Posts Tagged ‘fiduciary’

Why We Do What We Do

JANUARY 9, 2017 VOLUME 24 NUMBER 2
At Fleming & Curti, PLC, we represent seniors, people with disabilities and the family members who work with and support them. We also frequently act as trustee, agent, conservator or guardian for that population. It’s hard to capsulize exactly what we do, but if you ask any of us you’ll notice that we beam while attempting to characterize our work.

We have very good friends in California doing similar work at the Golden State Pooled Trust. The founder of that organization, attorney Stephen Dale from The Dale Law Firm in Pacheco, California (and his lovely wife Terri, who is instrumental in operation of the Trust), is a great friend and inspiration as well. He also does a very good job of capsulizing what we do, and why we do it.

Steve shared two stories about his trust beneficiaries this week. We think they perfectly explain the spark in our eyes when we explain our work, and we asked his permission to pass them along. See if they don’t make you think you want to work in this field, as well:

I want to share two stories with you that, for me, really bring home why we do this. One story is of triumph, the other is of hope.

So let me begin with the story of triumph. Mrs. B came to the Golden State Pooled Trust with a large settlement and our job was to keep her qualified for Medicaid because she lived in a skilled nursing facility. The first time I met her I visited her in the nursing home and my impression was that this was a woman who had completely lost interest in life — and the world seemed to have lost interest in her.

I asked Mrs. B what she would like me to do with the funds that would help her – and she pretty much was unresponsive. She hadn’t been out of bed in years without assistance and when I asked her if she would like to do things outside of the nursing home she rolled over away from me. I talked to the nursing staff who were caring and engaged to get their input – but there were limits on what they could do.

I called Sage Eldercare and I asked that a care manager be assigned to her and an assessment made about what could be done. They assigned Janeane to the case and through a series of thoughtful assessments Janeane had determined that she was probably capable of being ambulatory but needed more physical therapy than she was currently receiving.

Janeane began to implement a plan to fulfill that need and over time Mrs. B began to improve. She was asked again – what would she want to do other than stay in bed all day. Her answer: go to church.

Janeane secured private care staff to accompany her and off to church she went. Then her world expanded more, going shopping and occasionally going to excursions like the zoo. We at the Golden State Pooled Trust would get these wonderful progress reports, and we would pass them on to our board who loved each one.

The only harsh call I ever got from Mrs. B was once when her helper was late – and she wanted me to know she was a busy woman and needed to know when her helper would arrive so she could do some shopping. Was this really the shell of a woman I had met years earlier?

Mrs. B had been in decline for the past month, and sadly she passed away last week. As sad as her passing is, it fills my heart with joy and pride that her years under our care (primarily because of the actions of Sage and their staff) were made better and she lived a quality of life that would not have been possible but for their vigilance.

Now for the story of hope. Mr. F came to us recently and is a young man with many physical challenges and pretty much getting no services or oversight beyond his meager benefits. Mr. F got a modest settlement and is dependent on Supplemental Security Income and Medicaid and of course our job is to keep him qualified for benefits.

As often happens, we got off to a rocky start. His primary need beyond existing benefits is housing, and the first couple of weeks we made arrangements for short term housing which would be thwarted and cause our staff to have to bail him out of his situation to avoid having him literally be thrown out in the streets. He arranged for a room in what appeared to be a pretty unsafe part of his city, but it was unlikely this would be appropriate for the long term. Then he started making unbelievably inappropriate requests – and he was truly annoying me. This case was really going to be a challenge.

Clearly, we were not connecting – so I called ElderCare Services and arranged for a care manager to do an assessment and create a plan to get this under control. Brenda was assigned to the case, and she wanted a Golden State Pooled Trust staff member to go with her on the first assessment; reluctantly, I agreed.

So off they went to meet with Mr. F. and several hours later they returned. The report I received was that Mr. F is living in a place of incredible squalor – and that beyond the filth of his closet sized room, the entrance to his building is basically inaccessible for his physical needs. The other part of the report was that Mr. F was thankful for the visit, and appears to be committed to work with Brenda. Is it possible that we could do more than keep a roof over his head until the funds run out?

Though his settlement was significant, he doesn’t have unlimited funds. With the right guidance he is fully capable of becoming self-supporting someday, and graduating from the ranks of the lost and forgotten. I am so glad that we have Barbara on the job, and my expectation is that with her guidance we will find Mr. F a safe and appropriate place to live, and maybe we can get him connected a healthier community and set his life on a path that will change his life for the better before his funds run out.

We have many stories in our little pooled trust, and my hope is that we will have many more to come and the services we provide will continue indefinitely. Yes, our folks are almost universally difficult with challenges sometimes that are hard to understand until we dig below the surface.

Even so, Mrs. B’s personal effect on my life was to give me hope and pride in our staff, and our partners that include many care management agencies. For myself and all at the Golden State Pooled Mrs. B’s final years with us  has made our lives better. For Mr. F, we have an opportunity to change the trajectory of his life – how cool is that?

How cool, indeed.

Court Invalidates Will and Trust Naming Lawyer as Beneficiary

JULY 11, 2016 VOLUME 23 NUMBER 26
One principle governing lawyers is obviously and intuitively correct: A lawyer may not prepare a will or trust (or, for that matter, any other document or arrangement) by which a client makes any substantial gift to the lawyer. Similarly, lawyers are precluded from preparing documents giving or leaving anything of value to the lawyer’s close family members, either.

The American Bar Association, in its “Model Rules of Professional Conduct,” codified the principle. Rule 1.8(c) of the Model Rules says:

“A lawyer shall not solicit any substantial gift from a client, including a testamentary gift, or prepare on behalf of a client an instrument giving the lawyer or a person related to the lawyer any substantial gift unless the lawyer or other recipient of the gift is related to the client. For purposes of this paragraph, related persons include a spouse, child, grandchild, parent, grandparent or other relative or individual with whom the lawyer or the client maintains a close, familial relationship.”

That rule has been adopted in 49 states, the District of Columbia and the U.S. Virgin Islands. Some of those jurisdictions may have modified the rule slightly, but the basic principle is pretty nearly universal. It also is clearly appropriate.

But lawyer ethics rules are not the same as laws, and it is not that hard to imagine that an ethically-challenged lawyer might be willing to violate the rule — if he or she could still inherit a substantial estate, it might not matter whether the license to practice law is revoked. Most court decisions dealing with lawyers who write themselves into wills (they are blessedly rare) recognize that the document itself should also be found to be invalid, at least to the extent of any gifts to the lawyer or his/her family.

You may have noticed that there is just one U.S. state which has not adopted the ABA’s Rule 1.8. In fact, California has not adopted any of the ABA’s Model Rules. What California has done, though, is to adopt an even stronger law. Under its law governing wills and trusts, any document prepared by anyone in a fiduciary relationship with the signer is presumed to be invalid — and the law is clear that lawyers are fiduciaries. In other words, California’s go-it-alone approach to this issue results in a stronger proscription than in most states.

That provision was put to the test last month in a case involving 74-year-old California lawyer John F. LeBouef, who was accused of having prepared (and possibly forged) a will and trust naming himself as principal beneficiary of a client’s $5 million estate.

LeBouef’s client, himself 73 years old at the time of his death, had been in poor health since the death (seven years before) of his life partner. The client was reported to have serious problems with alcohol, to the point that neighbors reported that he frequently would fall down in his home, howl like a dog, and occasionally soil himself.

The client had two nieces who were probably named as his principal beneficiaries in a will and trust he signed in 2006. “Probably” because, as it turns out, the original documents were lost — in a burglary of the client’s home after his death, in which his prior estate planning documents (and LeBouef’s laptop computer) were among the only items stolen. At trial, the probate court judge found LeBouef’s testimony about the burglary, the preparation of the new documents, and the client’s intentions all unbelievable.

Some part of the judge’s incredulity was related to LeBouef’s prior behavior. It developed that, after he helped an 86-year-old caretaker claim a $2.5 million inheritance from the estate of the man she had cared for, LeBouef’ marred his client (he would have been about 60 at the time) and, ultimately, inherited the bulk of her estate. Meanwhile, another, 90-year-old, client of LeBouef’s had left most of her $1.3 million estate to LeBouef’s life partner (and business partner), Mark Krajewski. LeBouef had prepared the four amendments to that client’s trust, of course.

After the California probate judge invalidated the will and trust naming LeBouef, she also ordered him to pay the client’s nieces over $1.2 million legal fees — those fees and costs were incurred in their successful challenge of the documents prepared by LeBouef. Perhaps the most impressive act of bravado, though, was LeBouef’s final request of the probate court: he asked the court to approve payment of a fee to him for acting as trustee during the litigation, including a separate fee for managing the trust’s real estate (including the decedent’s home, in which LeBouef lived for three years rent-free). The probate judge declined the request.

The California Court of Appeals reviewed the case and, in a strongly-worded decision, approved the probate court’s rulings on every score. In fact, the Court of Appeals directed that a copy of its decision should be sent to the State Bar of California and to the local prosecutor’s office. “We express no opinion on discipline and/or the decision to initiate criminal prosecution,” wrote the Court. Butler v. LeBouef, June 20, 2016.

Conservator Not Required to Unwind Protected Person’s Estate Plan

JUNE 8, 2015 VOLUME 22 NUMBER 21

When an aging parent begins to fail, and a scheming caretaker appears to take advantage, what should concerned children do to respond? Should they consider a report to Adult Protective Services (in Arizona, 1-877-SOS-ADULT, or 1-877-767-2385), or file a court proceeding, or take some other action?

The short answer is “yes.” That is, the children of a vulnerable adult victim of abuse, neglect or exploitation should make a report to Adult Protective Services (the above phone numbers or APS’s online site give more details), and consider stepping in to protect the parent with court proceedings, judicious use of existing powers of attorney and family support.

Sometimes court involvement will be necessary, and family members may be ill-equipped, or uncomfortable, about acting. In Arizona and in a number of other states, there is an industry of private, professional fiduciaries who can act to help protect the vulnerable senior. [In the interest of fair disclosure, Fleming & Curti, PLC, and several of the individual lawyers frequently act as conservator, trustee, agent under a power of attorney or personal representative of an estate — though we had no connection with the case we describe in this week’s Elder Law Issues.]

Mark Simpson (not his real name) was just the kind of aging parent described above. In the course of about a year, he had given his car title to a new caretaker, named her as joint owner on his bank accounts, included her as a beneficiary on his annuities and gave her a general, durable power of attorney. When the caretaker tried to use the power of attorney to change the “payable on death” designation on Mark’s remaining accounts from his sons to the caretaker, someone at the bank called one son (let’s call him Scott) to let him know something was amiss. Scott contacted Entrust Fiduciary Services, Inc., an Arizona company which acts as fiduciary in similar cases, and they began an investigation.

Entrust Fiduciary asked the court to be appointed as temporary conservator a few days later. Once appointed, they fired the caretaker and filed a report alleging that she had been exploiting Mark. They also gave formal notice of the proceedings to Scott and to Mark’s other son, Louis — who had not, up to that point, responded to their requests.

Louis objected to Entrust Fiduciary’s petition to be appointed as Mark’s permanent conservator, and so the temporary appointment was continued long enough for a hearing on the permanent petition to be scheduled and conducted. Six months later, and before that permanent hearing, Mark died.

Louis opened a probate on Mark’s estate, and objected to Entrust Fiduciary’s final report in the conservatorship. According to Louis, a conservator has a duty to protect heirs from the loss that might occur if estate planning decisions are not unraveled. Entrust Fiduciary argued that their only duty was to Mark, and that they protected his assets from loss during his life. The probate judge agreed with Louis, and ruled that a conservator has “a duty to protect the estate assets and the estate plan … includ[ing] not only the protected person but the beneficiaries of the estate plan.”

The Arizona Court of Appeals disagreed. While it is true that a conservator is required to consider the protected person’s estate plan, it does not follow that a conservator must protect the interests of ultimate inheritors. The conservator’s duty is to manage the protected person’s assets to help prevent waste and dissipation, and to use the property for the benefit of the protected person. It is not to protect heirs.

Louis had also argued that Entrust Fiduciary had not timely recorded its conservatorship documents, apparently believing that such a recording would have voided the beneficiary deed signed by Mark in favor of the caretaker. The court correctly notes that even if Entrust Fiduciary had recorded the proper documents before Mark’s death, it would have taken more actions to invalidate the existing deeds, and a conservator is not obligated to initiate those proceedings (though they are permitted to do so).

After Mark’s death, his son Louis had filed an action against the caretaker to undo the transactions she had initiated before being fired. That action resulted in a settlement, and an unspecified portion of the assets she had gotten were returned. That, notes the appellate court, is the proper way to determine the validity of questioned documents — not to have a court-appointed conservator favor one possible beneficiary (or group of beneficiaries) over another. Entrust v. Snyder, May 28, 2015.

Exploitation of Vulnerable Senior Leads to Disinheritance

JANUARY 27, 2014 VOLUME 21 NUMBER 4

Arizona has a relatively strong statute dealing with exploitation of vulnerable adults. An exploiter can be charged criminally, and might receive a longer sentence or larger fine because of the victim’s vulnerability. But the strongest part of the Arizona law is probably the provision that lets the victim — or the victim’s heirs — pursue a civil judgment against the exploiter.

That was what Hazel Kaplan (not her real name) did. Her uncle Paul was a widower, living alone in Lake Havasu City, Arizona. Paul’s estate plan included a trust naming Hazel as successor trustee, and leaving his estate to her and two other nieces. Hazel regularly visited with uncle Paul, and helped him to pay his bills. When Paul’s wife had died, it was Hazel who had been there to help make funeral arrangements and help Paul with the transition.

Then, in 2001, Karen moved in as a caretaker. Paul, an immigrant, had located her through the immigrant community in the eastern U.S., and she moved to Arizona to live with him, oversee his medications, drive him to appointments, feed and bathe him — even monitor his care, change his catheter and clean up after he suffered a heart attack in 2006. Karen was his only caretaker (other than one nurse who visited after his heart attack) from her arrival in 2001 until Paul’s death in 2008.

Paul’s accountant prepared four amendments to Paul’s trust between 2006 and 2008. Over the course of those amendments, Hazel’s share of the estate and her appointment as successor trustee were both removed — caretaker Karen and her son were named as trustees and Karen as the beneficiary of Paul’s entire estate.

Three months before his death, Paul visited his bank in the company of Karen and her son. He withdrew $200,000 and opened two accounts with the proceeds. One account was in Karen’s name with her son as co-owner; the other account named Paul himself and Karen’s son as co-owners. Two months later Karen closed out the account her name was on, and used the proceeds to buy a house in Delaware, where she had lived before moving in with Paul. The house had been a bank foreclosure, and Karen’s daughter was the real estate agent in the transaction. She did not put Paul’s name — or his trust’s — on the title. She sold the property immediately after Paul’s death for a significant gain, and kept the proceeds.

After Paul’s death, niece Hazel started a probate proceeding and a lawsuit against Karen and her son. She alleged that both had violated Arizona’s vulnerable adult statute, and asked for the return of everything either of them had received from Paul or his estate.

After a two-day trial, the probate judge ruled that Karen and her son had, indeed, exploited a vulnerable adult. He ruled that the trust amendments were invalid, and that Karen and her son forfeited any right to inherit any portion of Paul’s estate or trust as a result of their exploitation.

The Arizona Court of Appeals considered the evidence and arguments, and upheld the probate judge’s ruling. One key question: was Paul a vulnerable adult?

Several witnesses (including the accountant who prepared trust changes, the bankers who handled the transfer of money from Paul’s name to his exploiters’ names, and Karen and her son) all testified that he was mentally alert. His doctor testified that he was very passive and suggestible, and niece Hazel testified that Paul was very susceptible to others — particularly to women. The appellate court noted that the probate judge had been in a better position to judge the believability of each witness, but noted that the accountant and the bankers had a vested interest in testifying that Paul had been able to give them direction. Besides, said the appellate judges, mental impairment is not required for an adult to be “vulnerable” under Arizona law — physical disabilities and resultant reliance on caretakers can make the patient vulnerable to manipulation.

The result? Paul was a vulnerable adult, Karen and her son owed him a duty not to take advantage of him, and their acts exploited him — especially when they were involved in getting $200,000 transferred to them before Paul’s death. Oh, and Karen was ordered to pay Hazel’s legal fees for the appeal, too. Kousoulas v. Marinis, January 7, 2014.

Does Hazel’s lawsuit stand for the proposition that any caretaker who receives the estate of the person they cared for is necessarily an exploiter? No, but the relationship inherent in a caretaker/patient relationship is certainly subject to exploitation, and gifts to caretakers will always be suspect. The evidence that Karen kept Hazel from visiting her uncle, and that she and her son were involved in changing his estate plan (though they did not go into the room with the accountant when Paul signed trust changes) both weighed heavily against them.

If Paul had hired an attorney to handle his estate planning, rather than entrusting it to his accountant, would things have been different? Possibly — an attorney would likely have been more attuned to the importance of separating out the possibility of exploitation and (if it was clear that Paul genuinely wanted to leave his estate to his caretaker) documenting the evidence of Paul’s wishes. But the probate judge noted, and experienced lawyers usually realize, that it is difficult to assure that a client’s choices are not being changed by suggestions from caretakers — especially full-time, live-in caretakers, who have such a strong opportunity to develop a relationship based on dependency. That is, in fact, why there can be a presumption of undue influence when a change is made in favor of someone who has a fiduciary relationship with a vulnerable adult.

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.

Conservator’s Accounting Approved in Contentious Proceeding

APRIL 11, 2011 VOLUME 18 NUMBER 13
The Montana Supreme Court identifies him as “J.R.” to protect him from public identification, but it is possible to get quite a feeling for him, his family and the two different conservators appointed to handle his finances. In 2006, when the legal proceedings started, J.R. was 78 years old. His wife had died three years earlier, and J.R. had become confused and vulnerable. He had five children (and three step-children); one of them, his daughter Marsha, had filed a petition asking the court to appoint a conservator to handle her father’s assets.

Just before the hearing on the petition another daughter, Robin, arrived from her home in Massachusetts and took J.R. back to live with her. She did not tell either the lawyer representing Marsha or the lawyer appointed to represent J.R. himself. It would not be her final failure to cooperate with the Montana courts.

A probate judge in Helena appointed a local private case manager as J.R.’s conservator. Seven months later she asked the judge to relieve her from the role. She could not discharge her obligations, she told the judge, because persistent family interference and undermining of her actions made it impossible to protect J.R. or his estate.

The new conservator was a Helena CPA, Joseph Shevlin. The judge chose Shevlin partly because he had a long career and excellent reputation in the accounting practice, and he was known for his estate planning expertise.

J.R.’s assets included a Helena condominium filled with his personal property, plus a brokerage and a bank account. Mr. Shevlin was instructed to sell the condo and to use J.R.’s money to help pay for his care. The judge specifically instructed Mr. Shevlin not to provide any of J.R.’s money to his family members unless it was for his direct care.

Two years later several of J.R.’s family members (and J.R. himself) filed petitions seeking to transfer the conservatorship to Massachusetts, to direct Mr. Shevlin to create a trust and transfer J.R.’s assets to the trust, to remove Mr. Shevlin as conservator, and to order him to return fees he had collected during his tenure. The probate judge held three days of hearings on those requests (and Mr. Shevlin’s objections), and ultimately entered orders removing Mr. Shevlin as conservator, appointing J.R.’s brother as successor, approving Mr. Shevlin’s accountings and dismissing claims of breach of fiduciary duty.

J.R. appealed to the state Supreme Court, which affirmed the probate judge’s orders. The appeal raised several legal issues:

  • J.R.’s attorneys’ failure to call an expert witness to testify about Mr. Shevlin’s standard of care. Although every fiduciary is held to a high standard, professionals serving as fiduciaries are required to use any specialized skills. Mr. Shevlin argued that this meant a challenge to a conservator who is also a CPA meant that an expert witness was required to provide testimony as to the standard of care and any breach. The trial judge agreed, but the Supreme Court did not. No expert testimony was required when the complaints, as here, did not touch on specialized skills. Still, the high court noted that J.R. had not met the standard of proof required anyway — and so the probate judge’s misreading of the law was of no moment in his case.
  • The probate judge had removed Mr. Shevlin as conservator, and J.R. argued that by itself demonstrated that he had acted inappropriately. Not so, ruled the appellate court — in this case, the removal was clearly because it was in the best interests of all parties and not because of any wrongdoing by Mr. Shevlin.
  • J.R. complained that Mr. Shevlin had not provided funds for his care; that the condo had been held for too long before sale and ultimately sold at too low a price; that Mr. Shevlin should have agreed to transfer J.R.’s assets to a trust in Massachusetts (to be managed by his daughter Robin and a Massachusetts lawyer retained to help get J.R. qualified for public benefits). The trial judge considered each of those allegations and determined that there were good explanations for Mr. Shevlin’s actions, and that his work was made incalculably more difficult by J.R.’s family’s refusal to recognize the conservatorship or cooperate with him. None of them merited requiring Mr. Shevlin to return his fees, and they were not the basis for his removal. The Supreme Court agreed.
  • More significantly, Mr. Shevlin (a) did not file an inventory, as every conservator is supposed to do within 90 days, and (b) did not file his first annual accounting until 19 months after his appointment, and (c) sold some of J.R.’s personal property (apparently furniture from his condo) to himself. The trial court had disapproved of each of these actions, but ultimately decided that they did not harm J.R. The first conservator had filed an inventory (though it did not include personal property in the condominium) and J.R.’s daughter Robin had demonstrated that she was very familiar with the condo’s contents. The accounting was late, but it included voluminous explanations and backup. The sale of personal property to himself clearly violated a conservator’s duty not to permit conflicts of interest, but the items had been identified as things that might be abandoned or sold rather than shipped to Massachusetts, and Mr. Shevlin did pay full value. All in all, agreed the Supreme Court, these lapses did not rise to the level that would authorize ordering Mr. Shevlin to return his fees or to remove him for cause.
  • J.R. objected both to Mr. Shevlin’s fees and those of the attorney he hired to represent him in the dispute. As to the former fees, the probate judge ruled that his rates were reasonable, the amount of work and time necessary, and his actions appropriate. As to the latter, the probate judge found that it was necessary to retain counsel to deal with a contentious proceeding and that those fees should be paid from J.R.’s estate. The Supreme Court agreed on both counts, noting that “a large number of Shevlin’s fees and those of his counsel were attributable to the failure of some of J.R.’s children to cooperate with or even recognize the existence of the conservatorship.”

In the Matter of the Conservatorship of J.R., 2011 MT 62 (April 5, 2011).

 

Some More of Our Readers’ Questions Answered

MARCH 7, 2011 VOLUME 18 NUMBER 8
Two weeks ago we answered some of our readers’ frequent questions, and we solicited more. We heard from several of you with good questions of general interest. Among those (with identifying information and some details stripped out):

My wife and I do not have any obvious family member to handle our estates. Whom should we name as executor? Most (but not all) married couples will leave administration of their estate in the hands of the surviving spouse after the death of one spouse. Most (but not all) will name one or more of their children to act in the case of simultaneous death, or upon the second death. But what are your choices if you do not want to name your children, or if you have no children?

Of course you can name other family members to handle your estate. Some clients even name parents, although of course it is uncommon for parents to live longer than their children. Siblings, grandchildren, cousins can all be good candidates. Cousin Emily, the lawyer in Illinois, might be a perfectly good candidate. Same for nephew Dale, the CPA in California.

Some clients — occasionally even those with children — may choose to have a professional named to handle their estate. In that case there are at least four types of choices to consider:

1. Bank trust offices. Not all trust companies are related to banks, so we do not mean to limit the choice to bank trust companies — but the image of a bank officer acting as trustee is at least a little bit familiar to most. The good news: it is likely that your bank trust department will still be around, even long after your death. Even if it changes names, or merges with another bank, it will still exist and be identifiable. We can safely predict what the bank trust office will look like, and how it will make its decisions, even well into the future; we have several centuries of experience to draw on in describing how a trust company works.

There are two problems with trust companies for many of our clients. First, the banks have begun to set their fees and selection criteria to favor larger estates. For many banks, that means that they are not interested in acting if your estate does not exceed a million dollars in value — though many banks’ minimums are half that, and banks will often accept estates that are less than their stated minimums.

The other objection we often hear to naming a bank: they tend to be an expensive option. To administer a continuing trust, most banks will charge between 1% and 1.5% of the value of the trust each year (although the precise figures vary widely and are often negotiable). To handle the administration of an estate that will be closed in a year or so, the bank may charge 3%-5% of the value of the estate — or more, if there are complicated assets, difficult administration issues or a modest estate.

Banks also tend to be very conservative organizations, with plenty of rules and a complicated decision-making hierarchy. They may decline to handle real estate, for example, or have a very methodical and inflexible approach to investments or to making distribution decisions. For many clients that is exactly why the banks are a comfortable choice. For others, that can make them look less attractive.

2. Professional fiduciaries. In recent decades an industry of non-bank private fiduciaries has grown up in Arizona (and in many other states). There is even an organization of professional fiduciaries — the Arizona Fiduciaries Association. If your estate is too modest to interest the banks, or if you anticipate that there will be a need for a lot of personal oversight (if, for example, you want to set up a special needs trust for your child who has a disability), the non-bank fiduciaries may be an option.

The good news: the ranks of professional fiduciaries include social workers, accountants, lawyers, money managers, and individuals with a variety of backgrounds and interests. There is a high likelihood that you can locate someone who will be a good fit for your personal situation.

There are a number of problems with naming professional fiduciaries to handle your estate, however. First, the individual fiduciary is probably (we might even say “likely”) mortal. They might not outlive you, in fact — and they probably won’t still be around to handle the trust you set up for your great-grandchildren. Unlike the centuries-long experience with bank trust companies, we do not yet know what the professional fiduciary industry will look like decades into the future.

Private fiduciaries can also be expensive. Many private fiduciaries will charge hourly rates (which tends to save some of the expense, though it can actually increase the cost). Some will charge amounts similar to those charged by bank trust companies — though they may provide additional services, like care management, in those similar costs.

3. Other trusted professionals. Many of our clients choose to name their accountant, or their investment adviser, or their lawyer, to handle their estate. Yes, that can sometimes mean they name our office, and we are willing to name ourselves in documents we prepare — though we encourage clients to think of us as a last choice.

The good news: if you name someone who has already been involved in your life you increase the likelihood that the “fit” will be good. As you continue to work with the person named in your estate plan, you can periodically re-assess that fit and modify your estate planning if it becomes an issue. You will also have a fairly good idea of how rates are set, and whether the costs are reasonable.

As with other non-institutional fiduciaries, one big problem with the professional adviser is (how do we say this delicately) a general lack of immortality. Your accountant’s firm may continue for years after your own accountant dies (or retires), but are you comfortable in predicting that it will have the same values, principles and personality?

4. Friends. Sometimes clients name long-time friends to handle their estates. They may reason that friends’ values and reliability are known quantities. Friends, in turn, are likely to know your values and to make decisions in a way that you would have approved, had you still been around to monitor the administration of your estate.

The good news: friends tend to be less expensive than most of the professional choices, and there is indeed a high likelihood that they will know your family situation and personal values. If you name a close friend, however, you should periodically pull out your estate plan and reconsider whether it remains the right selection — our personal relationships do tend to fluctuate over time.

The bottom line: there often is not a perfectly obvious answer. It can be challenging to balance costs, availability (over the long term) and suitability to come up with the best choice to handle your estate. And we haven’t even discussed the differences between naming a personal representative for your will (the more modern term for the commonly-used “executor”), a trustee for your trust (what many people actually mean when they say “executor”) and an agent for your power of attorney (the role that is often most important while you are still alive). Maybe another day. In the meantime, keep those questions coming.

Durable Powers of Attorney Are Important But Dangerous

APRIL 26, 2010  VOLUME 17, NUMBER 14
A power of attorney is one of the most important, powerful and dangerous documents you will ever sign. Why is it important? Because your family has no inherent right or power to handle your finances in the event that you become incapacitated. Why is it dangerous? Because it is literally a license to steal.

Of course the agent named in your durable power of attorney is not supposed to steal from you. In fact, he or she can go to jail for doing so. But the whole point of the power of attorney is to make it easier for someone to handle your finances without court oversight, and without having to answer to banks or others. Too often agents abuse those powers of attorney.

So why is it important for you to sign a power of attorney? Because the alternative is, for most people, even more disturbing. Your family members and even your most trusted advisers are not able to handle your bank accounts, pay your bills, buy or sell property or protect against abuses by others — unless you have given them authority to do so in an appropriate document. That usually means a power of attorney.

There are alternatives, of course. You could create a living trust, name a successor trustee and transfer your assets into the trust. That may make it a little bit easier for your successor to handle your assets, but it does not provide any additional protection. You could simply add a trusted person to the title on each of your accounts — but that provides even fewer safeguards, and exposes your property to claims leveled against the now-joint owner of your assets.

Or you could simply hope never to need anyone to act on your behalf. Then when someone needs to act they will have to go through the process of securing a conservatorship over your estate (what some states call a guardianship of your estate). That provides better protection, but perhaps at a greater cost than you want to incur — and it means the court, rather than your family member or trusted adviser, having the ultimate authority.

That is why almost everyone we counsel ends up signing a durable power of attorney. That is also why it is so critical to make sure you have selected your agent carefully, warned them about the limitations on their authority, and provided them enough information so that they can act appropriately.

Want to know more about durable powers of attorney? Check out our new White Paper on durable powers, prepared by us for our friend and colleague Slade V. Dukes, Program Fellow for the Stetson University College of Law‘s Elder Consumer Protection Program. While there look at our White Papers on other topics, too, including Estate Planning, Guardianship and Long Term Care Planning.

Some Advice About Selecting Fiduciaries For Your Estate Plan

APRIL 20, 2009  VOLUME 16, NUMBER 37

When it comes time to complete estate planning, our clients usually have clear ideas about who should receive their property, what health care decisions they would want made — even how they feel about cremation, burial, organ donation and most of the other issues that must be addressed. What stumps more clients than any other issue? Who to name as trustee, personal representative (what we used to call an “executor”), and agent under health care and financial powers of attorney.

Some of the common questions we hear from clients about whom to select:

Is it acceptable to name a child who lives out of state? Yes, at least in Arizona, which does not require in-state residency for any of the various fiduciary roles. With e-mail, fax machines, overnight delivery and other modern communications options, there is usually little difficulty for your son on the east coast (or even your daughter in Japan) to communicate. In fact, we frequently observe that we may have an easier time communicating with your the Iowa sister you named as agent than your nephew who lives on the east side of Tucson.

There is one small exception to that rule, and it is more practical than legal. We generally counsel that the ideal health care agent should live near you. Reviewing medical records, talking to doctors and caretakers, and developing a clear picture of your condition is much easier for someone nearby.

Can I name several, or all, of my children as co-agents, co-trustees, etc.? Yes, though we may try to discourage you from naming multiple fiduciaries. To the extent that you are trying to avoid family disputes, it is our experience that giving everyone equal authority tends to encourage disagreements. We will probably suggest that you might want to name your daughter (the banker) as financial agent, and your son (the nurse practitioner) as health care agent — and each as back-up to the other. If you really want to give them joint authority, though, there is no legal reason not to do so.

Speaking of which, is it better to name different people to health and financial roles, or give the same person authority over everything? There is no clearly correct answer. You know your family (and their strengths and weaknesses) much better than we do. If there is one person who is capable in all areas, by all means give that person authority as health care agent, financial agent, personal representative and trustee. You can segregate the roles as a means of providing checks and balances, or to give everyone reassurance that you value their input.

Do I have to tell everyone involved who will have which authority? No. But as a practical matter, we encourage you to do so. We want your daughter to realize, for instance, that she is the one who needs to make arrangements if something should happen to you. We hate to see someone show up, ready to act — and then find out they have no role. That creates confusion, and obviously can engender hard feelings.

We hope that you will share your estate planning documents with all your family (and any non-family members named as trustee, agent, or personal representative). There is no legal requirement that you do so, but it does increase the likelihood that any problems can be worked out while you are still alive, competent and in charge of your own decisions.

Conservator’s Self-Dealing Set Aside Despite Court Approval

OCTOBER 2, 2000 VOLUME 8, NUMBER 14

If an individual becomes incapacitated someone must take responsibility for his or her business affairs. That may mean the appointment of a conservator (in some states, “guardian of the estate”) by the court. Sometimes the individual will have had the foresight to establish a trust, or at least name an agent in a durable power of attorney, before becoming incapacitated. Whatever the title, the person who handles financial matters for an incapacitated individual does so in a “fiduciary” capacity, and is held to very strict standards.

One of the central principles governing fiduciaries is that they are not permitted to “self-deal.” In other words, a fiduciary may not personally profit from the position of trust, except by charging a reasonable fee for services.

Bessie Jordan, a retired school teacher, lived in Ida County, Iowa. Ms. Jordan’s principal asset was a 79% interest in the farm she inherited from her family, consisting of 423 acres. When she became incapacitated it seemed logical to appoint her nephew George Remer as her guardian and conservator. After all, he was already managing the family farm for Ms. Jordan, and he was a licensed attorney.

For several years Mr. Remer continued to rent the family farm. His annual rent payment to Ms. Jordan amounted to a little over $20,000. By late 1988, however, Ms. Jordan had moved to a nursing home and the cost of her care was escalating; Mr. Remer decided it was time to sell her interest in the farm. He proposed to sell it to a corporation owned by his wife.

While such a sale would normally be forbidden, the court can approve a transaction between the fiduciary and his ward if stringent guidelines are met. The fiduciary must demonstrate that the sale is necessary, that the price is fair, and that the fiduciary is not taking any advantage of the position of trust. To help protect against abuses, notice of the proposed transaction must be given to all interested persons.

Mr. Remer obtained two appraisals of the farm property, and he proposed to sell it to his wife’s corporation at the higher of those two figures. He disclosed to the court that his wife was the buyer, and he argued that Ms. Jordan’s nursing home bills would require the liquidation of the property. The court approved the sale.

Four years later Bessie Jordan died, and four years after that her estate filed an action to set aside the transaction. The probate court, noting that it had been approved at the time, declined to cancel the sale, and the estate appealed to the Iowa Supreme Court. The state’s highest court pointed out that no notice of the sale had been given to Ms. Jordan herself, and that the sale could therefore be invalidated. Furthermore, said the Justices, the terms of the sale were not in Ms. Jordan’s best interests; because of the structure of payments, her total annual income was actually lowered from the lease payments she had been receiving from Mr. Remer. The Supreme Court directed that the transaction be set aside, and Mr. Remer ordered to pay the difference between the annual payments and what would have been collected under the lease agreement.

The Supreme Court also approved most of the probate judge’s determination that Mr. Remer owed another $87,731 to Ms. Jordan’s estate (although the figures were adjusted in various small ways). It also left standing an additional $20,000 punitive damage award against Mr. Remer, agreeing with the probate judge that “Mr. Remer’s course of self-dealing was persistent, extreme and pervasive.  It continued over a long period of time and affected almost every aspect of Ms. Jordan’s financial affairs.” In the Matter of Jordan, September 7, 2000.

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