No. 5-360 / 04-1356Court of Appeals of Iowa.
Filed August 17, 2005
Appeal from the Iowa District Court for Lee County (North), John G. Linn, Judge.
Executor of estate appeals and inter vivos transfer recipient cross-appeals from district court ruling on executor’s petition to set aside decedent’s inter vivos transfers of assets.AFFIRMED.
Robert J. Reding of the Gary L. Hoyer Law Firm, Fort Madison, for appellant.
James F. Dennis, Keokuk, for appellee.
Heard by Vogel, P.J. and Miller and Hecht, JJ.
MILLER, J.
Annette Wharton, the executor of the estate of decedent Francis Wharton, appeals from the district court’s ruling on her petition to set aside transfers the decedent made to Deborah Wharton during his lifetime. Deborah Wharton cross-appeals. The district court set aside some, but not all, of the inter vivos transfers the decedent made to Deborah. On appeal Annette asserts all transfers should have been set aside. On cross-appeal Deborah asserts none of the transfers should have been set aside. We affirm the district court.
I. Background Facts and Proceedings.
Annette and Deborah Wharton are two of the six children of Francis and Delores Wharton, who divorced in the 1970s. After suffering a disability, Deborah moved into a mobile home owned by Delores and located on farm land owned by Francis. In lieu of rent, Deborah cleaned Francis’s home. Some time in the early 1990s Francis began having trouble with his finances. With Annette’s approval, Francis placed Deborah’s name on his checking account.
The parties agree that Francis appeared to be in good health and was mentally alert and very active until September 1995, when he suffered a fall at his home. While Francis was in the hospital, his attorney prepared a general power of attorney that appointed Deborah as attorney in fact. Deborah was not present during the execution of the power of attorney. Deborah used the power of attorney to complete a pending transaction, which Francis had negotiated prior to his hospitalization. This is the only time Deborah used the power of attorney to transfer any of Francis’s assets.
After he was discharged from the hospital, Francis needed a certain level of assistance. After a brief stay with Delores, Francis asked Deborah if he could move into the mobile home. Deborah was concerned that the condition of the mobile home would prove to be a problem, but Annette suggested the condition of the home could be improved, noting that if Francis could reside with Deborah, he would not be required to move into a nursing home.
The parties differ sharply about Francis’s condition from the time he was discharged from the hospital until his death in 2002. Both sides presented evidence, primarily witness testimony, to support their respective positions.
Annette asserted that Francis suffered a stroke in September 1995, and that thereafter he suffered from diminished mental capacity, and developed dementia. Annette further asserted that following Francis’s stroke he became heavily dependent upon Deborah, which gave rise to a relationship of trust and confidence. Annette contended that Deborah took advantage of the relationship and exercised undue influence over Francis, causing him to transfer money and property to her. Annette also contended Deborah used funds from the joint checking account to her own benefit.
According to Deborah, Francis suffered a series of small strokes in 1995, but remained mentally alert. She contended there was no confidential relationship between herself and Francis at any point prior to his death. While Deborah generally admitted to the transfers of assets, she denied they were a result of undue influence. Deborah contended that Francis paid her $1,000 per month, and gave her several gifts, in return for the care and services she provided, and that other funds were expended for the benefit of Francis.
Several assets were in issue. Relevant to this appeal are the following. Francis owned fifty-seven acres of farm land, which he conveyed to Deborah in December 1995. Deborah testified that Francis wished to convey the farm to her, provided Deborah allowed Francis to continue living with her. It is undisputed that Deborah took Francis to the office of his attorney. Francis and the attorney conferred in private. The attorney then brought Deborah into the office, told her to give Francis $2.00, then announced that Deborah owned the farm.
In 1996 Francis sold his house, and Francis and Delores sold a business they owned jointly. Both were arms-length transactions for fair market value. Deborah’s role in the transactions was limited. The contracts were prepared by Francis’s attorney, and Francis executed the necessary documents. The house was sold on contract, and the monthly payments were deposited into the checking account jointly held by Francis and Deborah.[1]
From the $12,000 Francis received from the sale of the business, $7,000 was deposited into the joint account, and $5,000 was gifted to Deborah directly.
In December 1998 Deborah made arrangements for Francis to redeem an investment account. The money paid over to Francis, $9,123, was deposited in an account over which Deborah had control.[2] In addition, Annette paid Francis $53,000, in repayment of a loan Francis had made to Annette in 1992. These funds were transferred to Deborah.[3]
The disputed funds were used for a variety of purposes. Deborah testified that a significant portion of the funds were used for Francis’s care. Deborah also testified that Francis agreed to pay her $1,000 per month in compensation for the care she was providing, and that funds from the joint account were used for that purpose. In addition, in 1999 Deborah used $5,390 from the joint account to purchase a new vehicle, which she asserted was necessary to transport Francis. Finally, when Deborah felt the condition of the mobile home was no longer acceptable,[4]
she used some of her own funds and some of the disputed funds — including the $7,000 from the sale of the business, the $5,000 gift, the $9,123 in redeemed investment account funds, and the $53,000 loan repayment from Annette — to build a new home for herself and Francis. Construction on the home began in October 1997, and was completed in late 1999.
The district court concluded that during 1995, 1996, and 1997 Francis’s mental condition had not deteriorated to the point that would be susceptible to any dominating influence Deborah might attempt to impose, and that he had not become dependent upon Deborah for advice and guidance. Accordingly, the court concluded that Annette had not demonstrated that a confidential relationship existed between Francis and Deborah during this time. The court further concluded that Annette failed to demonstrate the transfer of the farm should be set aside, or that the transfer and use of the proceeds from the sale of the two properties was improper or the result of undue influence.
However, the court determined that Francis’s mental condition did begin to significantly deteriorate in 1998, and that during this year Francis became increasingly dependent upon Deborah, and a confidential relationship arose. The court accordingly shifted the burden to Deborah to demonstrate that transfers subsequent to this time were free of undue influence. The court concluded that Deborah failed to demonstrate that the transfer of the $53,000 loan repayment or the $9,123 investment account proceeds, or her expenditure of $5,390 to purchase a new vehicle, were free from undue influence. Accordingly, these transfers and expenditures were voided and set aside. In contrast, the court concluded that the $1,000 per month payments from the joint account should not be set aside, as they were payments at an agreed-upon rate for services Deborah had provided to Francis.
On appeal, Annette contends there is clear and convincing evidence of a confidential relationship between Deborah and Francis beginning in 1995, and thus it was Deborah’s burden to demonstrate the farm transfer and the use of the proceeds from the 1996 sales of property were free from undue influence. Annette asserts that Deborah cannot meet this burden, and thus those transfers and expenditures should be set aside. In addition, Annette asserts that Deborah cannot show that any of the $1,000 per month payments to herself were free from undue influence, and that those should be similarly set aside.
On cross-appeal, Deborah asserts Annette failed to demonstrate that a confidential relationship ever existed. Alternatively, she contends that even if such a relationship did exist, the district court applied an incorrect standard in concluding that she failed to demonstrate certain transfers and expenditures were free from undue influence. Accordingly, she contends the court erred in voiding the transfer and use of the $53,000 loan repayment, the $9,123 investment account proceeds, and the $5,390 used to purchase a new vehicle.
II. Scope and Standard of Review.
This matter was tried to the district court in equity. Iowa Code § 633.33 (2003). We therefore conduct a de novo review of the district court’s decision. Iowa R. App. P. 6.4. Although not bound by the district court’s fact findings we give them weight, especially when assessing the credibility of witnesses. Iowa R. App. P. 6.14(6)(g).
III. Discussion.
As the party challenging the inter vivos transfers, Annette bore the burden of establishing, by clear, convincing, and satisfactory evidence that the transfers were a product of undue influence. Mendenhall v. Judy, 671 N.W.2d 452, 454 (Iowa 2003). “Evidence is clear, convincing, and satisfactory when there is no serious or substantial uncertainty about the conclusion to be drawn from it.” Id. To establish undue influence by Deborah, Annette would need to demonstrate that at the time the transfer was made (1) Francis was susceptible to undue influence, (2) Deborah had the opportunity to exercise such influence and effect the wrongful purpose, (3) Deborah was disposed to unduly influence Francis for the purpose of procuring an improper favor, and (4) the transfer clearly appears to be the effect of undue influence. Id.
However, if Annette can demonstrate by clear and convincing evidence the existence of a confidential relationship, King v. King, 291 N.W.2d 22, 24 (Iowa 1980), then a presumption of undue influence arises, and the burden shifts to Deborah to rebut the presumption, Jackson v. Schrader, 676 N.W.2d 599, 605 (Iowa 2003). To do this Deborah must demonstrate, by clear, satisfactory, and convincing evidence, “that [she] acted in good faith throughout the transaction and [Francis] acted freely, intelligently, and voluntarily.” Id.
Our supreme court has defined a confidential relationship as follows:
In law it has been defined or described as any relation existing between parties to a transaction wherein one of the parties is duty bound to act with the utmost good faith for the benefit of the other party. In its broadest connotation the phrase embraces those multiform positions in life wherein one comes to rely on and trust another in his important affairs.
A confidential relationship arises whenever a continuous trust is reposed by one person in the skill and integrity of another, and so it has been said that all the variety of relations in which dominion may be exercised by one person fall within the general term “confidential relation.”
Mendenhall, 671 N.W.2d at 455 (citation omitted).
Thus, the first question we must answer is whether Annette established the existence of a confidential relationship at any time between 1995 and Francis’s death in 2002. The answer to this question depends heavily upon the weight and credibility assigned to the testimony of various witnesses. As we have previously noted, we give weight to the fact findings and credibility determinations of the district court. Iowa R. App. P. 6.14(6)(g). When we afford weight to the court’s findings and determinations, we must agree with the district court that a confidential relationship did exist, but that it did not develop until sometime in 1998.
Annette and two of her brothers testified that after the 1995 fall Francis had difficulty with memory and conversation, and Francis’s mental condition continued to deteriorate. In contrast, Deborah testified that Francis’s limitations were physical, rather than mental, and that he remained alert and capable. A third brother largely corroborated Deborah’s testimony, but did state that by 2001 Francis had begun to show some mental deterioration. When evidence from other individuals is considered, it soon becomes clear that the truth lies somewhere in between the parties’ differing versions of the facts.
A home-health aid testified that in 1995 Francis was stubborn, argumentative, and cantankerous, but that when she returned to give Francis care in 1997 and 1998, he seemed docile. Similarly, Francis’s long-time hair stylist, who had known Francis since 1988 and saw him regularly after his 1995 fall, testified that while she noticed some deterioration in his condition from 1995 until 1998, it did not become pronounced until 1998 and 1999.
Delores’s brother, Dr. Harry Rein, a retired neurologist, testified that he had known Francis since the 1950s, and that after moving to California in 1963 he returned almost every year to visit. Dr. Rein stated that in 1995 and 1996 Francis was alert, understood current events, and had a good recall of past events. Dr. Rein testified that Francis was still “quite with it” in 1997 and 1998. However, he further testified that in 1999 and 2000 he noticed changes in Francis’s mental condition, in that Francis began to experience greater problems with recall and memory.
Francis’s last treating physician, Dr. David Waddell, also testified. Dr. Waddell took over Francis’s care in September 1998. While Dr. Waddell could not speak to Francis’s condition prior to that time, his testimony and reports indicate that Francis did suffer from dementia in 1998, and that Francis continued to suffer from the condition until his death in 2002.
In light of the foregoing, and the evidence that Francis independently handled, with the assistance of his own attorney, both the transfer of the farm and the sale of the two pieces of property, we agree with the district court that Annette did not present clear, convincing, and satisfactory proof of a confidential relationship in 1995, 1996, or 1997. The evidence indicates that while Francis may have suffered certain physical limitations during this period of time, he remained mentally alert and capable of making his own decisions. However, the evidence also clearly and convincingly demonstrates that beginning in 1998 Francis’s condition began to decline, his mental acuity was reduced, and he began to rely heavily upon Deborah. We therefore concur in the district court’s conclusion that a confidential relationship did come into being in 1998.
Accordingly, as the district court concluded, Annette bore the burden of proving that transfers prior to 1998 should be set aside, while Deborah bore the burden of rebutting the presumption of undue influence in those transfers that occurred in 1998 and thereafter. When we review the record, we agree that each party failed to meet her burden.
The same evidence that indicates there was no confidential relationship in 1995, 1996, or 1997 also indicates that during this time Francis was mentally capable of making transfers and voluntarily entering into agreements, and was not susceptible to undue influence from Deborah. Thus, we agree with the district court that Annette failed in her burden to set aside the transfer of the farm and the $5,000 gift to Deborah. We reach the same conclusion regarding the proceeds from the sale of the home and business that where deposited into the joint checking account.
The account was held jointly by Francis and Deborah, and there is no evidence that any limitations were placed on the use of the funds in this account. Moreover, the district court found credible Deborah’s assertion that the funds in this account were used for Francis’s monthly living expenses and to pay Deborah $1,000 per month for Francis’s care. The court also found credible Deborah’s assertion that, prior to his mental deterioration and the existence of a confidential relationship, Francis had freely and voluntarily agreed to pay her a $1,000 monthly stipend. Giving weight to these findings and credibility assessments, we concur in the district court’s determination that Annette has failed to demonstrate the foregoing expenditures from the joint checking account were a product of undue influence.
Turning to the transfers and expenditures occurring after the existence of a confidential relationship, we must first address Deborah’s contention that the district court applied an incorrect standard in assessing whether she had rebutted the presumption of undue influence. While we are not entirely convinced that the district court did apply an incorrect standard,[5] we conclude that, under the correct standard, Deborah failed to establish the transfers and expenditures in question were free from undue influence.
Deborah must establish that she acted in good faith during the entire transaction, and that Francis acted freely, intelligently, and voluntarily. Jackson, 676 N.W.2d at 605. When the $53,000 repayment from Annette and the $9,123 from the redeemed investment account were transferred to Deborah, Francis’s mental condition had deteriorated. He had become docile, his mental acuity and memory had become increasingly impaired, and he was heavily dependent upon Deborah. Under those circumstances, there is serious uncertainty as to whether Francis was capable of acting freely, intelligently, and voluntarily in making the transfers. In addition, as the transfers from Francis accounted for the majority of funds used for construction of a home owned and occupied by Deborah, we concur in the district court’s assessment that Deborah failed to establish by clear, convincing, and satisfactory evidence that she acted entirely in good faith.
This leaves us with the $5,390 Deborah expended from the joint checking account in order to purchase a vehicle. In setting aside this expenditure, the district court determined that, contrary to Deborah’s assertion, this vehicle in no way benefited Francis. Giving weight to this determination, we agree that Deborah accordingly failed to establish she acted in good faith in making this expenditure. We accordingly affirm the district court’s conclusion that this expenditure should also be set aside.
IV. Conclusion.
The district court correctly determined that a confidential relationship did not arise until 1998. We also concur in the court’s conclusions that Annette failed to demonstrate the pre-1998 transfers and expenditures were the result of undue influence, and that Deborah failed to demonstrate the subsequent transfers and expenditures were free of undue influence. Accordingly, we affirm the district court.
AFFIRMED.