A recent article in the Wall Street Journal told the story of Melvin Simon, a mall magnate from the Midwest who in the last year of his life changed his $1 billion will to favor his second wife at the expense of his children from his first marriage.
In the process his hand was apparently guided to sign the documents. After his death the eldest daughter sued the second wife.
This doesn’t just happen to the rich and famous, but we only hear about it when there are large amounts of money at stake or big names involved. What should advisors know about such cases and what role can they play in preventing them?
Legally, what’s at stake is undue influence. Was Simon subject to undue influence from his second wife, while too frail or mentally incompetent to understand what was going on or did he want to make this last minute change?
There’s a fairly low bar to establishing “bare competency” on the part of the testator, said Tom Abendroth, an estates lawyer at Schiff Hardin in Chicago.
“A person can be suffering from forms of dementia or Alzheimer’s, but are signing in a lucid moment,” he said. “If the challenger can’t prove that they had no idea what they were doing, they would probably be found competent.”
Undue influence is an easier case to make for someone challenging the will, he said. For example, if the person benefiting from the change was instrumental in procuring it, the new will might be thrown out.
“People who are in a position of influence over the person’s caretaking, where the will changes in their favor, it’s going to smell fishy,” said David Handler, an estate attorney and partner at Kirkland & Ellis. “The change needs to be of their own free will or else any will that was signed by that person, or purported to be signed, is invalid. The hard part is the primary witness is dead. So you don’t know what conversation took place. This is why you have witnesses to wills.”
A classic element of procurement of procurement of the will by someone who stands to benefit from it “is the situation where the child takes the parent to the child’s lawyer or a new lawyer and says, ‘Mom needs a new will,’” Abendroth said . “That person presumably has benefited from the change and literally walked mom down the lawyer, who being new to the client won’t know something’s up.”
Such cases are often settled out of court. “Most often, you give them some amount of money to walk away, said Deborah Dunn, a partner at Kirkland & Ellis.”
She said sometimes the fight is really an emotional issue and the money doesn’t really matter. She cited a case where a brother and sister battled over a company held in trust.
“It was getting to the point where the only people who won were the lawyers,” Dunn said. “Sometimes they don’t care if they go broke trying to win.”
The best protection against such battles is a quarterly or annual meeting with the family and the family’s advisors, said Martin Shenkman of the eponymous firm in Paramus N.J. “That’s the least expensive way to do it,” he said.
He suggested the family meets once a year with the appropriate advisors, corporate and estate attorneys, accountants, insurance agents and financial planners to make sure everyone understands the game plan. Then if there’s a change, favoring one party, “there’s a group there witnessing it,” he said. “If they’re seeing that the testator is becoming more frail, perhaps it makes sense to re-sign another will in a month. Get daylight in there, make it known.” He points out that you don’t have to be wealthy to meet with your lawyer, attorney or accountant once a year and clean up any loose ends.
Advisors and estate attorneys who have had a longstanding relationship with clients can help if there’s a sudden will change toward the end of life as long as they know about it.
“If the client calls me and says I changed my mind and suddenly I want to do this, and I know that they are extremely elderly or dying, I would ask what’s going on,” said Abendroth. “I would want to sit down with them and would certainly refuse to do anything if it’s coming form another family member or someone from the family office who calls and says he wants to make the change. I don’t want to hear that indirectly. I want to look the client in the eye, any lawyer should rightly be suspicious.”
He added that the financial advisor may be the person who has the long-term relationship and can be a sounding board to the estates attorney and be the one to sit down with the client and explore the situation with a little more depth.