Wife Had Authority to Transfer Property to Herself Under a Power of Attorney

Planning for spouses is particularly tricky when one is acting one behalf of another and the latter is incompetent.   Transfer of assets to the healthy healthy spouse by the healthy spouse  from the assets of the impaired is troubling, raises the specter of "self-dealing" and often becomes fodder for legal contest.  North Dakota's highest court recently resolved such a case, permitting the transfer. The court ruled that a wife had authority under a power of attorney to transfer property to herself because her husband had an obligation to support her, so the transfers were made for consideration and were not gifts. Estate of Lindvig (N.D., Nos. 20200135 and 20200136, Nov. 19, 2020).

Ralph Lindvig’s Will gave his wife, Dorothy Lindvig, a life interest in his property and, on her death, transferred the property to his brothers. Mrs. Lindvig suffered from mobility issues due to childhood polio. Mr. Lindvig also named Mrs. Lindvig as his agent under a power of attorney. The power of attorney gave the agent the authority to transfer real estate for the purposes of estate planning, including transfers to the agent. It also provided authority to make gifts subject to the approval of a court in order to minimize taxes and maximize the estate for beneficiaries. 

Mr. Lindvig entered a nursing home. To help pay for his care, Mrs. Lindvig sold portions of his property to his brother. She also transferred mineral rights and property to herself. Mr. Lindvig died, and Mrs. Lindvig was the personal representative until her death a year later.

After Mrs. Lindvig’s death, Mr. Lindvig’s estate filed a petition to set aside the transfer of the mineral rights and the property because the transfers diminished the size of Mr. Lindvig’s estate and were not approved by a court. Ms. Lindvig’s estate argued that the transfers were made for consideration in the form of marital contributions and were not gifts. The court determined that the transfers were within Mrs. Lindvig’s authority, and Mr. Lindvig’s estate appealed.

The North Dakota Supreme Court affirmed, holding that the transfers were not gifts because Mrs. Lindvig required support and Mr. Lindvig had an obligation to support her from his property. According to the court, “because the transfers in this case were not gifts, the power of attorney’s gifting provisions do not apply” and Ms. Lindvig “had authority to make the transfers under the power of attorney’s real estate transfer provision.”

Court Invalidates Pocket Deed As Fraudulent Effort to Defraud the Surviving Spouse

[The following is reprinted from my former newsletter, Your Estate Matters.]

A recent case from Tennessee illustrates the dangers inherent in using "pocket deeds." Pocket deeds are executed during the owner's life, but recorded after the owner's death.  While they are rarely used by attorneys or serious planners, they still find their way into the plans of individuals who may devise the schemes without legal advice.  

The case concerns the marriage of Ancie Lee Maness  and Jewell Maness,  When they married, he already had three grown sons and a 330-acre farm in Henderson County, Tennessee. He and Jewell both worked outside the farm.  Her income paid for food, utilities and household bills, but his  income was mostly used to pay expenses on the farm.

Mr. Maness ran a small herd of cattle at the farm, and allowed his sons to keep a few head of their own on the property. At different times, Mr. Maness even gave each of his sons an eight-acre parcel on the edge of the farm. It was clear, however, that Mr. Maness operated the farm, with only occasional help from his sons. Until 1992, the farm income, and Mr. Maness’ wages, went to pay off a mortgage on the farm as well.

Shortly after Mr. Maness’ death in 1993, one of the sons informed Mrs. Maness that he had transferred the farm to them nearly ten years earlier. When she investigated, she discovered that Mr. Maness had signed a deed to the property, conveying it to his three sons, and had given the deed to his son Willie. He had instructed Willie and his wife not to tell anyone about the deed, and to hold it in their safe deposit box.  They had removed it and recorded it three days after Mr. Maness’ death, and the title now appeared to be in the sons’ names.

Mrs. Maness sued to set aside the transaction, alleging that it was fraudulent because it had the effect of depriving her of her statutory right to inherit a portion of her husband’s property. In Tennessee, as in most states, a surviving spouse is entitled to at least a share of the deceased spouse’s estate, and Mrs. Maness argued that the transaction deprived her of that right.

Noting the secrecy with which the deed was cloaked, the Tennessee Court of Appeals agreed with Mrs. Maness. The court also noted that even by a conservative estimate the farm constituted nearly two-thirds of the value of Mr. Maness’ estate, and Mr. Maness’ behavior in hiding the transaction from his wife indicated that he had intended to defraud her of her inheritance rights. 

To read the entire case go here: Maness v. Estate of Maness, Tenn. Court of Appeals, November 12, 1997.

Illinois Permits Guardian Authority to Petition for Termination of a Ward's Marriage

The Illinois Supreme Court overturned the 26-year-old opinion In re Marriage of Drews, 503 N.E.2d 339 (1986), ruling that a guardian has the legal authority to petition for dissolution of a ward's marriage, and may take appropriate legal action to accomplish that end. Karbin v. Karbin, 2012 IL 12815 (Ill. 2012). 

In 1986, the Supreme Court had held that a guardian did not have standing to initiate a dissolution of marriage action on behalf of a ward. The court found that the Probate Act, which allows a guardian of the estate to appear and represent a ward in legal proceedings, was limited to matters directly involving the ward’s estate and that there was no comparable language which governs rights and responsibilities over the ward’s person. In making this decision, the court said that it was following a strong majority rule across the country. In re Marriage of Drews, 503 N.E.2d 339, 340 (1986).

The decision was short and concise. Justice Seymour Simon dissented, arguing that the court’s holding was too restrictive. “If the initiation of a legal proceeding though personal can be shown to be beneficial to the maintenance and welfare of the ward, the court ought to allow it.” In re Marriage of Drews, 503 N.E.2d 339 342 (1986).

Karbin v. Karbin involved a contentious divorce case that, while initiated by the competent husband, was being pursued by the incompetent wife’s guardian after the husband voluntarily dismissed his petition. The husband moved to dismiss the counterpetition filed by the guardian, citing Drews. The trial court dismissed the case and the Appellate Court affirmed. As its first order of business, the court justified its decision to overturn Drews, finding that the court had shifted away from Drews. Karbin v. Karbin, 2012 IL 12815 at 6 (Ill. 2012).

In fact, the limitation on the guardian’s authority ordered in Drews was abandoned only three years later in Estate of Longeway, when the Supreme Court held that a guardian has implied authority to act in the ward’s best interests regarding the use of life-sustaining measures. Estate of Longeway, 549 N.E.2d 292 (1989). Later that year, the Supreme Court reaffirmed that expansion of authority by holding that a guardian may decide to remove life support. Estate of Greenspan, 558 N.E.2d 1194 (1980).

After justifying its decision to overturn Drews, the Karbin Court pointed out that the divorce in Drews had been filed prior to the adoption of no-fault grounds in Illinois. At that time, divorce involved one guilty party and one injured party and it was the sole choice of the injured party to severe the marriage. This was considered a uniquely personal decision to which no one else was privy. Once the concept of injury was removed from divorce, the decision to end a marriage would be no more personal than the decision to end life support, have an abortion or undergo involuntary sterilization. In fact, the court noted, divorce was not as final or permanent as those decisions were. Karbin v. Karbin, 2012 IL 12815 at 11 (Ill. 2012).

There was simply no reason why a guardian should not be allowed to make the personal decision to file for divorce using the substituted judgment standard permitted by the Probate Act. “As is apparent, the traditional rule espoused in Drews is no longer consistent with current Illinois policy on divorce as reflected in the Illinois Marriage and Dissolution of Marriage Act.” Karbin v. Karbin, 2012 IL 12815 at 11 (Ill. 2012).

Finally, this court found that continued application of the holding in Drews could put an incompetent spouse at the mercy of an ill-intentioned competent spouse. “Because under the Probate Act the guardian must always act in the best interests of the ward, when a guardian decides that those best interests require that the marriage be dissolved, the guardian must have the power to take appropriate legal action to accomplish that end.” Karbin v. Karbin, 2012 IL 12815 at 12 (Ill. 2012).

The Court summed up its discussion succinctly: “[t]his ensures that the most vulnerable members of our society are afforded fundamental fairness, equal protection of the laws and equal access to the courts. Therefore, In re Marriage of Drews is hereby overruled.” Karbin v. Karbin, 2012 IL 12815 at 14 (Ill. 2012).

Upon remand, the court directed the Circuit Court to hold a hearing in order to determine if divorce is in the ward’s best interests, clarifying that the guardian always acts as the hand of the court and subject to the court’s direction. In order to prevent a guardian from pursing a divorce for his or her own purposes, the guardian must satisfy a clear and convincing burden of proof that the divorce is in the ward’s best interests. This higher burden is in accordance with the standard applied to other highly personal issues. Karbin v. Karbin, 2012 IL 12815 at 15 (Ill. 2012).

While most probate and domestic relations practitioners agree that the decision to overturn Drews was long overdue, on the grounds that a guardian who has standing to petition the court to withdraw life support from a ward, should likewise have authority to dissolve a marriage, both decisions being personal to the ward, others are more apprehensive because a guardian can remove an advocate spouse when the spouse is properly recalcitrant or vocally objects to decisions of an abusive guardian.  

Those supporting a guardian's authority rely upon the Probate Court to decide whether pursuing a divorce is clearly and convincingly in the ward’s best interests.