Presented to the National Business Institute’s
The Probate Process From Start To Finish
March 6, 2014
By Thomas J. Murphy
Murphy Law Firm, Inc.
Final Accounting and Closing the Estate
A probate proceeding can be closed formally (ie, after notice and hearing) or informally. An informal closing is done with the filing of a closing statement by the Personal Representative (“PR”) that, in accordance with ARS 14-3933, makes the following avowals in a verified pleading:
- four months have passed since the original appointment of a personal representative,
- the four-month time limit for presentation of creditors’ claims has expired,
- the estate has be fully administered the estate of the decedent by making payment, settlement or other disposition of all claims that were presented, expenses of administration and estate, inheritance and other death taxes, except as specified in the statement, and that the assets of the estate have been distributed to the persons entitled.
- the PR has furnished a full account in writing of the personal representative’s administration and
- the PR has sent a copy of the statement to all distributees of the estate and to all creditors or other claimants of whom the personal representative is aware whose claims are neither paid nor barred and to the distributees whose interests are affected thereby.
Note that there is no requirement of a court-approved accounting although an accounting in some form must be provided to all distributees. Typically, a waiver of accounting is obtained from each beneficiary/distribute that accompanies the accounting that is an Excel spreadsheet containing an income and expense statement and a beginning and ending inventory. The waiver is then filed with the court and accompanies the Closing Statement.
If a waiver is not forthcoming or if there are objections or other grumblings from the beneficiaries, then a formal proceeding with a court-approved accounting should be initiated. Even though there has been a huge amount of time, attention and effort expended in changing the rules for conservatorship accountings, there has been surprisingly little attention paid to accountings in decedent’s estates. While there is no statutorily mandated format, the Maricopa County probate courts will insist on an accounting with excruciatingly strict compliance with the “guidelines” of the probate court accountant. Those “guidelines”, which do not correspond to any GAAP formats, are available online at: http://www.superiorcourt.maricopa.gov/sscDocs/packets/pbipf5f.pdf
The forms carry a December 2009 date, well before the 2012 changes to the probate code and Rules of Probate Procedure, but they remain the current guidance.
A formal proceeding is also used to exonerate a bond or if there are creditors of an insolvent estate who have refused to compromise their claim, a very rare occurrence.
Court approval of accounting
Court approval after proper notice can foreclose a party from later raising objections to the transaction. Dockery v. Central Arizona Light & Power, 45 Ariz 434 (1935). Failure to obtain that approval leaves the PR at risk of personal liability. Downing v. Skluzacek, 61 Ariz 322 (1944). This is particularly so when a significant claim, such as a wrongful death claim, is settled. Court approval and proper notice (ie, involvement of all beneficiaries) will afford protection to the PR from later attack. Costello v. Cunningham, 16 Ariz 447 (1915) but the key is that all beneficiaries – each and every one – must be given notice and an opportunity to participate in the settlement. ARS 14-3952, Wilmot v. Wilmot, 203 Ariz 565 (2002) and Estate of Riley, 228 Ariz. 382 (CA2, 2011). A huge problem created by Wilmot and Riley is that neither case discusses what a court does once the disagreement erupts and the beneficiaries cannot agree. The Riley court in particular chastised the trial judge is approving a settlement agreement over the objections of several beneficiaries but gave no guidance as to what else the judge (Judge Harrington) should have done.
The most common form of court approval concerns the submission of an accounting. Simply stated, this is “put up or shut up” time. Disputes usually occur in two settings. One is an objection by a beneficiary or the probate court accountant.
One of the most useful functions that practitioners can provide to their clients is scrutinize the accounting before it is submitted to make it “court accountant proof”. This means making sure it is in the proper format. Many accountants are unfamiliar and quizzical about the format of the probate court accountant. Our job is to educate them on what is required since, even if every dime is accounted for, the accounting will be rejected if the format is not strictly adhered to.
In making an accounting “court accountant proof”, the liberal use of footnotes is encouraged. In other words, if there is a large expenditure whose appropriateness is not readily apparent, then the fiduciary needs to explain it. This is best done through the use of footnotes. This is much more likely to result in a recommendation from the court accountant.
The second area of disputes will concern the appropriateness of expenditures. This usually will have one of two aspects. One concerns documentation – what was the expense for? Practitioners must keep in mind that, for a person in declining health, family members or other interested parties are often very unaware of the costs of care or the amount of hours that caregiving entails. Receipts and time logs can go a long way towards minimizing conflicts on these matters and family members serving as fiduciaries cannot be reminded enough of this.
The second aspect will involve disputes regarding the amount of time expended or fee rate charged. Fees must be in a reasonable amount. ARS 14-3719, -5414, –7202 & -7206 It is hard to provide much practical advice in this area since it is usually so fact-intensive and the courts’ rulings are very inconsistent. If a family member is serving as fiduciary and wants to draw a fee, remind them that any fee is taxable income.
While most of the new code and rule changes do not apply to decedent’s estates, Rule 33 of Probate Procedure has always applied to all probate fiduciaries. The new subparagraph (f) does adopt the statewide fee guidelines although, as of this writing, no such guidelines have been put forth.
Until guidelines are in place, be aware of the previous fee guidelines that were contained in the Arizona Supreme Court’s Commission on Improving Probate Court Matters whose Workgroup 3 generated the “Guidelines for Court Approval of Attorney Fee Applications in Guardianship and Conservatorship Matters”. These have been taken down from the Court’s website but the initial version promulgated in 2011 was as follows:
|Yrs of Practice||Approved Rate Range||Median Rate|
|New, no experience||$154 – $235||$175|
|1 – 2 years||$175 – $255||$195|
|3 – 5 years||$185 – $285||$200|
|6 – 10 years||$200 – $325||$235|
|11 – 15 years||$200 – $350||$250|
|16 – 25 years||$225 – $425||$250|
|Greater than 25 years||$225 – $450||$275|
|Estate planning, probate and trusts(all years of practice)||$220 – $400||$250|
|Yrs of Practice||Approved Rate Range||Median Rate|
|New, no experience||$65 – $142||$90|
|1 – 4 years||$70 – $150||$95|
|5 – 9 years||$90 – $175||$100|
|10+ years||$94 – $185||$110|
- Travel time from an attorney’s office to the courthouse to attend hearings, or to a client’s location will be reimbursed at half of the attorney’s approved rate. The Court encourages the attorneys to request telephonic and/or video conferences whenever possible.
- The Court does not ordinarily reimburse for an attorney’s or staff member’s travel mileage or expenses inside the county where the attorney has an office. If the attorney or staff member travels outside the county where he has an office, the Court will reimburse mileage at the current I.R.S. rate.9
- Legal Research
- The Court considers the contract costs of computerized legal research (such as Westlaw and Lexis) to be part of an attorney’s overhead, as are the costs of a hard-copy library. Consequently, the Court will not reimburse for those costs.
- Preparation of Attorney’s Fee Petitions
- The Court considers the cost of generating and reviewing billing invoices and of drafting and mailing the cover letters that accompanies the invoices, including Probate Rule 33 Attorney’s Fee Petitions, to be part of an attorney’s overhead. Consequently, the Court will not reimburse attorneys for the costs of preparing invoices, fee applications and orders that accompany them.
While these guidelines were meant for guardianships and conservatorships, there will again be a likely spillover effect once these are put in place. There is a recent Court of Appeals case that seems to pull back from the grandstanding of Sleeth in In Re Conservatorship for Mallet, 1 CA-CV 12-0538 (Ariz.App. 8-22-2013), (no Arizona cite yet available but it is a published decision). The court stated that:
“the probate court found that the services provided were reasonable, necessary, and in Mallet’s best interest, but that Mallet could not afford to pay the fees charged. That rationale, without more, is insufficient. The probate rules require consideration of all guideline factors, including an overall cost-benefit analysis of services provided”.
The most important consequence of obtaining approval of an accounting is that closure is provided. Absent fraud, a court approval of an accounting forecloses a later challenge to expenditures or other aspects of administration. Estate of Thurston, 199 Ariz 215 (CA1, 2000); Estate of Shano, supra; Estrada v. Arizona Bank, 152 Ariz 386 (CA2, 1987); Matter of Estate of Olivas, 132 Ariz 61 (CA2, 1982); Roberson v. Teel, 20 Ariz App 439 (CA1, 1973); In re Sullivan’s Estate, 51 Ariz 483 (1938).
Another very useful technique is submitting a Petition For Instructions as authorized under ARS 14-3704. When a PR is in doubt on the proper course of action, the easiest and best procedure is to file a petition for instructions. In The Matter of CVR Irrevocable Trust v. Retter, 202 Ariz 174 (CA1, 2002). This is simply a petition setting forth the quandary that the PR is in and seeks guidance or approval from the court for a particular course of action. This author has successfully used this petition many times for authorization for gifting, either for ALTCS or estate tax purposes.
Such a petition can avoid the liability exposure suffered by a PR in cases like Downing v. Skluzacek, 61 Ariz 322 (1944) and Graybar Electric Co., v. McClave, 91 Ariz 223 (1962)
Once the estate is closed, there is still a six month period in which the PR can be challenged. ARS 14-3935 creates a six month statute of limitations for any breach of fiduciary claims against the PR. However, claims involving fraud or misrepresentation are not barred by the six-month statute. Thurston, supra.