Two Recent Decisions That Have Validated and Invalidated Inter Vivos Gifts

August 30, 2012

Gifting, a fundamental tool of estate planning, is often fodder for estate litigation. This blog post will address two decisions, in particular, respecting the validity of purported gifts that were the subject of motions for summary relief.

As discussed below, the court in In re Rella, NYLJ, Apr. 10, 2012 , at 22 (Sur. Ct. New York County)(Sur. Anderson) granted an application for partial summary judgment and recognized the validity of the alleged gift, while in In re Goodwin, NYLJ, Apr. 10, 2012, at 31 (Sur. Ct. Suffolk County)(Sur. Czygier), the court granted summary judgment finding the alleged gifts to be invalid, and directed the return of the assets to the decedent’s estate.

In re Rella was a contested accounting proceeding in which the executor moved for partial summary judgment dismissing the objections contesting a gift that was made to him several months before the decedent’s death.

The decedent died, testate, survived by 5 children. Her husband had predeceased her in 1992. Pursuant to the terms of her Will, the decedent divided her estate equally among four of her children, and named her fifth child, Gilbert, together with Gilbert’s daughter, who died during the pendency of the proceeding, as co-executors. Prior to her death, the decedent purportedly transferred to Gilbert her 50% interest in a real estate holding company, the sole asset of which was a business operated by Gilbert. The remaining 50% interest in the company had been purchased by Gilbert from her late father’s business partner.

The decedent’s transfer of her interest to Gilbert was implemented by her as a corporate officer pursuant to a donative plan crafted by her attorney. A gift tax return was filed in connection with the transaction.

The objectant maintained that the decedent lacked the capacity to effect the foregoing transfer, and that it was procured by undue influence. The court disagreed.

With respect to the issue of capacity, the court opined that the donee bears the burden of proving by clear and convincing evidence that the donor knowingly made a present transfer of property. This burden is buttressed by the presumption that every individual has capacity, and the law’s recognition that mere old age or even mental weakness is not necessarily inconsistent with a lack of capacity to transfer property.

Assessing the record within this context, the court found the deposition transcripts of three disinterested individuals reinforced the presumption of capacity. Notably, the testimony of the decedent’s internist of more than 15 years revealed that he had examined the decedent two days before the subject transfer, and had found the decedent to be alert and cogent. Additionally, the decedent’s attorney of more than 50 years, who had handled the transfer on her behalf, testified that he and the decedent’s accountant had met with the decedent to discuss the gifts for two hours, during which time the decedent stated that she had wanted to transfer the property for some time. Based upon this record, together with the presumption of capacity, the court concluded that Gilbert had established a prima facie case that the decedent had the capacity to make the subject gift. On the other hand, the court noted that the objectants lacked personal knowledge of facts regarding the subject transfer. Moreover, the court found upon review of the objectants’ proof, that the objectants had failed to submit any evidence that would create a question of fact regarding the capacity of the decedent to make the subject transfer.

As for the issue of undue influence, the court found that Gilbert had established prima facie that the decedent had made the transfer in issue freely and voluntarily. The court rejected objectants’ claims that a confidential relationship existed between Gilbert and the decedent, as well as objectants’ contention that an inference of undue influence arose by virtue of the fact that Gilbert was present for a part of the time that the decedent had discussed the subject gift with her attorney and accountant. Significantly, the court concluded that any inference of undue influence in this regard was countermanded by the fact that the professionals were the decedent’s long-time advisors. Indeed, the court found none of the indicia of undue influence present; there was no evidence that Gilbert had isolated the decedent from family and friends, nor was their proof that the decedent was so dependent upon Gilbert as to be subject to her control.

Accordingly, based on the totality of evidence, partial summary judgment was granted in the executor’s favor.

Before the court in In re Goodwin was a motion for summary judgment in a proceeding by the decedent’s son, pursuant to SCPA 2105, to discover and compel the turnover of property withheld by the decedent’s daughter, the executrix of the estate. In support of the application, the petitioner alleged that the executrix, while acting as the decedent’s attorney-in-fact, made certain transfers of the decedent’s money to various bank accounts held jointly between herself and the decedent in violation of her fiduciary duties. Notably, the subject powers of attorney were silent as to the gift-giving authority of the agent.

In opposition to the motion, the executrix alleged that the transfers in question were made in accordance with the decedent’s directives and in the decedent’s best interests. Although the executrix provided the court with a copy of the deed relative to this transfer, the court noted that the attorney who prepared the deed, a disinterested witness to the transaction, had failed to provide any information as to the circumstances surrounding the transfer. Further, the executrix alleged that the decedent was mentally capable of making decisions, and was generous with her assets, as reflected in the gifts she had made to the petitioner.

In reply, the petitioner claimed that the decedent suffered from dementia at the time the transfers were made, and submitted the decedent’s medical records in support. In addition, the petitioner submitted a copy of a Family Contract that revealed that the subject transfers were made in order to qualify the decedent for government programs, that the assets thereof were to be for the sole benefit of the decedent, and that the funds were to be distributed at her death pursuant to the terms of her will. The agreement was signed by the executrix.

The court opined that gifts and pre-death transfers made by an agent to herself as power of attorney generally carry with them a presumption of impropriety and self-dealing that can be overcome by a clear showing of intent on the part of the principal to make the gift. Further, any such gifts must be made subject to the principal’s best interests to carry out her “financial, estate or tax plans” (see Matter of Ferrara, 7 NY3d 244).

Based upon the record, the court concluded that the petitioner had made a prima facie case in favor of summary judgment. Specifically, the court relied on the presumption of impropriety surrounding the transfers, and the requirement that the transfers be proven in the decedent’s best interests. To this extent, the court noted that by signing the Family Contract, the executrix acknowledged that she would be receiving the decedent’s assets and that such assets were not to be distributed to anyone other than the decedent.

The court found that given the proof submitted, the executrix was the primary witness to the facts and circumstances surrounding the subject transfers and her testimony was barred by the Dead Man’s Statute. Significantly, the court noted that while it could consider evidence otherwise excludable by the Statute in opposition to the motion, the executrix had failed to offer any other corroborating support for her position. Accordingly, the court directed that the assets represented by the transfers in issue be restored to the estate.