planning for elderly clients with competency and/or undue influence issues

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PLANNING FOR ELDERLY CLIENTS WITH COMPETENCY AND/OR UNDUE INFLUENCE ISSUES

Ivan Taback, Esq.

Proskauer Rose LLP

Eleven Times Square

New York, New York 10036

212.969.3662

[email protected]

Presentation to:Greater Boca Raton Estate Planning Council

January 22, 2013

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Ivan Taback

Ivan Taback is a Partner in the Personal Planning Department and a member of the Private Investment Funds Group. Ivan concentrates his legal practice in the fields of federal estate, gift and generation-skipping taxes, charitable trusts and estate and trust administration. His practice extends to matters involving all aspects of sophisticated planning and wealth preservation for families and individuals. He has extensive experience in the preparation and administration of wills and trusts, and the formation and reorganization of closely held corporations, partnerships and limited liability companies.

Ivan has counseled clients in connection with estate planning for private equity and hedge fund managers and is a well-known lecturer on this topic. He has substantial experience counseling clients on estate planning opportunities that arise in connection with the sale of privately held businesses.

In addition, Ivan has extensive experience with all types of life insurance planning, including split-dollar arrangements. He has prepared prenuptial and post-nuptial agreements, powers of attorney and health care proxies. Ivan has administered large and complex estates in New York, New Jersey, and Florida, as well as other states, and has handled numerous IRS estate tax audits. He also has been involved in many Surrogate's Court proceedings.

Ivan also advises individual and corporate fiduciaries in connection with the planning and administration of substantial and complex trusts and estates.

Ivan has co-authored numerous publications, including Starting a Limited Liability Company (published by John Wiley & Sons, Inc.) and several articles that have been published in the New York Law Journal and the New Jersey Law Journal, and has appeared on Bloomberg Television.

t:[email protected]

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Introduction

• America is aging.• America is aging and living longer than ever before. While this is

not earth-shattering news, it is interesting to note that there are 35 million Americans over age 65 of whom 4.6 million are over age 85 and 60,000 are over age 100. In addition, over 50% of women as well ass 30% of men who reach

65 will live until age 85.

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Introduction (cont.)

• With aging comes the possibility that clients may not be fully aware of what they are doing with respect to their respective estate plans.

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Introduction (cont.)

• Aging-related illnesses should send a warning flag to all estate planning practitioners, as, for a number of reasons, an elderly client is more likely than a younger client to be or become incapacitated for a number of reasons.

• As individuals age, physical and mental abilities "slow down," even lacking a specific illness such as dementia or delusion.

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Model Rules of Professional Conduct ("MRPC") Rule 1.14 – Client with Diminished Capacity

(a) When a client's capacity to make adequately considered decisions in connection with a representation is diminished, whether because of minority, mental impairment or for some other reason, the lawyer shall, as far as reasonably possible, maintain a normal client-lawyer relationship with the client.

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Model Rules of Professional Conduct ("MRPC") Rule 1.14 – Client with Diminished Capacity (cont.)

(b) When the lawyer reasonably believes that the client has diminished capacity, is at risk of substantial physical, financial or other harm unless action is taken and cannot adequately act in the client's own interest, the lawyer may take reasonably necessary protective action, including consulting with individuals or entities that have the ability to take action to protect the client and, in appropriate cases, seeking the appointment of a guardian ad litem, conservator or guardian.

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MRPC Rule 1.14 – Client with Diminished Capacity (cont.)

(c) Information relating to the representation of a client with diminished capacity is protected by Rule 1.6, entitled “Confidentiality of Information.” When taking protective action pursuant to paragraph (b), the lawyer is impliedly authorized under Rule 1.6(a) to reveal information about the client, but only to the extent reasonably necessary to protect the client's interests.

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• Comments (9) and (10) to Rule 1.14 advise as to those emergency situations where the lawyer may be required to provide emergency legal assistance and be unable to create an actual attorney-client relationship.

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• Comment (9) to Rule 1.14 provides that a lawyer may take legal action on behalf of such a person even though the person is unable to establish a client-lawyer relationship or to make or express considered judgments about the matter, when the person or another acting in good faith on that person's behalf has consulted with the lawyer.

• Comment (9) to Rule 1.14 further provides that even in such an emergency, however, the lawyer should not act unless the lawyer reasonably believes that the person has no other lawyer, agent or other representative available.

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Testamentary Capacity

The “Four Pronged Test”

An individual has "testamentary capacity" when he or she understands: The nature and extent of his/her property; The natural objects of his/her bounty; The disposition he/she wishes to

make of his/her estate; and The act of making a Will.

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Testamentary Capacity (cont.)

The law favors a finding of sufficient testamentary capacity; further,

testamentary capacity is the lowest level of capacity needed to act. • Pennsylvania - less capacity is required to make a valid will than

is required to transact ordinary business.• Florida - testamentary capacity has been found where the

testator may frequently be intoxicated, use narcotics, have an enfeebled mind, failing memory, or vacillating judgment.

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New York Surrogate’s Court Surrogate Preminger:

“It is hornbook law that less mental capacity is required to execute a will than any other legal instrument. The reasons for this lower standard stem from the concept of a will as the testator's last act, and from considerations of fairness which militate against depriving elderly or infirm testators of the right to dispose of their property.… Additionally a will is not the product of a bilateral transaction between putative antagonists and does not require the sharpness of mind of persons involved in business transactions.”

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• Even if an individual is adjudicated to be incapacitated, testamentary capacity may still be present as a result of a "lucid interval.”

• If a Will is executed during a lucid interval, it is valid despite evidence that the individual exhibited significant loss of mental capacity near the time of the execution of the Will.

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The “Insane Delusion”• Exists when a person persistently believes supposed facts that

have no real existence, and so believes such supposed facts against all evidence and probabilities and without any foundation or reason for the belief, and conducts himself as if such facts actually existed.

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Testamentary Capacity vs. Donative Capacity• States vary on whether "testamentary capacity" is the same as

"donative capacity," which is the capacity level required to make a gift.

• Some courts have characterized"donative capacity" as having alower or the same degree ofcapacity than "testamentarycapacity."

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Testamentary Capacity vs. Donative Capacity (cont.)• Other courts have held that donative capacity is similar to

contractual capacity (which requires that the person contracting bargain for and understand the consequences of his or her actions).

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Burden of Proof• In most states, presumption of testamentary capacity is met upon

proof that the Will has been executed in conformity with state law.• In most states, the burden for finding lack of testamentary

capacity is extremely high, as the burden for proving testamentarycapacity is the usual civil burden, which is carried by a fairpreponderance of the credible evidence.

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Undue Influence

• Black's Law Dictionary defines "undue influence" as "[c]oercion that destroys a testator's free will and substitutes another's objectives in its place.“

• Undue influence has been recognized as one of the most bothersome concepts in all the law, and to prove undue influence, the person seeking to set aside the transfer must show that the undue influence was enough to overpower the will of the grantor to the extent that he was prevented from voluntary action and was deprived of free agency.

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Undue Influence (cont.)

• "Undue Influence" as distinguished from "Testamentary Capacity”• Although diminished mental capacity may contribute to a person's

vulnerability to undue influence, the two are distinct, and cognitive assessments cannot identify the presence of undue influence.

• Generally, a document procured by "undue influence" will generally not deem the entire document void, but just the particular provisions procured by "undue influence"; lack of "testamentary capacity," however, renders the entire document void.

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• Typical circumstances providing an evidentiary basis for a finding of undue influence in the Will contest context

• If undue influence circumstances are present, specific factors that may support a finding of undue influence

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• Confidential Relationships The threshold issue of the existence of a confidential relationship is a

question of fact. In most states, the mere presence of a confidential relationship is not

enough to prove undue influence; for example, evidence showing only an opportunity to influence and a substantial benefit under the will does not show the exercise of undue influence.

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• Examples of Confidential Relationships include: Guardian and Ward Trustee and Beneficiary Agent and Principal Doctor and Patient Bank Employee and Bank Customer

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Husband and Wife• Generally, spousal relationships are not considered confidential

or fiduciary in nature for purposes of determining whether undue influence was exerted.

• Some states, such as Georgia, have determined that spousal relationships could raise a presumption of undue influence.

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Other Factors Include:• Knowledge of the contents of the Will by the influencer.• The execution of the Will being kept a secret from potential

challengers.• Old age of the donor.• Weak physical and mental health of the donor.• A beneficiary treating a new Will execution as an urgent matter.• A dramatic change in the testamentary disposition of assets.

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Burden of Proof• The burden of proving undue influence is on the objectant.

Shifting of the Burden• Some states, such as Florida, shift the burden to the proponent of

the Will to prove lack of undue influence such that if the defendant comes forward with no evidence to rebut this presumption, the challenge should prevail because the plaintiff, as a matter of law, has shifted the burden.

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Restatement (Third) of Property Approach

§ 8.3 Undue Influence, Duress, or Fraud

(a) A donative transfer is invalid to the extent that it was procured by undue influence, duress, or fraud.

(b) A donative transfer is procured by undue influence if the wrongdoer exerted such influence over the donor that it overcame the donor's free will and caused the donor to make a donative transfer that the donor would not otherwise have made.

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(c) A donative transfer is procured by duress if the wrong-doer threatened to perform or did perform a wrongful act that coerced the donor into making a donative transfer that the donor would not otherwise have made.

(d) A donative transfer is procured by fraud if the wrongdoer knowingly or recklessly made a false representation to the donor about a material fact that was intended to and did lead the donor to make a donative transfer that the donor would not otherwise have made.

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Diminished Capacity and Conflicts of Interest with Counsel Under Dispositive Instruments

• In some instances, elderly clients may feel such an affinity to their lawyer where they wish to benefit the lawyer or the lawyer’s causes in the testamentary documents.

• If the bequest is not present in prior documents, questions of undue influence and/or conflict of interest may arise.

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Diminished Capacity and Conflicts of Interest

Rule 1.8 Conflict Of Interest:

Current Clients: Specific Rules

(c) A lawyer shall not solicit any substantial gift from a client, including a testamentary gift, or prepare on behalf of a client an instrument giving the lawyer or a person related to the lawyer any substantial gift unless the lawyer or other recipient of the gift is related to the client. For purposes of this paragraph, related persons include a spouse, child, grandchild, parent, grandparent or other relative or individual with whom the lawyer or the client maintains a close, familial relationship.

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Diminished Capacity and Conflicts of Interest (cont.)

• Lawyers continue to ignore this conflict of interest despite the clear prohibition contained in the MRPC, the case law interpreting the MRPC, and clear state Code of Professional Conduct conflict of interest provisions imposing discipline or other sanctions (such as voiding the instrument) when a lawyer prepares a will or trust providing for a substantial gift or bequest to the lawyer.

• Unlike other conflict of interest provisions of the MRPC,Rule 1.8(c) is not subject to client waiver.

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Diminished Capacity and Conflicts of Interest with Counsel

• Texas Sec. 58b.• California Probate Division 11, Part 3.5.• Florida – Agee v. Brown and Proposed Fla. Stat. Sec. 732.806.

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Assessing Capacity

• Determining whether a client lacks sufficient legal capacity to perform particular acts, such as executing a Will or understanding its testamentary dispositions, is one of the estate planning practitioner's most difficult, and important, obligations.

• With respect to capacity, the key element is whether the client had capacity at the time of the execution of the document creating the transfer.

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Assessing Capacity (cont.)

• If capacity is in question, the attorney should consider performing several informal objective tests which can prove to be helpful.

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• Delusion

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• Types of Tests: Mini-Mental Status Exam ("MMSE"). Legal Capacity Questionnaire.

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• Other Warning Signs:

Depression.

Emotional Issues.

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Who is the Client

• Issues are presented if the Referring Party is a beneficiary who may receive a disproportionate share or if the client insists on having the Referring Party present for the meetings.

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Planning to Avoid Challenges

• Suggestions to elderly clients to improve client comprehension and eliciting exactly what the client wants.

• What to do if the client insists on the presence of a third person.

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Planning to Avoid Challenges (cont.)

• Solutions for “Who is the Client.”• In an ideal world, the probate litigator will advise the attorney as

to how best to prepare for a potential contested document.

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Planning to Avoid Challenges (cont.)

• When to take “Protective Action”: Example 1 – The Failing Client. Example 2 – The Naughty Housekeeper. Example 3 – The Fiduciary Conflict.

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PLANNING FOR ELDERLY CLIENTS WITH COMPETENCY AND/OR UNDUE INFLUENCE ISSUES

Ivan Taback, Esq.

Proskauer Rose LLP

Eleven Times Square

New York, New York 10036

212.969.3662

[email protected]

Presentation to:Greater Boca Raton Estate Planning Council

January 22, 2013

planning for elderly clients with competency and/or undue influence issues

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