Arizona Supreme Court Increases Duties for Fiduciaries
On January 1, 2009, the Arizona Trust Code became effective, which provided Arizonans with a comprehensive code governing trusts of all types. On the same day, the Arizona Supreme Court adopted the Arizona Rules of Probate Procedure, which were designed to provide statewide standards and uniformity for proceedings in the Probate Court throughout Arizona.
Prompted by several cases wherein excessive fees were awarded for guardianship/conservatorship/trustee matters, in April 2010, the Chief Justice of the Arizona Supreme Court established a Committee on Judicial Oversight and Processing of Probate Matters to investigate issues in the Probate Court’s jurisdiction and to propose rules and recommendations to the Supreme Court.
Based on that Committee’s recommendations, the Supreme Court adopted a number of new rules (some which took effect on February 1, 2012, the balance to take effect on September 1, 2012). These rules apply not only to the guardianships, conservatorships and trusts currently being formed or to be formed, but also apply to fiduciary relationships already in existence. Four items to be aware of:
Training. If you are not a licensed fiduciary, before you are authorized to serve as a guardian or conservator for a person or as a personal representative of an estate, beginning with September 1, 2015, you must complete a specified training program approved by the Supreme Court.
Acting Without an Attorney. You will be expected to perform some of your tasks in these representative capacities on your own and without an attorney. This rule requires your attorney to encourage you to do certain matters without counsel if the attorney believes you can do those tasks. The rule does not relieve the attorney, nor does the rule absolve the fiduciary if the fiduciary fails to perform the task assigned or performs the task improperly. The rule is fraught with problems for both attorney and fiduciary, and requires extensive discussion between client and counsel before agreeing upon which duties should be undertaken by the fiduciary acting alone.
Alternative Dispute Resolution. The Probate Court can order the parties to any dispute within the Probate Court’s jurisdiction to take part in good faith in arbitration, mediation, a settlement conference, a negotiation or a private dispute resolution process. Once a dispute arises, the parties must confer about the use of such dispute resolution procedures and report the results of their conference to the Probate Court. Any party to the dispute can request the Court to order any of the above procedures even if the other side objects.
Budgets and Sustainability. A conservator for an adult must prepare a budget for the adult ward for the Probate Court’s approval, serve a copy on all interested persons and file a copy of the budget, under seal, with the court. One of the concepts which is required to be included in the budget is “sustainability,” i.e., whether the available assets with the attendant expenses of the ward will be sufficient to sustain the conservatorship over the projected time of the ward’s needs. The new rule formulates an equation to calculate sustainability. If the sustainability projection demonstrates that the assets will not sustain the ward over the projected period, the conservator is required to disclose what plan is projected after the assets are depleted for the care of the ward into the future. All of the foregoing must be presented to the Probate Court at the commencement of the conservatorship. The concept of “sustainability” is new to Arizona and, in fact, has not been widely used in the courts in any jurisdiction. This new rule presents a concept that is not contained in the Arizona statutes and in such cases many observers believe there will be litigation.
Caveat: The “sustainability” issue may well creep into the management of trusts by trustees. There are already cases that discuss the issues of the life expectancy of a trust beneficiary in connection with reviewing the trust’s investments for compliance with the “prudent investor” rules. In addition, there are other new rules governing fiduciaries in specific situations that must also be taken into account. We suggest that, before undertaking or continuing any fiduciary responsibility, you consult with experienced counsel and make yourself fully aware of all your responsibilities.