Not quite. The after-tax effect of expensing items reduces the cost by the tax bracket you are in. For most of us (those with taxable incomes of $58,100 up to $117,250), this effectively reduces the price by 25%.

You can expense (and not depreciate) up to $100,000 of business-related purchases. Special deal for big SUV’s ends this year – can expense up to $100,000 (rather than normal limit of $10,710) for purchase of auto in excess of 6,000 lbs.

2. How Long Should I Hold Onto My Records?

Answer: hold onto as many of your records for as long as you can.

First, if you never file, the period for the IRS to contest the return never starts to run. It also never begins to run if a return is filed that is fraudulent or constitutes willful tax evasion (usually, unreported cash)

If you file a return, the IRS has three years to challenge the return. The Arizona Dept of Revenue has four years.

If a return has omitted 25% of gross income, the period is 6 yrs.

Once a deficiency has been assessed, the tax can be collected by lien or levy. The IRS has 10 years to initiate and complete collection activity.

As a result of all of this, an enforceable deficiency due the IRS can linger for 15 years or longer. You need to keep records for at least that long.

3. Maximize retirement contributions

These numbers increase each year. For 2004:

SEP – 25% up to $41,000

SIMPLE — $9,000

401(k) — $13,000 plus $3,000 catch-up if over 50

Other qualified plans – 25% up to $41,000

IRA’s — $3,000 plus $500 catch-up if over 50

Protected from creditors, plaintiffs lawyers, etc

Exceptions – IRS (maybe) & (soon-to-be) ex-spouses

4. Put your children on your payroll

Can pay children up to $4,850 per child per year TAX-FREE

Can use this to fund a Roth IRA (which requires earned income) – great way to fund a college education

If your child is under 17 and you are a sole proprietor, no withholding for payroll taxes

Make sure you can document hours worked

5. Put your spouse on your payroll

If spouse is not otherwise employed, spouse can participate in retirement plan. Attribution rules among spouses no longer apply.

Easier to deduct travel with spouse

6. Repayment of loans by owner

If owner has loaned $ to business, treat $ as return of principal rather than as W-2 (ie, taxable) income

7. Home office deduction

Rules have changed making it much easier to take this deduction. No longer the audit flag it once was.

Allows you to deduct portion of utilities, insurance & maintenance. Can depreciate portion of home or deduct portion of rent. Also eliminates commuting costs.

To qualify, must have office in home that is used exclusively for business.

8. Fringe benefits

Creates, in effect, a tax-free raise

Expense reimbursement –

Cellular phones, dues & licenses, professional subscriptions, tools & supplies, seminars, working clothes & uniforms

Child & dependent care – up to $5,000 per employee per year

Tuition reimbursement

$5,250 per employee per year

Maintains or improves work skills

Covers tuition, fees, books, supplies & equipment

Accident and health insurance, including disability and long term care.

Medical costs reimbursement

Group term life insurance – up to $50,000 per year

Meals for employees – for 100% deduction, must be provided on premises and for convenience of employer

9. Gifts

The deduction for gifts to business associates cannot exceed $25 per recipient per year.

10. Estate planning issues

Very critical area – planning for death or incapacity. What will happen to your business if you die or can no longer work?

Upon your death, estate taxes can loom very large. For 2004 and 2005, the estate tax applies to all property (not just income) with a combined FMV at death of $1.5M. Begins at a 45% rate. For married couples, this can be doubled to $3M through the use of an “A/B” trust. Property left to spouse also qualifies for the “marital deduction”, which means that the property is not taxed until the death of the surviving spouse.

Having a trust works two other advantages in addition to the estate tax. One advantage is that it avoids probate. A trustee can be put in place the day you die. With probate, a personal representative or conservator must be appointed which could take weeks or months. Many important business decisions will require prior court approval. Your business records become a matter of public record. The second advantage is that it prevents your minor children from receiving their entire inheritance at age 18. You can create a “Symington” trust that will protect these assets from the children’s future creditors or ex-spouses as well as preventing the children from wasting the funds.

The most difficult estate planning issue for business owners is succession – who will get the business? Particularly difficult where nearly all of the value of your estate is in the business. Crucial to address this if you have partners – you must address the 3D’s – death, disability and divorce. What is the value of the business and how do we value it? How much will be paid to buy out a partner and where will the money come from? Life insurance looms large here.

By Thomas J. Murphy

Murphy Law Firm, Inc.

P O Box 51244

Ahwatukee Station

Phoenix, AZ 85076

480-838-4838

www.murphylawaz.com

Presented to the College of Estate Planning Attorneys

October 2, 2008

Effective January 1, 2009 and after several false starts, a new, all-encompassing trust code takes effect in Arizona. It is based on the controversial Uniform Trust Code. The new Code is contained in Chapter 247 of the laws passed in the 2008 legislative session that will create a new Chapter 11 to Title 14. It can be reviewed in its entirety at the Arizona legislature’s website, www.azleg.gov. (Go to the “Bills” tab, click on “Session Laws” on the drop-down menu and proceed to Chapter 247.)

The UTC　has been enacted in　21 jurisdictions (Kansas, Nebraska, Wyoming, New Mexico, District of Columbia, Utah, Maine, Tennessee, New Hampshire, Missouri, Arkansas, Virginia, South Carolina, Oregon, North Carolina, Alabama, Florida, Ohio, Pennsylvania, North Dakota and Arizona).

Taken in the order in which they appear, here are the important provisions that materially change or expand the law of trusts in Arizona:

Applicable dates

Section 18 of Chapter 247 provides the applicable dates. It applies to all trust created on or after January 1, 2009 and to all judicial proceedings commenced on or after January 1, 2009. As for any proceeding commenced before January 1, 2009, the Code will apply unless it would “substantially interfere with the effective conduct of the judicial proceedings or prejudice the rights of the parties”. Any “rule of construction or presumption applied to all pre-January 2009 trusts “unless there is a clear indication of a contrary intent”.

14-10105(b) – default rules

One of the most controversial aspects of the Code since the provisions below are mandatory and cannot be drafted around. They are:

1. THE REQUIREMENTS FOR CREATING A TRUST.

2. THE DUTY OF A TRUSTEE TO ACT IN GOOD FAITH AND IN ACCORDANCE WITH THE PURPOSES OF THE TRUST.

3. THE REQUIREMENT THAT A TRUST AND ITS TERMS BE FOR THE BENEFIT OF ITS BENEFICIARIES AND THAT THE TRUST HAVE A PURPOSE THAT IS LAWFUL, NOT CONTRARY TO PUBLIC POLICY AND POSSIBLE TO ACHIEVE.

4. THE POWER OF THE COURT TO MODIFY OR TERMINATE A TRUST UNDER SECTIONS 14-10410, 14-10411, 14-10412, 14-10413, 14-10414, 14-10415 AND 14-10416.

5. THE EFFECT OF A SPENDTHRIFT PROVISION AND THE RIGHTS OF CERTAIN CREDITORS AND ASSIGNEES TO REACH A TRUST AS PROVIDED IN ARTICLE 5 OF THIS CHAPTER.

6. THE POWER OF THE COURT UNDER SECTION 14-10702 TO REQUIRE, DISPENSE WITH, MODIFY OR TERMINATE A BOND.

7. THE POWER OF THE COURT UNDER SECTION 14-10708, SUBSECTION B TO ADJUST A TRUSTEE’S COMPENSATION SPECIFIED IN THE TERMS OF THE TRUST THAT IS UNREASONABLY LOW OR HIGH.

8. THE DUTY TO RESPOND TO THE REQUEST OF A QUALIFIED BENEFICIARY OF AN IRREVOCABLE TRUST FOR TRUSTEE’S REPORTS AND OTHER INFORMATION REASONABLY RELATED TO THE ADMINISTRATION OF A TRUST.

9. THE EFFECT OF AN EXCULPATORY TERM UNDER SECTION 14-11008.

10. THE RIGHTS UNDER SECTIONS 14-11010, 14-11011, 14-11012 AND 14-11013 OF A PERSON OTHER THAN A TRUSTEE OR BENEFICIARY.

11. PERIODS OF LIMITATION FOR COMMENCING A JUDICIAL PROCEEDING.

12. THE POWER OF THE COURT TO TAKE ACTION AND EXERCISE JURISDICTION AS MAY BE NECESSARY IN THE INTERESTS OF JUSTICE.

13. THE SUBJECT MATTER JURISDICTION OF THE COURT AND VENUE FOR COMMENCING A PROCEEDING AS PROVIDED IN SECTIONS 14-10203 AND 14-10204.

14. THE NOTICE PROVISIONS OF SECTION 14-10110, SUBSECTION B.

14-10106 – Restatement Second

“THE COURT SHALL LOOK TO THE RESTATEMENT (SECOND) OF TRUSTS FOR INTERPRETATION OF THE COMMON LAW AND NOT TO SUBSEQUENT RESTATEMENTS OF TRUSTS.”

14-10107 – Choice of jurisdiction

The trust can specify which state’s laws will apply. If no designation, validity of trust is determined using law of the jurisdiction where the trust was executed. Law of principle place of trust administration will govern as to administration. Sec. 10108 states place of administration will be trustee’s place of business

14-10109 & -10301 – Notice

Any “PROPERLY DIRECTED ELECTRONIC MESSAGE” will suffice. Virtual representation as set forth under the new 14-1407 will apply to all trusts governed by the Code. This means that anyone with “a substantially identical interest ” may represent an incapacitated or unborn person or a person who cannot be located as long there is “no material conflict of interest”. For a charitable trust, section 10110(b) requires that the Attorney General must be given notice within sixty days after creation of the trust, which will occur when the trust becomes irrevocable.

It is not entirely clear how beneficiaries of testamentary trusts are treated for notice purposes. It appears that notice will not be required until the settlor’s death because 14-10401(a)(1) states that a trust is created “by will or other disposition taking effect on the settlor’s death”.

14-10111 – Nonjudicial settlements

Any interest parties can enter into a non-judicial settlement as long as it does not violate a material purpose of the trust. “MATTERS THAT MAY BE RESOLVED BY A NONJUDICIAL SETTLEMENT AGREEMENT INCLUDE:

1. THE INTERPRETATION OR CONSTRUCTION OF THE TERMS OF THE TRUST.

2. THE APPROVAL OF A TRUSTEE’S REPORT OR ACCOUNTING.

3. DIRECTION TO A TRUSTEE TO REFRAIN FROM PERFORMING A PARTICULAR ACT OR THE GRANT TO A TRUSTEE OF ANY NECESSARY OR DESIRABLE POWER.

4. THE RESIGNATION OR APPOINTMENT OF A TRUSTEE AND THE DETERMINATION OF A TRUSTEE’S COMPENSATION.

5. THE TRANSFER OF A TRUST’S PRINCIPAL PLACE OF ADMINISTRATION.

6. THE LIABILITY OF A TRUSTEE FOR AN ACTION RELATING TO THE TRUST”

14-10205 – ADR

Trust agreement can provide for mandatory alternative dispute resolution

14-10407 – oral trusts

“THE CREATION OF AN ORAL TRUST SHALL BE ESTABLISHED ONLY BY CLEAR AND CONVINCING EVIDENCE AND ITS TERMS SHALL BE ESTABLISHED BY A PREPONDERANCE OF THE EVIDENCE.” This can be expected to arise in instances of jointly titled property where it is not entirely clear why the surviving tenant was placed on the title. A typical example is a child who was added to the title of a parent’s bank account or residence and it is unclear whether the child was simply added for convenience purposes while the parent was alive.

14-10408 – pet trusts

Pet trusts are permitted for any animal alive during the life of settlor (rather than alive at time of creation of trust).

14-10411 — modification or termination by consent

All beneficiaries can agree to terminate or modify a trust as long as it is “not inconsistent” with a material purpose of the trust. (So, when drafting a trust, the settlor should state what is material.) Beneficiaries can also agree on distribution upon termination. If no unanimous agreement, the court approval must be obtained as long as “THE INTERESTS OF A BENEFICIARY WHO DOES NOT CONSENT WILL BE ADEQUATELY PROTECTED”.

14-10412 — modification or termination due to unforeseen circumstances

A court (rather than beneficiaries) may modify or terminate if “MADE IN ACCORDANCE WITH THE SETTLOR’S PROBABLE INTENTION” or “IF CONTINUATION OF THE TRUST ON ITS EXISTING TERMS WOULD BE IMPRACTICABLE OR WASTEFUL OR WOULD IMPAIR THE TRUST’S ADMINISTRATION”.

14-10414 – uneconomic trust

A court or trustee can terminate a trust if the trust corpus is less than $100,000 or “IS INSUFFICIENT TO JUSTIFY THE COST OF ADMINISTRATION.”

14-10415/6 – reformation

“THE COURT MAY REFORM THE TERMS OF A TRUST, EVEN IF UNAMBIGUOUS, TO CONFORM THE TERMS TO THE SETTLOR’S INTENTION IF IT IS PROVED BY CLEAR AND CONVINCING EVIDENCE THAT BOTH THE SETTLOR’S INTENT AND THE TERMS OF THE TRUST WERE AFFECTED BY A MISTAKE OF FACT OR LAW, WHETHER IN EXPRESSION OR INDUCEMENT.” For a tax issue, reformation is permitted if done “IN A MANNER THAT IS NOT CONTRARY TO THE SETTLOR’S PROBABLE INTENTION” in order to “achieve the settlor’s tax objectives. This should cover problems with over-funding a credit shelter trust due to a change in the estate tax exemption. It is also designed to allow for the creation of a special needs trust for a beneficiary who becomes disabled after the trust is drafted or after the death of the settlor

14-10501 – Creditor issues – trustee protected

“A TRUSTEE HAS NO LIABILITY TO ANY CREDITOR OF A BENEFICIARY FOR ANY DISTRIBUTIONS MADE TO OR FOR THE BENEFIT OF THE BENEFICIARY TO THE EXTENT A BENEFICIARY’S INTEREST IS PROTECTED BY A SPENDTHRIFT PROVISION OR IS A DISCRETIONARY TRUST.”

14-10503 – Creditor issues – spendthrift exceptions

No spendthrift protections for child support. Special needs trusts are exempt from this (although AHCCCS has always prohibited these payments).

14-10504 – Creditor issues – discretionary trusts

Discretionary trusts are creditor protected, even if there is no spendthrift clause and even if “THE TRUSTEE HAS NOT COMPLIED WITH THE APPLICABLE STANDARD OF DISTRIBUTION OR HAS ABUSED THE DISCRETION REGARDING DISTRIBUTIONS”. Life insurance death benefits are creditor protected, even if payable to a trust. Statute recognizes the creditor protections of ARS 20-1131. Creditor protection exists if beneficiary is also trustee as long as trust is discretionary, to include use of the ascertainable standard.

14-10505 – Creditor issues – self-settled trusts

For irrevocable trusts, “A CREDITOR OR ASSIGNEE OF THE SETTLOR MAY REACH THE MAXIMUM AMOUNT THAT CAN BE DISTRIBUTED TO OR FOR THE SETTLOR’S BENEFIT”. A creditor of settlor cannot force the exercise of a power of appointment by a third party. Special needs trusts seem to have blanket creditor protection. No protection for statutory allowances if probate estate is insufficient. Intentionally defective grantor trust provisions will not effect creditor protection. Crummey powers can be reached and exercised by creditors of beneficiary but this does not apply to lapsed withdrawal rights that do not exceed a “5&5″ power. QTIPs are also protected.

The “maximum benefit” language may have created, albeit inadvertently, an important planning opportunity. It appears that a settlor can create and fund an irrevocable trust but only takes back, say, an income interest. Is the principal now protected, assuming there is no fraudulent conveyance issue? It appears the answer is yes. This protection may be enhanced by providing for a co-trustee. This may lessen the reach of the “maximum benefit” language since it can be argued that the refusal of a co-trustee to consent to a distribution to the settlor may decrease the “maximum amount that can be distributed to or for the settlor’s benefit”.

One wonders how the lending community will react to this. Will they require a debtor to revoke his creditor protection rights? Or agree to forgo creating an irrevocable self-settled trust?

14-10506 – overdue distributions

Holdbacks aka overdue distributions are creditor protected, even if otherwise mandatory, if “THE TERMS OF THE TRUST EXPRESSLY AUTHORIZE THE TRUSTEE TO DELAY THE DISTRIBUTION TO PROTECT THE BENEFICIARY’S INTEREST IN THE DISTRIBUTION”. No time limit in which overdue distributions must be made.

14-10602 – amendment by agent or conservator

An agent under a POA may amend or revoke a trust if the trust or POA expressly authorizes it. A court may authorize a conservator to do so if not prohibited by the terms of the trust.

14-10604 – trust contest

Any litigation to contest the validity of a trust must be brought within one year of settlor’s death or within four months after trustee has sent notice of the terms of the trust. Statute does not address what happens of there is more than one settlor (eg, surviving spouse).

14-10813 – notice to beneficiaries

Unless the terms of the trust state otherwise, a trustee must keep “qualified beneficiaries” reasonably informed unless “THE TRUSTEE DETERMINES THAT IT IS UNREASONABLE UNDER THE CIRCUMSTANCES TO DO SO”. Sec. 14-10103(13) defines a “qualified beneficiary” as “A DISTRIBUTEE OR PERMISSIBLE DISTRIBUTEE OF TRUST INCOME OR PRINCIPAL” or who would be a distributee if a current distributee’s interest was terminated.

14-10817 – Distribution on termination

Once a beneficiary has received notice of a proposed distribution for the termination of a trust, the beneficiary has 30 days from the date of mailing to

object.

14-10818 – trust protector

The concept of a trust protector is recognized, to include the power to amend a trust for tax or other reasons.

14-11004 – attorneys fees

Reasonable fees will be authorized for litigation engaged in with good faith

14-11005 – statute of limitations

There is a one year statute of limitations to bring a claim against a trustee for breach of trust if “THE BENEFICIARY OR A REPRESENTATIVE OF THE BENEFICIARY WAS SENT A REPORT THAT ADEQUATELY DISCLOSED THE EXISTENCE OF A POTENTIAL CLAIM FOR BREACH OF TRUST AND INFORMED THE BENEFICIARY OF THE TIME ALLOWED FOR COMMENCING A PROCEEDING”. Otherwise, there is a two year statute beginning on the date of the trustee’s death or resignation or of the termination of the trust. Note that this section only deals with breach of trust and that sec. 14-10604 deals with the validity of the trust. Also note that this applies to any beneficiary, not just a qualified beneficiary, so that any contingent beneficiary is bound by this section.

14-11008 – trustee exculpation

Relief from liabilities is not enforceable as to bad faith or “reckless indifference”. If exculpation was done at the behest of trustee, it is valid only if it is “FAIR UNDER THE CIRCUMSTANCES AND THAT ITS EXISTENCE AND CONTENTS WERE ADEQUATELY COMMUNICATED TO THE SETTLOR”.

14-11010 – trustee’s torts

Trustee will be liable for torts committed during administration if trustee “IS PERSONALLY AT FAULT”.

14-11013 – certification of trusts

The use of certifications of trust is encouraged. A certification should include:

1. THAT THE TRUST EXISTS AND THE DATE THE TRUST INSTRUMENT WAS EXECUTED.

2. THE IDENTITY OF THE SETTLOR.

3. THE IDENTITY AND ADDRESS OF THE CURRENTLY ACTING TRUSTEE.

4. THE POWERS OF THE TRUSTEE.

5. THE REVOCABILITY OR IRREVOCABILITY OF THE TRUST AND THE IDENTITY OF ANY PERSON HOLDING A POWER TO REVOKE THE TRUST.

6. THE AUTHORITY OF COTRUSTEES TO SIGN OR OTHERWISE AUTHENTICATE AND WHETHER ALL OR LESS THAN ALL ARE REQUIRED IN ORDER TO EXERCISE POWERS OF THE TRUSTEE.

7. THE MANNER OF TAKING TITLE TO TRUST PROPERTY.

B. A CERTIFICATION OF TRUST MAY BE SIGNED OR OTHERWISE AUTHENTICATED BY ANY TRUSTEE.

C. A CERTIFICATION OF TRUST MUST STATE THAT THE TRUST HAS NOT BEEN REVOKED, MODIFIED OR AMENDED IN ANY MANNER THAT WOULD CAUSE THE REPRESENTATIONS CONTAINED IN THE CERTIFICATION OF TRUST TO BE INCORRECT.

Third parties can request copies of the excerpts mentioned above and are protected if they rely on the certification. However, “A PERSON MAKING A DEMAND FOR THE TRUST INSTRUMENT IN ADDITION TO A CERTIFICATION OF TRUST OR EXCERPTS IS LIABLE FOR DAMAGES IF THE COURT DETERMINES THAT THE PERSON DID NOT ACT IN GOOD FAITH IN DEMANDING THE TRUST INSTRUMENT”. This does not appear to apply to beneficiaries.

14-11014 – Conversion of total return trusts

A trustee is permitted, “in its sole discretion and without approval of the approval of the probate court”, to convert an income trust to a total return trust or vice versa and to change the percentage used in a unitrust calculation that cannot be less than three percent or more than five percent. Notice must be provided to the settlor and all qualified beneficiaries.

 Thomas J. Murphy
Murphy Law Firm, Inc.
P O Box 51244
Ahwatukee Station
Phoenix, AZ 85076
480-838-4838

tom@murphylawaz.com

Presented To the Tax Law section of the State Bar of Arizona

March 28, 2007

Some of the best decisions that an attorney – or any business person for that matter – can make is to simply say “no”. This is particularly important when deciding whether to accept the engagement of a new client. Having a bad client can demoralize an attorney and staff faster than anything I know. I base this on my (unfortunately) extensive experience on this topic.

I have listed below ten client-types who should be avoided. But there is one overriding concept that should always be kept in mind: would I treat the client they way the client is treating me? If the answer to that is no, then get rid of the client. Period. Difficult clients seldom get better and they take a significant toll on your staff. End the engagement as soon as you can.

With this in mind, here are my “Top 10″ clients to avoid, in no particular order.

#1. The price-obsessed client.

Our clients should be price-conscious but not price-obsessed. The primary concern of this client is the cost of our services and not issues such as quality of the work, experience in this area of law, timeliness of the delivery of services and so on. This client does not appreciate the knowledge and experience that sets practitioners apart and hence is very unlikely to pay for that expertise. This client is also likely to become a problem client, based on the following principle:

Murphy’s First Law of Client Representation: The client who pays the least demands the most.

One very effective tool to avoid this situation is to charge a consultation fee for the first meeting. Someone who is willing to pay several hundred dollars to meet with you is serious about resolving their problem and not simply shopping around for the cheapest fee. They realize your representation of them will likely not be inexpensive. It will dramatically decrease they number of clients who don’t retain you or will “get back to you”. As one colleague of mine has pointed out: “What’s the worst thing they can say about me if they won’t pay the consultation fee? That I am too expensive. I can live with that.”

Also realize that, in a highly technical area such as estate planning or tax law, the prospective client really has no way of distinguishing who is good and who is not. As crazy as it sounds, many clients at the outset will judge your ability and expertise by the size of your fee – the higher the fee, the better you must be.

#2. The “I don’t care what it costs” client.

This client is at the other end of the spectrum. This client is very angry and worked up over the matter. He is either being accused of some wrongdoing, like taking undue advantage of a parent, or he is the one making the accusation. Or he may be furious at some injustice that the IRS is attempting to impose upon him. Either way, he is “taking it all the way”. He doesn’t care what it will cost. But there is a reason why he doesn’t care what it will cost.

Because he isn’t going to pay you.

This client is usually out for revenge, which the slow-moving and expensive court system does not do very well. As a result, this client will never be happy, especially when he gets your first bill.

#3. The last-minute client.

This is the new client who calls you on Monday morning demanding an immediate appointment because he has a hearing on Wednesday morning. You squeeze him in at the end of the day. The client clearly needs representation. The two of you reach an agreement for you to appear on Wednesday morning, at which time the client will pay you a retainer of, say, $2,500. You agree to meet at 9:00am at the courthouse for the 10:00am hearing.

Wednesday morning, you arrive at the courthouse and the client, along with several friends and family members, are already there. A good sign. You further discuss the case where you learn of more merits about the case. An even better sign.

At around 9:30am, you ask about the $2,500 retainer. The client doesn’t have it. The client doesn’t even have half of $2,500. He has something like $900.00.

You look at the check with your name on it. You look at your watch – the hearing is in thirty minutes. You have already driven out to the courthouse. The client seems like a decent fellow with a meritorious case. He tells you he will have the balance to you within a couple weeks – he has an income tax refund coming. You think there is a chance the case might be quickly resolved. You decide to take the case, accept the check (or, more likely, a money order) and make your appearance in court.

Big mistake.

You will probably never see any further funds from this client. This client knows he doesn’t have the money to pay you but he hopes that, by having you appear in court for the other parties to see, that a quick resolution will follow. This means you won’t need or use the full retainer. But don’t count on this happening.

In such situations, remember the following concept:

Murphy’s Second Law of Client Representation: If they can’t pay you when they need you, they won’t pay you when they can.

Or, as Jay Foonberg states in his great book, How To Start And Build A Law Practice: There is nothing more worthless than the value of legal services already provided.

When representation in court is required, remember this concept as well if things don’t go well and you want to terminate the representation:

Murphy’s Third Law of Client Representation: Representing a client in court is like placing your hand inside an animal trap. It is very easy to put it in but it can be very painful to get it out.

Terminating representation in court will require the filing of a pleading stating your withdrawal from the case. This will normally require the signature of your so-to-be ex-client, which may not be easy to obtain. You may have to obtain a court order permitting your withdrawal. Or, in certain situations such as when a trial date has been set, the court may not allow your withdrawal, even if you have not been paid.

#4. The client with a difficult family history.

This is another situation where revenge plays a large part, making resolution of the case immensely difficult. This usually occurs in probate administration. Many times, it will not be your clients fault since another family member may be the difficult one.

Murphy’s Fourth Law of Client Representation (also known as Murphy’s Law of One): There is always one. In any large family, there’s always one family member ready to cause trouble.

There is always one family member who has a score to settle. In any probate matter or other family legal situation such as a multi-generational family business, it only takes one disruptive family member to slow everything down to a crawl. Many times, these disputes are ridiculously petty, leading to the following concept:

Murphy’s Fifth Law of Client Representation (also known as Murphy’s Law of Inverse Proportion): The biggest battles are fought over the smallest things.

Who gets the china when Mom dies? Should the estate pay for the daughter’s airfare to attend the funeral? Who will move into Dad’s vacated office?

Be wary of children – or worse, the children’s spouses – who take an active interest in what you are doing for the parent. These children and in-laws don’t have the fortitude to confront their parent if they do not agree with what the parent is doing but they will not hesitate to complain when the parent is no longer around. Or they may not be willing to say anything to you but will pressure the parent when they are outside of your office. Many times, that child is consulting with someone else, unknown to you. Often, that “someone” has no idea what they are talking about – often wrong but never in doubt — but they have the child convinced that they do. If the child is getting bad advice from some knucklehead, you as practitioner have a problem that, if not obvious, is festering. And other children may resent the involvement of that child, and especially the involvement of an in-law, in the parent’s affairs, even if that child has the best of intentions.

An additional consideration is that, when these family battles flare up and issues cannot be resolved, the judges will often blame the lawyers for the mess.

#5. The “simple” client

This is the client who is adamant that they have a very simple legal issue that will entail little time – or fees – on the part of the lawyer.

Don’t believe it. If the matter was so simple, the client would not be visiting you in the first place.

Murphy’s Sixth Law of Client Representation: A client who tells you she has a “simple” problem is actually another way of saying “I don’t want to pay you for the mess I’m in”.

#6. The cash client.

Cash usually means trouble. A person who does not have a checking account or credit card is highly unlikely to be a good, reputable client or one who can afford your services. Or, they may be trying to hide something by paying you in cash. Either way, cash is not a good sign. To avoid a dispute later on as to how much was paid, insist on providing a signed, dated receipt and have one of your staff count the cash in addition to you.

#7. The slow-paying client

If your client is happy with your services, then you should be getting paid promptly. Failure to do so usually means two things, neither of them good. One is that they do not have the funds to pay you and cannot afford your services. This is especially so if they cannot put the amount owed on their credit card. Or, they may be unhappy with your performance. Either way, get the problem straightened out ASAP. You are not being unreasonable in asking for prompt payment. Look at it from the other end with you having to pay the bill – wouldn’t you immediately pay the bill, figuring that the service provider expects to get paid?

Murphy’s Seventh Law of Client Representation: Do not let a client’s bill grow to a point where you can’t afford to walk away from it.

As Jay Foonberg warns: “It is better to not do the work and not get paid than to do the work and not get paid”.

#8. The litigious client.

Be wary of clients who have sued or been sued many times. These are people who try to game the system and use the legal system as an obstacle towards others. They tend to have a scapegoat mentality – it is always someone else’s fault. Many times they are trying to get out of paying someone – recognize that you may be the next person they are trying to stiff. Most reasonable people resolve their differences without going to court.

These clients will not hesitate to compare you with the prior lawyers they have worked with. You seem to be charging much more than the previous lawyer. The previous lawyer told them something different or that it would not be a problem. And so on. These clients can be very manipulative.

Murphy’s Eighth Law of Client Representation: Be wary of clients who have more litigation experience than you do.

#9. The chronic rescheduler

It is not unreasonable to a client to have to reschedule an appointment. But when it becomes a recurring situation, you need to think twice about continuing the representation, if, indeed, it has even started.

There are three reasons for this. One is that this can create havoc with your schedule, especially during busy times. The second and more important reason is that, by repeatedly rescheduling, this person is indicating that their matter with you is not very important. Third, this person is likely to be very disorganized and/or is living at a very frenetic, world-wind pace. And they often have trouble making decisions.

#10. The client with a dysfunctional family.

This is similar to problem client #4. Here, the client may have a long, established relationship with you. He thinks you are the best lawyer around. But will the client’s children think so after the client had died?

Maybe you recommended a tax strategy that backfired or did not work out quite as favorably as you had hoped. Maybe you represented the client on a very complex matter that the children now think could have been handled much more simply, inexpensively and expeditiously. Maybe you developed a business succession plan where one of the children feel shorted. Or you crafted an estate plan that either resulted in unequal bequests among the children or involves a second spouse. Or it may simply be a matter of sticker shock – Dad paid you how much?

Once your client has died, the children, the spouse and other beneficiaries have standing to ask some very pointed questions about your representation. This could lead the court action to recoup some or all of the fees paid to you or to undo some of the work done for the client, such as challenging the will or trust that you prepared for the now-deceased client.

This is a difficult situation for practitioners to protect themselves. Not only can it be difficult to predict what the objections might be, but the practitioner may have derivative duties to the children by virtue of the representation of the client. See, for instance, Estate of Fogelman, 197 Ariz 252 (CA1, 2000); Wetherill v. Basham, 197 Ariz 198 (CA2, 2000); Fleming v. Capitol Indemnity, 203 Ariz 589 (CA2, 2002).

As a result, consideration should be given to declining the engagement. At the very least, the fee agreement should address what will happen and how you will get paid if the children or spouse later take aim at you.

Also realize that the dysfunction in the family is usually not limited to only one family member. Erratic or manipulative behavior, bad tempers and the like often run in the family and are usually not limited to that one bad child. There is usually more than one jerk in the family. Make sure you are ready and equipped to deal with this.

To the Chandler regional Hospital

October 4, 2006

#1. Beneficiary designation form controls.

The inheritance of retirement funds is governed by the beneficiary designation form and NOT by your will, trust or the probate court. For instance, if you only name one child on the form but have a will that states that your estate will be equally divided between your five children, the child named in the beneficiary form takes the entire retirement account.

#2. Beneficiary designation form – don’t be limited by the form

A beneficiary designation form is a starting point. Frequently, there is only room on the form for one or two names. You can always name more than that by indicating that you are attaching a list with additional names. Always include identifying data – name, address, phone number, date of birth and Social Security number.

#3. Beneficiary designation form – is it current?

Don’t assume your benefits office or IRA custodian has an accurate beneficiary form. These forms, just like anything else, can get lost, particularly with the numerous mergers and acquisitions of bank, brokerage houses, and back-office administrators. In other words, these forms may no longer exist much less be current and accurate.

#4. No beneficiary designation form

If you never filled out a beneficiary designation form, or if it can’t be found, your probate estate will be deemed to be the beneficiary of your retirement funds. This means that a probate proceeding will have to be opened. This is not a problem in Arizona but can be a huge headache in other states. Also, since the funds are part of your probate estate, they may be available to be seized by the creditors of your probate estate.

#5. Beneficiary designation form – minor children

If you want your minor children or grandchildren to inherit your retirement funds, then you should address what will happen to those funds when the child turns 18 years old and thereby has unrestricted access to those funds. It is a better practice to create a trust for the benefit of those children that can continue to hold these funds until the child is at an older age (often 25 to 35 years old) to more maturely manage the money.

#6. Beneficiary designation form – divorce

Never assume that the terms of a divorce decree will alone be enough to remove a former spouse as beneficiary of your retirement plan. The United States Supreme Court recently held that, unless the ex-spouse’s name is removed from the beneficiary form, then the ex-spouse will remain as beneficiary, even if the divorce decree specifically states that the ex-spouse has not rights to the retirement funds.

#7. Distributions from inherited IRAs & the five year rule

The general rule is that, when you inherit an IRA or other retirement asset, you must withdraw those funds within five years of the date of death. But there is a huge exception to this rule that many advisors are not aware of. If the beneficiary is an individual (rather than, say, a charity or probate estate), then the beneficiary will often be able to take payment over the life expectancy of the beneficiary. This means that the funds can continue to grow tax-deferred for decades if done correctly.

#8 Lifetime distributions if high medical expenses

Generally, retirement money are the last funds you want to use since the funds grow tax-deferred. However, if the owner of the account has large medical expenses (such as the nursing home), then these expenses, deductible on your tax return to the extent they exceed 7.5% of adjusted gross income, will offset what would otherwise be taxable income. This will greatly lessen or eliminate the taxes incurred by reason of the withdrawn funds.

#9. Lifetime distribution if in lower income tax bracket that children

Again, normally retirement funds are the last source of funds you will use. But, unlike most inherited assets, the person who inherits the retirement account will pay income taxes when that money is withdrawn. If your child is going to inherit these funds and if that child is a high income earner (and hence in a high income tax bracket), it may make sense to withdraw the money during your life and pay the tax at your lower tax rate rather than have the child pay tax at their higher rate.

#10. Creditor protection

A huge but often overlooked advantage of retirement plans is that the money in retirement accounts are protected from creditors. This was a major development in the much-maligned bankruptcy bill that took effect last year. In Arizona, these funds are protected even without a bankruptcy.

The Maricopa County Bar Association October 15, 2002 by

Thomas J. Murphy

Murphy Law Firm, Inc.

P O Box 51244

Phoenix, AZ 85076

(480) 838-4838

The Maricopa County Bar Association October 15, 2002 by

Thomas J. Murphy

Murphy Law Firm, Inc.

P O Box 51244

Phoenix, AZ 85076

(480) 838-4838

tom@murphylawaz.com

#1. Terms of divorce decree do not bind the IRS.

Emphasize to clients that having one spouse assume tax liabilities is only the first step in resolving their tax issues.

#2. Watch out for taxes that are dischargeable in bankruptcy when one spouse agrees to assume tax liabilities.

Many taxes are dischargeable in bankruptcy. Beware of the spouse who assumes the tax debts — that spouse can file for bankruptcy, get most or all of the taxes discharged and leave the other spouse fully liable for the taxes even though the decree states otherwise.

#3. Watch out for taxes that are NOT dischargeable.

Be very wary of advising clients that bankruptcy may be the answer since many taxes are NOT dischargeable.

Non-dischargeable taxes fall into four categories:

a. 3 year, 2 year, 240 day rule — 11 USC 523(a)(1)

3 years: Pretty simple — the due date of the return must be at least three years ago. 11 USC 507(a)(8)(A)(I). Any extension that was granted extends the 3 years.

2 years: If filed return late, 2 years must have passed since the return was filed. This applies only to Chapter 7 bankruptcies. 11 USC 507(a)(8)(A)(i)

240 days: Cannot have an assessment (“we have changed your return”) within 240 days of filing for bankruptcy. 11 USC 507(a)(8)(A)(ii)

b. No tax returns filed.

No return, no discharge. 11 USC 523(a)(I)(B)(I). However, in a Chapter 13 “super discharge”, you can file returns after bankruptcy petition and get discharge if due date of return was more than 3 years ago. 11 USC 1328

c. Payroll taxes

Never dischargeable for a responsible person. 11 USC 508(a)(8)(C), IRC 6672

d. Tax liens

A properly recorded tax lien survives a bankruptcy filing. In Re Isom, 901 F2d 744 (9th Cir, 1990); 26 USC 6325(a)(1)

Practice tip — always order an IRS transcript of your clients’ tax history to see if returns have been filed, if there are back taxes owed or if there is a tax lien that the client may not know about. Client can do this by visiting the Taxpayer Assistance desk at any IRS office or attorney can do this if a form 2848 (the IRS power of attorney form) is completed.

#4. Where Is The Money Coming From?

If client is making a lump-sum distribution, the attorney needs to ascertain the source of the funds. This can have huge tax ramifications.

Is the money coming from a corporate account? If the corporation is a “C” corporation, the distribution will almost always be taxable as ordinary income. IRC 316. With an “S” corporation, it will be taxable if the distribution exceeds the taxpayer’s basis in the corporation. IRC 1368.

Is the money coming from the selling of corporate assets? Most clients understand that there may be a capital gain if property has appreciated in accordance with IRC 1231. But watch out for “recapture” whereby the accumulated depreciation is, in effect, added to the gain. IRC 1016.

Is the money coming from a retirement plan? Leaving aside any QDRO issue, remember that this money has never been taxed.

Is the money coming from the sale of a primary residence? For a single taxpayer, proceeds from the sale are generally tax-free as long as the gain (not the sales price) does not exceed $250,000 ($500,000 for married couples). IRC 121.

#5. Watch out for Offers In Compromise.

Two problems. One is that obtaining relief through an OIC is an extremely slow process, often taking in excess of two years. Collection activity stops when an OIC is pending. This makes it easy for clients to “forget” about the looming problem so make sure nothing is pending. Secondly, if the couple was successful in obtaining relief through an OIC, the taxpayers agree to remain in compliance for 5 years. Will both spouses remain in compliance (ie, timely file and pay in full) after the divorce?

#6. Make sure that beneficiary designations on retirement plans are updated after the divorce.

The provisions of ARS 14-2804 (where the divorced spouse is disinherited) does NOT apply to 401(k)’s and other ERISA plans. See the recent case of Egelhoff v. Egelhoff, 121 SCt 1322 (2001).

#7. Have client draft a new will or trust while divorce is pending.

This is imperative if the spouses have no children from the marriage. If no will and no children from prior marriages, the surviving spouse takes the entire estate. If there is a will, are children or other family members adequately provided for in view of the divorce? Should an inter vivos or testamentary trust be drafted to protect the interests of the children, such as with a family member or close friend as trustee?

#8. Protecting the low-income spouse from pre-marital tax debts.

ARS 25-215(b) — an extremely useful but often underutilized tool. Typical scenario — low-income spouse comes into the marriage with a pre-marital tax debt. IRS wants to levy on that spouse’s one-half community property interest. This cannot be done since ARS 25-215(b) says that liability only attaches on community property “to the extent of the value of that spouse’s contributions to the community property”. So if the tax-debtor spouse is making $25,000 and the non-debtor spouse is making $75,000, then the IRS can only look to 25% of the community property.

#9. Divorce with the nursing home looming.

If one spouse is about to enter a nursing home, divorce is seldom an effective resolution. Divorce will only work if the healthy spouse has a large amount of separate property.

#10. Record retention.

My advice is for clients to hold onto as many records as they can for as long as they can. The IRS can always audit for three years. IRC 6501. The Arizona Department of Revenue can go back four years. ARS 42-1104. So four is the absolute minimum. But the federal and state statute of limitations is open for six years if there is 25% underreporting of income. IRC 6501(e)(1)(A) & ARS 42-1104(b). A tax lien remains in effect for ten years. IRC 6502. This is important since many times your client may not know that there is a tax lien since the IRS need only mail notice once and to the last known address. IRC 6303. And for a fraudulent return or where there is a willful attempt to evade the payment of taxes, there is no statute of limitations. IRC 6501(c). Likewise, the statute never begins to run if a return was never filed.

DURABLE POWER OF ATTORNEY FOR

HEALTH CARE DECISIONS FOR

N-1

Pursuant to Arizona Revised Statute 36-3221, I hereby create this Durable Power of Attorney for Health Care Decisions to authorize the agent designated to make all health care decisions for me at any time that I am not able to communicate my wishes or not able to make health care decisions for myself.  Pursuant to Arizona Revised Statutes 14-5501 et seq and 36-3223, this Durable Power of Attorney for Health Care Decisions will not be affected or revoked by my incapacity or other disability.  Pursuant to Arizona Revised Statute 36-3202, this Power of Attorney for Health Care Decisions continues in effect for all who may rely on it except for those who have received notice of its revocation.

PURPOSE.  My purpose is to grant my agent designated below the full power and authority to make health care decisions for me to the same extent that I could make such decisions for myself if I had the capacity to do so.  This power and authority is effective on, and only on, my inability to make or communicate my own health care treatment decisions. For purposes of this document, “health care treatment decision” means consent, refusal of consent or withdrawal of consent to any care, treatment, service or procedure to maintain, diagnose or treat my physical or mental condition.

APPOINTMENT OF AGENT.  I appoint the following persons, in the order of priority set forth, to act as my agent for purposes of this Durable Power of Attorney for Health Care Decisions:

1.  N-2- Spouse

2.  N-3-

POWERS OF AGENT.    My agent has the power and authority to do any and all of the following:

1.         To consent, refuse or withdraw consent to any and all types of medical care, treatment, surgical procedures, diagnostic procedures, medication and the use of mechanical or other procedures that affect any bodily function, including, but not limited to, psychiatric treatment, artificial respiration, nutritional support and hydration and cardiopulmonary resuscitation.

2.         To request, review , receive and otherwise obtain access to any information, written or oral, regarding my physical or mental health, including all medical and hospital records.

DURABLE POWER OF ATTORNEY FOR HEALTH CARE DECISIONS

PRINCIPAL:

N-1

N1-ad

N2-tl

AGENT:

N-2

N2-ad

N2-tl

FIRST ALTERNATE AGENT:

N-3

N3-ad

N3-tr

SECOND ALTERNATE AGENT:

N-4

N4-ad

N4-tl

DURABLE POWER OF ATTORNEY

FOR

N-1

By this instrument, I intend to create a Durable Power of Attorney as set forth in Arizona Revised Statute 14-5501 et seq. This Power of Attorney shall not be affected by any subsequent disability or incapacity of myself, the principal.

I, N-1, hereby appoint my_____, N-2, to serve as my agent (“Agent”) and to exercise the powers and discretions set forth below.

I hereby revoke all Powers of Attorney, general or limited, granted by me as Principal, prior to the date I have signed this instrument, except that any powers granted by me on forms provided by financial institutions granting the right to write checks on, deposit funds to, and withdraw funds from accounts to which I am signatory or granting access to a safe deposit box shall not be revoked and shall continue in full force and effect.

ARTICLE I

ADVISORY NOTICE TO AGENT. THERE HAVE BEEN RECENT CHANGES TO ARIZONA REVISED STATUTE SECTION 14-5506, A STATUTE WHICH GOVERNS THE EXERCISE OF POWERS OF ATTORNEY. UNDER THAT NEW STATUTE, AN AGENT CANNOT RECEIVEANY BENEFITS FROM THE PRINCIPAL UNLESS THOSE BENEFITS ARE SPECIFICALLY IDENTIFIED IN DETAIL WITHIN THIS INSTRUMENT OR WITHIN A WRITTEN CONTRACT. OTHERWISE, THE AGENT COULD BE SUBJECT TO CRIMINAL PROSECUTION OR SUBJECT TO THE PENALTY PROVISIONS OF ARIZONA REVISED STATUTE SECTION 46-456, WHICH AUTHORIZES THE LOSS OF THE AGENT’S RIGHT TO INHERIT FROM THE PRINCIPAL AS WELL AS PAYMENT OF TREBLE DAMAGES AND ATTORNEY’S FEES. AN AGENT SHOULD CAREFULLY REVIEW THESE STATUTES OR CONSULT WITH A KNOWLEDGEABLE ATTORNEY PRIOR TO EXERCISING THE AUTHORITY GRANTED BY THIS POWER OF ATTORNEY.

ARTICLE II

My Agent is authorized, in my Agent’s sole and absolute discretion, from time to time and at any time, with respect to any and all of my property, real, personal, intangible, and mixed as follows:

Power to Sell or Convey. My Agent is authorized to sell or convey any and every kind of property that I may own now or in the future, real, personal, intangible, or mixed, including without being limited to contingent and expectant interests, all marital rights, my share of any community property rights, and any rights of survivorship incident to joint tenancy or tenancy by the entirety. Any such sale or conveyance shall be upon such terms and conditions as my Agent deems appropriate. My Agent is authorized to make such dispositions of the proceeds of such sale as my Agent shall deem appropriate. This authority shall include the power to sell, transfer or encumber my residence, as well as any other real estate that I now have or later will acquire.

Property located at:

Legal description :

(Use this paragraph only if the client has a home.)

Power to Buy. My agent is authorized to buy every kind of property, real, personal, intangible, or mixed, upon such terms and conditions as my Agent shall deem appropriate. This includes the authorization to obtain options with respect to such purchases and to arrange for appropriate disposition, use, safekeeping, or insuring of any such property.

Power to Borrow and Use Credit Cards. My Agent is authorized to borrow money and to secure such borrowings in such a manner as my Agent shall deem appropriate. My Agent is authorized to use any credit card held in my name to make such purchases and to sign such charge slips as may be necessary to use such credit cards.

Power to Provide for Principal’s Support. My Agent is authorized to do all acts necessary for maintaining my customary standard of living, to provide living quarters by purchase, lease, or other arrangement, or by the payment of the operating costs of my existing quarters, including interest, amortization payments, repairs, and taxes, to provide normal domestic help for the operation of my household, and to provide clothing, transportation, medicine, food, and incidentals for me.

Power to Repay Loans. My Agent is authorized to repay, from any funds belonging to me, any money borrowed by me or my Agent acting on my behalf, and to pay for any purchases made by me or my Agent acting on my behalf.

Power to Invest. My Agent is authorized to invest all or any part of my property in any property, real, personal, intangible, or mixed, wherever located, in whatever manner my Agent deems appropriate. This includes the power to establish, utilize, and terminate accounts, including margin accounts, with any stock transfer agent or securities broker and to exercise all rights with respect to any securities that I may now own or subsequently acquire. To invest in an IRC section 529 plan, Coverdell (fka Education)IRA, Roth IRA or similar tax-preferred investment.

Power with Respect to Bank Accounts. My Agent is authorized to establish or terminate accounts of all kinds, including checking, savings and certificates of deposit, for me with financial institutions, including, but not limited to, bank and thrift institutions. My Agent is authorized to modify, terminate, make deposits to, write checks on, make withdrawals from, or grant security interests in all accounts in my name or with respect to which I am an authorized signatory (except accounts held by me in a fiduciary capacity). This authorization includes contracting for any services rendered by any financial institution.

Power to Operate Businesses. My Agent is authorized to continue the operation of any business (including any rental properties, ranch or farm) belonging to me or in which I may have a substantial interest, for such time and in such a manner as my Agent shall deem appropriate. This power includes, but is not limited to, hiring and discharging employees; paying employees’ salaries; providing for employees’ benefits; employing legal, accounting, financial, and other consultants; continuing, modifying, terminating, renegotiating, and extending any contractual arrangements made by me or on my authorized behalf: executing business tax returns and other government forms required to be filed by my business; contributing additional capital to the business; changing the form of the business, incorporating or reorganizing the business, entering into partnership agreements and joining in any consolidation and merger of the business; selling, liquidating or closing out the business; to create, continue, and terminate retirement plans of the business, and to make contributions which may be required to those plans; and to borrow and pledge business assets.

Power to Disclaim, Renounce, Release, or Abandon Property Interest. My Agent is authorized to renounce, disclaim, release, or abandon any property or interest in property to which I am or may become entitled, whether by gift, testate, or intestate succession.

Power with Respect to Taxes. My Agent is authorized to represent me in all tax matters. This includes preparing, signing, filing and paying federal, state, and local income, gift, sales or excise tax returns, and extensions and waivers of applicable periods of limitation, filing protests and petitions to administrative agencies and courts, negotiating checks payable for tax refunds, and filing any tax related documents, including any power of attorney form required by the Internal Revenue Service and any other state or local taxing authority with respect to any tax year. I intend for this instrument to be the equivalent of Internal Revenue Service Form 2848 or other similar form used by state and local taxing authorities.

Power to Provide Support for Others. My Agent is authorized to support any person whom I have undertaken to support or to whom I owe an obligation of support, in the same manner as I may have provided in the past, adjusted if necessary by circumstances and inflation. If at any time I am legally separated or divorced from my spouse, any support provided to such spouse by my Agent shall be limited to such support as may be required by law.

Power For Spouse to Exercise Community Property Rights. Need Paralegal’s & Client’s initials on all these blank spaces)______________________In the event I have appointed my spouse as my Agent and to the extent not otherwise expressly prohibited by the terms of this power of attorney, my Agent is authorized to exercise all rights, fulfill all obligations and satisfy all debts regarding my interests in any community property or property that is otherwise jointly owned by me and my Agent.

Power with Respect to Retirement Assets and Insurance Contracts. ___________ . My Agent is authorized to manage any interest that I may have in any retirement asset or insurance contract, which shall include any interest that I may have in any qualified retirement plan, annuity or account, such as any pension, annuity or other plan or account governed by ERISA, CSRS or FERS, any IRA, SEP-IRA or SIMPLE IRA, any tax-sheltered annuity, any deferred compensation plan, any modified endowment contract or any medical savings account. The authority to manage any such interest shall include making any elections or undertaking other acts which are required under applicable law to create, maintain or enhance any tax-advantaged status of my interest. The authority shall include authorizing the timing and amount of any distributions from the retirement asset or insurance contract. The authority shall include authorizing payment for premiums for any insurance contract. However, this authority is limited to the extent that my Agent does not have the authority to change the name of any beneficiary in any retirement asset or insurance contract.

Power with Respect to Qualification for Medicaid or Other Governmental Benefits . My Agent is authorized to utilize all lawful means and methods to recover such assets and rights, qualify me for and claim benefits provided by any governmental agency or body, to include Medicaid, Medicare, Supplemental Social Security, and Social Security Disability Insurance. This authority includes converting my assets into assets that do not disqualify me from receiving such benefits and to make gifts in accordance with the gifting authority granted elsewhere in this instrument My Agent is directed to consider all rules, regulations and statutes regarding disqualification or other adverse actions that may result from such gifting.

Power to Create, Fund, Amend, and Terminate Trusts. . My Agent is authorized to execute and amend a revocable trust agreement, to transfer property to the trustee, to withdraw or receive income or corpus of any trust that has been created by me or for my benefit, change or designate a trustee and to exercise any right that I may now have or later obtain in any such trust.

Power to Make Gifts.__ . My Agent is authorized to make gifts, to include the forgiveness of indebtedness, to my spouse, my children and descendants and to the spouses of my children and descendants, to include my Agent, in whatever amounts and for whatever purposes as my Agent deems appropriate. My Agent may also make gifts to any tax-exempt charitable organization recognized under Internal Revenue Code (“IRC”) Sections 170(c) or 501(c)(3) and to those persons named as beneficiaries in the Principal’s most recent will or trust, life insurance policy, retirement benefits or payable on death designation. As to any donee, these amounts shall not exceed the largest amount which then qualifies for the annual exclusion allowed for federal gift tax purposes as set forth in Section 2503 of the IRC. The authority to make gifts is non-cumulative and shall lapse at the end of each calendar year. All gifts may be made outright, in trust or to any guardian, conservator or custodian of an eligible donee. Gifts are not required to be in equal amounts and are not required to be made to all eligible donees.

ARTICLE III

Benefits Received by Agent._________. It is my intention that my Agent be reasonably compensated for the services rendered on my behalf and be reimbursed for any expenses paid by the Agent which were incurred on my behalf. Reasonable compensation shall not exceed the hourly wage or salary equivalent which the Agent customarily receives in his or her regular employment. Reimbursement shall include, but is not limited to, monies paid for medications (whether prescribed or purchased over the counter), medical co-payments, fees for medical, nursing and caregiver services or laboratory work, household or personal incidentals, automobile maintenance and repair, lawn services or landscaping, fees for professional services (such as an attorney, CPA or financial advisor), reasonable travel or lodging costs in performance of the duties created by this power of attorney, maintenance and repair of my residence and care of my pets. Benefits authorized to be received by my Agent shall include any imputed rent deemed to exist due to any arrangement, agreement or understanding between my Agent and I which allows my Agent to live rent-free in my residence or other property owned by me.

Waiver for Acts of Omission. My Agent, if acting in good faith, is hereby released and discharged from any and all civil liability and from all claims or demands made by me or my heirs and assigns arising out of acts or omissions of my Agents, except for willful misconduct and gross negligence.

Severability. If any part of any provision of this instrument shall be invalid or unenforceable under applicable law, such part shall be ineffective to the extent of such invalidity only, without in any way affecting the remaining parts of such provision or the remaining provision or the remaining provision of this instrument.

Governing Law. This instrument shall be governed by the laws of the State of Arizona in all respects, including its validity, construction, interpretation, and termination.

Effect of Other Jurisdictions. To the extent permitted by law, this instrument shall be applicable to all property of mine, real, personal, intangible, and mixed, wherever and in whatever State of the United States or foreign country the situs of the property is at any time located. This includes all property now owned by me or subsequently acquired by me or for me by my Agent.

Separation or Divorce. If my spouse has been appointed my Agent or Alternate Agent, and my spouse and I are later legally separated or divorced, or in the event that such an action is now pending, such legal separation, divorce, or pending actions shall automatically and without notice remove my spouse as Agent or Alternate Agent.

Power to Sue Third Parties Who Fail to Act Pursuant to Power of Attorney. If any third party (including stock transfer agents, title insurance companies, banks, credit unions, and savings and loan associations) with whom my Agent seeks to transact refuses to recognize my Agent’s authority to act on my behalf pursuant to this Power of Attorney, I authorized my agent to sue and recover from such third party all resulting damages, costs, expenses, and attorney’s fees that are incurred because of such failure to act. The costs, expenses, and attorney’s fees incurred in bringing such action shall be charged against my general assets, to the extent that they are not recovered from said third party.

I, the Principal, execute this document intending it to be effective on the date that it is signed. I understand that a) this document gives my Agent serious powers over me and my assets, b) the powers continue after I become incapacitated or disabled and c) I can revoke and cancel this document at any time and for any reason or no reason. Further, I, the Principal, sign my name to this Power of Attorney on the date indicated below and being first duly sworn, do declare to the undersigned authority that I sign and execute this instrument as my power of attorney and that I sign it willingly or willingly direct another to sign for me, that I execute it as my free and voluntary act for the purposes expressed in the power of attorney and that I am eighteen years of age or older, of sound mind and under no constraint or undue influence.

DATED this d-t.

___________________________

N-1, Principal

I, (Paralegal’s Name), the witness, sign my name to the foregoing power of attorney being first duly sworn and do declare to the undersigned authority that the Principal signs and executes this instrument as his/her power of attorney and that he/she signs it willingly, or willingly directs another to sign for him/her, and that I, in the presence and hearing of the Principal, sign this power of attorney as witness to the Principal’s signing and that to the best of my knowledge, the Principal is eighteen years of age or older, of sound mind and under no constraint or undue influence.

Paralegal’s Name, Witness

STATE OF ARIZONA )

) ss.

County of Maricopa )

Subscribed, sworn to and acknowledged before me by N-1, the Principal, and subscribed and sworn to before me by (Paralegal’s Name), the witness, this d-t.

Attorney’s Name

Attorney at Law/ Notary Public

DURABLE POWER OF ATTORNEY

PRINCIPAL:

N-1

AGENT:

N-2

Address

1. Designation of Primary Health Care Agents.

Pursuant to Arizona Revised Statutes Sections 14-5104, 36-2271, and 44-133, we, N-1 and N-2 , are the lawful parents of*, a child born on _(birthdate)_______________, under the age of eighteen years old. We are of sound mind, free from any duress or undue influence, and over the age of eighteen years. We hereby willfully and voluntarily designate and appoint the following to act as our Agents to make health care decisions for us concerning our minor child, *.

Primary Agents: N-3 .

(For the purpose of this document, “health care decision” means consent, refusal of consent, or withdrawal of consent to any care, treatment, service, or procedures to maintain, diagnose, or treat our child’s physical or mental condition.)

2. General Statement of Authority Granted.

We grant our Agents full power and authority to make health care treatment decisions concerning our child for us to the same extent that we could make such decisions concerning our child.

In exercising this authority, our Agents shall make health care decisions that are consistent with our desires as stated in this document, or as otherwise made known to our Agents, including, but not limited to, our desires concerning obtaining, refusing, or withdrawing life-prolonging care, treatment services, and procedures.

3. Insurance Coverage

Insurance Carrier:

Name of Insured:

Policy Number:

Primary Care Physician

Phone number:

4. Statement of Limitation.

If our child should suffer from an incurable or terminal condition or disease, or is in an irreversible coma, we direct that our Agents make all possible attempts to locate us and inform us of our child’s condition prior to authorizing any health care provider to stop further treatment. If our Agents cannot locate and inform us of such an event after all known means of contacting us have failed, our Agents are then, and only then, authorized to order medical personnel to refuse or withdraw life-prolonging care, treatment, services, and procedures.

We do not wish for our child to receive medical treatment that will only postpone the moment of death from an incurable or terminal condition or disease or that will prolong an irreversible coma.

(For the purpose of this instrument, “terminal condition” shall refer to a condition or disease that is reasonably expected to result in death within twelve (12) months regardless of the treatment received and “irreversible coma” shall refer to a permanent loss of consciousness from which there is no reasonable possibility to return to a cognitive and sapient life and shall include, but shall not be limited to a “persistent” or permanent vegetative state.)

5. Inspection and Disclosure of Information Relating to Physical or Mental Health.

Subject to any limitations in this document, our Agents have the power and authority to do all of the following:

a. Request, review, and receive any information , verbal or written, regarding the physical and mental health of our child, including, but not limited to, medical and hospital records.

b. Execute, on our behalf, any releases or other documents that may be required in order to obtain this information.

c. Consent to the disclosure of this information.

6. Signing Document, Waivers, and Releases.

Where necessary to implement the health care decisions that our Agents are authorized by this document to make, our Agents have the power and authority to execute on our behalf all of the following:

a. Documents titled or purporting to be a “Refusal to Permit Treatment” and “Leaving Hospital Against Medical Advice.”

b. Any necessary waiver or release from liability required by a hospital or physician.

7. Time Period of Agents’ Authorization.

Pursuant to Arizona Revised Statute Section 14-5104, our Agents’ authorization in this document will last for six months, beginning on the day on which this document is signed by us, unless it is terminated prior to that time by both of us. Revocation by one parent is effective as to that parent only. Revocation may be done orally or in writing. It continues in effect for all who may rely on it except those to whom we have jointly given notice of its revocation.

8. Declaration of Anatomical Gift (Organ Donation).

(You may make a gift of all or part of your child’s body to bank or storage facility or a hospital, physician, or medical or dental school for transplantation, therapy, medical or dental evaluation or research, or for the advancement of medical or dental science. You may also authorize your Agent to do so or a member of your family may make a gift unless you give them notice that you do not want a gift made. In the space below you may make a gift yourself or state that you do not want to make a gift. If you do not complete this section, your Agent will have the authority to make a gift of a part of your child’s body pursuant to law.)

We thereby make the following anatomical gift of the understated organs or parts of our child’s body to take effect immediately upon death. The initials in the appropriate blanks and words filled in on the blank lines below indicate our earnest desires and intentions in this regard.

to the following person(s) [or institution(s)]:

for the following purpose(s):

It is our intention that this Medical Directive, both as a self-executing document and as a delegation of power to our Agents and health care provider, shall be deemed an exercise of all rights that we may have under the United States Constitution, the constitution of the state of our domicile, state and federal laws, rules, regulations, and decisions, judicial and administrative, to refuse medical treatment, artificial nutrition and artificial hydration.

Dated this d-t

N-1, Father, Principal

N-2 , Mother, Principal

On the date set out hereinabove, N-1 and N-2 , personally known to us, executed and dated this Revocable Power of Attorney for Health Care Decisions for * in our presence, and N-1 and N-2 appeared to be of sound mind and free from duress.

Attorney Name , Witness	residing at:	Firm Street Address City, State
Paralegal Name, Witness	residing at:	Firm Address City, State

STATE OF ARIZONA )

) ss.

County of Maricopa )

Acknowledged before me this d-t by N-1 and N-2 , the Principals, and by Paralegal Name, a Witness.

Attorney Name

Attorney at Law, Notary Public

STATE OF ARIZONA )

) ss.

County of Maricopa )

Acknowledged before me this d-t by N-1and N-2 , the Principals, and by Attorney Name, a Witness.

Paralegal Name, Notary Public

REVOCABLE POWER OF ATTORNEY FOR HEALTH CARE DECISIONS FOR MINOR

PRINCIPALS:

N-1 and N-2

Address

AGENTS:

N-3

Address

Murphy Law Firm, Inc.

P O Box 51244

Ahwatukee Station

Phoenix, AZ 85076

480-838-4838

tom@murphylawaz.com

Presented To East Valley Estate Planning Council

May 21, 2008

A WILL CONTEST? YES, IT CAN HAPPEN TO YOU

Sooner or later, someone other than the clients will be reviewing your work and it may not be a pleasant experience. Many children or other family members do not understand the post-mortem administrative issues and too many simply view this as a lawyer’s opportunity to line his pockets with unnecessary legal work.

Many children and family members also labor under gross misunderstanding of the decedent’s estate. They think it is either much larger or smaller than it really is. This can lead to all sorts of outsized expectations that will never come to fruition. Too often, the attorney becomes the person on which their frustration is vented.

Unequal or unusual bequests have trouble written all over them. My practice is to have the client execute a series of wills over an extended period of time, usually one year, to eliminate the argument that the testator was acting impulsively when a will was executed. And make sure there is something in your file or stated in the will that explains why the bequest was made, ie a “forgotten” loan that was not forgotten by the testator.

Also, protect the caregiver child. Children not involved in the care of their parents’ last illness have no idea hoe expensive and time-consuming a last illness can be. Warn the client and caregiver that someone will have questions. Keep all receipts and time logs to substantiate any allegations of improprieties.

WILL CONTESTS

For a document to qualify as a will, it must meet the following requirements as set forth in ARS 14-2501 et seq. In other words, a will contest will involve allegations that at least one of the following requirements are lacking:

Must be 18 years of age

Must be of sound mind

Must be in writing

Must be signed by the testator or someone else at testator’s direction

Must have two witnesses who signed the will within a reasonable time unless the will is holographic. See Gonzalez v. Satrustegui, 178 Ariz 92 (CA1, 1993)

An exception to the above requirements is a holographic will, which simply requires that the document have the testator’s signature and that “the material provisions are in the handwriting of the testator”. ARS 14-2503. It does not take much for a writing to qualify as a holographic will. For instance, a post-script to a handwritten letter that simply stated “P.S. You can have my entire estate.” qualified as a holographic will. Estate of Blake v. Benza, 120 Ariz 552 (CA1, 1978). Fill-in-blank will forms are considered holographic wills, so that the other formalities of ARS 14-2501 are not required. Matter of Estate of Muder, 159 Ariz 173 (1988).

These are requirements for wills executed in Arizona. A will executed outside Arizona is valid if its execution complied with the laws of the jurisdiction where it was executed. ARS 14-2506.

Procedure to prove a will

Normally, a will is admitted to probate via the informal proceeding set forth in ARS 14-3301. This means that there is no hearing unless there is an objection filed within four months of receipt of notice of the informal application. ARS 14-3306. Otherwise, a formal proceeding with notice and hearing will have to be commenced. ARS 14-3401 et seq. A formal proceeding most often occurs when the original copy of the will has been lost and the admittance of a copy of the will is sought. ARS 14-3415.

Discovery

The Rules of Civil Procedure apply to probate proceedings “unless specifically provided to the contrary”. ARS 14-1304. This includes the wide-open disclosure requirements of Rule 26.1, which is very misunderstood by probate practitioners. A duty to disclose is triggered when a person “may” have relevant knowledge or a document “may” have relevant content. For these purposes, “relevance” is broadly defined and is not limited to only that evidence that would be admissible at trial. Norwest Bank v. Symington, 197 Ariz 181, 185 (CA1, 2000).

Right To Jury Trial?

The applicable statute governing the right to jury trial in a probate proceeding is ARS 14-1306(a) that states:

“If duly demanded a party is entitled to trial by jury in any proceeding in which any controverted question of fact arises as to which any party has a constitutional right to trial by jury.”

As to the demand for trial by jury, Rule 38 of Civil Procedure essentially requires that the demand be made prior to the date of setting the case for trial.

It is not entirely clear if any party in a probate proceeding has a constitutional right to a jury trial. Section 23 of Article 2 of the Arizona State Constitution states, in part, that “(t)he right of trial by jury shall remain inviolate.” There is a long line of Arizona cases holding that “either party to any litigation in the superior court is entitled to a jury trial as a matter of right….The right is applicable to cases in equity as well as in law”. Shaffer v. Insurance Company of North America, 113 Ariz 21, 22 (1976); Stuckey v. Stephens, 37 Ariz 514, 516 (1931); Mounce v. Wightman, 30 Ariz 45, 48 (1926). However, since the enactment in 1956 of the Civil Rules of Procedure, such distinctions between law and equity courts have been abolished. Rule 2 of Civil Procedure. “(I)n Arizona, there is no such thing as a distinct probate court”. Marvin Johnson, PC v. Myers, 184 Ariz 98, 100 (1995).

This author has seen courts decide this issue both ways. For cases in Maricopa County Superior Court where a jury trial was granted in a probate proceeding, see the September 14, 1994 minute entry in Estate of Lois F. Henry, PB 93-04766 and the September 18, 2001 minute entry in Estate of Bernice B. Richards, PB 2000-004987.

An advisory jury appears to be a matter of right. ARS 14-1306(b) states, in part, that a “court in its discretion may call a jury to decide any issue of fact, in which case the verdict is advisory only”. While an initial review of that statute would indicate that this is always discretionary with a trial court, the case law holds that it is not discretionary if there are controverted issues of fact. Slonsky v. Hunter, 17 Ariz App 231,232 (CA1, 1972); Zimmer v. Salcido, 9 Ariz App 416, 417-418 (CA1, 1969); Stuckey, supra, 37 Ariz at 516

Attorney-Client Privilege

The holder of the privilege is the decedent’s personal representative. Swidler & Berlin v. United States, 524 US 399 (1998); State v. Macumber, 112 Ariz 569, 571 (1976); State v. Hunt, 2 Ariz App 6, 18 (1989); Schornick v. Schornick, 25 Ariz 563 (1923); Lewin v. Jackson, 108 Ariz 27, 31 (1972) (In Lewin, it was held that the guardian of a ward held the privilege).

Occasionally in an ugly, litigated probate proceeding, the PR may try to invoke the privilege to prevent the disclosure of embarrassing information. This is improper. The holder of the privilege must exercise it in a conflict-free manner. Otherwise, the privilege cannot be claimed. For example, in the Hunt case, the parents who were charged with assaulting their young daughter sought to invoke the physician-patient privilege concerning statements made during medical treatment. The Hunt court did not allow the parents to invoke the privilege, holding:

“We do not believe its purpose is to exclude otherwise admissible evidence obtained from a third party whose interests in suppressing the evidence are patently adverse to the patient”.

2 Ariz App at 18.

Similarly, in State v. Gause, 107 Ariz 491 (1971), a husband who was charged with murdering his wife could not use the attorney-client privilege to preclude admission of certain statements made by the wife to her attorney. Where

“a husband will be using the privilege to exclude evidence that he may have committed a crime against his wife, the privilege cannot be conferred upon him.”

107 Ariz at 495.

Other courts have reached the same result by taking a slightly different approach in which the privilege is deemed waived when the party claiming the privilege “pursues a course of conduct inconsistent with the observance of the privilege”, Bain v. Superior Court, 148 Ariz 331, 334 (1986).

Presumptions

There is a public policy favoring testacy, Estate of Vermeersch, 109 Ariz 125, 127 (1973), and the burden is on the contestants to prove by a preponderance the will is invalid. In Re Walters’ Estate, 77 Ariz 122, 125 (1954), ARS 14-3407

A will is self-proven if there are notarized affidavits from witnesses indicating that the requirements of ARS 14-2502 was complied with. ARS 14-2504. Note that Division Two of the Court of Appeals has held that the statutory form set forth in ARS 14-2504 is deficient in that the statutory affidavit form does not specifically state that ARS 14-2502 was complied with or that the testator signed in their presence. Matter of the Estate of MacKaben, 126 Ariz 599 (CA2, 1980).

A properly completed self-proven will means that the “compliance with the signature requirements for execution is conclusively presumed”. ARS 14-3406(b). In other words, the validity of the signature cannot be contested. MacKaben, supra, 126 Ariz at 601.

Lost Will

One of the more frustrating aspects of the probate code concerns the presumption of revocation when the original copy of the will cannot be found and was last seen in the possession of the testator. ARS 14-3415. See Estate of Schade, 87 Ariz 341 (1960) where the presumption was overcome. The fact that a person who was omitted in the will may have had an opportunity to destroy it will not negate the presumption of revocation. In Re Travers, 121 Ariz 282 (CA2, 1978). Note that if the will is believed to be in a safe deposit box and only the decedent’s name was on the box, any interested party can have the box opened but only the person nominated as Personal Representative can remove a will or other “document which appears to be of a testamentary nature”. ARS 6-1008.

Capacity

When challenging a will on capacity grounds, the following quote from Justice Lockwood should be kept in mind:

“No matter how much we may reprobate the conduct of a testator from the standpoint of natural justice, or even humanity, we may not on that account permit his will to be set aside unless it clearly appears that he did not fully realize what he was doing with his property, for it is his to dispose of as he pleases”

Estate of Smith, 53 Ariz 505, 509 (1939)

A person is presumed to have testamentary capacity. Vermeersch, supra, 109 Ariz at 127 (1973). There are three elements: 1) the ability to know the nature and extent of one’s property, 2) the ability to know the natural objects of one’s bounty and 3) the ability to understand the nature of the testamentary act. Vermeersch, supra.

The burden is on the contestant to prove by a preponderance of the evidence that one of these three elements did not exist. Matter of Estate of Thorpe, 152 Ariz 341, 343 (CA1, 1986); Smith, supra. This is not an easy thing to do since a contestant must show more than a “generally deteriorating mental condition”. Evans v. Liston, 116 Ariz 218 (CA1, 1977). Furthermore, it must be shown that these conditions existed at the time the will was executed. Arizona courts have long taken a dim view of experts and other witnesses who attack a will by relying on acts or statements that made by the testator days or weeks before or after the will was signed. Thorpe, supra; In Re Walters’ Estate, 77 Ariz 122 (1954); In Re O’Connor’s Estate, 74 Ariz 248 (1952); In Re Stitt’s Estate, 93 Ariz 302 (1963). This means that practitioners must keep in mind that critical time is not when the client meets with the lawyer for the first time – it is when the document is signed.

And even if a lack of capacity exists, it must be shown that the lack of capacity impacted the terms of the will, eg, that the testator devised property in a manner that she would not have otherwise done. Smith, supra, Evans, supra at 220. The O’Connor case is a good example of this. The testator thought that her husband and sister, both deceased, were still alive when executing her will. But the court ruled that, even if Ms O’Connor believed this, it would not have changed the terms of her will.

On the other hand, in the case of In The Matter of the Estate of Killen, 188 Ariz 562 (CA1, 1996), a will was invalidated because the testator clearly was seriously mentally ill and delusional. The proponents of the will maintained that she had capacity since she met the three-pronged test: she knew she was executing a will, she knew the natural objects of her bounty and she was aware of the nature and extent of her property. But the trial court’s finding of lack of capacity was upheld because the testator’s false and irrational beliefs that her nephews were trying to kill her affected the terms of the will. In other words, the testator lacked capacity because her delusions rendered the testator unable to understand the true relationship with her family members and friends.

But the Killen court emphasized that the inquiry was limited to the existence of unfounded delusions. No inquiry was needed or allowed regarding the testator’s feelings or motivations:

“if the testator is eccentric or mean-spirited and dislikes family members for no good reason, but otherwise meets the three-prong test, leaving the family members out of the will would not be due to lack of testamentary capacity”.

Killen, supra, 188 Ariz at 55. See also Estate of Smith, supra, 53 Ariz at 510 where the testator omitted a daughter because she appeared to be financially well-off when in fact she was experiencing serious financial difficulties. (“It must appear not merely that the testatrix was mistaken in the facts, but that the mistake was caused by a mental derangement”.)

Yet, a will can still be validly executed by someone laboring under a mental impairment. The testator in In Re Teel’s Estate, 14 Ariz App 371 (CA1, 1971), was mentally retarded, functioning at an age level of ten to twelve years old. The court upheld the trial court’s finding that testamentary capacity existed. Likewise, in In Re Thomas’ Estate, 105 Ariz 186, 189 (1969), the court held that the appointment of a guardian does not necessarily equate with the lack of capacity to execute a will and that a person who had a guardian could still perform a valid testamentary act.

Another recent case is Estate of Gillespie, 183 Ariz 282 (1996) where the court invalidated a will made by a testator who was heavily medicated after a recent cancer surgery. The parties argued the case on capacity grounds but the Supreme Court never reached that issue, ruling that the testator did not know what she was signing. The largely undisputed facts were that the testator’s son had his lawyer prepare a will without meeting with her that substantially changed her prior will. There was no record before the trial court that she had ever approved or intended these changes and there was some serious overreaching by the son. At the hospital, the will was simply put in front of the testator by the son who signed it, sight unseen and without having it read to her. There was nothing I the record to show the testator was made aware of the changes.

The Court emphasized that a will can be challenged on many grounds. Lack of capacity is only one of them. Here, the testator not only lacked understanding of the terms of the will but was actually misled about them. “The 1992 Will was the will of James, not Grace.”

Do not tiptoe around healthcare issues. The elderly are constantly talking about their health. It is usually their foremost concern. They have no problem having a frank discussion about it.

Confirm any current conditions. Ask them what medications they are on and what they are for. This may tip you off to potential issues of incapacity or susceptibility to undue influence. Ask about any hospitalizations or significant medical treatments in the previous several years. Are there any future major treatments in the foreseeable future?

When considering the capacity issue, practitioners should be aware that four to five million people have some form of dementia. Three percent of all persons age 65 to74 suffer from dementia. It escalates to 19% for persons 75 to 84 and 47% for those over 85. But the pathology of the disease is much more subtle and sinister, beginning 10 to 20 years before the earliest symptoms are detected. There is no proven genetic link to dementia, although there continues to be considerable research in this area.

Counsel need to be familiar with the various forms of dementia and how it impacts capacity. There are many excellent sources. One is the newly published Assessment of Older Adults With Diminished Capacity: A Handbook for Lawyers by the American Bar Association in conjunction with the American Psychological Association. Another is Assessing Competence to Consent To Treatment; A Guide For Physicians and Other Health Professionals by Paul Appelbaum and Thomas Grisso, published by Oxford University Press.

Less technical books geared toward the general public are The Forgetting by David Shenk and The 36-Hour Day by Nancy L. Mace and Peter V. Rabins.

Undue Influence

One crucial point that practitioners and their clients must keep in mind is that, when challenging a will, it is not whether influence was exerted but rather undue influence. Another is that undue influence must be proven by clear and convincing evidence rather than by a preponderance. Taken together, this often means that any litigation alleging undue influence is an uphill battle but, as discussed below, the Mullins case may have drastically changed the landscape if a fiduciary relationship can be proven.

Evans v. Liston, supra is the case most often cited regarding undue influence. “A person exercises undue influence over a testator in executing a will when that person through his power over the mind of the deceased make’s the latter desires conform to his own so that the will does not conform to the wishes of the testator but to those of the person exercising the undue influence.” Evans, supra 116 Ariz at 220. The opinion sets out eight factors tending to establish undue influence:

Fraudulent representations

Hasty execution of the will

Concealment of the execution of the will

Active involvement in procuring the will by the party exerting the influence

Prior statements that are consistent with the terms of the will

Unusual or unreasonable terms of the will

Testator’s susceptibility to undue influence

Existence of a confidential relationship

Until the Mullin case, the test was that if a confidential relationship existed and that person was active in procuring the will in which he was a principal beneficiary, then undue influence was presumed to exist. However, the presumption disappeared when the person alleging undue influence denies it. Evans, supra 116 Ariz at 220; In Re Pitt’s Estate, 88 Ariz 312, 317 (1960). The trier of fact does not have to believe that the denial is true, only that it was made. O’Connor, supra, 74 Ariz at 260. See also In Re Estate of Harber, 102 Ariz 285 (1967) and In Re Estate of Thompson, 1 Ariz App 18 (1965).

But the recent case of Mullin v. Brown, 210 Ariz 545, 115 P 3d 139 (CA2, 2005) appears to have dramatically changed this. For estate planners, this case should be setting off alarm bells. It is the first case to discuss the ramifications of Estate of Shumway, 198 Ariz 323 (2000) regarding the shifting of the burden of proof in a will contest. At issue was the following jury instruction, which the Court upheld:

If Chris Mullin Jr. and/or Dr. David Mullin had a confidential relationship with Ralph Mullin; was/were active in procuring the execution of the 1995 will; and was/were a principal beneficiary under its terms, then the 1995 will is presumptively invalid and the defendants must prove by clear and convincing

evidence that Chris Mullin Jr. and/or Dr. David Mullin did not unduly influence Ralph Mullin.

Shortly before death, Chris Jr. had his grandfather change his will, leaving the entire estate to him and disinheriting Chris’ brother, who under a prior will was a 50% beneficiary. Chris Jr. also emptied a joint account and had the decedent issue a new deed for certain, unspecified gas and oil interest. The will in question had been prepared by an attorney.

The Court began by noting that “A presumption of undue influence arises when one occupies a confidential relationship with the testator and is active in preparing or procuring the execution of a will in which he or she is a principal beneficiary. See In re O’Connor’s Estate, 74 Ariz. 248 (1952). The precise issue on appeal was under what circumstances does this presumption cease? The Court emphasized the statement made in Shumway that “`[W]here a confidential relationship is shown the presumption of invalidity can be overcome only by clear and convincing evidence that the transaction was fair and voluntary.”‘ Id. ¶ 16 (alteration in Shumway), quoting Stewart v. Woodruff, 19 Ariz. App. 190, 194 (1973). The court noted that “[t]his is a difficult standard of

proof “.

Omitted spouse or child

In regards to a will executed before marriage, the surviving spouse is entitled to a share of the estate that is equal to what the intestate share would have been if there was no will. ARS 14-2301; Matter of Estate of Beaman, 119 Ariz 614 (CA1, 1978); Estate of Beauchamp, supra, 115 Ariz at 220-221. There is one convoluted exception – this rule does not apply to any devise to a child from a prior marriage (ie, the child’s portion is not included in the intestate computation) unless a) the spouse has been provided for outside the will or 2) the will was made in contemplation of marriage

While Arizona does not recognize common law marriages, Arizona courts will recognize a common-law marriage validly formed in another state. Gonzalez v. Satrustegui, supra, 178 Ariz at 1000.

Divorce (and not merely a decree of separation) revokes any testamentary bequest or power of appointment. ARS 14-2804.

A child can be omitted if it was intentional or if the child is provided for outside of the will. Otherwise, the omitted child will generally receive the intestate share. ARS 14-2302.

Medical Records and HIPAA

Since much of the proof regarding a decedent’s mental capacity may be found in medical records, HIPAA will rear its ugly head. The privacy rules of the Health Insurance Portability and Accountability Act of 1996, 42 USC 1320d and 45 CFR 160-164, sets forth the process for obtaining medical records through court orders. Disclosure is permitted in response to a court order but is limited to that information “expressly authorized” by the order. 45 CFR 164.512(e)(1)(i)

This means care must be used in two aspects. One is the obvious need for greater specificity in a court order. The second point is to make sure the order complies with the civil procedure rules. For instance, this will usually require that the judge sign the order. A minute entry or a pleading issued by the court clerk is not sufficient.

The process for obtaining medical records through the issuance of subpoenas has also been greatly impacted by HIPAA yet it has received surprisingly little attention in Arizona. The requirements are quite lengthy and detailed and will require considerable additional efforts by the attorney issuing the subpoena. The thrust of the HIPAA regs in this regard mandate that the health care provider who has been served with a subpoena must be given “satisfactory assurance” by the attorney issuing the subpoena that “reasonable efforts” have been made to notify the patient of the request made in the subpoena. 45 CFR 512(e)(1)(ii)(A)

The regs are very specific about what must be provided. Accompanying the subpoena must be a written statement setting forth the following:

a good faith attempt was made to provide written notice to the patient or, if the patient’s location is unknown, that a notice was mailed to the patients last known address.

the written notice contained sufficient information about the litigation to permit the patient to raise an objection

the time to raise an objection has elapsed, and

no objections have been filed or that any objection has been resolved.

The regs also provide for an alternative method of proving satisfactory assurance by means of a “qualified protective order”. 45 CFR 164.512(e)(1)(iv). This order can be either issued by the court or entered as a stipulation by the parties. Its terms must prohibit the parties from disclosing the medical records for any purpose other than for the litigation and, after the litigation has ended, the parties must agree to destroy all copies of the records or return them to the health care provider.

There are many aspects of HIPAA that are not covered by this article. The best source of information is the “OCR Privacy Brief, Summary of the HIPAA Privacy Rules” found on the HHS’s website, www.hhs.gov/ocr/privacysummary.pdf, which has nearly 500 FAQs and many useful links. There is also an excellent HIPAA web blog, located at http://hipaablog.blogspot.com.

Revocation

A will can be revoked by a) executing a subsequent will that revokes the prior will either “expressly or by inconsistency” or b) by performing a “revocatory act” – burning, tearing, obliterating or destroying the will or any part of it. ARS 14-2507. If a subsequent will does not expressly revoke a prior will, then the inconsistencies between the two wills in resolved in favor of the subsequent will. ARS 14-2507(b). If the new will makes a complete disposition of the testator’s estate, then revocation is presumed. This presumption can only be overcome with clear and convincing evidence. ARS 14-2507(c).

A written revocation must have the equivalent formalities of a will. A typewritten letter will not suffice. Estate of Feir, 145 Ariz 295 (CA2, 1985). A holographic will meets these requirements. In Re Estate of Morris, 15 Ariz App 378 (CA1, 1971); Estate of Blake, supra, 120 Ariz at 554. Revocation of the subsequent will does not revive the prior will unless “it is evident from the circumstances of the revocation…. Or from the testator’s contemporary or subsequent declarations that the testator intended the previous will to take effect”. ARS 14-2509(a).

Where joint or reciprocal wills contain a clause that neither will be revoked without the consent of the other party, such agreements are binding to prevent a unilateral revocation. Estate of Moore, 137 Ariz 176 (CA1, 1983)

Revocation of a trust is governed by the terms of the trust. In Re Estate of Pilafas, 172 Ariz 207, 211 (CA1, 1992).

WILL CONTESTS THAT DO NOT INVOLVE THE WILL

Contract to Make A Will

Arizona courts have taken a dim view of allegations regarding a contract to make a will by a decedent. The statutory requirements of ARS 14-2514 create a “mini statute of frauds” that is strictly enforced since the courts are well aware of the mischief that could otherwise exist. Gonzalez v. Satrustegui, supra, 179 Ariz at 99-100; Estate of Moore, 137 Ariz 176 (CA1, 1983). Those requirements essentially require written verification of the materials terms or reference to the contract in the will with extrinsic evidence to prove its terms. Estate of Beauchamp, 115 Ariz 219 (CA2, 1977)

However, there is a case prior to the enactment of ARS 14-2514 that holds that partial performance by the promisee will take the agreement out of the Statute of Frauds. Turley v. Adams, 14 Ariz App 515, 519-520 (CA1, 1971)

The allegation of a contract to make a will is treated as a creditor’s claim, falling within the four-month creditors claim period. Estate of Levine, 145 Ariz 185, (CA2, 1985)

Creditor’s Claim As Disguised Inheritance – Dead Man’s Statute

This counsel has had several recent cases whereby the decedent’s children do not contest the will by simply alleging that they had an agreement with the decedent from a business deal or demanding payment for services rendered to the decedent. Proving the existence of this agreement or claim invariably raises the issue of the applicability of the Dead Man’s Statute, ARS 12-2251, that states, in part, that in a probate action “neither party shall be allowed to testify against the other as to any transaction with or statement by the testator, intestate or ward unless called to testify thereto by the opposite party”. It applies to interested parties as well, such as heirs and devisees. Condos v. Felder, 92 Ariz 366, 372 (1962); Cachenos v. Baumann, 25 Ariz App 502, 505-506 (CA1, 1976).

The Statute is designed to apply to “persons who will gain from inaccurate distortions of a transaction with (a) decedent….where death has rendered decedent incapable to giving the lie to the inaccuracies”. Carillo v. Taylor, 81 Ariz 14, 25 (1956). See also Fridena v. Evans, 127 Ariz 516, 521 (1980)

In applying the Statute, courts look for corroboration or some other indicia of reliability that “strengthens or confirms that either the statement was made or that the statement was true”. Troutman v. Valley National Bank of Arizona, 170 Ariz 513, 517 (CA1, 1992).

Most practitioners overlook the fact that, even if the admission of a statement is not precluded by the Dead Man’s Statute, the statement is still subject to a hearsay objection. Rules 803 & 804 of Evidence.

Gifts

A frequently litigated issue concerns alleged gifts from the decedent to a child or other related person. Arizona courts have long held that the burden of proving a gift must be proven by “certain, clear, complete, direct, positive, express and satisfactory” evidence. Stewart v. Damron, 63 Ariz 158, 163 (1945). Less evidence is required if a familial relationship exists, Elkins v. Vana, 25 Ariz App 122, 125 (1975), but if a confidential relationship exists, the donee has the burden to show “by clear evidence” that the donor “acted independently, with full knowledge and of his own volition free from undue influence”, In Re Guardianship of Chandos, 18 Ariz App 583, 585 (1972); Eagerton v. Fleming, 145 Ariz 289, 292 (CA2, 1985); Amado v. Aguirre, 63 Ariz 213, 219 (1945).

Litigation After The Estate Is Closed

It ain’t over till it’s over. Simply closing an estate does end the potential for future litigation. A claim against the Personal Representative for a breach of fiduciary duty can be made within six months after the closing statement was filed. ARS 14-3935. Tovrea v. Nolan, 178 Ariz 485 (CA2, 1993). If a claim is made that estate property was wrongly distributed, a claimant has three years after the decedent’s death or one year after the date of distribution to file a claim. ARS 14-3936. Note that this claim must be made against the distributee and not the Personal Representative. Estate of Meyer, 160 Ariz 535 (CA1, 1989).

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Attorney in Tempe Arizona, provides a comprehensive range of high quality legal services including lawyer, paralegal, wills, trusts, elder law, power of attorney, guardianships, conservatorship, litigation, inheritance, AHCCCS, ALTCS, HIPAA, estate planning, probate administration, and probate litigation services lawyer to families and individuals throughout the Phoenix area including Maricopa county, Pinal County, the East Valley, the Southeast Valley, and communities such as Chandler, Gilbert, Higley, Scottsdale, Mesa, Tempe, Phoenix, Casa Grande, Lawrence, Apache Junction, Johnson Ranch, Queen Creek, Florence, Coolidge, Sun Lakes, Paradise Valley, Fountain Hills, Chandler Heights, Gold Canyon Ranch, Ahwatukee, and Ocotillo. The lawyer of choice in Arizona.