Capacity & Undue Influence

One of the biggest benefits of creating a revocable, living Trust is that it allows your successor Trustee to manage your affairs if you lose capacity.  Sounds good, but who decides when your capacity is kaput?

That will be the question for the Court to decide on Monday, July 7th when a Los Angeles County Superior Court judge will decide if Shelly Sterling has the right to act as sole Trustee.

Mr. Sterling’s problem comes from the family Trust he and his wife created to hold their interests in the Los Angeles Clippers Basketball franchise.  The Trust apparently has a provision common to nearly every revocable, living Trust that allows Mrs. Sterling to act as sole Trustee (meaning the sole Trust manager) if Donald Sterling is “incapacitated.”  Most Trusts provisions state that incapacity can be determined by the diagnosis of a single physician.  In Mr. Sterling’s case, he was evaluated by a neurologist who determined that he was suffering from mild cognitive impairment due to mild dementia (as reported in the media).  That was enough for the physician to declare Mr. Sterling incompetent to act as Co-Trustee.

If the physician’s diagnosis controls, then Mrs. Sterling, as sole Trustee, can sell the Clippers to whomever she likes.  If the physician’s diagnosis is refuted by a competing neurologist, then Mr. Sterling may still be able to act as Co-Trustee—and thereby block the Clippers sale.

It’s not everyday that a $2 billion transaction turns on a lowly Trust incapacity clause, but whether your estate is large or small, the issue is important to you.

So why have an incapacity clause in a Trust at all?  It is meant to prevent people from having to go to Court to declare a Trustee incapacitated.  And the only way to “safely” determine incapacity is to have a mental exam completed by a competent physician.  But that procedure has its problems and limitations—especially where the elder refuses to cooperate.  The problem with mild dementia is that people often won’t, or can’t, admit they have a problem.  That results in a dispute as to capacity.

The irony is that the Sterlings are now in Court over a provision designed to keep them out of court.

This is part four of a four part post discussing the newly created standard for proving undue influence directly in California Trust and Will contests.

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Effective January 1, 2014, the California Legislature has introduced a new standard for proving undue influence directly (found at Welfare and Institutions Code Section 15610.70; and made applicable to the Probate Code by Probate Code Section 86), and it consists of the following four factors:

  1. The vulnerability of the victim,
  2. The influencer’s apparent authority,
  3. The actions or tactics used by the influencer, and
  4. The equity of the result.

We covered vulnerability and apparent authority in my last posts.  Now let’s discuss the third factor—actions or tactics used by the influencer.

The Equity of the Result.  Equity simply means fairness.  In the undue influence context, equity means was the last Will or Trust a fair result?  The answer to that question can change depending on whom you ask.  The undue influencer will have a million reasons why the Will or Trust is fair; whereas the disinherited family members will disagree. 

But the law does not really care about unfair result per se.  In fact, Welfare and Institutions Code section 15610.70(b) specifically states “evidence of an inequitable result, without more, is not sufficient to prove undue influence.”  Wills and Trusts can be unfair—so says the law. 

As a factor of undue influence, however, an unfair result can establish proof of abusive behavior.  Specifically, evidence of equity for undue influence includes “economic consequences to the victim, any divergence from the victim’s prior intent or course of conduct or dealing, the relationship of the value conveyed to the value of any services or consideration received, or the appropriateness of the change in light of the length and nature of the relationship.”  See Welfare and Institutions Code section 15610.70(a)(4).

In other words, a short relationship with a part-time caregiver who ends up with the entire estate may be inequitable from an undue influence perspective.  But leaving an entire estate to the testator’s spouse of twenty years may not be inequitable, even if it disinherits children from a prior marriage.  It all depends on the facts and circumstances.

Some of the evidence we typically look for includes a divergence from long-standing prior estate plans, benefitting people who have not been around long or who did not do much for the victim, or below-market transaction with the victim prior to death.  Each of these situations evidences a highly inequitable result, and can be persuasive in proving undue influence in Court.

This is part three of a four part post discussing the newly created standard for proving undue influence directly in California Trust and Will contests.

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Effective January 1, 2014, the California Legislature has introduced a new standard for proving undue influence directly (found at Welfare and Institutions Code Section 15610.70; and made applicable to the Probate Code by Probate Code Section 86), and it consists of the following four factors:

  1. The vulnerability of the victim,
  2. The influencer’s apparent authority,
  3. The actions or tactics used by the influencer, and
  4. The equity of the result.

We covered vulnerability and apparent authority in my last posts.  Now let’s discuss the third factor—actions or tactics used by the influencer.

Actions or Tactics used by the Influencer.  How do undue influencers act?  Do they exert their abnormally strong influence out in the open for all to see?  Not usually.  In fact, the actions or tactics used by an undue influencer are so universally common that it represents one of the four factors for proving undue influence in California. 

Under 15610.70(a)(3), evidence of actions or tactics of the influencer include:

  1. Controlling necessaries of life, medication, the victim’s interactions with others, access to information, or sleep;
  2. Use of affection, intimidation, or coercion; and
  3. Initiation of changes in personal or property rights, use of haste or secrecy in effecting those changes, effecting changes at inappropriate times and places, and claims of expertise in effecting changes.

Sounds a bit like a day-time soap opera.  Unfortunately, this happens all too often in real life.  The common effect of each of these items is to control the victim, conceal the wrongdoing, and coerce the victim into signing documents favorable to the influencer (the three “c’s”: control, conceal, and coerce).  You do not need to prove all three of the items listed above, they simply provide an example of actions/tactics that come into play to prove undue influence has occurred.

The actions that are most troubling are (1) controlling necessaries of life and medication, and (2) using haste, secrecy, and initiating changes at inappropriate times.  Not only are these actions evidence of coercion, they can be downright dangerous to the victim—especially the medication issue.  For that reason, family members should be careful whenever these signs arise.  Oftentimes, people will tell me after the fact that they thought something may be wrong, but didn’t know what to do about it.  Simply put, take action if you think necessaries of life and medication are being manipulated. 

As for proving undue influence, the more actions and tactics you can prove, the more likely you will be in overturning a California Will or Trust based on undue influence.

This is part two of a four part post discussing the newly created standard for proving undue influence directly in California Trust and Will contests.

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Effective January 1, 2014, the California Legislature has introduced a new standard for proving undue influence directly (found at Welfare and Institutions Code Section 15610.70; and made applicable to the Probate Code by Probate Code Section 86), and it consists of the following four factors:

  1. The vulnerability of the victim,
  2. The influencer’s apparent authority,
  3. The actions or tactics used by the influencer, and
  4. The equity of the result.

We covered vulnerability in my last post.  Now let’s discuss the second factor—apparent authority.

Influencer’s Apparent Authority.  Under 15610.70(a)(2), “apparent authority” includes things like a fiduciary (i.e., trustee or agent), family member, care provider, health care professional, legal professional (uh oh), spiritual adviser, expert (not sure what type of expert, but an expert is stated), or “other qualification.”  Well that is a long list of people who could have apparent authority. 

This is not the first use of “apparent authority” in California law.  In fact, Civil Code section 1575 (dealing mainly with contracts) has defined undue influence for years as “the use, by one in whom a confidence is reposed by another, or who holds a real or apparent authority over him, of such confidence or authority for the purpose of obtain an unfair advantage over him….”  (See Civil Code section 1575(1)). 

But what is the statute really getting at here?  Keep in mind that the entire concept of undue influence is where the independent free will of the testator is diverted by extraordinary and abnormal pressure.  (See Estate of Sarabia (1990) 221 Cal. App. 3d 599).  Apparent authority, then, is a factor to determine whether or not the pressure was abnormal enough to divert a testator’s free will.  In other words, a trustee, an agent, a family member, a lawyer, a pastor—all have the ability (given their close relationship to the testator) to exert an abnormal amount of pressure.  And that is what this factor is looking at, what is the relationship between the testator and the wrongdoer?  And is it the type of relationship where an abnormal amount of pressure would not be hard to exert?

For example, if your lawyer tells you that you must do something (like leave your entire estate to your lawyer) you are going to do just that because everyone always listens to his or her lawyer…right?  Well, maybe not.  But if the other factors listed above are present (such as vulnerability of the victim, actions of the influencer, and equity of the result), then having a lawyer tell the testator they must leave their assets in a certain way could influence that person to follow the lawyers instruction over the independent free will of the testator.  The same applies to a family member, care giver, or pastor.  The apparent authority, or confidence, someone has over the victim, can cause an increase in the potential for abuse. 

Apparent authority is just one factor.  Being a fiduciary, agent, or lawyer, by itself, is not enough to establish undue influence.  But as a factor, it holds an important point in proving undue influence in court.  So if you are trying to overturn a California Trust and Will, start looking for apparent authority evidence.

How do you know when influence becomes undue?  People influence one another every day, it’s part of being social.  But when influence crosses the line it becomes undue and that can cause a California Will or Trust to be invalidated.

Fragile Eggs

The problem is articulating the undue influence standard.  In California, we have two ways of proving undue influence—directly and by shifting the burden of proof to the opposing party.  The burden shift approach has a nice, concise rule; you have to show (1) a confidential relationship, (2) procurement of the contested Will or Trust, and (3) undue benefit.  Proving undue influence without the burden shift, however, has been a bit more confusing.  That is, until now.

Effective January 1, 2014, the California Legislature has introduced a new standard for proving undue influence directly (found at Welfare and Institutions Code Section 15610.70; and made applicable to the Probate Code by Probate Code Section 86), and it consists of the following four factors:

  1. The vulnerability of the victim,
  2. The influencer’s apparent authority,
  3. The actions or tactics used by the influencer, and
  4. The equity of the result.

The statute specially states that an inequitable result, by itself, is not enough to establish undue influence (Welfare and Institutions Code section 15610.70(b)).  The statute also claims that it is not meant to replace existing law and authority on undue influence (Probate Code section 86).  But (and this is a big but) this new standard will go a long way in streamlining the use of undue influence in California Trust and Will cases even where the burden shift elements are not present.  In other words, the muddy mess of undue influence law just became much clearer. 

What do these four factors really mean in the real world?  Let’s figure that out.  In this post I will address the first factor, vulnerability of the victim.  I will cover the other three in subsequent posts.

Vulnerability of the victim.  Under 15610.70(a)(1), vulnerability includes “mental incapacity, illness, disability, injury, age, education, impaired cognitive function, emotional distress, isolation, or dependency, and whether the influencer knew or should have known of the alleged victim’s vulnerability.” 

In practice, dementia and Alzheimer’s disease are the most common mental conditions that create vulnerability.  And a well-trained medical expert can examine a decedent’s medical records and determine the level to which that person was susceptible to undue influence because the greater the mental impairment, the greater the vulnerability.

But the statute does not limit vulnerability to mental defects alone, which is an important point.  In other words, people can be susceptible to undue influence for any number of reasons even if they are not suffering from dementia.  The statute references illness, injury, education, emotional distress, and isolation as separate grounds on which a vulnerability claim can be based. 

In contrast, to prove a lack of capacity, the law mandates that you prove a mental defect is present (see Probate Code section 811).  Yet, the first factor of undue influence sidesteps this requirement—meaning that undue influence may be a more versatile claim to make than lack of capacity.  Undue influence may apply where there is no capacity problem at all.  But there still must be a vulnerability.  That means there must be some evidence present that demonstrates how and why the decedent was vulnerable to undue influence.

Since this statute is so new, we don’t have any appellate authority to further explain this factor.  But over time this factor holds a lot of promise for expanding the reach of undue influence claims in California.

If you went to the trouble to create a California estate plan that includes a revocable Trust, durable power of attorney for financial assets, and a healthcare directive, you probably have a capacity provision in each of these documents.  The capacity provision says that your successor Trustee or successor agent (under the durable power of attorney) will take over when you have lost your capacity.  When is that exactly?

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Do you have capacity now or later?

The problem with people who have lost their capacity to make decisions is that they don’t always (or ever) know it has occurred.  And they may not like people telling them they lost their capacity to make decisions.  So how do you determine if a parent or family member has wandered into incapacity—the type of incapacity that triggers a successor Trustee or agent to act?

Is there a Doctor in the house?

Most Trusts and durable powers of attorney have a clause that states how capacity is to be determined.  And most capacity clauses require a letter from a treating physician stating that the person in question has become incapacitated, or unable to make financial decisions. 

The problem, however, is that obtaining a doctor’s letter is not always feasible.  For one thing, you may have to ask for the letter in the presence of your parent or family member with the capacity problem, which might be uncomfortable if he or she insists on having capacity.  Or maybe you do not have access to a person’s physician.  Or maybe the physician states that he or she is not qualified to make a diagnosis on capacity—requiring a trip to a specialist in neuroscience or psychology. 

If you can’t beat ‘em, joint ‘em.

You have two options:

(1) have a conversation with your parent/family member to explain why a doctor’s letter is needed and how it will help them to properly manage their financial affairs, or

(2) avoid the capacity issue altogether and instead have the person resign as Trustee or add you on as a co-Trustee to help manage the Trust assets. 

Sometimes asking to be appointed a current co-Trustee is easier to discuss with a parent than telling him or her that they have lost their capacity (the difference between “Mom you’ve lost it” versus “Mom can I help you with paying your bills?”).

There is no easy way to make this transition, but the more open you can be about the various options you have, the better for everyone involved.

This is not a medical blog, but medicine and the law interact extensively when it comes to determining (or challenging) a person’s legal capacity.  To prove lack of capacity requires evidence of a mental defect, such as dementia or Alzheimer’s disease.  Alzheimer’s also plays a role in proving a weakness of mind—required for undue influence.

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The problem is that dementia and Alzheimer’s is often overlooked, misdiagnosed, or not diagnosed at all even though the conditions may be present.  For example, Alzheimer’s patients can go ten to fifteen years with the disease before showing any outward symptoms.  In part, a lack of diagnoses stems from the difficulty medical science has had determining when a person has Alzheimer’s disease.

In a recent report by CNN, as reported by Dr. Sanjay Gupta, detecting the presence of Alzheimer’s disease may be possible by looking into a person’s eyes.  Dr. Gupta explains that Alzheimer’s can be detected by sticky plagues in the brain made up of proteins called “beta amyloid.”  But these proteins are very difficult to detect in the brain without doing invasive surgery.  However, researchers now believe that the same proteins found in the brains of Alzhemer’s patients may also be present in the eyes—at the back of the retina.  They are now conducting a clinical trial to see if the eye test can identify patients who are starting to develop Alzheimer’s disease.

Better diagnoses means better understanding of the disease, and a chance to address the problem before it progresses.  For the legal community, earlier diagnosis provides a better (and more accurate) idea of when an elder becomes incapacitated or susceptible to undue influence because of a weakness of mind. 

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In California, proving a weakness of mind or lack of capacity requires medical evidence of a mental defect (see Probate Code Section 811).  We have come across many elders who are obviously susceptible to undue influence, yet they have no medical diagnosis of a mental defect.  As a result, their mental condition cannot be established in a Court proceeding.  By having a more accurate picture of a person’s mental capacity, the true state of their decision making abilities can be determined.  This can be a huge breakthrough to protecting elders and ensuring their true desires are reflected in their Trusts and Wills.

They say the eyes are the window to the soul, but they may also be the window to better mental health too.

(For more on signs of Alzheimer’s, see this CNN article: The 10 warning signs of Alzheimer’s.)

Lack of capacity is probably the most used concept in trying to overturn a California Will or Trust.  And while nearly ever Trust or Will contest lawsuit contains an undue influence allegation, undue influence is usually minimized or even ignored altogether at trial.  In this vide, Keith A. Davidson discusses how both concepts can be used to overturn a California Will or Trust.  For those viewing this blog by email subscription, you can click on the title for a link to the video.