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Settlement Agreement Unenforceable if Not Signed by All Beneficiaries

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Estate Litigation Attorney | Scottsdale, AZSettlement agreements are an often used alternative to lengthy, expensive probate, trust and estate litigation and trial in Arizona. A settlement agreement is typically a binding agreement that usually disposes of the case without further litigation.

Under most circumstances, only parties to the agreement will be bound by the terms of a settlement agreement. This method of resolution may get sticky when the litigation involves the trustee or trustees of a trust and some of the trust beneficiaries, but not all of them. Further issues may arise if the trustees agree to resign and be replaced by a successor trustee and the successor trustee is purportedly bound by the agreement. In those situations, further disputes and further litigation may arise over the enforceability and scope of the settlement agreement under Arizona law.

These issues were address in Matter of Book, a recent Arizona Court of Appeals decision.  There, a settlement agreement that released the original co-trustees individually, personally, and in their fiduciary capacities was held to be unenforceable against the new trustees because the terms of the agreement were deemed antagonistic towards the interests of the contingent beneficiaries of the trust who were not parties to the settlement agreement.

The person who established the trust (called the trustor) designated $2.1 million to be paid to four specific beneficiaries (the “primary beneficiaries”) in specific cash gifts within thirty days after the trustor’s death. The remaining assets of the trust were to be distributed to two universities (the “contingent beneficiaries”) in designated percentages.

After the trustor’s death, two trustees assumed control of the administration of the trust. They failed to distribute the four specific gifts to the primary beneficiaries within the thirty-day deadline and allegedly engaged in other wrongdoing. Two of the four primary beneficiaries filed a complaint against the co-trustees for breach of fiduciary duty, seeking removal of the co-trustees and an award of damages. A third primary beneficiary intervened during the litigation. While the fourth did not participate, he signed the settlement agreement once it had been reduced to writing. However, the contingent beneficiaries did not participate in the litigation or sign the settlement agreement, although they appeared through counsel during negotiations.

The terms of the settlement agreement provided that mutual releases were given by the beneficiaries of the trust, that claims against the original co-trustees were released in their individual, personal, and fiduciary capacities, and that the agreement settled “all claims known an unknown, liquidated and unliquidated, foreseen and unforeseen that would in any way arise out of the claims and disputes that have been asserted in [the litigation].” Further, the co-trustees agreed to resign and be replaced by successor trustees. Effectively, the settlement agreement purported to release the original trustees from any liability in any of their capacities and precluded claims against them by the successor trustees under the prior litigation or that could be brought in the future pertaining to the co-trustees’ breach of fiduciary duties.

The Court found that, while the settlement agreement acknowledged that the contingent beneficiaries were not parties to the agreement and were not bound by it, the agreement itself was antagonistic towards the interests of the contingent beneficiaries because the agreement purported to release and discharge all claims against the original trustees. The contingent beneficiaries maintained an interest in the trust property as they still had a remainder interest after the four specific cash gifts were distributed. Since the contingent beneficiaries were not parties to the settlement agreement, they did not release the original co-trustees from liability for the purported breach of fiduciary duties. As such, the Court found that the settlement agreement could not preclude the new trustees, on behalf of the contingent beneficiaries, from bringing a new action against the original co-trustees for breach of their duties.

In doing so, the Court rejected the original trustees’ argument that they could insulate themselves from liability by entering into the settlement agreement on behalf of the contingent beneficiaries under A.R.S. § 14-1406. Basically, that statute permits a trustee to represent and bind the beneficiaries of a trust, but only “to the extent there is no material conflict of interest between the representative and the person represented or among those being represented with respect to a particular question or dispute.” (Emphasis added.) The Court found that the attempt to release and cancel any claims that could be brought by or on behalf of the contingent beneficiaries was against public policy and, therefore, unenforceable and void.

Pursuant to Arizona’s trust law, trustees have various duties. For example, under A.R.S. § 14-10802(A), a trustee is required to “administer the trust solely in the interests of the beneficiaries.” Pursuant to A.R.S. § 14-108011, the trustee must “take reasonable steps to enforce claims of the trust.” The new trustees were required to fulfill those trustee duties like any other trustee in Arizona. The Court reasoned that, since the original trustees breached their duties, resigned, and were replaced by the successor trustees, the successor trustees could not be foreclosed by the settlement agreement from bringing claims on the contingent beneficiaries’ behalf. Such a foreclosure would be a violation of legislation and public policy.

Thus, the Court held that the settlement agreement could not be applied to prevent the successor trustees from bringing new litigation against the original trustees on behalf of the contingent beneficiaries. Because the settlement agreement at issue did not include a severability provision (a provision that the remainder of the agreement would be enforceable even if part was not), the entire agreement was unenforceable. So, the Court “unwound” the entire settlement.

If you have a question regarding settlement agreements in a probate matter or this recent Court of Appeals decision, or need help administering an estate or trust, please contact us.

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Interest or No Interest – Interesting Issue in Arizona Probate Claims

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Settlement of claims of minor | Scottsdale, AZ Personal Injury Attorney | Berk Law Group, PCUnder Arizona law, at the time of appointment, the personal representative of an estate must provide notice to creditors, known and unknown. For unknown creditors, the personal representative must publish a notice to creditors in a newspaper of general circulation in the county where the decedent lived. For known creditors, the personal representative must give notice by mail or other delivery.

Creditors of the estate then have four months after publication or sixty days after the mailing or other delivery of the notice, whichever is later, to present their claims. A.R.S. § 14-3801. Claims may then be allowed or disallowed by the estate.  If disallowed, the creditor can then file a lawsuit to have the Court determine the validity of the claim.

Absent a judgment in another court providing otherwise, “allowed claims bear interest at the legal rate for the period commencing sixty days after the time for original presentation of the claim has expired…” A.R.S. § 14-3806(E).  That provision does not differentiate between claims for definite and indefinite amounts.   Thus, the probate code is inconsistent with Arizona’s general rule that “prejudgment interest is generally not awardable on unliquidated claims.” Metzler v. BCI Coca-Cola Bottling Co. The Arizona Court of Appeals has now tackled this inconsistency and held that all allowed claims against an estate bear interest.

A liquidated claim is a claim for a sum certain, like the balance due on a promissory note.  On the other hand, an unliquidated claim is one that is not for a sum certain, like a claim for emotional distress or pain and suffering.

In its recent decision in Estate of Chalker, the Arizona Court of Appeals held that the Arizona probate code mandates interest on all allowed creditor claims, even if for an unliquidated sum. In this case, the Petitioners were attorneys who represented the decedent in a divorce action in 1994. The decedent owed Petitioners approximately $273,000 in fees and costs.  In 1999, Petitioners and decedent entered into a new fee agreement that entitled Petitioners to be paid 50 percent of the decedent’s Fidelity Investment accounts once the accounts were recovered by the estate.

Upon decedent’s passing and the personal representative providing notice, Petitioners filed a timely claim against the Estate. Ultimately, the superior court decided that the 1999 fee agreement did not entitle Petitioners to 50 percent of the Fidelity Investment accounts that were recovered. The superior court held that Petitioners were only entitled to an award in quantum meruit for the fair value of services rendered, but that no interest was to be paid on those awards.  Thus, the Court allowed the claim, but refused to add interest on the amount due. Petitioners appealed the ruling.

In reversing the superior court’s decision to deny interest on the amount due, the Court of Appeals, citing A.R.S. § 14-3806(E), reasoned that the plain language of the statute required that allowed claims bear interest. The Court agreed with the Petitioner’s argument that, because the superior court ultimately awarded Petitioner’s fees in quantum meruit (the claim was allowed), the claim must be “paid in the same manner as presently due and absolute claims of the same class” by “bear[ing] interest at the legal rate.”

The Court further reasoned that the statute does not differentiate between liquidated or unliquidated claims. Thus, while the Court acknowledged Arizona’s general rule that is inconsistent with awarding prejudgment interest on unliquidated claims, the Court held that it must apply the given statutory language in the Arizona probate code.  As a result of this decision, all allowed creditor claims, whether liquidated or unliquidated, bear interest.

If you have a question about creditors claims in an Arizona probate matter or this recent Court of Appeals decision, or need help administering an estate, please contact us.

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When Helping Yourself Doesn’t Help

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Will and estate planning - Berk Law Group, P.C.The Arizona probate process is strictly governed by laws enacted by the legislature and by rules adopted by the Arizona Supreme Court. Individuals are not prohibited from entering into this technical area, but there are many pitfalls out there.

The Arizona Court of Appeals recently decided a case that illuminates the perils of self-help. In the Matter of the Estate of Norma Jean McConnell, her son filed several documents with the court that he had created himself, demanding to be appointed as the personal representative to administer her estate under her last will and testament.

The Judge could have dismissed the proceeding because the son had not filed the will with the Court as required, had not been appointed as personal representative and he was incarcerated, so it was unlikely that he could fulfill the duties of personal representative. However, the Judge, in an attempt to be helpful, appointed the Maricopa County Public Fiduciary’s office to investigate and file a report.

Maricopa County maintains an office, the public fiduciary, whose job it is to look after the neediest of the population who have no one else to turn to. Where appropriate, the Court may appoint the public fiduciary to serve.

In the McConnell case, the public fiduciary’s investigation found that Norma owned no real estate in the County; her abandoned assets had been turned over to the Arizona Department of Revenue (unclaimed property), but it was valued less than $75,000; no other assets were located; and, the assets that were found could be claimed by a Small Estate Affidavit of Collection, without the need for a probate.  The court then denied son’s demand that he be appointed as Personal Representative.

He appealed the case.  The decision there upheld the lower court rulings. Without the will being filed, the son could not be appointed to administer the will. Further, his incarceration prevented him from performing the duties required by statute.

Although everyone has access to court-approved forms and instructions for filing a probate case by stopping by the closest court facility or going online for self-help forms, sometimes it is best to consult an experienced Arizona probate lawyer. Each document has certain statutory requirements. Various deadlines apply. Not every estate is subject to a probate proceeding. As in this case, in Arizona, where non-real estate assets total less than $75,000, and other requirements are satisfied, there is a quick and easy way, a small estate affidavit, to transfer the assets to the beneficiaries without the need to open probate or to have a personal representative appointed.

Estate administration and litigation is what we do at Berk Law Group. Sometimes the best help is not your “self” but someone who knows what to do. If you have any questions or need any assistance in a small or large estate, please don’t hesitate to contact us.

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2018 Probate and Trust Legislation Update

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The process of transferring property from a deceased person to his or her beneficiaries is governed by Arizona statutes.  Although the general procedures in Arizona are similar to those in most other states because of the adoption of the Uniform Probate Code and the Uniform Trust Code, most states make their own tweaks and changes.

Senate Bill 1204 was introduced to the 2018 Arizona 53rd Legislature, 2nd Regular Session, to address several issues affecting probate and trust administration and to make some changes to Arizona’s version of the uniform laws.  The Bill was passed by both houses of the legislature and signed by the Governor, meaning the changes will become law effective August 3, 2018.  Here are some of the key revisions affecting the Arizona Probate and Trust Codes.

Arizona Probate Code Changes

Arizona Revised Statute (“A.R.S.”) § 14-2517 has dealt with the enforceability of penalty clauses in wills, commonly called “no contest” clauses and less commonly called “in terrorem” clauses.  This statute states that such clauses are not enforceable if the beneficiary bringing the challenge had “probable cause” to bring the challenge.  The Bill clarifies the challenge can come as a “contest, proceeding or action.”

The Bill also clarifies which rules are applicable to probate proceedings.  Over the past several years, the Arizona Supreme Court has established and amended the various rules that had been created by various county Superior Courts into a statewide Arizona Rules of Probate Procedure.  Accordingly, the amended A.R.S. § 14-1304 states that the Arizona Rules of Probate Procedure now apply to all probate matters.

Arizona has three methods to implement the terms of a decedent’s will.  The first is a summary administration for certain enumerated small estates.  The second is known as informal probate and, if certain requirements are satisfied, allows a matter to proceed without the involvement of a judicial officer.  Finally, there is the formal probate proceeding which involves a judge because of special circumstances or contests.  Because no hearing is mandated in informal proceedings, A.R.S. § 14-3306 does not require notice prior to beginning the process.  However, after the application has been accepted by the court, notice of the proceeding must be given to heirs or devisees.  The Bill clarifies the timing and to whom notice is given in informal probates.  If you want to learn more about the different types of probate in Arizona, watch our video.

The Bill made one major change to A.R.S. § 14-3403 which applies to a notice of hearing on the petition for a formal proceeding.  Previously, the statute required the publication of the notice one time at least fourteen days prior to the hearing.  This requirement was to notify “unknown” persons of the court proceedings. [Read more…]

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Can I have a witness?

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Mesa, AZ Probate Dispute | Probate Dispute Attorney | Berk Law Group, PCArizona’s Revised Statutes (A.R.S.) set out the standards that must be met in order to create a last will and testament. Options include a handwritten or holographic will and a properly witnessed prepared will.

A.R.S. § 14-2502(A)(3) requires that, in the second case, a will be signed by the testator (maker of the will) and be “[s]igned by at least two people, each of whom signed within a reasonable time after that person witnessed either the signing of the will or the testator’s acknowledgment of that signature or acknowledgment of the will.” But who is a proper witness?

Most Arizona attorneys will ensure a proper execution occurs by having two witnesses present along with a notary public. This results in what is called a “self-proving” will. But what happens if there is only one witness signature along with a notary? This is the background in a recent Arizona Court of Appeals decision entitled “In re Estate of Bradley.”

After Ms. Bradley died, her son, who was not named as a beneficiary in her will, complained that the will was not valid because it lacked the signature of two witness. If the will was not valid, the son would stand to inherit.

At a hearing on the petition to probate the will, both the person who signed as witness and the Notary Public testified that they were present and witnessed Ms. Bradley sign the will. The son argued that because the notary was there to “notarize” she did not count as a “witness.” The Court of Appeals disagreed. The Arizona statute does not place any such limitation on who is a proper witness, just that two individuals are either present to see or are told by the signer that she signed. That is what happened here and the court accepted the notary as the second witness.

Proper execution of any legal document is important.   Improper execution of a will or trust is one of the reasons people end up in court. Proper review and overview by an attorney can often prevent expensive and time-consuming litigation. The attorneys at Berk Law Group can review your documents for proper execution and avoid costly headaches later.  And, if you end up court, our attorneys can help you try to resolve the matter as efficiently as possible.  Please contact us if you have any questions.

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2016 Arizona Probate and Elder Law Legislation Updates

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AZ houseDuring the 2016 State of Arizona Fifty-second Legislature Second Regular Session, the House of Representatives has proposed three bills and the Senate has proposed one bill with proposed amendments to Arizona’s elder laws.  The proposed revisions involve powers of attorney, claims for financial exploitation under Arizona’s Adult Protective Services Act, A.R.S. 46-451 etc. and guardianships.

Powers of Attorney

A.R.S. § 14-5501 sets forth, among other things, the requirements to create a valid durable power of attorney in Arizona.  Basically, a “durable” power of attorney is one that either (a) stays in effect notwithstanding that the principal (the one granting the power) becomes incapacitated or disabled or (b) becomes effective when and if the principal becomes incapacitated or disabled.

Pursuant to A.R.S. § 14-5501(B), the intent to create a durable power of attorney may be expressed by the following or similar language in the power of attorney: [Read more…]

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Whitney Houston’s and Daughter’s Estates Embroiled in Disputes

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Whitney HoustonThe death of Whitney Houston was a devastating loss to the music and acting communities, and the world. The talented singer was found dead in February of 2012. Trouble regarding the singer’s estate began brewing almost immediately. Her ex-husband, Bobby Brown, and Houston’s family were not getting along. Brown left Houston’s funeral. Concerns circulated that Brown would use the couple’s daughter, Bobbi Kristina, in order to gain access to Houston’s estate. It is speculated that Whitney Houston’s estate is valued between $12 million and $20 million.

Unfortunately, Bobbi Kristina was struggling with her own battle with substance abuse at the time of her mother’s death. Family members worried that if Houston left her assets to Bobbi Kristina, Bobbi Kristina would not be responsible enough to handle it all, or that father Bobby Brown would attempt to gain conservatorship over Bobbi Kristina in an effort to get his hands on the money. In fact, according to James Alexander of the Express, shortly after Houston’s death, Bobby Brown did express interest in obtaining conservatorship of his daughter if she did not clean up and change her life.
[Read more…]

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Do It Yourselfers Beware! – Holographic Will Held Invalid

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When a loved one dies, it is a time of grieving, pain and sorrow.  The grief and sorrow can turn to frustration and even anger when the deceased’s wishes for his estate are not followed.  Sometimes the person’s wishes are not followed because the person did not have testamentary capacity (was of unsound mind) or was unduly influenced.  Other times, the person’s wishes are not followed because those wishes were not properly adopted in a legally enforceable will.  Irrespective of the reason for the question or dispute, it is often helpful to consult with an experienced Arizona probate attorney.

The question in Wagoner v. Aleman, decided by the Arizona Court of Appeals on May 19, 2015, was whether Jeanine Jones’ partially typed and partially hand-written will was valid and enforceable under Arizona probate law.

In that case, Elisa Aleman was Jones’ natural granddaughter.  Elisa’s natural mother died shortly after Elisa was born and Elisa was legally adopted six months later.  Despite the adoption, Jones reconnected with Elisa and they remained close until Jones died on August 31, 2012.

Before she died, Jones prepared what was labeled a “Last Will and Testament” on a computer.  The document provided that Elisa was to inherit 50% of the sale of Jones’ property in Lake Havasu City, Arizona.  Later, Elisa stated that she was present when Jones made handwritten changes to the Will.  The changes reduced Elisa’s share to 25%.  Jones initialed all of the changes, except one that remained basically unchanged from the original document.  Only Jones and a notary signed the document.

After Jones died, her sister opened probate, claiming that Jones died intestate (without a will).  Elisa then filed a petition seeking to admit the typed/handwritten will to probate, whereby she would inherit 25% of the sale proceeds of the Lake Havasu City, Arizona property.  Elisa claimed that the will was a valid holographic will and Jones’ sister objected.  Elisa also argued that even if the will was not valid and Jones died without a will that she was Jones’ heir under Arizona’s intestatcy laws, such that Elisa was entitled to Jones’ estate.

[Read more…]

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Beneficiaries Disinherited for Filing Trust Contest in Violation of Forfeiture Clause

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25095774_sBeneficiaries beware!  The Arizona Court of Appeals has concluded that someone who challenges a trust may be disinherited for violating a “no-contest” clause.

A no-contest or forfeiture clause is a provision included in a will or trust to discourage litigation and disputes.  Such provisions have obvious benefits of avoiding litigation and allowing the prompt distribution of trust or estate assets.

But, there are conflicting public policies when it comes to enforcing such clauses.  Courts have a strong public policy of enforcing the maker’s intent, including his direction to disinherit someone who challenges the document.  Such challenges sometimes waste time and money.  A contestant may also use such a challenge to coerce a more favorable disposition in settlement from other beneficiaries than what the maker intended.

On the other hand, forfeiture is generally disfavored.  And public policy typically ensures access to the courts to pursue legitimate challenges.  Such challenges may include, among other things, that the maker lacked mental capacity, was unduly influenced or defrauded into making the will or trust.  In those cases, the document does not reflect the maker’s true intent.  If a challenge were not permitted, it would allow the enforcement of a document that does not genuinely set forth the person’s true intent for the disposition of his assets. [Read more…]

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Probate and Trust Lessons from the Rich and Famous

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Celebrity Probate TrustThe old saying that celebrities are just like us with more money holds true in some cases, but it definitely holds true in the realm of probate, trust administration, and estate planning. Celebrities make mistakes in timing, selecting a plan, holding onto outdated plans, or just failing to put anything in writing. Handling an incomplete or unnecessarily complicated probate or trust administration can leave even the strongest families feeling confused and frustrated during a time of grief. Failing to plan can have devastating financial repercussions as well. We can all learn more by observing the way public figures plan and then handle their otherwise private family affairs. As spectators, however, we have the advantage of observing and learning from a safe distance.

What are some of these lessons, even when the financial lives of everyday people barely resemble those of the wealthy and famous? This article appearing in Forbes.com illustrates some examples of how different celebrities’ estates affected their families and how some practical changes could have improved most of these situations.

Here are a few of the lessons taken from the article:

  1. After Patrick Swayze died, members of his family questioned the validity of his will. Some family members questioned whether the will had been forged during Patrick Swayze’s final stay in a nursing home. This type of probate challenge is called a will contest. Will contests can include signing under undue influence (force or threats), when the person lacked mental capacity , or fraud. The article points out the problem the Swayze family encountered during the will contest: challenging a will in probate court requires following the statute of limitations. The timing of the challenge is always dictated by state law and varies from state to state. Seeking an experienced Arizona probate litigation attorney allows a family’s interests to be protected within the applicable deadlines.
  1. The untimely passing of fashion designer L’Wren Scott, Mick Jagger’s girlfriend, left the famous lead singer bereaved to the point of postponing his multi-national touring shows. While the average person may be able to take time off from work to mourn the death of a loved one, the contractual obligations for unique performers like the Rolling Stones can be non-negotiable. Unfortunately for Mick Jagger, the insurance carriers that cover performance venues demanded performance on the broken contract. The lesson here is that insurance disputes can cost grieving families. Wise planning and having a strong legal strategy makes the best defense.
  1. Author Tom Clancy’s trust was drafted in such a way as to leave ambiguity regarding payment of estate taxes. The resulting lawsuit has embroiled family members against one another instead of allowing space and time to grieve and honor the late author’s memory. The lesson here is that any family with assets exceeding the state and federal estate tax exemption needs clearly drafted estate planning documents. In the event of a dispute, a trust litigation attorney can assist in clarifying ambiguities.

There are several other key lessons included in the article, so by all means, continue to read more of the article Forbes.com. For additional questions or concerns about Arizona probate litigation, Arizona trust litigation, or Arizona will contests, Berk Law Group, P.C. is here to help.

Photo Credit: ♥ Xanda ♥ via Compfight cc

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