Recently, the Indiana Court of Appeals decided the case of Bergal v. Bergal. The case involved a man, Milton Bergal, who had four adult children from a previous marriage. Milton married Linda in 2009, and that same year he also created a new estate plan with the help of his attorney, Ben Roth, and his accountant, Joseph Sanders. In particular, Milton created a trust and executed a new pour-over will – such that, upon his death, all assets in his probate estate were to be transferred to his trust. The trust instrument would in turn create two subtrusts:
- Trust A would be solely for Linda’s benefit, and she and Milton’s accountant would be co-trustees.
- Trust B would be solely for the benefit of Milton’s son, David, and David would be the sole trustee.
Milton funded his trust with various assets including real and personal property.
At some point after 2009, Milton succumbed to multiple conditions affecting his mental status, including dementia and Alzheimer’s disease. During those years, six investment accounts were taken out of the trust and modified so that Linda was named as the primary beneficiary of the accounts. In most cases, Milton effectuated the modifications, except that Linda used a power of attorney she held for Milton to perform one of them. These modifications, unknown to Milton’s attorney and his accountant, effectively resulted in David’s disinheritance, as they diverted the vast majority of the trust assets to Linda upon Milton’s death.
Milton died in 2016, and the diversion of trust assets was discovered shortly after his death. The parties all met to discuss the transfers. At the meeting, Linda admitted to retitling the assets and admitted that Milton did not intend to disinherit David. Linda agreed to resign as co-trustee of Trust A and to restore all the assets back into the trust. Though she disclaimed her status as primary beneficiary of one of the accounts, Linda ultimately reneged on her agreement and refused to transfer the rest of the assets back into the trust. So David sued Linda.
Before trial, David anticipated that Linda would attempt to testify about statements made by Milton about the transfer of trust assets. So he filed a motion in limine to preclude such testimony, arguing that the Dead Man’s Statute prohibited testimony about statements or actions that constitute assertions by Milton. The trial court granted the motion and precluded all such testimony at trial.
At trial, the jury found for David and determined that all amounts that had been in the accounts at the time of the transfers should be restored to the trust for distribution to David. Linda appealed, claiming the trial court committed numerous errors.1
Indiana Court of Appeals’ Analysis
In its analysis, the Court of Appeals started with the text of the Dead Man’s Statute, which expressly states that it applies in suits or proceedings (a) in which an executor or administrator is a party; (b) involving matters that occurred during the lifetime of the decedent; and (c) where a judgment or allowance may be made or rendered for or against the estate represented by the executor or administrator. The Court of Appeals explained that when the Dead Man’s Statute applies, a person who is a necessary party to the case and whose interest is adverse to the estate is not a competent witness as to matters against the estate. The purpose of the statute is to protect a decedent’s estate from spurious claims. According to the Court of Appeals, the statute promotes fairness and mutuality because, as the saying goes, “when the lips of one party to a transaction are closed by death, the lips of the surviving party are closed by law.”
With this background, the Court of Appeals addressed Linda’s argument that the Dead Man’s Statute, by its terms, does not apply to cases involving trusts because trusts are distinct from estates. In support of this argument, Linda cited two Indiana Court of Appeals cases. The first, a 1985 case, held, in no uncertain terms, that because the assets in question were trust assets, the Dead Man’s Statute did not apply. And in the second, from 2006, the Court of Appeals determined that the Dead Man’s Statute did not apply to non-probate assets – in that case, beneficiary designations on an investment account.
The Court of Appeals rejected these two cases and, instead, relied on an 1891 Indiana Supreme Court opinion that considered the application of the Dead Man’s Statute to a dispute regarding a contract related to distribution of trust assets. In that case, the Indiana Supreme Court determined that the Dead Man’s Statute was properly invoked to prevent testimony about the decedent’s statements on the proper disbursement of trust assets. The Court of Appeals also noted that in a 2010 Indiana Supreme Court case, the Indiana Supreme Court “did not object to the statute applying in a case involving non-probate transfers.”
Relying on these Indiana Supreme Court opinions, the Court of Appeals held that the Dead Man’s Statute applies because Milton’s trust was “so central” to Milton’s estate plan that it is “akin to the estate itself.” In support of this test, the Court of Appeals noted that Milton intended that all his assets should be placed in the trust because they were either titled that way in the first place or because they would end up in trust as a result of his pour-over will. For these reasons, the Court of Appeals affirmed the lower court’s prohibition on the testimony about the decedent’s statements under the Dead Man’s Statute.
This unanimous, published opinion leaves the law on the applicability of the Dead Man’s Statute to disputes over trust (or other non-probate) assets in a state of uncertainty. The statute’s terms plainly apply only to estates, and the modern case law is consistent with those terms by declining to apply the statute to disputes over non-probate assets. With this opinion, the Indiana Court of Appeals created a new test to determine whether the statute applies in disputes over trust assets: It applies where the trust is so central to the overall estate plan that it is akin to the estate itself. Because many estate plans consist of trusts and the use of other non-probate transfers to avoid the delay and expense of probate proceedings, this test (if it persists) is likely to evolve into a bright line rule that the statute applies to disputes involving all non-probate assets. The authors will continue to monitor the evolution of the case law on this topic. The law related to trust and estate litigation is ever evolving, and questions on estate planning or litigation should be directed to legal counsel.
- The Indiana Court of Appeals issued a 33-page opinion addressing Linda’s various arguments and largely affirmed the trial court’s rulings. This update discusses only the issues related to the Dead Man’s Statute.