Many individuals name beneficiaries to accounts, insurance policies, and real estate outside of a Last Will or trust. Upon death, ownership of these assets immediately belongs to the named beneficiary and not to beneficiaries named in a last will or trust. Funds, accounts, and investments with completed beneficiary designations are not subject to probate and are called “non-probate assets”.
Finding out that a decedent-owned asset(s) which will become exempt from probate because of a beneficiary designation or joint ownership is often shocking to beneficiaries named under a last will or trust. Disputes often result.
The types of legal claims made against individuals who receive non-probate assets as described above can be generally described as follows:
- “Suspicious Gifts” made by a person prior to his or her death, often to a stranger or to a person in a close relationship to the decedent;
- “The transfers of funds, change(s) made to ownership of assets and property, etc.” made by the Power of Attorney or legal representative who is not the owner;
- “Creation of Joint Accounts with right(s) of survivorship”; changes to beneficiary designations to life insurance policies, bank and savings accounts, CDs, bonds, IRA’s and other investments, etc., that transfer the full or partial value of the asset, investment to a person(s) not named in the Will or trust;
- “Tortious Interference with an expected Inheritance” claim when a logical beneficiary is excluded from receiving all or a portion of the estate or receives a disproportionately small inheritance.
Probate & Estate Litigation in New Jersey
Challenging Gifts Made Because of a Lack of Capacity, Financial Exploitation of an Older Individual
Challenging Gifts Made Part 2
How to Defend Yourself Against Claims that Gifts to You Were Made Without Mental Capacity
Gifts Made Prior to Death
The burden of proving that a gift made by a decedent prior to death was made because of fraud, duress, diminished mental capacity and/or undue influence falls upon the party disputing the lifetime gift. When an excluded beneficiary claims entitlement to this gift because of a verbal promise, or other action(s) taken by a decedent or incapacitated person prior to death, his or her proof(s) must be clear and convincing that the gift was on the “up and up” and was freely and voluntarily made.
A gift can be invalidated if a court finds that it was made because of the undue influence over the donor. If the party challenging the gift can show that the beneficiary and the maker of the gift shared a “confidential relationship”, or when the giver of the gift is/was dependent upon the recipient of the gift (donee) a legal presumption arises that the donor did not fully appreciate the consequence(s) of his or her action and the donee must show that the donor “had the benefit of competent and disinterested counsel.” Similarly, when a physically or mentally weakened person makes a gift to a person upon whom the donor depends for assistance, companionship, affection, mobility, etc., and is left without adequate means of support, the presumption of undue influence is conclusive. However, even if a person is not dependent upon the person to whom the gift was made, the validity of the gift is still questionable even though the relationship between the parties was/is “one of trust and confidence.” In general, the receiver of the pre-death gift has the burden to show by clear and convincing evidence that “no deception existed before or at the time the gift was made; no undue influence was used to cause the gift to be made; that all was fair, open and voluntary, and the consequences of making the gift were well understood by the donor.
Fred handled my probate matter aggressively and passionately when a close family member tried to “screw” me out of my rightful inheritance. From day 1 Fred was prepared to go to trial and as a result we settled the case on terms very favorable to me. I was very satisfied with his capable representation and I liked him a lot as a person.
– Alex Yudin – South River, NJ
Claims Against Beneficiary Designations to Joint Accounts, Life Insurance, IRA’s, and Other Investments
In general, under New Jersey law (you can Google N.J.S.A. Section 17:16 1-5), the funds held in a joint account, after the death of one of the co-owners, belong to the surviving owner, unless there is clear and convincing evidence of a different intent at the time the account was created by the deceased joint owner.
The creation of a joint account with a right of survivorship does not, by itself, constitute an irrevocable gift by the creator of the joint account to the other named party. Neither does the depositing of funds into a joint account by the creator while alive cause the funds of the account to automatically become the property of the survivor after death. A joint account with a right of survivorship is often created for the convenience of the account owner or in lieu of a written last Will, or as we say, a “poor man’s will”. Assets placed in accounts established for this purpose (convenience) remain the sole property of the depositor during life and become part of his or her estate. Joint accounts may also be set up for other purposes, such as the convenient management of the money in the event of the depositor’s death or incapacity or loss/reduction in mobility.
Thus, when an account or beneficiary designation is challenged, the analysis focuses “on whether the depositor’s intent in creating the joint account was to make an absolute gift of the account/asset proceeds upon death or solely to establish an inexpensive and simple vehicle for the transfer of the account to beneficiaries through his or her Last Will, Trust, etc. upon his or her death.
Did the Decedent Intend to Make a Gift?
To constitute a gift there must be an unequivocal intent by the maker of the gift to give a gift. This is called “donative intent”. Let’s use an example. The creation of a joint account, with a right of survivorship, in a bank or other financial institution, does not, by itself, constitute a gift by the creator of the account when he or she places another person’s name on the account. Instead the analysis “turns on whether the depositor’s intent in creating the account was to make a gift once the account was opened or solely to establish an account for convenience (allowing a trusted person to write checks and do the banking when necessary for the depositor). The most common situation is when a parent creates a joint checking account, savings account, brokerage account, or CD at the bank and names their power of attorney or a trusted family member (generally a child) as the joint account holder. Many times, a parent does this for convenience purposes so that the child, Power of Attorney (POA) can make deposits and withdrawal of funds as needed and for the benefit of the parent.
Gifts Made Just Prior to Death
A “gift” made just before death (commonly called a “death bed gift”) is a gift made by a dying person with the expectation of his or her imminent death. To constitute a death bed gift, the gift must satisfy the following conditions: 1) The gift must be made by the donor with actual or intuitive knowledge of the donor’s impending death; 2) the donor must die of the disorder, illness, disease contemplated; 3) the donor must be competent at the time of making the gift even while facing his/her imminent death; 4) the donor must have intended to make the gift; 5) the donor must make an actual delivery of the property/gift that is, unequivocal and complete during the donor’s lifetime and; 6) the donee must accept the gift.
All the above are important factors to keep in mind when contemplating a challenge to a gift made prior to death;
Gifts Between a Husband and Wife, Especially in Second+ Marriages
Gifts between spouses are common. Nonetheless, where a challenge arises, usually after the death of one of the spouses, the law requires clear and convincing evidence to establish the bona-fides of the gift between the spouses pre-death. In the case of real property, a transfer from spouse to spouse is presumed to be a gift. This is because most deeds are set up as tenancy by the entirety or joint tenants with a right of survivorship which automatically vests title in the survivor. However, the presumption is rebuttable. Second marriages and gifts excluding the children of first marriages are often the most difficult and complex cases to evaluate and litigate. When gifts between a husband and wife are challenged by a loved one who feels the surviving spouse exerted undue influence or manipulative means to cause the transfer by the deceased spouse, a real battle generally follows.
Gifts Between a Parent and Child Pre Death
Gifting between a parent and child is also common. But here again, the totality of the circumstances surrounding the gift must often be looked at when the gift is challenged to ensure the bona-fides surrounding the gift. Beware when there is a transfer of assets and or real estate between a parent and just one of the children to the exclusion of all the surviving biological children. Often it is done under questionable and/or suspicious circumstances and is subject to legal challenge. Also, beware of children who make transfers to themselves under a Power of Attorney given to them by a parent.
Transfers of Ownership to Life Insurance and Change of Beneficiary Designations to Life Insurance Policies
Under New Jersey law, the interest of a designated beneficiary to a life insurance policy has been held to be a vested property right. As such, the beneficiary’s interest as “the beneficiary” entitles him or her to the proceeds of the policy if he or she survives the insured. Entitlement to the death benefit can only be divested where there is a change of beneficiary designation accomplished under the terms and requirements of the life insurance contract. If a beneficiary is named as “irrevocable” within the policy, it is well settled under New Jersey insurance law that an “irrevocable beneficiary” cannot be divested of his or her right to the proceeds of the life insurance policy by the insured without the written consent of the beneficiary.
An assignment or change of ownership of an irrevocable policy without the consent of the beneficiary is ineffectual as to the beneficiary’s vested right to the proceeds of the death benefit if there was no reservation of the right to change the beneficiary in the executed life insurance contract.
Even if an insured owner of a policy reserves the right to change the policy, if a contractual agreement with respect to the policy has been made with the beneficiary it can be classified as an “irrevocable” beneficiary designation and defeat any subsequent change to the beneficiary designation.
Life Insurance Proceeds
Ownership of a life insurance policy and its death benefits or a change of beneficiary designation to receive death benefits may be challenged as a fraudulent gift. The burden to prove the transfer of ownership or change of beneficiary designation is upon the person claiming the legitimacy of the gift. Accordingly, the new owner or beneficiary must show by clear and convincing evidence an intent to designate the beneficiary as “irrevocable” such that the right to the proceeds of the life insurance policy vests in the beneficiary exclusively. Many attorneys and others neglect to carefully analyze the significant impact of a change of beneficiary designation to life insurance and other investments/assets. For all practical purposes it’s the beneficiary who gets the money in the end.
Gifts Between a Guardian and His or Her Ward
A very strong presumption exists against the validity of a gift made between a ward to his or her guardian. The burden is on the guardian to show the absence and a lack of undue influence, diminished capacity and other outside factors upon the maker of the gift. If a gift is contemplated to be made to the guardian it is strongly suggested that careful planning and proof of independent and voluntary decision making by the ward be established. Legal counsel is strongly advised. If you consider yourself to be the victim of a gift between a guardian and his or her ward that deprived you of the value of that gift, you should immediately contact us. Chances are we can successfully challenge it.
GIFTS BETWEEN A GUARDIAN AND CONSERVATOR OUTSIDE OF NEW JERSEY
Claims against guardians involving inappropriate behavior across state lines are becoming more and more frequent. To date, there is relatively little published case law about this topic in New Jersey. In a recent unpublished but still well publicized decision, children of an incapacitated parent suffering from Alzheimer’s pursued competing guardianship actions in New Jersey and Texas. The New Jersey Court ultimately concluded that it had primary jurisdiction over the case and ruled that the parent (mother) lacked legal and mental capacity and proceeded to set aside her recently revised estate plan.
Where someone has misappropriated assets, either directly, as a power of attorney, or through the misuse of jointly titled accounts, a guardianship proceeding can provide a legal means to recover the assets. Likewise, a guardianship action may also be instrumental in restoring the original beneficiary designations to the alleged incapacitated person’s financial accounts or otherwise return the situation to the prior status quo. In cases where a person has caused an alleged incapacitated person’s estate plan to be altered, a guardianship proceeding can be helpful in gathering evidence of undue influence and other legal courses of action to rectify the wrongdoing.
Besides the economic considerations involved when filing a contested guardianship, it may be equally necessary on an emergent basis, to take decisive protective action where there exists substantial elder abuse involving physical or psychological harm. In these types of cases, the alleged incapacitated person may or may not be able to acknowledge the abuse or is unable to stop the abuse without outside assistance.
Gifts between Powers of Attorney and Principals
In probate estate litigation and will contests, conflicts over a power of attorney most often arise in two scenarios. First, when the agent uses the power of attorney for an improper purpose or second, when the agent uses the power for his or her own benefit, such as for the transfer of the principal’s assets and/or real estate to himself or herself. The traditional rule in New Jersey is that a power of attorney document does not, in and of itself permit the agent to gift the principal’s assets to himself or herself or to others unless clear language exists authorizing the gifting.
The third common dispute over the use and validity of a power of attorney is when the individual who holds the power of attorney is attacked by third parties who claim that the principal lacked capacity and was subject to undue influence, duress, etc. when he or she gave the holder of the power of attorney a gift. In this type of dispute (which is usually the precursor to a Will contest) a battle between dueling power of attorneys occurs. One purported ower of attorney causes the principal to revoke the existing power of attorney, terminate the agent’s power and then arranges for the principal to execute a new power of attorney with him or her or as the agent. As a rule, a principal has an absolute power to revoke a power of attorney at any time, with or without reason and, with or without cause and thereby terminate the authority of the agent to represent him or her. This analysis becomes complicated, of course, when the capacity or free will of the principal is in doubt.
Then of course are the cases when a power of attorney is used after death. Here’s the law: A power of attorney is legally revoked and is no longer effective on the death of the principal.
But beware! N.J.S.A. Section 46:2B-8.5(a) states in part:
“The death of a principal who has executed a written power of attorney, durable or otherwise, does not revoke or terminate the agency as to the attorney-in-fact or other person who, without actual knowledge of the death of the principal, acts in good faith under the power. Any action so taken, unless otherwise invalid or unenforceable, binds the principal successors in interest.”
Notwithstanding the above, under all circumstances, an agent under a power of attorney may be required to give an accounting, to the principal or to the executor/administrator/trustee of the principal’s estate, after the principal has died, if cause exists or demand is made by a party interested in demanding such an accounting.
I covered a lot of information on this page. Do you think I’ve described your situation? Think you have a case or now must defend against claims made on this page? Then contact me today, toll-free at (855) 376-5291 or email me at email@example.com. We’ll go over all the facts to determine if legal action is in order and I’ll explain things to you in plain, simple English.
Written by Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a New Jersey Will Contest Probate Litigation Attorney