Court Opinion

ID: 1054645
Source: CourtListenerOpinion
Date Created: 2013-10-08 20:51:13.906001+00
Date Added: 2024-06-11T11:07:51.800957
License: Public Domain

IN THE COURT OF APPEALS OF TENNESSEE
                              AT JACKSON
                                   January 18, 2005 Session

   IN THE MATTER OF: THE ESTATE OF LUCILLE JOHNSON HILL,
                          Deceased

                   Direct Appeal from the Probate Court for Henry County
                           No. 2108   Hansel J. McCadams, Judge

                   No. W2004-00821-COA-R3-CV - Filed February 17, 2005

This case involves a surviving spouse’s attempt to set aside a financial transaction made by the
decedent approximately one year prior to the decedent’s death. The trial court voided the transfer
and awarded the proceeds to the surviving spouse, determining that the transfer was fraudulent and
intended to defeat the interest of the surviving spouse. For the reasons stated herein, we reverse.

   Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Probate Court Reversed; and
                                       Remanded

DAVID R. FARMER , J., delivered the opinion of the court, in which ALAN E. HIGHERS, J., and HOLLY
M. KIRBY , J., joined.

William T. Looney, Paris, Tennessee, for the appellant, Harvey A. Stegall.

Richard L. Dunlap, III, Paris, Tennessee, for the appellee, Joseph Hill, Sr.

                                             OPINION

                          Factual Background and Procedural History

        In 1962, Lucille Johnson Hill (“Decedent”) moved to Paris, Tennessee with her husband of
fourteen years, Newberry Johnson. Mr. Johnson died in 1992. The appellee Joseph Hill, Sr.
(“Husband”) moved to Paris, Tennessee in 1990 with his former wife who deceased eighteen months
later. Decedent and Husband met sometime thereafter. On March 11, 1995, Decedent married
Husband. At the time of their marriage, Decedent was sixty-nine (69) years of age and Husband was
seventy-five (75). The couple separated nearly five years later on March 7, 2000 but never divorced.
On December 20, 2000, after the onset of a terminal illness that quickly caused her health to
deteriorate, Decedent died intestate leaving no issue. She was survived by Husband, her half-
brother, the appellant Harvey A. Stegall (“Brother”), and two half-sisters. The center of this dispute
concerns an investment transaction made by Decedent approximately thirteen (13) months prior to
her death.
        During the couple’s relatively brief marriage, each spouse maintained separate bank and
investment accounts, and neither had check-writing authority on the other’s accounts. Decedent’s
bank and investment accounts were without exception jointly titled with Brother. Brother worked
in the banking business and had handled Decedent’s finances for many years, dating back to her prior
marriage to Mr. Johnson. In his testimony, Brother stated that, while he advised Decedent and she
typically followed his advice, he always followed Decedent’s instructions with regard to her
investments. He testified that he was named as joint-owner of Decedent’s accounts because, based
on his experience, a “co-owner account was very sufficient to do what needed to be done.” Brother
further stated that Decedent’s other siblings knew how Decedent’s accounts were titled and that
Decedent desired the arrangement because Brother would “know how to take care of it” in the event
of her death.

        In July of 1992, Decedent purchased two five-year certificates of deposit (“CDs”) from First
National Bank in Blytheville, Arkansas, the bank where Brother worked at the time (the “FNB
CDs”). The FNB CDs showed the depositors’ names as “Lucille Johnson or Harvey Stegall” and
indicated that they were owned jointly with survivorship. CD No. 46214 was purchased for $52,515,
and CD No. 46225 was purchased for $10,000. On March 14, 1995, three days following Decedent’s
and Husband’s marriage, the FNB CDs were amended to reflect Decedent’s married name, resulting
in the payee being shown as “Lucille Johnson Hill or Harvey Stegall.” While it is certainly not
crystal clear from the record, it appears that after the FNB CDs matured in 1997, the proceeds
continued to be held with First National Bank in some form or another.

       Husband testified that in 1999, Brother mailed “one” CD to Decedent “with $62,000
something dollars.” Husband further stated that he and Decedent had an argument about which
financial institution to invest the funds from the CD. In his testimony, Husband claimed that
Decedent wanted to invest the money in an Edward Jones account, but Husband refused to assist her
because he had investments with Edward Jones that were “losing money every day.”

        On November 24, 1999, Decedent took this CD or a check representing the proceeds thereof
to her local bank in Paris, Commercial Bank & Trust Company. While at Commercial Bank,
Decedent met with Beverly Neighbors, Manager of Invest Financial Corporation (“IFC”), an
investment branch of Commercial Bank & Trust. Ms. Neighbors testified that Decedent established
an investment account, Account No. E8D-017019, with the sole asset being a “brokered” CD in the
original amount of $30,000 (the “IFC Account”). The IFC Account was made transferable on death
to Brother. The record shows a personal check from the joint account of Decedent and Brother as
the source of funds for the IFC Account. Ms. Neighbors testified that Decedent stated at the time
that “she and [Husband] were not living together” and that “[Decedent] wanted [Brother] to have
the money” in the event of her death. In addition to establishing the IFC Account, Decedent also
purchased a one-year CD through Commercial Bank on November 24, 1999.

       In early December 2000, Decedent suddenly became ill. She passed away on December 20,
2000. Husband filed a Petition for Letters of Administration seeking to be appointed administrator
of Decedent’s estate. Shortly after filing this petition, Husband filed a motion seeking a restraining

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order against IFC. Husband’s motion sought an order restraining IFC from distributing the proceeds
of the IFC Account. The trial court granted Husband’s motion and issued an order freezing the IFC
Account. Husband was subsequently granted Letters of Administration to serve as administrator of
Decedent’s estate. Meanwhile, on March 14, 2001, Husband sold two parcels of real property that
he received as Decedent’s surviving spouse for the sum of $100,000. All of Decedent’s bank and
investment accounts that were not affected by the restraining order passed to Brother as joint tenant
with right of survivorship.1 Trial was held on September 8, 2003. Nearly seven months later, on
February 27, 2004, the trial court entered its order finding as follows:

                1. That [Decedent] and [Husband] were married on March 11, 1995;
                2. That a certificate of deposit in the sole name of [Decedent] was amended
        three (3) days after her marriage to [Husband] to add the name of [Brother] as joint
        owner;
                3. That on Nov. 24, 2000, [Decedent] transferred $32,564.25 from said joint
        account with Brother at Commercial Bank & Trust Company to [the IFC Account];
                4. That at the time of the transfer to [the IFC Account], [Decedent] and
        [Husband] were living separate and apart, and [Decedent] stated to Beverly
        Neighbors, the [IFC] representative at Commercial Bank, that “she did not want her
        husband to have any of the money;”
                5. That the amendment to the certificate of deposit referenced in the
        preceding paragraph No. 2, the proceeds of which were used to purchase the financial
        instrument referred to in the preceding paragraph No. 3, was a fraudulent transfer by
        [Decedent] with the intent to defeat the interest of [Husband] in contravention of
        T.C.A. 31-1-105;
                6. That the purchase of the financial instrument on November 24, 2000, as
        set forth in the preceding paragraph No. 3 was a fraudulent transfer by [Decedent]
        with the intent to defeat the interest of [Husband] in contravention of T.C.A. 31-1-
        105.
                7. That [Decedent] died on December 20, 2000.
                8. That all other accounts of [Decedent] with [Brother] are not found to be
        created to fraudulently defeat the interest of [Husband].
                It is, therefore, ORDERED, ADJUDGED AND DECREED that [the IFC
        Account] is found to be the proper property of [Husband], the surviving spouse of
        [Decedent];
                It is further ORDERED, ADJUDGED AND DECREED that the Restraining
        Orders previously issued in this case are hereby dissolved and that [IFC], located at
        Commercial Bank & Trust Company, c/o Beverly Neighbors, 101 N. Poplar St.,

        1
         Upon Decedent’s death, Brother received two checks from Commercial Bank & Trust in the total amount of
$14,948.15. He also received a money order in the amount of $87,222.64 from First Security State Bank of
Caruthersville, M issouri. Finally, he received a check drawn on SouthBank of Blytheville, Arkansas in the amount of
$53,219.47.

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        Paris, Tennessee, cause the proceeds of said certificate of deposit to be paid to
        [Husband];
                It is further ORDERED, ADJUDGED AND DECREED that all other
        accounts of [Decedent] held jointly with [Brother] are held to be the property of
        [Brother].

        The sole issue raised on appeal is whether the trial court erred in determining that the
November 24, 1999 transfer by Decedent to the IFC Account was a fraudulent transfer intended to
defeat Husband’s interest as surviving spouse in contravention of section 31-1-105 of the Tennessee
Code.2

                                                 Standard of Review

        In a non-jury case, we review the trial record de novo; however, the trial court’s findings of
fact are presumed correct, unless the evidence preponderates against those findings. Tenn. R. App.
P. 13(d) (2004); Wright v. City of Knoxville, 898 S.W.2d 177, 181 (Tenn.1995); Union Carbide
Corp. v. Huddleston, 854 S.W.2d 87, 91 (Tenn.1993). The trial court's conclusions of law, however,
are accorded no such presumption. Campbell v. Florida Steel Corp., 919 S.W.2d 26, 35 (Tenn.1996).

                                                  Law and Analysis

        The leading case in this state addressing fraudulent transfers in violation of section 31-1-105
is Finley v. Finley, 726 S.W.2d 923 (Tenn. Ct. App. 1986). Finley involved a wife’s allegations that
her husband had created certain bank accounts with the intent to fraudulently defeat her elective
share. Finley, 726 S.W.2d at 924. The Finley court established certain factors that the trial court
should consider in its determination of whether a conveyance should be voided under section 31-1-
105. Id. Those factors are as follows:

        (1) whether the transaction was made with or without consideration, (2) the size of
        the transfer in relation to the [decedent’s] total estate, (3) the time between the
        transfer and the [decedent’s] death, (4) relations which existed between the
        [decedent] and the [surviving spouse] at the time of the transfer, (5) the source from
        which the property came, (6) whether the transfer was illusory, and (7) whether the
        [surviving spouse] was adequately provided for in the will.

        2
            Section 31-1-105 provides, in pertinent part, as follows:

        31-1-105. Fraudulent conveyance to defeat share voidable. — Any conveyance made fraudulently
        to children or others, with an intent to defeat the surviving spouse of the surviving spouse’s distributive
        or elective share, is, at the election of the surviving spouse, includable in the decedent’s net estate
        under § 31-4-101(b). . . .

Tenn. Code Ann § 31-1-105 (2004).

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Id. These factors should not be applied mechanically, but rather, “the weight and significance to be
given to each factor [will depend upon] the facts of each particular case.” Id. at 926; see also Warren
v. Compton, 626 S.W.2d 12, 17 (Tenn. Ct. App. 1981) (“All facts and circumstances surrounding
the transfer must be considered.”).

         Turning now to the facts of this case, we feel that the evidence in the record preponderates
against the trial court’s determination that Decedent’s establishment of the IFC Account was a
fraudulent transfer in violation of section 31-1-105. First, the trial court found that, three days after
Decedent’s and Husband’s marriage, “a certificate of deposit” was amended to add Brother’s name
as joint owner. Clearly, this finding is in error, and both parties have conceded as much in their
briefs to this Court. Although it is unclear exactly which CD the trial court was referring to, we
assume the trial court is referring to the two FNB CDs, and the record clearly shows that the FNB
CDs were amended simply to reflect the Decedent’s newly-acquired marital name of “Hill.” Next,
the trial court found in paragraph three (3) of its order that on November 24, 2000, Decedent funded
the IFC Account with $32,564.25 taken from a “said” joint account held with Brother at Commercial
Bank. It appears that, in paragraph 3, the trial court was referring to the joint checking account
Decedent used to draft the $30,000 check which funded the IFC Account. However, the trial court
made no previous mention of this “said” account, only referring to, as mentioned above, “a
certificate of deposit.” Additionally, the IFC Account was opened on November 24, 1999, not in
2000. Notwithstanding these apparent clerical mistakes, it is clear that the factual error made with
regard to the amendment of the FNB CDs led to the trial court’s erroneous conclusions in paragraphs
five (5) and six (6) of its order that the creation of the IFC Account was a fraudulent transfer.
Furthermore, Ms. Neighbors’ testimony as quoted in the trial court’s order is not wholly accurate.
Rather than testifying that Decedent affirmatively stated that she “did not want her husband to have
any of the money,” Ms. Neighbors’ testimony was that Decedent told her that she wanted her brother
to have the proceeds of the account in the event of Decedent’s death. We believe there is an
important difference, especially in view of the long-established ownership structure of Decedent’s
financial accounts.

        From our review of the record, the evidence clearly demonstrates that all of Decedent’s
financial accounts were held in co-ownership with Brother. There is no evidence to the contrary.
Therefore, we conclude that whatever funds were used to open the IFC Account were jointly held
by Decedent and Brother. Those funds were placed temporarily in Decedent’s and Brother’s joint
checking account with Commercial Bank, with that account serving merely as a conduit or
mechanism to facilitate the transfer to the IFC Account. Thus, we agree with Brother’s argument
that this transaction was simply a reinvestment and not any type of fraudulent transfer in
contravention of section 31-1-105. Accordingly, it is unnecessary for us to engage in an analysis of
the Finley factors as they apply to this transaction, although we believe an application of those
factors to the facts in this case would support our conclusion.

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                                          Conclusion

        The judgment of the trial court is reversed. Investment Financial Corporation Account No.
E8D-017019 is hereby released to the appellant Harvey A. Stegall. Costs of this appeal are taxed
to the appellee Joe Hill Sr., for which execution may issue if necessary.

                                                     ___________________________________
                                                     DAVID R. FARMER, JUDGE

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