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With No Contest Provision Lurking, Petition Was All Or Nothing

March 4, 2015

Authors

Luke Lantta

With No Contest Provision Lurking, Petition Was All Or Nothing

March 4, 2015

by: Luke Lantta

The law generally disfavors in terrorem clauses, also known as no contest provisions, because they result in forfeitures.  Nevertheless, some people and practitioners like sticking them in governing instruments – sometimes out of habit, sometimes for good reason, and sometimes for not very good reasons at all.  Courts in numerous jurisdictions have chipped away at the enforceability of these clauses by, among other things, strictly construing them and creating a probable cause exception.  In In re Shaheen Trust, in a matter of first impression, an Arizona appellate court considered what happens when there is a no contest provision and a beneficiary brings a multi-count petition.  Must each count be successful or at least have probable cause to survive the in terrorem clause?

According to the Arizona appellate court, yes.  When a single petition alleges multiple

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Insurance As Evidence Of Ownership

December 10, 2014

Authors

Luke Lantta

Insurance As Evidence Of Ownership

December 10, 2014

by: Luke Lantta

When a will contains a catch-all bequest of all “personal property” without a specific list or identification of the decedent’s personal property, disputes can arise whether the decedent actually owned particular property, whether the property was joint property with the decedent’s spouse, or whether some entity in which the decedent held an interest actually owns the disputed property.  As shown in the recent Arizona case of Keland v. Moore (unpublished), a little advance planning concerning some valuable property possibly could have avoided this estate litigation.

Kristi Keland and her husband, Tres, lived on a ranch owned by an LLC, which the couple controlled.  When Kristi died, she was survived by Tres.  Kristi’s will bequeathed her personal property to her sisters.  Kristi’s and Tres’ home contained some valuable Native American baskets.  One of Kristi’s sisters claimed that

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Arizona Adopts Fiduciary Exception To Attorney-Client Privilege

September 11, 2014

Authors

Luke Lantta

Arizona Adopts Fiduciary Exception To Attorney-Client Privilege

September 11, 2014

by: Luke Lantta

When a trustee gets legal advice, can the trustee shield from the trust beneficiaries the communications between the trustee and the lawyers?  That’s a tough question.  There are three options: yes, no, and it depends.  Different jurisdictions have taken different approaches, but add Arizona to the list of jurisdictions that has decided “it depends.”

In In the Matter of The Kipnis Section 3.4 Trust, an Arizona appellate court adopted the “fiduciary exception” to the attorney-client privilege.  In reaching this decision, the appellate court rejected the theory that the trust beneficiaries are the “real clients” of the lawyers, but instead found that the trustee’s duty to furnish information about the trust to its beneficiaries includes furnishing the trustee’s attorney-client communications.

To this point, Arizona had neither accepted nor rejected the applicability of the fiduciary exception in the trust context.  With

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Distributable Net Income Is Not Synonymous With Net Income Owed To Income Beneficiaries

April 1, 2014

Authors

Tiffany McKenzie

Distributable Net Income Is Not Synonymous With Net Income Owed To Income Beneficiaries

April 1, 2014

by: Tiffany McKenzie

It is uncommon to see modern trusts that require distribution of all income but preclude distribution of any principal to a beneficiary.  Since the characterization of income and principal can be subject to multiple interpretations, precluding any distribution of principal often can lead to legal disputes.  In Favour v. Favour (not for publication), the Arizona Court of Appeals disagreed with an Arizona superior court’s ruling that “the income beneficiary of [a] Martial Trust is entitled only to the annual ‘distributable net income (“DNI”)… reported on the federal income tax return, and no more than that.”  The Will also specified that it was intended to qualify as “qualified terminable interest property” (“QTIP”) for which an election could be made under Section 2056(b)(7).

The decedent, Mr. Favour, left a testamentary trust for the benefit of his wife, Susan.  Susan was named as trustee, and the Will directed

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California Appellate Court Rules That Trust Arbitration Provision Was Unenforceable

March 25, 2014

Authors

Luke Lantta

California Appellate Court Rules That Trust Arbitration Provision Was Unenforceable

March 25, 2014

by: Luke Lantta

Mandatory arbitration provisions in trusts are a relatively new concept, and only now are courts really beginning to weigh in on their enforceability.  In McArthur v. McArthur, add the First District Court of Appeal of California to the list of courts that have now considered the issue.  It determined that an arbitration provision in the inter vivos trust of Frances E. McArthur was unenforceable as against a trust beneficiary who brought suit to invalidate an amendment to the trust based on undue influence and lack of testamentary capacity.

Let’s start with the provision.  In 2011, Frances amended her 2001 trust to give a greater portion of the property to one of her daughters and to add a “Christian Dispute Resolution” provision that required mediation and, if necessary,

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