Sunday, May 12, 2019

Some Gifts Are Not Forever: Iowa's Rule on Confidential Relationship and Refunding of Lifetime Gifts

A recent ruling from the Iowa Court of Appeals addressed gifts from a parent (now deceased) to a trusted child.  Applying the standard involving "confidential relationships" and gifts during life, the Iowa Court of Appeals affirmed that the recipient of the gifts was required to return the gifts received during mom's life back to her estate.
Photo by Rene B√∂hmer on Unsplash

Quick facts:  Mom and dad had four kids.  Dad passed away a few years ago and one of the sons started assisting mom with her financial affairs.  This son was also a Florida-licensed attorney (cue the evil character background music).  Unfortunately, sibling love was not bountiful even when mom was alive, which continued after mom passed away.  Following mom's death, it was eventually revealed that numerous accounts and funds had been transferred ("gifted") to the son that was helping mom out, but that the gifts were "at his mother's direction" and his siblings were just jealous that he received more than they did.  ("Mom loved me the most" defense)  Following a trial, the court ruled that the son was helping out a little too much and determined that he had a "confidential relationship" with his mother during her life and he was unable to show the gifts to him were done with mom's free, intelligent and voluntary assent but instead were the result of the undue influence from the son.

The key lesson today, kids, deals with the term "confidential relationship".  Essentially, a relationship that a person by kind and considerate treatment establishes a dominant influence over the other.  Or, put another way, where one has gained the confidence of another and that person comes to rely on and trust them in their important affairs.  A confidential relationship can exist regardless of a person's mental capacity.  But when a person places their trust and ability in someone to act on their behalf, a confidential relationship can be established.  Here, mom trusted her son, who was an attorney, to assist her in financial matters and relied upon his advice.

Once that confidential relationship is established, then the issue of the gifts to the son take on a new meaning.  At that time, son (as the recipient of the gifts) has to show that he was acting in mom's best interest and her knowing assent when the gifts were made out to him.  His testimony alone was not sufficient and a refund of the gifts was required as a result of his undue influence arising from his confidential relationship.

Moral of the story: if you are going to help someone out with handling their financial affairs, that is great.  The world needs more selfless people with good intentions.  However, if there are some gifts back to you from the person you are helping out, you need to be careful about how those are handled to make sure those are handled properly.

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