Key Takeaways
- The high value of assets associated with high-value estates makes them more susceptible to bad actors attempting to use fraud and undue influence to take advantage of the estate.
- Undue influence involves acts of manipulating individuals into under elements that may include susceptibility to influence, a clear authority to exercise undue influence, and an inequitable outcome.
- Strategies to prevent estate fraud and undue influence include comprehensive estate planning, regular reviews of your estate plan, appointing a professional fiduciary, and communicating with family members.
- Legal options for addressing estate fraud and undue influence include a will or trust contest, litigation, alternative dispute resolution methods such as mediation or negotiation, or preventing them altogether.
Introduction
High-value estates feature a large portfolio of assets with considerable financial value. Having important estate fraud prevention safeguards in place is necessary for protecting these estates, their assets, and the beneficiaries in line to receive an inheritance, as risks of bad actors can put the value and integrity of the estate in jeopardy.
High net-worth individuals with valuable estates often face risks such as fraud and undue influence because of the considerable financial interests involved and the ability of a bad actor to gain from taking advantage. This guide will help readers understand the risks of fraud and malicious influence, recognize warning signs, and implement strategies for protecting high-value estates.
Understanding Fraud and Undue Influence in Estate Planning
It’s crucial to understand what estate fraud and undue influence are and how they have an impact on high-value estates.
What Is Fraud in Estate Planning?
Fraud in estate planning involves any act of manipulation for financial gain, which may include embezzlement, forgery, or theft of estate assets. Estate fraud may be perpetrated by estate representatives, beneficiaries, or third parties seeking to take advantage of an estate and its assets in bad faith.
Examples of estate fraud may include:
- Forging estate documents
- Forging signatures
- Misrepresenting an individual’s intentions for personal gain
- An estate executor co-mingling estate assets
- An executor lying about the estate inventory
- Taking advantage of a power of attorney designation to steal estate assets
Fraud can take a significant financial toll on an estate if a perpetrator uses fraudulent means to steal assets. By preventing beneficiaries from getting access to their rightful inheritance, estate fraud also adds an additional layer of stress and emotional strife during an already difficult time with the loss of a loved one.
What Is Undue Influence?
Undue influence is the act of an individual exerting pressure and influence over another vulnerable individual against their will using strategies like trickery, coercion, or deception. Undue influence occurs as individuals in a position of some authority use manipulation of vulnerable individuals to try to gain a financial advantage or upper hand.
Acts of undue influence can take several forms, including:
- Isolating individuals from their relatives and friends
- Coercing someone to make changes to their will or trust
- Threatening to withhold care from an elderly individual until they change their estate plan
- Using guilt to manipulate someone into changing their estate plan
To be considered an act of undue influence, an action typically must involve a victim’s susceptibility to influence, a position of power to exert influence, evidence of influence, and an unfair outcome. These four elements help to distinguish between undue influence and persuasion, which may often be harmless.
Undue influence and financial elder abuse are often related, as a person may take advantage of a vulnerable individual at the end of their life to steal their assets. However, if you suspect undue influence in an estate, it’s important to consult an attorney as soon as possible.
Why High-Value Estates Are a Target
High-value estates are often more susceptible to fraud and undue influence because of the more substantial amount of wealth for a bad actor to target. This is typically due to their significant asset portfolio, complex family dynamics, and the potential for significant financial gain.
Individuals close to an estate or its head may seek to use nefarious means to gain access to this wealth at the expense of the estate and its beneficiaries. High-net-worth individuals must be aware of these risks and be vigilant in their estate planning to safeguard their estate and its beneficiaries against these risks.
Recognizing the Warning Signs of Fraud and Undue Influence
Understanding the warning signs of estate fraud and undue influence are key to addressing any potential issues as quickly as possible.
Common Red Flags
Although estate fraud and undue influence typically happen behind closed doors and can be difficult to detect, there are some red flags you can look for as initial signs. If you begin to notice these red flags, it may be worthwhile to seek additional evidence.
Common signs that might indicate the existence of estate fraud or undue influence include:
- Sudden changes to wills or trust documents that benefit a single individual
- Unexplained financial transactions or missing assets
- Isolation of the estate owner by a specific individual
- Cognitive decline or diminished capacity of the estate owner
It’s important to understand that you must have substantial grounds to further pursue litigation in the probate process, and that one red flag may not be enough to justify a lawsuit. However, one red flag may be a sign of others, so you should consult an experienced attorney as soon as possible to discuss whether you may have a case worth pursuing.
To determine whether you have enough to move forward, you should consult with an attorney specializing in fraud and financial elder abuse as soon as possible to prevent further abuse to the elder and harm to their estate. Even if you’re not sure whether there is enough evidence to move forward, an experienced attorney will be able to guide you through that evaluation.
Psychological and Behavioral Indicators
Changes in an individual’s behavior at the end of their life can be one of the most significant indicators of undue influence. A person appearing confused, pressured, more frequently stressed, or secretive about their decisions may be an indicator that another individual is influencing them.
Behavioral changes around relationships are often another key indicator of behind-the-scenes influence. For example, if the head of the estate begins to become isolated, volatile, or depressed or begins to cut out individuals that they have always been close to, it may be a sign that someone is attempting to manipulate or coerce them.
Proactive Strategies to Protect High-Value Estates
Being proactive in estate planning is crucial with the size and complexity of high-value estates. Below are key strategies that can play an important role in protecting high-value estates.
Comprehensive Estate Planning
Comprehensive, detailed, and proactive estate planning is fundamental to protecting high-value estates. A comprehensive estate plan should include detailed legal documents outlining an individual’s intentions.
Some common estate planning tools include:
- Wills
- Trusts
- Durable power of attorney
As you undertake the estate planning process, you should be sure to consult experienced professionals along the way, including estate attorneys and financial planners. These professionals will assist you in understanding the best estate planning tools for your unique situation in order to maximize the value of the estate and ensure your wishes are fulfilled.
Regular Estate Plan Reviews
After developing an estate plan, it’s also crucial for an individual to review it regularly to ensure that it continues to reflect their wishes. High-net-worth individuals often acquire new property, may obtain property in different jurisdictions, or may have changes in family circumstances that will affect their estate plan.
It’s also advisable to include safeguards in your plan against outdated or questionable provisions. For example, an individual may consider creating a pour-over will as a protective measure to ensure estate assets held outside of a trust are transferred into the trust upon their death.
Reviewing your estate plan regularly allows you to make changes as needs arise, whether this means changing beneficiaries, accounting for new assets, or revoking a trust.
Appointing a Professional Trustee or Fiduciary
A professional trustee or estate administrator may be able to help ensure a smooth estate administration process while minimizing the risk of disputes occurring. Because professional trustees and administrators are unbiased third parties, they have less of a relationship with the settlor or testator, unlike a trustee who is also a chosen family member. A professional estate representative can bring impartiality and oversight to ensure that the estate is responsibly managed, with a reduced risk of fraud and a higher level of protection for estate assets.
Educating Family Members and Beneficiaries
After establishing a clear estate plan, it’s essential that the head of the estate communicates with family members and beneficiaries about what it includes. Communicating plans with beneficiaries ahead of time helps to reduce misunderstandings and minimize the risk of disputes arising over disagreed terms.
Transparency helps to deter potential estate fraud as well as make it easier to spot if it does occur. Regularly updating beneficiaries ensures that they are familiar with the will or trust creator’s wishes and are kept informed when any changes are made to deter fraudulent modifications from being made.
Meanwhile, if interested parties in the estate are well aware of the decedent’s estate plan in advance, they will quickly be able to recognize if something does not add up.
Legal Options for Addressing Fraud and Undue Influence
If you believe estate fraud or undue influence occurred in your family’s case, then it is important to take legal action as soon as possible. Below are the most common legal options.
Contesting a Will or Trust
If a will or trust document has been created or modified as the result of fraud or undue influence, you may be able to contest the document in court. Successfully contesting a will or trust will require presenting enough circumstantial or direct evidence to prove that the will or trust was altered against in conflict with the wishes of the will or trust creator.
If you suspect a will or trust instrument has been affected by estate fraud or undue influence, you should immediately seek the support of a skilled and experienced attorney. It’s important to take action as soon as possible, as states usually have deadlines to contest a will, otherwise you will lose the opportunity to raise the contest.
For example, in California, you only have 120 days from the date a will is admitted into probate or from the date a trustee sends out notice of the beginning of the trust administration process. Meanwhile in Texas, you have two years to contest the will from the date it is admitted to probate, but the timeline for contesting a trust is not defined by law, so you should consult an attorney to understand your options.
Alternative Dispute Resolution
Alternative dispute resolution methods such as mediation or negotiation can act as a first step to resolving disputes before pursuing litigation. Mediation is an approach to dispute resolution that involves each side of interested parties sitting down with a professional third-party mediator. This mediator can facilitate an open dialogue where both sides can present their most preferred outcome in search of a mutually agreeable resolution.
For example, if a trustee is accused of fraudulently altering a trust instrument during the trust administration process and using the fraudulent terms to guide the creation of the will. After negotiations, the trustee may agree to pay restitution to the estate in exchange for the ability to step down without further legal action.
If mediation fails to yield results, then arbitration may be a viable next step, which is the next step following negotiations, but a less-invasive approach to dispute resolution. Arbitration is a private process, where a third-party arbiter hears both sides of the case and makes a legally binding decision on how to proceed—this approach can allow for a resolution to the issue at hand without the need for extensive litigation.
Litigation Considerations
If mediation and negotiation efforts are unsuccessful in bringing a mutually agreeable resolution, then litigation can serve as a last resort. Litigation is a common consideration for addressing and resolving disputes by filing a case with the probate court.
This process involves the following steps:
- Filing a case in the court with jurisdiction, often where the probate process is taking place
- Gathering evidence to build your case
- Presenting your case before the judge
- Receiving a ruling on how to move forward in estate administration
However, it’s important to consider that litigation can be costly and time-consuming, so many professionals would recommend only entering litigation as a last resort when other methods will not work. Still, if you are facing potential litigation, it’s advisable to consult an experienced probate litigation attorney as soon as possible.
Case Scenario
The following hypothetical case scenario demonstrates the potential for undue influence in cases of high-value estates. Keep in mind that every case is different and involves its own unique nuances, so you should contact an experienced probate litigation attorney for guidance on your specific situation.
Wilson was a wealthy businessman with considerable assets, including liquid assets, multiple investment accounts, two vacation homes, and a yacht. Understanding the value of his estate and the high stakes involved if his assets were unaccounted for, he decided to create a detailed will so that his assets could be distributed to his two children and his brother Ron, with his children receiving the majority of his estate. In the final year of his life, Wilson’s health declined and he was in need of a caretaker, and his brother Ron stepped into the role.
However, Ron, aware of his brother’s wealth, took advantage of his condition. Eventually, Ron refused to provide appropriate care and support to Wilson unless he agreed to change his will to give Ron a greater share of assets in the will. Over time, Wilson became increasingly isolated from his family. Behind the scenes, Ron was discouraging Wilson from reaching out to his family so that they would not become aware of the changes made to his estate plans.
Upon Wilson’s death and the will being admitted into probate, Wilson’s children noticed that their share of an inheritance listed in the will was far lower than they expected and was originally communicated to them a year ago. Realizing that the will had been changed without their knowledge and considering the warning signs of isolation and secrecy, Wilson’s children decided to contact a probate litigation attorney to contest the will.
With the help of an attorney, they filed the contest with the probate court within the 120-day deadline outlined by California state law. Before the probate court, Wilson’s children and their probate attorney argued that the will was altered by undue influence as a result of financial elder abuse. In their argument, they presented the previous version of the will, past communications with their father explaining his intentions, and witness testimony of family members describing their father’s isolation and position as a vulnerable individual in the past year.
Hearing the evidence, the court sided with Wilson’s children. As a result, the court ordered that the portions of the will should be invalidated, ordering the estate executor to follow the previous version of the will for guiding asset distribution.
Protect Your Estate from Fraud and Undue Influence
Acts of estate fraud and undue influence both pose strong risks to high-value estates and can lead to substantial financial losses if not prevented or addressed. If you suspect fraud or undue influence has played a role in your family’s estate, you should contact an attorney as soon as possible.
The probate estate litigation attorneys at RMO may be able to support you in protecting your estate. With decades of experience in probate litigation matters affecting high-value estates, RMO is prepared to take the time to understand your unique case, the family dynamics surrounding it, and what the appropriate next steps may be.
Schedule a consultation with our team at RMO Lawyers to start discussing your case and determine the best possible path forward.
Glossary
Executor – An individual appointed by a probate court who is responsible for managing and administering an estate and is named as executor in the deceased’s will.
Beneficiary – A beneficiary is an individual or entity identified in a trust or will as being entitled to receive benefits from the estate.
Estate Fraud – Any dishonest or illegal activity that occurs in the administration of an estate, often involving manipulation of estate proceedings for financial gain, including misrepresentation, embezzlement, or theft of estate assets.
Undue Influence – A legal concept that occurs when one person exerts excessive pressure or influence over another, typically to manipulate their decisions, particularly in the context of estate planning or inheritance.
Probate – The court process in which the assets of an estate are gathered, accounted for, and distributed to the heirs or beneficiaries after an individual passes away, either in accordance with the deceased’s wishes if they had a will or following local intestacy laws if there was no will.
Probate Litigation – A lawsuit filed by an interested party in an estate against another during the probate estate administration process.
Settlor – A person who creates a trust to specify how they want their assets distributed upon their death and to which beneficiaries.
Trustee – A person who coordinates the administration of the trust, manages the trust’s assets and is responsible for distributing the assets to the trust’s beneficiaries.
Will Contest – A probate proceeding where interested parties can dispute the validity of a will as long as they have legal grounds to do so, such as suspicion of mental incapacity or undue influence against a will creator.