Cheryl Chapman Henderson, LLC

Baby Boomers Retiring at Alarming Rates…But Are They Ready?

“It is estimated that the Baby Boomer generation is entering retirement at a rate of approximately 10,000 people per day. That is a startling figure.”

Some Boomers are prepared for retirement, but others are not, says Moultrie News in the article titled “Securing retirement through engaging in business exit planning.”

Many soon-to-be retirees are closely-held business owners who have created and operated very successful businesses for years, but they’re now considering what their next move will be.

These people frequently have questions about transferring their interests to their children, key employees, or even selling to an outside third-party. They wonder what the company is worth and if they’ll be able to achieve financial independence. Another big issue is how to create a plan that keeps them in control and provides greater options.

Because the vast preponderance of closely-held business owners’ net worth (up to 85%) is wrapped up in their businesses, it’s vital that they start the exit planning process early.

Starting early, lets an owner consider and address critical planning needs.

Every successful exit begins with deciding when the owner wants to exit, to whom they wish to sell or transfer their business and how much equity they want or need from the business.

Your exit plan should address both personal and business asset protection, strategies for tax minimization and value maximization, successor development, business continuity planning, and estate planning.

Your exit plan is your blueprint that keeps you in control of the exit planning process.

Baby Boomers should carefully consider and integrate this into a comprehensive, tailored plan.

Planning for these important parts of your strategy today, helps make for a successful exit tomorrow. It also gives business owners more options and peace of mind.

Reference: Moultrie News (March 30, 2018) “Securing retirement through engaging in business exit planning”

California Real Estate Broker’s Children Sue on Living Trust

“The lack of a direct fiduciary duty to trust beneficiaries during the life of the settlor does not mean that a trustee is immune from reproach for his or her actions during this period.”

Mildred Vail was a successful California real estate broker who ran her own business and purchased various properties in her area over the years. She had four children—Steven, Michael, Jonatha, and Patricia.

Leagle.com recently published the case of “In re Mildred M. Vail Living Trust.” In this litigation, Mildred executed a Living Trust naming her four children as equal beneficiaries in 2003. The Trust instrument named Mildred as the "trust manager" and provided that her four children would become joint successor "Co-trust managers" in the event of her death, incapacity or resignation. It also gave Mildred the absolute power to revoke or amend the Trust during her lifetime and to add or remove property from the Trust at any time. Mildred placed several properties in the Trust.

In October 2004, before heart surgery, Mildred gave Steven her general durable power of attorney and a separate durable power of attorney "for banking and other financial institution transactions." In 2007, she revised her trust. She resigned as Trustee and named Steven as the "new trust manager."

In 2006, Steven led an effort to purchase and develop a property on behalf of the Trust. A family meeting was held to discuss the transaction. To obtain the money to buy the property, two Trust rental properties were sold, netting $466,000.

Mildred died on in 2011, at the age of 94. At that time, the four siblings, including Steven, behaved as though they had become successor co-Trust Managers. Steven later testified at his deposition that at the time of his mother's death, he hadn’t remembered her resignation as trust manager, but he later found the document making him the substitute trust manager.

Michael filed a petition to remove Steven as a co-trust manager, which alleged Steven was taking action without the consent of the other co-trust managers and refused to provide an accounting of his activities. In 2012, the court relieved all four siblings as co-trust managers and appointed Shelly Ocana as the interim trust manager.

Michael provided Ocana with a witnessed 2011 letter signed by Mildred that stated that Steven has been engaged in "rogue [activities]" and "secretive dealings" and was not authorized to act under her power of attorney. Ocana investigated the claims against Steven and ultimately sold the property at issue. The four siblings then entered into a settlement agreement providing for the distribution of Trust assets.

In 2015, Michael filed a suit accusing Steven of "numerous acts of injury to his mother and her trust involving elder abuse, conversion, breach of fiduciary duty, theft of trust assets, fraudulent transfer of assets, forgery, co-mingling trust assets, impersonating as trustee of the trust for personal gain, undue influence, conflict of interest, breach of trust, constructive trust for wrongfully retaining, secreting and/or appropriating trust assets and perjury." The trial court issued a statement of decision concluding that Steven had produced credible evidence that he had spent $71,000 for legitimate trust purposes.

The Court of Appeal of California reviewed Steven’s claim that the trial court applied the wrong legal standard, when determining whether he violated his duties as trustee.

Judge Henry E. Needham wrote the opinion of the Court and agreed with Steven that it was Mildred to whom he owed a fiduciary duty. “A revocable trust is a trust that the person who creates it, generally called the settlor, can revoke during the person's lifetime,” Needham explained. The beneficiaries' interest in the trust is contingent only, and the settlor can eliminate that interest at any time. When the trustee of a revocable trust is someone other than the settlor, that trustee owes a fiduciary duty to the settlor, the Court said—not to the beneficiaries, if the settlor is alive. During that time, the trustee needs to account to the settlor only and not also to the beneficiaries.

However, the judge did note that after the settlor's death, the beneficiaries have standing to assert a breach of the fiduciary duty the trustee owed to the settlor, to the extent that breach harmed the beneficiaries, and that the trustee's conduct can be attacked for fraud or bad faith. Therefore, Michael had standing to bring claims against Steven for his alleged breach of his duty to Mildred, while she was alive.

As a result, Judge Needham said he inferred that the court found Steven liable based on a breach of his duties to his mother as settlor of the Trust, which was supported by substantial evidence. The court found that Steven was not credible when he testified about expenditures for which he was claiming an offset, which included payments made on a property after it was sold, the down payment to purchase the same property, and the cost of building out his own office.

The judgment was affirmed.

Reference: Leagle.com (March 27, 2018) “In re Mildred M. Vail Living Trust”

Law Enforcement Focuses on Elderly Identity Theft

“An expert from the American Association of Retired Persons (AARP) Foundation noted that technology makes life much easier for scammers, as reported by USA Today.”

Security Intelligence noted in its recent article, “Law Enforcement Conducts Largest Coordinated Elder Identity Fraud Sweep in History,” that law enforcement recently conducted the largest ever coordinated sweep of identity fraud cases targeting the elderly.

The U.S. Department of Justice announced that more than 250 defendants have been charged in the sweep, 200 of whom have been charged criminally.

Some of the identity fraud campaigns included a common grandparent scam where seniors were contacted and informed that their grandchildren had been arrested and needed bail money. Other scams told seniors they’d won the lottery but needed to pay a large fee to get the winnings or that they owed back taxes to the IRS.

The Justice Department says that more than 1 million people collectively lost “hundreds of millions of dollars” through these scams.

While some identity fraud is conducted through traditional methods like the telephone, there are other ways of scamming the elderly. For instance, romance scams involve an attacker befriending a senior online and then asking for money to visit the U.S. or some other reason.

The phone-based scams can trap one senior at a time.  However, email and other online media streams let criminals tap into millions of potential victims at once.

The Federal Trade Commission (FTC)’s “Consumer Sentinel Network Data Book 2017” reported that identity fraud made up 14% of consumer complaints last year. That was second only to debt collection.

The FTC also showed that while scams against the elderly are a concern, younger citizens are equally at risk. Roughly 40% of millennials in their 20s said they lost money to fraud—compared to 18% of those over age 70. Nonetheless, seniors usually suffered higher median losses than other age groups, the report found.

In addition, while credit card scams involving new or existing accounts were among the major identity fraud issues highlighted in the FTC’s data, the report also referred to other modes of attack, including online shopping and payment account schemes, data theft via email and social media.

Reference: Security Intelligence (March 27, 2018) “Law Enforcement Conducts Largest Coordinated Elder Identity Fraud Sweep in History”

Washington Supreme Court Decides Court’s Authority to Intervene in Nonintervention Estates

“This case involves the issue of whether and to what extent superior courts have authority to intervene in the administration of nonintervention estates.”

The Washington Supreme Court recently held that a trial court could not construe the nonintervention will independently of the personal representative, because the Trust and Estate Dispute Resolution Act (TEDRA) or other state laws provided such authority.

In the case of “In re Estate of Rathbone,” Todd Rathbone was named personal representative of his mother's estate in her nonintervention will.

Nonintervention powers are the authority of a personal representative to make decisions and act to facilitate the settlement of an estate in a probate proceeding, without the need for approval from the probate court.

Glen Rathbone, Todd's brother and beneficiary of the will, took issue with Todd's administration of the estate and filed a petition requesting an accountancy. He then filed an action asking the trial court to construe the will in his favor. The trial court held it had the authority to construe the will under section 11.68.070 and, in the alternative, TEDRA itself gave the trial court authority to construe the will. The court ruled for Glen's version of the will and overrode the interpretation of Todd, the personal representative. The Court of Appeals affirmed, and Todd appealed.

Justice Johnson wrote in the decision of the Washington Supreme Court that, because the case involved a nonintervention will, respect for Ms. Rathbone's wish that a court not be involved in the administration of her estate had to frame the Court’s analysis.

Ms. Rathbone gave Todd nonintervention powers and authority to construe the will and resolve all matters pertaining to disputed issues or controverted claims.

The will provision also gave Todd the option to purchase a piece of property from her estate for $350,000. Todd exercised his option and paid $350,000 to the estate as the will instructed. The trial court found that Ms. Rathbone's intent was that Glen would receive the $350,000, if Todd elected to purchase the property and ordered Todd to construe the will in accordance with its findings, thus disagreeing with his construction of the will.

The issue was whether a statute establishes authority for a trial court to interpret a will's language overruling a personal representative's interpretation, as the trial court did in this case.

Justice Johnson wrote that generally, a superior court's authority when dealing with nonintervention wills is statutorily limited. Once a court declares a nonintervention estate solvent, the court doesn’t have a role in the administration of the estate except under narrow, statutorily created exceptions that give courts limited authority to intervene. The judge explained that the court can regain this limited authority, only if the executor or another person with statutorily conferred authority properly invokes it.

Section 11.68.070 plays a limited role in the estate administrative process. The Justice said that “it does not come into play, as in this case, until the estate administrative process is completed.”

Todd argued the authority the law gives a superior court is narrow and limited to allowing the court to approve fees and order an accounting. The Washington Supreme Court agreed.

Justice Johnson held that the facts of this case, the provisions of the will, and the nonintervention statutes support a narrow statutory interpretation. The Court found that the testator's intent here was expressly and clearly evident. The will gave Todd, the personal representative, nonintervention powers. The will also gave him authority to construe, if necessary, the provisions of the will.  The will expressed Ms. Rathbone’s intent that courts not be involved in the administration of her estate. The will directed that Todd's administration of the estate not be challenged, especially by Glen. The will also contained a disinheritance clause revoking any bequest granted to any challenger to Todd's administration decisions.

The Supreme Court found that the trial court's involvement, exercise of authority, and order construing the will violates much of the testator's expressed intent. As a result, the decision of the Washington Court of Appeals was reversed, the trial court's order construing the will was vacated, and the case was remanded with directions to dismiss. Todd was successful in the action.

Reference: Justia (Feb. 9, 2017) “In re Estate of Rathbone”

Is Your Retirement Plan Ready?

“Part of the value of developing a plan is the process that requires you to consider and answer crucial questions.”

Everyone should have a written retirement plan. It doesn’t have to be hundreds of pages long.  However, even a short document is helpful. Research shows that people who started with written plans were more satisfied in retirement than others. Most likely it’s because creating a plan makes you carefully think about key issues and have reasonable expectations.

Forbes recent article, “5 Key Retirement Questions You Need To Answer When You're 50 Or Older,” boils it all down to a few key ideas.

How long will retirement last? Your plan will be vastly different, if your life expectancy is 10 years than if it is 30 years. Most folks underestimate average life expectancy, and that can result in financial distress in the later years of retirement. Check online sources to determine the average life expectancy for your age group.

When will you be ready to retire? This answer frequently determines how satisfied you’ll be in retirement. Remember that your age shouldn’t determine your retirement date. It’s retirement readiness that counts.

What are you going to do in retirement? This also includes how you think you’ll spend your financial resources. Create a personalized spending estimate, based on your interests and planned activities. Decide the lifestyle you want in retirement and estimate the current costs. Most people spend less as they age, because they’re less active.  However, it might increase later in life because of medical and long-term care expenses. Add inflation into your estimates, because most of what you’ll spend money on in retirement will go up in price over time.

When will you be able to retire? Being able to retire means your income and assets are enough to let you to maintain the desired standard of living. Unfortunately, the retirement date isn’t always in your control, so add in a contingency that you might retire before you want, due to health or layoffs.

It is difficult to estimate medical expenses and long-term care in retirement. Many new retirees underestimate these costs and overestimate what Medicare and other government programs will pay. It’s wise to maximize insurance coverage. Sign up for a Medicare Advantage plan or join traditional Medicare and add a Medicare supplement (Medigap) plan and Part D prescription coverage. Your fixed monthly expenses will be more with the insurance premiums, but your potential maximum out-of-pocket expenses will be less.

How will you manage and spend your retirement savings? You better have an investment strategy and be ready to modify it as circumstances change. Over-spending in the early years of retirement can mean financial distress or major adjustments later in retirement. Develop a spending policy and revisit it each year, as market conditions and your spending change.

Reference: Forbes (April 3, 2018) “5 Key Retirement Questions You Need To Answer When You're 50 Or Older”

Bling from Zsa Zsa Gabor’s Estate Up for Auction

“Some 1,000 luxury items from the Hollywood mansion of 1950s Hungarian hottie Zsa Gabor will go on the auction block next month, including the gilt, four-poster bed she shared with husbands six through nine.”

The New York Post reports in its recent article, “Zsa Gabor estate auction includes bling, four-poster bed,” that rhinestone-beaded gowns, costume jewelry, feather boas, and gold-plated candelabras are up for auction from the estate of Zsa Gabor. She died in 2016 at age 99.

An estate sale, also known as a “tag sale” in some parts of the country, is used to liquidate the belongings of an estate.

The auction will include an English saddle that was given to Gabor by her friend Ronald Reagan and the dining table at which she entertained Frank Sinatra, Sammy Davis Jr. and Tony Curtis. Heritage Auctions will auction off everything at the mansion itself on April 14, but they’ll also take online bids.

“What I love most is the necklace that says ‘Dah-ling,’” in rhinestones, Margaret Barrett said of the goodies.

“It’s fun because that was her catchphrase,” she muses.

The California driver’s license that Zsa failed to produce during a 1989 traffic stop is also up for auction. She was convicted, if you recall, at age 72, of slapping a Los Angeles patrolman.

However, as the story says, even as she stumbled from her Rolls-Royce on that day—with a flask of Jack Daniels in the front seat—she looked marvelous.

“I don’t think she ever left the house, unless she was fully dolled up,” said Heritage Auctions consignment director Margaret Barrett.

“I would just call her classic Hollywood glamour,” she added of the famous-for-being-famous star.

“If you look at the evening gowns she wore on the red carpet, they all had huge bows and ruffles. More was more for her.”

Reference: New York Post (March 21, 2018) “Zsa Gabor estate auction includes bling, four-poster bed”

The Basics of Writing a Will

“No one likes to think about end-of-life issues. However, it's important for every adult to have a will, no matter their age.”

As most of us know, drafting a last will and testament is the first step in estate planning, which is the term for how you want your assets to be distributed after you pass away. If you don't have a will (intestacy), your estate will go into probate, and the probate judge will determine who gets your assets and even your personal items. If you have minor children and no will, a judge will also be involved in deciding who raises your children.

Health Day’s recent article, “Wills & Living Wills,” provides some general rules for writing a will:

• In most states, you must be 18 years of age or older.
• The testator (author) of the will must be of sound mind for the will to be valid.
• The document must clearly state that it’s your will.
• You must name an executor--that’s the individual who will see that your estate is distributed, according to your wishes.
• You must sign the will in the presence of at least two witnesses.
• In many instances, notarizing or recording your will is not required. However, it can protect against any claims that it's invalid.

Every state has its own set of rules. Not following those rules can create major costs, stress and even lead to loss of assets for your heirs. Speak with an experienced estate planning attorney to create a will. This is especially important when it comes to blended families. Working with a qualified estate planning lawyer will give you more peace of mind, especially if you have children and must name guardians to rear them.

You and your spouse should have separate wills.

You should also review your will regularly and consider making changes if:

• The value of your assets changes.
• You marry, divorce, remarry, or expand your family with another child.
• You move to a different state.
• Your executor passes away or becomes incapacitated, or your relationship changes.
• One of your heirs or a loved one dies.
• The probate and tax laws affecting your estate change.

It’s also important to draft an advance directive. This includes a living will with directions on what medical care you do or don't want, if you're unable to speak.

Reference: Health Day (March 21, 2018) “Wills & Living Wills”

Roth IRAs Still a Tax-Smart Retirement Savings Strategy

“Today’s federal income tax rates might be the lowest you’ll see for the rest of your life.”

Roth IRAs are still a wise retirement savings alternative for many people. MarketWatch explains in the recent article, “How the new tax law creates a ‘perfect storm’ for Roth IRA conversions,” that Roth IRAs have two big tax advantages: tax-free withdrawals and being exempt from required minimum distribution (RMD) rules.

Tax-Free Withdrawals. Unlike traditional IRA withdrawals, qualified Roth IRA withdrawals are federal-income-tax-free and most often state-income-tax-free. A qualified withdrawal is one taken after you, as the Roth account owner, have met both of the following requirements: (i) you’ve had at least one Roth IRA open for more than five years; and (ii) you’ve reached age 59½ or become disabled or dead. To satisfy the five-year requirement, the clock starts on the first day of the tax year for which you make your initial contribution to your first Roth account. That initial contribution can be a regular annual contribution or a conversion contribution.

RMD Exemption. Unlike a traditional IRA, you don’t have to start taking annual required minimum distributions (RMDs) from Roth accounts after reaching age 70½. Instead, you can leave your Roth account(s) untouched for as long as you live if you want. This makes your Roth IRA a great asset to leave to your family, if you don’t need the Roth money to help finance your retirement.

Annual Roth contributions make the most sense for those who think they’ll pay the same or higher tax rates during retirement. Higher future taxes can be avoided on Roth account earnings, because qualified Roth withdrawals are federal-income-tax-free (and typically not taxed at the state level). However, the downside is you don’t get a deduction for making Roth contributions.

Therefore, if you anticipate paying lower taxes in retirement, you might want to make deductible traditional IRA contributions (if your income allows). That’s because the current deductions may be worth more to you, than tax-free withdrawals down the road.

What is the other best-case scenario for annual Roth contributions? It is when you’ve maxed out on deductible retirement plan contributions. Annual contributions are limited, and earned income is required. The maximum you can contribute to a Roth for any tax year is the lesser of: (1) your earned income for the year; or (2) the annual contribution limit for the year. Earned income is wage and salary income (including bonuses), self-employment income, and alimony received that is included in your gross income (believe it or not). If you’re married, you can add your spouse’s earned income to the total. Remember, after reaching age 70½, you can still make annual Roth IRA contributions, provided there are no problems with the earned income limitation or the income-based phase-out rule. However, you can’t make any more contributions to traditional IRAs after you reach age 70½.

Roth conversions. The fastest way to get a significant sum into a Roth IRA is by converting a traditional IRA to a Roth. The conversion is treated as a taxable distribution from your traditional IRA, since you’re deemed to receive a payout from the traditional account. The money then is deposited into the new Roth. A conversion before year-end, will trigger a bigger income tax bill.  However, today’s federal income tax rates might be the lowest you’ll ever see. Therefore, if you convert now, you’ll pay today’s low tax rates on the extra income from the conversion and avoid the potential for higher future rates on all the post-conversion income that’ll be earned in your Roth account. Roth withdrawals taken after age 59½ are federal income tax-free, provided you’ve had at least one Roth account open for over five years.

Reference: MarketWatch (March 27, 2018) “How the new tax law creates a ‘perfect storm’ for Roth IRA conversions”

 

Survey Shows Gen X Americans Could Do More and Better Retirement Planning

“Here are three challenges that scare Gen Xers with advisors, a lot more than the ability to cover basic post-retirement expenses.”

Researchers at the Insured Retirement Institute (IRI) have found a possible Gen X knowledge gap in a recent online survey. The sample included 802 Gen Xers—Americans who are ages 36 to 55.

Think Advisor’s recent article, “These 3 Threats Scare Gen Xers More Than Basic Retirement Costs: IRI” explains that the survey aimed to find out how Gen Xers are handling retirement planning. The analysts who summarized Gen Xers’ approach to retirement planning said “They’re (mostly) doing it wrong.”

The results showed that only 20% of Gen Xers have talked to a financial advisor, that only one-third of Gen Xers have tried to figure out what they’d need to have saved to retire and that only 23% of the Gen Xers who have tried to save for retirement, have more than $250,000 in retirement savings. However, the research shows that roughly 58% of the Gen Xers are somewhat or very confident they will have enough cash to cover basic expenses in retirement.

The survey didn’t break down most of the results by income or asset level, but they did look at the use and lack of use of a financial professional. Participants with financial professionals might be the ones who have more overall financial flexibility, with 82% of the Gen Xers with financial advisors responding that they’d discussed retirement planning, and 61% said the advisors had discussed investing. Those discussions may have contributed to 87% of the Gen Xers with advisors saying they were confident about having enough income to cover their basic expenses in retirement. However, even the Gen Xers with advisors said they had grave doubts about their ability to handle other major financial challenges.

Here are some of the other findings:

1. Covering long-term care (LTC) costs. Just 63% of the Gen Xers with advisors said they were somewhat or very confident about having enough money to pay their long-term care expenses. It looks like advisors hadn’t done much to help Gen Xer clients with that concern. Only 9% had talked about planning for cognitive decline, like dementia or Alzheimer’s. Only 29% had talked to their clients about insurance.
2. Addressing parents’ LTC needs. A little over half of the Gen Xers with advisors said they were somewhat or very confident about being able to assist with their parents’ LTC bills. The survey didn’t ask Gen Xers how many had talked about that with their advisors.
3. Paying children’s college bills. Many experts in the field suggest that Gen Xers should prioritize their retirement planning and leave the children’s college bills second. However, Gen X parents say the money to put their children through college must come from somewhere. Only 51% of the Gen Xers with advisors said they were somewhat or very confident they’ll have enough money to defray their children’s higher education expenses.

Reference: Think Advisor (March 24, 2018) “These 3 Threats Scare Gen Xers More Than Basic Retirement Costs: IRI”

New Jersey Appellate Court Finds Undue Influence in Neighbor’s Financial Transactions for Elderly Man

“Our Supreme Court has ‘firmly established in our case law’ that a will may be set aside based upon a demonstration that it was procured through undue influence.”

    A New Jersey husband and wife, Frank Picciolo and Angelina Picciolo, appealed a 2013 probate judgment ordering them to disgorge all funds Angelina received from an annuity transfer that Frank completed while acting as attorney-in-fact for the late William C. Mallas, their next-door neighbor.

The Superior Court of New Jersey, Appellate Division recently decided this in the case captioned “In re Estate of Mallas.” Apparently, before his death, Mallas executed a power of attorney (POA) naming Frank as attorney-in-fact, a new will naming Angelina as a beneficiary and later, a codicil appointing Frank as executor.

Frank used the POA to transfer funds contained in a long-standing Bristol Myers Squibb IRA into two annuities, with the estate as beneficiary. Sometime later, Frank used his POA to transfer the annuities into one annuity with another company and designated Angelina as sole beneficiary.

The sales agent for the annuity transaction testified that Frank directed him to make Angelina, instead of himself, the primary beneficiary, because Frank had an IRS lien against him. The sales agent also testified that he met with Frank and Angelina on several occasions, but he never met with Mallas. When the agent requested to meet Mallas, Frank told the agent it "wouldn't be feasible to go meet him."

At his deposition, Frank testified that the annuity sales agent met with Mallas in his home. At trial, Frank changed his testimony and said he confused the sales agent with a bank employee who handled the elderly man’s accounts. At trial, Angelina admitted she "had very little contact with Mr. Mallas," and "never set foot in his house."

After Mallas died in 2010, Frank filed to probate the will and codicil. Two of Mallas’s nieces challenged the decedent's will, codicil, POA and the annuity transaction. The Chancery Division found that Mallas had the required capacity to execute each document and the benefit of independent counsel. The court upheld the POA, will, and codicil, but found that Frank "failed to prove . . . that no undue influence was exerted" upon Mallas regarding the purchase of an annuity, which designated Angelina as sole beneficiary. As a result, the court ordered Angelina to disgorge all related benefits and ordered the beneficiary changed to "the Estate of William Mallas."

The court also concluded that Frank "failed to properly account" for his actions using the POA. The court also removed him as executor because, "[a]s a result of this [c]ourt's decision, the Estate of William Mallas has substantial claims against him."

On appeal, in a per curiam opinion, Judges Reisner, Hoffman, and Mayer of the Superior Court of New Jersey, Appellate Division wrote that the concept of undue influence connotes "mental, moral, or physical exertion of a kind and quality that destroys the free will of the testator by preventing that person from following the dictates of his or her own mind as it relates to the disposition of assets . . . ." This is generally accomplished "by means of a will or inter vivos transfer in lieu thereof."

The challenger of a will typically maintains the burden of proof in showing undue influence, but the Court explained that the burden shifts when a beneficiary "stood in a confidential relationship to the testator and if there are additional 'suspicious' circumstances" present. A confidential relationship exists when "the testator, 'by reason of . . . weakness or dependence,' reposes trust in the particular beneficiary, or if the parties occupied a 'relation[ship] in which reliance [was] naturally inspired or in fact exist[ed].'"

The Appellate Division judges said that similar principles apply for setting aside inter vivos gifts and property transfers on the grounds of undue influence. To establish a presumption of undue influence and shift the burden of proof, a challenger must show either that "the donee dominated the will of the donor or . . . a confidential relationship exist[ed] between [the] donor and donee.”  However, here there’s no requirement that the challengers show suspicious circumstances to set them aside.

To rebut the presumption after the burden switches, the beneficiary must prove "not only that 'no deception was practiced therein, no undue influence used, and that all was fair, open and voluntary, but that it was well understood.'"

In this case, the Appellate Division found that the trial judge reasonably determined that a confidential relationship existed between Mallas and Frank and that as to the suspicious circumstances surrounding the execution of each of the challenged documents in the case, the judge concluded that Frank met his burden of proving there was no undue influence exerted by him in connection with the estate planning documents and beneficiary designations.

 However, with the annuity, the trial judge said that Frank and Angelina failed to carry their burden of proving the absence of undue influence. The appellate court said there was sufficient evidence in the record of the confidential relationship between Mallas and Frank and the highly suspicious circumstances surrounding the annuity transaction.  However, the record contained no credible evidence to rebut the presumption of undue influence, they said.

The Appellate Division found that the trial judge crafted an equitable remedy that accounted for the fact there was no credible evidence Mallas authorized the annuity transaction or intended to use that transaction to nullify the estate plan he established, with the benefit of counsel, in his will and codicil.

Reference: Superior Court of New Jersey, Appellate Division (March 6, 2018) “In re Estate of Mallas”