Archive for the ‘Newsletter’ Category

Deceased Trustee Not Liable for Punitive Damages in Kansas Case

NOVEMBER 21, 2016 VOLUME 23 NUMBER 44
When Alain Ellis died in 2007, she left about $2 million dollars in a trust. Her husband Harvey was the trustee of the trust, and entitled to receive all of the trust’s income. Upon his death the remaining trust assets would be distributed among her two sons and her granddaughter. That’s not how it turned out, however.

After Alain’s death Harvey removed almost all of the trust’s assets and put them into his own trust. He hired a new attorney in his hometown of Wichita, Kansas; with the help of that new attorney, he modified his trust four more times. When he died in 2011, he was worth about $10 million, and his trust distributed to religious and educational charities.

A court-ordered investigation into the history of the two trusts quickly led to a transfer of assets from Harvey’s trust back into his late wife’s trust. The successor trustees agreed that Harvey had improperly taken at least $1,431,143,45 from Alain’s trust, and that amount was returned.

The remainder beneficiaries of Alain’s trust then filed a lawsuit against Harvey’s estate, his trust, his successor trustee and the attorney who helped him set up his estate plan. The lawsuit claimed that Harvey’s behavior had been particularly egregious, that his attorney had helped him in his scheme to convert assets, and that the trust had been mismanaged after Alain’s death.

Alain’s heirs sought an imposition of double damages against Harvey (and his trust), citing Kansas law permitting the extra penalty. The trial judge, though, ruled that the claim was essentially one for “punitive damages,” and that a punitive damages claim could not be asserted against a dead man.

At trial, a jury awarded an additional $126,820.94 against Harvey’s estate and trust. The jurors decided that Harvey’s lawyer (while acting as successor trustee of Alain’s trust) had also committed breaches of her fiduciary duty, but they did not award any damages against her. The jurors exonerated Harvey’s successor trustee, a local bank. Alain’s heirs appealed, arguing that they should have been able to assert the claim for double damages, and that Harvey’s outrageous behavior should be punished.

The Kansas Court of Appeals upheld the trial court. In their opinion, the appellate judges acknowledged that “there is no doubt” that Harvey “acted toward plaintiffs with willful conduct and fraud that would have supported a claim against him for punitive damages had he still been alive at the time of the litigation.” Still, they reasoned, there is no real benefit to society permitting punishment of a deceased defendant. The Court of Appeals did uphold the trial courts award of attorneys fees against Harvey’s trust (although one claimant’s fees were ordered to be paid from Alain’s trust).

In reaching its conclusion that punitive damages could not be levied against a deceased defendant, the Kansas court discussed the holdings in other jurisdictions on similar questions. Most states addressing the question have agreed with the holding in Harvey’s case, according to a 2016 Akron Law Review article extensively cited in the opinion. A substantial minority of states (including at least thirteen states and the District of Columbia) would allow the claim to proceed against the estate of a deceased tortfeasor. Alain Ellis Living Trust v. Harvey D. Ellis Living Trust, November 18, 2016.

Does a claim for punitive damages survive against a deceased defendant in Arizona? Generally, yes. Arizona would likely reach the opposite conclusion in similar circumstances, though the principal Arizona appellate decision (Haralson v. Fisher Engineering, a 2011 Supreme Court opinion) is based on very different facts. In that case, the estate of a driver who behaved egregiously was liable for punitive damages claimed by an accident victim — despite the fact that the driver died in the accident.

Arizona law on attorney’s fees might also lead to a different result in similar facts. Recall that Harvey’s trust paid most of the fees of the various attorneys (though not those of one of the heirs — his fees were paid by his mother’s trust instead). In Arizona it might actually be more difficult to secure payment of those fees from the tortfeasor’s trust — even though the punitive damages claim might be easier to assert. In other words, the classic legal principle applies: facts matter, and so does the jurisdiction where the facts are litigated.

Unreachable Joint Account Makes Applicant Ineligible for Medicaid

NOVEMBER 14, 2016 VOLUME 23 NUMBER 43
Paul (that’s not his real name) needed long-term care. His health and his mental capability had both declined, and he could no longer handle his personal affairs nor take care of himself.

Paul’s assets included a car (titled in his and his daughter’s names) and three Bank of America (its real name) bank accounts. Those assets put him over the $2,000 eligibility limit for Arizona’s version of the federal/state Medicaid program, the Arizona Long Term Care System (ALTCS).

One problem: Paul’s daughter had her name on the bank accounts and on the car. She had the car in her possession, in fact — and she refused to turn it over.

Before he became incapacitated Paul had signed a power of attorney naming his sister as his agent. She went to Bank of America to get control of Paul’s accounts so she could use the money to pay for his care — and ultimately get him eligible for ALTCS coverage. That’s when she learned about a Bank of America rule: both signers on a joint account are permitted access the account, but an agent under a power of attorney may not exercise that authority on behalf of one owner without the other’s consent.

In other words, Paul’s sister could not close the account, remove Paul’s daughter’s name from the account, or even withdraw money to pay for his care — unless his daughter signed a form letting her do that. And Paul’s daughter refused to sign.

Paul’s sister applied for ALTCS coverage on his behalf. Even though he had assets over the $2,000 limit, she argued that those assets were actually unavailable. ALTCS regulations permit applicants to become eligible when assets are unavailable, and Paul’s sister argued that the situation with Paul’s bank accounts was no different from real estate owned jointly with an uncooperative family member, for instance.

ALTCS disagreed. The agency determined that Paul could get access to his own account if his sister just initiated a court proceeding — a conservatorship of his estate. Consequently, ALTCS declined to grant him eligibility.

Paul appealed (through his sister, of course). The court considering the agreed with her, and ordered ALTCS to cover Paul’s care costs. ALTCS appealed from that decision.

The Arizona Court of Appeals last week issued its opinion in the case. It agreed with the ALTCS agency, ruling that Paul could have access to the account by having his sister initiate a conservatorship. As conservator, reasoned the appellate court, she could then withdraw money from the account for Paul’s care — and that made the whole account a countable, available resource. Paul’s ALTCS eligibility was denied.

The Court of Appeals acknowledged that there would be some cost and difficulty getting access to Paul’s money. That, though, was not enough to prevent counting the asset as available. “Any practical inconvenience or accessibility difficulties are not relevant to determining whether assets are to be counted,” ruled the judges. McGovern v. AHCCCS, November 8, 2016.

The decision in Paul’s case simply fails to deal with the practical realities facing Paul and people in his circumstances. The opinion does not make clear how large the joint accounts might have been (except that they obviously exceed $2,000), but the practical reality is that a conservatorship proceeding might well cost thousands of dollars — and could cost even more if Paul’s daughter simply objected. She, after all, would have a higher priority for appointment as conservator than his sister, and her side of the story about the accounts is simply unmentioned in the appellate decision.

Even if Paul’s sister was appointed as conservator, that does not guarantee that she could get access to the accounts. Bank of America might well insist on getting the joint owners’ consent to close an account, or make other changes in the account structure. Paul’s daughter, when faced with the likelihood of losing the accounts, might actually close them out; she would not be hamstrung by the Bank of America rule about powers of attorney, after all.

And Paul’s vehicle? As joint owner, his daughter has absolute right to possess and use the vehicle. Getting it back for Paul, or forcing his daughter to buy out his interest, would almost certainly cost more than the value of the vehicle — and might not be successful even after significant expenditures.

The outcome is especially odd since ALTCS easily recognizes that joint ownership creates problems for other kinds of assets. Joint tenancy real estate, owned with a family member? No problem — eligibility can be granted (though it is described as “conditional” eligibility, requiring the ALTCS recipient to make efforts to sell their fractional interest). But bank accounts — even small accounts worth far less than a piece of real estate — are treated differently. Or at least the bank accounts in Paul’s case were treated differently.

Another irony: Paul had actually died before his case even got to the appellate level. The dispute was about whether ALTCS would have to pay for the care he had already received — and (though the opinion does not clarify this point) it is likely that his care facility is the one left without recourse, not his sister and not his daughter.

Durable Powers of Attorney: “Springing” or “Surviving”?

NOVEMBER 7, 2016 VOLUME 23 NUMBER 42
For over four decades, Arizona law has permitted residents to create powers of attorney that continue to be valid even after the signer becomes incapacitated. That simple concept, once thought to be radical, has become widespread: all U.S. states now permit powers of attorney to be “durable.”

To make a power of attorney “durable” under Arizona law, it should include language that indicates the signer intends it to either:

  • Continue in effect even if the signer becomes incapacitated, OR
  • Become effective only if/when the signer becomes incapacitated.

You can read the law in question, Arizona Revised Statutes sections 14-5501 and those following, to see how durable powers of attorney work in Arizona. There is even a basic form for what the signature block might look like.

But what is the difference between the two kinds of durable powers of attorney? Lawyers often refer to them as “surviving” or “springing” powers — the former exist and are operative as soon as signed (they “survive” the later incapacity), while the latter become effective (they “spring” into existence) upon the later incapacity of the signer.

Which is better? Of course that depends on what the signer prefers, but there are some practical considerations that you might not have thought about.

Many of our clients feel uncomfortable about giving their agent(s) the power to handle financial matters immediately. While they completely trust the person they name as agent, those clients think it might be tempting fate to give authority to someone else. They don’t really expect their agent to act unless and until they are unable to take care of things themselves, and prefer to make their powers of attorney the “springing” type.

There are problems with this approach, however. Those problems can include:

  1. How to prove incapacity? How, exactly, will your agent prove that you have become incapacitated? Will it require a letter from your attending physician? Or two letters from two different physicians? Or your consent? How protective do you think you should be? Of course, one of the reasons you are signing a power of attorney is so that we won’t have to initiate legal proceedings to permit your agent to take over your finances. By making the proof of incapacity difficult, you might be reducing the value of the very document itself.
  2. Is there a doctor in the house? Perhaps you have considered the problem described above, and you’re willing to let any doctor (not necessarily your attending physician) certify your incapacity — and you are not planning on requiring a second opinion. Still, it can be quite a challenge to get any medical person to sign a letter saying you’re incapacitated. It might be that your medical care isn’t even being provided by a physician — maybe you’ll be evaluated by a nurse practitioner, or a psychologist. Can we write the document so that your chiropractor could make the decision? And have you tried to get a letter signed by any medical provider in the modern era of HIPAA?
  3. “I’ll be the first to know when I need it.” No, tragically, you won’t. In fact, you’ll probably benefit from assistance for a period of time when you are still capable of doing things yourself. The law has a quaint notion — people are fully competent until some future instant when they suddenly, and demonstrably, become incapacitated. That isn’t actually how it happens. You are much more likely to slowly decline, needing help with some large decisions (perhaps investment management, or organizing assets) long before you absolutely need help with smaller decisions (like signing checks). Consider the importance of letting your agent take over gradually, leaving you in control of as much as you can (and wish to) manage for as long as possible.
  4. Planning on leaving Arizona (even for visits)? Some states (notably Florida) don’t even permit “springing” powers of attorney. Maybe you think it unlikely that you will relocate to Florida, but we are a pretty mobile society. You might well end up in a state where the “springing” power of attorney is problematic — and possibly at a time when you are unable to sign new documents.
  5. Really? You don’t trust your agent? Giving someone a power of attorney is, literally, giving them the tools to misuse your assets. Of course they are not supposed to commingle assets, take your funds or make decisions in their own interest. Some do. You need to make your selection very, very carefully — your agent needs to be completely trustworthy. And if you trust them when you’re incapacitated (when you don’t have the mental acuity to protect yourself), why wouldn’t you trust them right now, when you are able to monitor their actions closely?

As you can probably tell, we are inclined to recommend that people sign “surviving” durable powers of attorney, rather than “springing” powers. That said, clients frequently are just uncomfortable giving immediate authority, and we will respect your decision. Don’t be surprised if we try to convince you to reconsider, though.

Incidentally, the same considerations apply when we consider health care powers of attorney — but there is a different practical reality. Since you will necessarily be present when health care procedures are undertaken, and since medical personnel are almost certainly involved, it is much easier to assess whether you are able to make your own decisions. A good agent will involve you in the decision-making process to the extent that you are able to participate. A good medical provider will do the same.

Undue Influence and Limited Capacity Do Not Necessarily Justify Conservatorship

OCTOBER 31, 2016 VOLUME 23 NUMBER 41
In our legal practice, we frequently deal with individuals with limited capacity. Sometimes we speak of them being “incapacitated” or “incompetent.” Sometimes they are “disabled,” or qualify as “vulnerable adults,” or are subject to “undue influence.” But each of those terms means something specific, and some variations even do double duty (with two related but distinct meanings). A recent California case pointed out the confusion engendered when litigants rely on similar but different terms.

Aaron, a widower in his late 90s, lived alone after the death of his wife Barbara. He had no children of his own, though he and his wife had raised Barbara’s daughter Connie together after their marriage — when Connie was four. Aaron’s other nearest relatives were two nieces, Cynthia and Diane. He didn’t have much contact with Cynthia and Diane, though that might have been because his late wife had discouraged contact over the years they were together.

Connie was actively involved in overseeing Aaron’s care. She arranged for his doctor’s visits, went to his home at least twice a week to check on him, helped pay his bills and generally watched out for him. She was concerned about his ability to stay at home, and on several occasions she found herself summoning the local police to make welfare checks on her stepfather.

After Aaron fell in his home, refused treatment, and suffered a frightening seizure, he was diagnosed as having a subdural hematoma (from his fall). He spent some time in a hospital, but was anxious to return home. His physician noted that he had a poor score on the mental status exam administered in the hospital, and diagnosed him as having dementia. He was discharged to a nursing facility, with Connie’s help.

Aaron hated the nursing home, and the assisted living facility Connie helped move him to after that. He insisted that he could return to his own home. About this time, his nieces began to visit him, and they tried to assist. They disagreed with his placement, and niece Cynthia prepared a power of attorney for Aaron to sign, giving her authority over his personal and financial decisions. After he signed the document, he asked his attorney to write to Connie, asking her to return his keys and personal possessions so that he could return home.

Connie filed a petition for her own appointment as conservator of Aaron’s person and estate (California, confusingly, refers to guardianship of the person as conservatorship). While that proceeding was pending, Aaron went to his attorney’s office and changed his estate plan — instead of leaving everything to Connie, he would split his estate into three equal shares, with one each for Cynthia, Diane and Connie’s daughter.

The probate judge heard evidence in connection with Connie’s conservatorship petition, but denied her request. The judge found that Aaron was clearly subject to undue influence, and might lack testamentary capacity — but he didn’t need a conservator (of his person or his estate).

How could that be? Connie appealed, but the California Court of Appeals ruled that the probate judge was correct. At the time of the hearing on the conservatorship petition, according to the appellate court, Aaron was alert, oriented and able to describe his wishes. The fact that he might have been incapacitated when he signed the powers of attorney, or that he might have been subject to undue influence when he changed his estate plan, was not dispositive of the question of his capacity at the time of the conservatorship hearing. Furthermore, the mere fact of incapacity would not be enough; by the time of the trial Aaron had a live-in caregiver who could help him manage his daily needs, and that could support the probate judge’s determination that no conservator (especially of the person) would be necessary.

Aaron and his attorney also argued that Connie didn’t actually have any standing to file a court action in the first place. After all, she was his stepdaughter, and not even a blood relative. The Court of Appeals rejected that notion; any person with a legitimate interest in the welfare of a person of diminished capacity has the authority to initiate a conservatorship proceeding. Conservatorship of Mills, October 20, 2016.

So what do the various terms mean, and how are they different? “Capacity” (and “competence”) usually refers to the ability to make and communicate informed decisions. “Testamentary” capacity is a subcategory, and requires that the signer of a will must have an understanding of his or her relatives and assets, and the ability to form an intention to leave property in a specified manner. “Vulnerable adult” is a related term, but is used in most state laws to refer to a person whose capacity is diminished, and whose susceptibility to manipulation or abuse is therefore heightened. “Undue influence” can arise because of limited capacity, but refers to the actions of third persons which overpower the individual’s own decision-making ability. “Disability” is, perhaps, the least useful of the terms — attaching the term does not say much about an individual’s ability to make their own decisions, since disabilities can be slight or profound, physical or mental (or, of course, both), and subject to adaptive improvement in any case.

In Aaron’s case, it might well be that his amended estate plan will be found to have been invalid as a result of undue influence, and his new powers of attorney might be set aside on the same basis. He might even be found to have been a vulnerable adult and any transactions benefiting his nieces might be subject to challenge. But he apparently had the level of capacity necessary to make his own personal and financial decisions at the time of the hearing on the conservatorship petition.

As an aside, there’s another issue in Aaron’s court decision: the inappropriate reliance on scores obtained on short mental status examinations. Typically, medical practitioners ask a short series of questions (“What is the year?”, “Please repeat this phrase: ‘no ifs, ands or buts'” and the like) as a way of determining whether further inquiry should be made into dementia and capacity questions. Aaron variously scored 14, 18, 24 and 20 on 30-point tests administered by several interviewers, and both the probate court and the Court of Appeals seem to have thought that the results demonstrated his fluctuating capacity (and general improvement). Those scores are only suggestive of incapacity, and should be an indicator that further testing might be appropriate. There is no bright-line score for determining incapacity on the basis of those short examinations.

Challenge to Will Leads to Further Problems for Stepson

OCTOBER 24, 2016 VOLUME 23 NUMBER 40
We often tell clients that they should think twice (or perhaps thrice) before challenging a will. It is difficult to prevail in a will contest, but there are also other problems. The will in question might have a provision that completely disinherits anyone challenging their reduced share. There may also be other repercussions, as evidenced by a story we read recently arising from a Wisconsin court case.

Bruce and Jenny (as we usually do, we’ve changed their names) married later in life, but lived together for over thirty years before Bruce’s death. Bruce had five children from his first marriage; Jenny was childless. They had identical wills, written about a decade after they married. Each left their entire estate to the other, and on the second death everything would go to Bruce’s son Larry.

Their wills also contained a routine provision, requiring the surviving spouse to live at least four months after the first spouse’s death; if the survivor did not live that long, they would be treated as having predeceased the first spouse. Why include such a provision? To avoid having to conduct two probate proceedings (or, for that matter, figure out who died first) if both spouses died in a common accident or close in time.

In March of 2014, Bruce died. Jenny filed a probate proceeding and submitted Bruce’s will to the court. Because she filed just two months after Bruce’s death, Larry objected. He argued that she had no authority to take over Bruce’s estate because she had failed to survive him by four months.

Jenny apparently became angry, and revoked her own will. The later evidence was uncontroverted; she personally took her original will and destroyed it, intending to revoke it and to make sure that Larry did not receive any share of her estate.

After consulting with her attorney, Jenny signed a new will (and trust) a few months later (well after she had reached the four-month survivorship requirement). She left her entire estate to her late husband’s grandson — bypassing Larry altogether. She died less than a month after signing the new documents.

Larry contested her new will and trust, arguing that she had been subjected to undue influence in preparing her new documents. The probate court dismissed his complaint, finding that the revocation of her first will was not the product of undue influence. Larry appealed.

The Wisconsin Court of Appeals affirmed the probate court finding, expanding somewhat on the effect of Larry’s first will contest. It was clear, ruled the appellate court, that Jenny was angry with Larry, and that no one influenced her in her decision to revoke the earlier will. Once she destroyed it, she was intestate — that is, she had no will at all — and since Larry was not her child, he would have no right to any share of her estate.

Why would that make a difference? Because if she had no will prior to signing the new documents, Larry had no standing to even challenge those documents. According to the appellate court, his objection to probate of her later will (and trust) would have to be dismissed. Estate of Born, October 6, 2016.

What might Larry have done differently? It seems easy to suggest that the original objection in his father’s estate was probably ill-advised — if his step-mother had actually died in the two months after he raised his objection, he could probably have still made his legal point. In the meantime, he clearly offended her to the point that she changed her estate plan.

This is a balance that potential contestants need to consider in most, if not all, legal proceedings. There are legal victories (and losses) and there are practical losses (and victories). A good lawyer will earnestly discuss the trade-offs with clients and potential clients. Will contests are rare — and they are also expensive, and they often lead to unintended consequences.

Arizona Appellate Decision Addresses Interesting Parentage Question

OCTOBER 17, 2016 VOLUME 23 NUMBER 39
Kelly and Sam are a married couple. They want to have a child, but cannot do so together, so they agree that Kelly will undergo artificial insemination. The process is successful, and Kelly delivers a beautiful baby boy, Edward.

Does Sam have any duty to support Edward? If Kelly and Sam get divorced, will Sam have any chance at custody, or joint custody, of Edward? If not, does Sam have any right to visitation with Edward?

Take this question forward a few years. Imagine that Kelly and Sam do get divorced, and Sam dies shortly after the divorce is final (without having written a will). Does Edward get any share of Sam’s estate — or perhaps Sam’s entire estate?

These questions may seem easy. Yes, of course Sam has a duty of support. Of course Sam has a chance at custody (and in any event, visitation) upon Kelly and Sam’s divorce. Of course Edward is an heir to Sam’s estate.

Oh — we left out an important element. Kelly and Sam are both women. Their marriage is recognized because of the 2015 U.S. Supreme Court decision in Obergefell v. Hodges. That landmark court decision holds that same-sex marriages are entitled to the same legal status, protections and liabilities as heterosexual marriages.

Arizona law says that when a child is born to a married couple, the husband is presumed to be the child’s father. Does that mean that a same-sex partner is presumed to be the father? Or a second mother? And if the law creates just a “presumption” of paternity, can that be overcome by proof of the biological impossibility of one woman impregnating another?

This is an interesting thought experiment — except that it’s a real question in an actual Arizona court case. We’ve changed the names of all the principals, but this very story played out in a courtroom in Tucson last spring. Kelly had filed for a divorce, and argued that Sam had no right to consideration for custody of or visitation with Edward.

The trial court judge determined that it would be impermissible to create a presumption for a married man that would not apply to a similarly-situated spouse just because she was a woman. Besides, Kelly and Sam had entered into an agreement before Edward was born — they had agreed to be treated as co-equal parents and to seek a “second parent” adoption if they ever resided in a state that permitted same-sex couples to formally adopt one another’s children (Arizona does not clearly authorize such proceedings).

Kelly sought review by the Arizona Court of Appeals, which agreed to take the case under “special action” jurisdiction (even though the underlying case has not been concluded). Last week the Court of Appeals agreed with the trial judge — though with a slightly different shading in their interpretation. As the appellate court notes, the “presumption” that a married partner is the father of a child born during the marriage is not based only on biology. It is also partly a response to the social policy that favors giving a child a right to support from and attachment to a person who has assumed the role of parent.

None of that, ruled the appellate court, is different just because Sam is a woman. Accordingly, the custody/visitation/support case should proceed as if the Arizona statute was gender-neutral, and Sam should enjoy the presumption that she is Edward’s parent. McLaughlin v. Jones, October 11, 2016.

Kelly and Sam’s legal case is (we think) a fascinating analysis of the differences we have to confront as same-sex marriage becomes clearly embedded in our legal framework. But, because of what we do here at Fleming & Curti, PLC, we’re mostly interested in the probate and inheritance implications of their legal case.

Clearly, Edward is now an heir of Sam. If Sam were to die without writing a will, a portion of her estate — and perhaps all of her estate — would pass to Edward. If Kelly were to die, Sam would have the right to full custody of Edward — even if Kelly had nominated someone else to serve as Edward’s guardian.

Interestingly, the words “father” and “mother” do not appear anywhere in Arizona’s Probate Code (Title 14 of the Arizona Revised Statutes). References to “parent” or “parents” should be easy to work with, and the gender of a decedent’s spouse is irrelevant under existing probate law.

In another generation, though, there will be some oddities. If, for example, Edward were to grow up, have children of his own and then die without writing a will, his estate might pass half to his “maternal” and half to his “paternal” family lines. We can hope that by that time, Arizona’s statutory language will have caught up with the times.

Trust Decanting Used to Implement Special Needs Provisions

OCTOBER 10, 2016 VOLUME 23 NUMBER 38
Let’s say that your mother wants to leave an inheritance for your son (let’s call him Daniel), but that Daniel is a minor. How can she arrange his inheritance? By putting it in trust, of course. Pretty commonly, Daniel’s trust might continue until he is 21, or 25, or some other age that your mother might choose. After that, the money can go to him outright. In the meantime, you, or your mother’s accountant or lawyer, or a family member with good financial skills, can manage Daniel’s money for him.

There’s nothing very remarkable about that setup, but one common development can change the story dramatically. What if, before he reaches the age for distribution from the trust, Daniel becomes disabled — or receives a diagnosis that you just didn’t expect when you wrote the trust?

If your mother is still living, of course, she can change the trust provisions to create a “special needs” trust for Daniel. But if she were to die before the family learned that Daniel needed a different type of trust, things could get much more complicated.

If no steps are taken before Daniel turns 25 (or whatever age the trust set), then the trustee will have no choice to turn the money over to him. That will almost certainly mean that he loses some or all of public benefits he receives because of his disability — and he may not be able to manage the money anyway. That could be a bad result.

One response might be for you, as Daniel’s parent and/or guardian, to create a new special needs trust for him after he turns 25. That might require court action, and will result in a pretty tightly-controlled trust document (because the rules are fairly restrictive). This kind of trust is usually called a “self-settled” special needs trust, even though Daniel might not actually be involved in its creation at all. This kind of trust also has to provide that, when Daniel dies later, the state’s Medicaid program will be entitled to make a claim against the trust’s remaining assets — before they pass to Daniel’s other family members.

Another excellent choice in Arizona might be for Daniel’s trustee to “decant” his trust. This notion borrows its name from decanting of wine — the trustee would simply pour (as it were) the trust’s assets from the existing trust container into a new, more appropriate (and special needs) container. But there is some uncertainty about whether that new trust container would have to be a “self-settled” trust — and include the restrictive provisions and payback clause.

It was not in Arizona and does not apply Arizona law, but a recent New York appellate court decision addressed this very question. Daniel’s trustee asked the New York courts for permission to decant his trust to a new special needs trust — but without the payback provision. The trustees gave notice to the state Medicaid agency, and its representatives appeared and objected. Because Daniel would be absolutely entitled to receive the trust balance when he reached the age in the original trust document, they reasoned, the money was really his, and the trust would need to be of the self-settled variety.

Not so, argued the trustee. The money would not be Daniel’s until he reached the age set out in the trust — and in the meantime, state law permitted the trustee’s to move the trust into a new trust, governed by a new document. That meant that no payback provision was required.

The New York Surrogate’s Court (what we would call the probate court in Arizona) agreed with the trustees and allowed creation of a new trust with no payback provision. The Medicaid agency appealed, but unsuccessfully. According to the appellate court, Daniel’s trustee was correct — the new, decanted trust was not a self-settled special needs trust, since Daniel did not have the right to receive the property at the time the new trust was created. Matter of Kroll v. New York State Department of Health, October 5, 2016.

This may seem like a small thing, but the ramifications are actually quite large. If the New York precedent holds up in other states, it will open a terrific opportunity for management of trusts when circumstances have changed (as they so often do). It might be applicable not only when beneficiaries like Daniel reach the age of distribution; it might also apply when a trust contains unfortunate language, or management considerations change.

Will this be the law in Arizona? It is hard to be certain, but each case (and this one is the first) reaching a similar conclusion will add impetus to what we can hope will be a developing trend.

Young Man’s Father Secures Guardianship After Summer Visit

OCTOBER 3, 2016 VOLUME 23 NUMBER 37
Sometimes a legal proceeding in another state can help illustrate the procedures in your own state — because they are different. A guardianship case in Georgia last week is a good example.

Melvin Peters (not his real name) is twenty-one years old, and he lives with his father in Georgia. Melvin has an autism diagnosis, which he first acquired when he was three. When Melvin was twelve, his mother was given custody in a North Carolina proceeding.

Every summer Melvin traveled to his father’s (and stepmother’s) home in Georgia for a long visit. That arrangement apparently worked well, until last summer. Melvin (then twenty) refused to return to North Carolina.

At the end of last summer, Melvin’s father filed a guardianship petition in Georgia. He alleged that Melvin need a guardian appointed; though he could make some of his own decisions, his father insisted that he “needs ongoing guidance.” Melvin’s court-appointed attorney met with him, confirmed that he wanted to live with his father, and reported to the court that it would be in Melvin’s best interest to stay with his father in Georgia.

Melvin’s mother objected, and argued that the Georgia courts did not even have jurisdiction. She argued that he was really a resident of North Carolina, and any guardianship proceeding should be brought there.

The Georgia court disagreed, and proceeded to appoint Melvin’s father as his guardian. Melvin’s mother appealed, and the Georgia Court of Appeals upheld the order. Melvin will, according to the court, continue to live with his father in Georgia. Estate of Pond, September 27, 2016.

How would Melvin’s case be different in Arizona? In several ways.

First, Arizona has adopted the Uniform Adult Guardianship and Protective Proceedings Jurisdiction Act (the UAGPPJA). That law mandates that a guardianship not be brought in a state where the proposed ward has lived less than six months (except in limited circumstances, none of which look like they would apply in Melvin’s situation). Well, actually, Georgia has also adopted the law — but not until this Spring. It became effective in Georgia on July 1, 2016 — well after the ruling in Melvin’s case.

The UAGPPJA is intended to reduce or eliminate guardianship filings in states where the subjects of the proceedings are just visiting. More importantly, it is intended to keep family members from taking an incapacitated person back to their home state before filing court proceedings. It has been adopted in almost every state (Florida, Texas, Kansas, Wisconsin, and Michigan are holdouts).

Another difference: in Arizona, as of August of this year, any custody order for a minor child would create a presumption about the child’s best interests after they turned eighteen. If Melvin’s father lived in Arizona, that would mean that he would have to show why the earlier custody arrangement needed to be modified, and the court would look to Melvin’s mother as the presumptive guardian.

Of course, if Melvin’s father had filed a similar proceeding in Arizona a year ago, that new law would not have been in place. Still, prior custody orders are supposed to be attached to any guardianship petition, and the guardianship court would probably have wanted to know why the same arrangement should not be continued after the incapacitated child’s majority.

That raises another likely difference: Arizona’s preference for limited guardianship. Although it is hard to be certain from the court’s description of Melvin, it seems likely that he would be viewed as pretty much able to make his own personal decisions in Arizona. If a guardian was appointed, it might well be a “limited” guardian — meaning that Melvin would be able to make his own decisions about where he lived (and who he lived with), and maybe even about his own health care decisions.

In fact, Melvin sounds like he might be a good candidate for the emerging notion of “supported decision-making“, under which he might avoid the guardianship process altogether. Arizona has no formal supported decision-making statutes — yet. That might well change as the system slowly shifts toward more autonomy and dignity for subjects of guardianship and conservatorship proceedings.

Would Melvin’s story have played out the same way if he had spent the summer with his father in Arizona? Almost certainly. But then he would have been spending his summers in Arizona, and that does seem unlikely.

Special Needs Trust Pays Substantial Legal Fees in Dispute

SEPTEMBER 26, 2016 VOLUME 23 NUMBER 36
Questions often arise about what kinds of payments may, or should, be made from a trust. When the trust is a “special needs” trust, the questions sometimes can be even more pointed — the purpose of a special needs trust, after all, is usually to provide for supplemental needs not available from other sources. As in almost every trust case, there are questions about whether trust expenditures improperly favor one beneficiary over the interests of others; in many special needs trusts, the question is compounded by trying to assess the protection due to the state Medicaid agency, since it is often entitled to repayment from the trust on the death of the primary beneficiary.

All of that, though, is hard to analyze — until a specific trust distribution is at issue. To help review the considerations we might look at a recent case out of South Carolina, in which a special needs trustee’s payment of legal fees has come into question.

Alexis Davis (not her real name) presents a tragic story. In 2006 she delivered triplets (after she and her husband had tried to have children for several years). During the delivery, however, she was catastrophically injured; she remains unable to move or speak, and communicates primarily by blinking.

Alexis’ husband and parents cooperated in filing a lawsuit against the hospital where she was treated, and a settlement was negotiated. A special needs trust was established to handle the settlement proceeds, and it was funded with an initial amount of almost $1 million, plus monthly income payments of over $30,000. Alexis’ mother and father were named as trustees of her special needs trust, and as guardians of her person and conservators of her estate.

After the settlement, Alexis’ husband announced that he wanted to pursue a divorce. In response, her parents filed a divorce proceeding on her behalf, and sought visitation between her and her triplets.

All of the legal proceedings took place in California, where the couple had lived together and the triplets were born. For a time, Alexis’ parents moved to California to help take care of her, and to have her remain close to her family. As the divorce proceeded, however, they moved her back to South Carolina to take care of her at home.

Over almost a decade, legal battles proceeded over the visitation issue. Alexis’ legal position was directed by her parents, acting as co-trustees and as co-guardians. The legal costs were paid from her trust.

Meanwhile, legal fees mounted. Alexis’ ex-husband eventually filed an action in South Carolina to try to prevent Alexis’ parents from paying those costs from her trust. He brought his action against them as trustees but did not name Alexis herself as a party. His request was made on behalf of the triplets, arguing that their interests in the trust were being compromised by the legal expenses.

In response Alexis’ parents asked the South Carolina court to expressly approve legal fees they had paid totaling $495,326.75. They also asked that the trust be modified to make it clear that they could pay legal fees without prior court approval. The court appointed a guardian ad litem (a local lawyer) to represent the triplets’ interests in the trust. The court also appointed another local attorney to act as Alexis’ guardian ad litem, and a third as attorney for Alexis.

Midway through the court proceedings (after several days of trial and after Alexis’ ex-husband finished his presentation) the judge formally amended the petitions to make clear that Alexis herself was a party. Because the allotted time was up, the court continued the whole proceeding for a new date; it was set to start up again several months later. Meanwhile, the judge who had heard the first part of the proceedings lost her reelection bid, and Alexis’ ex-husband appealed the order adding her as a party.

Meanwhile, the first appeal resulted in an order denying Alexis’ ex-husband’s objections, and he appealed to the next level of court — South Carolina’s Court of Appeals. That appellate court agreed with both of the lower courts which had considered the questions, approving the addition of Alexis as a party, the appointment of a guardian ad litem and an attorney to represent her, and the course of the litigation up to that point. Dorn v. Cohen, August 3, 2016.

Are you confused yet? We know we are — and we speak the arcane language of appeals and legalisms regarding trusts and guardianship. But that’s not really our point. Instead, we think that Alexis’ case illustrates an important issue.

The key dispute involved here centers around legal fees of almost $500,000. Since that bill was incurred, the dispute moved to another state, three different attorneys have been appointed to be involved in the case, and a multi-day trial has been conducted — and yet the issues are far from resolved. With the change of judge, it seems safe to suggest that there will eventually be several more days of court proceedings, and more legal wrangling just to get to that point. Meanwhile, the underlying fight — over visitation between Alexis and the triplets — was actually resolved (according to news reports) five years ago. The resolution sounds imminently sensible, and it may even be going well.

Our point is that legal proceedings can sometimes lose their connection to reasonable grounding. From Alexis’ parents’ perspective, they have by this time incurred legal fees that are probably two or three times the original reported bill — and they could conceivably be instructed to pay those fees from their own pockets. On the other side, unknown fees and costs have been incurred by Alexis’ ex-husband. Presumably, all the legal costs will eventually be borne by the triplets, since their inheritances (from their father, their mother’s trust and even their grandparents) will have been significantly reduced.

Does this mean that it is dangerous to even act as trustee of a special needs trust (or, for that matter, of any trust)? No. This level of dispute is extremely unusual. But the story is still a cautionary one.

 

Public Fiduciary Offices in Arizona

SEPTEMBER 20, 2016 VOLUME 23 NUMBER 35
When an individual living in Arizona becomes incapacitated, or needs financial protection because of diminishing capacity, a family member, friend or private professional fiduciary might be appointed to act as guardian (of the person) or conservator (of the estate). But what if there is no one available to act, or if all the possible candidates are disqualified for some reason?

For over four decades Arizona counties have had a public official who can act as guardian and/or conservator when no one else is available. The Public Fiduciary is designated in each county by the Board of Supervisors, and runs an office (and staff) funded by the county. In addition to guardianship and conservatorship, the office also handles probate of decedent’s estates when no one else can be appointed.

A handful of other states have similar offices, though most handle guardianship only, conservatorship only, or probate only. Many states have similar agencies that can act as guardian or conservator for particular groups of people — typically veterans, or the developmentally disabled. Arizona’s unique experiment was to group all those functions together into one office, and to call it the Public Fiduciary.

Does that mean that Arizona’s Public Fiduciary offices are an inexpensive alternative for poor families who don’t want to incur the costs of initiating guardianship, conservatorship or probate? No. Public Fiduciary offices do not represent families — they file petitions for the office’s own appointment instead of appointment of family members. They also charge fees, meaning that they may or may not be less expensive than private fiduciaries and lawyers representing family members. Most importantly, they will not act when there are suitable family members available.

Arizona’s Public Fiduciary offices have been a very positive success (though there have been individual incidents of abuse by at least two different Public Fiduciaries). Generally speaking, the offices act when estates are small, legal problems are substantial, and/or family members have misbehaved. But there are no formal limitations on the kinds of cases the Public Fiduciary can get involved with, and (though the experience is different in each county) public fiduciaries tend to be the most experienced, most knowledgeable resource for guardianship, conservatorship and probate problems in most counties.

You can read more at the website of the Pima County Public Fiduciary (that’s the county in which all of Tucson is located). There is a separate — but usually similarly-run — office in each Arizona county. Note that, at least in Tucson, the office also handles other, related functions — chief among those is management of the county burial system for indigent decedents or those who die without locatable family.

We last wrote specifically about the Pima County Public Fiduciary in (and this amazes even us) 1994. To put that in context: the office is now more than twice as old as when we last highlighted them. A considerable amount has changed since that time: for one thing, the current Pima County Public Fiduciary (well, the Interim Public Fiduciary, anyway) is the first non-lawyer to hold the office in its 42-year history. Peter Santini has been a core staff member for two decades, and is a logical choice to handle that role. His predecessor retired recently, and the County is in the process of making a permanent selection.

One thing hasn’t really changed in over twenty years. You can still make a referral to the Pima County Public Fiduciary by calling their office and talking with an intake person on staff. Their phone number: 520-724-5454.  Remember, though, that they only handle Pima County cases; there’s no point in contacting them about Public Fiduciary matters in any of Arizona’s other 13 counties, or for similar cases in other jurisdictions.

If you thought about it a minute, you’d probably guess that the availability of an office like the Public Fiduciary would mean that there are fewer private-industry alternatives for similar work in Arizona. In fact, though, the experience is exactly the opposite. Despite a robust and effective Public Fiduciary system in Arizona, the private fiduciary industry is much more extensive, better-regulated and more professional than in many other states. That may be partly a result of good training — a large portion of the private fiduciary industry learned how to handle guardianships, conservatorships and probates while working in their local Public Fiduciary offices.

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