Mention community property to a lawyer who has never studied or practiced in one of the community property states, and you are likely to see a twitch at the corner of his or her eyes. There is much mystique about how community property works, but it is actually pretty straightforward: all property acquired during the period of a marriage is presumed to be community property, and therefore belongs half to each spouse. In the event of divorce, the courts will probably unwind the community interest by dividing each asset in half — though it may be possible (depending on state law) to segregate assets so that roughly half the total value of community property goes to each spouse.
But of course the devil is in the details. There are lots of ways in which the simple statement of community property principles can get confusing.
The probate estate of Frank Kerns (not his real name) demonstrated one such confusion. Frank left a widow, a son from his first marriage, and an Individual Retirement Account (an IRA). He and his second wife had been married for several years, and at first he had named his wife as the sole beneficiary of his IRA. At some point, however, he changed the beneficiary designation on his IRA, naming his son as beneficiary as to 83% of the account, and his wife as beneficiary as to the other 17%. That was how the beneficiary designation read when he died.
Frank’s widow brought an action in probate court, arguing that community property rules made one-half of the IRA hers — and that Frank could not change the beneficiary designation as to “her” half. She asked the probate judge to order that she was the beneficiary of her half, and that the maximum amount Frank could leave to his son was the other 50%. The probate judge agreed.
The Arizona Court of Appeals did not agree with Frank’s widow. Or, rather, the appellate court did not agree with the conclusion of the argument. Frank’s son and widow agreed that the IRA was community property, but the Court of Appeals adopted Frank’s son’s interpretation of what that meant for the IRA.
Some community property states have adopted what is often called an “item” theory of community property. Under that analysis, one-half of each community property item belongs to each spouse, and if that theory applied to Frank his widow would be right. He would not have the power to name his son as beneficiary for anything more than what we might think of as “his” share of the IRA.
But the Court of Appeals decided that Arizona has embraced an alternate approach, generally referred to as the “aggregate” theory of community property. Under that analysis, Frank owned one-half of all the couple’s assets taken together — but so long as his widow received at least one-half of the aggregate community assets, she could not complain about what he had done with “his” half of the aggregation. Since Frank’s widow may have received some other assets (perhaps by beneficiary designation, or payable-on-death titling), the appellate court remanded the case back to the probate judge for a determination of whether “her” share of the couple’s assets had been properly protected.
Frank’s widow also argued that IRA and other retirement accounts should receive special treatment. Retirement funds, she insisted, are intended to provide for the care of the beneficiary and his or her spouse — and it should not be permissible to direct them to children or others except in unusual circumstances. The Court of Appeals was not persuaded, holding that all assets left to a spouse are intended to help provide for the spouse. In re the Estate of Kirkes, March 8, 2012.
So is community property really hard to understand, or are the principles difficult to apply? Not really. States where community property principles are not relevant also have complications and exceptions. But the basic rules are clear in both kinds of states: in community property states, property acquired during the marriage is generally presumed to be community property unless it was acquired by gift or inheritance. Property owned before the marriage generally remains separate property of the spouse who brought it into the marriage — unless he or she does something to convert it into community property. And then there are those details.
MAY 14, 2012 VOLUME 19 NUMBER 19
In Arizona (as in most other states) there is an important rule about wills: if the original document was in the possession of it’s signer, and it can not be found after the signer’s death, then there is a presumption that it was destroyed. Not only that, but the presumption is that the signer destroyed it, and that he intended to revoke his will by doing so. Arizona’s statute on missing wills is pretty clear. What is less clear is how to apply the statute in real cases with individualized facts.
The logic of the presumption is pretty clear. One can revoke one’s will by committing a “revocatory act” upon it, according to a different section of Arizona’s probate code. So if tearing up, or burning, your will is sufficient to revoke it, well, if it has gone missing the system is simply going to presume that that’s what you did.
Of course people lose their original wills all the time. Sometimes surviving relatives or friends know what became of the original. Sometimes it doesn’t make very much difference (if, for instance, the will simply leaves everything to family members in the same proportions they would receive if there had not been a will at all — or if there are no assets in the decedent’s name, everything having been transferred into a living trust, or placed in joint tenancy, or spent). Sometimes everyone can agree that the loss was accidental, and that a copy should be admitted to probate. Sometimes none of those things are true.
Take the case of Warren Alexander (not his real name). When he died, at age 94, his original will could not be found. What could be found was a copy of the will, a copy of three codicils he had signed over the years, and the original of his fourth codicil. The fourth codicil contained some changed language and, as is usually the case when lawyers draft codicils, added a line at the end that said he was otherwise republishing (readopting might be a more familiar term) his original will.
What does that mean? Does it depend on the sequence of events? Assuming that Warren actually destroyed his original will and intended to revoke it, would it make any difference whether that was before or after he signed the fourth codicil?
The Arizona probate court hearing the case decided that the codicil was valid (the original had been found, after all, and it was properly executed). Because it contained language incorporating at least some of the provisions of the original will, those provisions were still valid as well. The fourth codicil was admitted to probate.
Family members would inherit Warren’s estate if there had not been a valid will at all. One of them appealed the probate court’s ruling, but the Arizona Court of Appeals agreed with the probate judge’s decision. According to the appellate judges, the probate judge had not admitted a missing will to probate — he had admitted a codicil that incorporated some or most of the terms of that missing will. In fact, observed the Court of Appeals, the codicil really was a will; although we think of codicils as amending wills, they are themselves testamentary instruments with all the power and effect of a will. Estate of Andreson, May 4, 2012.
What does Warren’s probate tell the rest of us about what we should do? A few suggestions come to mind:
Keep track of original documents. Some of them are not themselves important (though the rules may vary from state to state). The deed to your house, for instance — in Arizona, it is not important to keep that original, provided that it has been recorded. Your living trust is generally still valid even if the original can’t be found. But it would be good to keep all the original documents in one place.
If you really do want to revoke your will, do it by signing a new will rather than tearing up your old one. And for goodness’ sake, talk to a professional. The small cost of involving a lawyer will be saved many times over by your heirs and devisees.
Periodically review your documents, and go looking for originals. If you can’t find them, ask your lawyer to redo them and sign new originals.
Rather than amending a will four times you probably want to consider just redoing the whole thing. That reduces the number of documents you have to keep track of, it reduces the likelihood of inadvertent errors, and it simplifies your estate planning. It also probably costs no more than successive codicils (lawyers don’t usually charge by the word, despite the jokes we have all heard).
MAY 7, 2012 VOLUME 19 NUMBER 18
We have written about contracts to make (or not to revoke) a will before. The question comes up infrequently, and usually only in a handful of ways: can you and your spouse make an enforceable agreement that you will leave your respective estates to, say, your children no matter what? Yes, you can — at least in Arizona.
For John and Martha Lindford (not their real names), the question came up during their divorce proceedings. Martha wanted to make sure that the couple’s two children, John, Jr. and Paula, would receive at least a share of John’s estate when he died. When the couple negotiated a property division as part of the divorce, it included a provision that required each of them to “execute a Will leaving fifty percent (50%) of their respective estates in equal shares to the children and twenty-five percent (25%) to each other.”
Eleven years after the divorce was final they both agreed that it was time to modify their first arrangement. John and Martha both signed an amendment that eliminated the requirement that any share of each estate be left to the other, and instead provided that 75% of each ex-spouse’s estate would go to the two children. Six months after that modification, John remarried.
Five years after the second marriage John was diagnosed with cancer, and he began to seriously plan his estate. He amended signed a new will and modified his existing living trust; the new documents specifically left several business entities to his new wife, and provided that she would also receive an additional amount to bring her share of his estate up to 25% if it did not already amount to that much.
In the months after his cancer diagnosis, John also transferred several assets — the family home, several bank accounts and one of the businesses — to his second wife outright. When he died eighteen months after diagnosis, the effect had been to leave his second wife substantially more than one-quarter of his entire estate — although she had gotten a large part of that share by lifetime gifts, not in his will or the trust.
John, Jr., and Paula and first wife Martha filed a claim against John’s estate. They argued that the effect of his gifts and the terms of his will and trust violated the marital property agreement as it had been amended. His second wife acknowledged that she had gotten more than one-quarter of John’s assets, but argued that the agreement only required him to have a will leaving 75% to his children — and that lifetime transfers were not prohibited by the agreement.
After a two-day trial, an Arizona probate judge ruled that John’s actions violated the property settlement agreement with his first wife. The second wife was ordered to return all the assets she had received from John, so that a new division could be made and her share could be capped at 25%. She appealed the ruling.
The Arizona Court of Appeals agreed with the probate judge, and upheld his ruling. The appellate judges calculated that John had given about $2.5 million — amounting to more than one-third of his entire estate — to his second wife, and that he had done so in an attempt to defeat the agreement he had signed with his first wife. Estate of Lockett, April 26, 2012.
Should John’s and Martha’s original agreement, signed in the course of a divorce nearly two decades before John’s eventual death, effectively tie John’s hands indefinitely, and despite his later marriage, growth of his estate and changes in his family relationships? That question is larger than the legal question posed by his probate case. For good or ill, John and Martha had signed an agreement that compelled them each to leave three-quarters of their respective estates to their two children. That agreement might have turned out to have been unwise or constraining, but it was their agreement.
What formalities are required for such an agreement to be effective, and to bind the parties? Arizona law (and other states may have different provisions, so be careful about generalizing from Arizona’s example) requires a contract to make a will — or not to modify or revoke a will — to meet only very basic formal requirements. Paradoxically, it would seem that a contract which does not satisfy basic will formalities (e.g.: unwitnessed and not in the decedent’s handwriting) might qualify as an enforceable contract, thereby effectively creating a will.
What landmines and roadblocks might people considering such a contract (e.g.: the lawyers representing a couple in a divorce proceeding) reflect upon before signing? Well, the opinion in John’s probate case turned, among other things, on a letter he wrote before the agreement was signed. In that letter John reported that he intended to leave 75% of his “entire estate” to his first wife and children. When the second wife later argued that the agreement necessarily only covered his will and his probate estate (and therefore should exclude property he gave away before his death), both the probate judge and the appellate court pointed to his letter as proof that he meant the contract to include his entire estate. If that is true, it certainly would have been a good idea for the agreement to spell that out in more detail, and to cover the possibility of living trusts, lifetime transfers, creation of limited liability companies or family limited partnerships, and other arrangements.
APRIL 23, 2012 VOLUME 19 NUMBER 16
Let us try to demystify probate avoidance for a moment. Note that for the purposes of this description, we are not going to argue with you about whether avoidance of probate is good, bad, desirable or a foolish goal — we start here with the assumption that probate avoidance is important. Another day, perhaps, we will discuss with you whether you ought to be concerned about probate avoidance.
Definition of terms first: probate is the court process by which your estate is settled and distributed to your heirs (if you have not made a valid will) or your devisees (if you have). Confusingly, “probate” is also the term applied (in most states) to the court where probate proceedings, guardianship, conservatorship and sometimes even civil commitment and adult adoptions are conducted. We are not talking here about how to avoid probate court altogether, but just about how to keep your estate from having to go through the probate process upon your death.
Arranged (more or less) from least desirable to most, here are some of the ways to avoid probate of your estate upon your death:
Die poor. In Arizona, an estate consisting of up to $50,000 of personal property can be collected by the people who claim to be entitled to it without the need of a probate court proceeding. The affidavit for collection of personal property is widely available and usually free. Your survivors can use it to transfer title to your auto, or to collect small bank (or other financial) accounts. The statute providing for collection of small estates also provides a mechanism for the surviving spouse to get a decedent’s last paycheck, and for beneficiaries to transfer title to real property up to another $75,000 in value. Most other states have a similar law, but with dollar limits that vary widely.
Give it all away. One sure-fire way to avoid probate: give everything to your kids (or whomever you want to receive your stuff) now. The main problem with this approach should be obvious — what if they won’t let you live in your house any more, or withhold the interest you counted on them returning to you each month? Things change: you might change your mind about leaving everything to that child, or to all your children. The child you transfer assets to might marry someone you don’t trust. Worse yet, that child might die — leaving you at the mercy of his or her spouse and children. Maybe you and the child you give your stuff to will end up disagreeing about when you need to go to a nursing home, or whether you ought to get married late in life, or even take in a roommate.
As an aside, it amazes us how often clients come to us after having given everything to their children. Things so often do not work out as planned. This is a very poor way to handle your estate planning — but it would avoid probate. We hear that those new-fangled strap-on jet packs avoid traffic jams, too — but we don’t recommend them as a means of getting to the doctors office.
Joint tenancy. People often refer to this method of holding title by its formal name: “joint tenancy with right of survivorship.” That makes the value of the title pretty clear — the surviving joint tenant(s) own the deceased joint tenant’s portion of the property upon death of one joint tenant. You can have more than two joint tenants — upon the death of any one, the survivors’ interests all increase. We liken this arrangement to a tontine — a lovely idea that combines the best elements of estate planning and lotteries.
Lawyers generally discourage the use of joint tenancy in estate planning. The problems are less obvious than simply giving away your stuff, but they are still real. You might later decide that the child you established the joint tenancy with should get a larger or smaller share of your estate — but the joint tenancy is always, by definition, an equal ownership interest with all the other joint tenants. People who favor joint tenancy as an alternative to good estate planning invariably, in our experience, seem to think it would be OK to name just one child as joint tenant, and to trust her (or him) to divide the property among siblings. That often works just fine — but it often leads to family disputes when the children have different expectations or understandings.
Other problems with joint tenancy: you subject your property to the creditors, spouses and business partners of the child you put on your title. You lose the power to refinance your home, to cash out your certificate of deposit, or to liquidate your government bonds — more accurately, you lose the power to do those things unless your joint tenant will also go to the title company or the bank with you and sign willingly.
Lawyers tend to dislike joint tenancy, except in one circumstance. Many people own their property in joint tenancy with spouses (homes are especially likely to be titled in that fashion), and we lawyers generally think that is alright. In Arizona, there is another alternative between spouses that we like a little better: community property with right of survivorship. That conveys some income tax benefits to a surviving spouse while still avoiding the necessity of any probate on the first spouse’s death.
Beneficiary designations. You probably have a beneficiary (maybe multiple beneficiaries) named on your life insurance policy, on any annuities you have been talked into buying, and on your retirement account (if there is any death benefit included). Did you know that you can do the same thing with bank accounts, stocks and bonds, and even (in Arizona and a handful of other states) real estate?
POD (payable on death) bank accounts — you can designate a POD beneficiary (some banks use the acronym ITF — “in trust for” — and it means the exact same thing) who has no current interest in your account but receives it automatically upon your death. You can even name multiple POD beneficiaries. And you can do this at banks, credit unions, savings and loans. Caution: if you go to your bank and say “I heard that there’s a way I can put my son’s name on my bank account” the clerk will almost always hand you a joint tenancy signature card. Make clear that you’re talking about POD designations — they are used less commonly but are a better fit for most people.
TOD (transfer on death) for stocks and bonds — there is a designation similar to the bank POD account for stocks, bonds, brokerage accounts and mutual funds. It is usually referred to by its acronym, TOD. It is actually more flexible than the POD designation available to banks — it allows you to designate what happens if a TOD beneficiary should die before you, for instance. Talk to your stockbroker about this titling arrangement if you think it might be a good idea for you — but talk to your lawyer first.
Beneficiary deeds for real estate — this one is available in only about a dozen states, but Arizona is one of those. It is like a POD or TOD designation for real estate — including your home. It only works on real estate located in Arizona or one of the other beneficiary deed states. The beneficiary deed conveys no current interest in your property, but avoids probate and vests directly in your beneficiary upon recording of your death certificate. You and your spouse can, for example, own your home as community property with rights of survivorship but upon the second death automatically transfer to your children in equal shares (with provisions about what happens if one of them should not survive both of you) upon the second death. We have written about beneficiary deeds in Arizona before, and our earlier explanations are still valid (even though our newsletter style has been updated).
What’s wrong with these beneficiary-based devices? Two things, at least: (1) they don’t provide for what happens if you make life changes that effectively adjust your estate plan (if, for instance, you live off of one account that was to go to one or two children, and thereby reduce their share of the estate) and (2) they make it hard to change your estate plan (if you decide to disinherit a child, for instance, you have to make sure to change all of the operative documents and titles). But in the right circumstance, beneficiary designations can effectively transfer your estate without probate — they act as a sort of a “poor man’s” trust.
Trusts. Which gets us to the most efficient way to avoid probate for most people — the living trust. To be clear, the trust doesn’t really avoid probate at all — but your trust assets do not have to go through the probate process and so anything you have transferred during life to the trust will avoid probate. It is the “funding” of the trust that avoids probate, not the trust itself.
So there you have it. Probate avoidance in a nutshell. But wait — what’s not on that list? Did you notice? There is so much confusion about the missing item, which does not avoid probate:
Making a will. Preparing and signing your will is a good thing to do. It avoids intestate succession, which might not be right for you. It designates who will be appointed by the court to act as your personal representative. It can name the person who will be your children’s (or your incapacitated spouse’s) guardian. It can even create a trust. But it does not avoid probate.
Your will is instead instructions to the probate court. It has no effect unless and until it is admitted to probate, which another way of saying that a court has determined that it really is your last will. Clients frequently say: “thank goodness I’ve signed my will today. Now I can sleep better knowing my children won’t have to go through probate.” We say: “sit down. We have some more talking to do. Obviously we have failed to get you to understand the distinction between wills and probate avoidance.” Then we talk about living trusts.
Did that help? Do you have a better idea for probate avoidance (we’ve left a couple of less common methods off)? We’d love to hear from you.
MARCH 5, 2012 VOLUME 19 NUMBER 9
We have written before about changes to Arizona guardianship, conservatorship and probate proceedings adopted in the past year. Changes involved both probate laws and court rules. One thread running through both sets of changes: the notion that proceedings in probate court could be unnecessarily complicated by “vexatious litigants.”
The problem of a vexatious litigant should be obvious. In a court environment focused on thorough investigation — especially when there are allegations of wrong-doing — the costs can easily spiral out of control. There needs to be some mechanism to stop repetitive filings that impede, rather than advance, the cause of justice.
As it happens, the Arizona Court of Appeals has been dealing with just such a vexatious litigant for a year now. Five separate cases test the probate court’s ability to control multiple and frivolous filings by someone who has been tagged as vexatious. The vexatious litigant in those cases? The subject of the guardianship/conservatorship.
Mark Peterson (not his real name) first came to the attention of the Arizona court system after a party where, he alleged, he assaulted by several other individuals. He filed lawsuits against several people who were at the party. He sued the attorney who represented some of the partygoers. He harassed family members of others in attendance.
The Arizona courts ordered Peterson not to harass any of the people involved. It dismissed his lawsuits. It even entered a $30,000 sanction against him. The court’s presiding judge declared him a vexatious litigant, and ordered that he could not file any more lawsuits without the judge’s permission. He kept harassing his victims.
In an attempt to deal with Peterson, the judge appointed an attorney as his “guardian ad litem,” and authorized her to file a guardianship, conservatorship and/or mental health petition on him. She did, and the court appointed the Maricopa County Public Fiduciary (a public guardianship agency in Arizona). Peterson filed a petition to terminate the guardianship and conservatorship. The court did end the conservatorship, but maintained the guardianship; it also approved an order his guardian ad litem had obtained, ordering him not to harass her or go to her office at all. The Public Fiduciary filed a final conservatorship accounting, and the court approved their account.
Peterson appealed, and in January of last year the Court of Appeals upheld everything the probate court had ordered — partly on the basis that Peterson’s appeal was improperly filed. The appellate judges approved the court’s process for limiting Peterson’s ability to file motions and court actions.
Meanwhile, Peterson had already filed a request with the probate court that he be permitted to file a lawsuit against AHCCCS, Arizona’s Medicaid agency, and a malpractice action against his treating medical team. The probate court had conducted two hearings on his request, and had denied him the authority to file additional lawsuits unless he first met with his guardian ad litem, convinced his court-appointed attorney or guardian to file the lawsuits. Peterson appealed this denial, even as the appellate court was still considering his first (actually his third — but his first guardianship-related) appeal.
The Court of Appeals dismissed this appeal, too. It found that Peterson had failed to provide an adequate record (he had not ordered and paid for transcripts of the probate court hearing), and that the order finding him to be a vexatious litigant was proper.
That was not the last appeal, however. While the other two appeals were pending, Peterson filed a petition asking the probate court to terminate his guardianship and lift the pre-filing limitations on his access to the courts. The probate judge denied his petition, and — you probably guessed this — he appealed.
The Arizona Court of Appeals denied Peterson’s most recent request, just as it had denied the earlier appeals. It is well-settled by now, ruled the appellate judges, that Peterson is a vexatious litigant, and the restrictions on his ability to file multiple petitions, motions and lawsuits are appropriate in the circumstances.
One interesting item to note about the three probate-related appeals orders covering Mr. Peterson: the first was a 12-page opinion, the second 11 pages and the most recent down to 10 pages. Apparently the Court of Appeals is having less trouble upholding Peterson’s status as a vexatious litigant with each visit he makes to their court. In Re Petramala, January 14, 2011, May 5, 2011 and February 23, 2012 (unpublished memorandum decisions).
FEBRUARY 27, 2012 VOLUME 19 NUMBER 8
Phoenix-area resident Larry Robertson (not his real name) was undoubtedly fading mentally, but he had made plans for handling his affairs. He had created a revocable living trust, signed a power of attorney and created a beneficiary deed. All those documents named a husband-and-wife team who were also his caretakers. They would receive his entire estate upon his death, and were put in charge of handling both his finances and his health care decisions while he was still alive.
Larry’s sister Betty lived in Ohio. She became concerned that the caretakers might be taking advantage of Larry, so she consulted with her local Ohio attorney, David Lynch. Mr. Lynch prepared a petition seeking Betty’s appointment as guardian of Larry’s person, conservator of his estate, and trustee of his trust. The petition claimed that there was an emergency requiring immediate action. It was signed by Betty and by Mr. Lynch — who was not admitted to practice law in Arizona. The petition was actually filed by an Arizona attorney, who did not sign it.
Once the petition was filed, an attorney was appointed to represent Larry. Another Phoenix-area attorney entered an appearance on behalf of Larry, claiming that he had prepared all of the questioned documents, that Larry had been perfectly capable of signing them, and that in fact Larry still had capacity and could make his own decisions about placement, caretakers and disposition of his property at his death.
The probate court held a hearing on the emergency petition. At the beginning of that hearing, Mr. Lynch asked to be admitted to practice law in Arizona just for the purpose of this one case — a process that is called “pro hac vice” admission. The probate judge heard some preliminary testimony, and discovered that Mr. Lynch had himself made an appointment with Larry’s attending physician under the pretense that he needed medical treatment, and that he had interviewed Larry’s physician about Larry’s condition. The judge refused to allow Mr. Lynch to be a lawyer in the case, ruling that it appeared that he might have turned himself into a witness instead.
Larry’s sister Betty then testified that she believed the caretakers might be taking advantage of her brother. In her petition she had alleged that Larry’s attending physician had told her that the caretakers seemed to be taking advantage of Larry; on the stand she acknowledged that the physician had not actually told her that he was concerned. The physician himself testified that Betty had asked him to say that Larry was incompetent, but he said that he had declined to render such an opinion.
At the conclusion of the hearing, the probate judge ruled that Betty had not shown any basis for a guardianship and conservatorship. The judge dismissed the petition, and ordered that Betty and her Ohio lawyer, Mr. Lynch, should both be liable to pay Larry’s original lawyer $6,470 in fees incurred in preparing for and conducting the hearing. The sanctions were imposed pursuant to Rule 11, a court rule governing civil proceedings which prohibits filing baseless proceedings.
Later, at a follow-up hearing set to consider whether Betty should be appointed as Larry’s trustee, the probate judge found that there was no basis for that allegation, either. By that point Betty’s entire petition had been denied; as a final blow the probate judge imposed an additional $9,651.04 in fees against Betty and Mr. Lynch — this time to pay the court-appointed attorney’s fees.
Mr. Lynch appealed the second award of fees against him. He argued that he had not been given a chance to show his own good faith in preparing the original petition for Betty. He had relied on Betty’s assertions, he argued, and that should have been all that was required.
Not so, ruled the Arizona Court of Appeals. When an attorney signs a pleading (as Mr. Lynch had done, even though he was not admitted to practice in Arizona), he or she effectively swears that he or she has made a reasonable inquiry into the facts alleged. Simply relying on the statements of the client was not enough — at least not when the witnesses to the documents were readily available, and Mr. Lynch could have simply interviewed them to see what they thought about Larry’s competence. “It appears,” wrote the appellate court, “the only effort Lynch made to verify Betty’s allegations was his inappropriate meeting” with Larry’s physician. The sanctions against Betty and Mr. Lynch, totaling over $16,000 in payments to Larry’s two lawyers, were upheld. Guardianship and Conservatorship of LaLonde, February 16, 2012.
In separate proceedings, incidentally, the Arizona Supreme Court admonished Mr. Lynch for practicing law in Arizona without being licensed in this state. The Ohio Supreme Court followed suit on October 14, 2011, publicly reprimanding Mr. Lynch in the same case.
There are at least two messages to be taken from the court-imposed sanctions against Betty and Mr. Lynch. First, it is important to make sure that you have some actual evidence of incapacity and an emergency situation before filing a petition to secure an emergency appointment as guardian for a family member or loved one. Pretty much the same can be said for a petition for appointment of a conservator, or for appointment of a successor trustee.
The second message is really addressed to lawyers more than to family members. It is not necessarily enough to rely on the assertions of your client. It is also dangerous to get so personally involved that you lose objectivity.Particularly in a time of heightened scrutiny being applied to guardianship, conservatorship and trust administration matters, it is important to have a good foundation before filing a petition that so deeply affects the personal life, independence and autonomy of a client’s family member.
FEBRUARY 20, 2012 VOLUME 19 NUMBER 7
OK — you’ve signed your will and paid the big lawyer’s fee. Now you want to make a change. Do you know how to modify your will? Can you do it without incurring another fee? Shouldn’t it be easy to make the change?
All that might have been going through Donald Wolf’s mind when he made changes back in 2005. You see, he had written a clearly valid will in 1995. In it, he left half of his estate to a married couple who had been long-time friends. A quarter of his estate was to go to another friend, and the final quarter to a fund to assist AIDS patients. He named the wife of the married couple as his personal representative. Then he gave an unsigned copy of the will to the woman named as personal representative.
In 2005, when he was thinking about making a change, Mr. Wolf talked with the couple to whom he was leaving half of his estate. Then he took THEIR copy of his will, crossed out the bequest for AIDS patients and wrote that instead that quarter of his estate would be divided between two other friends. He dated and initialed the changes, but no one signed as witnesses. At some point — perhaps during that same meeting, but his friends could not clearly recall — he did the same thing on the signed original will, as well.
Was Mr. Wolf’s will amendment effective? We’ll give you a minute to think about it, and try to decide what you think. Wait — we’ll give you one more clue: the probate court decided that the attempt to amend his will was ineffective, and ordered that the AIDS fund was still a one-quarter beneficiary.
One of the two friends named in the hand-written amendment appealed the probate court’s decision, and the Arizona Court of Appeals reversed the finding. Arizona permits “holographic” wills and amendments; if the material provisions of a will are in the decedent’s handwriting, they do not need to be witnessed. The appellate court decided that Mr. Wolf’s amendment was a holograph, and that it should be given effect. Estate of Wolf, February 7, 2012.
Back to our original questions: assuming you want to change your will, does the Wolf case stand for the proposition that it is as easy as taking your original will out, scribbling the changes, initialing and dating (which Mr. Wolf did) and putting it back away? Emphatically, NO. Here are some reasons why you should NOT use Mr. Wolf’s method for changing your will:
You might live in, or move to, a state where holographic wills are not permitted. Not every state in the U.S. allows holographic wills and codicils, and they are disfavored in other jurisdictions — even in English-speaking countries, where the idea was once embedded in English law. Even where they are permitted the rules vary. It is never a good idea to rely on a holographic will, codicil or amendment.
Even if the handwritten notes are admitted as part of the will, the intent and meaning is usually subject to interpretation and confusion. Is it possible that Mr. Wolf was making notes about possible changes that he meant to discuss with his lawyer — but never got around to completing? Apparently not, but very slight differences in testimony can lead to significant differences in result.
Holographic documents are much more likely to result in litigation — and in delay and additional cost.
The cost of making changes in your will is usually surprising slight. Go ahead — ask the lawyer who prepared your will how much he or she will charge for making changes. You are likely to be surprised at the answer. Why would it be inexpensive? Because a significant part of the cost of preparing your estate plan comes from the time it takes to understand your assets, family situation, goals and intentions. Much of that has already been done, and so amending your will is likely to cost quite a bit less than the original cost of preparing the will. That is true even though most lawyers would rather simply write a new will than prepare an amendment or codicil.
There is a side benefit to meeting with your lawyer to amend your will. Laws change, your situation changes, the world changes — and your lawyer can point out things you ought to be thinking about in addition to the changes you want to make. In fact, you should be visiting with your lawyer once every five years or so — more if your situation is more fluid, or your assets are significant — just to see if you need to update documents.
FEBRUARY 13, 2012 VOLUME 19 NUMBER 6
A Texas probate judge appointed Frederick and Lorraine Cooper (see note below) as guardian of their adult developmentally disabled daughter Cathy in 2003. Three years later, Cathy moved into a group home in Grapevine, Texas. After Cathy had lived there for about two years, the group home operator became concerned about what it saw as her deteriorating mental health.
Why was the group home operator concerned? There were several reasons. Cathy had developed a set of imaginary friends, and the group home staff thought she was spending more and more of her time in conversation with them. She had become occasionally violent — once striking another resident who she thought was sitting in her seat on the group home’s bus. She had started to set traps for the staff, like lining marbles up under the edge of the door to her bedroom. She also was found to have as many as four screwdrivers hidden around her room — wedged into a closet, stashed behind her dresser and in her jewelry box.
The group home took the issue up with Cathy’s guardians — her parents. The parents did not feel that Cathy’s behavior was troubling, and they refused to permit the group home to set up a psychiatric evaluation. After the group home arranged a prescription for Zoloft for Cathy, the parents ordered that the medication be discontinued. They also continued to bring in over-the-counter medications for Cathy, insisting that her only medical problem was persistent headaches which could be treated without a doctor’s involvement.
In a meeting with Cathy’s parents, the group home insisted that they should not discontinue medication, that they could not bring non-prescription medications to Cathy without notifying the nurse on duty (and getting her approval), and that they needed to stop supplying their daughter with screwdrivers. Cathy’s parents pointed out that they were their daughter’s guardian, and that they were in charge of medical and personal decisions for her. They refused consent for a psychiatric evaluation, declined to cooperate with the group home over the over-the-counter treatments, and indicated that they saw no problem with Cathy’s attachment to screwdrivers and booby traps. They insisted that she just felt like she needed to have the screwdrivers to protect herself, and that if the staff would stop bothering her she wouldn’t feel like she needed to booby-trap the doorway to her room.
The group home arranged to get information about Cathy’s parents’ decisions before the probate judge who had appointed them as guardians. Without notice to them or a hearing on the information, the judge removed them as guardians and appointed a professional guardian in their stead. The Coopers did not appeal or seek review of that decision, but they did file a motion for reinstatement as guardians. After a hearing, the probate judge declined to reappoint them, and they appealed to the Texas Court of Appeals.
The appellate court agreed with the probate judge that the Coopers had failed to show that they should be reappointed as guardian for their daughter. The Court of Appeals noted that the Coopers not only did not express concern over their daughter’s behaviors, they assisted her by letting her take screwdrivers back to the group home after visits to their home. Although the Coopers had sought out evaluations by an allergist, an acupuncturist, a neurologist and a chiropractor, they had refused to have her tested or treated by a psychiatrist — because, they said, they were sure that the result would be that she was put on medication, and they wanted her headaches treated first. For all those reasons, the appellate court let stand the probate judge’s refusal to reinstate the Coopers as guardian. In re Covington, February 9, 2012.
The Coopers apparently felt that, as their daughter’s guardian, they were completely in control of medical and personal decisions for her. They were right, as far as that goes. But that control was not absolute. The ultimate authority in such a circumstance rests not with the family or guardian, but with the probate court overseeing the guardianship proceeding. The result of the court proceedings would likely have been the same under Arizona law in similar facts.
A word about names: For 19 years now, we have reported on cases with full and accurate names included. We have felt that having names humanizes the stories we relate, and those names are readily available in the reported cases in any event. But we are rethinking our position as the internet makes it easier and easier to look up personal information about anyone. A simple internet search for the name of an adult incapacitated person, or a family member of such a person, can expose their personal affairs to heightened scrutiny. Since we agree that the names are not really important to the story, we are trying an experiment with this week’s newsletter. We have changed the names of the principals, primarily to keep the actual names from appearing after an internet search for someone who, like “Cathy” here, is to some extent a victim of the public reporting system inherent in court cases.
If it is important for any of our readers to know “Cathy’s” real name, it is not that difficult to find it — in the same place we originally found it. From time to time, though, we will expect to modify the names of the subjects of legal proceedings and their families.
In the past we have also used full and formal names for the subjects of our reporting; we would have called Cathy Cooper “Ms. Cooper.” Since we are not actually using her real name here, we have decided to make her story more readable by referring to her as simply “Cathy.” We hope you understand; feel free to tell us whether you agree or disagree with either part of our decision.
JANUARY 30, 2012 VOLUME 19 NUMBER 4
We are frequently surprised by how much trouble people cause for their families and heirs by not taking simple steps to properly plan for their estates. One thread that often recurs involves a fear (or perhaps disapproval) of lawyers, leading to failure to get good legal advice about planning, or about the execution of documents. This week we read about a different reaction, but with the same result. Florian T. Latek didn’t trust notaries.
Mr. Latek owned a small family farm in Indiana, but he lived (and owned real property) in Illinois. In 2009, with the help of a non-lawyer friend, he wrote a letter to the lawyer for a local charity he favored. The letter began “This is my will” and it proceeded to direct distribution of his entire estate to that charity and other recipients. Then he prepared four identical copies of the document, and signed each one.
Apparently Mr. Latek realized he should have the documents notarized, but he wrote that he did not trust notaries; instead, he included his Army serial number with the note that he hoped it would “be good for any legal matters.” Then he had some — but not all — of the copies witnessed by friends, and he secreted one copy (one that had no witnesses’ signatures) behind (not in) a small safe at the Indiana farm. Less than two months later, Mr. Latek died.
Probate proceedings were begun first in Illinois. The Illinois courts initially determined that Mr. Latek had no will; later, when the friend who had helped prepare the document got in touch with the charity named in the letters, the unwitnessed version was found at the farmhouse. When the charity’s lawyer attempted to introduce that will in the Illinois courts, it was initially rejected because it did not meet the Illinois requirements for a will to be valid. Later a copy with witnesses’ signatures was located, but the lawyer could not produce the witnesses to testify about the signing of the letter in the time given by the Illinois court to prove the validity of the will. The result: the Illinois property would pass according to the law of intestate succession, to Mr. Latek’s cousins (he had no children).
Meanwhile, the charity’s lawyer filed one of the letters with the Indiana courts for admission as Mr. Latek’s last will. If admitted, it would control the distribution of the family farm. The personal representative appointed in Illinois objected, arguing that Illinois had already decided that the will was invalid and the Indiana courts were bound by that finding.
The Indiana probate judge disagreed. The will was admitted to probate in Indiana, and the lawyer for the charity was appointed to administer Mr. Latek’s Indiana estate.
The personal representative appointed in Illinois appealed in Indiana. He argued that the U.S. Constitution requires each state to give “full faith and credit” to the rulings of sister states; once the Illinois courts had rejected Mr. Latek’s letter as a will, according to this argument, the Indiana courts were required to adopt the same ruling. The Indiana Court of Appeals, however, disagreed with that argument, and upheld the Indiana probate court’s admission of Mr. Latek’s letter as his last will. Matter of Latek, January 4, 2012.
What does Mr. Latek’s estate tell the rest of us? A number of things jump out:
It just makes sense to get help with setting up one’s estate plan. Assuming that it will all work out, that one’s Army serial number ought to prove one’s wishes, or that notaries are unreliable are not good ideas when dealing with the legal effect of documents. It is touching to note that Mr. Latek also told the charity’s lawyer that he should “tell the judge that we were classmates and do the very best you can,” but that just makes it harder to understand why he did not consult with a lawyer he obviously knew and trusted. Would the lawyer have charged him? Of course. But his wishes might have actually been carried out, rather than two different proceedings with two different results.
Mr. Latek looks like a classic example of the kind of person who ought to be considering a living trust. Rather than relying on two different probate courts to come to the same conclusion, he could have transferred both his Illinois real estate and his Indiana real estate — along with all his personal property — to a trust that would have been governed by the law of one state or the other. Would that have cost him something to set up? Yes. It would also have permitted his estate to be managed and distributed in a coherent and effective way, at (ultimately) lower cost than two separate probate proceedings in Illinois and Indiana. That would especially have proven to be true when the cost of one appellate case is factored in. If you own real property in two different states, you should particularly pay attention to the outcome for Mr. Latek’s estate.
State laws vary with regard to the formalities of wills. Some states require notarization OR two witnesses. Some states permit unwitnessed wills to be effective, provided that they are signed and in the signer’s handwriting. But here’s a piece of news for do-it-yourself fans: ALL U.S. states would treat a will as effective if it has both two witnesses and a notary. Yes, some states require the signer, the witnesses and the notary to all have been together at the signing — so it just makes sense to do it that way at a minimum.
JANUARY 2, 2012 VOLUME 19 NUMBER 1
Two weeks ago we detailed some of the statutory changes facing guardians, conservators and other fiduciaries in Arizona beginning with the new year. At the same time the legislature was working on those changes, the Arizona Supreme Court was considering changes to the rules and procedures governing probate court. That means more changes affecting guardianship, conservatorship, probate, and trust administration.
The Supreme Court rules changes have been adopted, but they are not effective at the same time as the statutory changes described in our earlier newsletter. Most of the rule changes become effective on February 1, 2012; a few of them will be delayed until September 1, 2012. Since some of the changes require continuing review and modification by the courts, some may be changed or delayed even beyond that later effective date.
Here are some of the probate court rule changes (all effective February 1, 2012, unless otherwise indicated):
Every conservator must file an inventory within 90 days of appointment. That has not changed. What has changed is that (beginning in September, 2012) the inventory must also include a budget (unless the Court in individual cases waives this new requirement). The budget must be updated with each annual account. Expenditures in excess of budgeted amounts are not prohibited, but may require an update to the budget or even prior Court approval. Failure to follow the budget may subject the conservator to higher liability at the time of the annual account.
At the same time that the inventory and each annual account is filed, every conservator of an adult must calculate whether it appears that the conservatorship assets will outlast the person subject to the protective proceeding. The precise calculation does not have to be shared with interested persons, but the result does; the conservator is required to explain what he or she anticipates will happen if the money is not sufficient to take care of the protected person for the rest of his or her life expectancy.
The rules introduce the legal concept of “vexatious conduct.” If a litigant has been found to have filed repetitive pleadings for the purpose of harassing others, the court may enter an order limiting their ability to file future pleadings. Such an order might, for example, require the vexatious litigant to get the court’s approval before filing any new pleadings, or relieve the other litigants of any obligation to file responsive pleadings until the court has made an initial review of the vexatious litigant’s filings. Another new rule permits a party who thinks a given filing is repetitive to respond by simply pointing out that the pleading is repetitive; once that is done, no further response is required until after the court determines whether the filing is in fact repetitive.
When a guardianship or conservatorship is filed, an attorney and a court investigator are normally appointed (to represent the subject of the proceedings and to report to the probate court, respectively). That does not change with the new rules. There are several changes about how those appointments will work, however. First, court-appointed attorneys, court investigators and guardians ad litem must undergo a training program to be devised by the courts (this is one of the requirements that is implemented on September 1, 2012). Second, court-appointed attorneys and guardians ad litem are disqualified from serving in cases where the proposed fiduciary is a client of theirs in other matters, even if unrelated. Third, it is now impermissible for the court appointees to end up serving as the guardian or conservator.
Speaking of guardians ad litem, the new rules spell out in more detail what that position entails and when a GAL may be appointed. The request for appointment of a GAL must detail why special expertise is needed, and any order appointing a GAL must spell out the limits of the appointee’s authority.
When a guardian or conservator is appointed by the judge, that fact alone does not give them any authority to act. The clerk of the court must first issue “letters” evidencing the appointment (which may require that the appointee file additional documents). The new rules imposes several changes involving the “letters.” First, every court order appointing a guardian or conservator must include a warning that the appointment is not effective until the letters have been issued. Second, every conservator must record a certified copy of his or her letters with the County Recorder in the county where the protected person resides and in every other county where the protected person owns real property. Third, a conservator’s letters must include specific language if sale of real property or access to other assets (like bank accounts, for instance) has been restricted by the court.
Every person or entity appointed as guardian, conservator or personal representative must undergo a training program either before or shortly after appointment. This provision is not effective until September 1, 2012 (in order to give the courts time to create an appropriate training program). It does not apply to professional fiduciaries who have been licensed by the Supreme Court (they already have testing, training and continuing education requirements) or banks acting as fiduciaries. It does apply to family members who act as fiduciaries. There are no exceptions for people who have been named as personal representative in a will, for example, or for parents who act as conservator for a minor child whose assets are all in court-controlled bank accounts.
Any lawyer or fiduciary who expects to be paid from a ward’s (or prospective ward’s) funds must first give everyone in the case notice of how his or her fee is to be calculated. The Supreme Court has directed that some sort of fee guidelines be adopted in the future; those guidelines will govern how attorneys may charge in guardianship and conservatorship matters.
Annual accounts must be in the form prescribed by the Supreme Court. That form has not yet been adopted (it is one of the items that will have a September 1, 2012, effective date to give the Court time to finalize the forms), but preliminary forms have been circulated. They are quite different from the accounting forms approved by the Court for the past four decades, and will require significant retooling of accounting practices and software. Details are not yet settled, but will be adopted over the next few months.
Alternative dispute resolution is encouraged. In contested proceedings, the parties are required to notify the Court within 30 days about their efforts to initiate mediation, arbitration or other resolution efforts.
When a guardian has been appointed for a minor, the guardian has an affirmative duty to notify the court on the minor’s reaching majority, getting married or adopted, or upon the minor’s death. If there is no conservator appointed, the guardian’s notification must include a list of any property the guardian believes may belong to the child — and that information must be provided to the Court as well as the subject of the guardianship.
Attorneys for guardians, conservators and other fiduciaries are required to encourage their clients to do as much of the fiduciary work as they can without involvement of the lawyer. Complaints have been made in the past about lawyers overseeing their clients’ work too closely, and at too high a cost. The new rules make clear that the responsibility is the fiduciary’s, not his or her lawyer’s.
Can we generalize about the effect and value of these changes? Not yet — or at least we can not generalize about how much they will actually improve the practice or lower costs. We can make a few educated guesses, though — and we will:
It seems likely that the cost of most guardianship and conservatorship matters will increase slightly, as compliance with the new (and more detailed) rules requires more work.
We expect fewer family members will be willing to take on what was already a difficult task, and will now become somewhat more difficult. That means more cases moving to professional fiduciaries.
Our estate planning clients will be reminded again and again how important it is for them to execute living trusts, powers of attorney and other arrangements to avoid any need for guardianship or conservatorship proceedings. One small irony: even as the process for handling decedent’s estates has been streamlined over the past several decades in response to public and consumer complaints about costs, delays and legal micromanaging, the guardianship and conservatorship process have become more expensive, slower and more subject to Court micromanagement. That may have been necessary to protect a vulnerable population, but it certainly is an example of the doctrine of unintended consequences.
Contentious family members and friends will have more access to the Courts, not less. Contested proceedings will likely become somewhat more frequent in guardianship and conservatorship cases. It is likely that the same effect will not be seen in decedent’s estates and trust administration cases, but we could be wrong about those predictions.
Here’s our final (and, we think, safe) prediction: the effect of these changes will be less profound than either practitioners fear or reformers hope. We will all learn the new rules over time, and many of us will refer fondly to the good old days, before 2012, when people just seemed to get along better and the process did not seem to get so bogged down in minutiae and micromanagement. We will be wrong about our glowing, Rockwellesque memories.
Want to read the new rules yourself? It’s a little hard to find and read them. First, the Arizona Supreme Court’s site for proposed rule changes is confusing and impenetrable, and does not distinguish well between recent changes and proposals and those from prior years (or, we assume, prior decades — once the kludgy system gets to be ten years old). Second, as of this writing, the “official” rules page does not show the changes (which admittedly will not be effective for another month). We will give you our best bet for temporary review; we will try to remember to update the online version of this article once the final rules make it to the official rules page. Look at the Arizona Supreme Court’s Rules of Probate Procedure page, and remember that you have to actually open and integrate three PDFs to figure out which rules are effective on what dates and where each change is located.
