Is a Confidential or Fiduciary Relationship Automatically Found in the Context of a “Legal Relationship” or a “Family Relationship” in Tennessee?

The Tennessee Court of Appeals decision of Tamala Teague v. Garnette Kidd, No. E2011-02363-COA-R3-CV, 2012 WL 5869637 (Tenn.Ct.App. 2012) discussed confidential relationships under Tennessee and what duties arise in such relationships.  This is important in the context of Tennessee estate law because often disputes arise about certain transactions around the time of death.  Claims of undue influence arise because of these transactions especially when one party has a power of attorney over an elderly individual. 

A confidential relationship is a relationship where confidence is placed by one in the other and the recipient of that confidence is the dominant personality, with the ability, because of that confidence, to influence and exercise dominion over the weaker or dominated party.  In general terms, it is any relationship that gives one person the ability to exercise dominion and control over another.  The burden of proof regarding a confidential relationship rests upon the party claiming the existence of such a relationship.  Confidential relationships can assume a variety of forms, and thus the courts have been hesitant to define precisely what a confidential relationship is.

Confidential relationships generally arise in two situations: (1) “legal relationships” and (2) “family and other relationships.”  In the “legal relationships” context, a confidential relationship arises when there is some legal connection between the dominant party and the weaker party, such as when a dominant party is granted a power of attorney.  Indeed, “a confidential relationship arises as a matter of law when an unrestricted power of attorney is granted to the dominant party.” Id. (emphasis added). In contrast, “[f]amily and other relationships” do not necessarily give rise to a confidential relationship per se; therefore, to establish a confidential relationship in this situation, contestants must prove the elements of “domination and control” in order to establish that the free will of the weaker party was destroyed and that the will of the dominant party was substituted. 

Teague at 8 (citations omitted). 

LEGAL RELATIONSHIP:

As a result, when one is in a "legal relationship" - which often is a "fiduciary relationship" - then there are many duties that automatically apply to that relationship.  This can happen when a power of attorney is provided to an attorney-in-fact.  The Teague decision provide helpful guidance on this relationship as follows:

The execution and exercise of a power of attorney establishes a fiduciary relationship between the attorney-in-fact and the grantor of the power.  The fiduciary is obligated to deal with the property of his [or her] principal in the utmost good faith.  The duties of loyalty and honesty are also a part of a fiduciary's obligation.  In Tennessee, a presumption of undue influence arises when the dominant party in a fiduciary relationship receives a benefit from the other party.  This presumption may be rebutted only by clear and convincing evidence of the fairness of the transaction.

Teague at 7 (citations omitted).  As a result, when someone has a legal relationship with someone, such as when they are a power of attorney for another individual, any action that benefits the dominant party is presumed to be completed with undue influence.  Gifts to a person holding and exercising a power of attorney are one of the most common causes of undue influence litigation.

FAMILY RELATIONSHIP:

How is a simple family relationship considered in the context of gifts and other transactions?  Think about the situation where a daughter receives a large gift from her elderly father.  Is that automatically presumed to be a gift made out of undue influence?  A familiar relationship can constitute a "confidential relationship" to arise, however it is not automatic like when a legal relationship exists.  In order to find a "confidential relationship" the key element is whether there was an excise of "domination and control" which causes the freewill of the weaker party to be destroyed and the will of the dominant party to be substituted.  It is a much higher standard to determine a "confidential relationship" exists with a simply family relationship as opposed to a "legal relationship".

CONCLUSION:

Whenever there are large or frequent “gift” transactions or unfair “transactions” when someone is elderly or not completely competent, then this is something that must be considered.  There are ways to set aside these gifts and transactions in Tennessee if they were truly the result of undue influence.  This is almost automatically the case when the dominant individual holding a power of attorney makes gifts or completes lopsided transaction in their favor.  An attorney should be consulted to review the situation further if this is the case.