When is a Gift not a Gift? Undue Influence and Lifetime Giving

Your mother dies, and you find out that your brother has been ‘given’ tens of thousands of pounds by her in the last months of her life. What can you do?

The legal concept of “undue influence” can be used to set aside lifetime gifts.  Often, evidence of substantial “gifts” come to light after someone has died.  If there’s no question of fraud, or lack of mental capacity, it could be that the ‘gift’ can be recovered because undue influence can be proved.

In law the principle is that everyone has the right to exercise their own free will.  In the case of Allcard v Skinner (1887) it was said:-

“It would obviously be to encourage folly, recklessness, extravagance and vice if persons could get back property which they foolishly made away with, whether by giving it to charitable institutions or by bestowing it on less worthy objects.  On the other hand to protect people from being forced, tricked or misled in any way by others into parting with their property is one of the most legitimate objects of all laws; and the equitable doctrine of undue influence has grown out of and been developed by the necessity of grappling with insidious forms of spiritual tyranny and with the infinite varieties of fraud”.

A finding of undue influence does not depend on proving that the victim made no decision of their own. The leading case in this area of law, Royal Bank of Scotland Plc v Etridge (No 2) 2001 makes it clear that it’s necessary for the court to investigate how the intention to enter into the transaction was secured; if it was by unacceptable means then the law will not permit the transaction to stand.

A person may fully understand the implications of a proposed transaction – but still be acting under the undue influence of another.Various denominations of pound notes are seen in this arranged photograph in London, U.K., on Thursday, May 17, 2012. U.K. Prime Minister David Cameron plans to say today he won't swerve from his austerity plan, warning members of the European single currency that failure to resolve their problems carry "huge risks for everybody." Photographer: Chris Ratcliffe/Bloomberg via Getty Images

It’s also important to be aware that deliberate wrongdoing on the part of the person receiving the gift does not have to be proved.

There are two main forms of conduct that are unacceptable:

  1. Acts of improper pressure or coercion such as unlawful threats. In the case of Etridge the judge made it clear that the court will intervene to set aside a transaction which is the product of “excessive pressure, emotional blackmail or bullying”.
  2. Failure to perform an equitable duty; g. where A trusts B and B takes unfair advantage of A.

Lawyers often refer to two different sorts of undue influence; actual undue influence and presumed undue influence.

Actual undue influence

This is where there is overt wrongdoing.  The conduct “twists the mind of the donor”, for example, a daughter persuades her mother to enter into a transaction that is not undue influence.  The question is whether the mother’s free will has been overborne by coercion, threats or overt acts of improper pressure.  A recipe for actual undue influence would look like this:-

  1. B had the capacity to influence A.
  2. B exercised that influence.
  3. Influence which was exercised was undue.
  4. The exercise of the influence brought about the transaction.

The vulnerability of one party and the forcefulness of the other are relevant but it’s not necessary to prove a pre-existing relationship between them or that the transaction was a bad deal for the person making the gift.

More common, especially in family cases is:

Presumed undue influence

In these cases focus is on what has not been done, e.g. ensuring that independent advice is available to the donor.  The elderly, especially those who are physically dependent on relatives, friends or employees are likely to be more susceptible than others and in particular to be in relationships that may give rise to a presumption of undue influence.

Recipe:-

  1. Victim placed trust and confidence in the other party, or the other party acquired ascendancy over the victim. In the case of certain categories of relationship (see below) this ingredient may itself be presumed
  1. Transaction is not readily explicable by the relationship between the parties and calls for an explanation.

If those two ingredients are proved then the defendant must argue against (or rebut) the presumption of undue influence.

Relationship categories where undue influence can be presumed include:

  • doctor/patient,
  • parent/child,
  • trustee/beneficiary
  • solicitor/client.

It’s important to note that the presumption of undue influence does not apply between spouses.

For a court to decide whether a transaction ‘calls for an explanation’, the context of the gift must be considered and its general nature; if there’s a satisfactory explanation then the presumption of undue influence will not arise.  The court will take into account the nature and size of the gift or transaction, including proportionality in relation to the donor’s assets and the extent to which the donor’s future needs are capable of being met out of his remaining assets.  If the gift is out of all proportion to the kindness or services in question, the court will be suspicious.

A transaction “which calls for an explanation” can consist of numerous smaller transactions.

In cases involving presumed undue influence, once ingredients have been satisfied, the defendant then has to prove that the donor was in fact free of his or her influence when they entered into the transaction.

The issue is not whether or not the donor understood the transaction but whether they lacked independence.

Obtaining independent legal advice from a solicitor is not conclusive evidence – solicitors will only see a snapshot of a relationship and not know all the circumstances surrounding the transaction.

sarah-youngUndue influence can be difficult to prove – but the courts will do their best to protect victims of financial abuse where the evidence permits.

If you would like further information about financial abuse or inheritance disputes please contact Sarah Young on 01484 538421 or mobile 07860 165850.  Sarah is a Partner at Ridley & Hall and has a record of bringing the most complex cases to a successful conclusion.