Probate Code section 859, our subject in a recent post, packs a punch in California trust litigation. It awards double damages against someone who in bad faith wrongfully takes property from an elder, in bad faith takes property through undue influence, or who takes property through the commission of financial elder abuse.
While the first two prongs of the statute contain an explicit bad faith requirement, the last one, financial elder abuse, does not. Can double damages be awarded against someone who commits financial elder abuse, even if bad faith is not shown? What if the elder abuse claim rests on the exertion of undue influence?
The appellate court in Levin v. Winston-Levin (2019) ____ Cal.App.4th ____, ruled that undue influence claims, even when characterized as elder abuse, require evidence of bad faith to justify double damages. In other words, an elder abuse claim cannot be used as a Trojan horse to obtain double damages.
Robert Levin Amends His Trust as His Mind Slips
Robert Levin married his second wife, Debra, in 1992. He had an adult daughter, Elizabeth, from his prior marriage.
In 1993, Robert amended his trust to grant Debra a life estate in the net income of his trust, which included his private residence on Balboa Island, which was worth about $4 million. Under this amendment, upon Debra’s death, the trust property would flow into a trust created for his daughter, Elizabeth. The trust was then amended many times over the next 20 years.
In January 2008, Robert underwent an MRI because he was experiencing memory loss. A doctor at the time found mild atrophy in Robert’s brain but otherwise noted that he was alert and oriented and that his memory and abstracting ability were normal.
In September 2008, Robert amended the trust to state that upon his death the Balboa Island house would go to Debra free of trust. The trust further provided that Debra would enjoy the life income from the trust assets, and that after Debra’s death, Elizabeth would be entitled to the income from the trust assets. Upon Elizabeth’s death the entire residue of the trust was to be given to Shriners Temples of North America.
In April 2009, Robert’s doctor wrote that his mental condition was beginning to deteriorate. The doctor noted that Debra complained that Robert was becoming progressively forgetful, losing executive function, was unable to make decisions and was sometimes irritable. The doctor concluded that Robert had mild cognitive impairment.
In November 2011, Robert’s neurologist wrote that he was capable of taking care of his own affairs, including financial decisions. Around the same time, another doctor who was treating Robert for probable Alzheimer’s disease stated that he maintained the ability to handle his own estate planning decisions and affairs.
In February 2012, Robert’s mental condition was assessed by a different doctor who determined Robert had mild vascular dementia. Debra took Robert to the doctor because he was suffering from lapses in short-term memory and making impulsive financial decisions. Debra also reported that she was forced to take increasing responsibility over Robert’s daily tasks, such as dressing and taking medication.
In July 2012, Robert again restated and amended the Trust. The new amendment gave Debra a lump sum $2 million payment upon Robert’s death and lifetime support from the net income of the trust. The amendment provided that 90 percent of the residue of the estate would go to Elizabeth free of trust after Debra’s death. Eleven days later, Robert quitclaimed the Balboa Island house to Debra.
The attorney who drafted the 2012 amendment testified that Robert was competent and understood the changes he was making.
Elizabeth Proves Undue Influence, But Not Bad Faith
After Robert passed away, Elizabeth brought a petition in Orange County Superior Court under Probate Code section 850 to compel the return of the Balboa Island house to the trust and sought double damages pursuant to Probate Code section 859.
At trial, the court held that the circumstances of the 2012 amendment triggered a presumption of undue influence, which Debra failed to rebut. However, the court found that the mild cognitive decline Robert was suffering in 2008 was insufficient to trigger the same presumption as to the 2008 amendment. Thus, the court ordered the residence returned to trust, invalidated the 2012 amendment, and ruled that the terms of the 2008 amendment controlled.
In addition, the court rejected Elizabeth’s claims for double damages under Probate Code section 859 because, while the 2012 amendment was the product of elder abuse, Elizabeth had not shown Debra acted in bad faith.
Elizabeth appealed, arguing that she was not required to prove bad faith to obtain an award of double damages.
Probate Code section 859 provides for double damages if a court finds that a person:
- in bad faith wrongfully took property belonging to a conservatee, minor, an elder, a dependent adult, a trust, or the estate of a decedent; or
- in bad faith took the property by the use of undue influence; or
- took the property through the commission of elder or dependent adult financial abuse.
On appeal, Elizabeth argued that she proved Debra committed financial elder abuse by taking Robert’s property through the exertion of undue influence. Elizabeth contended she was not required to prove bad faith because the elder abuse prong of section 859 does not require proving bad faith while the other two do.
The appellate court noted the peculiarity of the situation – section 859 discusses undue influence and elder abuse as two distinct wrongs that could result in double damages; under a strict reading of the code, one requires the additional element of bad faith while the other does not. But, one form of elder abuse is the taking of property by undue influence. So, must bad faith be proven if the perpetrator commits elder abuse through the exertion of undue influence?
The appellate court held that yes, bad faith must be shown to recover double damages if property is taken through undue influence even if the claim can be otherwise dressed up as an elder abuse claim. The appellate court explained that it did not believe the Legislature intended to provide double damages for undue influence without bad faith for several reasons.
First, section 859 explicitly requires bad faith to award double damages in undue influence cases. Second, the legislative history does not indicate that the Legislature intended to have two different standards for undue influence depending on whether the claim could be characterized as elder abuse or not. Third, because almost every undue influence claim could be characterized as an elder abuse claim, not requiring bad faith for the elder abuse version of undue influence would effectively make the bad faith requirement for non-elder abuse undue influence claims pointless. The court also pointed out that the other versions of elder abuse, taking for a wrongful use or with intent to defraud, both have a form of the bad faith requirement built into them, which indicated that bad faith was intended to be a universal requirement for double damages.
Within the context of this particular case, the appellate court explained that not all instances of undue influence entail bad faith. In many cases like this, a “loved one’s slow, inexorable mental decline toward incompetency has no obvious signpost to delineate the exact point where negotiations about the disposition of assets become overbearing.” In this specific case, there was conflicting evidence regarding Robert’s competency, and per the court, “this was a close case, not a case warranting a $4 million punishment.”
Elizabeth Wins the Battle with Her Stepmother, But Did She Lose the War?
Elizabeth’s petition was partially successful – she invalidated the 2012 amendment which left the 2008 amendment as the governing document, and received an order transferring the Balboa Island house back to the trust. However, the end result of this was not particularly advantageous to Elizabeth.
Specifically, under the 2012 amendment Elizabeth would have received 90 percent of the trust residue outright after Debra’s death, while under the 2008 amendment Elizabeth only receives the net income from the trust during her life, after which the principal would be donated to the Shriners Temples. In addition, the 2008 amendment gave the Balboa Island house to Debra upon Robert’s death, while the 2012 amendment did not. Thus, by invalidating the 2012 amendment, Elizabeth lost the house as a trust asset, lost an outright distribution of the trust assets, and lost the ability to pass trust property to her heirs upon her death.
Because of this, Elizabeth tried to argue that only certain parts of the 2012 amendment should be invalidated – i.e., Elizabeth wanted to cut out the parts that benefitted Debra while leaving in the parts that benefitted her. It may be possible to thread this needle if one can prove that only part a will or trust document was procured by undue influence, but in practice this can be difficult. Here, the court held that there was sufficient evidence to suggest the entire 2012 trust amendment was procured by undue influence.
Levin makes clear that bad faith must be proven to recover double damages in undue influence cases, even if the claim can be dressed up as an elder abuse claim. The case also reminds us that sometimes you can win the battle and lose the war. Would be petitioners should be aware of the difficulty of invalidating only parts of a trust instrument and should carefully consider the potential adverse consequences of a partial victory.