INDIANA COURT EXPANDS APPLICATION OF INDIANA DEAD MAN’S STATUTE

In a recent Indiana Court of Appeals opinion, the Court held that Indiana’s Dead Man’s Statute, applied to the testimony of a surviving spouse regarding non-probate assets held in trust. Indiana’s Dead Man’s Statute, like that of most jurisdictions, is a rule of fairness applicable to probate matters in Indiana courts. It essentially disallows a party that has an interest in the estate of a deceased person from making any testimony regarding the deceased’s intentions for their estate property. It is meant to apply in limited circumstances where the deceased could refute the testimony of the interested party, were he or she alive at the time of the testimony. The key word in the statute is “estate.” Thus, historically, the statute has only applied to probate assets. However, the opinion in Linda S. Bergal v. David A. Bergal and Joseph M. Sanders, as Successor-Trustee of the Milton B. Bergal Trust, opens the door to applying the statute to cases where a deceased person’s non-probate assets are the primary piece of that person’s overall estate plan.

The Bergal case involves a dispute between a surviving spouse and stepson over the assets of the deceased Dr. Milton Bergal, which were held in trust. Dr. Bergal had set up a trust during his lifetime of which he was the trustee, and the spouse and son were co-trustees in the event of his death or incapacity. At a point in time prior to his death, Dr. Bergal suffered from severe dementia and Alzheimer’s, and his spouse made several non-real estate transfers out of the trust. This resulted in a reduction of certain trust assets from $8,000,000.00 to $200,000.00, and essentially blocked the son’s inheritance at the time of Dr. Bergal’s death. The spouse and son entered into an agreement that the spouse would transfer the assets back into the trust, and the son would not bring a complaint against her as a result of her actions. The spouse did not hold up her end of the bargain, and the parties went to trial. At trial, the son was successful in blocking the spouse’s testimony regarding Dr. Bergal’s intentions regarding the trust under the Dead Man’s Statute.

On appeal, the spouse challenged that the trial court had erred because the statute only applies to estates, and trusts are non-probate assets not subject to the law. The appellate court decided that the trial court was not in error to apply the statute because the trust was the primary piece of Dr. Bergal’s overall estate plan. Significantly, the court mentioned that at the time Dr. Bergal created the trust, he also created a pour over will so that any assets owned in his name at the time of his death would go into the trust. In conclusion, the court found that “the Trust at issue is so central to [Bergal’s] overall estate plan that it is akin to the estate itself.”

This is an interesting decision by the Indiana Court of Appeals at a time where more and more assets are being dealt with outside of probate at the time of one’s death. It is even more interesting considering the trend away from Dead Man’s Statutes altogether. Currently, thirty states have done away with these kinds of statutes. Moreover, of the twenty states that still have them, many of those jurisdictions have further limited the circumstances under which those provisions apply. In this context, Indiana has decided, for now, that its own statute will be more expansive, which will have impactful implications on estate planning and related litigation in the future.