gavel with legal scalesIn our last post, we discussed some common forms of Texas nonprobate asset transfers. We now turn our attention to the heart of this series—the reasons why a nonprobate transfer may be invalid. These reasons are called legal claims. In this post, we’ll talk about two of the most common legal claims utilized to invalidate nonprobate transfers—lack of mental capacity and undue influence.

Nonprobate Transfers Are Invalid if the Transferor Lacked Contractual Capacity

The person making a nonprobate transfer must have a minimum level of mental competence to make that transfer. Texas law recognizes several legal standards for mental competence. For example, a person making a will must have testamentary capacity. Please see our series on inheritance disputes for a discussion of this legal standard. When a person needs a guardian, that person’s mental capacity is measured by another standard, which we addressed in our series on pursuing and avoiding Texas guardianships. For nonprobate transfers, Texas relies on yet another standard called contractual capacity. Specifically, a nonprobate transfer is valid only if the person executing the transfer document appreciated the effect of what they were doing and understood the nature and consequences of their acts and the business they were transacting.

A lack of contractual capacity can arise from several types of conditions. The transferor may have Alzheimer’s or another dementia that impairs their cognitive ability. The effect of alcohol, medication, or other drugs may diminish the transferor’s capacity. A major stroke or series of ministrokes can cause a lack of contractual capacity. Minors are always presumed to lack contractual capacity.

The person challenging the nonprobate transfer must prove the transferor lacked contractual capacity at the time the transfer was enacted. For example, an entire trust is invalid if the transferor lost legal capacity irreparably before signing the trust agreement. Or perhaps only a portion of the trust property was invalidly transferred. In other words, the transferor actually had contractual capacity when making the trust agreement, lost contractual capacity at a later date, and then transferred a large sum of money to the trust after the loss of capacity. The challenger would need to prove a lack of capacity at the time of the money transfer, rather than at the time the trust was created.

Undue Influence Provides Another Basis for Challenges to Texas Nonprobate Transfers

In Texas, undue influence occurs when one party exerts excessive or improper pressure on another party to enter into a contract. Undue influence can be grounds for invalidating a contract, and there are several factors that courts consider when determining whether undue influence has occurred. A few of those factors include:

-Whether the transferor is vulnerable to being influenced, for example if the transferor is elderly, sick, or has a mental or physical disability, they may be more susceptible to undue influence.

-Whether the influencer had a position of trust or authority over the transferor, such as being a caregiver or family member, which contributes to undue influence.

-The tactics and actions used by the influencer. Courts will look at the tactics used by the influencer, such as threats, intimidation, or isolation, to determine if they constituted undue influence. These actions and tactics don’t need to be obvious. In fact, undue influence is often exerted using subtle pressure, accumulating over several years.

-The result of the influence. If the transfer significantly benefits the influencer at the expense of the transferor, this may suggest that undue influence was exerted.

Overall, Texas courts examine the circumstances surrounding the nonprobate transfer to determine if undue influence was present. If so, the nonprobate transfer may be deemed void or unenforceable.

In our next post, we discuss an entirely different reason for challenging a nonprobate transfer—when the transferor is trying to avoid paying a debt.

Our Dallas, Texas probate attorneys are experienced in bringing legal claims for lack of capacity and undue influence to invalidate nonprobate transfers and seek damages. We also assist with defending against such claims throughout Texas. Please contact us today if you have any questions about the validity of a nonprobate transfer based on undue influence or lack of mental capacity.