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You might hear third-hand accounts of senior clients falling prey to undue influence. Or perhaps your own client was forced into arranging his affairs a certain way. On the flip side, your mid-life client could pressure elderly parents into certain actions. Either way, advisors need to be prepared to deal with potential family conflicts.

As a legal doctrine, undue influence involves assessing whether the person making the decision had “full, free and informed thought,” says Tim Matthews, a partner at Stewart McKelvey in Halifax, speaking at the Society of Trust and Estate Practitioners (STEP) National Conference earlier this month. Otherwise, the person may have been under undue influence.

He presents two court cases — with different outcomes — that illustrate undue influence.

When advice is just vice

Take the B.C. case of Cowper-Smith v Morgan, which involves a deceased widow, with two sons and a daughter, as well as a home and an investment portfolio of about $600,000. Before her death, she suffered from declining cognitive capacity.

Mother and daughter established joint tenancy for the mother’s home. The mother also signed a declaration of trust for her home and portfolio that stated the daughter was bare trustee for the benefit of the mother during the mother’s lifetime. After the mother’s death, the daughter would be entitled to all assets.

The mother also had a will bequeathing her estate equally among the three children. “But there was nothing that was going to pass through her estate,” says Matthews, so the purpose of the will was unclear.

Read: Dealing with errors in wills

After her death, the sons, one of whom had given up his career to care for the mother, contested the daughter’s entitlement to all assets.

Did the transaction between mother and daughter result from full, free and informed thought, or undue influence?

To answer that question, Matthews says the court reviewed these standard markers:

  • Did the mother have opportunity to get independent legal advice?
  • Was there actual influence on the mother or the opportunity to influence her?
  • Did she have ability to resist influence?
  • Did she have knowledge and appreciation of the transaction?

When assessing if legal advice is independent, the court looks at whether the party who benefits from the transaction is in the room when legal advice is sought, says Matthews.

In this case, the daughter was indeed present when the mother met with her lawyer. In fact, the daughter did most of the talking, telling the lawyer what her mother wanted.

“That in itself is a red flag,” says Matthews.

The court further noted that the transfer comprised most of the mother’s assets and that the lawyer didn’t ask the mother whether she had discussed the transfer with other family members.

Taking all these factors into account, legal advice was deemed insufficient to refute undue influence, says Matthews.

“In the case of independent legal advice, the case very clearly sets out that it’s not sufficient to simply say, ‘Do you understand what you’re doing?’ ” he says. “You have to enter into a discussion with the client about the merits of the transaction.”

For example, he says the client should be asked to give reasons for wanting to make a transaction, and whether she considers her actions wise or potentially in conflict with the family.

(Read more about the case, which also involves proprietary estoppel, the ruling on which is currently under appeal with the Supreme Court.)

Read: Undue influence on clients? What to do

Gifts and undue influence

In contrast, another case involving gifting found no undue influence.

Thorsteinson v Olson, a Saskatchewan case, also involves an elderly widow. She had no children but had a close relationship with a man and his son who lived on her farm in a mobile home. After the man died, the widow signed a deed of gift to transfer nine parcels of land in joint name with the man’s son.

Later, she requested the transfers be set aside on the basis of undue influence, as well as resulting trust and breach of fiduciary duty. After her death, her executor continued the legal action.

With gifts, the court considers whether there is a relationship of influence, says Matthews. But there’s no requirement to show manifest disadvantage to the transferor.

In this case, the court also considered the purpose of independent advice — whether from a lawyer, accountant, financial advisor or other professional. The purpose is “to show that the person making the transaction knows what they’re doing,” says Matthews. “That they’re informed and that they’re acting freely; they’re not being forced.”

The widow’s lawyer testified that the widow had expressly requested the transfers with no influence.

Matthews says, “The trial judge noted that the lawyer who had given advice [to the widow] had known the family for years.” For example, he knew the relationship between the two families, in which the widow and the younger man were like mother and son. With such an intimate relationship, the transfers made sense to the lawyer. Further, the lawyer testified he had met only with the widow.

As a result, the court found no undue influence. The court also said independent advice isn’t necessary every time someone signs a deed or transfer. But if advice in such cases is inadequate or imperfect, the client has recourse to sue his or her lawyer.

Also read:

Worst financial mistakes and how to avoid them

Originally published on Advisor.ca
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