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Monday, November 26, 2012

Scrooge In The Real World: Issues of Capacity, Testamentary Intent, and Probate Contests by Texas Guardianship Lawyer and Texas Inheritance Lawyer Jason S. Coomer

Scrooge In The Real World: Tales of The Spirit of Giving, Testamentary Intent, Capacity, Guardianships, and Gift Aftermath by Austin Texas Guardianship Lawyer and Texas Inheritance Lawyer Jason S. Coomer

Almost everyone is familiar with the Charles Dickens' classic, "A Christmas Carol" and the story of Ebenezer Scrooge.  In the story, Ebenezer Scrooge claims to have been visited by three ghosts and because of the ghostly visits changes his miserly tendencies through the spirit of Christmas to give away large amounts of money and assets.  These gifts are given to several people around him including Bob Cratchit whose family greatly benefits from this change of heart and change of character.

In the real world, stories of large gifts and testamentary bequests prompted by ghostly visits and fear often create issues of capacity, guardianships, testamentary intent, undue influence, fraud, and will contests.  In my probate and guardianship practice, I hear many stories of an elderly person's sudden change of heart and change of spending/gifting/bequesting tendencies.  More often than not, many of these stories begin with declining memory of an elderly person and the entrance of a caretaker, financial adviser, employee, friend, long lost relative, or new spouse into the person's life.   

What happens in the real world when the spirit of gifting allegedly takes over a person and they give large gifts to an employee, a caretaker, or strangers?  What happens after the gifts are given and the person no longer has money or assets?

Scrooge in Real Life: Proving the Gift or Bequest Was Not From Undue Influence or Incapacity

In the real world, the story of Scrooge and his sudden change of heart may be looked at a bit differently than in the Dicken's story.  This is especially true if large gifts are given to strangers, caretakers, or new people in the person's life.  In these situations, the large gifts and changes in testamentary disposition prompted by ghostly visits may be perceived very differently from the perspective of the person's spouse, children, heirs, and the court.   

If a person that has saved money and assets most of their life, suddenly believes they are speaking with and interacting with ghosts and then because of this belief they give away large gifts, many issues may be raised including: 1) When should someone step in to determine if this person has the capacity and/or the testamentary intent to give away a large portion of their money and assets?  2) Does the giver understand the consequences of their actions?  3) Is this gift or bequest the result of undue influence, fraud, or incapacity?  4) When should the gift be allowed to be completed and when should it not?

 Texas Undue Influence Contests and Fraud Lawsuits Are on The Rise

Under Texas law a growing number of "gifts" and testamentary bequests are being questioned and contested including many gifts and bequests to employees, caretakers, strangers, and some relatives.  In determining if the gift or bequest can be successfully contested, the court is going to look to see if the person had capacity to give the gift or testamentary intent to make a bequest, and if the person was under undue influence when making the gift or bequest.  These determinations are fact issues that will be case specific and be dependent on numerous factors including the nature of the gifts; the giver's understanding of the gift/bequest and their relationship to the recipient; whether there has been any fraud or duress in the inducement in obtaining the gift/bequest; and if the gift was the result of drugs, alcohol, dementia, or a psychotic break.

In the real world, the explanation of being visited by three ghosts would probably merit a psychological evaluation by a medical doctor.  It may also be the basis of a claim for fraud, duress and undue influence from the person's heirs and beneficiaries. 

Also, it should be kept in mind that in many situations where the giver is elderly and may be developing memory problems, it is common for the person to later forget about the gift or bequest.  As such, in some situations it may be a good idea to properly document the gift or bequest to ensure that it can be proven that the gift or bequest was not the result of incapacity or undue influence.  This can often be tricky as there may be disgruntled heirs that will later contest the gift or bequest regardless of the situation and the person receiving the gift may not be in the position to insist on proper documentation. However, consulting a lawyer regarding a large gift or bequest is typically a good idea.  In these situations, the lawyer will typically want to meet alone with the person giving the gift or bequest to ensure that the person has capacity and is not under undue influence.

Scrooge The Day After,  A Year After, and 5 Years After

In the story of Scrooge, we stop when he is still rich and in the process of giving.  However, what happens the day after, year after, or five years after the spirit of generosity has taken over?  For a lucky few they have so much money and wealth that it doesn't matter.  They can give away hundreds of thousands of dollars or millions of dollars and still not see a change in their lives.  However, for the majority people a year or two of giving can deplete their life savings.  

What happens to these people?  What if they have giver's remorse?  What if they need their wealth back for medical or nursing home care?

For some under, it might seem like a good idea to give away large gifts, especially, to avoid potential estate taxes or to be able to qualify for future Medicaid benefits and avoid having a nursing home drain all of a family's assets.  However, these issues must be considered carefully before anyone gives away their wealth and assets.  Being without sufficient assets in case of a serious medical problem can create serious problems for someone that has made large gifts in the last 5 years. Under the Medicaid look back period, there is a 5 year look back period to qualify.  If a person like Scrooge decides to give away their assets and then in a year or two requires nursing home or other health care benefits, they may regret the gifts.  In most of these situations where the person made large gifts and now cannot afford medical care and nursing home care, the person cannot qualify for Medicaid benefits until these "gifts" are paid back.  This creates a problem for the person that gave the gift and sometimes for the person that received the gift.  Trust, loyalty, and communication are keys in these situations.

Likewise, what happens when the person is attempting to take advantage of gifts to avoid estate taxes.  In these situations, the person gifting their assets will need to give up control of their assets to take advantage of the gift tax.  Whether through out and out gifts or irrevocable trusts, it is important for the person intending to give large gifts to understand once they give the gift it is gone.  They cannot take back the gift if circumstances change.

In most situations, it is important for the giver to understand the consequences of the gifts that they are giving especially if these assets may be needed in the future.

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