Upman v. Clarke

WILNER, Judge. Under Maryland common law, there are two very different burdens and standards of proof that may be applicable when a gift is challenged on the ground that the donee exercised undue influence over the donor. As we shall explain, when the challenged gift is an inter vivos one—a present gift made during the donor’s lifetime—and the person attacking the gift establishes that a confidential relationship existed between the donor and the donee, there is a presumption against the validity of the gift, and the burden shifts to the donee to establish, by clear and convincing evidence, that there was no abuse of the confidence. When the gift is testamentary, however, taking effect upon the death of the donor, the existence of a confidential relationship between the donor and donee is simply one suspicious circumstance to be considered; it does not, of itself, give rise to a presumption of invalidity, and the burden remains with the person challenging the gift to prove a substantially overbearing undue influence.

The principal issue before us now is which of those two rules applies when the gift is made through the device of a revocable trust under which the donor presently transfers legal title to property to the donee, as trustee, and provides for the testamentary disposition of that property to the donee upon the death of the donor. In the circumstances of this case, we shall hold that the rule applicable to testamentary gifts applies. ³⁶ BACKGROUND Genevieve Upman, widowed since 1967, died childless on March 1, 1996, at the age of 88. Under her Last Will and Testament, dated August 28, 1995, her entire estate, after payment of taxes and expenses, was left to the Genevieve Upman Trust. The trust was initially created in June, 1994, but was amended by Ms. Upman in September, 1995.

Under the 1995 amendment, the net trust estate was to be distributed, in equal shares, to Ms. Upman’s nephew, Kenneth Clarke, and his wife, Patricia, “in gratitude for the care and affection extended to me in my declining years.” After the Will was admitted to probate, several other nephews and nieces of Ms. Upman, who had been named as beneficiaries under prior Wills, filed proceedings attacking the Will and the 1995 amendment to the trust. In the Orphans’ Court for Carroll County, they filed a caveat to the Will, contending that Ms. Upman lacked testamentary capacity when she signed the Will and that the Will was procured by the exercise of undue influence by Kenneth and Patricia Clarke. In an action filed in the Circuit Court for Carroll County, they sought to invalidate the 1995 amendment to the trust, contending that Ms. Upman was not competent when she executed that amendment and that the Clarkes, as relatives and caretakers of Ms. Upman, took advantage of a confidential relationship between her and them and improperly influenced her to make the gift to them through the 1995 amendment to the trust. The issues raised in the caveat proceeding were transmitted to the Circuit Court and consolidated with the action challenging the amendment to the trust.

Because the Will and the 1995 amendment to the trust were executed within a week of each other, the parties agreed that the evidence relating to both competence and undue influence would be the same with respect to both instruments. The caveat issues were resolved by a jury, which, in special verdicts, determined that Ms. Upman did not lack testamentary capacity when she executed ³⁷ the August, 1995 Will and that the Will was not procured by the exercise of undue influence on the part of either Kenneth or Patricia Clarke. In the second action, which was decided by the court without a jury, the Clarkes admitted that they had a confidential relationship with Ms. Upman. Relying on cases dealing with undue influence attacks on inter vivos gifts, the court concluded that, once a confidential relationship is found, the burden falls on the trusted party—in this case the Clarkes—to show that their conduct was proper.

The court found, however, that the Clarkes had met that burden and that there was no undue influence. The plaintiffs abandoned their attack on the Will but appealed the judgment entered for the Clarkes with respect to the 1995 amendment to the trust. The Court of Special Appeals affirmed that judgment, but not entirely on the basis used by the Circuit Court. Upman v. Clarke, 127 Md.App. 628 , 736 A.2d 380 (1999).

The appellate court concluded that the revocable trust created by Ms. Upman was more in the nature of a testamentary disposition than an inter vivos gift and that, as a result, the Circuit Court erred in shifting the burden to the Clarkes to prove non-abuse of the confidential relationship. It concluded instead that the burden remained with the plaintiffs to prove that the 1995 amendment was the product of undue influence. That error did not require reversal, however, as it actually favored the plaintiffs. The Court of Special Appeals reviewed the evidence and concluded that it more than sufficed to support the Circuit Court’s finding that the 1995 amendment was the free and voluntary act of Ms. Upman.

Id. at 648 , 736 A.2d at 391 . Until March, 1995, Ms. Upman lived alone in her home in Ellicott City—the marital home she had shared with her husband. At some point, she began to suffer from polymyosi-tis—a chronic arthritic problem—and from and after the mid-1980’s, she began to rely on her niece, Christine Healey, one of the plaintiffs, and Kenneth Clarke for some assistance in maintaining her home, with various errands, and with paying bills and keeping her checkbook. In 1989, at Ms. Upman’s request, Ms. Healey arranged for a lawyer to prepare a Will ³⁸ for Ms. Upman.

In that Will, signed in December, 1989, Ms. Upman left her stocks and bonds to 14 nephews and nieces, in equal shares. She directed that any real estate—her house— be sold and that 50% of the proceeds be distributed to three nieces and a nephew of her late husband, and that the rest of her estate, including the other 50% from the sale of her home, be distributed to her five brothers and sisters, Mr. Clarke, and Ms. Healey. Ms. Healey was designated as personal representative. In 1991, the Clarkes contacted another attorney—one who had done some work for them in the past—and had another Will drawn for Ms. Upman.

In this second Will, signed in April, 1991, Ms. Upman left her stocks and bonds to an expanded group of 20 nieces and nephews. A specific bequest of $1,000 to her church was added. The disposition of the real estate and the balance of the estate remained unchanged. Ms. Healey and Mr. Clarke were named as co-personal representatives.

In May, 1994, Ms. Upman signed a third Will, which made no substantial changes from the second, and, a month later, she created a revocable trust—the Genevieve Upman Trust. Ms. Upman named herself as the sole trustee and directed that she be paid from the trust, during her lifetime and as long as she remained mentally capable of managing her own affairs, so much of the income and principal of the trust as, from time to time, she requested. Ms. Upman reserved the right to revoke or amend the trust and to appoint a successor trustee. In the event of her death or inability to manage her own affairs, she designated Ms. Healey and Mr. Clarke, jointly, as successor trustees.

She directed the trustees, during any period that she was unable to manage her affairs, to distribute so much of the income and principal, for her benefit, as they believed desirable for her care and support. Ms. Upman directed that, upon her death, her estate be distributed to those persons, and in the shares, specified in her latest Will. There is some conflict in the evidence as to what property was placed in the trust. The Declaration of Trust referred to ³⁹ an attached Schedule A, which provided for the transfer of Ms. Upman’s Ellicott City home and the furniture “and other personal property” in it.

There is no reference either in that Schedule or in any later document to any transfer of Ms. Upman’s bank accounts, stocks, or other cash or securities. It appears, however, that stocks, bonds, and bank accounts were, indeed, transferred to the trust. The Information Report and accompanying Inventory filed with the Register of Wills after Ms. Upman’s death showed that approximately $213,000 in assets had been transferred to the trust in June, 1994, including $12,000 in U.S. Savings Bonds, $17,500 in stock, over $46,000 in bank accounts, Ms. Upman’s Ellicott City property valued at $135,000, and $2,300 in other tangible personal property. Counsel for plaintiffs informed the court that about 95% of Ms. Upman’s property was in the trust and that only $8,000 to $9,000 passed through the probate estate.

The transfer of those assets is also consistent with the direction that she receive, on request, income and principal from the trust estate during her lifetime; indeed, the failure to place those liquid, income-producing assets in the trust at that time would be in consistent with that provision. In March, 1995, Ms. Upman suffered a fall in her home. It is not clear what prompted the fall. There was a suggestion in the hospital records that she may have had a seizure; Ms. Clarke postulated that she may have become disoriented from taking too much of a sedative that had recently been prescribed for her.

She was found by Ms. Healey on the floor in a confused state and was taken to the hospital, where she remained for eight days. This episode created a crisis for Ms. Upman. In addition to her chronic arthritis, she was diagnosed with a collection of other maladies, including vasculitis, osteoporosis, an inflamed ulcer on an ankle, and progressive dementia. She was reported as weak and confused.

The hospital discharge summary stated that she “now needs close observation.” It was clear that Ms. Upman could not return to her home, to live alone. Several options were considered by the family. ⁴⁰ Ms. Healey thought that, given the extensive care she would need, Ms. Upman should be placed in a nursing home or similar kind of facility, a prospect that Ms. Upman adamantly opposed. Ultimately, the Clarkes agreed to have her live with them, and they prepared a separate room for her in their home. Ms. Upman remained in the Clarkes’ home for about 11 months, until she died.

Ms. Clarke assisted her in most of her daily activities—dressing, eating, bathing, even going to the bathroom. The Clarkes assumed control of her checkbook and paid her bills. In August, 1995, Ms. Clarke asked the lawyer who had prepared the second and third Wills and the revocable trust to prepare a new Will and an amendment to the trust. The attorney prepared the documents and sent them to Ms. Up-man, along with a letter stating that, if she wished, the attorney would come to the home to answer any questions she might have.

Ms. Upman did not respond, other than to send the attorney a check for his services along with a “thank you” note. On August 28, 1995, Ms. Upman signed the Will in the presence of two neighbors of the Clarkes. Her signature to the trust amendment required notarization, so on September 3, 1995, Ms. Clarke took her to the local bánk where, before a notary, she signed the amendment. As noted, the new Will and the trust amendment made a substantial change in Ms. Upman’s estate plan.

The Will directs the payment of debts, taxes, funeral, last illness, and administration expenses and leaves the entire balance of the estate to the Genevieve Upman Trust. The new provision added to the trust directs the payment of any debts, taxes, and administration expenses not paid by the probate estate and provides that all remaining property in the trust be distributed to the Clarkes. Ms. Upman’s siblings and other nieces and nephews were dropped as beneficiaries. DISCUSSION In the Circuit Court, the plaintiffs challenged the two 1995 instruments on competence as well as undue influence ⁴¹ grounds, and much of the evidence concerned Ms. Upman’s mental capacity.

That evidence was in some conflict. The plaintiffs did not contest Ms. Upman’s competence or testamentary capacity with respect to any of the instruments signed prior to 1995. It was their position that she deteriorated significantly after signing the 1994 instruments and that she remained in a confused and helpless state, entirely dependent on the Clarkes. They stressed her age, her frail physical condition, the fact that her physician believed, in March, 1995, that she suffered from progressive dementia, and incidents in which she seemed confused as to dates, was forgetful, or appeared to suffer from some delusions.

Testimony presented by the lawyer who prepared the 1991, 1994, and 1995 instruments, by the witnesses to the 1995 Will, and by the notary who attested her signature to the 1995 amendment to the trust, on the other hand, was to the effect that Ms. Upman was alert, knew what she was doing, and appeared to be acting voluntarily. There was abundant evidence from them, from the Clarkes, from an outreach person from the church who visited Ms. Upman from time to time, and from others sufficient to show that Ms. Upman (1) changed her mind about leaving her estate to between 14 and 20 people, with whom she had only infrequent contact, (2) was content living with the Clarkes, and (3) was deeply grateful to them for taking care of her and avoiding her placement in a nursing home. As we indicated at the commencement of this Opinion, two different rules have developed under Maryland law with respect to challenges based on undue influence. The first question in need of resolution, whether the gift under attack is an inter vivos or a testamentary one, is whether a confidential relationship existed between donor and donee.

We have spoken often about confidential relationships, but we have rarely attempted to define the concept. In Green v. Michael, 183 Md. 76, 84 , 36 A.2d 923, 926 (1944), we regarded dependence as the key factor, holding that “[t]o establish such a relationship there must appear at least a condition from which ⁴² dependence of the grantor may be found” (quoting Snyder v. Hammer, unreported in 180 Md. 690 , 23 A.2d 653 , reported in full in 180 Md. 690 , 23 A.2d 653, 655 (1942)). Most of our discussion has been in the context of when a confidential relationship may be “presumed” although, in context, the word “found” may be more accurate. In Green , we stated that, in general, “a confidential relationship may be presumed whenever two persons stand in such a relation to each other that one must necessarily repose trust and confidence in the good faith and integrity of the other.” Green, supra, 183 Md. at 84 , 36 A.2d at 926 .

See also Tracey v. Tracey, 160 Md. 306, 318 , 153 A. 80, 85 (1931) (confidential relationship may be presumed from a relationship “such that one must from the