Tennessee Court Rules Claim on Estate for Loan Not Barred by Statute of Frauds

In some cases, disputes may arise among family members during the administration of a loved one’s estate, leading to contentious court proceedings. The Court of Appeals of Tennessee recently reviewed such a case, In re Estate of Reed (Tenn. Ct. App. Aug. 22, 2016), involving a decedent who died intestate and claims made by her parents against her estate.signing will

In Reed, the decedent’s daughter was appointed administratrix of the decedent’s estate by the court. Following publication of notice, several claims were filed against the estate, including one by the decedent’s parents for approximately $28,500. The parents alleged that they loaned the money to the decedent in 2012 in order to pay off the mortgage on her home and prevent foreclosure. The claim was supported by an employee of the bank who facilitated the wire transfer. The decedent, however, never made any payments to repay her parents before her death. The daughter denied the claim, arguing that it was barred by the executor-administrator provision and the more than one-year provision of the statute of frauds.

Section 29-2-101(a)(1) covers representative promises to pay for the decedent’s claims out of the representative’s own estate. As a result, the statute applies only to the personal representative’s collateral promise to pay a debt of the decedent, such as promises to pay for legal services or a funeral expense when the estate is insolvent. In Reed, since there was no special promise made by the administratrix, nor evidence that the decedent’s estate was insolvent, the court held the executor-administrator clause of the Statute of Frauds was not applicable.

Pursuant to Section 29-2-101(a)(5) of the Statute of Frauds, a writing is required to enforce a contract that cannot be performed within one year. The court explained that this provision is construed strictly because courts generally attempt to give effect to contracts rather than defeating them. The question for the court is whether, according to the reasonable interpretation of the terms of the agreement, it requires that it should not be performed within the year.

In Reed, the court found that the only evidence that could possibly support a finding that the decedent could not repay the $28,500 debt within a year was the daughter’s testimony that the decedent’s income was not more than $1,000 per month. Noting again that the court must narrowly construe Section 29-2-101(a)(5), the court concluded that the mere fact that the decedent had limited income, standing alone, does not by itself support a conclusion that she could not repay the money within the year.

Finally, the court disagreed that the money was a gift to the decedent, explaining that evidence of this must be clear and convincing. Based on the impartial testimony of the bank employee that the money was a loan, the court affirmed the lower court’s finding that the funds were not intended as a gift. Accordingly, the estate was ordered to pay out the claim.

A skilled probate attorney will protect your interests during the estate administration process as well as help you avoid any potential issues that may arise. The Nashville estate planning attorneys at Martin Heller Potempa & Sheppard have substantial experience litigating probate disputes as well as establishing wills and trusts. We can also provide legal guidance in cases involving personal injury, wrongful death, and family law. To learn more, contact Martin Heller Potempa & Sheppard by phone at (615) 800-7096 or online.

More Blog Posts:

Tennessee Appeals Court Rules Settlement Agreement Precludes Challenge to Will, Tennessee Attorneys Blog, published July 18, 2016

Tennessee Appeals Court Holds Legal Questionnaire Not Valid Holographic Will, Tennessee Attorneys Blog, published August 23, 2016