Pennsylvania Fiduciary Litigation : Pennsylvania Trusts and Estates Lawyer & Expert Witness : Patti Spencer Law Firm : Fiduciary Litigation, Planning : Lancaster, Harrisburg, Philadelphia, Pennsylvania

In a decision filed April 17, 2008, the Pennsylvania Superior Court turned what we know about wills and joint property on its head.  In In re Estate of Amelia J. Piet, the court ruled that joint accounts did not pass to the surviving joint owner because the accounts were made joint after the execution of a will that would have provided a different disposition.

The concept of a 'convenience account' has long been part of the law of the Commonwealth.  20 Pa.C.S.A. §6304 of the Multiple Party Accounts Act provides:

"(a) Joint Account. - Any sum remaining on deposit at the death of a party to a joint account belongs to the surviving party or parties as against the estate of the decedent unless there is clear and convincing evidence of a different intent at the time the account is created."

The Allegheny County Orphan's Court, after hearing, found that for the accounts in question, there was no evidence to overcome the statute's presumption and that the accounts passed to the surviving joint owner.

The Superior Court said they would not "blindly adhere" to the section 6304(a) ownership presumption, because  the testamentary intent of the testator would be frustrated.    (In other words, they are  not going to follow the statute.)  The court held that the previously executed will "trumps" the joint registration of the bank accounts.   Have you ever heard of anything like that?

The court cited In re Estate of Novosielski (a troubling case in its own right - see an excellent discussion of Novosielski and of the Piet case by Attorney Thomas K. Johnson II in Dechert LLP's newsletter) to support its holding even though that case can be readily distinguished on its facts as pointed out in the dissenting opinion.

In a lone dissent, Judge Maureen Lally-Green says "It has been the law for centuries in the Commonwealth that regardless of what is devised in a will and to whom it is devised, a testator can gift away any or all assets during his or her lifetime as long as donative intent and delivery are present.  The gifting can occur in many forms from an outright inter vivos gift to a gift that occurs in a joint tenancy with rights of survivorship by the death of one joint tenant and the passing of the gift to the survivor.  All such gifts take effect outside of the estate that passes by will."

Further:  "I do not believe that the creation of a joint account with a right of survivorship alters the testamentary scheme.  Rather, such an account alters the amount of the estate,  The execution of a will does not prevent the testator from subsequently altering the amount in the estate as he or she sees fit. such as by the creation of a joint account or through inter vivos gifting."

What do we do now?

Does this mean that whenever we administer an estate we must determine when joint property is created and if it is after the last Will, we must seek to recover it for the estate?  Does the same thing apply to beneficiary designations? 

Here is the advice of Attorney Thomas K. Johnson II: 

"It seems likely that the Pennsylvania Supreme Court or the Legislature will have to address this issue in the near future.  For now, however, attorneys, financial institutions and joint account holders need to be aware that they may need to change their current practice to carefully document the creation of any joint account as consistent with a prior will or to anticipate the issue when drafting wills and address the issue of after-created joint accounts by expressly stating that such accounts may be created and are not inconsistent with the testator's wishes."

 Thank you to Lancaster Attorney Will Campbell for pointing out this very troubling decision.

 

 

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Growing Old and Issues of Diminished Capacity

The law assumes that adult individuals have mental capacity, that is, they are capable of making rational decisions on their own behalf. Note we say they are “capable” of making rational decisions. The law doesn’t expect or require that they actually make rational decisions. Competent individuals of all ages, old and young, have the right to make foolish, eccentric or idiosyncratic decisions. For better or worse, all of us are free to make bad decisions.

People Vary
A persons’s capacity may change from day to day (or even during the day), depending on the course of the illness, fatigue and the effects of medication. Some folks have good days and bad days. Some are more alert in the morning; some have their best time in the afternoon. Legal competency is not something that a person either has or doesn't have –it can be quite variable.

Standards Vary
Whether or not a person is legally competent depends on the purpose for which the capacity is being determined. The law provides a different standard of competency for 1) making contracts, 2) making wills, 3) having a guardian appointed, 4) and giving informed consent to medical treatment.
Whether or not a person is competent is a legal determination, not a medical one. Medical testimony is important, and is always sought by a court in making the determination of capacity. Since the law has many different defined standards depending on the action being taken, the determination of whether or not a person is competent to do a certain thing is always a legal decision.

Lowest Standard
What surprises most people is that the capacity to make a will, called testamentary capacity, is the lowest level of capacity in the law. All that is required is that the person making the will (1) understand in a general away, the nature of his property, (2) knows who are the “natural objects of his bounty,” that is, the persons who would normally be his heirs, and (3) must be able to comprehend that he or she is making a will.

A person who has had a stroke, or is diagnosed with Alzheimer’s disease, may still have sufficient capacity to make a will even though there is some impairment of speech, some impairment of thought processes, and/or some physical impairment. The fact that a client does not know the year or the name of the President does not necessarily mean that she can not make a will. Since signing a will does not require a great deal of capacity, the fact that the next day the person does not remember the signing of a will does not invalidate the will if he had the minimum required capacity the day before when he signed it.

Undue Influence
A related ground for invalidating a will is a claim that the will was signed by a testator acting under undue influence. Undue influence is the use of coercion to force a testator to make a will. The legal definition requires that the testator’s desires be replaced with the desires of another by pressure or threat. The testator is not incompetent, but the testator is left in the position of feeling "I don't want to do this, but I must." Holding a gun to the testator’s head is clear undue influence. Telling Grandpa that you'd love to have him stay in your house and not go to a nursing home but only if he leaves you a certain something (like everything) in his will could be coercion.

Influencing a person to disinherit one person in favor of the person exerting influence is a classic case. A person can have testamentary capacity but be subject to undue influence. Many people in their terminal illnesses are unduly influenced to make wills in favor of their care giver. More than once a client has been brought to my office by a child requesting that a new will be made disinheriting other children. Is that the parents wish? Or the wish of the child who brought them to the lawyer?

Wills and Fraud
A competent testator can be defrauded. This can look like a capacity problem, but in fact is not. For instance, Son tells Grandpa (who is in the retirement home) that the nice lady who used to live next door to him has died, inducing Grandpa to give the share he was going to give to the nice lady to Son instead. Fraud can come in the commission as well. A child could put a document in front of Grandpa and tell Grandpa that it is the will he asked to have prepared for him which leaves his entire estate to charity. In fact, it is really a will containing quite different provisions, giving his property to the child. Of course, the child doesn’t tell him that. Grandpa can't read so well anymore and trusts his child, so he signs the will. Remember, no one has a right to inherit. Grandpa is entirely free to leave all his wealth to charity, or even to a stranger, so long as he has testamentary capacity and is not under undue influence.

Wills made as a result of fraud are invalid, but the fraud must be proven. The elements to be proven are: means, motive, opportunity and result. Someone must be proven to be in a position to be able to deceive the testator, have the opportunity to deceive the testator, the testator must have been deceived, and the deceiver or his benefactor must benefit from the will that was made, or not made, as a result of the deception.

Witness Credibility is Key
The determination of whether a client has testamentary capacity must be made by the attorney and the witnesses based on information learned in interactions with the client, from family, social workers, and, possibly medical professionals. Because you need a third party to assess capacity and because you need to be certain that the formal legal requirements are followed, it can be risky to prepare and execute legal documents on your own without representation by an attorney.

It is very difficult to overturn a properly made will on the basis of incapacity. The challenger to such a will usually was not present when the will was signed so the challenger can give no testimony about the testator’s capacity at the time the will was signed. Plus, the challenger must overcome the testimony of the attorney, witnesses and notary - not easy to do. Many attorneys, when expecting a challenge build a case by having extra witnesses and interviewing the client in the presence of the witnesses before the will is signed.

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We usually think of a person’s will as a financial document used to make sure his or her estate is distributed according to his or her wishes. The will can also be used as a constructive tool or a destructive weapon to reach other goals, which often do not involve money.

Eddy M. Elmer, in his article, “The Psychological Motives of the Last Will and Testament” describes the use of wills. Used positively, a will can be used to foster a sense of continuity for the survivors and to preserve family relationships. Used negatively, through imposed conditions, disinheritance, unequal treatment, and attaching “strings,” a will can be used to control from the grave and continue dysfunction in a family.

With the power to make a will comes the right to disinherit. By the common law, anyone may give his estate to a stranger, and thereby disinherit his heir apparent. In the words of Mr. Elmer, “disinheritance is one of the more vengeful goals of will-writing.”

Most states include protections for a surviving spouse so that the spouse cannot be completely disinherited, although in Pennsylvania, the spouse has a right to receive only one-third of the deceased spouse’s estate. In all the states except Louisiana, children can be disinherited.

When it is the intention of the person making the will to disinherit a child or someone who is an heir at law, it is important to make it clear that the omission of the person from the will is not a mistake or oversight. For this reason, sometimes wills provide “I give my son John $1.00.” Leaving someone a dollar is not intended to be a gift to them. It is a formal statement of disinheritance. Similarly, a will could provide “I leave nothing to my son John,” or “I am leaving nothing to my son John, for reasons known to both of us."

Questions can arise about these provisions. If John predeceases the parent who made the will, do John’s children inherit? Is the disinheritance of John to be assumed a disinheritance of his children also? The will must be drafted to make the answer to this question clear.

It is best not to give a reason for the disinheritance. If a reason is given, and it is proven to be a mistake of fact, then there could be a dispute about the validity of the disinheritance. For example, a will could provide “I give nothing to my son John because he is a convicted felon.” If John is not a convicted felon, is he still disinherited?

A writer of a will can also disinherit anyone who challenges the validity of the will in what is called an "in terrorem" clause. "I leave anyone who challenges this will or any part of it one dollar." Sometimes these clauses are called “no contest clauses.”

An in terrorem clause (pronounced (in tehr-roar-em) is from Latin for "in fear." It is any provision in a will which threatens that if anyone challenges the legality of the will or any part of it, then that person will be disinherited or given $1.00, instead of receiving his or her stated bequest in the will.

An in terrorem clause is intended to discourage beneficiaries from legal battles after the testator is deceased. However, if the will is challenged and found to be invalid (perhaps because of lack of capacity or undue influence), then the in terrorem clasue which was part of the failed will fails as well. Whether or not to challenge the will then becomes a calculated risk.

An in terrorem clause is not much help to disinherit a child or other beneficiary entirely. It is most useful when the child or other beneficiary receives something meaningful under the will, but just less than what he or she might feel entitled to. If you completely disinherit someone, and include an in terrorem clause in the will, there is not much of a threat. If the person you are concerned about challenging the will is not a beneficiary, he or she has nothing to forfeit (and nothing to “fear”). So an in terrorem clause would have no effect on him or her. For the clause to work, you have to leave enough to the disfavored beneficiary so that the beneficiary has too much to lose if the challenge fails.

In Pennsylvania, under the 1994 changes to the Probate Estates and Fiduciaries Code, “[a] provision in a will or trust purporting to penalize an interested person for contesting the will or trust or instituting other proceedings relating to the estate or trust is unenforceable if probable cause exists for instituting proceedings.” Probable cause, in general, is when a reasonable person, properly advised, would conclude that there is a substantial likelihood that the will contest will be successful. The policy behind allowing this probable cause exception is to ensure that a person is not intimidated into remaining silent out of fear of losing a bequest where there is a good faith belief that the will is invalid.

An in terrorem clause may be viewed favorably as a means of discouraging frivolous litigation. On the other hand, courts tend to construe the clauses strictly because their enforcement causes a complete forfeiture of the claimant’s interest, a harsh result. There are many court cases on what should be the fair boundaries of the power to condition a gift on not contesting a disposition. The law frowns on a provision which seeks to repress a search for the facts surrounding a disposition in a will. Florida and Indiana have statues that completely void the use of in terrorem clauses.

It is unhealthy for the living as well as the dead if we use our death as an occasion to get even and settle petty accounts -- with our own children, no less.

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