FEBRUARY 27, 2012 VOLUME 19 NUMBER 8
Phoenix-area resident Larry Robertson (not his real name) was undoubtedly fading mentally, but he had made plans for handling his affairs. He had created a revocable living trust, signed a power of attorney and created a beneficiary deed. All those documents named a husband-and-wife team who were also his caretakers. They would receive his entire estate upon his death, and were put in charge of handling both his finances and his health care decisions while he was still alive.
Larry’s sister Betty lived in Ohio. She became concerned that the caretakers might be taking advantage of Larry, so she consulted with her local Ohio attorney, David Lynch. Mr. Lynch prepared a petition seeking Betty’s appointment as guardian of Larry’s person, conservator of his estate, and trustee of his trust. The petition claimed that there was an emergency requiring immediate action. It was signed by Betty and by Mr. Lynch — who was not admitted to practice law in Arizona. The petition was actually filed by an Arizona attorney, who did not sign it.
Once the petition was filed, an attorney was appointed to represent Larry. Another Phoenix-area attorney entered an appearance on behalf of Larry, claiming that he had prepared all of the questioned documents, that Larry had been perfectly capable of signing them, and that in fact Larry still had capacity and could make his own decisions about placement, caretakers and disposition of his property at his death.
The probate court held a hearing on the emergency petition. At the beginning of that hearing, Mr. Lynch asked to be admitted to practice law in Arizona just for the purpose of this one case — a process that is called “pro hac vice” admission. The probate judge heard some preliminary testimony, and discovered that Mr. Lynch had himself made an appointment with Larry’s attending physician under the pretense that he needed medical treatment, and that he had interviewed Larry’s physician about Larry’s condition. The judge refused to allow Mr. Lynch to be a lawyer in the case, ruling that it appeared that he might have turned himself into a witness instead.
Larry’s sister Betty then testified that she believed the caretakers might be taking advantage of her brother. In her petition she had alleged that Larry’s attending physician had told her that the caretakers seemed to be taking advantage of Larry; on the stand she acknowledged that the physician had not actually told her that he was concerned. The physician himself testified that Betty had asked him to say that Larry was incompetent, but he said that he had declined to render such an opinion.
At the conclusion of the hearing, the probate judge ruled that Betty had not shown any basis for a guardianship and conservatorship. The judge dismissed the petition, and ordered that Betty and her Ohio lawyer, Mr. Lynch, should both be liable to pay Larry’s original lawyer $6,470 in fees incurred in preparing for and conducting the hearing. The sanctions were imposed pursuant to Rule 11, a court rule governing civil proceedings which prohibits filing baseless proceedings.
Later, at a follow-up hearing set to consider whether Betty should be appointed as Larry’s trustee, the probate judge found that there was no basis for that allegation, either. By that point Betty’s entire petition had been denied; as a final blow the probate judge imposed an additional $9,651.04 in fees against Betty and Mr. Lynch — this time to pay the court-appointed attorney’s fees.
Mr. Lynch appealed the second award of fees against him. He argued that he had not been given a chance to show his own good faith in preparing the original petition for Betty. He had relied on Betty’s assertions, he argued, and that should have been all that was required.
Not so, ruled the Arizona Court of Appeals. When an attorney signs a pleading (as Mr. Lynch had done, even though he was not admitted to practice in Arizona), he or she effectively swears that he or she has made a reasonable inquiry into the facts alleged. Simply relying on the statements of the client was not enough — at least not when the witnesses to the documents were readily available, and Mr. Lynch could have simply interviewed them to see what they thought about Larry’s competence. “It appears,” wrote the appellate court, “the only effort Lynch made to verify Betty’s allegations was his inappropriate meeting” with Larry’s physician. The sanctions against Betty and Mr. Lynch, totaling over $16,000 in payments to Larry’s two lawyers, were upheld. Guardianship and Conservatorship of LaLonde, February 16, 2012.
In separate proceedings, incidentally, the Arizona Supreme Court admonished Mr. Lynch for practicing law in Arizona without being licensed in this state. The Ohio Supreme Court followed suit on October 14, 2011, publicly reprimanding Mr. Lynch in the same case.
There are at least two messages to be taken from the court-imposed sanctions against Betty and Mr. Lynch. First, it is important to make sure that you have some actual evidence of incapacity and an emergency situation before filing a petition to secure an emergency appointment as guardian for a family member or loved one. Pretty much the same can be said for a petition for appointment of a conservator, or for appointment of a successor trustee.
The second message is really addressed to lawyers more than to family members. It is not necessarily enough to rely on the assertions of your client. It is also dangerous to get so personally involved that you lose objectivity.Particularly in a time of heightened scrutiny being applied to guardianship, conservatorship and trust administration matters, it is important to have a good foundation before filing a petition that so deeply affects the personal life, independence and autonomy of a client’s family member.
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:
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.
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.
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.
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.
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.
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.
OCTOBER 17, 2011 VOLUME 18 NUMBER 36
Lawyers are ethically prohibited from charging excessive fees. Period. It doesn’t matter if the lawyer has a fee agreement calling for an excessive fee. It doesn’t matter if the negotiated fee seemed reasonable at the time, but turned out to be excessive as things developed. It doesn’t matter if the lawyer’s intentions were good, the lawyer took on quite a bit of unusual risk, or the client was smart enough that he or she should have figured out the bargain was bad. Lawyers simply can not charge an excessive fee.
Of course that strong statement often begs the real question: what is an “excessive” fee? If the lawyer takes a difficult personal injury case on a contingency basis, and then collects a very big settlement or judgment, is it excessive if her fee runs into the millions of dollars? Is it excessive if another lawyer’s percentage fee turns out to be a $2,500/hour windfall for the work done? Not necessarily, but those kinds of analyses are often used to test whether a fee is excessive.
Let’s imagine a client (we’ll call her TG) is represented by an attorney in a personal injury action. The attorney signs a standard fee agreement with her, providing a 1/3 contingency fee for his representation of her. The attorney works hard, has some hurdles to overcome, but ultimately secures a settlement of about $75,000. Is the attorney’s $25,000 fee “excessive”?
Probably not. Even if TG becomes unhappy with her lawyer, and tries to fire him after the settlement. Even if the lawyer, worried about her ability to handle the settlement proceeds, works to set up a special needs trust — which limits her access to her settlement proceeds.
Now, unhappy with her first lawyer and her special needs trust, TG hires a new lawyer — let’s call him Everett E. Powell, II. She tells Mr. Powell that she wants to get the money in her special needs trust and to spend it in whatever way she chooses. She signs a new 1/3 contingency agreement with Mr. Powell, and he agrees to try to terminate the trust.
Termination of a special needs trust can sometimes be complicated, and may even be impossible. In TG’s case, that turned out not to be the situation. Mr. Powell wrote to the trustee, expressed his client’s wish to terminate the trust, and heard back almost immediately. The trustee told Mr. Powell that he, the trustee, would resign. Furthermore, he would exercise his authority to select a successor trustee by naming Mr. Powell to the position. Then Mr. Powell could, if he chose, distribute all the special needs funds to TG and terminate the trust.
The trustee warned Mr. Powell: if you do what your client wants, and she spends the money quickly, there’s nothing to stop her from turning on you and claiming you breached your duty as trustee to protect her from herself. Mr. Powell decided that was a risk he was worth taking; he received a little more than $44,000 (representing the entire trust balance), signed a check to himself for $14,815.55 and transferred the remaining $29,429.62.
Within three days, Mr. Powell had accomplished his client’s wish to terminate the trust (though, technically, he had not; there was still a $600 balance in the trust, which slowly disappeared over a four-year period because of bank fees). Mr. Powell did not provide any accounting or tax services, and did not exercise any discretion as his client’s trustee — other than to distributed the bulk of the trust assets to her and pay himself a contingency fee.
Was his fee “excessive”? Yes, said the Indiana Supreme Court hearing officer who heard his ethics case. The hearing officer recommended discipline, and the Indiana Supreme Court agreed. Mr. Powell was suspended from the practice of law for 120 days, and required to reapply for admission to the bar if he intends to continue practicing law after that four-month period.
When imposing discipline, state Supreme Court justices usually consider aggravating and mitigating circumstances. In Mr. Powell’s case, the justices found that Mr. Powell was not remorseful, did not have insight into his mistake, did not cooperate with the investigation, and lied to TG’s first lawyer/trustee (he had represented that he intended to manage the trust and continue it for TG’s benefit). On the other hand, Mr. Powell had not had any prior disciplinary history — of course, he had only been a lawyer for a few months at the time of his misbehavior.
What made the fee “excessive”? The Court reviews the elements of an appropriate fee and offers some guidance. But there is no clear formula. The Court makes clear that a fee in excess of the amount of work actually involved is not necessarily excessive. Nor is every contingency fee suspect. But when, as here, a minimal amount of work is required in a very short period, a fee of almost $15,000 simply can not be justified. Matter of Powell, September 29, 2011.
JULY 11, 2011 VOLUME 18 NUMBER 25
When appointment of a guardian and/or conservator is necessary, the cost of securing the appointment is usually a legitimate charge to be paid by the ward’s estate. There are exceptions, but the general rule is that the guardian’s and conservator’s fees, together with the fees charged by the attorney for the guardian and conservator, can be paid from the ward’s estate.
What happens, though, when a guardianship or conservatorship petition is unsuccessful, or when the person filing the petition is not ultimately appointed as guardian or conservator? Often (but not always) the parties and the court ultimately agree that the petitioner’s efforts — even though not completely successful — benefited the ward, and that their reasonable attorney’s fees should be paid. There is no completely clear authority for that proposition in Arizona, however, and the result could be different in each case.
Last week precisely that question was addressed in a case decided by an appeals court. It was not an Arizona court, but from our neighbor Utah — where the laws are very similar. That does not mean that the Utah decision would be followed in Arizona, but it is certainly an indicator of what an Arizona court might decide in a contested proceeding.
Margaret Guynn lived on her own in Texas until 2009, when her son Donald Bruce Guynn moved her to an assisted living facility in Salt Lake City so that she would be closer to him. A few months later Ms. Guynn’s other child, Catherine Ortega, decided that mother needed the protection of the courts and she filed a petition seeking her own appointment as Ms. Guynn’s guardian and conservator.
Both mother and son vigorously objected that she was not incapacitated and that appointment of a guardian and conservator was unnecessary. In order to avoid expensive and protracted litigation, however, Ms. Guynn agreed that her son (not her daughter) could be appointed as limited conservator of her estate. That would have the effect of requiring him to file an annual accounting with the court for his administration of her funds, but it left him in charge of her finances.
Once the limited conservatorship was in place, Ms. Ortega asked the court to approve payment of her attorney’s fees from her mother’s funds. Mr. Guynn objected, and the probate judge decided that she was not entitled to the payment.
The Utah Court of Appeals agreed. It noted the general rule that, absent specific statutory authority, one party is not entitled to be paid by another for attorneys fees incurred in litigation. In this case, Ms. Ortega’s petition was not successful, and the appellate court saw not reason to order her mother to pay her fees and costs. Matter of Guardianship of Guynn, June 30, 2011.
Arizona’s statute is similar, although it has undergone a number of changes in the past few years. None of those changes, however, would clarify whether an unsuccessful petitioner might be entitled to be paid from the ward’s funds. Recent Arizona cases and intense court and media attention have thrown some light on how the courts might calculate the reasonableness of fees, but not on whether the payment might be made at all. The current statute with regard to conservatorships, Arizona Revised Statutes section 14-5414, addresses an interesting variation on the question: would Ms. Guynn’s attorney, or her proposed conservator’s attorney, have a right to recover fees from her daughter if she had simply dropped the petition? Probably yes, but there is less clarity about how the Guynn question might be addressed by Arizona courts.
JULY 5, 2011 VOLUME 18 NUMBER 24
Family members sometimes assume that an estate will be ready for distribution within days or weeks of a death. Those familiar with the probate process usually appreciate that it is more likely that distribution will be between six months to a year after death — and sometimes longer. When the decedent established a living trust, though, survivors often expect the final distribution to be faster. Everyone has gathered for the funeral, including out-of-town children and grandchildren — shouldn’t there be a check ready to hand out while the whole family is together?
The reality is that administration of an estate, even when a trust is involved, can take much longer. A good rule of thumb: it may still take six months to a year to prepare final income tax returns, gather trust assets, liquidate those which need to be sold (and not all will need to be sold in most cases), make calculations and actually complete the distribution. If there are more complicated issues, like estate tax liability, it may take even longer.
Delay in distribution of a trust estate was the issue involved in a recent Indiana Court of Appeals case. Harrison Eiteljorg’s will had provided a trust for his widow, Sonja Eiteljorg. When she died in 2003, the trust was to be divided into two shares — one each for Harrison’s sons Nick and Jack. Nick, a stepson and Harrison’s accountant were the co-trustees.
The trust was large — it held about $13 million of assets. That meant that an estate tax return had to be filed, and taxes totaling $6.2 million paid (remember that in 2003 tax was imposed on estates greater than $1 million). That was accomplished by late 2004, but the trustees were worried about closing out the estate and distributing the remaining assets. What would they do if the IRS disagreed with their calculations of values and imposed an additional tax liability.
At a heated meeting between the co-trustees and the two sons, Nick demanded a partial distribution of $2 million (half each to himself and Jack). The other trustees declined, saying that they worried that additional tax of up to $2 million might be imposed, and a distribution as large as Nick wanted would leave the trust with too little cash if that happened. They proposed instead to distribute $1 million to the two sons. Nick and Jack left the meeting without agreeing, and both sides hired new lawyers to battle out the timing and amount of a distribution.
A few months later Nick and Jack filed a petition with the Indiana probate court asking for removal of the co-trustees and entry of a judgment against them. Their argument: there was no reason not to distribute the requested $2 million when demanded, and failure to do so breached the trustees’ duty to the beneficiaries. The trustees answered, arguing that they needed to retain substantial liquidity until the IRS finally accepted the estate tax return (or imposed additional tax liability, if that was to be the outcome).
About a year after their original demand for partial distribution, Jack and Nick secured an order from the probate judge requiring that $1.5 million be divided between them. The co-trustees complied. The court proceedings then shifted gears to address a two-part question: did the delay in distribution amount to a breach of fiduciary duty, and (if it did) what were the damages due to Nick and Jack?
The probate judge found that the delay did amount to a breach of fiduciary duty. Nick testified that he would have put his distribution into two mutual funds, and that it would have grown significantly during the months he was deprived of its use. Jack testified that he had planned to purchase real estate in Texas, and that it would have appreciated. In addition, Nick and Jack had incurred attorneys fees totaling $403,612.81.
Based on the damages testimony, the probate judge awarded Nick $156,701 in “lost” profits from the funds he could not invest in. Jack was awarded $112,046.77 in missed real estate gains. The remaining co-trustees were ordered to pay those amounts from their own pockets, as well as all but $50,000 of the attorneys fees.
The Indiana Court of Appeals had a different take on the case, and significantly reduced the damages award. First, two of the three appellate judges agreed with the trial judge that failure to distribute the funds earlier was a breach of fiduciary duty. Rather than giving Nick and Jack the profits they said they would have earned, however, the two judges limited their damages to the interest that the $1.2 million would have earned during the nine months it was delayed — and even that damage award was to be reduced by the amount of interest the money actually earned in the trustees’ hands. The appellate court also reduced the attorneys fee award to a total of $150,000 — what they called “a more appropriate assessment.” In the Matter of Trust of Eiteljorg, June 27, 2011.
One appellate judge would not have gone even that far. According to the dissenting opinion he authored, there was no breach of fiduciary duty. After all, he reasoned, the co-trustees offered to distribute almost exactly what was ordered a few months later, and Nick and Jack rejected the partial distribution plan. Retaining at least $2 million in liquid assets until the estate tax return had been accepted was a reasonable and prudent course, according to the dissenting opinion.
What lessons can we draw from the Eiteljorg case? Several come to mind:
Even with a trust, it may take months or years after a death to complete the administration and make final distribution. That is not the usual circumstance, but it can happen.
Although avoidance of litigation is one common goal of trust planning, it is not always effective. And the cost of probate or trust litigation can be significant — note that Nick and Jack incurred legal fees of about one-third of the total amount they sought as distribution, and that the question was not whether they were entitled to the money, but only when.
In addition to increasing cost, litigation can slow down the process. Here, the co-trustees were ready to make a significant distribution at the first meeting, but the court-ordered distribution (of almost exactly the same amount) was delayed for nine months.
Acting as trustee can sometimes be costly. The co-trustees in this case will be liable for at least $150,000 out of their own pockets. We can anticipate that Nick and Jack will object to any attempt to pay the trustees’ own lawyers from trust assets, or to pay any fees to the co-trustees.
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:
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.
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.
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.
JUNE 28, 2010 VOLUME 17, NUMBER 21 Mesa, Arizona, lawyer Donald C. Galbasini first began representing members of the Tremble family in 1998. That was when he filed a notice that he would be the attorney for Vernice Tremble, who was serving as conservator for Edward Tremble, Jr., her grandson.
Nine years later Vernice Tremble was removed by the probate judge as conservator — and also as trustee of a special needs trust that had been set up for Edward Tremble. A professional trustee was appointed to take over management of the special needs trust. A year and a half after that, Edward Tremble died and another family member was appointed to finalize the trust administration and distribution. Mr. Galbasini filed a notice that he would be representing the new trustee in connection with wrapping up the trust.
A month after stepping in as the new trustee’s lawyer, Mr. Galbasini filed a request for approval of a $46,736.65 fee — for his representation dating back to 1998. The state Medicaid agency (which would receive most of the balance of Edward Tremble’s trust under the rules governing self-settled special needs trusts) objected, arguing that it was too late for Mr. Galbasini to be filing his bill for approval and payment.
The trustee who had been handling the trust in the interim joined in the state’s objection, adding other arguments. Because of Mr. Galbasini’s long involvement and representation of a conservator who had been removed, argued the trustee, it would be impossible at this late date to figure out whether his representation had benefited Edward Tremble or other family members. The trustee pointed out that Mr. Galbasini had billed at his regular attorney rate for ministerial actions like writing checks out of his client trust account. Furthermore, the trustee was concerned that none of Mr. Galbasini’s reported time was for contact with Vernice Tremble, his client — all of his contacts had been with Edward Tremble’s parents, Mr. Galbasini’s client’s son and daughter-in-law.
The probate judge agreed, and denied Mr. Galbasini’s fee request as untimely. The Arizona Court of Appeals, however, disagreed — it reversed the fee denial and sent the matter back to the trial judge for further hearings. The question wasn’t whether the fee request was late, ruled the appellate court — instead, the important question was whether the fees were reasonable and for the benefit of Edward Tremble’s trust and conservatorship estates.
The appellate court did not rule that Mr. Galbasini’s fees were reasonable, but only that he needed to be given a chance to explain and defend them. If the court finds that the fees were incurred during times when he did not actually represent the conservator or trustee, for instance, the Court of Appeals agreed that those fees should be denied. The mere lateness of the application, however, was not enough to justify a complete denial of Mr. Galbasini’s fees. Conservatorship of Tremble, June 10, 2010.
Suppose for a moment that you are trying to get your financial affairs in order. You have been married for many years, and your spouse is gradually losing the capacity to make financial or planning decisions. You are pretty sure you know what your spouse would want, but he (or she) is no longer able to articulate those wishes. Is there anything you can do?
That was the dilemma facing Ollie Phillips, an Indiana resident. His wife Donna no longer had capacity to sign estate planning documents — or to manage her own affairs if anything should happen to him. The couple had earlier signed durable powers of attorney naming one another as agents, and both had identical wills leaving everything to one another and, on the second death, to charity (Mr. and Mrs. Phillips had no children).
In early 2008, 18 months after Donna Phillips had been diagnosed as suffering from dementia, Ollie Phillips signed a new living trust and transferred all the couple’s assets into the trust’s name. The trust named Mr. Phillips as trustee and a friend, Elizabeth Shoemaker, as successor. It provided that all the couple’s money would be used for the benefit of Mr. and Mrs. Phillips until both had died and, after the surviving spouse’s death, everything would be transferred to Ms. Shoemaker. Mr. Phillips signed all of the documents using his wife’s power of attorney.
Did Ollie Phillips have the power to effectively change his wife’s estate plan using the power of attorney? The question would be moot if he had outlived his wife, but he did not — he died less than a year after setting up the trust.
Shortly after Mr. Phillips died, another friend was appointed as guardian of Mrs. Phillips’ person and estate. The new guardian moved to set aside the trust Mr. Phillips had created, but after two days of hearings the trial judge upheld the trust and ordered the guardianship estate to pay the trustee’s legal fees incurred in defending the trust itself.
The Indiana Court of Appeals agreed with the trial judge. Of particular interest to the appellate court was the evidence adduced at trial about Mrs. Phillips having told the lawyer who drafted the trust that Ms. Shoemaker was “like a daughter” to the couple. The judges also pointed out that Mrs. Phillips remained the sole beneficiary of the trust until her death, and that there was no evidence that the trust was being mismanaged in any way. Evidence that Mrs. Phillips had more recently said that she thought Ms. Shoemaker was “money hungry” was not sufficient to allow the guardian to revoke the trust. The appellate court also agreed that Ms. Shoemaker’s legal fees to defend the trust should be paid by Mrs. Phillips’ estate. Matter of Phillips, May 17, 2010.
Does the Phillips case stand for the proposition that an agent can change the principal’s estate plan using a power of attorney at any time? No, it certainly does not. But in a specific case, with some indication of the wishes of the now-incapacitated person, and with a broadly-drawn power of attorney, it might be possible to make at least some changes. Among the safeguards in this case: the fact that Mrs. Phillips, if she once again became able to make decisions, could change the trust, and the involvement of a lawyer who interviewed her and worked with her to try to figure out how much her capacity (and wishes) could be protected.
Kathryn Gordon’s will named her sister, Nancy Molet, to handle her estate. Based on that will Ms. Molet was appointed as personal representative. Like most individuals in such circumstances, Ms. Molet hired an attorney to help her get through the probate process.
Eventually Phoenix attorney Harvey Finks billed the estate $25,710 for his representation of Ms. Molet. She, in turn, billed the estate $10,885.50 for her work as personal representative.
The ultimate beneficiaries of Ms. Gordon’s estate were her daughter June Pierce and Ms. Pierce’s five children. The beneficiaries objected to the size of the legal fees and the Ms. Molet’s fee, and they filed a formal objection with the court.
Attorney Finks pointed out to Ms. Molet that he would likely be called as a witness during the trial on his fees, and so she retained another attorney—Phoenix lawyer Paul Blunt—to represent her for the fee dispute.
Eventually Ms. Molet, Mr. Finks and the estate beneficiaries agreed that it made sense to submit the dispute to binding arbitration. In that type of proceeding, both sides would make abbreviated arguments and put on their cases more informally. They both agreed to be bound by the arbitrator’s decision.
The arbitrator approved most—but not all—of the requested fees. He reduced Mr. Finks’ fee by $2,510 to $23,200, and he lowered Ms. Molet’s fee by almost $5,000, to $6150. Then Ms. Molet submitted Mr. Blunt’s fees for payment by the estate, arguing that she had hired him in her capacity as personal representative.
The Phoenix probate judge decided that Ms. Molet would have to pay her own attorney’s fees. Judge Jane Bayham-Lesselyong decided that “it would be inappropriate” for the estate to pay the cost of defending the fees themselves.
The Arizona Court of Appeals disagreed. In the appellate court’s view, the question was really only whether Ms. Molet acted in good faith when she hired counsel to defend her fees. The heirs argued that Mr. Blunt’s representation benefited only Ms. Molet and not the estate. The appellate court agreed that it is relevant to consider whether the estate or the heirs received any benefit from the representation, but decided that the inquiry should be made as a part of the determination of whether Ms. Molet acted in good faith. Estate of Gordon, March 30, 2004.
The reported decision does not indicate how much the estate paid in legal fees and costs to defend Ms. Molet and Mr. Finks. It seems likely, however, that it was more than the reduction in the original fees ordered by the arbitrator.
