This is actually a story about
a couple of legal concepts that
arise in estate planning: when
is a gift, in legal parlance,
a "completed gift";
and what does it mean when a person
does not have the "capacity"
to make a gift? It may not always
be easy to tell if a gift is "completed"
and if the person making the gift
had "capacity" to make
the gift, but in this case, I
don't think there is much doubt.
My source is a story that appeared
in the Minneapolis (Minnesota)
Star-Tribune in January, 2004.
Mr. Mager, a 55 year old divorcee,
gave his church $126,000. He later
said that the gift was totally
out of character for him and that
he was always very thrifty, but
he was depressed due to the breakup
of his marriage. Five months later,
he asked for the money back. The
church said no, so Mr. Mager sued
his church to try to get the money
back!
Under what legal theory does
Mr. Mager claim that he should
get the money back? The theory
is that he did not have the capacity
to make the gift at the time it
was made. What does "capacity"
mean? Black's Law Dictionary says
that it means "legal qualification...
competency, power or fitness."
If someone doesn't have legal
capacity, they can't be held responsible
for their actions. So, the theory
in Mr. Mager's case would be that,
since he didn't have capacity
to make the gift, it can't be
enforced, and he should get the
money back.
If on the other hand Mr. Mager
did have capacity to make the
gift, then the question becomes,
was the gift completed? The concept
of a "completed" gift
usually arises in connection with
the tax treatment of a transfer
of money or property. The most
common context is where someone
gives away an asset so as to remove
it from their taxable estate.
In order for the asset to be removed
from a taxable estate, the gift
must be completed, that is, the
donor must not retain the ability
to control the use or ultimate
disposition of the gift in the
hands of the donee. If you give
something away but attach strings
to the gift that allow you to
keep control of it, you have not
made a completed gift.
There are very complex regulations
in the United States Internal
Revenue Code that deal with whether
a gift is, or is not, completed.
Few, if any, of those regulations
would apply to Mr. Mager's gift,
however. He apparently did not
attach any conditions to his gift
at the time it was made. There
seems to be little doubt that
he made a completed gift.
The question of whether or not
Mr. Mager had capacity to make
the gift appears a little closer,
but only superficially. Although
he says he was treated for depression,
that doesn't mean that he lacked
legal capacity to make the gift.
As you might guess from the definition,
it typically takes more than temporary
depression to make someone lack
"competency, power or fitness"
to make a gift. Usually a person
has to be afflicted with a seriously
debilitating condition, one that
makes the person unable to understand
the consequences of their actions,
to lack legal capacity.
There is sound reasoning behind
setting a high standard for claims
of lack of capacity. If the threshold
for a person to claim that he
or she is not legally responsible
for a transaction (whether the
transaction is a gift, a purchase
or a sale) is too low, pretty
soon there will be a lot of disputes
about whether transactions are
legally final and enforceable.
Mr. Mager's situation may sound
sympathetic (or not), but there
are good legal reasons why he
should not get the money back
from his church. He may have admitted
that his lawsuit is based on non-legal
considerations when he said, in
essence, that by bringing a lawsuit
he hopes to put pressure on the
church members to return the money
to him. If that doesn't work,
I doubt that his (otherwise) thrifty
ways will be enough for a court
to find that he did not have legal
capacity to make the gift, and
therefore should get the money
back.
NEW TRUST LAW
IS OUT THE WINDOW (FOR NOW)
In November I told you that the
Arizona Legislature had delayed
the effective date of the Uniform
Trust Code. The adoption of the
Uniform Trust Code, which was
originally to take effect on January
1, 2004, created considerable
interest because some people thought
it would radically change the
administration of trusts in Arizona.
As a result, the Legislature decided
to delay the effective date to
January 1, 2006. Well, now you
can forget about it altogether.
In the current legislative session,
the Legislature has passed, and
the Governor has signed, a bill
permanently repealing the adoption
of the Uniform Trust Code. The
Legislature did say, however,
that while they were repealing
the adoption of the Uniform Trust
Code in Arizona, the Legislature
"reaffirms the efforts of
the national conference of commissioners
on uniform state laws [those are
the folks who write the "uniform"
laws] and other interested stakeholders
and intends to continue to analyze
provisions of the Uniform Trust
Code so that acceptable elements
may be implemented to improve
Arizona trust laws." In other
words, the Legislature hasn't
given up entirely on the idea
of reforming Arizona trust law,
they just aren't going to do anything
about it right now.
