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Revocable Trusts and Undue Influence

Written by on May 29, 2009| Posted in: Trust Litigation

Court of Appeals Expands Reach of Genova

There is growing concern over our legislature’s inability to make laws protecting the elderly and vulnerable against having their revocable trust funds taken from them during their lives. This is a topic I have previously discussed. (See blog dated September 25, 2008, Undue Influence and Trust Revocation.) The problems addressed in my earlier blog articles arise from the Florida Supreme Court’s opinion issued twenty-five years ago in Florida National Bank of Palm Beach County v. Genova, 460 So. 2d 895 (Fla. 1984). As is evident from the Fourth District Court of Appeals ruling this week in MacIntyre v. Wedell, (Fla. 4th DCA, 08-754), 34 Fla.L.Weekly D1011a (May 20, 2009), Genova is alive and will remain so unless and until our elected officials decide to change the law.

Genova involved seventy-six year old Ann Cleary who married thirty-two year old Mark Genova. During the marriage, Cleary created a revocable trust, naming herself and Florida National Bank of Palm Beach County as co-trustees. About two years later, Cleary and Genova divorced. During the dissolution proceedings, the trial court set aside Cleary’s transfer of certain of her assets to Genova, finding the transfer was the result of undue influence. Several months after the divorce, Cleary and Genova remarried. Five days after the remarriage, Cleary wrote to the bank, indicating she wished to revoke her trust. Aware of the prior finding of undue influence, the bank refused to transfer the funds and, instead, filed a petition in the probate court, seeking instruction on how to proceed. Cleary filed a petition for writ of mandamus. The Florida Supreme Court explained that a revocable trust is “a unique type of transfer” and “[b]y definition, . . . , when a settlor sets up a revocable trust, he or she has the right to recall or end the trust at any time, and thereby regain absolute ownership of the trust property.” The settlor’s retention of control “distinguishes a revocable trust from the other types of conveyances in which the principle of undue influence is applied, i.e., gifts, deeds, wills, contracts, etc.” In one of the most-frequently quoted writings of the Florida Court, it wrote:

The courts have no place in trying to save persons such as Mrs. Genova, the otherwise competent settlor of a revocable trust, from what may or may not be her own imprudence with her own assets. When she created this trust, she provided a means to save herself from her own incompetence, and the courts can and should zealously protect her from her own mental incapacity. However, when she created this trust, she also reserved the absolute right to revoke if she were not incompetent. In order for this to remain a desirable feature of a trust instrument, the right to revoke should also be absolute.

While Genova established that a co-trustee could not seek to preclude the settlor from revoking her trust on the grounds of undue influence, MacIntyre v. Wedell raised the issue of whether the holding of Genova applied to preclude a post-death challenge by a trustee to a transfer of assets out of a revocable trust by a settlor during life that was allegedly procured by undue influence.

In MacIntyre, Helen M. Wedrall executed a revocable trust agreement transferring her assets to a revocable trust. Under the terms of Helen’s last will and testament, the residue of her estate would pour over into the trust. At the time of Wedrall’s death, the residue of Helen’s trust was to be equally divided among three of her sisters, Agnes Wedell, Dorothy Ziegler, and Liz MacIntyre. Following Helen’s death, Liz, as Trustee of the Helen M. Wedrall Trust, filed suit against one of the decedent’s sisters, Agnes, alleging that just weeks prior to her death Helen had placed her money into an account that was jointly titled in Anges’s and Helen’s names and that Helen had transferred cash and securities to Agnes. According to the allegations of the complaint, these transfers by Helen were made at a time when she was suffering from physical and mental ailments and were the product of Agnes’s undue influence over Helen. Agnes asked the Court to dismiss the action as a matter of law based upon the rule of Genova.

The Trustee argued that Genova did not bar the action since the settlor was deceased at the time of the challenge that was based on undue influence. The Fourth District was unimpressed and held, as a consequence of Genova, that even after the settlor’s death, the settlor’s revocation of her revocable trust during her lifetime is not subject to challenge on the ground that the revocation was the product of undue influence.

In my view, the Court failed to recognize that relevant facts surrounding undue influence cases frequently remain undetected until after the settlor’s death; thus it cannot and should not be regarded as a matter of law that transfers from a revocable trust during the settlor’s lifetime cannot be the result of undue influence. In other words, being alive and competent should not mean that one cannot be subject to undue influence. Based upon my experience and observations over the years, undue influence exists when someone is alive but has diminished mental capacity, diminished physical capacity or is dependent on another.

I believe that the logic of Genova is fundamentally unsound and thus the conclusion is incorrect. If a person is alive and incompetent (the requirement under Genova for undue influence), he cannot be subjected to undue influence because he lacks the ability to make rational decisions as a result of his mental incapacity. Undue influence requires that the free and voluntary act of the settlor be usurped by the wrongdoer. A person who is incompetent does not possess the ability to engage in a free and voluntary act and therefore cannot be unduly influenced. Furthermore, I believe that someone can be competent in the traditional sense but still be susceptible to undue influence. I see this most often in clients who are physically frail and rely on others to meet their day-to-day living needs. To conclude that because an elderly person knows what day of the week it is means he cannot be unduly influenced by someone upon whom he depends upon for food, personal hygiene, medical care and companionship is simply wrong. The threat of abandonment is a powerful one when a person is elderly, infirm and alone.

If the legislature fails to correct the mistaken rule of Genova, more and more families will be at risk of having elderly family members exploited by unscrupulous persons without an adequate remedy available in the Florida courts to address the injustice.

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