Posts Tagged ‘jurisdiction’

Conservator Has Authority Over Property In Another State

FEBRUARY 15, 2016 VOLUME 23 NUMBER 7

We live in an increasingly mobile world. That assertion is hardly controversial. The reality that America’s patchwork of over fifty separate legal jurisdictions can make for confusion and conflict is well understood by lawyers and observers. A recent guardianship and conservatorship case involving two states (neither of them Arizona) illustrates how that confusion can play out.

Ben Marvel (not his real name) bought a house in Spokane, Washington, in 2001. He let his daughter Melinda live there with her kids, and he stayed in the home from time to time — he also lived part time in Idaho. In about 2007, he moved in with his daughter and her family full-time.

At about that time, Melinda sued Ben for allegedly concealing her late mother’s will and failing to transfer her assets as directed by that will. As a result of that litigation, Ben agreed to transfer the Spokane house to Melinda; he signed a quit claim deed to her in mid-2007, and the lawsuit was dismissed a few months later. Melinda did not immediately record the quit claim deed.

Meanwhile, Ben’s son initiated a conservatorship proceeding in Idaho, and the Idaho court determined that Ben was an Idaho resident, that he lacked capacity to make his own financial decisions, and that a professional fiduciary should be appointed. Because Ben’s assets were limited, the Idaho conservator was directed to “facilitate” a reverse mortgage on his home in Spokane.

The reverse mortgage was signed in October, 2007, and the conservator received funds that helped pay for Ben’s care. Meanwhile, a few months later, the Washington court (where Melinda’s lawsuit had been dismissed) signed a new order and judgment confirming that Melinda owned the Spokane property; that judgment indicated that it would be nunc pro tunc — that is, that it would be effective as of the original date on which the lawsuit had been dismissed.

Ben died in 2011, and the reverse mortgage became due. The bank granting the reverse mortgage ultimately initiated foreclosure proceedings, and Melinda objected that the house was hers, that Ben did not own any interest in it, and that the Idaho courts had no jurisdiction to authorize a reverse mortgage over Washington property anyway.

To clarify this confusing story, this timeline might be helpful (we’ve added a sprinkling of dates not included in the above narrative):

  • 2001: Ben purchases Spokane house
  • Early 2007: Ben moves into Spokane house with Melinda’s family; Melinda sues Ben
  • June 28, 2007: Ben signs quit claim deed conveying house to Melinda
  • August 22, 2007: Washington court dismisses Melinda’s lawsuit
  • August 27, 2007: Idaho court initially appoints conservator for Ben
  • October 22, 2007: Idaho court directs conservator to facilitate reverse mortgage
  • October 25, 2007: Idaho conservator signs reverse mortgage documents
  • Early 2008: Washington court files judgment finding house belongs to Melinda, dates it for August 22, 2007
  • 2008: Idaho conservatorship terminated; Washington conservatorship takes over
  • March 12, 2011: Ben dies
  • December 8, 2011: Melinda finally records the quit claim deed signed by Ben in 2007
  • 2012: bank initiates foreclosure on reverse mortgage

There are several legal questions posed by this confused history. Can any individual secure a reverse mortgage (or a conventional mortgage, for that matter) on property that they no longer own? Can the failure to record a deed, coupled with the failure to get the court to enter a judgment, permit someone who doesn’t really own property to encumber it? Is there some explanation for everyone’s actions in this scenario? All are interesting questions. But the legal issue that catches our eye is this: can an Idaho conservatorship court make any findings affecting real estate in Washington?

In general terms, real estate is subject to the jurisdiction of the courts where the property sits, and not other courts. In Ben’s case, however, the bank argued that his Idaho conservator had the authority to handle all of his property and finances — regardless of where they might be located. Melinda, on the other hand, challenged the very power of the Idaho court to approve, direct, or even facilitate a reverse mortgage on out-of-state property.

The trial court in Washington decided that the reverse mortgage was valid, and that the bank could foreclose on the loan. The Washington Court of Appeals reversed, finding that “the Idaho court lacked authority to authorize a conservator to encumber the Spokane residence.”

The case went on up to the Washington Supreme Court, which agreed with the trial judge. The Idaho conservatorship proceedings, it decided, were entitled to “full faith and credit” under the U.S. Constitution, and the Idaho courts had considered and decided the question about whether Ben resided in Idaho or Washington at the time its proceedings were initiated.

The Washington high court also decided that, while the Idaho courts would not have had authority to change ownership of the real property in Washington, they could enter orders that indirectly affected ownership of that property. As an analogy, the justices noted that an Idaho court could enter an order in a divorce proceeding that directed one spouse to sign a deed to Washington property; the court’s power over the individual would permit it to affect the real estate in another state.

Once the state’s high court decided that the Idaho conservatorship orders were valid and enforceable, the problem became whether to find the mortgage itself to be valid. Since the deed conveying the property to her had not been recorded, the bank had no reason to ask her if she claimed some interest in the property. The bank’s reliance on the record ownership and the authority of the Idaho conservator was sufficient to find the mortgage to be valid. Onewest Bank, FSB v. Erickson, February 4, 2016.

Figuring Out What Court Has Jurisdiction Over a Trust

AUGUST 24, 2015 VOLUME 22 NUMBER 31

One of the best things about establishing a living trust is that you are helping to minimize the likelihood that any court will ever be involved in the administration of your estate. That can save costs, avoid conflicts and give you peace of mind. But sometimes courts do get involved, even when that’s not what you wanted. Then you might face a question that, frankly, even lawyers don’t think about enough: in what court does one sue a trust (or its trustee)?

If you have established a trust, or are a trustee, it’s likely that the trust document itself tells you that the law of a particular state applies. But that’s a different question. Just because a trust is governed by the law of, say, Arizona — it does not necessarily follow that the Arizona courts are the ones to resolve a given trust dispute.

That dichotomy was on full display in a recent Arizona Court of Appeals case, and its outcome might surprise you (and, not incidentally, a fair number of lawyers). The dispute started as a simple lawsuit against an individual, and ended up deciding an important trust principle.

Richard Henderson (not his real name) established three charitable remainder trusts between 1990 and 1994. The trusts were, for our purposes, similar. Each involved Richard putting a fixed dollar amount into a trust that named a charity as beneficiary, but each provided that Richard would receive a percentage of the trust’s value each year until his death.

Why did Richard establish these trusts? The record is not clear, but we can assume that at least one purpose was to benefit the charitable beneficiaries, and to receive an income tax deduction for a portion of the amount he put into trust each year.

But we can figure out a number of the elements of Richard’s charitable remainder trusts: he was the trustee of each trust at the time the underlying litigation began, and he had control over where the annual payments were sent. He had no ability to reach the principal of his own trusts — they had to be irrevocable under federal tax law. But he still received an annual benefit from each trust.

Then Richard got into financial trouble. In 2014, Wells Fargo Bank secured a judgment against Richard for $2.5 million, and began to collect some of that judgment from him and from his revocable living trust. But it couldn’t reach the charitable trusts, since Richard himself could not reach the principal of those accounts. Wells Fargo then initiated proceedings to collect enough information so that it could seize the annual distributions due to Richard from the trusts — before they ever got to Richard.

Richard responded by resigning as trustee. He traveled to Florida (this turns out to be a key part of the story) and met with a representative of a Bahamian company named International Benefits Management Corporation (IBMC). While in Florida, Richard exercised his authority under the trust to name his own successor, and he turned over all the books and records to IBMC.

Under the terms of the trust, IBMC now paid most of Richard’s living expenses directly, and it even paid his ex-wife the spousal maintenance he owed her. Only after most of his bills were paid did IBMC send any money to Richard.

Wells Fargo Bank cried foul, and sued Richard and IBMC. Once it had been served with the complaint, however, IBMC objected that it had no business in Arizona. It did not have offices in the state, it had not sent representatives to meet with Richard, and it did no business directly in Arizona. IBMC’s only connection to Arizona was that the beneficiary of three trusts it administered lived in the state, and it sent checks to him, his ex-wife, the Maricopa County Assessor (for Richard’s property tax bills) and a handful of other Arizona vendors. IBMC moved for dismissal of the complaint against it.

The Arizona probate judge overruled IBMC’s objections, and found that it had conducted business in Arizona. The Court of Appeals, however, reversed that holding and ordered dismissal of the complaint against IBMC.

In its opinion, the court of appeals explained that IBMC did not administer the trusts in Arizona. It did not have offices in the state, and it did not agree to jurisdiction by taking over a trust that had been administered in Arizona prior to its acceptance. By traveling to Florida, turning over all the books and records and naming IBMC as successor, Richard had managed to involve the new trustee without its ever acceding to Arizona’s jurisdiction. Hoag, et al v. Hon. French/Wells, August 18, 2015.

Would the answer be different if Richard’s trust documents declared that they should be interpreted pursuant to Arizona law? Actually, they might have said just that — such language would be common in trusts written in Arizona by an Arizona attorney, and the court opinion is silent about whether there is a similar provision in any or all of the trusts Richard established. But the language of the opinion makes clear that the question is not about Richard’s behavior but the personal jurisdiction over IBMC.

The court would likely have reached a different conclusion if the trusts had expressly indicated that any trustee was subject to the jurisdiction of Arizona courts. Language like that would be uncommon, but not rare. Arizona law permits the settlor of a trust to direct that the trustee will be subject to Arizona courts, but Richard’s trusts did not.

What does this mean for more common circumstances, including those where a trust beneficiary wants to sue the trustee? In general, this opinion stands for the proposition that any lawsuit against a trustee probably needs to be brought in the state (or country) where the trustee resides and/or administers the trust. That will usually be true regardless of where the beneficiary lives or where the trust was written. Of course, slight changes in facts may lead to major changes in outcome, so anyone facing this issue should consult competent legal counsel — but don’t be too surprised if the legal result is not the intuitive one.

Determining Which Court Has Jurisdiction Over Your Trust

JANUARY 13, 2014 VOLUME 21 NUMBER 2

In the past four or five decades there has been a tremendous growth in the use of trusts (usually, but not always, revocable living trusts) for estate planning purposes. Once very rare, they are now very popular. Perhaps as many as half of our estate planning clients choose to create a trust, and to transfer most or all of their assets into the trust’s name. Of course, one of the primary reasons to create a trust is usually to avoid probate court, or (in fact) any court involvement in handling your estate.

In about the same time frame, Americans have become very mobile. In the 1950s and 1960s, it was common — and usually expected — that most people would live, work and die in the same community where they were born. Today it seems rare not to have moved once, twice or even more times, both before and after retirement. In fact, U.S. Census Bureau figures suggest that the average American will move about a dozen times during her lifetime; at age 45, that average drops significantly, but still indicates about three more moves.

What do these two trends have to do with one another? Any lawyer can tell you: it’s often hard to figure out what court will have jurisdiction over trust disputes.

Wait — wasn’t the primary reason to establish a living trust based on a desire to avoid court? Yes, but things happen. Disgruntled family members do sometimes challenge trusts (though probably less often than they challenge wills). Trustees do steal funds, or mismanage them. Beneficiaries sometimes do believe that the trustee has misbehaved, even when she hasn’t. Trusts end up in court.

But which court? And what state’s laws apply to interpreting a trust when there is a dispute?

Here’s a general rule: a trust’s “situs” is usually where the trustee lives, not where the trust was written, or where the beneficiary lives, or even where the trust says it will be interpreted. “Situs” is not precisely the same as jurisdiction, but you can think of it as where the trust “lives.” And that, generally, is where the courts have jurisdiction over the trust and its trustee.

Let’s take a typical case to explain this legal principle. Allen and Melinda, a married couple, live in Alaska. They create a revocable living trust, naming themselves as trustee. The trust says that Alaska law applies. Upon the death of either Allen or Melinda, the surviving spouse remains as trustee. The trust is fully revocable by both of them, or by the survivor upon the death of either. So far, so good: Alaska courts are probably the only ones with jurisdiction — and even Alaska courts probably can’t do much with the trust while Allen or Melinda lives, since the trust is fully revocable.

Upon the death of both Allen and Melinda, though, the trust changes. By its terms, it becomes irrevocable — and their son Dave takes over as successor trustee. Dave lives in Arizona. A share of the trust continues, with Dave as trustee, for the benefit of Deborah and Diane, two of their other children. Deborah lives in Alaska, and Diane lives in Delaware (of course). If Diane thinks Dave is mishandling the trust, where does she hire a lawyer, and where will that lawyer end up filing a lawsuit? Delaware, where she lives? That doesn’t seem right.

But wait — maybe it will be Deborah (the one who stayed in Alaska) who consults a lawyer. It might make more sense for her to initiate any lawsuit in Alaska, since that’s where their parents lived, the trust was written and at least one beneficiary lives. Plus the trust says Alaska law applies.

Those are essentially the facts of a recent Arizona Court of Appeals case (though the names of everyone in the family, and most of the states involved, have been changed). Before we tell you the answer, we’ll pause for a moment for you to decide whether Arizona has jurisdiction over Allen and Melinda’s trust.

You’ve made up your mind? Okay, but hold on to that thought. We’ve misled you, ever so slightly. While Deborah and Diane are unhappy with Dave’s management of the trust, neither of them has filed a lawsuit at all. It’s actually Dave who has filed something with the court — he has filed a request that the Arizona court look over his administration of the trust, and bless the actions he has taken. If it works, it would prevent Deborah and Diane from challenging him later. Dave has done this relying on a provision of Arizona law permitting trustees to affirmatively seek court review of their administration of the trust.

The probate court where Dave filed his trust accounting action dismissed the petition, deciding that Dave should return to the state where the trust was written and Deborah lives. The Arizona Court of Appeals disagreed, ordering the probate court to go ahead and review Dave’s accounting. Arizona courts have jurisdiction, said the appellate judges, because Dave lives in Arizona and the trust is actually administered in Arizona Matter of the Lavery Living Trust, December 10, 2013.

There are still unanswered questions here. If Deborah had filed something in Alaska before Dave filed in Arizona, could the Alaska courts have made Dave go there to defend his actions? It’s not clear from the facts laid out in the opinion, but perhaps. Could Diane have made Dave defend himself in Delaware? Probably not, though that wasn’t an issue being decided in the Arizona court proceeding. In the Arizona court proceeding, whose law will apply? It’s not completely certain, but probably Arizona law will govern trust administration questions and Alaska law will govern any interpretations to be applied to the trust’s terms.

Trust jurisdiction and where to have a trustee’s actions reviewed is a somewhat unsettled area of the law. It is also very dependent on the facts of an individual case. Want to challenge a trustee, or are you a trustee seeking approval of your actions? Talk to your lawyer about situs, jurisdiction, governing law and the difference between those concepts.

Interstate Guardianship Law Adopted in Arizona

JULY 12, 2010 VOLUME 17, NUMBER 22
Among the less-controversial steps taken by the Arizona Legislature in 2010 was the adoption of the Uniform Adult Guardianship and Protective Proceedings Jurisdiction Act, which is usually referred to by its unpronounceable acronym UAGPPJA. The new law, which becomes effective on July 29, should make it easier for families to handle interstate guardianship and conservatorship issues. At the same time it should make it harder for warring families to move an ailing or demented family member across state lines for personal advantage.

Problems with interstate application of guardianship and conservatorship laws have been all too common. Imagine a typical scenario: father and stepmother, married for 25 years, live in Pennsylvania. Three children from father’s first marriage live in Florida, Arizona and Illinois. After stepmother checks father into a Pennsylvania adult care home, the children meet in Pennsylvania and decide they are better equipped to make decisions about their father’s care. Without telling their stepmother of their intentions they check father out of his adult care home, put him on an airplane, fly to Tucson and check him in to a nursing home here. Then they file a guardianship and conservatorship action in Arizona, giving notice to his wife in Pennsylvania.

Under existing law such a proceeding would be permissible, and could result in the Arizona courts making decisions about not only the Pennsylvania man’s living arrangements and medical care, but also over his (and his wife’s) Pennsylvania property. The cost and trouble of traveling to Arizona, hiring a local attorney and objecting to the Arizona court proceedings might well deter his wife from protecting herself or asserting her views on the proper care for her husband.

After the UAGPPJA goes into effect, however, such interstate moves to secure legal advantage should become ineffective. The Arizona courts will be instructed to defer to the courts of the home state of any proposed ward.

There are other frequent — and much more benign — interstate problems in guardianship and conservatorship proceedings that are addressed by the UAGPPJA, too. One arises when the subject of an Arizona guardianship legitimately moves out of state. Imagine, for example, that a working couple have become guardian for their 22-year-old son who is developmentally disabled. Now they want to move to another state, and they will take their son with them. Will their Arizona guardianship be valid in the new state? Will they have to initiate an entirely new proceeding in the new state? If they do not, will they have to report to the Arizona courts for the rest of their son’s life — even though Arizona no longer has any direct involvement in his life?

If the new state has also adopted the UAGPPJA (and so far 19 other states and the District of Columbia have) the process of transferring a guardianship or conservatorship is vastly simplified. A filing needs to be made with the Arizona court, then with the courts of the new state. Once both courts have agreed that the guardianship can be transferred, the Arizona proceeding is terminated and the new state takes over. The process is much simpler than a second proceeding in the new state, and it ensures approval from the Arizona courts before any action is taken. The same process can work in reverse for people moving into Arizona.

One other interstate problem arises when, for example, an Arizona conservatorship involves property in another state. Under the existing patchwork of laws, each state is different — and many of them require an entirely new conservatorship (a “protective proceeding” in the language of the interstate jurisdiction law) with court-appointed attorneys, bond premiums and separate accountings filed in the state with the property. The new law makes the process much simpler: once the Arizona conservator has filed appropriate documents with the courts of the other state, he or she can proceed as if appointed in that state. No separate court proceedings required, no additional legal fees incurred, and no potential conflicts between two courts overseeing the same conservatorship.

The UAGPPJA is available online through the National Conference of Commissioners on Uniform State Laws. Arizona’s version, the new Arizona Revised Statutes sections 14-12101 and following sections, differ very little from the proposed uniform law. The list of states adopting the UAGPPJA (which list is steadily growing) is also online at the NCCUSL website.

Trust Under Jurisdiction Of One State Despite Ties To Another

AUGUST 28, 2000 VOLUME 8, NUMBER 9

With the growing popularity of living trusts and the mobility of the American public, the question often arises: which state court has jurisdiction over a trust dispute? Before trusts were common, disputes after the death of a property owner were handled in the courts of the state where the decedent had lived and died—and, usually, where the property was located. That is not always the case today.

Alexander L. Levine lived in New Jersey, and owned several shopping centers there. By the time he retired, in fact, he owned shopping centers in New York, Pennsylvania and North Carolina.

Mr. Levine retired to Florida, and in 1980 he signed a revocable living trust so that his estate could avoid the probate process. All his shopping centers in four states (but not including Florida, where he owned no property) were transferred to the trust.

In 1994 Mr. Levine died in Florida. His successor trustees, Carole Ann Steiger and Anthony R. Ullmann, continued to operate Mr. Levine’s shopping centers from the trust’s offices in New Jersey, and one of the trustees even lived in that state.

Three years later two of the trust beneficiaries became unhappy with its administration, and brought a lawsuit in New Jersey seeking to force an accounting. The New Jersey court decided that the trust was created under (and would be controlled by) Florida law, and that Mr. Levine had intended that it be run as a Florida trust. Consequently, the New Jersey action was dismissed, with the unusual additional ruling that the court would reconsider if Florida courts declined to take any action.

The trustees then filed an accounting in the Florida courts, and asked for approval of their administration of the trust. The beneficiaries objected, arguing that New Jersey really had control over the trust’s administration and interpretation. The Florida court disagreed, and the beneficiaries appealed.

The Florida Court of Appeals upheld the decision to manage the trust in Florida courts. According to the Court of Appeals, either Florida or New Jersey could have jurisdiction over the trust, and the Florida trial court’s decision to exercise that jurisdiction was not wrong—particularly in light of the New Jersey court’s refusal to act. Levine v. Steiger, August 7, 2000.

Florida may have sufficient connections to the Levine trust to direct its administration, but usually trusts are held to be under the jurisdiction of the state where trustees live and the trust is administered. That is also where the trust usually will file state income taxes, and state law may even require that the trust register in that state. Simply by choosing an out-of-state trustee, the person establishing a trust can accidentally or intentionally cause it to be subjected to another state’s laws and taxes.

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