YOU’RE OUT!—HOW TO DISINHERIT YOUR FAMILY AFTER YOU’RE DEAD

Every family has that special family member who causes all the problems—the bad seed—the redheaded step child—the sponge—etc.   When mom and dad die, this bad seed wants to argue about everything, including why he/she receives a smaller portion of the estate than others.   The bad seed just cannot understand why mom or dad would give less to him/her than the other children.    

To defend against the bad seed and to protect the other people receiving bequests from the estate, attorneys place poisonous pills in the will or trust to disinherit the bad seed if he/she files a lawsuit to protest the estate plan or the administration of the estate.   These clauses are called “in terrorem” clauses.  These clauses are designed to “frighten” or cause “terror” in the bad seed so as to dissuade the bad seed from filing the lawsuit.  The reason this is so important is that lawsuits frequently deplete the estate for every other beneficiary of the estate. 

 

In Stewart v. Stewart, et al., a case decided on September 27, 2012, the Arizona Court of Appeals reversed a trial court that ruled against a particularly harsh in terrorem clause. The clause was so harsh that a beneficiary who “cooperates or aids” another in contesting the will or trust was disinherited.  The trial court ruled that such a broad clause violated the public policy of Arizona because Arizona Revised Statute 14-2517, along with case law interpreting it, allows for good faith attacks on wills or trusts, even if unsuccessful. 

 

In reversing the decision, the Court of Appeals reasoned that the clause only applied to beneficiaries who “voluntarily cooperate or aid a party to contest” the will or trust.  The Court of Appeals further reasoned that a party that brings the lawsuit with probable cause and in good faith has no reason to fear the in terrorem clause as current Arizona law supports those attacks.  The Court explained that if a reasonable person at the time of the challenge would have believed there was a substantial likelihood of success for a contest or attack, then the in terrorem clause will have no force. 

 

In making this decision, the Court of Appeals provided significant support to in terrorem clauses and, therefore, increased ammunition against bad seeds.  So, do you have a bad seed in your family?  If so, a properly drafted in terrorem clause will aid in limiting the damage from a lawsuit after you die.

ARIZONA SUPREME COURT HELPS BANKS VICTIMIZED BY FORECLOSURES

U.S. banks have become victims of the foreclosure crisis.  Given today’s political environment, it is hard to think of banks as victims of anything.   However, during this foreclosure crisis, overly-creative attorneys, misguided consumer advocates, and desperate homeowners filed numerous lawsuits against banks on the false legal theory commonly called “Show Me the Note.”  In Hogan v. Washington Mutual Bank, decided July 11, 2012, the Arizona Supreme Court debunked the Show Me the Note theory and concluded that banks must simply follow the current foreclosure laws as written. 

Under the Show Me the Note theory, the homeowner admits he/she is in default but still files a lawsuit claiming that the bank cannot foreclose unless it “shows possession of, or otherwise documents its right to enforce, the underlying note.”  As the theory goes, the promissory note and the deed of trust “go together” and “must be construed together;” therefore, proving mutual possession of the original promissory note and the deed of trust is mandatory before foreclosure begins.  Frequently, the homeowner will allege that the bank must produce the “wet ink” signature on the promissory note and not simply a photocopy.  At the end, the homeowner seeks to own the home free of the bank without paying off the promissory note. 

This theory is baseless and was advanced by attorneys who did not understand the foreclosure laws or were abusing the system.  However, the cases were so pervasive that the Arizona Supreme Court took up the issue.  The Arizona Supreme Court explains as follows: 

 . . . the note and the deed of trust are . . . distinct instruments that serve different purposes. The note is a contract that evidences the loan and the obligor’s duty to repay. See A.R.S. § 33-801(4). The trust deed transfers an interest in real property, securing the repayment of the money owed under the note. See A.R.S. §§ 33-801(4), -801(8), -801(9), -805, -807(A). The dispositive question here is whether the trustee, acting pursuant to its own power of sale or on behalf of the beneficiary, had the statutory right to foreclose on the deeds of trust. See Cervantes v. Countrywide Home Loans, Inc., 656 F.3d 1034, 1043-44 (9th Cir. 2011)

 In other words, the Court is saying “you don’t get it.”  The underlying message is that when the homeowner fails to pay on the promissory note, the deed of trust may be foreclosed, regardless of who “owns” deed of trust and regardless of whether the deed of trust and promissory note are owned by the same person.  The deed of trust and promissory note are not dependent upon each other.  Homeowners facing foreclosure can recover and find solutions; however, filing a Show Me the Note lawsuit will not help. 

THE POWER OF SEDUCTION AND A DYING MAN’S WILL

Nothing looks more suspicious, though quite common, than the dying man who makes a deathbed will.  It is the stuff of Hollywood.  Picture the elderly man summoning his lawyer to his deathbed.  The lawyer drafts the will as the invalid dictates the contents.  The invalid declares that his entire estate shall pass to his wicked mistress—a young looker and manipulative gold digger.  The scarlet woman places the pen in the man’s hand and firmly demands, “sign it.”  The will is signed.  The priest reads the testator’s last rites as his soul leaves his body.  His faithful children are now destitute.     

Of course, a lawsuit will follow.  The faithful children accuse the mistress of unduly influencing their father and demanding, in court, that the judge refuse the will.  After all, why would a loving father not provide for his children at death?  Had the mistress not used her seductive powers and lies to poison the mind of their father, the children would enjoy a profitable future.   Unfortunately for the children, a woman’s seduction alone is not enough to invalidate a will.

In the case of Parrisella v. Fotopulos, 111 Ariz. 4, 6, 522 P.2d 1081, 1083 (Ariz. 1974), the Arizona Supreme Court defines “undue influence” as follows:

Conduct by which a person unduly influences a testator in executing a will, when that person through his power over the mind of the testator makes the latter’s desires conform to his own, thereby overmastering the volition of the testator.

The court reasoned that a woman’s seductive power does meet this standard:

It is settled law of this state that [an] illicit relationship is not sufficient per se to warrant a conclusion of undue influence.  And no presumption of undue influence arises merely from the fact that a man  . . . makes a will in favor of his mistress.” 

Id. (citations omitted).  So, unlike in the movies, in real life, the wicked mistress just might win.

A DEAL IS NOT A DEAL UNTIL IT’S A DEAL

PROBATE.  The word is often synonymous with controversy and has been for hundreds of years.  Probate can pit brother against brother, mother against child, cousin against uncle, etc., in ugly legal battles that last years.  Charles Dickens’ famous novel “Bleak House” fictionalized such a probate battle styled Jarndyce v. Jarndyce, in the Court of Chancery of England, a case lasting so long the legal fees exhausted the means of the entire estate.

The case of In re Estate of Mary A. Riley, 2-CA-CV2010-0149, may not be Jarndyce v. Jarndyce, but it illustrates the problems that can be found in probate battles.  In re Riley involves an estate with 13 potential beneficiaries who are battling over “inaccuracies” in the proposed accounting and distribution of the estate’s assets.   Apparently, 4 of the 13 beneficiaries reached an agreement to which the others could not agree.  The court, however, approved the compromise. 

On appeal, the Arizona Court of Appeals, Division 2, ruled that pursuant to A.R.S. § 14-3952(1) a compromise is not a compromise unless everyone agrees and signs to the terms.  Quoting the Court:

Section 14-3952(1) requires the compromise to be ‘executed by all competent persons . . . having beneficial interests or having claims which will or may be affected by the compromise.’ . . . [A] compromise that has not be executed by all the persons with beneficial interests in the estate is void. 

At the end of the day the result of the ruling means that the beneficiaries just keep fighting it out in court.  I wish the parties a speedy conclusion to this matter.