In The Matter Of The Estate Of Hester Mary Lewis Anton, Gretchen Coy Vs. Nancy R. Ezarski, Fiduciary Of The Estate Of Hester Mary Lewis Anton ( 2007 )

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.
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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
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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
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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,
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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.
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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.
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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
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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
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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.
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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
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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
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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.
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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
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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
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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
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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
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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.