JULY 22, 1996 VOLUME 4, NUMBER 4
Howard and Jennie Smith were married in 1967. It was a late marriage for both of them; each was in their mid-fifties. Mrs. Smith had a son from a prior marriage, but Mr. Smith had no children. The Smiths maintained separate bank accounts for the rest of their marriage.
In 1980 the Smiths executed mirror-image wills, each leaving half his (or her) estate to the survivor and the other half to family. While Mrs. Smith left her half to her son, Mr. Smith chose his grandniece, Shaun Murray.
A few years after writing his will, Mr. Smith effectively changed his estate plan by putting his checking account and two CDs in joint tenancy with Ms. Murray. The total value of accounts retitled in her name was just short of $50,000.
In 1992, eight years after he put Ms. Murray's name on his accounts, Mr. Smith became ill. His wife applied to be appointed as his conservator, noting that he could no longer handle his own financial affairs. Her petition was granted, and she promptly closed his checking account, placing $17,000 into a conservatorship account.
In January, 1993, Mr. Smith became critically ill and was rushed to the hospital. Mrs. Smith then cashed out the two remaining CDs (which still named Ms. Murray as joint tenant) and transferred them to the Conservatorship account as well. When later asked why she took this step, she replied that it was for "medical reasons." Mr. Smith died five days later.
The Conservatorship account funds, including both the remaining portion of the original checking account transfer and the entire contents of the CDs, became part of Mr. Smith's probate estate. Since his will left half to his wife, the effect of the transfers was to give her half of what would have gone to Ms. Murray.
Ms. Murray sued Mrs. Smith, arguing that she had breached her fiduciary duty in closing the CDs and should distribute the entire contents of those accounts to Ms. Murray. At trial, Mrs. Smith (then 85 years old) explained that she had transferred the CDs because she was worried that Mr. Smith's medical bills could become overwhelming. As it turned out, the entire cost of Mr. Smith's medical care and the administration of his Conservatorship estate combined for a total bill of about $4800. The Conservatorship account at the time of Mr. Smith's death totaled $49,041.08 (including the two CDs).
The trial court ruled that Ms. Murray had the burden of proving that Mrs. Smith's actions were a breach of her fiduciary duty, and that she had failed to meet that burden. Ms. Murray appealed.
The Tennessee Court of Appeals overruled the trial court. Once it is shown that the Conservator benefited from the transaction, said the court, it is presumed that she breached her duty and the burden is on her to prove otherwise.
Tennessee's conservatorship law requires court approval before the conservator can change the nature of the fiduciary's investment. Mrs. Smith did not follow that procedure, and she effectively changed her ward/husband's estate plan. In order to be approved, Mrs. Smith would have to show that her actions were necessary to protect and promote the interests of Mr. Smith.
Mrs. Smith was ordered to return the $14,000 from the two CDs to Ms. Murray. The remaining assets in the Conservatorship account were split between the two women in accordance with Mr. Smith's will. Murray v. Smith, Tennessee Court of Appeals, July 2, 1996.
Arizona law does not require court approval before changing the nature of a ward's investments. But it does require the conservator to adhere to the ward's estate plan to the extent possible; the result in Arizona would almost certainly be the same as the Tennessee ruling.