The purpose of undue influence law is to protect testators’ donative intent from other people’s self-interested overreaching.1 But, as the Wisconsin Supreme Court has made clear, the law may be subject to overzealous application and should not be used to punish deserving beneficiaries merely because testators choose to disproportionately reward them for aid and comfort they provide near the end of life.2 If one wants to protect, not second guess, testators’ true wishes, then worthy beneficiaries must be insulated against unreasonable applications of undue-influence jurisprudence just as testators’ wealth must be shielded from inappropriate influence.
Of course, what constitutes the reasonable application of undue-influence law will necessarily vary from case to case. This article argues that certain features of Wisconsin statutory and common law – specifically the dead man’s statute and the two-part test for undue influence – may sometimes thwart rather than advance testators’ true wishes, and that this problem is particularly acute in situations in which testators elect to use probate-avoidance instruments such as payable-on-death (P.O.D.) beneficiary-designation forms.3
A Familiar Device, an Unfamiliar Problem
Estate-planning attorneys are aware of practical challenges posed by the use of probate-avoidance instruments such as P.O.D. designations. Indeed, such attorneys commonly advise their clients to beware the use of such devices (the use of which, conversely, account custodians have been known to actively advocate) lest they effectively undo, with the stroke of a pen, a thoughtful estate plan that the testator and her attorney have carefully constructed over many hours – if not months and years.
But P.O.D. designations also can present other pitfalls with which attorneys might not be as familiar. One such danger is the increased likelihood of litigation and specifically of claims that the testator was unduly influenced in executing the P.O.D. designation; another is the potential that such litigation might in fact result in the operative instrument being effectively voided through application of the legal principles discussed in this article. In other words, testators’ use of P.O.D. designations has the potential not only to frustrate their estate plans as a whole but also to invite expensive, often acrimonious, litigation that might undo what the P.O.D. was meant to accomplish in the first place.4
This article alerts attorneys to other potential perils awaiting testators who elect to use P.O.D. designations in making arrangements for how their property should be distributed after their deaths. In addition, it proposes some simple (if imperfect) strategies by which attorneys might help their clients avoid these snares.
A Case Illustration
There do not appear to be any published Wisconsin decisions addressing the legal tensions highlighted in this article. Instead, appellate courts have typically emphasized the specific facts of the case under review, and their legal analyses have depended heavily on the outcome at the circuit court level. This is to be expected, because undue-influence claims require triers of fact to resolve significant factual questions, which reviewing courts are reluctant to disturb. Generally speaking, then, the appellate decisions tend to focus on why the law does not compel a different result than was reached by the factfinder – which in turn leads to a legal analysis supporting the victor in the court below.5
Because of the resulting lack of decisive authority, it is useful to consider an illustration, derived from an actual litigated case, in which the tensions between the principles of protecting worthy beneficiaries and preventing undue influence played out.
The case involved an elderly widow with a large estate. She had no children; her closest living relatives were her late husband’s cousins and their children. Pursuant to a series of wills and trusts modified slightly over the years, her estate plan made a number of relatively small specific bequests to her late husband’s relatives and others, with the substantial residue to be divided equally between several charitable organizations.
Then, several months before the testator’s death, one of her late husband’s relatives moved from out of state and began spending a great deal of time with the testator. In the last two months of the testator’s life, the relative was appointed agent for the testator’s durable power of attorney and was made a P.O.D. beneficiary of several of the testator’s bank and investment accounts that otherwise would have flowed through the estate to the ultimate benefit of the charities. The relative was closely involved in preparing the durable-power-of-attorney document and in procuring the P.O.D. designations.
The charities commenced litigation, asserting claims that the relative procured the P.O.D. designations through undue influence. The relative argued that, on the contrary, the P.O.D. designations amounted to spontaneous expressions of the testator’s gratitude for the attention she gave the testator in her last days. The case ultimately settled after extensive discovery and a substantial payment from the relative to the charities.
Conflicting Legal Tenets
As noted at the outset, undue-influence law is intended to protect testators’ wealth from individuals who try to insinuate themselves into donative decisions that ought to be made by the testator alone.6 However, in Estate of Sensenbrenner, the Wisconsin Supreme Court – citing the U.S. Supreme Court – cautioned against the overzealous application of undue-influence principles, lest the testator’s true intentions in fact be frustrated:
“Influence gained by kindness and affection will not be regarded as ‘undue’ if no imposition or fraud be practiced, even though it induced the testator to make an unequal and unjust disposition of his property in favor of those who have contributed to his comfort and ministered to his wants, if such disposition is voluntarily made. … It would be a great reproach to the law if, in its jealous watchfulness over the freedom of testamentary disposition, it should deprive age and infirmity of the kindly ministrations of affection, or of the power of rewarding those who bestow them.”7
As the Sensenbrenner court noted, “[t]here is nothing wrong with aiding and comforting a failing testator; indeed, such activity should be encouraged. The fact that the testator is wealthy should have no effect on this encouragement.”8
This is all reasonable in theory, of course. But given that disputes over what a testator actually intended nearly always take place after the testator’s death, Sensenbrenner’s focus on the testator’s intentions, and the reasons underlying those intentions, can become blurry in practice. How, after all, is one to accurately assess a testator’s true intent and underlying rationale when one can no longer ask the testator herself?
These assessments can be made only with the assistance of the testimony of other competent witnesses. And here is where the first potential problem arises: in Wisconsin’s definition of who is (or, more exactly, who is not) a competent witness.
The Dead Man’s Statute
Wisconsin Statutes section 885.16 – commonly called the “dead man’s statute” – renders a challenged beneficiary incompetent to testify regarding his or her “transactions or conversations” with the testator.9 Despite the periodic hand-wringing surrounding the persistence of the dead man’s statute,10 this application of it – to preclude the (generally disproportionate) beneficiary of a testator’s (typically sudden and late-in-life) largesse from “channeling” the testator from beyond the grave to offer unverifiable accounts of the testator’s donative rationale – would seem to be among the least controversial. In any event, the Wisconsin Legislature has declined to repeal the dead man’s statute despite the entreaties of courts and commentators, and the statute “remains in force” (although subject to various limitations imposed by disapproving courts).11
In the type of case in which the policies announced in the Sensenbrenner decision would be most acute – for instance, in which a lonely, ailing testator is given aid and comfort at the end of her life, which she understandably wishes to reward – the dead man’s statute ensures that there might be no one at all to testify about what the testator really wanted, or why, if she relied on P.O.D. designations.
In the above illustration, for example, the charities argued that the beneficiary relative was incompetent to testify regarding what she claimed the testator had said about why she was making the P.O.D. designations at issue. (Although the circuit court never had to rule on that issue, the case law seems to rather clearly support the charities’ argument.12) The only other witnesses to the P.O.D. designations were personnel at the respective banks and investment firms, and most had very little or no memory of the occasion and could say nothing about why the testator was making the changes. This meant a dearth of competent testimony to support the relative’s defense to the charities’ claim.
Of course, an absence of exculpatory evidence does not constitute inculpatory evidence, but that does not necessarily matter under Wisconsin’s undue-influence law.
The Two-Element Test for
Wisconsin law provides two means by which claimants can attempt to establish undue influence in the disposition of a testator’s assets: a two-element test and a four-element test.13 Claimants decide which test to use in presenting their case; often (although not always) they use both tests, in the alternative.14
The concerns raised in this article are demonstrated most clearly in the application of the two-element test. Indeed, the few facts set forth in the above illustration could by themselves provide sufficient grounds for a finding of two-element undue influence. Because the same cannot be said of the four-element test,15 this article’s purposes are best served by focusing on the two-element test.
The two-element test for undue influence requires the claimant to show only that a “confidential relationship” existed between the testator and the alleged influencer, and that “suspicious circumstances” surrounded the transfer at issue.16 If the claimant succeeds in establishing these elements, a presumption of undue influence arises, and the burden shifts to the alleged influencer to disprove the presumption.17 (Of course, this right of rebuttal is of limited use when there is no competent rebuttal evidence to offer as a result of operation of the dead man’s statute.)
Courts have left the elements of the test somewhat ill-defined. This is perhaps of necessity, because what might constitute a confidential relationship and suspicious circumstances will vary from case to case. However, the lack of absolute clarity as to the meaning of these terms has the result of focusing the most scrutiny on individuals who provide aid and comfort to a lonely testator in her final days – again, precisely those individuals whom Sensenbrenner’s cautionary language is designed to protect.
Many times, an ailing testator in such a position will choose to appoint as her financial agent the person who is providing aid and comfort; in so doing, the testator has (doubtless unwittingly) satisfied the confidential relationship prong of the two-part undue-influence test as a matter of law.18 Even when no formal appointment is made, a confidential relationship may exist between a testator and a beneficiary – and the first prong of the two-element test thus satisfied – based precisely on the very services that might have prompted the testator to give disproportionately to the beneficiary in the first instance.19
Similarly, it is not difficult to envision a scenario in which a testator would enlist the caregiver’s assistance in procuring the estate-planning changes necessary to confer the intended reward. And, when a testator in this position makes the conscious choice to diminish the inheritances of other presumptive beneficiaries in favor of the caregiver, or to exclude them completely from her estate plan, it seems doubtful the testator would share her plans with the individuals or entities being disinherited. Nor, absent the involvement of an attorney in helping effectuate the changes, is there any reason to believe the testator would feel compelled to explain her actions to disinterested witnesses. Thus, when the disputed changes are effectuated by P.O.D. designation, the only people able to explain the testator’s true intent and motivations would often be the now-deceased testator and the incompetent beneficiary.
But solely this – the beneficiary’s participation in the testator’s plans to reward him for his devotion – could conceivably constitute the suspicious circumstances required by the second prong of the two-element undue-influence test. After all, the Freitag court recognized that “[p]roof of undue influence or fraud is rarely shown by direct proof – it is usually found as an inference from other facts generally circumstantial which may be sufficient to meet the required burden of proof.”20
In the above illustration, for example, the charities argued that the relative’s having moved from out of state only months before the testator’s death, coupled with the sudden changes in her longstanding estate plans effectuated by a series of P.O.D. designations the relative was closely involved in procuring, was sufficient to raise the inference of undue influence under Freitag.
This may conceivably be true even in cases involving facts less outwardly suspicious than those provided in the illustration. After all, suspicious circumstances are not easily susceptible to a precise definition; something that seems “suspicious” to one factfinder might not seem so to another. This characteristic makes it difficult for either side to obtain summary judgment, raising the specter of a protracted and costly legal battle.
Consider, for example, a much different scenario from the one presented in the above illustration. Imagine a wealthy testator whose husband has predeceased her but who has three surviving children. Her will has always provided for an equal division between the three children, but in the last years of her life one of the children begins helping the testator in ways the other two do not, including paying bills and performing other services as her mother’s financial agent.
In appreciation of this assistance, the testator decides to execute a P.O.D. designation on one of her many investment accounts – an account that otherwise would have been absorbed into her estate and been divided among her children equally – and so the account is transferred in its entirety to the one child to the exclusion of the others. The testator enlists the intended beneficiary’s help in procuring and executing the P.O.D. designation. She does not explain her motives to anyone else.
In some families, this would not raise an eyebrow. In others, though, harbored resentments or hurt feelings could lead to suspicion, and suspicion to litigation.
And because the beneficiary was acting as her mother’s financial agent, the first part of the two-part test for undue influence is satisfied as a matter of law.21 As to the second part of the two-part test, who is to say whether the circumstances surrounding the P.O.D. designation were suspicious? Not the beneficiary herself, certainly: she is incompetent to testify to her mother’s stated motives under the dead man’s statute; and because there is no one else to testify about the testator’s true intent, it appears likely this would be considered a question of fact for trial.
Strategies for Navigating P.O.D. Pitfalls
These concerns are far less likely to accompany estate-planning changes in which an attorney is involved, as a result of the precautions and formalities attorneys adhere to as a matter of course. Indeed, even when a testator chooses to amend her estate plan and leave her entire estate to a late-life caregiver, the circumstances of that change seem far less likely to be viewed as suspicious (at least in the eyes of the law) when the testator has fully explained the reasons for the change to competent legal counsel – who, not being subject to the dead man’s statute as the beneficiary would be, can convey the testator’s explanation to the court in any subsequent challenge. Perhaps more important, the attorney can convey this explanation to those contemplating an undue-influence challenge to begin with, potentially nipping it in the bud.
In short, absent sweeping changes to longstanding Wisconsin law – changes both unlikely and counterproductive22 – it would appear the best strategy attorneys can use to help clients avoid the P.O.D. problems raised in this article is the same strategy they are accustomed to using to help clients avoid other potential legal difficulties: carefully considered client communication.
As noted, attorneys advising clients in estate-planning matters already commonly caution against the injudicious use of P.O.D. designation forms and other such devices, warning that they have the very real power to undo the plan the attorney and client have so carefully devised. This article merely proposes that attorneys expand the discussion to include advising clients that these instruments have other drawbacks as well: namely, that they could prompt a contentious, expensive legal challenge, and that in the end they might not even succeed in accomplishing what the client wants them to accomplish.
Of course, P.O.D. designations can serve valid purposes. They are by and large convenient, inexpensive means of avoiding the time, cost, and formalities of probate, and of freeing up funds quickly to pay for the testator’s funeral expenses and other last needs. But if the client is contemplating making P.O.D. designations on sizeable accounts, and in derogation of the client’s general estate plan, attorneys should encourage the client to call to discuss the changes the client is thinking of making and why. They might also encourage the client to speak with other disinterested friends or relatives about the changes, in the event the attorney is no longer available to testify when and if the need arises.
Finally, attorneys should advise clients to carefully document the motives behind the change and to whom they have spoken about it, and to keep this information in a place where it will be easily found in the event of incapacitation or death. Even if not itself admissible in evidence, this documentation would provide the client’s beneficiary with leads for admissible testimony and perhaps give those investigating the circumstances surrounding the transfer in question a pragmatic sense that a claim for undue influence cannot be justified.
Consultations such as this would obviously help advance the Sensenbrenner policy of protecting failing testators’ legitimate desires to reward those who have been especially devoted to them in their old age. But they would also help protect the policies advanced by the two-element undue-influence test and the dead man’s statute: If, after all, a testator’s estate-planning attorney has carefully instructed her about the need for disinterested witnesses to P.O.D. designations, and yet the testator has failed entirely to arrange for such independent corroboration, that may itself constitute a suspicious circumstance (or might indicate the testator’s declining capacity or increasing susceptibility).
In other words, the absence of independent corroboration in the presence of careful counseling can serve as evidence supporting meritorious undue-influence claims. Thus with one consultation the attorney will have served her client twice: by helping her reward worthy beneficiaries without exposing them to litigation and by protecting her estate plan from those who would unduly influence her for their own gain.
The strategies proposed in this article are imperfect. Yet in the rare case in which the competing legal tenets discussed above collide, consultations such as those proposed might prove important pieces of evidence in protecting testators’ true intentions – whether those intentions are advanced or undermined by the P.O.D. designation being scrutinized.
1 See Estate of Steffke, 48 Wis. 2d 45, 50, 179 N.W.2d 846 (1970).
2 See Estate of Sensenbrenner, 89 Wis. 2d 677, 699, 278 N.W.2d 887 (1979).
3 P.O.D. designations – sometimes called transfer on death (or T.O.D.) designations – allow holders of banking and investment accounts to simply sign a form ordering that the account in question be transferred directly to the named beneficiary upon the holder’s death, without first going through probate. Although the concerns in this article apply to any donative device that does not typically entail the assistance of counsel or necessitate the presence of disinterested witnesses, this article will use the term “P.O.D. designations” to collectively refer to all such instruments.
4 This article uses the term “testator” for purposes of simplicity, presupposing a decedent who had a valid will but who made subsequent P.O.D. designations in derogation of that will. The concerns raised in the article apply equally to decedents who opt to use trusts instead and indeed even to individuals who die intestate. This article’s use of the term testator should not be read to suggest otherwise.
5 See, e.g., Estate of Dejmal, 95 Wis. 2d 141, 151, 289 N.W.2d 813 (1980) (holding, in the context of affirming a circuit court finding that a defendant had not been proven to have exercised undue influence, that factfinders’ determinations will be reversed only if they are “against the great weight and clear preponderance of the evidence”); Estate of Freitag, 9 Wis. 2d 315, 317-18, 101 N.W.2d 108 (1960) (holding, in the context of affirming a circuit court finding that a defendant had been proven to have exercised undue influence, that “[i]n undue influence cases the opinion and the findings of the trial court, its interpretation of the facts, and its determination of the credibility of the witnesses are of great importance on appeal”). While the analysis of undue-influence law in Dejmal could be read to favor defendants, the analysis in Freitag could be read to favor claimants. Again, though, this says less about how Wisconsin appellate courts would resolve the legal tensions addressed in this article than about the deference they give to findings of fact.
6 See Steffke, 48 Wis. 2d at 50.
7 Sensenbrenner, 89 Wis. 2d at 699 (quoting Mackall v. Mackall, 135 U.S. 167, 172 (1890)).
8 Id. at 698 (quoting Estate of McGonigal, 46 Wis. 2d 205, 214, 174 N.W.2d 256 (1970)).
9 Estate of Christen, 72 Wis. 2d 8, 11, 239 N.W.2d 528 (1976). (The application of the dead man’s statute in practice is far more nuanced than this and is beyond the scope of this article.)
10 See, e.g., Estate of Molnay, 46 Wis. 2d 450, 458-60, 175 N.W.2d 254 (1970); Gerczak v. Estate of Gerczak, 2005 WI App 168, ¶¶ 12-13, 285 Wis. 2d 397, 702 N.W.2d 72.
11 See Gerczak, 2005 WI App 168, ¶ 13, 285 Wis. 2d 397.
12 See Christen, 72 Wis. 2d 11 (“[t]he dead man’s statute renders a witness incompetent to testify on transactions or conversations with a deceased … when the witness is a party…”).
13 See Estate of Von Ruden, 55 Wis. 2d 365, 373, 198 N.W.2d 583 (1972).
14 See, e.g., id. at 373-74.
15 The four-element test requires a claimant to establish that the testator was susceptible to undue influence; that the alleged influencer had the opportunity to exercise undue influence; that the alleged influencer had a disposition to exercise undue influence; and that a coveted result was achieved. See id. The fact scenario presented above might at best help establish the second and fourth elements, meaning that substantial additional evidence would be needed to prevail under a four-element undue-influence theory.
16 See Estate of Malnar, 73 Wis. 2d 192, 202, 243 N.W.2d 435 (1976).
17 See id. at 205.
18 See Estate of Vorel, 105 Wis. 2d 112, 117, 312 N.W.2d 850 (Ct. App. 1981).
19 See, e.g., Malnar, 73 Wis. 2d at 203, in which the supreme court, in upholding a circuit court’s finding of undue influence, remarked on the following “factors indicat[ing] the presence of a confidential relationship”: “[The testator] relied heavily on [the beneficiary] for transportation, maintaining her household, assisting her in taking medication, making translations for her, and assisting her in financial matters.”
20 Freitag, 9 Wis. 2d at 322.
21 Vorel, 105 Wis. 2d at 117.
22 The legislature’s reluctance to abandon the dead man’s statute has been remarked on and it seems even more unlikely that the courts would ever agree to set aside decades of undue-influence precedent. Nor does this article propose that such a sweeping change is needed or even desirable. After all, while it is easy enough to say that deserving beneficiaries should be protected from dubious undue-influence litigation, to swing the pendulum too far would serve to insulate true influencers from meritorious litigation, thus frustrating in a different way what is again the whole purpose of undue influence law: to protect testators from those who would exploit them for their wealth. See Steffke, 48 Wis. 2d at 50.