When it comes to making or defending attacks on financial transfers on grounds of either undue influence and/or lack of transferor competence, most clients (and many lawyers) are often quite confused.  Because a person’s capacity is generally presumed, and because the standards for overcoming that presumption are sometimes exacting, many people incorrectly assume that a successful challenge is problematic.  But when the additional principles of undue influence, fiduciary duty, and even elder abuse are applied as part of an integrated strategy, the legal landscape and associated litigation risks can shift very dramatically for both those challenging and those defending.

1.                  Some Basic Principles of Competence Attacks

The law on competence issues is somewhat complex.  There is some authority to the effect that the test for attacking a will or a trust on capacity grounds is merely whether the donor at the time he/she signed the document understood the nature of the testamentary act, the nature of the property in question, and his/her relationship to the beneficiary.  Prob. Code § 6100.5(a).  But there is other authority suggesting that at least in situations where the instrument is highly complex, the standard for wills and trust is effectively the same as it is for individual contractual transfers that are governed by Prob. Code §§ 810-11.  See Anderson v. Hunt (2011) 196 Cal.App.4th 722.  Under that statutory scheme, if certain mental deficiencies significantly impair a person’s ability to plan or execute actions in one’s own rational self-interest, then contractual transfers may be voided.  These deficiencies include (a) incomplete orientations of time, place, person and situation; (b) short or long-term memory problems; and (c) an inability to reason logically.  While proof of isolated instances of forgetfulness is insufficient to meet the requirement, a chronic and progressive disease or senile dementia can give rise to the inference that capacity was lacking.  In all events, a litigant’s ability to void a contract is not dependent upon whether the beneficiaries knew of the incompetence.  Neale v. Sterling (1931) 117 Cal.App. 507-509.  In general, it seems that the more complex the will or trust is, the more likely the higher competence standards under Prob. Code §§ 810-11 will apply.

Another point of potential confusion is the effectiveness of “no contest” clauses in a will or a trust instrument.  They are often viewed as intimidating and draconian, but fairly recent California law restricts the enforceability of such disinheritance vehicles to those pursued without “probable cause.”  Prob. Code § 21310-11.  That term has been held to mean a “reasonable likelihood” that the requested relief will be granted.  Alvarez v. Superior Court (2007) 154 Cal.App.4th 642.

Next, since most capacity challenges attack transfers as voidable rather than void, conduct after execution of a contract can in some cases be argued as a basis for estoppel.  Dool v. First Natl. Bank (1930) 107 Cal.App. 585.  To illustrate one application of this, we recently handled a case in which an older woman’s signature to a real property sale contract was claimed by our opponents to be void because of alleged mental incapacity.  Other signatories to the contract later attempted to void it by suing in her name pursuant to a power of attorney that they had her execute months later.  We showed that the power of attorney was prepared by a lawyer they had hired to represent her who had asked his client a number of orientation and memory questions and apparently became satisfied that she had the capacity to sign the power of attorney.  We were therefore in a position to argue successfully that the parties challenging the contract on grounds of her incapacity had proven through their very own conduct, as well as the conduct of the lawyer they hired, that their relative did indeed have capacity to sign an important agreement.  Indeed, the very basis for their having legal standing to claim incapacity―the power of attorney giving them the authority to sue on her behalf to void the sale contract―would have been invalid if their incapacity contentions were correct.

2.                  Basic Principles of Undue Influence Attacks

Wills or contracts that are executed when the testator/donor is subject to the “undue influence” of another are voidable.  Civ. Code § 1575.  Undue influence is defined as taking an unfair advantage of another’s weakness of mind or, in a case of a person in whom confidence is reposed by another, when such confidence becomes used for the purpose of obtaining an unfair advantage.  Undue influence is generally established when the circumstances show undue pressure or other coercive acts that destroyed the signatory’s freedom of choice so that it can be fairly said that he or she was not expressing her own free will.

A number of courts have said that undue influence is normally established by circumstantial evidence, i.e., through inferences, because the exercise of undue influence normally takes place secretly behind closed doors and the decedent is physically or mentally no longer able to testify about it.  So, the absence of direct evidence of coercion such as a “smoking gun” memo is by no means conclusive.  Instead, susceptibility due to a deteriorated mental condition is important and a diagnosis of a progressive form of senile dementia such as Alzheimer’s Disease can create a strong inference that capacity is lacking.  See Estate of Callahan (1967) 67 C.2d 609; Estate of Fosselman (1957) 48 C.2d 179.

The existence of advanced dementia is important because of the need for a reliable memory in decision making.  Testifying medical experts often say that memory is a central feature of decision making since one cannot assess alternatives about a choice if one cannot remember one’s learning about them from past experiences or gathered information.  Consequently, if a person relies upon others for recollections of fact because he or she feels their own memory is untrustworthy, then someone else’s version of history becomes substituted for their own judgment and the result may be either a direct lack of competence or the absence of free will, or both.

The consequences of a successful challenge on undue influence grounds are very significant.  Under Prob. Code § 21351(d) if the contestant establishes that the instrument was the product of fraud, duress, menace or undue influence, then the defending beneficiary can bear costs of the proceeding, including attorney’s fees.  Furthermore, under Prob. Code § 859, damages can be doubled if bad faith is shown, creating a significant penalty that is designed to deter misconduct. 

3.                  Breach of Fiduciary Duty

It cannot be overemphasized that whereas the challenging party normally has the burden of proving undue influence, Prob. Code § 8252(a), a presumption of undue influence is triggered where there is a fiduciary duty, i.e., a confidential relationship of trust exists.  Estate of Rugani (1952) 108 Cal.App.2d 624.  The burden then shifts to the fiduciary.

Many observers are also confused by whether the presumption of competence conflicts with the presumption of undue influence when a fiduciary is involved.  But there is no real conflict because self-dealing by its very nature bypasses the presumption of competence simply because it doesn’t matter if a prospective donor is competent―he or she can still have their free will undermined, and they can still be betrayed by someone they trust.  For example, when the beneficiary of a will or the recipient of a transfer under a contract lives with the testator/donor, manages that person’s affairs, and regularly presents instruments for signature when the  person has a  history of illness and unclear thoughts, then a subversion of free will can be inferred.  Estate of Garibaldi (1961) 57 Cal.2d 108.

Prob. Code § 21350 goes even further in rendering unenforceable any transfers under a will or trust to a person drafting the donative instrument unless that person is related by blood or marriage to the donor.  This would apply, for example, to an attorney who drafts a will that benefits a law partner.  The will is void unless the beneficiary establishes by clear and convincing evidence that the transaction was free from undue influence, and one of the ways to establish that is a pre-execution review by an independent attorney who counsels the transferor about the nature and consequences of the transfer.  Prob. Code § 21351; Rice v. Clark (2002) 28 Cal.4th 89, 98.

Along the same lines, when there is a taking advantage of the weakness of another by isolating the person, as in, for example, discussing a transaction at an inappropriate place or time, emphasizing untoward consequences of delay, or excluding third party advisors, coercion can be implied.  Odorizzi v. Bloomfield Schl. Distr. (1966) 246 Cal.App.2d 123.

Finally, where the donor is over 65 years of age, attorney’s fees can be awarded to the attacking party if mental suffering is willfully caused (“elder abuse”).  Welf. Code § 15657.  And whereas most attacks occur in probate court before a judge because the person has died, if elder abuse is alleged then a jury trial is available and the vastly different dynamics in that forum can significantly alter the litigation risks.

4.                  One Basic Conclusion

The legal principles governing attacks upon donative instruments are somewhat complex but here is one basic conclusion.  While a one dimensional competence attack may face significant hurdles in terms of the standard for measuring a person’s ability to understand the serious nature of a will, when the transfer favors another person who enjoys a position of trust then the situation is virtually reversed.  The transferee then has a heavy burden of justifying the transaction and the consequences for the defending party are much greater.  Damages in an amount equal to two times the value of the transfer can be ordered, if the donor is over 65 the transferee may face a jury trial on elder abuse claims, attorney’s fees can be granted to the attacking party, and even  punitive damages can be awarded if the misconduct is sufficiently egregious. So it behooves parties on both sides of an attack to think through the appropriate strategy in depth and to consult with an experienced litigator to avoid either underestimating or overestimating the many risks.