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Estate Controversy: Types and Causes

There is no shortage of issues – ranging from bad documents and sibling rivalries to alleged breaches of fiduciary duty – that can give rise to inheritance disputes and other legal battles over who should get what when a loved one dies.

Below: Causes of Estate Controversy | Challenging a Fiduciary | Challenging a Fellow Heir or Beneficiary | Contested Guardianships or Conservatorships

More about: Estate Litigation

 

Ryan Scharber

 
 

In this article, we take a look at the types of estate controversies and what generally causes them to occur.

In an estate controversy, there are generally two groups of players.

First, there is the fiduciary: the Trustee of the trust or the Personal Representative of the estate. If you are the fiduciary, you generally have the most liability exposure: You have power over all the assets, but you have duties also, to everyone else who is involved – either the heirs of the estate or the beneficiaries of the trust – to:

  • keep them notified of where you are in the process,

  • let them know what the estate or the trust owned and what it’s worth, and, at the end of the process,

  • account for your administration, basically describing all of the money that left the trust or estate while you were in control.

Second, there are the beneficiaries of the trust or the heirs of the estate, who have legal rights under the will or trust. If their rights have been violated, they can pursue legal action against the fiduciary (if they allege a breach of fiduciary duty) or other parties (including each other) in an effort to enforce their rights.

Causes of Estate Controversy

There are two basic causes of estate controversies: flaws in the drafting process, and improper administration of the estate.

Document Flaws. Flaws in the drafting process can range from relatively trivial – e.g., the documents were not properly witnessed, lack the right number of witnesses, or were improperly notarized – to very serious. More grave examples include the will or the trust being the product of someone exerting a malign influence over the person who was wishing to express the testamentary intent, or the person who was drafting or signing the will or trust was incapacitated at the time and lacked testamentary capacity to even create such documents.

Those types of deficiencies in the original documents mean that those documents are vulnerable to challenge and can be completely invalidated after the person has passed away. This is obviously a very bad outcome for the Decedent and his or her heirs, as all of the time, money and effort that they put into having those documents drawn up is now for naught; their wishes may not be fully honored; and their estate may become subject to Arizona's intestacy statutes.

Improper Administration. Despite what you see in the movies, deficiencies in the documents themselves are relatively rare. It's the second type of estate controversy, the kind that comes out of improper administration, that is far more common.

Someone who has a will or a trust passes away, and their Personal Representative or Trustee – let’s call those two roles collectively as the “fiduciary” – steps in, often with little or no knowledge of the laws involved. They may start to marshal assets, pay bills and debts, and ultimately make distributions to the heirs (named in a will) or beneficiaries (named in a trust) – with little understanding of or regard for the complex legal process that governs their duties, decisions and actions. There are notices that have to be given at certain points, there are priorities among creditors, and one misstep at any point along the way can subject the estate to litigation and, in some cases, subject the fiduciary to personal liability.

A wise step for the fiduciary is to seek good legal counsel. Without a professional who knows the process inside and out, the fiduciary has no one to help him or her avoid the pitfalls of probate or trust administration.

The most common types of errors involve how to handle estate assets and knowing what sorts of notices the fiduciary needs to give to people. For instance, if the fiduciary is not keeping the heirs or beneficiaries in the loop, they may suspect that something shady or underhanded is going on. Simple communication – letting everybody know what is going on, what the process entails, and what to expect over the coming months – tends to go a long way toward defusing tension, heading off contentious family politics, and avoiding other problems.

In a probate situation, our Personal Representative Handbook describes in detail what that process looks like, from when the person passes away to when their nominated Personal Representative decides to take on that role and applies to the court for the necessary documentation that will grant them the authority to take control of assets and start paying bills. Mailing notices to known creditors, publishing notices to unknown creditors, informing heirs of the estate that the Personal Representative has stepped in and is beginning the process all the way through the end, to making final distributions and hopefully being done.

Improper administration can be relatively innocent, such as errors of omission or commission stemming from unfamiliarity with fiduciary duties, or they can take the form of outright fraud or malfeasance. In the latter case, someone may step in as the Personal Representative of an estate or the Successor Trustee of a trust, and they feel that they don’t have anyone looking over their shoulder and they have free rein to do what they think is right, and they end up either straying from the will or the trust or profiting themselves at the expense of the estate. A breach of fiduciary duty can end up being a very expensive mistake.

See also: Successor Trustee Handbook

Challenging a Fiduciary

If you are unhappy about how a fiduciary is managing the estate or trust assets or otherwise carrying out their responsibilities, the first step is hiring a lawyer who is experienced in estate controversy. The attorney will draft a demand letter and send it to the Trustee or the Trustee’s attorney. Frequently, getting a lawyer involved moves the ball forward and helps get past a lot of communication issues and emotional tension, because it allows the lawyers to discuss the case dispassionately with regard to the legalities and the facts. However, assuming that the issue with the fiduciary is not something that can be resolved by improved communication between two lawyers, you would typically file a petition in the court in the county where that person passed away.

You would explain how the fiduciary has fallen short of their statutory obligations to the estate or trust, or to you as an heir or beneficiary. Examples might include failure to provide you with required notices – perhaps he never gave you a copy of the trust – or failure to give you an inventory of the trust or estate assets, so you have no idea what the trust or estate owns. In such a case, your argument to the court is simply to force the fiduciary to do their job.

If you believe that the fiduciary has mismanaged the estate or trust assets, made bad investments, paid an illegitimate creditor or paid a legitimate creditor at the wrong time, those sorts of situations are not as easily remedied because, at that point, you might be asking the court to order the fiduciary to make the estate or trust whole again.

Challenging a Fellow Heir or Beneficiary

Consider an example of two siblings who disagree as to what Mom and Dad wanted each of them to have. Such situations are certainly not uncommon, and they almost always center on errors in document formation and arguments over what the decedent really intended. When it comes down to that, you have (a) those who want the will or trust to be enforced as it was written, and (b) the other side – the challengers – who feel like the will or the trust does not accurately or adequately reflect the decedent’s intent.

The challengers are at a significant disadvantage, because they bear the burden of proving in court that, when the will or trust was drafted and signed, the decedent either lacked testamentary capacity or was unduly influenced.

Testamentary incapacity can be a difficult condition to prove, as even people who have dementia or were on medication are frequently able to meet that standard if the signing of the will or trust occurred when they were having a good day. If the maker of the will or trust can be shown to have understood who their heirs were, had a rough understanding of what they owned, and could grasp how the document they were signing determined how their property would be distributed, the standard of testamentary capacity will generally be met.

Also difficult is invalidating a will or trust on the basis of undue influence. Here, the challengers have the burden of proving that the document that is being offered as the legitimate expression of the decedent's testamentary capacity was not really what Mom or Dad wanted and was only the product of someone else's malign influence – maybe an adult child who moved in late in life and convinced the parent to disinherit a sibling. While it’s possible that that would not be the actual intent of the decedent, it's also possible that giving more to the adult child who took care of them at the end of their life is actually what they wanted to do with their money.

From a strategic and financial standpoint, challengers have a third burden: Paying for the legal action they intend to pursue against the estate or the fiduciary. Unless they can prove that the fiduciary truly committed acts of malfeasance or otherwise breached their duty, all of the fiduciary’s legal fees in defending against those claims are going to come out of the trust or estate. Meanwhile, the challenger generally must fund their legal challenge out of their own pocket.

Therefore, there really needs to be some hard calculus done up front as to the challenger’s prospects for winning, and what they are likely to win by pursuing a costly legal action that will diminish the personal wealth of the challenger or the value of the estate over which the fight is being waged.

Contested Guardianships and Conservatorships

Not all estate controversies involve the death of a person; they can also arise when a person becomes incapacitated and unable to manage their own affairs. In this context, there are many similarities between death and incapacity. In both cases, a third party steps in, takes control of assets, and takes on fiduciary obligations to certain other people.

In the case of a decedent, the assets that belonged to the deceased person and are held for the benefit of trust beneficiaries or heirs of the estate. The fiduciary relationship involves the estate or trust, the Personal Representative or Trustee, and the heirs or beneficiaries.

Similarly, when an adult becomes incapacitated, and a guardian or a conservator steps in to manage the affairs of that adult, the fiduciary obligations are only between the guardian or conservator and the now-incapacitated adult (or “ward”). That creates new sets of issues; if there is malfeasance in that relationship, the person who is most immediately vulnerable and would normally be best able to detect that malfeasance and raise it as an issue is the person who is incapacitated.

Consequently, in a guardianship or conservatorship, it frequently falls to third parties – people who are not part of the fiduciary relationship – to step in and file a third-party objection on behalf of the incapacitated adult. With a guardianship or conservatorship, there is always a hearing before the judge, where someone has to bring the allegedly incapacitated adult before the judge, and explain why the appointment of a guardian or conservator is necessary and who should be given that responsibility. The judge will ask the incapacitated person some questions and make sure they understand what's going on, but that sort of a proceeding is an ideal place for somebody to step in and file an objection if they feel that the petitioning guardian or conservator has a conflict of interest or would not have the ward’s best interest at heart, or if there is someone with higher priority to serve in that role under Arizona statutes.

Determining incapacity can often give rise to controversy. When someone either has had an accident or perhaps goes downhill quickly with dementia, it's not uncommon for adult children to step in and try to get an estate plan in place. That potentially raises issues down the road, whether in administering that plan post-death, or determining whether the person had testamentary capacity to sign the documents in the first place. Thus, determining whether an adult has capacity is a key portion of any guardianship or conservatorship proceeding. A judge will not appoint someone as a conservator or guardian unless it is necessary, and it is generally necessary only if the adult at issue is incapable of making decisions for themselves.