Posts Tagged ‘private fiduciaries’

Public Fiduciary Offices in Arizona

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

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

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

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

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

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

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

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

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

Trustee Has Duty to Monitor His Lawyer’s Behavior

AUGUST 29, 2016 VOLUME 23 NUMBER 32
Are you a trustee, or named as successor trustee for a family member or friend? We regularly advise people in your circumstance that they should get good legal advice. Once you’ve done that, however, you are not absolved from any liability if things go wrong.

A trustee is generally permitted to delegate some duties to others — especially to professionals. So it makes sense, and might even be required, for a trustee to hire a stockbroker, or an accountant, or a lawyer. But the ability to delegate is coupled with a duty to monitor the professional.

At least that’s the law in Arizona, and probably also the law in any state that has adopted the Uniform Trust Code. It’s also the law in California, as it turns out — even though California has not adopted the Uniform Trust Code. How do we know? Because of Terry Delgado (though we’ve changed his name for this narrative).

Terry was named as successor trustee on his mother’s trust. After her death late in 2011, he took over, and began managing her trust property. That included two pieces of real estate in the San Francisco area, several bank accounts and some personal property items. Her trust directed that it should be distributed equally between Terry and his two sisters.

When they hadn’t gotten any information about the trust after two years, Terry’s sisters wrote to the lawyer who had been handling the trust administration. They asked for an accounting, distribution of some of the trust’s holdings, and information about what would happen to the real estate. They got nothing back in response. They did, though, get a notice from Terry’s lawyer that one of the properties was being listed for sale. They wrote back saying that they thought the property needed work done before it was sold, and demanding that they get information about what had happened and what might be proposed.

A court hearing was set for six weeks later. Three days prior to that hearing, Terry’s lawyer filed a motion to continue the hearing, claiming that he (the lawyer) had been ill and needed to be involved in the preparation of any accounting. The probate judge conducted a hearing anyway, and decided Terry’s power as trustee needed to be suspended. The judge appointed a professional trustee to take charge temporarily, and ordered Terry to file a complete accounting with the court within six weeks from that hearing date.

Instead, Terry’s lawyer filed a motion to reconsider the order suspending Terry’s powers as trustee. The lawyer claimed that, because of his illness, he had been sleep-deprived and unable to complete the accounting. He had also been working on an accounting in connection with the related estate of Terry’s mother’s late husband. Furthermore, Terry himself had been unable to complete the accounting because of his work schedule and his lawyer’s illness.

At the same time, Terry’s lawyer filed an entirely separate pleading on behalf of the real estate agent who had been hired to list the property. That pleading objected to any change in trustee, and noted that the real estate agent’s company might file a claim against the estate if the listing were to be canceled.

On the last day set by the probate judge, Terry’s lawyer filed an accounting on his behalf — on the wrong forms. The accounting revealed that up to that point, Terry’s lawyer had charged the trust something more than $320,000 in fees — $350 per hour for 916.15 hours.

The probate court received the accounting and set a hearing to review it for two months later. During the delay, Terry’s lawyer filed his own declaration. It apologized to the probate judge for the delays, acknowledged that he had filed the wrong kind of accounting, described his health problems and promised to get the proper accounting filed before the new hearing date already set.

At that hearing, the probate court permanently removed Terry as trustee. It appointed the neutral fiduciary who had been acting temporarily, and noted that no acceptable accounting had yet been filed. At a later hearing on Terry’s lawyer’s request for a reconsideration, the probate judge reaffirmed the same orders.

Terry appealed to the California Court of Appeal. That court upheld the removal and the appointment of a new fiduciary. The appellate judges noted that Terry had every right to hire an attorney to represent him as trustee, but that he had an obligation to monitor his attorney and to see to it that his duties were properly discharged.

Terry’s attorney had created a serious conflict of interest by appearing in the same proceeding on behalf of someone who asserted a claim against the trust, ruled the appellate court. The attorney’s assertion that there was no “actual” conflict of interest in the dual representation did not relieve Terry of his duty.

It is perfectly permissible, ruled the appellate court, for a trustee to hire a professional — like an attorney — to handle trust business and to delegate authority to that professional. The trustee, though, is still required to monitor the professional, and to hire a more suitable alternate if the attorney is unable to handle the assignment — whether that is because of illness, unfamiliarity with trust administration procedures, or otherwise. Desbiens v. Delgman, August 10, 2016.

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.

Court Selection of Conservator Should Have Family Input

AUGUST 1, 2011 VOLUME 18 NUMBER 28
It is a recurring question in guardianship and conservatorship cases: when there is family conflict, or an allegation that a family member has taken advantage of an individual, who should the courts appoint to manage the person’s financial and personal affairs? Family should have priority, of course — but what should the courts do when family members have misbehaved?

We have written about earlier cases from other jurisdictions. Some examples: in a Wisconsin case in 2000, a court decided that a chosen family member should have priority even though it appeared that there might be conflicts with caregivers. A California court in 2004 removed a family member and appointed a private fiduciary as trustee and personal representative (executor) after family disputes ran up legal bills of almost four hundred thousand dollars. And a 1996 case in Arizona upheld the appointment of a professional private fiduciary over the objections of family members.

A recent Connecticut case adds a new element to the family-vs-professional-fiduciary discussion. It deals with how the court should select a private fiduciary once it becomes apparent that family members can not serve.

In the summer of 2007 Janet Follett decided that her mother, Zoe Ross (both names have been changed here), had declined to the point that appointment of a conservator was appropriate. Ms. Follett had held her mother’s power of attorney for quite some time — though the power was a so-called “springing” power of attorney, which was not effective until a doctor certified that Ms. Ross had become incapable of handling her own affairs. Ms. Follett had secured the appropriate doctor’s statement earlier in the year. She had in fact been handling her mother’s finances for some time before that — she had been a joint signer on Ms. Ross’s bank account since 2002, for example.

Ms. Follett and her sister did not see eye-to-eye when it came to handling their mother’s affairs. In the course of the court proceedings to secure a conservatorship, the court-appointed attorney for Ms. Ross agreed with Ms. Follett’s sister that it would be better if a neutral professional was appointed as conservator.

At a four-day hearing early in 2008, the judge heard testimony from nine different witnesses about Ms. Ross’s condition, the suitability of Ms. Follett to serve as conservator, and the size and nature of Ms. Ross’s estate. Later, the judge entered an order finding that Ms. Follett should be disqualified to serve as conservator. Instead, the judge appointed local lawyer Robert Mirto to serve as conservator. Mr. Mirto had not testified, had not been discussed in the hearing process, and had not been interviewed by the parties about his possible service as conservator.

Ms. Follett appealed, arguing that (a) she should have been appointed as conservator and (b) if she wasn’t going to be appointed, she should have been given a chance to interview the prospective conservator, to object to the individual and to suggest other candidates. The Connecticut Appellate Court agreed with her as to the second argument, but not as to the first.

The appellate court noted that there was evidence of at least some transactions that Ms. Follett should not have entered into using her authority as co-signer and agent on her mother’s power of attorney. In addition, both her sister and the court-appointed attorney argued for appointment of a non-family member as conservator. Given those circumstances, said the appellate judges, the lower court was justified in choosing a professional fiduciary over a family member.

But it was improper, agreed the appellate court, for the judge to simply choose a favorite fiduciary to serve. The history of probate court — and especially of Connecticut’s unusual probate system, relying as it does on part-time non-lawyer probate judges — made it important to strive for open and transparent administration of conservatorships. Recent Connecticut legislative changes had heightened the focus on those values, and had been part of an effort to change the culture of probate courts in the state. Given that background, the selection of a private fiduciary should be more open and concerned participants should be given an opportunity to participate in the process.

The appellate judges directed that the selection decision should be referred back to the probate court for a new hearing. The court’s decision not to appoint Ms. Follett was approved, but the appointment of Mr. Mirto was reversed and the probate court instructed to give the parties an opportunity to be heard on selection of a non-family member conservator. Falvey v. Zurolo, July 19, 2011.

What will the follow-up hearing look like? Nothing in the appellate opinion makes clear how it might work. The only indication is that Ms. Follett (and, for that matter, her sister and the court-appointed attorney) must be given notice of who is being considered, and an opportunity to challenge the appointment of that individual. The probate judge might well choose to appoint Mr. Mirto again, though any objections will need to be disposed of first.

 

Arizona Legislature Adopts Probate Changes

APRIL 25, 2011 VOLUME 18 NUMBER 15
Last week the Arizona Legislature adjourned for the year. Just before closing down the session legislators adopted a number of new measures dealing with probate court, trusts and especially guardianship and conservatorship matters. Most of the bills passed by the legislature are still awaiting the Governor’s signature, but all are expected to be signed and to become law on July 20, 2011 (except that at least one of the new laws will be delayed until December 31, 2011). Among the ones affecting our clients:

House Bill 2211. This new law clarifies that some guardians have the power to admit their wards to inpatient mental health treatment. That authority has long existed, but has been difficult to actually implement. The new law aims to make it easier for guardians, and to clarify that the guardian also has the authority to consent to continuing medical treatment during and after admission. As was the case before the new law, this kind of authority requires a special court proceeding at the time of the guardianship hearing (or later, if mental health issues arise), and the mental health authority has to be renewed every year.

House Bill 2402. Two apparently unrelated issues are addressed in this new bill. First, the legislature has created a procedure for suspension of the driving privileges for someone who has had a guardian appointed. Second, this new law inserts a relatively simple way of appointing a guardian and/or conservator — at least initially — for the subject of a civil commitment proceeding. Under prior law both issues were unclear, leading to the oddity that the judge who heard extensive testimony about a patient’s mental illness and need for a guardian and/or conservator could do nothing about that need. Similarly, the ability of the court to suspend a ward’s right to drive had been uncertain, though prior law implied that the court might have that power.

House Bill 2403. Arizona’s legislature adopted the Arizona Trust Code (a version of the Uniform Trust Code), after a couple of false starts, three years ago. Each year since then the legislature has been asked to tinker with the provisions, and it has consistently agreed. This year’s technical corrections are mostly minor, and hard to work up much excitement about — but they are improvements.

House Bill 2424. Though this bill started life as a comprehensive revision of guardianship and conservatorship, it concluded its legislative odyssey as a stripped-down version. As adopted, it simply creates a Probate Advisory Panel to address needed improvements in the guardianship and conservatorship process. The Panel will include two guardians (of a child or sibling), two conservators (of a parent), one public fiduciary, one private fiduciary, one attorney, one judge and a clerk of court.

Senate Bill 1081. Arizona has long allowed you to name a guardian for your minor children in your will, and to let that person be appointed in a summary proceeding if no one objects. This new law permits a similar proceeding for your incapacitated spouse or adult child. The bill spells out a mechanism for lodging the nomination after your death, and requires notice to the allegedly incapacitated spouse or child. If they do not object, the guardianship can issue automatically.

Senate Bill 1499. This new legislation is the most far-reaching of the bills listed here. It was adopted in response to a series of articles in Phoenix-area newspapers about alleged abuses and huge fees in guardianship and conservatorship proceedings. Of the bills listed here, this is the only one which does not become effective on July 20 — it takes effect on December 31, 2011, to give practitioners some time to figure out what changes will need to be made. Among the provisions of Senate Bill 1499:

  • Several changes attempt to address abuse of the legal process. Arbitration is encouraged and can be required. Repetitive filings can be sanctioned. In general terms, the losing party in a contested proceeding can be assessed costs and attorneys fees to be paid to the ward or estate.
  • Any guardian, conservator, or attorney who intends to seek payment from the ward’s estate will need to provide a description of how the fee will be calculated. That information must be provided with the first filing in the proceeding. Any billing must be given to the conservator within four months of the work being done or the fees will be deemed waived.
  • Wards will now have the right to request a new guardian or conservator, and the court must approve the change if it is in the ward’s best interest. A change of guardian or conservator does not require a finding that the current fiduciary has done anything wrong — this provision permits the change based on the ward’s wishes rather than misbehavior of the fiduciary. Any other interested person (a family member, for instance) may also request the change, with the same result.
  • The ward’s right to name his or her own choice of guardian and/or conservator is strengthened. The person named in a power of attorney, for instance, should ordinarily be one of the highest-priority candidates for appointment, unless there is evidence that that person has acted inappropriately.
  • As before, a conservator must file an inventory of the protected person’s assets. Now the conservator must attach a consumer credit report to that inventory.
  • The subject of a conservatorship and other interested persons can now request that the conservator let them review financial and billing records as often as monthly.

In addition, Senate Bill 1499 makes a number of other, less significant, changes. Fiduciaries and their attorneys, and anyone involved in a contested guardianship or conservatorship proceeding, needs to review the new law to see how it will affect new and existing proceedings, and what changes need to be made in reporting and practices.

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.

Selection Of Proper Trustee Is Key To Administration Of Trust

FEBRUARY 2, 2004 VOLUME 11, NUMBER 31

Although it is important to plan your estate, it is sometimes not enough just to prepare important documents and make reasonable decisions. It is also critical to select a reliable person to administer that estate. While family members may be the best choice, things may not always work out the way you expect or intend.

Alfred and Guadalupe Del Castillo had four children: Albert, Alice, Ralph and Robert. The youngest, Robert, suffered from cerebral palsy and was developmentally disabled. Mr. and Mrs. Del Castillo, as responsible parents established a special needs trust for Robert—in fact, their wills directed that all their assets would be held for Robert’s benefit after they both died.

Son Albert was named as trustee of the special needs trust. Like most parents, Mr. and Mrs. Del Castillo apparently thought family members would be the best at judging what Robert actually needed and at using their money to assist and protect him. They didn’t count on the family warfare that erupted later.

Albert, Alice and Robert all went to see California attorney Robert James Skousen after both parents died. The result of that visit was that Mr. Skousen, representing Alice, secured her appointment as personal representative. As Alice began to administer her mother’s estate, however, conflicts arose between the siblings. Eventually Mr. Skousen, now representing Albert, filed a petition to remove Alice and put Albert in charge of both the estate and the trust.

Over the next several years the two siblings filed charges and countercharges about the administration of the estate and the trust. Albert, through Mr. Skousen, persistently asked for a finding that Robert should not be considered a beneficiary of the trust, since any money distributed to him might be subject to a claim by the state—although that is exactly what a special needs trust is intended to prevent.

While all the legal wrangling proceeded, Robert was first left to live alone in the Del Castillo’s family home for two months, then moved to an assisted living facility. Because Albert refused to distribute any significant portion of the trust’s assets or income for Robert’s benefit, he lived for the next several years on his Supplemental Security Income (SSI) benefit, plus California state subsidy, totaling less than $800 per month. From that, his rent and nearly all living expenses had to be paid, and little outside stimulation or oversight could be provided. Although Alice sought to force distributions for Robert’s benefit, Albert resisted; both siblings filed counter-petitions for conservatorship over Robert in order to gain control over his living arrangements. Of course, if the siblings had gotten along and Albert had simply followed his parents’ apparent wishes to provide for Robert, no court proceedings would have been necessary to secure Robert additional help and services.

The case briefly traveled to the state Court of Appeals, the Nebraska courts (where Albert lives) and California Federal District Court. Each of those courts declined to exert authority over the proceedings, and returned them to the California probate court for resolution. That court ultimately removed Albert as personal representative and trustee, but not before Mr. Skousen’s firm had billed the estate and trust $387,000. A private fiduciary, Patricia Lobello, was appointed to administer the estate and trust, and promptly objected to Albert’s legal accounting, and especially the legal fees.

The California Court of Appeals upheld Albert’s removal as trustee and referred the entire matter to the State Bar of California for a review of Mr. Skousen’s behavior. In a scathing opinion detailing the history of the case and the excesses of the parties and Mr. Skousen, the Court wrote: “The parents, who had established the trust and ordered their estates ostensibly to provide for the extraordinary needs of Robert, would undoubtedly turn over in their graves could they but know that some of the other children have instead squandered a considerable portion of the assets over $300,000, in divisive litigation, marked by finger-pointing, name-calling, personal animosity, self-aggrandizement and misfeasance, at the expense and to the detriment of their disabled sibling.” Indeed. Estate of Del Castillo, January 22, 2004.

What might Mr. and Mrs. Del Castillo done differently to prevent family bickering, abandonment of their disabled son and outrageous legal expenses? More carefully drafted documents might have helped, and it certainly would have been a good idea to discuss their intentions fully with all their children (and grandchildren, for that matter). They might have selected an independent, professional trustee, though there would have been costs associated with that decision, too—but probably not anywhere near the costs ultimately incurred by Albert and Alice in their legal skirmishes.

Daughter Has Priority As Guardian Despite Conflicts

FEBRUARY 21, 2000 VOLUME 7, NUMBER 34

Esther L.K., an elderly Wisconsin woman (Wisconsin courts help preserve anonymity by using initials rather than last names), needed a guardian. Her family members assumed they would be appointed, but the court instead appointed a private fiduciary organization, Legal Guardianship Services, Inc. Esther’s daughter Patricia A.M. (with support from her brothers and sisters) appealed the decision.

Wisconsin law directs the court to “take into consideration the opinions of the alleged incompetent and of the members of the family” in deciding who should be appointed as guardian. “However,” according to Wisconsin law, “the best interests of the proposed incompetent shall control in making the determination when the opinions of the family are in conflict with the clearly appropriate decision.”

Before appointing Legal Guardianship Services as Esther’s guardian, the trial judge had decided that her best interests required appointment of a non-family member. LGS had already been appointed conservator of Esther’s estate, apparently without objection from Patricia or the family.

The court’s decision was partly based on a history of conflicts between Esther’s daughter and the nursing home where she had been placed, and the court expressed concern that Patricia might seek to move her mother to a new nursing home out of the area. To make sure she stayed in the community where she grew up, ruled the judge, it was necessary to appoint an independent guardian.

All of Esther’s children agreed that Patricia should serve as guardian. Patricia herself noted that there was no proposal to move her mother from the nursing home, and that the court could limit her authority if that seemed necessary to ensure she stayed in the community.

The Wisconsin Court of Appeals agreed with Patricia and the family, holding that the mere threat of a conflict between the guardian and the nursing home was not sufficient to prevent appointment of Esther’s daughter. The decision was returned to the lower court, with instructions to consider whether Patricia’s actions had ever actually been contrary to Esther’s best interests; otherwise, the family’s opinion should be given strong consideration. Guardianship of Esther L.K., February 17, 2000.

In a law similar to the Wisconsin statute, Arizona instructs the court to “give preference for the appointment of a family member unless this is contrary to the expressed wishes of the incapacitated person or is not in his best interest as determined by the court.” In practice, this usually means family members will be appointed unless there is specific evidence of previous wrongdoing or inability to act.

Will Contest Loses, But Friends Not Charged With Legal Fees

MARCH 8, 1999 VOLUME 6, NUMBER 36

Lavina Kessler was 99 years old when she died in 1996. The Washington State woman left an estate of $2.4 million, including several parcels of valuable real estate. She also left a series of five wills and an expensive will contest proceeding.

Ms. Kessler had known Frances and Thomas Trimm for fifty years. The Trimms, both in their eighties when Ms. Kessler died, had been neighbors and friends, and had helped her take care of her finances for many years. As Ms. Kessler’s eyesight dimmed and her health worsened, she came to rely more heavily on the Trimms. In fact, she signed a durable power of attorney naming Mrs. Trimm as her agent after she broke her hip in a fall in 1993. During a ten-year period, she wrote a series of wills leaving increasing shares of her estate to the Trimms.

When Mrs. Trimm found Ms. Kessler on the floor of her home one day, unable to get up or get help, her care needs became acute. Ms. Kessler refused to even consider moving to a nursing home, but the Trimms were unable to provide the care she needed. At about the same time Ms. Kessler’s doctor called Adult Protective Services, and another friend contacted her great nephew, Brian Davis, who lived in Idaho.

Mr. Davis and his wife Tami arrived in Washington two days after Ms. Kessler’s fall. They immediately began to make arrangements for her care, and to question the Trimms’ handling of her finances. Two days after that, Tami Davis called Ms. Kessler’s long-time attorney Lawrence Warren, telling him that Ms. Kessler was suspicious of the Trimms and wanted to change her power of attorney.

Attorney Warren insisted on talking to Ms. Kessler directly. He met with her that same day and again the next day, but found her to be too confused to sign a new power of attorney or to change her will. After he declined to oversee the signing of the new documents, he was never asked to visit with Ms. Kessler again.

Ten days later Tami Davis contacted Washington attorney John Hertog and asked him to meet with Ms. Kessler. After two meetings, he too concluded that she was too confused to sign new documents.

Over the next two weeks, the Davises initiated proceedings to be appointed as Ms. Kessler’s guardian and conservator. Because of the possibility of a will contest, and allegations by the Davises against the Trimms, a professional, independent fiduciary was appointed.

Almost exactly three months after her initial fall and the arrival of her great-nephew, Ms. Kessler finally signed a new will disinheriting the Trimms altogether, and leaving some of her real property to the Davises. The signing ceremony was videotaped, and revealed that Ms. Kessler was at least somewhat confused. She died two months after signing the new will.

Mr. and Mrs. Trimm contested the new will. After a trial, the judge determined that they had not shown sufficient basis to challenge the validity of the will, and denied their claims. They were ordered to pay costs and attorney’s fees in the total amount of $346,949.89. The Trimms appealed to the Washington Court of Appeals.

After detailing the history of Lavina Kessler’s confusion and the contents of the videotape of her will signing, the Court of Appeals concluded that there was sufficient evidence to uphold the trial judge’s determination that she was competent when she signed the will disinheriting the Trimms. But the appellate judges also decided that there was enough merit to the Trimms’ position that they should not be forced to pay the estate’s fees and costs. The result: while the Trimms’ contest of Ms. Kessler’s will was unsuccessful, they were not required to pay the legal fees for bringing their lawsuit. The bulk of her estate will now go to Brian and Tami Davis. Estate of Kessler, March 1, 1999.

Florida Man’s Death May Lead To Claim Against Fiduciary

MARCH 10, 1997 VOLUME 4, NUMBER 36

John Montañez and Ouida Ray apparently had a stormy relationship. They were married in Florida in 1955 and their daughter Prudence was born later that year. Montañez and Ray divorced in 1956. In 1960 they remarried, and a second daughter, Rhoda, was born the next year. By February, 1961, Montañez and Ray were separated, never to have any significant contact again.

Although Montañez and Ray never divorced, Ray married another man in 1971. That marriage also ended in divorce.

Montañez was in the merchant marine, and so had little contact with his wife or two daughters. In fact, though he spent the last year of his life in a nursing home in Florida, none of his family even knew he was in the same state, much less visited him. He died in May, 1994, from septicemia, pneumonia and deeply infected bedsores.

During the year he spent in the Snapper Creek Nursing Home, Montañez had a court-appointed guardian and conservator, a private fiduciary organization known as Comprehensive Personal Care Services, Inc. After his death, Comprehensive was appointed Personal Representative of his estate. Snapper Creek Nursing Home promptly filed a claim for $20,696.23 against the estate, seeking payment for the care provided in his last months of life. Most of that claim arose from the costs of treating Montañez’ advanced bedsores.

Comprehensive objected to Snapper Creek’s bill, but quickly negotiated a settlement under which the estate would pay $15,000 and neither party would pursue any other claims against the other. Meanwhile, an heir-locator service found Ouida Ray, Prudence and Rhoda, and they became involved in the negotiations.

While Ray and her daughter Rhoda agreed to the proposed settlement, Prudence was not. She pointed out that the settlement would preclude her from bringing any further action against either Snapper Creek or Comprehensive, even if she could show negligence in the care of Montañez or the supervision of his guardian and conservator. The Florida court overruled her objections, and approved the settlement. It also authorized payment of $43,750 in attorney’s fees to Comprehensive.

At the same time, Ray alleged that she was entitled to a share of the estate as Montañez’ surviving spouse. Over the objections of Prudence, the trial court awarded her the widow’s share of the estate.

On appeal, the Florida Court of Appeals reversed. Noting that Comprehensive was not even qualified to serve as Personal Representative under Florida law, the Court of Appeals also saw an inherent conflict of interest in the settlement. Noting that “the Decedent’s death from septicemia and grossly infected bedsores raises the possibility that viable negligence and malpractice actions may exist by the estate against both Comprehensive and Snapper Creek,” the Court voided the settlement and ordered the appointment of a new Personal Representative.

The appellate court also observed that the Personal Representative of an estate has a duty to heirs and creditors not to settle litigation to the disadvantage of the estate. More fundamentally, the Personal Representative in this case (as a potential defendant) had a conflict of interest which made it impossible to settle the litigation fairly. In addition to voiding the settlement, the Court reversed the award of attorney’s fees.

On the subject of Ray’s right to a widow’s share, the Court of Appeals found that her subsequent remarriage (and divorce) barred her from making any claim. The opinion noted that when she remarried in 1971, she claimed on her marriage application that she had divorced Montañez in 1965, and she could not now claim otherwise. Estate of Montañez, Fla. Ct. of Appeals, February 12, 1997.

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