Opinion ID: 1925809
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Heading: Respective Burdens of Proof in Actions to Avoid Inter Vivos Transfers as a Result of Alleged Undue Influence.

Text: The respective burdens of proof placed on the parties in actions to avoid inter vivos transfers as a result of alleged undue influence were thoroughly reviewed in Todd, 585 N.W.2d 273 (Iowa 1998). That case involved a challenge to both a will and a series of inter vivos transfers as the result of alleged undue influence. The jury's verdict was for the contestants as to both the will and the inter vivos transfers. The appellant challenged the district court's instructions to the jury on the burden of proof for avoiding an inter vivos transfer. We held that, although the burden of proof in assailing the will was by a preponderance of the evidence, the burden of proof in assailing the inter vivos transfers was by clear, convincing, and satisfactory evidence. Todd, 585 N.W.2d at 276. Based on that conclusion, we affirmed that portion of the judgment setting aside the will but granted a new trial on the challenge to the inter vivos transfers. In discussing the respective burdens of proof, we stated in Todd: To summarize, contestants seeking to set aside a will based on undue influence carry the burden of proving the essential elements of the action by a preponderance of the evidence. Persons seeking to set aside inter vivos transfers carry a higher burden of proving their cause of action by clear, satisfactory and convincing evidence. Id. at 277 (footnote omitted). We further stated: Where a confidential relationship is found to exist, and inter vivos conveyances are challenged, the burden of proof shifts to the benefited parties to proveby clear, satisfactory, and convincing evidencetheir freedom from undue influence. Id. (footnote omitted). Following this reference to confidential relationships, we added a footnote in Todd, which declared: Four elements must be proven to rebut a presumption of undue influence being exerted by a person in a confidential relationship with the grantor.... [T]he grantee must prove (1) the grantor's lack of susceptibility to undue influence; (2) the want of opportunity to exercise such influence and effect the wrongful purpose; (3) the lack of a disposition to influence unduly for the purpose of procuring [an] improper favor; and (4) a result clearly unaffected by undue influence. Todd, 585 N.W.2d at 273 n. 5. As authority for this proposition, we relied on the court of appeals decision in In re Estate of Baessler, 561 N.W.2d 88, 92 (Iowa Ct.App. 1997). It appears without dispute in the present case that a confidential relationship existed between Martha and Janice at the time of the inter vivos transactions that were voided by the district court. Although the district court intimated that Janice was not disposed to influence Martha unduly and that the result did not appear to be the product of undue influence, it believed that the first two conditions of the four-pronged test in Todd, i.e., lack of susceptibility and want of opportunity, had not been rebutted. The district court commented, and we agree, that because those two conditions form the basis for a confidential relationship the effect of requiring all four of the stated propositions to be rebutted is to render the presumption conclusive. Our acceptance of the court of appeals' criteria in Baessler was not necessary to the decision in Todd. Upon further reflection, we are convinced that the Baessler criteria provide an unrealistic standard for rebutting the presumption of undue influence that arises from a confidential relationship. We are satisfied that, notwithstanding the susceptibility of a grantor to undue influence and the opportunity of a grantee to exercise such influence, it is possible to have an inter vivos transfer between such parties that is not the product of undue influence. In reaching this result, we draw in part on our legislature's directives with regard to the public-policy implications of fiduciary self-dealing in its enactment of the Probate Code. Iowa Code section 633.155 recognizes that self-dealing by a fiduciary in a probate setting may occur if approved by court order. See In re Guardianship of Jordan, 616 N.W.2d 553, 558 (Iowa 2000) (recognizing self-dealing by fiduciaries is permissible if approved by court on finding of an adequate reason for the transaction). We are similarly satisfied that all transactions between persons in a confidential relationship should not be prohibited in an inter vivos setting. That appears to have been the rule under our holdings prior to Todd. In First National Bank v. Curran, 206 N.W.2d 317 (Iowa 1973), we stated the rule for rebutting the presumption of undue influence arising from a confidential relationship as follows: When a confidential relationship is shown, the person in whom the trust is reposed is not merely required to go forward with the evidence; he has the burden of persuasion to uphold the transfers. His burden is heavy. He must produce clear, satisfactory and convincing evidence. He is required to prove entire good faith on his part and free, voluntary, and intelligent action on the part of the grantor.  Curran, 206 N.W.2d at 322 (emphasis added) (citations omitted). Similarly, in Merritt v. Easterly, 226 Iowa 514, 284 N.W. 397 (1939), we stated the rule as follows: Since that [confidential] relationship existed between the deceased and the appellant, the burden was upon the appellant to rebut the presumption of overreaching on his part, and to affirmatively establish that in his acquisition of property, in the transaction in controversy, he took no advantage of the deceased by reason of their relationship, but that she acted voluntarily with freedom, intelligence and a full knowledge of all of the facts. Merritt, 226 Iowa at 530, 284 N.W. at 405 (emphasis added). We believe that the statements which we have italicized from the Curran and Merritt cases more accurately reflect the correct standard for rebutting the presumption of undue influence that flows from a confidential relationship than our dictum in Todd. Consequently, we hold that the rule for rebutting the presumption of undue influence arising from a confidential relationship only requires the grantee of a transaction to prove by clear, satisfactory, and convincing evidence that the grantee acted in good faith throughout the transaction and the grantor acted freely, intelligently, and voluntarily. That is the standard which we apply in considering the transactions that have been challenged in the present case. There are three categories of transactions that are affected. The first category includes the transactions in which Martha demonstrated a clear propensity outside of the confidential relationship to reward Janice on her death vis-à-vis that type of transaction. It has been shown by clear, satisfactory, and convincing evidence that those transactions were not the product of undue influence by Janice and fairly reflected Martha's free-will determination. These transactions include all of the joint-tenancy property, including bank accounts, investment accounts, and certificates of deposit. They also include the life insurance and annuities. They do not include the gifts to Tom and Terry Dohse, the gifts to Janice of jewelry and a curio cabinet, or the profit on the sale of a tractor. As to the latter transactions, there is no specific proof of Martha's wishes existing outside of the confidential relationship, and the presumption of undue influence has not been rebutted. The third category of property includes the annual gifting of $10,000 to Janice. As to those transactions, we believe it has been established by clear, convincing, and satisfactory evidence that they were made pursuant to a course of estate planning initiated of Martha's own volition and carried out with Janice's assistance consistent with Martha's wishes. These gifts have not been shown to have been the product of undue influence by Janice.