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Mississippi Real Estate LLCs

Are new changes coming for Mississippi real estate LLCs? The June 2010 newsletter of the Real Estate Section of the Mississippi Bar had this to say about the use of LLCs to hold real estate:

Limited liability companies currently seem to be the preferred form of entities for real estate these days. But many Mississippi statutes that are relevant to real estate still address corporations only. Examples include Section 15-1-11 (statute of limitations to recover land due to defects in corporate formalities); Section 27-7-308 (exception for withholding five percent of proceeds when seller is a foreign corporation); and Section 89-1-21 (how a corporation conveys land). Isn’t it time that these statutes were amended to include limited liability companies and limited partnerships?

I couldn’t agree more. Limited liability companies have exploded in popularity since they first gained traction in the early 90s. But the law has lagged behind. Sometimes these changes can be used to the client’s advantage (I won’t give away any secrets here). But most of the time, we end up with a patchwork of interdependent code provisions that no longer match the realities of the real estate marketplace.

The Mississippi legislature has been taking a more proactive approach in evaluating our business laws. And while the majority of our estate and trust laws look like they were written by gradeschoolers in the 18th century, the study groups headed by Secretary of State Delbert Hosemann have gone a long way toward bringing our business laws into the new millennium. For example, the new LLC registration requirements–while admittedly adding a little hassle–are more in line with good practice in the modern legal environment. Perhaps the legislature will take a look at the sections identified by the bar to bring them up to speed as well.

Proving Testamentary Capacity and Undue Influence

Undue influence claims are really about testamentary capacity. For a will to be valid, the testator (the person making the will) must have testamentary capacity. Testamentary capacity exists when a person is fully aware of his actions and understands that he is giving away his assets. The person must also understand who his assets are being given to.

The person alleging that the will is the product of undue influence is really arguing that the influence was such that the person who made the will lacked the mental capacity to do so. The person is claiming that the person’s mind was so overridden by the influence of another that the person didn’t have the mental capacity to execute a will.

Because these issues are so fact-specific, cases involving testamentary capacity often involve burdens of proof. The burden of proof has to do with whose responsibility it is to prove a given fact. The party submitting the will for probate has the burden of proving that the will is valid. Once the court establishes that the will, on its face, is valid, the party contesting the will must then offer proof to why the will is in invalid.

Evidence of testamentary capacity is judged by a standard known as the preponderance of the evidence. Preponderance of the evidence is a standard in which the court weighs the evidence presented by each party and decides upon the most convincing. Each side’s evidence is weighed according to relevance and reliability and not merely by the amount that is presented.

A recent Mississippi appellate case illustrates the application of this standard to will contests based on lack of testamentary capacity and undue influence. The case involved a Mississippi appellate court’s decision about the validity of a will made by Willie Ray Rutland in 2002. Willie Ray died in 2005 and was survived by his niece, Diane Rutland Nations, his cousin, Calvin Rutland, and his nephews, Rickie Dale Rutland and Todd Rutland.

Willie Ray’s 2002 will, which named Diane Rutland Nations as the sole beneficiary of his estate, was offered to probate by Calvin Rutland. The will was contested by Rickie and Todd Rutland on the grounds that Willie Ray lacked the mental capacity to execute a will in 2002 and also that the will was executed under undue influence from Calvin and Diane. Rickie and Todd wanted the court to accept a will written by Willie Ray in 1989 in which he left all his real property to Rickie and Todd.

The lower court’s decision was a disappointment all the way around. The lower court found that the 2002 will was invalid based on Willie Ray’s lack of mental capacity (testamentary capacity) to execute a will, but did not discuss the issue of undue influence. But the lower court didn’t like the 1989 will either, holding that Willie Ray’s estate should be administered as though he died without a will (intestate).

The parties appealed the decision of the lower court. The appellate court had to decide if Willie Ray had sufficient testamentary capacity to execute a will in 2002 will or, conversely, if the 2002 will had been the product of undue influence.

The court heard testimony from all the parties. The testimony indicated that Willie Ray signed the will at his residence in a retirement home. It was drawn up by an attorney, who was a friend of Calvin’s, and Willie Ray signed the will in front of witnesses, including Calvin and the administrator of the retirement home. The attorney, the administrator, and Willie Ray’s doctor testified that he was fully aware of his actions and what he was doing with his assets.

Rickie and Todd testified that Willie Ray had been losing his mind since 1998 and could not have understood the gravity of his actions. But neither Rickie nor Todd had seen Willie Ray around the time the 2002 will was signed and often went months without seeing him. The court discounted their testimony, stating “testimony regarding capacity from witnesses who have not seen the testator in months will be deemed irrelevant by the Court.” The court held that testimony that is broad or overly general will not meet the preponderance of the evidence standard when it is contradicted by specific, relevant evidence of mental capacity. The court noted that a person that generally lacks the mental capacity to execute a will can make a valid will during “lucid intervals” when capacity exists. Therefore, the court found that Willie Ray possessed sufficient testamentary capacity to execute the 2002 will.

Rickie and Todd also asserted that Willie Ray’s 2002 will was the product of undue influence by Calvin and Diane. When writing a will it is also important that you are executing the will on your own volition and not solely for the benefit of another. The court will throw out a will that has been executed under undue influence (for more on undue influence, see What is Undue Influence?). The court presumes undue influence if a confidential relationship existed between the testator and a beneficiary of the will and there is evidence that the beneficiary somehow abused their relationship. One example of suspected undue influence is if a beneficiary is an active participant in the execution of the will. However, to be considered undue influence, the will must reflect the desire of the beneficiary rather than the intentions of the testator.

The court found enough evidence to prove a confidential relationship between Diane and Willie Ray. During the period of time that Willie Ray created his 2002 will Diane assisted Willie Ray in getting around town, she held power of attorney to execute financial and legal documents on his behalf, and she had helped him with his finances since 2001. But one must prove more than just the existence of a confidential relationship. To have the will invalidated for undue influence Diane, as the sole beneficiary, must have actively participated in the execution of the will. Evidence was presented that Diane was not in the room at the time the will was executed, nor had she had any significant contact with Willie Ray’s attorney or Willie Ray regarding the drafting of the will. Based on these facts, the court held that the will was not a product of undue influence and was valid. The 2002 will was found to replace the will executed by Willie Ray in 1989 and Rickie and Todd failed to inherit from Willie Ray.

In re Estate of Rutland, 2008-CA-01671-COA (Dec. 8, 2009).

What are “Bodily Heirs?” The Importance of Clear Drafting

A life estate is an interest in property for the life of an individual—called a life tenant—that passes to someone else at the death of the life tenant. The person who receives the property after the death of the life tenant is called a remainderman. In a recent case, a Tennessee court had to interpret a will that left a life estate to a life tenant with a remainder to her “bodily heirs.”

Robert Stone’s will left a life estate to his daughter Nellie, with the remainder to go in equal shares to Nellie’s “bodily heirs.” Nellie had three children, but two of those children died before Nellie did. One of the deceased children was survived by four children (Nellie’s grandchildren). The question before the court was whether Nellie’s grandchildren could be considered Nellie’s “bodily heirs.”

“Bodily heirs” (sometimes called “heirs of the body”) is antiquated language for lineal descendants. The term is intended to distinguish between a person’s natural descendants and the person’s other heirs, such as a spouse or friend. Like most states, the Tennessee court defined “bodily heirs” to mean lineal descendants of a specific person who would inherit the property through intestate succession. “Bodily heirs” does not necessarily mean “children.” The term includes generations, extending down to grandchildren, great grandchildren, etc.

The court held that biological grandchildren qualify as lineal descendants of their grandparents. If Nellie’s four grandchildren were her biological grandchildren (as opposed to adopted grandchildren), then they will be able to inherit the property under the terms of the will. There was some question as to which of the four were actually biologically related to Nellie or were adopted or stepchildren of Nellie’s son. The appellate court remanded the case to determine which ones were biological grandchildren of Nellie so that those individuals could inherit their portion of the estate.

Here is a lesson in the importance of clear drafting. If Mr. Stone’s will had included clear definitions of the class of beneficiaries he intended to benefit (instead of relying on arcane language like “bodily heirs”), this confusion could have been avoided. If the will isn’t clear enough, then the courts are called on to interpret the language of the will in accordance with binding precedent.

Chambers v. Devore, No. W2008-02548-COA-R3-CV, 2009 WL 3739443 (Tenn. Ct. App. Nov. 9, 2009).

What Does it Take to Revoke a Will?

Wills are often referred to as ambulatory documents, meaning that it can usually be changed or revoked at any time before death. But what does it take to revoke a will? Sometimes an individual will simply mark through a provision or attempt to modify the will with a few handwritten notes. Will that work?

A recent Ohio case addressed whether or not markings on a will were effective to revoke a will. The case of Horst v. Horst arose out of a dispute between two siblings, Patricia and William Horst, over the Last Will and Testament of their mother, Mary Horst.

Before Mary’s death, she had marked up one copy of the will but left another copy unaltered. The markings included drawing an “X” over about 10 lines of a page, then attempting to mark out the “X.” She also blacked out the words “the amount of Five Hundred Dollars ($500.00)” in one section. At the top of the page she wrote “This Will is correct.” The will contained multiple signatures by Mary placed between and around typewritten lines in the will. The second page marked out area around the final signature on the will.

Patricia argued that all of these markings show that Mary had revoked her will and that it was no longer valid. Like most states, Ohio has a statute that defines the ways in which a will can be revoked. The statute allows revocation in the following ways:

When the testator tears, cancels, obliterates, or destroys the will with the intention of revoking it;
When, at the request of the testator and in the testator’s presence, another person tears, cancels, obliterates, or destroys the will with the intention of revoking it;
When a person tears, cancels, obliterates, or destroys the will at the express written direction of the testator;
By way of another written will or codicil that is properly executed according to statute; or
By another writing that is signed, attested to and subscribed pursuant to statute.

The Court found that Mary’s markings on her will did not qualify as a revocation of her will under the statute. Mary only put an “X” on portions of the first page of the will and crossed out some language in the margins, but she did not destroy, obliterate, tear, or cancel the entire document. Most of the document remained visible, including her signature and the date. She also left another copy of the will completely intact, without any markings at all. Moreover, the fact that Mary wrote at the top of the will “This Will is correct” further evidenced her intent that this document remain as her valid will to be probated upon her death. If anything, the markings showed that Mary intended to make some changes to a few of the provisions in the will. As such, the court upheld the validity of Mary’s will, to be probated as written.

One good lesson the Horst case teaches is that the best way to keep a testator’s intentions clear is to always consult with a probate attorney when seeking to draft, amend, revise, or even revoke a testamentary document such as a will. This avoids confusion as to the testator’s wishes and could save a lot of money in court disputes arising over the validity of will.

Horst v. Horst, No. 22993, 2009 WL 3068261 (Ohio Ct. App. Sept. 25, 2009)

No Automatic Presumption of Undue Influence Between Spouses

Does the automatic presumption of undue influence apply to transfers between spouses? According to the Mississippi Court of Appeals decision in In the Matter of the Estate of Patricia McDaniel Langston, the answer is no.

Patricia and Mansfield Langston were married for 11 years. During this time, Patricia transferred the marital home to Mansfield after she purchased a new home. She later executed a will leaving her entire estate to her three adult children from a previous marriage and to one of her sisters. She named her husband as executor of her estate. Her will stated that her husband was left out of the will because he had his own estate.

A few months after signing the will, the Langston’s attorney prepared three deeds. One transferred Patricia’s new home (which had become the marital home) from her name only to both her and Mansfield’s names as joint tenants with right of survivorship. Another deed transferred the original home from Mansfield to Patricia’s mother. The third deed transferred property to a third party in a sale.

A month after transferring the property, Patricia executed another will which changed the executor of her will from her husband to her mother. A few months later, Patricia and Mansfield purchased a CD in the amount of $200,000 in both their names as joint tenants with the right of survivorship. Just under two years later, Patricia died.

Upon her death, Patricia’s mother opened her estate and attempted to set aside the joint tenancies that had been established in the marital home and the CD and bring them into probate for distribution under the terms of Patricia’s will. The estate claimed that these joint tenancies were the result of undue influence exercised by Mansfield during a time that Patricia suffered from chronic illness.

The lower court relied on the confidential relationship between Mansfield and Patricia to apply the presumption of undue influence. On appeal, the appellate court noted that most marriages inherently involve a close confidential relationship, and therefore, the presumption of undue influence may not always apply.

In the typical undue influence case, the giver and the recipient are in a relationship that gives the recipient the opportunity to wrongfully cause the giver to turn over his or her property. This is known as a confidential relationship. (For more on undue influence, see What is Undue Influence?). But in this case, Patricia and Mansfield had been married 11 years. The very nature of a long-term marriage implies a confidential relationship. This made it easy for the estate to meet the factor test for confidential relationships.

In recognition of this situation, the Court of Appeals declined to apply the automatic presumption of undue influence in the marital context. Instead, the Court held that undue influence must be established by showing that the grantee spouse used “undue methods for the purpose of overcoming the free will” of the grantor spouse such that the grantee controlled her acts and prevented her from acting of her own mind.

In the Langston case, there was overwhelming evidence that Patricia was a very strong-willed person and that she continued to be so during all of the transfers in question. She may have been physically ill, but she attended all meetings and did the majority of talking. It was clear that the transfers were made of her own free will and not as the result of Mansfield exercising his dominance over her. As such, the lower court’s finding of undue influence was reversed.

In the Matter of the Estate of Patricia McDaniel Langston, 2008-CA-01090-COA (Miss. Ct. App. 2010).