In 2006, the William Mallas executed a Last Will and Testament dividing his estate equally between his brother and niece. In March 2008, he signed a power of attorney designating his neighbor, Frank Picciolo, as his agent. In November 2008, Mr. Mallas executed a new POA again naming Frank as his agent, and a new will adding Frank’s wife Angelina as an equal residuary beneficiary of his estate. Although she had very little contact with Mr. Mallas, Angelina rather than Frank was named as a beneficiary at Frank’s suggestion, because Frank had IRS liens.

In 2009, Mr. Mallas executed a codicil naming Frank as executor and Angelina as alternate. That same day, Frank utilized the POA to transfer funds from two existing annuities into a single new annuity; although the existing annuities had named the estate as beneficiary, the new annuity named Angelina as sole beneficiary. The annuity sales agent had met with Frank and Angelina on several occasions regarding the transaction, but never met with Mr. Mallas.

In 2009, Adult Protective Services (APS) received a report that Mr. Mallas was the victim of financial exploitation. APS brought a guardianship action and an attorney was appointed as Mr. Mallas’s guardian.

Mr. Mallas died in 2010, and Frank filed a complaint seeking to probate the will and codicil. Mr. Mallas’s nieces challenged the will, codicil, POA, and annuity transaction.

Following a trial, the court upheld the will, codicil, and POA. However, the court found that Frank had failed to prove that the annuity transaction was not the result of undue influence. Accordingly, it invalidated the beneficiary designation naming Angelina, ordered that the estate be named as the beneficiary, and ordered Angelina to disgorge all funds she had received from the annuity.

On appeal, the chancery court’s decision was affirmed.  The appeals court noted that, when challenging an inter vivos gift based on undue influence, the burden of proof shifts to the donee when the challenger shows either that the donee dominated the donor’s will, or that a confidential relationship existed between the donor and donee. Unlike challenges to a will, there is no requirement that the challenger also show that suspicious circumstances existed. Once the burden shifts to the donee, the donee must rebut the presumption of undue influence by clear and convincing evidence: “The beneficiary must prove not only that no deception was practiced therein, no undue influence used, and that all was fair, open and voluntary, but that it was well understood.”

The Appellate Division concluded that the trial court had reasonably found that a confidential relationship existed between Frank and Mr. Mallas because it was “clear that Mr. Mallas depended upon Frank in many respects.” The trial court also found suspicious circumstances surrounding the execution of the challenged documents. Frank had met his burden of proving no undue influence with respect to the will, POA and codicil, because Mr. Mallas was represented by independent counsel. However, with respect to the annuity, Frank failed to carry his burden of proving an absence of undue influence. In fact, Frank’s own medical expert had testified that Mr. Mallas was “not capable of understanding a complicated transaction like the [annuity] transaction.” In addition, Mr. Mallas did not have independent counsel, or even direct contact with the annuity sales agent. Further, the annuity transaction occurred on the same day that Mr. Mallas executed the codicil. If Mr. Mallas had wanted to leave more to Frank through Angelina, he could have so instructed his attorney and the codicil could have included such a provision.

Frank and Angelina also argued that, as a third-party beneficiary, Angelina was entitled to retain the annuity, as a matter of law, because she was “merely a passive recipient rather than a participant in her husband’s actions.” In rejecting that claim, the appeals court approved the trial judge’s “equitable remedy” because the annuity beneficiary designation did not represent Mr. Mallas’s intent to benefit Angelina; rather, it reflected “Frank’s scheme to avoid his IRS lien.” Accordingly, the trial court aptly concluded that “Angelina cannot benefit from her husband’s wrongful conduct and be unjustly enriched thereby.”

A copy of In re Estate of Mallas can be found here – In re Estate of Mallas