HOW TO PROBATE AN ESTATE AND ADMINISTER A TRUST

(SEVEN MUST-DO STEPS)

            Probating an estate or trust is like working on an engine.  Each individual process is not complicated; however, the entire machine must work together for success.  Here are seven must-do steps for a personal representative/trustee to successfully complete the process. 

            1.         INVENTORY:  Make a detailed list of the assets in the estate and/or trust.  Remember, your family and friends, the other beneficiaries and heirs, will carefully scrutinize this list.  Moreover, a court might also be scrutinizing this list.  Take care that the list is accurate and complete.

            2.         APPRAISE:  After you create the inventory of assets, you must appraise the assets.  You likely will need to hire appraisal experts to appraise the assets.  Practically speaking, appraising personal property with little value can be done in the same manner as appraising items given to Goodwill.  However, things of greater value should be appraised by professionals.  For real property an appraisal professional for real estate should be retained.  For cars you may use Kelley Blue Book.  If it is a collection, an expert in that collection should be retained.

            3.         DEBTS:  Identify all the creditors to the estate and/or trust.  Make a list of creditor names, addresses, account numbers, and how much is owed.  Identify statements that prove what was owed.  Keep all this information in a file by itself as you will need it for the accounting. 

            4.         GET ADVICE:  Advice from professionals is will help to successfully complete the process.  I recommend working with an attorney who has a trusted network of advisers including a CPA, real estate sales professionals, appraisal professionals, and investment advisers.  You must determine with your attorney how you will change the various titles to the assets, how you will handle taxes and debts, and the legal process by which you will administer the estate or trust.  Sometimes, estates are so small that a shortened procedure for administration can be undertaken.  Other times, estates and trusts are so large and complex that a lengthy court process is necessary to fully administer.

            5.         PREPARE AN ACCOUNTING:  Preparing an accurate and complete accounting is an important step in administering the estate or trust.  The beneficiaries and heirs want to see where the money has been spent.  They want to make certain that you have accurately and completely done your job. 

            6.         PROPOSED DISTRIBUTION:  Along with the accounting you should send out a proposed distribution schedule.  Under Arizona law, a person must object to a proposed distribution in 30 days; otherwise, the devisee/beneficiary will lose the right to contest the distribution.  Again, you should work with your attorney to make a proposed distribution that will foreclose objections. 

            7.         DISTRIBUTE AND PAY:  The final steps are distributing the estate/trust to devisees/beneficiaries and pay the debts.  In this process, I recommend obtaining receipts and releases wherein the devisees/beneficiaries release you of liability associated with the estate and trust. 

            This is not an all-inclusive to-do list; however, every trust and/or estate will need to complete the process above.

NEW CHANGES TO SMALL ESTATES

I first published the article below on February 4, 2012.  Since that time there have been major changes to the law on small estate affidavits.  The threshold for real property small estates is now less than $100,000.00 and personal property small estates are now less than $75,000.00.  This is good news as more families can now qualify for the shortened procedures. Accordingly, I decided to republish the article below with the highlighted updates: 

TOO SMALL FOR PROBATE

I frequently have people ask me this question: Do I need to probate the estate when my loved one had nearly nothing?

The answer is—like in nearly all legal questions—it depends. When an estate is small, Arizona will allow for mini-probates accomplished by affidavit called a “Small Estate Affidavit.” To qualify for probate by Small Estate Affidavit the estate and the person signing the affidavit (“affiant”) must meet certain qualifications. There are two types of small estate affidavits: (1) Real property, and (2) Personal property.

Real Property Small Estate Affidavit

To transfer real property by Small Estate Affidavit the estate and affiant must meet these qualifications:

1. The affiant must be legally entitled to the property.

2. The value of all real property, less liens and encumbrances, cannot exceed $100,000.00.

3. There must be no probate application pending, or it must be over one year from the closing of an estate or discharge of the personal representative, or no personal representative has been appointed in the past year.

4. Six months must have passed from the decedent’s death.

5. All funeral expenses, unsecured debt, and taxes must be paid.

Personal Property Small Estate Affidavit

To transfer personal property by Small Estate Affidavit the estate and affiant must meet these qualifications:

1. The affiant must be legally entitled to the property.

2. The value of all personal property, less liens and encumbrances, cannot exceed $75,000.00.

3. There must be no probate application pending, or it must be over one year from the closing of an estate or discharge of the personal representative, or that no personal representative has been appointed in the past year.

4. Thirty days must have passed from the decedent’s death.

If you meet the above requirements, a full probate may not be necessary. The best way to determine whether you qualify to avoid probate is to discuss the estate with a qualified attorney.

FOUR PROBATE MISTAKES THAT LEAD TO LITIGATION

When someone dies, administering the person's estate can be a frustrating and an aggravating process.  Everyone seems to want or need something—beneficiaries—government—courts—creditors—etc.  The pressure causes people to make mistakes.  In my practice, I have noticed four common mistakes that increase heartache, administrative time, and cause unnecessary litigation.  The mistakes are as follows:

1.                   Keeping Secrets.  Sometimes personal representatives resent providing information to beneficiaries. Instead, the personal representatives want to keep estate business secret and frequently refuse to provide information.  This is a mistake.  Testamentary documents, the status of the administration, as well as the expenses of the administration are not secrets.  To the extent reasonable, information regarding the estate should be made available to the beneficiaries in a timely manner.  Providing the information assures the beneficiaries that the assets are properly managed.  Moreover, secrets create suspicion while disclosure creates trust.

2.         Comingling Funds.  Too often personal representatives put the deceased’s money in the same account as their own accounts.  Moreover, personal representatives sometimes pay personal expenses from the estate.  This is a breach of fiduciary duty and creates problems for administration.  Commingling creates an accounting nightmare as the money must be tracked.  It gives the appearance that the personal representative has stolen the money.  Lastly, even if the personal representative had no mal-intent, the appearance of impropriety may invite a lawsuit from the beneficiaries. 

3.         Avoiding the Estate Business.  Avoidance of the estate business is common place and creates problems down the road.  Prompt attention to financial and legal issues of the estate is imperative as deadlines to perform the work frequently loom.  Failing to adhere to the deadlines often increases the cost and complexity of the administration.   

4.         Following the Deceased’s Oral Instructions.  A personal representative cannot guess at what the deceased wanted to happen with the property.  I often hear clients say that "Mom told me before she died that she wanted me to have the house."  While I understand that mom may have said that, it has absolutely no bearing on who receives the property at death.  If the testator wants to control assets after death, he/she must make a valid written testamentary document.  Without such, the state intestacy statutes will determine who receives the property.  Absent agreement from all the heirs/beneficiaries, a personal representative cannot use oral instructions from a parent to decide who receives the estate property.     

If you recognize any of the actions above in yourself or others, you should contact an attorney to discuss the matter.  Probate of an estate is hard work, but does not need to cause heartache. 

PUBLIC CORRUPTION, REALLY?

            Socrates was famously charged, convicted, and sentenced to death for the crime of “public corruption.” Specifically, he was charged with corrupting the youth of Athens.  It was believed by the jury that Socrates had encouraged students to follow his chosen path, which was in conflict with the Athenian form of democracy and the powers at be.  In other words, Socrates ruffled the wrong people’s feathers. 

             Attorneys can also ruffle people’s feathers in the aggressive pursuit of a client’s cause and will often pay a personal price doing so.  Years ago I represented a small business owner that was wrongfully sued by an individual.  I pursued the matter with my usual attention to detail and aggressive-style litigation.  After  a few months of litigation with David Derringer, the plaintiff, it became clear that he was so caught up in his self-righteousness that he would never give up on the cause. 

After winning the action for the business owner, the disgruntled Derringer sued me, my client, my client’s employees and a number of other individuals.  In fact, he sued me not less than three times — two federal court actions and one state court action.  He took his matter all the way to the Ninth Circuit Court of Appeals and the Arizona Court of Appeals.  In fact, he even made a writ of certiorari to the United States Supreme Court.  Obviously, the actions were defeated because they were baseless.  

            So, how does this relate to Socrates?  I was accused of, among other things, public corruption.  Derringer has created a website dedicated to the bogus claims of public corruption allegedly committed by me, Robert Sewell.    

             David Derringer, wherever you are, I view your relentless pursuit of me as a badge of honor.  I may not be Socrates, but I certainly pursued a cause in which I believed and successfully defended against your claims.  Moreover, I will continue to aggressively pursue my clients’ causes, even if it results in more ridiculous defamation against my character.

OFFERS OF SETTLEMENT – AN IMPROVED LITIGATION WEAPON

I once represented a client who was sued for over $400,000.  My objective analysis showed that my client actually owed somewhere between zero and $100,000.  So, my client offered in writing $100,000 to settle the case.  That offer, which was rejected, put the opposing side “on the ropes,” as case became more about beating the $100,000 offer than winning $400,000.  A settlement offer can act as a weapon in litigation and turn a losing case into a winning case.  As you see, rather than being a sign of weakness, an early settlement offer can actually turn the tide for a defendant in a difficult spot. 

A new law supports early settlement offers even more strongly. As of January 1, 2013, the Arizona Legislature changed A.R.S. 12‑341.01, regarding attorneys’ fees in a contract action, to allow the court to consider written offers of settlement in determining the reasonableness of attorneys’ fees for the party who is granted judgment.  Under this statute, if a party that makes an offer of settlement that is equal to or more favorable than the ultimate award, then the offeror may be deemed the successful party and, therefore, may be awarded attorneys’ fees.   The exact language of the statute reads like this:

In any contested action arising out of a contract, express or implied, the court may award the successful party reasonable attorney fees. If a written settlement offer is rejected and the judgment finally obtained is equal to or more favorable to the offeror than an offer made in writing to settle any contested action arising out of a contract, the offeror is deemed to be the successful party from the date of the offer and the court may award the successful party reasonable attorney fees. This section shall not be construed as altering, prohibiting or restricting present or future contracts or statutes that may provide for attorney fees. 

In other words, settlement offers can make a losing party the successful party. 

Therefore, as a strategy, a defendant with a difficult case should honestly analyze the case early in the action and determine what the defendant may owe.  Thereafter, the defendant should make a settlement offer to reflect what the plaintiff may win at the end of the litigation. If the defendant’s guess is ultimately correct, but the plaintiff rejected the offer, the defendant can lose the case but still collect attorney’s fees.  At the end, the defendant’s award of attorneys’ fees could potentially be used to offset the final award.

A recent case styled Hall v. Reed Development, Inc., analyzes this very strategy.  In that matter, the defendant made numerous settlement offers.  However, each time the defendant offered settlement, the settlement offer was significantly less than the attorneys’ fees plaintiff had incurred at that stage in the litigation.  The court of appeals reasoned that “we conclude that comparing the ‘judgment finally obtained’ under Section 12‑341.01(A) to a settlement offer should involve only those reasonable fees and costs incurred as of the date the offer was made.” The takeaway from this case is that a defendant should make a reasonable offer of settlement early and include the current attorneys’ fees and cost to that point.     

 
Therefore, in a difficult fight, make realistic offers, make them early, and fight hard if those offers are rejected – even if you “lose” you can still win!

TOO SMALL FOR PROBATE

I frequently have people ask me this question:  Do I need to probate the estate when my loved one had nearly nothing? 

The answer is—like in nearly all legal questions—it depends.  When an estate is small, Arizona will allow for mini-probates accomplished by affidavit called a “Small Estate Affidavit.”   To qualify for probate by Small Estate Affidavit the estate and the person signing the affidavit (“affiant”) must meet certain qualifications. There are two types of small estate affidavits:  (1) Real property, and (2) Personal property. 

Real Property Small Estate Affidavit

 To transfer real property by Small Estate Affidavit the estate and affiant must meet these qualifications:

 

1.      The affiant must be legally entitled to the property.

2.      The value of all real property, less liens and encumbrances, cannot exceed $75,000.00.

3.      There must be no probate application pending, or it must be over one year from the closing of an estate or discharge of the personal representative, or no personal representative has been appointed in the past year.

4.      Six months must have passed from the decedent’s death.

5.      All funeral expenses, unsecured debt, and taxes must be paid.    

 

Personal Property Small Estate Affidavit 

To transfer personal property by Small Estate Affidavit the estate and affiant must meet these qualifications:  

1.      The affiant must be legally entitled to the property. 

2.      The value of all personal property, less liens and encumbrances, cannot exceed $50,000.00.

3.      There must be no probate application pending, or it must be over one year from the closing of an estate or discharge of the personal representative, or that no personal representative has been appointed in the past year.

4.      Thirty days must have passed from the decedent’s death.   

If you meet the above requirements, a full probate may not be necessary.  The best way to determine whether you qualify to avoid probate is to discuss the estate with a qualified attorney.