Posts Tagged ‘Arizona Supreme Court’

Court Rule Changes Will Affect AZ Fiduciaries in 2012

JANUARY 2, 2012 VOLUME 19 NUMBER 1
Two weeks ago we detailed some of the statutory changes facing guardians, conservators and other fiduciaries in Arizona beginning with the new year. At the same time the legislature was working on those changes, the Arizona Supreme Court was considering changes to the rules and procedures governing probate court. That means more changes affecting guardianship, conservatorship, probate, and trust administration.

The Supreme Court rules changes have been adopted, but they are not effective at the same time as the statutory changes described in our earlier newsletter. Most of the rule changes become effective on February 1, 2012; a few of them will be delayed until September 1, 2012. Since some of the changes require continuing review and modification by the courts, some may be changed or delayed even beyond that later effective date.

Here are some of the probate court rule changes (all effective February 1, 2012, unless otherwise indicated):

  1. Every conservator must file an inventory within 90 days of appointment. That has not changed. What has changed is that (beginning in September, 2012) the inventory must also include a budget (unless the Court in individual cases waives this new requirement). The budget must be updated with each annual account. Expenditures in excess of budgeted amounts are not prohibited, but may require an update to the budget or even prior Court approval. Failure to follow the budget may subject the conservator to higher liability at the time of the annual account.
  2. At the same time that the inventory and each annual account is filed, every conservator of an adult must calculate whether it appears that the conservatorship assets will outlast the person subject to the protective proceeding. The precise calculation does not have to be shared with interested persons, but the result does; the conservator is required to explain what he or she anticipates will happen if the money is not sufficient to take care of the protected person for the rest of his or her life expectancy.
  3. The rules introduce the legal concept of “vexatious conduct.” If a litigant has been found to have filed repetitive pleadings for the purpose of harassing others, the court may enter an order limiting their ability to file future pleadings. Such an order might, for example, require the vexatious litigant to get the court’s approval before filing any new pleadings, or relieve the other litigants of any obligation to file responsive pleadings until the court has made an initial review of the vexatious litigant’s filings. Another new rule permits a party who thinks a given filing is repetitive to respond by simply pointing out that the pleading is repetitive; once that is done, no further response is required until after the court determines whether the filing is in fact repetitive.
  4. When a guardianship or conservatorship is filed, an attorney and a court investigator are normally appointed (to represent the subject of the proceedings and to report to the probate court, respectively). That does not change with the new rules. There are several changes about how those appointments will work, however. First, court-appointed attorneys, court investigators and guardians ad litem must undergo a training program to be devised by the courts (this is one of the requirements that is implemented on September 1, 2012). Second, court-appointed attorneys and guardians ad litem are disqualified from serving in cases where the proposed fiduciary is a client of theirs in other matters, even if unrelated. Third, it is now impermissible for the court appointees to end up serving as the guardian or conservator.
  5. Speaking of guardians ad litem, the new rules spell out in more detail what that position entails and when a GAL may be appointed. The request for appointment of a GAL must detail why special expertise is needed, and any order appointing a GAL must spell out the limits of the appointee’s authority.
  6. When a guardian or conservator is appointed by the judge, that fact alone does not give them any authority to act. The clerk of the court must first issue “letters” evidencing the appointment (which may require that the appointee file additional documents). The new rules imposes several changes involving the “letters.” First, every court order appointing a guardian or conservator must include a warning that the appointment is not effective until the letters have been issued. Second, every conservator must record a certified copy of his or her letters with the County Recorder in the county where the protected person resides and in every other county where the protected person owns real property. Third, a conservator’s letters must include specific language if sale of real property or access to other assets (like bank accounts, for instance) has been restricted by the court.
  7. Every person or entity appointed as guardian, conservator or personal representative must undergo a training program either before or shortly after appointment. This provision is not effective until September 1, 2012 (in order to give the courts time to create an appropriate training program). It does not apply to professional fiduciaries who have been licensed by the Supreme Court (they already have testing, training and continuing education requirements) or banks acting as fiduciaries. It does apply to family members who act as fiduciaries. There are no exceptions for people who have been named as personal representative in a will, for example, or for parents who act as conservator for a minor child whose assets are all in court-controlled bank accounts.
  8. Any lawyer or fiduciary who expects to be paid from a ward’s (or prospective ward’s) funds must first give everyone in the case notice of how his or her fee is to be calculated. The Supreme Court has directed that some sort of fee guidelines be adopted in the future; those guidelines will govern how attorneys may charge in guardianship and conservatorship matters.
  9. Annual accounts must be in the form prescribed by the Supreme Court. That form has not yet been adopted (it is one of the items that will have a September 1, 2012, effective date to give the Court time to finalize the forms), but preliminary forms have been circulated. They are quite different from the accounting forms approved by the Court for the past four decades, and will require significant retooling of accounting practices and software. Details are not yet settled, but will be adopted over the next few months.
  10. Alternative dispute resolution is encouraged. In contested proceedings, the parties are required to notify the Court within 30 days about their efforts to initiate mediation, arbitration or other resolution efforts.
  11. When a guardian has been appointed for a minor, the guardian has an affirmative duty to notify the court on the minor’s reaching majority, getting married or adopted, or upon the minor’s death. If there is no conservator appointed, the guardian’s notification must include a list of any property the guardian believes may belong to the child — and that information must be provided to the Court as well as the subject of the guardianship.
  12. Attorneys for guardians, conservators and other fiduciaries are required to encourage their clients to do as much of the fiduciary work as they can without involvement of the lawyer. Complaints have been made in the past about lawyers overseeing their clients’ work too closely, and at too high a cost. The new rules make clear that the responsibility is the fiduciary’s, not his or her lawyer’s.

Can we generalize about the effect and value of these changes? Not yet — or at least we can not generalize about how much they will actually improve the practice or lower costs. We can make a few educated guesses, though — and we will:

  • It seems likely that the cost of most guardianship and conservatorship matters will increase slightly, as compliance with the new (and more detailed) rules requires more work.
  • We expect fewer family members will be willing to take on what was already a difficult task, and will now become somewhat more difficult. That means more cases moving to professional fiduciaries.
  • Our estate planning clients will be reminded again and again how important it is for them to execute living trusts, powers of attorney and other arrangements to avoid any need for guardianship or conservatorship proceedings. One small irony: even as the process for handling decedent’s estates has been streamlined over the past several decades in response to public and consumer complaints about costs, delays and legal micromanaging, the guardianship and conservatorship process have become more expensive, slower and more subject to Court micromanagement. That may have been necessary to protect a vulnerable population, but it certainly is an example of the doctrine of unintended consequences.
  • Contentious family members and friends will have more access to the Courts, not less. Contested proceedings will likely become somewhat more frequent in guardianship and conservatorship cases. It is likely that the same effect will not be seen in decedent’s estates and trust administration cases, but we could be wrong about those predictions.

Here’s our final (and, we think, safe) prediction: the effect of these changes will be less profound than either practitioners fear or reformers hope. We will all learn the new rules over time, and many of us will refer fondly to the good old days, before 2012, when people just seemed to get along better and the process did not seem to get so bogged down in minutiae and micromanagement. We will be wrong about our glowing, Rockwellesque memories.

Want to read the new rules yourself? It’s a little hard to find and read them. First, the Arizona Supreme Court’s site for proposed rule changes is confusing and impenetrable, and does not distinguish well between recent changes and proposals and those from prior years (or, we assume, prior decades — once the kludgy system gets to be ten years old). Second, as of this writing, the “official” rules page does not show the changes (which admittedly will not be effective for another month). We will give you our best bet for temporary review; we will try to remember to update the online version of this article once the final rules make it to the official rules page. Look at the Arizona Supreme Court’s Rules of Probate Procedure page, and remember that you have to actually open and integrate three PDFs to figure out which rules are effective on what dates and where each change is located.

Arizona Probate Court Changes Coming in 2012

DECEMBER 19, 2011 VOLUME 18 NUMBER 43
It is not exactly a secret that the Arizona probate court system has been widely criticized over the past two years or so. The Phoenix-area newspapers have been filled with stories about alleged abuses of the probate process. Many of those stories have focused on practices in the guardianship and conservatorship systems, which in Arizona are controlled by the probate courts. During last year’s Arizona legislative session a number of changes were adopted; most of those take effect on January 1, 2012.

At the same time the legislature was acting, a committee of the Arizona Supreme Court was considering many of the same (or similar) changes. The courts have now released their final changes; some of them will take effect on February 1, 2012, and some on September 1, 2012. We will describe some of those changes, and what effect they are likely to have on existing and future clients, in a later newsletter. For now, we focus on the changes adopted by the legislature. They include:

  1. Fiduciaries are now expressly required to consider costs when making decisions about how to act, and to make reasonable decisions to limit those costs. The notion of a cost/benefit analysis, which we all apply to business and personal decisions in our own lives, has been adopted for guardianship, conservatorship, probate and trust administration proceedings. See Arizona Revised Statutes section 14-1104.
  2. Unreasonable litigants — including those who repeatedly file the same kinds of pleadings despite successive decisions against them — can now be prevented from running up probate costs, and can even be charged with some or all of the costs they do incur. The probate court has the express power to prohibit further court filings by an unreasonable party, and to summarily deny repetitive motions without requiring others to answer or argue. See Arizona Revised Statutes sections 14-1105 and 14-1109. The court rules which become effective a month later, incidentally, include a concept of “vexatious conduct” that is similar but somewhat more expansive.
  3. Arbitration of probate disputes is encouraged — but not (yet) required. Mediation and other forms of alternative dispute resolution are also permitted. See Arizona Revised Statutes section 14-1108.
  4. Guardians, conservators and attorneys must now provide written information about their fees — how they are going to be calculated and at what rate or rates — at the beginning of their involvement. Failure to do so will mean that they are not permitted to collect fees from the ward in a guardianship or conservatorship proceeding. The probate court has been given wider latitude to determine when a professional fee is reasonable and necessary. See Arizona Revised Statutes section 14-5109. Another fee-related change: attorneys are not permitted to wait until the conclusion of a case (or some later event) to submit their bills. Any bills not submitted within four months of the services are waived. See Arizona Revised Statutes section 14-5110.
  5. It should be easier for the subject of a guardianship or conservatorship — or his or her family — to seek appointment of a new guardian and/or conservator. This change reflects the legislature’s concern that even when family members are unable (or unsuitable) to serve, they should have some say in selecting the fiduciary. There are limits on how often the ward and family members may ask for changes, and the court retains the final say on any substitution, but the statutory changes will probably lead to more changes of fiduciary, at least in contentious cases. See Arizona Revised Statutes sections 14-5307 and 14-5415. The notion that family members — even family members who can not themselves serve — should have a greater say in selecting and monitoring guardians and conservators is sprinkled through other sections of the new law.
  6. Although most of the new law deals with guardianship and conservatorship changes, there are a few changes in probate proceedings and at least one in trust administration matters. The principal change for trusts: the beneficiary of a trust has the ability to direct appointment of a new trustee — at least if the trust was originally established by the beneficiary. See Arizona Revised Statutes section 14-10706. This section will not apply — at least not directly — to trusts established by someone else for the benefit of the beneficiary. It will apply to self-settled special needs trusts and other irrevocable trusts established by the beneficiary.

What effect will the statutory changes have on guardianship and conservatorship practice? It is hard to be certain until there is more experience. A few likely effects, including some that might be categorized as unintended consequences:

  • The cost of probate court proceedings is likely to go up in most cases. This is a paradox, since one of the original motivations behind the changes was to control costs, and especially legal fees. In some very expensive cases in recent years, that might well be the effect. In the vast majority of cases, however, increased requirements and a higher burden on fiduciaries and their attorneys will likely result in at least a small increase in costs.
  • There are likely to be fewer private fiduciaries willing to get involved in difficult or contentious cases. That, in turn, is likely to mean an increase in caseloads for the Public Fiduciary in each county. Not only will the Public Fiduciary see an increase in cases, but it is likely that the complexity of the average Public Fiduciary case will increase.
  • Some private professional fiduciaries may leave the field, or change their practices significantly. We predict (on the basis of no empirical data whatsoever) that another paradox is likely to be an increase in the number of licensed fiduciaries — and that both the average case load and the professional training and experience of private fiduciaries may well be lower in future years.

On January 18, 2012, Fleming & Curti, PLC, will host a training session for our clients who act as guardian, conservator or personal representative. We will invite fiduciaries who are not our clients, as well. Those in attendance will likely include both family members handling a single case and professional fiduciaries with large and complicated case loads; both kinds of fiduciary will need to know what the changes mean for them. We will cover both these legislative changes and the Supreme Court’s changes in rules and accounting requirements (and forms). If you are interested, you can pre-register by calling Yvette in our office (520-622-0400) and leaving your name and e-mail address. We will be sending out formal invitations in the upcoming week.

Arizona Court of Appeals Orders Review of Fees in Guardianship

DECEMBER 13, 2010 VOLUME 17 NUMBER 38
Arizona’s probate court system — and particularly the guardianship and conservatorship arenas — have been embroiled in public controversy for the past year. A series of essays by a prominent Phoenix newspaper columnist has taken the entire system to task over allegations of excessive fees being paid to guardians, conservators and attorneys. A few cases have made particularly compelling reading, with total fees of hundreds of thousands of dollars being charged to individuals caught up in the system.

One of those stories involved R.B. Sleeth of Phoenix. One of his two sons initiated a guardianship and conservatorship proceeding in late 2007. Of particular concern was the possibility that Mr. Sleeth might marry, and his son doubted both his capacity to enter into a marriage and the motivations of the woman with whom his father lived.

Whatever the merits of those arguments, the ensuing proceedings were bitter and protracted. The son seeking guardianship had a lawyer, Mr. Sleeth had a lawyer, and his future wife also retained an attorney. In the heat of the proceedings the probate court appointed another lawyer as Mr. Sleeth’s guardian ad litem, and she reported to the court on what she thought ought to be done.

Contested hearings were held in March and April, 2008, but even after the probate court appointed Mr. Sleeth’s son as his guardian, conservator and trustee the lawyers continued to spar over his proper care, the possibility of his marriage and the management of his estate. Another round of hearings was held in October of that year, and in December, 2008, the judge removed Mr. Sleeth’s son as guardian (leaving him as conservator and trustee) and appointed an independent, professional fiduciary.

By October, 2009, Mr. Sleeth had married, the court had appointed a new conservator and trustee, and Mr. Sleeth’s son had submitted his attorney’s billings for approval by the court. Fees and costs for the nineteen months totaled $270,213.36. The probate judge ultimately approved the billings (though reduced by $5,515.00), over the vigorous objections of Mr. Sleeth and his new wife.

In addition to the fees charged by Mr. Sleeth’s son’s lawyers, fees of $142,499.69 were requested (and approved) by Mr. Sleeth’s own lawyer, and another $38,508.67 (also approved) by the court-appointed guardian ad litem. In total, Mr. Sleeth’s estate was subjected to bills for attorney’s fees and costs of $445,706.72. Since his estate had been valued at about $1.4 million, this meant that about one-third of his entire estate would be paid to lawyers.

The Arizona Court of Appeals reviewed the approval of the fees of lawyers for Mr. Sleeth’s son. The court noted that no one had appealed the other two attorney’s fees, so they were not before the appellate judges. With regard to the fees charged to the guardian/conservator/trustee, though, the appellate court was clear: the trial judge needed to review them more closely.

Arizona’s probate code governs guardianship, conservatorship and trust administration proceedings as well as decedent’s estates. That code and the rules adopted by the courts to implement it are clear: the fees charged by lawyers in probate proceedings must be “reasonable.” What is less clear is what “reasonable” might mean in particular circumstances.

Although the probate judge had ruled that the fees charged to the guardian were reasonable, the appellate judges ordered him to reconsider, and to particularly pay attention to at least these concerns:

  1. One important element of determining reasonableness, according to the appellate court, is whether the representation ultimately benefits the ward. It is not enough to show that the lawyer was “successful” in the proceedings. Even though his son prevailed (at least temporarily), the probate judge was directed to consider whether the proceedings were “excessive or unproductive.” Both the fiduciary and his attorney have a duty to make a cost-benefit analysis, and to review it regularly, to determine whether it is appropriate to continue the legal proceedings.
  2. The time records included a number of instances of what the appellate judges thought looked like “block billing” which required further review. Although most time records are kept in tenths of an hour, and many lawyers impose a minimum of .1 or .2 hours for most time entries, the appellate judges were troubled by the large number of time records listing a string of activities and posting a .5 or 1.0 hour bill. The failure to separate out multiple activities into individual listings makes it difficult to determine whether those time entries should be approved, according to the court.
  3. Although the court did not find that improper entries were included in the time records, it did direct the probate judge to consider whether charges for such items as copying, faxing, emailing and file maintenance were appropriate for billing, or were really clerical work that would normally be part of the lawyer’s overhead.

Sleeth v. Sleeth, December 9, 2010.

Much has been written about problems with legal fees in court proceedings involving guardianship, conservatorship and trust administration. The Arizona Supreme Court has created a committee to review (among other things) billing practices and rules. Three judges of the Arizona Court of Appeals demonstrated this past week that they don’t need a committee to tell them how to determine the reasonableness of fees — existing probate law gives them (and the probate courts) the tools to regulate fees in contentious probate proceedings.

What is the Value of a Senior’s Life?

SEPTEMBER 6, 2010 VOLUME 17 NUMBER 28
The question addressed in a ruling last month by the Arizona Court of Appeals seems provocative. In a lawsuit based on the Arizona law prohibiting abuse, neglect or exploitation of vulnerable adults, does the very life of the abused senior have any intrinsic value? The Court’s answer: perhaps, but the lawsuit can not recover damages for the loss of that life.

Mary Winn died about a month after being admitted to Plaza Healthcare, a Scottsdale, Arizona, nursing home, in 1999. Four years later her husband George Winn filed a lawsuit against Plaza, alleging that it had violated Mrs. Winn’s rights under Arizona’s Adult Protective Services Act. Under the APSA, a vulnerable adult who has been abused, neglected or exploited may recover damages suffered as a result of that abuse, neglect or exploitation. Mr. Winn argued (on behalf of his wife’s estate) that he should be able to recover on behalf of his late wife, and that she would have been entitled to actual damages for the loss of her life, as well as punitive damages.

Not so, argued the nursing home. Mrs. Winn obviously could never have collected damages for her own death, and her estate’s recovery was limited to what she could have recovered. In fact, the estate’s possible recovery was less than her damages, since any claim for pain and suffering she experienced at the end of her life ended with her death. With no actual damages to recover, her estate could not seek punitive damages.

Mrs. Winn’s estate argued that her life had some “intrinsic” value, and that it should be recoverable. The estate conceded that she was elderly and ill when she arrived at Plaza Healthcare, and that she could not be expected to earn a salary given her age and condition. But, insisted the estate’s lawyers, a human life has some inherent value.

The trial court agreed with the nursing home, and limited the estate’s proof to just actual damages. After an informal arbitration proceeding (the estate conceded that the remaining damages were less than $50,000, and therefore subject to mandatory arbitration rules) a judgment against was entered in favor of Plaza Healthcare.

The Arizona Court of Appeals reviewed the trial court’s ruling and agreed. There is no cause of action under the vulnerable adults statute, ruled the appellate judges, for the “intrinsic or inherent value” of a deceased claimant’s life. Mrs. Winn’s estate — and her husband — recovers nothing from Plaza Healthcare. Estate of Winn v. Plaza Healthcare, Inc., August 10, 2010.

To be fair, the appellate court did not rule that there is no value to the life of an elderly, disabled and vulnerable senior. All the ruling says is that there is no right to recover under the Arizona Adult Protective Services Act for the loss of life itself.

Does that mean that Mr. Winn had no claim for his wife’s alleged mistreatment? Not necessarily — he might have been able to file his lawsuit on his own behalf if he had acted more quickly. By the time he filed it had been more than four years since his wife’s death — too late for any wrongful death action but not too late for a viable lawsuit under the Adult Protective Services Act, which had a much longer statute of limitations.

There is another interesting footnote to the Winn case. Last month’s decision from the Court of Appeals is not the first time Mrs. Winn and her estate have been before Arizona appellate judges. In fact, her case had been appealed twice before — once in 2006/2007, and again a year later. The first trip through the appellate system involved the trial judge’s dismissal — ultimately reversed by the Arizona Supreme Court — on the basis that a probate proceeding filed more than two years after the decedent’s death did not permit filing of a lawsuit in the estate’s name. A year later the Court of Appeals dismissed an attempted appeal from the trial judge’s initial refusal to allow any recovery for the inherent value of Mrs. Winn’s life. That appeal had to wait for final resolution of the entire lawsuit, which was accomplished before the current (and probably final) appeal.

Will Prepared By Bookkeeper Valid–Contestants Disinherited

SEPTEMBER 20, 1999 VOLUME 7, NUMBER 12

Six days before he died, Arizonan Ralph Shumway signed a new will. Rather than consult a lawyer to prepare the will, Mr. Shumway had relied on his bookkeeper, Adelida Vega Rodriguez, to prepare the document for him. Because the will she prepared left one fourth of Mr. Shumway’s estate to Ms. Rodriguez, two of his daughters challenged its validity.

Ms. Rodriguez had used computer software to prepare Mr. Shumway’s will for him. As she testified at trial, the program did not allow her to edit his will or make any changes; she answered questions on the computer and the final product was automatically produced. Furthermore, she said, she simply read the questions to Mr. Shumway (who was blind) and he provided the answers.

The will Mr. Shumway signed was actually Ms. Rodriguez’ second effort on his behalf. The first version of his will left one-quarter of his estate to be divided among his daughters, and one-quarter each to Ms. Rodriguez and two of Mr. Shumway’s brothers. When he reviewed that draft, Mr. Shumway decided one of his brothers should receive only a token amount instead—this change was later taken as evidence that Mr. Shumway was making his own decisions and not unduly influenced by Ms. Rodriguez. His final will left a few small bequests to individuals, and divided the remainder half to his daughters and one-quarter each to his brother Newell and to Ms. Rodriguez.

Mr. Shumway’s will also included an in terrorem clause—a provision that called for the disinheritance of any beneficiary who challenged the validity of the will. When two of Mr. Shumway’s daughters objected to the will’s provisions in favor of Ms. Rodriguez, she responded by arguing that their legal challenge caused them to lose their interest in the estate.

Mr. Shumway’s daughters made two attacks on their father’s last will. They first argued that Ms. Rodriguez had unduly influenced their father, and that the provision leaving her one quarter of the estate was invalid. Then they argued that by preparing the will she was practicing law without a license, and that she should be prevented from seeking admission of the will to probate. They noted that under Arizona law a lawyer who prepared a will for a non-relative leaving one-quarter of the estate to himself or herself would be subject to disciplinary proceedings, and the bequest to the lawyer would be set aside.

Arizona law holds that a will (or deed, or gift) is presumptively invalid if it was procured through the efforts of one who shares a “confidential relationship” with the person making the transfer. Both parties agreed that Ms. Rodriguez, because she handled Mr. Shumway’s finances and worked closely with him for an extended period of time, held such a confidential relationship. They disagreed about whether she had overcome the presumption that the will was invalid.

The Arizona Court of Appeals agreed with Ms. Rodriguez that she had shown, clearly and convincingly, that the will represented Mr. Shumway’s own wishes. They pointed out that he had made changes to the first draft she prepared, and that Mr. Shumway had a reputation as a strong-willed, opinionated man even during his final illness, and that he had not been close to his children.

The claim that Ms. Rodriguez was practicing law when she prepared the will was also easily disposed of. The court noted that she had not given Mr. Shumway any legal advice, and had really only answered questions posed by the software program she used to prepare his will. To hold that the will was invalid simply because a non-lawyer was involved, noted the court, would invalidate thousands of wills unnecessarily.

The last question was whether the provision of Mr. Shumway’s will which penalized his daughters for filing the will contest should be enforced. The court held that an in terrorem clause can be valid in Arizona, at least where the contestant did not have probable cause to file litigation. In this case, ruled the judges, Mr. Shumway’s daughters should have known that the contest would fail, and should not have filed it. Mr. Shumway’s daughters inherited nothing from his estate. Estate of Shumway, September 7, 1999.

[Editor’s note: Almost exactly a year after this article was written, the Arizona Supreme Court reversed the Court of Appeals decision with regard to the effect of the in terrorem provision. In Matter of Shumway, September 15, 2000, the state’s high court considered Arizona law on the subject and held that there was at least probable cause for the filing of a contest of Mr. Shumway’s will. Since probable cause existed, the daughters’ shares under his new will should not have been forfeited. The Supreme Court vacated the Court of Appeals decision, or at least that portion of it which applied the in terrorem provision.]

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