On May 1, 2006, the United States Supreme Court ruled in favor of Anna Nicole Smith—the famous stripper, Playboy pinup, and reality show star—in her ongoing legal battle with the son of her late husband, billionaire Howard Marshall. Although the decision concerns an arcane bankruptcy issue, the case more broadly illustrates, perhaps cartoonishly, the reasons why litigation over estates is increasing around the country, including New Hampshire.
In 1991, Howard met Anna Nicole at a club where she danced. Three years later, they were married, when he was 89 and she was 26. The marriage lasted fourteen months, ending with Howard's death in 1995. Howard, a lawyer and former Trusts and Estates professor at Yale Law School, never provided for her in a will or trust, but did make during his life gifts to her totaling more than $6 million. All of Howard's wealth was controlled by a trust he had created many years before that benefited Howard's son, Pierce. Anna Nicole challenged the estate plan and made claims that Pierce had interfered with Howard's intent to create a new trust for her. He sued her for defamation. The case has been fought in multiple jurisdictions and courts.
The lesson to be drawn from the case for anyone concerned with avoiding a fight over his or her estate is that family pathology is the best predictor of estate litigation. It does not take a psychiatrist to surmise how Pierce, much older than Anna Nicole, likely felt about her April – December coupling with his elderly father. The child vs. second (or third or fourth) wife scenario commonly plays itself out in estate litigation. This is not a sexist slur: men are more likely to have wealth; women tend to outlive men; and some men re-marry late in life (much) younger women who are then resented by the children. When dad dies leaving a second or third wife who is disliked by the children, litigation is likely.
Estate litigation is on the rise due to a variety of demographic factors: we live longer, we get divorced more, and we have more wealth. Although these societal changes have caused estate litigation to increase, it remains very difficult for someone to overturn a will or trust.
Wills and trusts generally can be challenged on three grounds: 1) lack of proper legal formalities; 2) lack of mental capacity; and 3) the exercise of undue influence by a third party. Rarely is there a basis for asserting that proper legal formalities have not been followed. Estate planning instruments prepared and signed under the supervision of counsel generally are not susceptible to challenge on this ground. Most cases turn on a combination of the other two grounds.
Mental capacity is almost always an issue in these cases. Under longstanding authority in this state dating back to 1866, a person has sufficient mental capacity to sign a will or trust if he or she:
- Understands the act of making a will a trust;
- Understands the extent and nature of his property;
- Knows who his or her relatives are; and
- Understands and desires the dispositional scheme set forth in the will or trust.
The standards for mental capacity, thus, are low. There is no requirement that the person be able to independently conduct his or her affairs, such as balance a checkbook, prepare a tax return, or drive a car. It is generally sufficient that he or she know and desire what the document provides, know who his or her children are, and what wealth he or she owns in general terms. Mental capacity is determined as of the time the document is signed. As long as the elements for capacity are proved to be present at that time, it does not matter that the person was mentally incompetent on other days.
Undue influence exists if the person signing the will or trust was so dominated by the influence of another that the document reflects the wishes of the third party, not the person who signed it. Only a mentally impaired person is likely to be so influenced. This does not mean that cases will not be decided on undue influence grounds; rather, mental capacity will always be a critical issue in these cases. Undue influence cases often involve claims that an in-home caregiver or child who was in effective control of the person's financial and other affairs caused a will or trust to be signed that benefited them to the exclusion of other family members.
If an estate plan is set aside, the prior will or trust is revived and controls. In some cases, multiple iterations of an estate plan signed over a period of years are challenged. If there is no prior instrument, the estate then passes in accordance with New Hampshire intestacy laws.
Ordinarily, a will or trust is challenged by an adult child who is unhappy with the provisions in the instrument. Adult children have no right to an inheritance. Generally, a parent may exclude them in the estate plan, although this may invite litigation. Plans which treat all children equally are rarely challenged. Sometimes, estate plans contain provisions that provide that, if a beneficiary challenges the instrument, he or she will lose whatever benefit is provided for. This forces a disgruntled beneficiary to make a cost/benefit analysis as to whether a challenge is worthwhile. Of course, if the child gets nothing under the plan, this can be an easy calculation.
The law allows wills and trusts to be challenged because there are instances where someone without sufficient capacity or under the domination of another signs an estate plan that dramatically alters a plan established years before when they were in control of their faculties and affairs. At least one court in the legal fight between Anna Nicole Smith and Pierce Marshall found that he wrongfully interfered with his father's intent to create a trust for her benefit. Although the case is about a failure to create a trust, rather than an effort to set one aside, it illustrates in graphic detail the predictive value of family dynamics for estate litigation. If your family is not harmonious and your plan favors a subsequent spouse over your children or favors some children over others, the likelihood of a fight among the heirs after your passing increases significantly. You would be well advised to work closely with your counsel to try to make your estate plan as bullet proof as possible.
Ralph F. Holmes co-chairs the Litigation Department of McLane, Graf, Raulerson & Middleton where he handles estate and other civil litigation. Ralph can be reached at 603-628-1409 or [email protected]. The McLane Law Firm is the largest full-service law firm in the State of New Hampshire, with offices in Concord, Manchester and Portsmouth.