Forgiveness of debt in contemplation of death not valid, appeals court concludes

By Joe Forward, Legal Writer, State Bar of Wisconsin

Jan. 26, 2012 – A dying man's wish to forgive several debts cannot be granted, a state appeals court has ruled.

Eighty-eight year old Roger Hansen was in the process of making a will, but died shortly before signing the last draft, leaving various heirs as takers under intestate succession laws. During his life, Hansen made several mortgage loans totaling $278,000 to three nieces and a great-nephew.

The mortgage notes were included in Hansen’s estate. However, the debtors argued that Hansen forgave the debts prior to his death as evidenced by early drafts of his will and a letter to his attorney. A great niece, the daughter of another sibling (deceased), disagreed.

The Dane County Circuit Court ruled that affidavits evidencing Hansen’s intention to forgive the mortgage loan debts were sufficient to establish a gift in contemplation of death (gift causa mortis), and allowed removal of the debts from the estate.

But in Meegan v. Netzer, 2011AP325 (Jan. 26, 2012), the District IV Wisconsin Court of Appeals reversed, concluding the requirements to establish a gift causa mortis were not satisfied.

“We recognize that on this record it is undisputed that Hansen intended that, upon his death, the debts owed him by [his brother’s] daughters and grandson would be forgiven,” wrote appeals court Judge Margaret Vergeront. “It is unfortunate for the debtors that he died before his will to this effect was validly executed.”

The appeals court explained that a gift in contemplation of death is an exception to the rule that testamentary dispositions must comply with statutory requirements establishing a will.

Gifts in contemplation of death are valid, the court explained, when a donor intends to make a gift effective at death, the donor is contemplating death from an ailment and later dies from that ailment, and the gift is “delivered.” Here, the gift was forgiveness of debt.

The debtors claimed “delivery” occurred when Hansen made notations on a draft will and sent a letter to his attorney, stating that the debts should be cleared and forgiven at death.

However, the appeals court ruled that “delivery” did not occur because Hansen had not instructed the attorney to deliver the writings to the debtors.

“Hansen’s purpose for giving his attorney these writings was so that his attorney could include provisions to this effect in his will. There is no factual basis for asserting that Hansen’s attorney held these writings in trust for the debtors,” Judge Vergeront wrote. 

“Thus, the delivery to the attorney, with no instruction for delivery to any debtors, does not constitute delivery to any debtors.”