Wills, Trusts and Mental Capacity – What’s All Involved?

July 9, 2009 | Erin Herbold

 

Revocable trusts can be used as a part of an effective estate plan. Most often, the trustee is the trust creator and may seek to amend or invalidate the trust during their life. However, a provision is usually included for a successor trustee to take over the trust administration in the event the trustee lacks the capacity. Here, a mother executed a will in 1999 that left her property in equal shares to her three children. Her daughter was appointed executor.  However, in 2002, one of her sons hired an attorney to create a revocable trust for his mother, appointing himself as successor trustee should his mother be unable to serve. The trust contained provisions that the son would receive the family farm upon his mother’s death and other provisions that altered the devises of the original will. The mother consented and the trust document was executed. Later, the mother signed an undated amendment which made the trust irrevocable. 

When the mother was moved to a nursing home, her physician noted that she suffered from mild dementia and recommended an examination by a physiologist. Upon his examination, the physiologist found that she did not have the ability to handle her own financial transactions and was at risk for exploitation. She was, however, able to identify her children, had an understanding of her assets, and had the ability to express her interests with respect to the trust- though she did not understand the technicalities in the document. When her son heard this news, he began assuming the role of trustee and took over her finances, including expending trust assets for his own legal fees that were not associated with the trust. The daughter then filed an action seeking involuntary guardianship of her mother and sought to have her mother removed as trustee, and an independent trustee appointed. Another amendment to the trust was executed during this time, naming a bank as trustee and changing the distribution provisions of the trust. Upon hearing this, the son transferred the farm to an LLC incorporated in Nevada with its managers being the son and his mother’s trust. In 2008, the mother sued seeking to quiet title to the farm. 

At trial, all of the suits were consolidated. The court appointed the daughter as guardian, found that the trust was a revocable trust and only the last trust amendment was validly executed, and removed the son as trustee. Further, the trial court found that the transfer of the farm to the LLC was null and void and quieted title to the property in the trust. 

The son only appealed the decisions regarding the trust, first asserting that the 2002 amendment to the trust was valid making it irrevocable, thus invalidating subsequent amendments. However, the court did not address this issue because it was not properly preserved for appeal- the son did not appropriately address this issue at trial. The son next claimed that the 2007 amendment could not be valid, because his mother was incompetent. However, the court said that the same level of competence required to execute a will is required to execute or amend a trust document. The court found that the mother, in 2007, did have testamentary capacity, because expert testimony showed that she knew and understood the document she was signing, the nature and extent of her property, the objects of her bounty, and the distribution she desired. Even though his mother needed a guardian to take care of her affairs, the test for a need for a guardianship is less strict and even though she needed a guardian she could still execute a will. Thus, the court agreed with all of the findings of the trial court and the son was basically shown the door. In re Guardianship of Driesen, No. 9-066/08-1311, 2009 Iowa App. LEXIS 458 (Iowa Ct. App., May 29, 2009).