Court Opinion

ID: 4250177
Source: CourtListenerOpinion
Date Created: 2018-02-28 21:23:43.096788+00
Date Added: 2024-06-11T14:44:16.005112
License: Public Domain

IN THE SUPREME COURT OF IOWA
                             No. 39 / 05-1534

                           Filed April 27, 2007

IN THE MATTER OF THE ESTATE OF HESTER
MARY LEWIS ANTON, Deceased,

GRETCHEN COY,

             Appellant,

vs.

NANCY R. EZARSKI, Fiduciary of the
Estate of HESTER MARY LEWIS ANTON,

             Appellee.

      Appeal from the Iowa District Court for Story County, Timothy J.

Finn, Judge.

      Specific devisee whose claim against estate was denied seeks further

review of court of appeals decision affirming adverse district court

judgment. DECISION OF COURT OF APPEALS VACATED; DISTRICT

COURT     JUDGMENT        REVERSED    AND    CASE    REMANDED       WITH

DIRECTIONS.

      Michael J. Houchins of Zenor, Houchins & Borth, Spencer, for

appellant.

      Stephen J. Howell of Newbrough, Johnston, Brewer, Maddux &

Howell, L.L.P., Ames, for appellee.
                                      2

APPEL, Justice.

      In this case, we consider whether the sale of certain property by an

attorney-in-fact prior to the death of the testator resulted in ademption of a

specific property bequest. The district court found that under the facts and

circumstances presented, the bequest was adeemed. The court of appeals

affirmed. For the reason set forth below, we reverse.

      I.    FACTUAL BACKGROUND.

      In 1972, the testator, Hestor Mary Lewis Anton (Mary), married

Herbert Anton, the father of Gretchen Coy. It was the second marriage for

both Herbert and Mary.         During this marriage, Gretchen, Mary’s

stepdaughter, deeded a piece of real property to her stepmother and father.

Herbert and Mary built a duplex on the property. After the death of Herbert

in 1976, Mary became the sole owner of the duplex property.
      In 1981, Mary executed a will. In the will, she bequeathed half of her

interest in the duplex to Gretchen.       The remaining half interest was

bequeathed to her biological son, Robert Lewis.       Mary bequeathed the

remainder of her estate to Robert and her daughter, Nancy Ezarski.

      In 1986, Mary was involved in a serious automobile accident. After
the accident, she lived in a series of nursing homes. For a short period of

time, she lived in a nursing home called Riverside. Thereafter, she moved to

Green Hills Health Center in Ames, where she had a private suite. Among

other things, Mary suffered from Huntington’s Chorea, a malady that

impacts the nervous system.

      Shortly after the accident, Mary executed a durable power of attorney

authorizing her daughter Nancy to manage her financial affairs. The power

of attorney took effect immediately. The document was a “durable” power of

attorney: it explicitly stated that it would remain in full force and effect
                                       3

until Mary’s death and would be unaffected by any mental or physical

disability that might occur after its execution.

        From 1986 until Mary’s death on December 2, 2003, Nancy handled

her mother’s financial affairs. There is no evidence in the record indicating

that Nancy did anything improper in connection with Mary’s assets.

        On Memorial Day 1998, Nancy and her mother discussed selling the

family residence to provide her mother with necessary support. After this

conversation, staff at the nursing home advised Nancy that she should not

discuss financial matters with her mother as it would exacerbate her

condition and cause distress. As a result of this input from nursing home

staff, Nancy and her mother had no further discussions regarding her

financial affairs.
        Nancy, acting as attorney-in-fact, began selling her mother’s assets in

order to pay her ongoing living expenses. Mary was generally aware her

assets were being sold off to pay for her expenses. Her only concern was

that she would have enough money to continue living at Green Hills. There

was, however, no evidence that Mary was ever aware that the duplex was

sold.
        By 2003, the only asset remaining in Mary’s estate was the duplex.

The combined income from that asset and from her husband’s trust was

insufficient to meet her ongoing expenses. At this point, Nancy listed the

duplex property for sale. Nancy then received a call from Gretchen’s son,

who informed Nancy of the terms of Mary’s will and told her she could not

sell the duplex.

        In light of the phone call from Gretchen’s son, Nancy took the duplex

off the market and contacted an attorney, who issued an opinion stating

that Nancy had the power and authority to sell the duplex. The attorney
                                      4

also advised, however, that the trustee of the Harold R. Lewis Trust had the

discretion to distribute the principal of the trust to Mary for her health,

well-being, and maintenance. Nancy then contacted the trust officer at

First National Bank to inquire about obtaining a loan from the trust. She

was informed that the bank preferred that all of Mary’s assets be sold prior

to invading the trust’s principal. As a result, Nancy believed she had no

other choice but to sell the property, which was accomplished on

August 28, 2003.
      The evidence in the record regarding Mary’s capacity at the time of

the sale is thin. Nurses’ notes indicate that on April 16, 2003, Mary had

“periods of confusion.” A social service progress note dated October 9,

2003, six weeks after the sale, makes reference to “advanced dementia.”

Nancy herself appeared to have concerns regarding Mary’s mental state.

Nancy indicated in a phone conversation with Gretchen Coy in June 2003

that Mary “sleeps almost all the time.” The letter to Nancy from the estate’s

attorney recalled Nancy’s indication that Mary was not competent to handle

her affairs at the time the sale of the duplex was being considered. At trial,

however, Nancy testified that her mother was “not incompetent” at the time
of the duplex’s sale.

      The net proceeds of the duplex’s sale were $133,263. Nancy began to

pay Mary’s living expenses out of the proceeds. At the time of Mary’s death,

the remaining balance was $104,317.38.

      II.    PRIOR PROCEEDINGS.

      After Mary’s death, Gretchen filed a claim with the estate, asserting

that she was entitled to $72,625 because of the specific bequest of the

duplex in Mary’s 1986 will.      Nancy, acting as executor of the estate,
                                       5

disallowed the claim. Gretchen then proceeded to file a claim in probate

court.

         The estate moved for summary judgment. The estate argued that at

the time of the duplex’s conveyance, Mary was not under a guardianship of

any kind. The estate further asserted that all other assets previously held

by Mary had been liquidated, and that the trustee of the Harold R. Lewis

Trust had refused to advance funds from the trust’s principal to pay for

Mary’s expenses as long as there were other assets that could be liquidated.

As a result, the estate argued that the specific bequest of the duplex had

been adeemed by extinction because it was no longer in the estate.
         Gretchen countered the motion for summary judgment by asserting

that there was a question of fact regarding Mary’s intention in connection

with the sale of the duplex. Gretchen cited the conversation she had with

Nancy in June 2003, in which Nancy indicated that Mary “sleeps almost all

the time.” Gretchen argued that the only clear evidence of Mary’s intent

was the original will. Gretchen asserted that at no time did Mary ever

indicate to her an intention to alter the terms of her will. Based on this

evidence, Gretchen urged the court to deny the estate’s motion for summary
judgment.

         On March 29, 2005, the district court denied the estate’s motion for

summary judgment. The court noted that the summary judgment record

shows little, if anything, about whether Mary was consulted about the sale

of the duplex and whether she was able to understand her financial

circumstances. The court found that there was a genuine issue of material

fact as to the mental state of Mary at the time of the duplex’s sale and her

involvement, if any, in the decision leading up to the sale.
                                     6

      The matter came to trial on August 10, 2005. On August 25, 2005,

the district court entered an order denying Gretchen’s claim. The district

court determined that although Mary’s mental abilities were diminishing

over the last months of her life and by October 2003 she was suffering from

dementia, these facts were irrelevant due to Iowa Code section 633.705(1)

(2003), which provides in relevant part:

      All acts done by the attorney in fact or agent pursuant to the
      power during any period of disability or incompetence . . . have
      the same effect and inure to the benefit of and bind the
      principal and the principal’s heirs, devisees and personal
      representatives as if the principal were alive, competent and
      not disabled.

As a result of this statute, the district court reasoned that the power of

attorney was not affected even if Mary was disabled or incompetent at the

time of the sale of the duplex.

      The district court further noted that under these facts, Mary was well

aware of the general plan for her support. The district court found that

given the choice, Mary’s intent was clear and established: she preferred to

sell the assets and remain cared for in the nursing home. As a result, the

district court held that the specific bequest in Mary’s will was adeemed by

Nancy’s sale of the duplex.
      Gretchen appealed the decision of the district court, and the matter

was transferred to the court of appeals. The court of appeals affirmed,

noting that Nancy had power of attorney which was unaffected by any

mental disability that Mary may have had at the time the duplex was sold.

The court of appeals adopted the trial court’s finding that the sale of the

duplex was clearly a part of the testator’s intent and plan, which had been

implemented over the course of several years. As a result, the property was

adeemed by its sale. We granted further review.
                                       7

      III.   STANDARD OF REVIEW.

      The matter is in equity. Review of a determination in equity of the

rights and obligations of parties to property devised under a will is de novo

under Iowa Code section 633.33. Gustafson v. Fogleman, 551 N.W.2d 312,

314 (Iowa 1996).     Weight is given to the trial court’s findings of facts,

especially those involving witness credibility, but this court is not bound by

the district court’s findings or conclusions of law. In re Estate of Gearhart,

584 N.W.2d 327, 329 (Iowa 1998).
      IV.    LEGAL BACKGROUND.

             A.     Iowa Approach to Ademption.

      What happens when a testator makes a specific bequest of property in

a validly executed will, but the property is missing from the estate at the

time of death? The doctrine of ademption by extinction has been developed

to address some of the difficulties that arise under these circumstances.

Ademption generally means “a taking away,” and, in the context of the law

of wills, refers to the removal or elimination of a specific bequest prior to the

time of death. Joseph Warren, The History of Ademption, 25 Iowa L. Rev.

290, 292 (1940).
      In the early twentieth century, this court adopted the identity theory

of ademption. In re Will of Miller, 128 Iowa 612, 617, 105 N.W. 105, 106-07

(1905), overruled in part by Newbury v. McCammant, 182 N.W.2d 147, 149

(Iowa 1970). Under the identity rule, if specifically bequeathed property was

not found in the estate at the time of death, the bequest was adeemed.

Subsequent to Miller, this court routinely applied the identity rule in a

number of similar contexts. In re Estate of Bernhard, 134 Iowa 603, 112
N.W. 86 (1907); In re Estate of Keeler, 225 Iowa 1349, 282 N.W. 362 (1938);

In re Estate of Sprague, 244 Iowa 540, 57 N.W.2d 212 (1953). Beginning in
                                       8

the 1960s, however, this court began to depart from the rigid application of

the identity theory in all settings.

       For example, in In re Estate of Bierstedt, 254 Iowa 772, 119 N.W.2d
234 (1963), this court considered whether the sale by a guardian of

specifically bequeathed real estate without the knowledge and consent of an

incompetent testator caused ademption by extinction under the identity

rule. In this case, the court rejected application of a “rigid identity rule” and

applied what it called a “modified intention” approach. The court noted that

the order establishing the guardianship demonstrated that Bierstedt was

incompetent at the time the land was sold, thereby creating a presumption

of lack of testamentary capacity. Bierstedt, 254 Iowa at 774, 119 N.W.2d at

235.   As a result, because the testator did not have the testamentary

capacity to, in effect, work a change in the will, the sale could not be

considered to manifest an intention on the part of the testator to modify the

will. Therefore, no ademption occurred. The court in Bierstedt expressly

noted, however, that the rulings in Keeler, Sprague, and Bernhard, where

competent testators themselves had sold or otherwise disposed of specific

devises and bequests, “are sound and we adhere to them.” Id. at 238.
       Similarly, in In re Estate of Wolfe, 208 N.W.2d 923 (1973), this court

considered whether the destruction of property which was the subject of a

specific bequest, contemporaneous with the death of the testator, worked

an ademption. In this case, the testator had specifically bequeathed his

automobile, a 1969 Buick Electra, to his brother. The testator was killed in

an automobile accident in which his automobile was a total loss. Insurance

proceeds that included the value of the auto were paid to the estate. The

brother claimed he was entitled to the proceeds. In holding for the brother

and against the estate, the court rejected the identity rule and emphasized
                                      9

that the intent of the testator is paramount in determining whether an

ademption has occurred. Id. at 924. As a result, the court reasoned that

where property is missing from the estate because of some act or event

involuntary as to the testator, there is no ademption. Id.

      In summary, our cases hold that the identity rule will not be rigidly

applied in all cases.   Under what the court has called the “modified

intention theory,” the identity rule will not be applied to cases where

specifically devised property is removed from the estate through an act that

is involuntary as to the testator. This includes cases where the property is

sold by a guardian, or conservator, or is destroyed contemporaneously with

the death of the testator. Until now, however, we have not had occasion to

consider whether ademption occurs when specifically devised property is

sold by an attorney-in-fact.

            B.    Ademption Cases in Other States Involving Sales of
                  Specifically Devised Property by Attorneys-in-Fact.

      At common law, a power of attorney was revoked by the incapacity of

the principal. The durable power of attorney was created to avoid the

common law result and provide persons with limited means a cost-effective

alternative to guardianship proceedings. All fifty states have now enacted

statutes authorizing durable powers of attorney. Carolyn L. Dessin, Acting

As Agent under a Financial Durable Power of Attorney: An Unscripted Role,

75 Neb. L. Rev. 574, 575-80 (1996).

      While there are many cases in other states involving acts of court-

appointed guardians where the testators are incompetent, there are only a

few cases dealing with the question of whether acts of an agent pursuant to

a durable power of attorney cause ademption of specific bequests. The

cases have not reached uniform results.
                                     10

      The first case dealing with the question is In re Estate of Graham, 533
P.2d 1318 (Kan. 1975). In this case, a specific devise of real estate was sold

by an agent pursuant to a power of attorney to support the testator’s stay in

a rest home. After the death of the testator, the beneficiary of the specific

bequest sought the balance of the proceeds remaining in the estate.

      The Kansas Supreme Court held that no ademption occurred. The

court emphasized that the devise was not conveyed with the full knowledge

and consent of the testator during his lifetime. Id. at 1321. The court

noted that it seemed logical that the same legal principles should apply to a

conveyance by an attorney-in-fact acting under a power of attorney as are

applicable to the acts of a guardian. Id. The court noted that were the rule

otherwise, an attorney-in-fact hostile to one of the beneficiaries may adeem

a gift through the sale of specifically devised property. Id. at 1322. The

court emphasized, however, that the beneficiary was entitled only to the

unexpended balance of the proceeds of specifically devised property. Id.
      The Ohio Supreme Court considered this question in In re Estate of

Hegel, 668 N.E.2d 474 (Ohio 1996). In this case, Hegel sold the principal’s

house after she had become incompetent pursuant to a durable power of
attorney.   The principal’s will devised the house to Hegel.       Upon the

principal’s death, Hegel claimed entitlement to the cash proceeds of the sale

that remained in the principal’s estate. The probate court held that the

devise had been adeemed by extinction. On appeal, the Court of Appeals of

Ohio reversed in a 2-1 decision.

      The Ohio Supreme Court reversed the court of appeals in a 4-3

decision and held that the specific devise was adeemed.         The majority

emphasized that while the Ohio legislature had passed a nonademption

statute in regard to the actions of court-appointed guardians, it did not
                                      11

extend the rule to agents acting under durable powers of attorney. Id. at

477-78. The majority further noted that it did not regard those acting

under powers of attorney as the same as guardians. The majority indicated

that attorneys-in-fact have more freedom and can act without court

approval as the principal’s alter ego. Id. at 478.

      The dissenters emphasized that the critical factor was the testator’s

incapacity at the time of sale, not whether the sale was made by a guardian

or by agent pursuant to a power of attorney. Id. at 478-80. One dissent

emphasized that attorneys-in-fact are a recent occurrence and are often

encouraged by estate planners and counselors as a way of avoiding judicial

supervision. Further, the dissent argued that under the approach of the

majority, an agent could manipulate the sale of property for his or her own

benefit.
      Relying on the Ohio precedent, the Supreme Court of Nebraska

recently held that the sale of a specific devise by an attorney-in-fact resulted

in ademption. In re Estate of Bauer, 700 N.W.2d 572, 578-79 (Neb. 2005).

As in Ohio, the Nebraska legislature adopted an exception to ademption for

the sale of property by a conservator or guardian, but not by attorneys-in-
fact. In light of the specific action of the legislature exempting actions of

conservators and guardians from ademption, the Nebraska Supreme Court

refused to extend the exemption “by judicial fiat.” Id. at 579. Further, the

Nebraska Supreme Court cited a Nebraska statute that is virtually identical

to Iowa Code section 633.705(1), which states that acts done by an

attorney-in-fact pursuant to a durable power of attorney bound the

principal and successors in interest as if the principal were competent and

not disabled. Id. The court reasoned that under this statute, ademption
                                      12

necessarily results from the acts of an attorney-in-fact pursuant to a

durable power of attorney.

      V.     ANALYSIS.

      Although the identity rule has been subject to substantial criticism

and has been abandoned or substantially altered in the Uniform Probate

Code and the Restatement (Third) of Property, neither party questioned its

continued vitality either in the district court or on appeal. See Unif. Probate

Code § 2-606 (1997) (adopting “ ‘intent’ theory” of ademption); Restatement

(Third) of Prop.: Wills and Other Donative Transfers § 5.2(c) (1999) (specific
devise fails if property is not in estate “unless failure of devise would be

inconsistent with testator’s intent”). Instead, the parties have focused on

whether Mary was competent at the time of sale and whether the rule in

Bierstedt should be extended to cases involving attorneys-in-fact. In this

posture, we do not examine the continued vitality of the identity rule, but

simply apply the principles established in our case law to the facts of this

case. For the reasons expressed below, we hold that the sale of the duplex

by an attorney-in-fact under the circumstances presented did not result in

ademption of the bequest.
             A.    Effect of Sale of Specifically Devised Property by
                   Attorney-in-Fact if Mary was Incompetent at Time of
                   Sale.
      If Mary was incompetent at the time of sale of the duplex, the act

would clearly be involuntary as to her. The question then arises whether

the rule in Bierstedt should be extended to cases involving the sale of

specifically devised property by an attorney-in-fact, In re Estate of Graham,
533 P.2d at 1321, or whether the extension should be rejected. In re Estate

of Hegel, 668 N.E.2d at 478; In re Estate of Bauer, 700 N.W.2d at 579.
                                     13

      We follow the approach in In re Estate of Graham. It is true, however,

that there are some differences between the appointment of a guardian by a

court and the selection of an agent with durable power of attorney by a

competent testator prior to the onset of any mental infirmity. For example,

in the case of the execution of a durable power of attorney, the principal has

the power to choose the agent and to approve the scope of the agent’s

powers.

      The rationale of Bierstedt, however, is that ademption does not occur

when specifically devised property is sold as a result of acts that are

involuntary to the testator. The rationale of our cases is that ademption

occurs where a testator had knowledge of a transaction involving a specific

devise, realizes the effect of the transaction on his or her estate plan, and

has an opportunity to revise the will. Where these elements are not present,

no ademption occurs. The focus of analysis is on the testator and whether

the testator has made a deliberate decision not to revise the will, and not on

the nature of the agency causing the involuntary act. Bierstedt, 254 Iowa at

775-76, 119 N.W.2d. at 236-37; Wolfe, 208 N.W.2d at 925.
      The legal contexts of In re Estate of Hegel and In re Estate of Bauer are
distinguishable. In these cases, the legislature had stepped in to amend the

probate code to specifically exclude acts of guardians from the rule of

ademption. The legislative failure to exclude acts of agents pursuant to

durable powers of attorney was found to be significant.             The Iowa

legislature, however, has not taken action similar to that of the legislatures

in Ohio and Nebraska.

      The Iowa legislature has, of course, enacted Iowa Code section

633.705(1). The district court held that if, in fact, Mary was disabled or

incompetent at the time of the sale of the duplex, section 633.705(1) would
                                      14

cause the specific bequest of the duplex to fail as a result of ademption

because the act of the attorney-in-fact would have the same force and effect

as the act of the testator.

      We do not agree.        Iowa Code section 633.705(1) is a variant of

Uniform Power of Attorney Act section 2 (1979), which has been

incorporated into the Uniform Probate Code sections 5-01, 5-02 (1997). As

indicated above, the purpose of the provision is to change the common law

rule that the mental disability of the principal terminated the agency

relationship. Gregory S. Alexander, Ademption and the Domain of Formality

in Wills Law, 55 Alb. L. Rev. 1067, 1070 (1992).          In other words, a

purchaser of real estate or other property can be assured clear title when

dealing with a duly appointed agent operating pursuant to a valid durable

power of attorney.
      Our view that section 633.705(1) does not determine whether

ademption occurs when property is sold by an agent acting pursuant to a

durable power of attorney is supported by the language of the statute.

Under section 633.705(1), “acts” of the agent are binding on third persons,

including heirs. Here, the agent has not acted to cause an ademption, but
only to cause the sale of property.        This act—namely the sale of the

property—is indeed binding on third parties, including heirs. The statute,

however, is silent on the issue of who is entitled to the proceeds of the sale

where the principal has made a specific bequest in a will and where

identifiable proceeds are found in the estate.
             B.      Effect of Sale of Specifically Devised Property by
                     Attorney-in-Fact if Mary was Competent at Time of
                     Sale.
      In the alternative, assuming that Mary was competent at the time of

the duplex’s sale, the question arises as to whether an ademption should
                                      15

occur based, not upon the act of the attorney-in-fact in selling the property,

but upon the intent of the testator expressed prior to the sale. Specifically,

the estate claims that Mary on Memorial Day 1998 knew that her assets

would need to be sold for her support and specifically approved of the sale

of her residence by her attorney-in-fact. There appears to have been no

specific discussion, however, of the sale of the duplex at any time. Further,

it is conceded that Mary had no knowledge of the actual sale of the duplex

over five years later. Nancy simply sold it without telling her mother in

order to avoid aggravating her condition.
         We do not question the wisdom of Nancy’s decision to sell the

property without consulting Mary.          Our only concern is the legal

consequences that flow from it. This case thus raises the question of what

result should occur where the principal is competent, but the attorney-in-

fact sells a specific devise without the knowledge of the testator.

         If Mary was aware of the transaction, was aware of the impact the

transaction had on her estate plan, and did not change her will, ademption

would, of course, occur under the identity theory. Here, however, Mary only

had a general knowledge that assets may need to be sold for her support at
some time in the future. This is simply not the same as contemporaneous

knowledge that an asset that is subject to a specific devise has, in fact, been

removed from the estate. Most ordinary persons would not run down to the

lawyer’s office to change their will in light of a remote future contingency

that has not been specifically discussed and which may or may not occur in

the future. An expression of intent in the indefinite future to sell assets for

support is not sufficient to cause ademption under our “modified intention

theory” where the testator is not aware that the specific action has taken

place.     See Restatement (Third) of Agency:       Knowledge Requisite to
                                     16

Ratification § 4.06 (2006) (ratification of acts of principal requires full

knowledge of underlying transaction); Ellwood v. Mid States Commodities,

Inc., 404 N.W.2d 174, 179 (Iowa 1987).

      It is true that Nancy did not sell the duplex until all other sources of

revenue had been exhausted for her mother’s support. It may well be that,

under the circumstances, her mother would have assented to the sale of the

duplex in 2003 had she been asked. But under our cases, the relevant

issue is not whether Mary would have assented to the sale had she been

asked, but rather whether Mary had the opportunity to change her will once

she knew that the duplex was no longer part of her estate. Under the

record here, she simply did not have that opportunity.
      There remains a question of remedy.        Gretchen seeks to recover

$72,625, or half the proceeds realized upon the sale of the duplex. Some

courts have held that where ademption does not occur, the devisee is

entitled to the entire value notwithstanding the fact that the proceeds may

have been used for the care of the testator. In re Estate of Mason, 397 P.2d
1005, 1007 (Cal. 1965). We have considered the issue, however, and have

held that in cases where specific devises are removed from the estate as a
result of an involuntary act, the devisee is entitled only to the proceeds

which have not been expended on the support of the testator. Stake v. Cole,

257 Iowa 594, 599-600, 133 N.W.2d 714, 717 (1965). We see no reason to

depart from Iowa precedent. As a result, Coy is entitled to $52,158.69.

      VI.    CONCLUSION.

      For the reasons expressed above, we hold that under the facts and

circumstances of this case, the sale of the duplex did not cause ademption

to the extent that there were specifically identifiable proceeds in the estate

at the time of death. The decision of the court of appeals is vacated, the
                                    17

district court judgment is reversed, and the matter is remanded to the

district court for proceedings not inconsistent with this opinion.

      DECISION OF COURT OF APPEALS VACATED; DISTRICT COURT

JUDGMENT REVERSED AND CASE REMANDED WITH DIRECTIONS.

      All justices concur except Hecht, J., who takes no part.