Posts Tagged ‘probate court’

Privacy Concerns Loom Large in Probate Court

JANUARY 16, 2017 VOLUME 24 NUMBER 3
Things change. This is our twenty-fourth year of publishing Elder Law Issues, and one thing we frankly didn’t think much about a quarter-century ago was privacy. Today it’s a big concern, and central to a lot of our thinking.

When Fleming & Curti, PLC, first formed in 1994, partners Tom Curti and Robert Fleming each already had nearly twenty years of professional practice. During those early years, we commonly included client’s Social Security numbers in estate planning documents, as did most practitioners. We all routinely provided detailed financial information in court filings — both in probate cases and in guardianship and conservatorship matters.

Yes, “identity theft” was an issue, even in the 1970s and 1980s. But most cases of identity theft in those days involved bad people looking for the names of people who had died in their teens, or even before, and applying for credit and entering into transactions using those names. Even if information was filed in the County courthouse, it was only theoretically vulnerable — few people knew how to get into court files, and one would have to physically travel to the courthouse to look up information. While nominally public, information filed in public records did not seem very vulnerable.

That is simply not the case any longer. Many county courts (not — yet — including the Pima County Superior Court in Tucson) have all of their court files available online. Regional and national aggregators — and even search engines — can list your name, or your parents’ names, for easy retrieval. Identity thieves can look up that information from the comfortable anonymity of their own computers, and from anywhere in the world.

At the same time, public information is generally, well, public. The community has a right to know who has been sued, who has brought suit, and who is involved in court cases. But how to balance that open disclosure with the need for privacy?

That’s the problem faced this month by the Maine Supreme Court — in a request by a single participant in the Maine guardianship/conservatorship system. “Emma” (not her real name — the Supreme Court itself agreed to “de-identify” Emma by giving her a false name) sought to have her financial records removed from the publicly available records. She alleged that the court was involved in disclosing her personal information, and that the practice should change. She also argued that removing the public information would be an appropriate accommodation under the Americans With Disabilities Act, and that failure to do so was discriminatory against individuals whose disabilities resulted in court-ordered guardianships and conservatorships.

The probate judge in Maine recognized that there was a legitimate concern. In an unusual request, he asked the state Supreme Court to tell him: should such records be completely hidden from view, referred to but not made available, summarized but not actually put online, or made completely available online?

The Maine Supreme Court punted. It observed that it might be appropriate to set a statewide rule, but not in an individual case. It ruled that Emma might well have a method of making her case, using her ADA argument. And, it reasoned, it wasn’t particularly good at giving general advice — its job was to decide individual cases, and not so much to review rules and procedures. They declined to answer the judge’s questions. Conservatorship of Emma, 2017 ME 1, January 5, 2017,

This problem faces every court, not just those in Maine. In Arizona, for instance, our Supreme Court has adopted extensive rules attempting to maintain privacy of items like Social Security numbers, bank records and balances, medical diagnoses and information. Today much of the contents of a guardianship or conservatorship file will be sealed, made available only on specific court order and then only to individuals who have some reasonable basis for getting access.

There are several other ironies in the Maine Supreme Court’s review of confidentiality. One involves Emma herself — though the Court changed her name, it left enough detail that it was frankly child’s play to look her up, learn her name and address, and the approximate value of her assets — without setting a foot in Maine. It took about fifteen minutes of online searching; we did not seek to learn anything about Emma, but only to see how easy it might actually be.

We sympathize with the Maine courts’ concern about how to balance information with privacy. We have been wrestling with the same problem in this weekly blog-based newsletter for several years. Regular readers will see that we, like the Court, anonymize names of litigants on a regular basis. We do that despite the reality that their names are usually public records (usually included in the name of the case itself — though not in Emma’s case). Why bother? At least we hope that a search for a grandmother or uncle by name will not list their legal troubles — and our newsletter article about them — at the top of the list. But in order to give readers the ability to follow up on the details of court opinions, we still have to include the name of the case.

It seems likely that the County court handling Emma’s case will continue to work on how to protect privacy issues. The judge who entered orders in her case — and who helped seal much of the public record about her — died in September last year. His elected successor: his wife, who presumably will have similar plans for protecting personal information in probate proceedings.

Common-Law Marriage, Divorce and Probate, All In One Case

DECEMBER 19, 2016 VOLUME 23 NUMBER 47
Here’s a question we hear frequently: how long does a couple have to live together in order to be considered married? The answer in Arizona: until the wedding ceremony.

In other words, Arizona does not recognize “common-law” marriages. That strong, direct statement, however, masks a more complicated answer. Arizona, like every other state, will recognize a marriage that was validly established in another state — so if a couple living in, say, Oklahoma (which does recognize common-law marriages) meets that state’s requirement to be treated as validly married, and they then move to Arizona, they will be married under Arizona law, as well.

No state, however, has a concept of concept of common-law divorce. That is, a divorce must be granted by a court, and can not be established by the couple simply acting as if they were divorced. And no state recognizes bigamous marriages — so if a couple is already married (by common-law or by a formal state-recognized marriage), neither spouse can enter into another marriage, whether by common-law or regular ceremony.

Try telling all that to Rhonda Brown, an Oklahoma woman who seems to have a fairly fluid concept of marriage. She and Bobby Joe Brown were married in 1995, and they had three children together. After a few years of marriage, though, she told her husband that she could not continue to live with him if he did not stop sleeping with other women, and when he did not change, she moved out on her own.

Rhonda moved around Oklahoma and Kansas for several years. She had children by another man (they were removed from her care by the Kansas authorities). According to her testimony, she and Bobby Joe still saw one another occasionally.

At one point Rhonda even “married” another man — though she said she always thought of the second marriage as a “sham.” How did that happen? According to her, she and Jimmy had been long-time friends and had always agreed they would marry one another if it was necessary for one to help the other out. After Jimmy’s release from prison, his grandparents let him live with them and supported him, but told him he needed to get married. When Rhonda agreed to visit his grandparents and tell them that she and Jimmy were going to get married, his grandparents immediately called a minister and had the ceremony that same day. She never saw Jimmy again, she said.

Meanwhile, Bobby Joe had moved in with another woman, Ami. Although they never had a marriage ceremony, Ami said that they always acted as if they were married, and held themselves out as husband and wife. That’s the very definition of common-law marriage in most states where it is permitted — including Oklahoma. They even had two children together and, according to Ami, they were a married couple in almost every respect. One problem: Bobby Joe was still married to Rhonda.

Then, in 2013, Bobby Joe died in a motorcycle accident. Ami filed a petition with the local probate court, alleging that she was the surviving spouse and asking for appointment as personal representative of his estate. The probate judge approved her appointment as personal representative; Ami did not mention Rhonda or give her notice of the proceedings.

Rhonda ultimately learned about the probate of Bobby Joe’s estate, and sought to remove Ami as personal representative. She pointed out that she had priority for appointment as Bobby Joe’s legal spouse, and that she was one of the heirs of his estate. The probate court heard testimony about the complicated relationship — and then denied Rhonda’s claim to priority for appointment.

The Oklahoma Court of Appeals affirmed the probate court decision, and Rhonda asked the state Supreme Court to review the ruling. The Oklahoma Supreme Court also agreed that Rhonda should not be appointed to administer her husband’s estate.

It is important to note that the state courts did not find that Rhonda and Bobby Joe were divorced, or that Bobby Joe and Ami were validly married. The ruling was ultimately based on concepts of “estoppel” — Rhonda could not make the legal argument that she was married to Bobby Joe because she had participated in another marriage, even though she claimed that her second marriage was a sham. To be more precise, the ban against her asserting her status as surviving spouse might be said to be partly because she admitted to a sham marriage — the courts decided that she should not be permitted to argue two inconsistent things in two different state proceedings. Estate of Brown, November 1, 2016.

The decision in Bobby Joe’s probate appeal was not unanimous, by the way. Six of the nine Justices of the Oklahoma Supreme Court agreed that Rhonda should not be allowed to seek appointment as personal representative, while three argued that there had been no divorce and Rhonda was still entitled to handle Bobby Joe’s estate.

It is also worth noting that the Oklahoma courts did not decide that Rhonda was not Bobby Joe’s surviving spouse. Though she could not insist on her priority for appointment as personal representative, the state Supreme Court decision does not say that she is not entitled to a share of Bobby Joe’s estate. That argument might be made later, back in probate court. We’ll let you know if we hear about it.

Why do we care about common-law (and other fluid concepts of) marriage in Arizona, where only properly recorded marriages are valid? For two reasons: (1) people who move to Arizona from Oklahoma, Kansas, Montana — or one of the handful of other states which recognize common-law marriages — might bring their confused marital statuses with them, and (2) we are constantly both surprised and intrigued by the complicated ways people live their lives.

It has been more than a decade since we last reported on common-law marriages, incidentally. In our 2013 newsletter article on the subject, we reported that fifteen states then recognized some form of common-law marriage. Today that number is down to eleven, with some dispute as to the status in one or two of those.

Failure of the Imagination in Seven-Decade-Old Trust

SEPTEMBER 6, 2016 VOLUME 23 NUMBER 33
Why involve an attorney in your estate planning? Partly because they know the rules — and not just the rules about how to prepare a valid and comprehensive document, but also the rules about taxes, trust limitations, and all of the related concerns you might not focus on without professional assistance. But lawyers are also good at imagining unlikely scenarios, and covering all the possibilities.

At least they usually are. Sometimes even lawyers suffer failures of imagination. Our training and inclination leads us to consciously consider unlikely scenarios, but sometimes even lawyers get caught up in the language or the particular desires of the client. And sometimes it takes years — or even decades — to find the flaw in the language.

Consider Darthea Harrison’s trust, signed in March of 1947 in Kansas. For context: living trusts were quite rare before the middle of the twentieth century. Most lawyers of the day might only have prepared a handful, and few state laws dealt specifically with trust interpretation. By contrast, wills were commonplace, and benefited from centuries of developed law addressing questions of interpretation. That might be why Ms. Harrison’s lawyers made the mistake they did.

The trust Ms. Harrison signed provided that she would receive all the income from trust assets for the rest of her life. After her death, her son (and only child) William would be entitled to the income for the rest of his life. After that, the trust principal was to be distributed to Ms. Harrison’s two brothers or, if they were no longer living, to their children.

That seems straightforward enough, but the failure was one of imagination. What actually happened: Ms. Harrison died in 1962 and her son William died in 2013 (without ever having had children). When William died, both of Ms. Harrison’s brothers had already died — and so had all of their children (they would have been Ms. Harrison’s nieces and nephews). But the nieces and nephews did leave a total of eight children of their own.

What should happen to the remaining trust principal? Should it be given to the grandchildren of Ms. Harrison’s two brothers? Should it go to Ms. Harrison’s estate (which was probated in 1964, and would have to be reopened to determine who would receive her “new” estate)? Should it “escheat” to the State of Kansas (where Ms. Harrison died) or to the State of Missouri (where the trust was administered)? What about the fact that Ms. Harrison’s husband — who survived her — was not the father of her son, and in fact married her after the trust was executed?

This uncertainty could easily have been resolved if, back in 1947, the attorneys drafting Ms. Harrison’s trust had simply provided that upon the death of her brothers their share of her trust would devolve not to their children, but to their descendants. Alternatively, she could have considered the possibility and decided that she would then want to benefit a charity, or more distant relatives, or someone else close to her.

If Ms. Harrison had signed a will with the same language as used in her trust, both Kansas and Missouri law would have filled in the blanks for her. Arizona law, incidentally, would have handled it the same way. In that case, five centuries of will interpretations have determined that leaving something to your relatives presumably includes their descendants if the relative dies before you — or before the future date when distribution is determined.

The Missouri probate court decided that the trust had failed, and that its remaining assets should be distributed to Ms. Harrison’s estate, which would thus need to be reopened. The Missouri Court of Appeals disagreed, and reversed the probate court holding. Instead, according to the appellate court, the interests of Ms. Harrison’s brother’s children had “vested” before they died — and the probate court should have determined where each of those beneficiaries’ shares should go now.

In some cases, that should mean that the nieces’ and nephews’ children should receive their shares. In others, it might mean that a will, or a surviving spouse, might change the outcome. In any case, the Missouri probate judge will need to conduct hearings to determine the final recipients of Ms. Harrison’s trust. Alexander v. UMB Bank, August 23, 2016.

Today, more careful drafting is commonplace. When your lawyer insists that you consider the possibility that your beneficiaries die in unlikely sequences, or that unanticipated children come into a family (by birth or adoption), or that odd combinations of simultaneous deaths occur, she is thinking about Ms. Harrison — even if she has never heard the story.

Court Invalidates Will and Trust Naming Lawyer as Beneficiary

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

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

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

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

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

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

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

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

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

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

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

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

Murder-Suicide Case Leads to Complex Probate Claim Analysis

APRIL 25, 2016 VOLUME 23 NUMBER 16

It was a horrible, tragic story. In June, 2012, Phoenix resident James Butwin killed his wife and three children, drove the family car to a remote area in the desert, set the car on fire and killed himself. News stories soon revealed that the couple were enmeshed in a divorce, that there was a dispute about whether a prenuptial agreement was valid, and that Mr. Butwin was undergoing treatment for a brain tumor.

Mr. Butwin had an estate, but no surviving family. His mother-in-law filed a probate proceeding for Mrs. Butwin, and that estate sued Mr. Butwin’s estate for “wrongful death” — for the murder of his wife. After a trial, she won an award of over $1 million against Mr. Butwin’s estate. Then she sought to impose a “constructive trust” against his estate’s assets to satisfy that judgment.

Meanwhile, Mr. Butwin’s business associates were studying his books. They discovered that, as manager of several properties they owned, Mr. Butwin had embezzled almost $1 million. They filed a claim against his estate, seeking repayment of $965,000.

Mr. Butwin’s estate was insufficient to satisfy the two million-dollar claims. Who should be paid first? Or should the claimants have their claims reduced proportionally?

An Arizona statute (the so-called “Slayer Statute” at A.R.S. sec. 14-2803) says that a person who “feloniously and intentionally” kills another person automatically forfeits any claim they might have against the victim’s estate. Clearly, Mr. Butwin could not inherit any share of his wife’s estate. But that doesn’t change the fact that some — perhaps most — of their assets were his before the killing. In one subsection, the statute goes further: it allows imposition of a “constructive trust” on the killer’s assets:

K. The decedent’s estate may petition the court to establish a constructive trust on the property or the estate of the killer, effective from the time of the killer’s act that caused the death, in order to secure the payment of all damages and judgments from conduct that, pursuant to subsection F of this section, resulted in criminal conviction of either spouse in which the other spouse or a child was the victim.

But what is a “constructive trust”? It is a legal device employed by the courts to sequester assets that should not have belonged to the record owner in the first place. It is often used, for instance, to seize property purchased with ill-gotten proceeds — even though the property might itself not be available to satisfy debts. If, for instance, a public official were to take bribes, and use the bribe money to purchase a farm, the court might impose a “constructive trust” on the farm to allow the government, as the injured party, to seize the property to recover the bribe money. That’s not an imaginary story — that’s precisely the story behind a leading British case allowing use of a constructive trust.

Arizona’s statute on collecting wrongful death proceeds from a killer in circumstances like Mr. Butwin’s would seem to speak precisely to the claim of his wife’s estate. But there was one problem: Mr. Butwin didn’t live long enough to face criminal prosecution, much less conviction.

That was the basis on which the probate court denied the request for a constructive trust by Mrs. Butwin’s estate (and her mother). Before the Court of Appeals, Mrs. Butwin’s estate argued that requiring a criminal conviction was absurd, since the statute would only apply when the killer himself had died. Besides, the wrongful death action can be maintained even when there is no criminal conviction, since the standard of proof for civil actions is different (and easier to meet).

The Arizona Court of Appeals upheld the probate court decision. It is not absurd, ruled the appellate judges, to apply the statute only where the killer has survived long enough to be convicted and then dies. While that may not be a common circumstance, it certainly could happen — and if the legislature wanted to apply the constructive trust statute to murder-suicide cases like the Butwins’, they could certainly have written the statute in that fashion. Estate of Butwin v. Estate of Butwin, April 19, 2016.

The Court of Appeals decision doesn’t actually resolve the sequence of payments from James Butwin’s estate. It might be possible, for instance, for his business associates to argue that all — or substantially all — of his assets are traceable to the embezzled funds. If that argument is not made, or is not successful, the statutes spell out a sequence of payments to be made when an estate is insufficient. Arizona Revised Statutes section 14-3805 spells out that sequence, which starts with administrative costs (filing fees, lawyer’s fees and the like), then moves on to funeral expenses, federal tax claims, expenses of the decedent’s final illness, state taxes, and then “all other claims.”

The statute explicitly rejects payment of any creditor in a given class ahead of other creditors of that class. Since neither the embezzlement claims nor the wrongful death judgment fit into any of the other categories, they will probably both be characterized as “other claims.” That will likely mean that each will receive approximately equal shares of Mr. Butwin’s estate — and that any other claimants will also have their claims reduced to about half of the amount due.

Given the size of the estate, the size and nature of the claims, and the emotional impact of the case, it seems likely that there will be further litigation to resolve the competing claims. We’ll let you know if there is another legal footnote to this tragic, horrible story.

Exploitation of a Vulnerable Adult, or Not? You Judge

NOVEMBER 16, 2015 VOLUME 22 NUMBER 42

This week we’re going to ask you to be the judge. We’re going to tell you a story, then give you a moment to decide what you think should be the outcome of a lawsuit. Once you’ve decided, we’ll tell you what actually happened in the courts. Ready?

Diego Ramirez (not his real name) was 80 years old when his wife died. Shortly thereafter he moved in with his daughter and son-in-law.

Diego was a Spanish immigrant, and spoke no English. He was having trouble handling his finances, and his daughter and son-in-law helped him. They also provided care for him — first in their home, and later in the nursing home where he moved when he was unable to stay at home any longer.

The care they provided for Diego was complete — they made doctor’s appointments (Diego had a heart condition as well as his increasing confusion), transported him to medical appointments, administered his medications, took him on social and recreational outings, and even took care of his dog. Diego’s daughter actually quit her job to take care of her father (though she was able to return to work part-time and, eventually, full-time).

Shortly after Diego arrived in their home, his daughter and son-in-law arranged to sell his house. His daughter located an attorney, made an appointment and took Diego to visit the attorney. The attorney helped complete the sale of the home, and prepared a power of attorney document for Diego to sign. The power of attorney gave his daughter and son-in-law authority to manage his finances, and to conclude the sale of his home.

The daughter and son-in-law used some of the proceeds from that sale to improve their own home, adding rooms for Diego and doing some other work that needed to be done. They did not add Diego to the title on their home; when they later sold the home, the took the proceeds and bought a new home in their own names.

Diego had a private pension and Social Security. His daughter and son-in-law deposited the monthly checks in their own account and used the proceeds — along with their own income and savings — to take care of the entire household, including themselves and Diego. In other words, they did not keep separate accounts for Diego, and could not show exactly how his income had been spent after the fact. They handled Diego’s savings in the same way, using his funds to keep the entire household operating.

According to the daughter and son-in-law, Diego knew how his funds were being used. They said that he had agreed with them that they could use his funds so long as he lived with them and they were providing the care he needed.

After this relationship continued for ten years, Diego died. One of his sons successfully sought appointment as personal representative of his estate, and sued the daughter and son-in-law for return of the funds they had allegedly exploited from Diego while he was a vulnerable adult. The daughter and son-in-law responded that the reasonable value of their services on his behalf exceeded what they had received, and that if anything his estate owed them money.

The probate court held a one-day hearing on the allegations of exploitation of a vulnerable adult. From the recitation of facts we’ve provided (taken from the later Court of Appeals decision, by the way), can you tell how the court ruled? Did Diego’s daughter and son-in-law take funds from him improperly? Were they entitled to additional fees for the ten years of care they provided?

Think about it a minute before you move on. What would you decide?

The probate judge decided that Diego was a vulnerable adult, that his daughter and son-in-law acted as if they had been his conservator (though they were never appointed by any court), and that they had commingled his assets and income with their own. They enriched themselves with his assets, and they were unable to provide any meaningful accounting of the funds they had used. They were found liable for a breach of their fiduciary duty and a violation of the Arizona statutes on exploitation of a vulnerable adult, and they were ordered to repay his estate $15,527.26 — plus an additional $35,000 in attorney’s fees incurred by the estate.

The Arizona Court of Appeals upheld that ruling, agreeing with the probate judge that Diego was a vulnerable adult, that the daughter and son-in-law improperly commingled assets, and that they had violated the exploitation statutes. Of some interest to the appellate court was the provision of the Arizona law that anyone in the daughter and son-in-law’s position must use the vulnerable adult’s assets solely for the benefit of the vulnerable adult.

The existence of the power of attorney did not improve the daughter and son-in-law’s position. Nor did the agreement that Diego could live with them and that they would provide care. Neither of those authorized the daughter and son-in-law to commingle assets or take Diego’s funds for their own benefit. Rodriguez v. Graca, November 3, 2015.

Let us assume for a moment that Diego in fact wanted to turn over most of his assets and income in return for a home and the care required to allow him to live there as long as possible. What could he (or his daughter and son-in-law) have done in order to make that arrangement possible?

First, a clear (and, preferably, written) understanding should have been reached. It probably would have been helpful to discuss that arrangement with Diego’s other children, so they could talk with Diego about it at the time. It also would have been important for the daughter and son-in-law to maintain clear records, showing how much of Diego’s money was needed to care for him, and how they spent the funds. That could have included time records as well as financial details.

A final word of advice: do not enter into these kinds of arrangements lightly. It is very difficult to establish the reasonableness of the agreement years later, with the vulnerable adult no longer available to explain what they had in mind at the time. Recognize that the senior’s needs — and ability to supervise or negotiate — will probably change over time, and perhaps over a short period of time.

Oh, and how did you do as the judge?

What Survivor Must Do When Trust Mandates Split on First Death

SEPTEMBER 14, 2015 VOLUME 22 NUMBER 33

Once in a while we read an appellate court decision that nicely addresses a subject which isn’t the issue before the court. A recent Arizona Court of Appeals case illustrates this phenomenon nicely.

The legal issue was technical and would appeal only to lawyers — and probably only to appellate lawyers, at that. After the probate court ruled against them, some of the beneficiaries to a trust filed a motion to have the court reconsider its decision. When that also failed they appealed, but alleged that the probate court should have considered an argument similar to but different from the one they actually made. That approach was, unsurprisingly, unsuccessful.

What’s more interesting about the decision, though, is the background of the dispute. It involved a joint revocable trust that mandated division of a married couple’s assets into two equal shares on the death of the first spouse.

A little background might be appropriate here. Joint revocable trusts are fairly common in Arizona, and provisions like those involved in this case are far from unusual. Until recent years, the mandatory division was often a tax-driven decision, in order to minimize estate taxes on a married couple’s assets. Today that is less likely to be the reason for a mandatory trust split, since only very large estates face any tax liability at all and surviving spouses inherit their deceased spouse’s estate tax exemption amount, to the extent that it is unused.

The combined estate in the recent appellate case was apparently modest, and so estate taxes seem unlikely to have been the reason for the mandatory split. What other reason, then, might a married couple have for ordering a split of assets on the first death? Second marriages.

Dale and Mary were married for some years. They each had children from a prior marriage, and they owned their home in Green Valley, Arizona. In order to make sure that their home’s value was split equally between the two families, they created a trust to hold just their residence. That trust included a mandatory split into two shares on the first death, and directed that each half-interest in the trust would pass to one spouse’s children. That way they could assure the division even if the survivor lived for years after the death of the first spouse.

As it happens, Dale died first — in 2005. Mary died four years later. Though she was trustee of the trust holding the residence, she never actually divided the trust in half. She did, however, use the home as security for a loan she took out after her husband’s death.

Four years after Mary died, one of Dale’s children filed an action to compel Mary’s children to account for the administration of the trust, and to perfect the claim to half the house. The probate judge hearing the matter did not order an accounting, but did order half of the home’s value to be distributed to Dale’s children — along with $33,429.33 from Mary’s half, to make up for the fact that her children had used the residence after Mary died. The judge also ordered an offset for the loan Mary took out against the house after Dale’s death.

Mary’s children asked the probate judge to reconsider his decision, which he declined. That set up the actual legal argument in the appellate case, which (as we’ve already noted) as actually less interesting than the mandatory trust split issue. Suffice it to say that the Court of Appeals chose not to upset the probate court’s judgment directing distribution of the trust according to its terms, plus damages for Mary’s (and her children’s) misuse of the trust’s sole asset. In Re Newman-Pauley Residential Trust, August 31, 2015 (an unpublished decision).

Why is the uncompleted split so much more interesting than the actual legal issue in Dale and Mary’s trust case? Precisely because it is so commonplace.

We regularly meet with surviving spouses who have not gotten around to the division of assets mandated by a joint trust document. Sometimes the trust might include provisions that allow the surviving spouse to skip the requirement, or to undo it. But if the trust unequivocally directs such a division and the surviving spouse does not follow that direction, the courts will ultimately order a split to reconstruct what should have happened months, years or sometimes decades before.

Of course these disputes are most common in second-marriage situations, where each spouse has children — often children who were grown when the marriage took place. They also occur in family situations where each spouse is closer to one child or one group of children. Sometimes we see them when the couple operated a family business, and less than all of the children are involved in managing the business after one spouse’s death.

What is the lesson to be taken away from the dispute between Mary’s and Dale’s children? Get legal advice early, and follow it. If Mary had talked with her lawyer shortly after Dale’s death, she might have gotten direction about how to actually make the trust split. Her expectations — and those of her children — might have been set more reasonably, too. That might have saved the later dispute and attendant legal expenses.

Attorney’s Fees in Probate Proceeding Challenged, Approved

SEPTEMBER 7, 2015 VOLUME 22 NUMBER 32

How much can an attorney charge in a probate proceeding? In Arizona, at least, the principal rule is one that is difficult to determine: attorney’s fees must be “reasonable”. But what does that actually mean?

A recent Arizona Court of Appeals decision approving the fees charged by the attorney for an estate’s personal representative may give the answer for that case, but may leave lawyers (and heirs) scratching their heads. It involved a relatively small estate, and what looks at first glance like an unremarkable set of legal issues.

Angela Teran (not her real name) died in 2010. Her will was easily admitted to the probate process in Maricopa County (Phoenix) courts. A personal representative was appointed, and she hired Phoenix-area attorney Robert Kelly Gorman to represent her.

Angela’s will directed that $2,000 should be given to her church, and the rest of her estate divided among four named individuals. It was not clear from the will whether the division of the remainder should be in equal shares or by some other arrangement. Her estate consisted of a single $35,000 bank account and another $3,000 in trust.

Once the probate was filed, the attorney began communicating with the four beneficiaries to figure out how to make the distribution. He proposed that the remaining estate balance should be divided equally, and he prepared an agreement to that effect for all the beneficiaries to sign.

Two beneficiaries quickly signed, but the other two did not. For two years nothing developed, though there were apparently numerous contacts among the attorney, the personal representative and one of the beneficiaries about how to treat all four beneficiaries fairly. Finally, the beneficiary who disagreed with the proposed distribution filed a request with the court to remove the personal representative.

At a hearing in 2012, the court directed attorney Gorman to prepare a proposed plan for distribution of the estate and a petition for approval of his fees incurred in representing the personal representative. He did just that, proposing to give the church its $2,000 and just $1,000 to each of the four other beneficiaries. He claimed fees and costs totaling $33,620.90, of which $22,650 had already been paid.

At about this time, the personal representative herself died, and the contesting beneficiary was next in line to administer the estate. Upon her appointment she objected to the proposed (and already collected) attorney’s fees, alleging that they were unreasonable. After a hearing, the probate court denied approval for Gorman to collect any additional fees, but did not order him to return any of the $22,650 he had already received. The new personal representative appealed, urging the court to order him to return some or all of his fees.

The Court of Appeals, in a split opinion, approved the probate court’s determination on the reasonableness of Gorman’s fees. While the two judges voting to uphold the fee award found it “concerning that the amount of fees awarded is very large given the size of the Estate,” they did not find any basis on which to reverse the probate judge’s determination. Of particular note to the majority judges was the fact that the contesting heir did not point to particular items on Gorman’s bills that should be disallowed, but instead relied on her assertions that he treated her unfairly and that his fees deprived the beneficiaries of their inheritances. That, said the judges, was not enough of a challenge to force reduction of his fees. Kurowski v. Gorman, August 25, 2015.

The one dissenting judge wrote a strongly-worded opinion. He noted that the approved fees ended up being 59% of the entire estate — an amount he called “strikingly unreasonable.” While the lawyer’s early actions were unobjectionable, wrote the dissenting judge, he should have moved the dispute to the court for resolution much more quickly; had he done so, far less time (and money) would have been spent to “field communications that were completely unproductive.”

Under earlier Arizona appellate decisions, lawyers involved in probate, guardianship, conservatorship and trust disputes are required to make an analysis of the cost and benefit of legal actions, and to balance those considerations when determining fees. The probate court, argued the dissenting judge, should have undertaken that same analysis when reviewing the fees — including those already collected.

What does the Kurowski opinion mean for attorney’s fees in other cases? Not much, actually. The opinion is a “memorandum” decision, which means it is not supposed to be used as precedent in other cases. The fact that it is a divided decision also calls into question its value for other cases. But it does demonstrate that one probate judge, and two appellate judges, were persuaded that, at least in a single case with difficult beneficiaries and its own peculiar facts, a fee of almost two-thirds of the estate could be justified.

Trust-Owned Property Is Not Proper Subject of Arizona Beneficiary Deed

JUNE 1, 2015 VOLUME 22 NUMBER 20

Arizona is one of about a dozen states permitting “beneficiary” deeds. Some states have the same concept but use a different term, like the inelegant “revocable transfer on death” deeds. The basic idea: you can sign a deed to your real property which acts like a beneficiary designation — just like your insurance policy, your bank or brokerage account, or other assets that can be held in such a fashion (including, in Arizona at least, your vehicles). If you want to, you can change the beneficiary (or simply delete any beneficiary) later, by signing a new beneficiary deed.

While they are often not a good substitute for more thoughtful estate planning, Arizona beneficiary deeds can help people avoid the expense and delay that the probate process might engender. They can act as a simple planning device for people who do not want, or do not need, to incur the cost of creating a living trust and transferring assets into the trust’s name.

Here’s one way we often use beneficiary deeds: sometimes a client creates a revocable living trust but does not want to transfer real estate into the trust’s name immediately. They can sign a beneficiary deed naming the trust as ultimate recipient of the property, avoid the probate process and gain the other benefits of trust planning (like the easy ability to impose limits on the future use or transfer of the trust’s property). Of course, after a client has gone to the trouble and expense of establishing a living trust, it usually makes sense to just transfer real estate into the trust’s name — but sometimes the beneficiary deed can work as part of the plan.

A recent Arizona Court of Appeals case described how not to use beneficiary deeds in connection with trusts. The background: Alexandra Granger (not her real name) was in her late 70s when she completely rewrote her revocable living trust, naming her attorney Whitney L. Sorrell as successor trustee. Her Scottsdale-area home had already been transferred into the trust’s name.

Three years later Alexandra signed a beneficiary deed, as trustee. The deed purported to leave her home to her attorney upon her death, though it would otherwise have passed according to the trust’s terms without the necessity of probate. It is unclear why Alexandra would have wanted to sign the beneficiary deed.

A few years later, when Alexandra was 89, she resigned as trustee of her own trust and turned over finances to attorney Sorrell. Although the court decision does not explain why, just one year later she revised her trust again — naming a new trustee and removing Sorrell. No change was made to the beneficiary deed. Alexandra died a few weeks later.

The attorney filed Alexandra’s earlier documents with the probate court, and asked for appointment as her personal representative. The person named in the last amendments objected, and sought probate court approval of those new documents. Mr. Sorrell then asked the probate judge for a ruling that he was entitled to Alexandra’s home by virtue of the beneficiary deed she had signed as trustee.

The probate judge denied the request, and the Arizona Court of Appeals last week ruled that he was right. A beneficiary deed must follow the language of the statute, ruled the appellate court, and that requires that it be signed by an individual owner, not a trustee. Besides, as the appellate judges noted, a beneficiary deed only takes effect when the property owner dies, and a trust does not “die” with its settlor — so a beneficiary deed for a trust-owned property is a meaningless document. In Re Ganoni, May 28, 2015.

Buried in the facts of Alexandra’s case is an unanswered question: is it permissible for a lawyer to receive any inheritance from a client? Generally speaking, it is not — but that question is actually not addressed (and certainly not answered) in last week’s reported case. Still, it is worth noting that there are rules about attorneys inheriting from clients.

Generally speaking, an Arizona attorney is not permitted to prepare estate planning documents which leave any “substantial” gift to the lawyer — even if the client is competent and fully apprised about the possibility of conflict. Almost all of the American states have adopted versions of the American Bar Association’s “Model Rules of Professional Conduct,” and Ethical Rule 1.8(c) (as adopted in Arizona) makes the prohibition clear: “A lawyer shall not solicit any substantial gift from a client, including a testamentary gift, or prepare on behalf of a client an instrument giving the lawyer or a person related to the lawyer any substantial gift unless the lawyer or other recipient of the gift is related to the client.” In other words, even if a client knows the rule, and insists that the lawyer write herself into a will, the lawyer is required to refuse.

Does that mean that Alexandra’s attorney violated ethical rules? It is not clear from the reported decision — the key missing piece of information being whether he prepared the beneficiary deed in question. There is not a similar prohibition in Arizona against a lawyer naming himself or herself as successor trustee, but the intertwined relationship the Court of Appeals describes certainly raises questions about the arrangement.

Is Dispute Inevitable When Two Children are Named as Co-Trustees?

MAY 18, 2015 VOLUME 22 NUMBER 19

So often our clients assure us that their children are different from other children. Our clients know that their children will fundamentally get along. They are sure that there will be no big problems when they die, and that the children will communicate and cooperate. Fortunately, that turns out to be the case for our clients. But other lawyers’ clients seem to be very different.

Betty Lundquist (not her real name) must have thought her two daughters could work well together, because she named them as successor co-trustees of the revocable living trust she set up. She directed that the daughters (Peggy and Lisa) were to split her estate equally. She also signed a “pour-over” will, directing transfer to her trust of any assets not already properly titled at her death. For whatever reason, she named Lisa as the sole personal representative of her probate estate.

Betty had actually transferred pretty much everything to her trust, and so probably envisioned that there wouldn’t be much need for a probate at all. As she approached death, however, things were already getting tense between Peggy and Lisa. The day before Betty’s death, Peggy and her husband tried to transfer some of her trust accounts into their own name. They got the original will and trust documents from Betty’s accountant, and declined to share them with Lisa. Peggy was living in Betty’s home, and wouldn’t let Lisa even into the home to look at — and inventory — their mother’s belongings.

When Betty died in 2011, Lisa filed an emergency petition with the probate court seeking release of the original will and other documentation. She ultimately was appointed personal representative, and Betty’s will was admitted to probate. Peggy thereafter refused to co-sign trust checks to pay Betty’s bills, or motor vehicle affidavits to transfer car titles.

Eventually the probate proceedings were wrapped up, though the sisters were still not getting along. Finally, Lisa filed a request for payment of her mother’s estate’s expenses — including her attorneys fees for the probate proceedings themselves. Peggy responded by arguing that Lisa should have been disinherited because she filed the probate proceedings at all. Her logic: Betty’s will and trust provided for automatic disinheritance for anyone challenging her estate plan, and Lisa’s filing of a probate proceeding amounted to a challenge of their mother’s plan to avoid probate altogether.

The probate court approved payment of attorneys fees of $8,081.20, and a little more than $7,000 of other costs incurred in administration of the estate. Since the bulk of Betty’s estate was actually in her trust, the probate judge also ordered that the payments would come from the trust to the extent necessary. Peggy appealed both the approval of attorneys fees and the order that the trust should pay the fees.

The Arizona Court of Appeals ruled that the attorneys fees were appropriate and reasonable, and upheld the order. Furthermore, it agreed that the probate court had the authority to order payment from the trust — even though the trust had not been submitted to the court for oversight. According to the appellate court, both the trust’s language and Arizona law provide for payment of the decedent’s expenses — including probate and administrative expenses — from trust assets. Johnson v. Walton, May 14, 2015.

Peggy’s argument (that no probate proceedings were even needed) might have carried more weight if the Court had not been convinced that she actively interfered with the orderly administration of her mother’s estate. In fact, with even a modicum of cooperation Betty’s daughters might well have had a smooth, easy and inexpensive trust administration, and no need for any probate proceedings. That is a common result in similar circumstances — especially when one of the children is put in charge and they behave responsibly and honestly. (Of course, the person in charge need not be one of the children — but that is the choice we see most often.)

Was Betty’s mistake putting her two daughters in joint charge, and assuming they would work together? It’s always hard to figure out exactly what else might be going on when reading a Court of Appeals opinion, but if the joint authority didn’t cause the problem, it certainly did not help prevent the later dispute.

Our usual advice: rather than appointing two (or more) children with equal authority, we suggest you default to a choice of the one person who is most responsible, most widely respected among your beneficiaries, most available and most trustworthy. For clients who tell us that each of those terms applies best to a different child, we suggest that they use some method to make a single selection (coin flips work in extreme cases). Fortunately, though, our clients’ children all get along, all work beautifully together and never have disputes. Just like our own children.

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