disinheritance of those who probably would have been remembered; (5) singularity of the will provisions; (6) exercise of influence or persuasion to make the will in question." Application of these factors, stated the court, could not result in a finding of undue influence. The widow was "an unusually alert, active and strong-willed person," and no evidence suggested that the physician was actively involved in the preparation of the new will. While there was no doubt that the widow had been influenced, there was insufficient proof that she had been unduly influenced. In re Estate of Overton, 417 N.W.2d 653 (Minn. App. 1988)

Court Invalidated Will That Left All of a Decedent’s Assets to a Cult Leader

An Arkansas appeals court invalidated a will that left all of a decedent's assets to

An Arkansas appeals court invalidated a will that left all of a decedent's assets to a cult leader.

The leader had convinced the decedent that he had supernatural powers, that he could transmigrate, did not have to eat or perform other bodily functions, and had the power to heal. He refrained from displaying his powers openly, however, because it would cause people to "focus on his miracles rather than upon his teachings."

The leader also warned the decedent that "bad things" would happen to her if she did not give more and more of her money to him. She began giving up to 75% of her earnings as a nurse to the leader, executed a will leaving her entire estate to him, and assigned several life insurance policies to him.

After her untimely death in an accident, a lawsuit was filed on behalf of her minor child seeking to invalidate the will and life insurance beneficiary designations on the basis of undue influence. The lawsuit alleged that the decedent had been so unduly influenced by the leader that her actions were not the product of her own free will and therefore should be invalidated.

The court agreed that the decedent had been unduly influenced by the cult leader, and accordingly invalidated the transfer of assets to him. It noted that the leader was a very skillful manipulator of emotionally immature and dependent persons, and that he "virtually enslaved" the decedent through manipulation of her mind and emotions. Carpenter v. Horace Mann Life Insurance Co., 730 S.W.2d 502 (Ark. App. 1987).

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