Posts Tagged ‘contract’

Estate Planning in Second-Marriage Situations Can Be Tricky


We frequently see clients in second (or even third or fourth) marriages, with children from prior relationships. When we discuss how their assets should be distributed, they can usually give us a quick summary. Their plans vary, but they often fit into one of these models:

  • Maybe the couple have kept their assets mostly separate, and on the first death they expect that the deceased spouse’s assets will pass to his or her children.
  • Sometimes they couple have commingled assets, and they intend to leave everything to the surviving spouse — with no restriction on how the survivor will handle the funds after the first death.
  • Perhaps the couple has commingled some assets and kept others separate, and they want the surviving spouse to have fairly free access to the combined assets during the rest of his or her life — with everything to go to some combination of both sets of children on the second death.
  • Once in a while (especially in long-term second marriages) the couple intends to leave the surviving spouse with almost unlimited access to all funds — but each wants to constrain the other to leave all remaining assets to both sets of children on the second death.

Sometimes grandchildren or others friends or family members fit into the couple’s plan, but some variation of these options is usually under consideration. Of course, one of the principal problems is that, while the couple may have thought about their simultaneous deaths, or deaths in fairly close order, they might not have given much thought to the possibility that the surviving spouse might live ten, or twenty, or thirty, years after the first spouse’s death. Family dynamics and relationships can change pretty dramatically in such a case.

That scenario was involved in a recent case out of Indiana. James and Fiona Masterson (not their real names) were married in 1998. James had a son from his first marriage (his first wife had died shortly before he and Fiona were married). Fiona had two children, but wanted instead to leave her portion of any estate to her granddaughter.

James and Fiona signed identical wills shortly after their marriage — and they also signed an agreement not to change those wills. The agreement provided that each promised “not to revoke or alter in any way, for any reason, his or her will executed  pursuant to this agreement.” Those were the wills in place when James died a decade later.

Under the terms of James’ will, everything passed to Fiona. Her will, in turn, left half of everything to James’ son David, and half to her own granddaughter Gillian.

Over the ensuing years, Fiona and her stepson David largely lost contact with one another. About two years after her husband’s death, Fiona signed a new will — this one left everything equally to her two children (disinheriting both David and Gillian). Then Fiona died in 2012.

Because they had lost touch, David did not even know that Fiona had died until months after the fact. Nor did he know that her son had introduced her new will to probate and was in the process of dividing her estate between her two children.

Within a few days of learning about Fiona’s death and the probate of her new will, he filed a claim against the estate and Fiona’s two children. They objected that the claim was untimely under state probate law, and that David should take nothing from the estate. The probate court agreed and dismissed David’s lawsuit.

The Indiana Supreme Court reversed that dismissal and sent the matter back for further hearings. According to the state’s high court decision, the question was whether Fiona’s children knew or should have known about the agreement not to change her earlier will. If they did know (or should have known), then they were required to give actual notice to David — which would excuse his late filing. Markey v. Markey, August 4, 2015.

The significance of James and Fiona’s story is less about the legal technicalities than about planning.
After all, contracts not to change a will are valid in most states (including Arizona, which has a statute detailing what such contracts should look like). Having such an agreement, however, often begs the question — how will it be enforced? What about lifetime gifts, or establishment of a living trust?

If the couple really did want to constrain the surviving spouse, how might they have done a better job? Typically, we counsel married couples that to control the ultimate disposition they really should be thinking about a trust arrangement, and name someone other than the surviving spouse as trustee (or name a co-trustee). This option is more cumbersome (and often more expensive) but will have a better chance of leading to the desired result.

We also counsel couples to try to imagine not only what the domestic situation might look like shortly after the death of one spouse, but also what it might look like a decade or two later. In James and Fiona’s situation, for instance, they might not have realistically considered the possibility that Fiona and David would have little contact in the two decades after James’ death. They apparently did not think about how Fiona’s relationship with her children and granddaughter might change during that time, either.

There is no easy answer to a problem that occurs with increasing frequency as familiar family relationships change over time. Clients must realistically review their wishes — as well as the strength of those wishes — and think about alternatives to accomplish shared goals.

Can a Person with Dementia Sign Legal Documents? (Part 2)

Last week we posed the question, and then mostly wrote about competence (or capacity) to sign a will. We promised to explain more about the level of competence required to sign other documents. So let us now tackle that concept.

A person with a diagnosis of dementia may well be able to sign legal documents, at least in Arizona. We suspect that the answer should be pretty much the same in other states, but if you are curious about your own state you should check with a local attorney about how competence is determined.

Generally speaking, competence or capacity is usually analyzed situationally. That is, the question will be answered differently depending on the nature of the document and the circumstances of the signing. The general rule: the signer has to have sufficient understanding to know what the document is, and the effect of the signing.

What kinds of documents might be involved? There are a variety of contexts in which capacity can be difficult to assess, including (but not limited to):

  • Ability to sign a contract — say to buy a car, or build a home.
  • Understanding of a power of attorney, which might give the authority to another person to sign future documents.
  • Competence to sign a trust, which might have elements of agency (like a power of attorney) and testamentary effect (like a will).
  • Capacity to get married (which is, after all, a specialized kind of contract).
  • Ability to make medical decisions — including refusing medication, or either seeking or declining mental health treatment.

Each of those situations, and the dozens of others that might arise, will be judged differently, because the nature and effect of the act will be different. But we can generalize about several of the important rules that cut across types of documents:

  • Minority is presumptive incapacity. That is, a person under age 18 does not have the legal ability to enter into a contract, get married, sign a trust (or will), or make medical decisions for themselves. There are, however, exceptions — a contract for “necessaries” (food, shelter, etc.) may be enforceable if signed by a minor. An “emancipated” minor may be able to do some things that an unemancipated minor can not.
  • It may not be necessary to have capacity to do the underlying thing before giving the authority to someone else. What? Let us explain: a person who might not have the capacity to enter into a complicated contract might still have sufficient capacity to sign a power of attorney giving someone else the power to sign the contract.
  • Arizona’s legislature has decided that the capacity level required to sign a trust should be the same as testamentary capacity, as we described last week. That may mean that someone who does not have sufficient capacity to sign a power of attorney could nonetheless sign a trust, which gives even broader authority to the trustee. Odd result, but mostly theoretical, as it’s hard to find someone in just that circumstance.
  • Generally speaking, most observers think that the capacity to sign a will is a lower level of competence than contractual or other forms of capacity. But it might not be that hard to describe someone who adequately understands the nature of a power of attorney but does not have an understanding at the level of testamentary capacity.
  • There are few legal ways to determine capacity in advance. Challenges to capacity are almost always initiated after the signing is completed — and often after the signer has died, or become completely and undeniably incompetent. That means that evidence of capacity (or lack of capacity) is often being reconstructed well after the fact.

It’s also important to remember that we are writing here about competence/capacity, and not necessarily about the validity of documents signed by someone with dementia. In response to our article last week, one reader wrote to us:

“You covered dementia issues very clearly. Thank you! But what about the issue of undue influence in the presence of known dementia where, in principle, the demented person otherwise possesses testamentary capacity? How does the mix of those two aspects play out?”

It’s a very good point. There is a difference between capacity (or competence) on the one hand, and undue influence on the other. Dementia might make a given signer incapable of signing a document, or their competence may be sufficient to sign. But that same person might be made more susceptible to undue influence because of their dementia.

What do we mean? Let’s give an example — drawn from our considerable experience with the distinction. An elderly widower, living alone, has a diagnosis of dementia. He is nonetheless charming, witty and perfectly able to discuss his wishes. He can recall the names of his three children, and of his seven grandchildren. He can report their ages, the cities they live in and their careers (or status as students) — and he is mostly correct, though sometimes his information is two or three years out of date.

This gentleman’s daughter lives in the same city, and is the one who oversees his living arrangements and care. She does his shopping, hires people to check on him daily, takes him to doctors’ appointments, writes out his checks (he still signs them) and otherwise helps out. She also talks to him endlessly about how his other two children don’t deserve to end up with his house and bank accounts, how she really ought to be the one who benefits from his estate, and how his late wife (her mother) always wanted her to inherit everything. Eventually he agrees to sign a new will and trust, mostly to stop her constant harangues.

Was he competent to sign the new estate planning documents? On the facts as we’ve given them here, probably yes. Was he unduly influenced? Very likely. Was that influence facilitated (and the proof made easier) because of his dementia? Absolutely.

When did the daughter’s behavior cross the line? The legal system isn’t actually very helpful, since the answer is defined in a circular fashion. Her influence was “undue” when it resulted in her wishes being substituted for his. It was not necessarily objectionable (at least not legally) when she told him what she wished he would do, what her mother had wanted, or what was fair. But at some point she may well have turned ordinary familial influence into “undue” influence.

We hope that helps explain this complicated and nuanced area of the law. But we want to leave you with a completely unrelated, but important, note: Kieran Hartley York joined the Fleming & Curti family (literally) on Sunday, March 3. We are delighted to have met the little guy, and look forward to great things from him in the future.

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