Some Language to Add to your Fiduciary Orders

June 17, 2014 § 7 Comments

In this district we have had a problem with fiduciaries having been appointed and never qualified by taking the oath and posting any required bond, and consequently not having Letters issued.

A fiduciary has no authority to act unless and until that person has qualified, which requires taking the oath, posting any required bond, and having Letters issued.

In one case in my court the person appointed used the order appointing him, without Letters of Administration ever having been issued, to sell a car, and he closed a couple of bank accounts. He sold the car and pocketed the money; who knows what he did with the funds. The lawyer who opened the estate spent a considerable sum out of his own pocket trying to recover the estate’s money. Not surprisingly, the perpetrator was judgment proof and can no longer be found on this planet.

In another case, a woman (not the mother) testified that she was guardian of the child, but when I ordered the insurance attorney to get the guardianship file, it showed that only an order appointing her had been entered, and she had never taken an oath or posted a required $10,000 bond. Incidentally, she testified that her lawyer had told her that the order was adequate, and she proceeded to use that apparent authority to negotiate a settlement of the child’s claim.

We came up with some language that we now require all attorneys to include in their orders opening estates, guardianships, and conservatorships. You may find this language useful in your own district, and even if you find it superfluous, you just might conclude that there’s no harm in including it.

Here it is:

IT IS FURTHER ORDERED AND ADJUDGED that if the fiduciary has failed to qualify by posting the required bond, if any, taking the oath, and having appropriate Letters issued as required by this order and the laws of the State of Mississippi within thirty (30) days of entry of this order, then the Chancery Clerk is hereby ordered and directed to notify the court immediately of such failure, and the court shall enter an order dismissing this civil action without prejudice and without further notice to the fiduciary, or attorney of record for the fiduciary, or any other parties who have entered an appearance in this civil action.

IT IS FURTHER ORDERED AND ADJUDGED THAT THIS ORDER DOES NOT AUTHORIZE [Name] TO ACT AS THE FIDUCIARY FOR [Name of ward or decedent] UNLESS VALID LETTERS [Testamentary, or of Administration, or of Guardianship, or of Conservatorship] ARE ATTACHED HERETO.

IT IS FURTHER ORDERED AND ADJUDGED that persons who use or accept this order without the attached Letters as court authority to act or conduct the affairs of the [ward or decedent] shall be subject to sanctions by this court.

WHAT IS YOUR DUTY WHEN YOUR FIDUCIARY-CLIENT IS DERELICT IN HIS DUTIES?

April 11, 2013 § 2 Comments

It seems to be a more and more frequent problem that when we issue orders in delinquent estates, an attorney pops up and says something like, “Well, judge, the reason we haven’t filed an inventory, or any accountings since 1997 is that I lost contact with the fiduciary.”

Who’s got the problem in that situation? 

Well, UCCR 6.02 says this about that:

In guardianships and conservatorships an attorney must be faithful to both fiduciary and the ward and if it appears to the attorney that the fiduciary is not properly performing duties required by the law then he shall promptly notify the Court in which the estate is being administered. Failure to observe this rule without just cause shall constitute contempt for which the Chancellor will impose appropriate penalties.

And what exactly are those “duties required by law?” Here’s what UCCR 6.02 says:

Every fiduciary and his attorney must be diligent in the performance of his duties. They must see to it that publication for creditors is promptly made, that inventories, appraisements, accounts and all other reports and proceedings are made, done, filed and presented within the time required by law, and that the estates of decedents are completed and assets distributed as speedily as may be reasonably possible.

It’s pretty clear from the language of the rule that your neck is in the noose along with your fiduciary. If the requirements are not met, you are as responsible for the lapse as is your fiduciary. Oh, and explaining to the chancellor that you had no idea that the Uniform Chancery Court Rules had this provision will in all likelihood only make things worse.

Here are some helpful posts from the past … Five Mistakes that Fiduciaries MakeFive More Mistakes that Fiduciaries MakeApproaching Zero Tolerance … and … Essential Procedures in Guardianships and Conservatorships.

If the landscape of your probate practice is littered with failures to file accountings, inventories and other reports, and you have estates that due to sheer neglect are languishing unclosed far beyond what is reasonable, look no farther than yourself for a place to lay the blame. That’s where the judge will look.

THE CONSERVATOR AND THE STATUTE OF LIMITATIONS

March 20, 2013 § Leave a comment

Angela and Brian filed a joint complaint for divorce on the sole ground of irreconcilable differences. While the 60-day waiting period was running, Angela was involved in a car wreck, suffering a broken neck and brain damage. Because she was no longer able to handle her business, a conservator was appointed and authorized to proceed with the divorce action.

On January 10, 2000, the trial court entered the final judgment of divorce. It included a provision that Brian reimburse Angela for $5,500 she had paid toward purchase of an automobile. In a subsequent proceeding brought by the conservator for enforcement of the judgment, Brian was ordered to pay the money, and the court awarded a judgment with interest, entered January 9, 2001.

In January, 2011, nearly ten years after the 2001 judgment, Angela’s conservator sought and obtained a writ of garnishment. After back-and-forth series of rulings, the trial court cancelled the writ because the judgment had expired due to the statute of limitations in MCA 15-1-47. The court rejected the conservator’s claim that Angela’s incapacity had tolled the statute of limitations as provided in MCA 15-1-59 because the “conservator is fully authorized to employ attorneys and bring actions on the [ward’s] behalf,” citing USF&G v. Conservatorship of Melson, 809 So.2d 647, 654 (Miss. 2002).

Angela’s conservator appealed.

In the case of Conservatorship of Lewis v. Smith, rendered March 5, 2012, the opinion has some key observations about the duties of a conservator when it comes to enforcing and protecting the rights of the ward:

¶8. Lewis contends that the chancellor erred in finding that section 15-1-59 does not toll the statute of limitations in regard to the judgment’s expiration under section 15-1-47. Under section 15-1-47, a judgment lien expires after seven years from the entry of the judgment.

¶9. In her August 26, 2011 order, the chancellor found that section 15-1-59 was “inapplicable to the present matter as it concerns persons with disabilities and minor children; when a conservator was appointed to protect the legal rights of the mentally incapacitated Angela Ann Lewis, thus invoking the provisions of Miss[issippi] Code Ann[otated] [s]ection 15-1-53.” Mississippi Code Annotated section 15-1-53 (Rev. 2012) states:

When the legal title to property or a right in action is in an executor, administrator, guardian, or other trustee, the time during which any statute of limitations runs against such trustee shall be computed against the person beneficially interested in such property or right in action, although such person may be under disability and within the saving of any statute of limitations; and may be availed of in any suit or actions by such person.

It is important to note that “the duties, responsibilities and powers of a guardian or conservator are the same.” Harvey v. Meador, 459 So. 2d 288, 292 (Miss. 1984). See also Miss. Code Ann. § 93-13-259 (Rev. 2004).

¶10. From the language of the order, the chancellor found that the right vested in the conservator and not in Lewis. Lewis contends that this contention is contrary to Weir v. Monahan, 67 Miss. 434, 7 So. 291 (1890). The Mississippi Supreme Court in Weir found that section 15-1-53 only applies “where the legal title to property or the right of action, at law or in equity[,] is in the guardian, and not the infants.” Weir, 67 Miss. at 455, 7 So. at 296. The court noted that “[w]hen the legal title to the property is vested in a trustee who can sue for it, and fails to do so within the time prescribed by law[,] . . . his right of action is barred . . . .” Id.

¶11. Under Mississippi Code Annotated section 93-13-38(1) (Rev. 2004), “All the provisions of the law on the subject of executors and administrators[] relating to settlement or disposition of property limitations . . . shall, as far as applicable and not otherwise provided, be observed and enforced in all guardianships.” Also, Mississippi Code Annotated section 93-13-38(2) (Rev. 2004) states: “The guardian is empowered to collect and sue for and recover all debts due his said ward . . . .”

¶12. From the language of section 93-13-38, the conservator had a fiduciary duty to pursue the $5,500 owed to Lewis. Therefore, the right of action was in the conservator and not Lewis. The conservator was appointed prior to the entry of the judgment of the divorce. The conservator brought the motion to hold Smith in contempt for failure to pay. It was the conservator’s fiduciary duty to file a writ of garnishment when Smith failed to pay. Under the plain language of section 15-1-53, if the right is in the guardian, in this case the conservator, the statute of limitations runs against the guardian and not the ward.

¶13. The right in action is in the conservator, therefore making the savings clause of 15-1-59 inapplicable, because “[t]he purpose of the savings statute is to protect the legal rights of those who are unable to assert their own rights due to disability.” Rockwell v. Preferred Risk Mut. Ins. Co., 710 So. 2d 388, 391 (¶11) (Miss. 1998). Lewis has a court-appointed conservator who is able to assert rights on her behalf. Therefore, Lewis does not require, nor is subject to, the protections provided by the saving clause.

If you are representing a conservator — or a guardian, executor or administrator, for that matter — make sure that your client is doing what is necessary to protect the legal interests of the ward or beneficiary, and is not allowing statutes of limitation to run.

the burden of responsibility of a fiduciary is a heavy one, as I have emphasized here before. This case points up yet another way in which your fiduciary may make a “perilous mistake” in handling the ward’s business. It’s your job to steer your client in the right path, and to help avoid the common mistakes that fiduciaries commit.

THE SYMPTOMS OF PROBLEM ESTATES

August 30, 2012 § 2 Comments

Arizona courts pioneer in a lot of ways. The latest accomplishment involves monitoring of probate matters.

That state requires that probate cases be classed as minimum risk, moderate risk, or maximum risk. Each file is evaluated to classify it based on certain factors or indicators. Insted of our one-size-fits-all system, the level of reporting and monitoring in Arizona is tailored to meet the needs of the particular case. Each category requires court personnel to meet periodically with the ward or beneficiaries. Minimum risk cases involve a telephone interview every other year, moderate risk require an annual visit, and maximum risk call for a variety of measures including case compliance audit or even forensic investigation. Each level is prescribed meaures of accounting appropriate to the risks inovlved.

I found the risk indicators used by the court to be quite interesting. In fact, I have seen cases where multiple risk indicators were present in cases before our courts. There are 39 used in Arizona. Here are some of them:

  • No family members.
  • Large estate.
  • Dispute among the parties.
  • Late or no inventory or accountings.
  • Inaccurate or no record keeping.
  • Unacceptable accounting practices.
  • Disproportionate or unusually large transactions.
  • NSF checks and bank charges, late payment charges, payment of interest or penalties.
  • Use of ATM’s or gift cards.
  • Health, business or personal problems of the fiduciary.
  • Financial problems of the fiduciary, such as tax liens, judgments or bankruptcy.
  • Difficulty in obtaining a bond or failure to renew it.
  • Attorney with a history of neglecting or mishandling probate matters.
  • Fiduciary with limited experience (especially where the estate is large or complex).
  • Poor or no supervision of fiduciary by the attorney.
  • Ignoring requests of court and show cause court orders.
  • Pattern of rebuffing reqquests for information by attorneys and court.
  • Unauthorized gifts or loans.
  • Pattern of complaints against the fiduciary.
  • Transfers between bank accounts, particularly when close in time to inventory or accounting dates.
  • Lack of contact between guardian of the estate or conservator and the ward.

These are what the courts look at to decide whether a fiduciary should be removed, or whether some other action should be taken to protect the interest of the ward or beneficiaries, but many of these you should monitor yourself in carrying out your role as attorney for the fiduciary. These are the symptoms of an ailing probate matter that require your immediate therapeutic attention. Some of them can be fatal. And if you fail to act promptly, some of them can cost you money. 

[The information here comes from Future Trends in State Courts, 2012, published by the National Center for State Courts]

INVESTMENT RESPONSIBILITIES OF FIDUCIARIES

July 30, 2012 § 4 Comments

Executors, administrators, guardians and conservators have a fiduciary duty to the beneficiaries or wards (trustees have their own, separate body of law, although they are fiduciaries also). The fiduciary’s duty (in the absence of explicit directions in a will) …

” … is to provide honest, intelligent management … [h]owever it might be more accurate to think of the [fiduciary] as a co-manager (and perhaps a junior co-manager at that) with the court being the other manager. The [fiduciary] can do very little without the prior approval of the court. The [fiduciary’s] responsibility is to be knowledgeable about the estate, to anticipate problems and dangers, as well as opportunities, to decide upon the intelligent and prudent thing to do, and then to go to the Chancellor to try to get the authority to do it.” Weems, Wills and Administration of Estates in Mississippi, 3rd Ed., §2.34, p. 65.

Absent directions in a will or court authorization, or specific authority by statute, the fiduciary has no authority to: bind the estate by contract such as a lease or note; purchase or sell real estate or any other asset; warrant title on behalf of the estate; borrow money for the estate; mortgage property of the estate; or even to continue a decedent’s business except to wind it up or as provided in MCA 91-7-173.

MCA §93-13-38 requires the guardian or conservator to improve the estate of the ward, and to “apply so much of the income, profit or body thereof as may be necessary for the comfortable maintenance and support of the ward and his family, if he have any, after obtaining an order of the court fixing the amount.” The duty of the fiduciary is to employ the funds in their hands profitably, and they may be liable on their bonds for failure to improve the estate.

Does that duty to improve the estate mean that there is a duty to invest?

The answer to that question, of course, is that every case is different, and several factors come into play, including:

  1. Whether the the amount of funds in excess of those needed in the immediate future to pay claims and administration expenses, and in the case of wards, the necessary, authorized expenses, make investment practical;
  2. The economic conditions in the markeplace;
  3. Whether in the case of a decedent’s estate that it will be open for a length of time that would make investment practical.

In the case of McNeil v. Hester, 753 So.2d 1075 (Miss. 2000), the court held that the fiduciary has no duty to invest because MCA 91-13-3 because that statute uses the permissive may rather than the mandatory shall.

But simply because there is no explicit statutory duty does not mean that not investing would be prudent. The fiduciary is under a duty to deal prudently with the estate, and in a given circumstance non-investment may be judged imprudent. MCA 91-13-3 says that the ” … fiduciary shall exercise the judgment and care under the circumstances then prevailing which men of prudence, discretion, and intelligence exercise in the management of their own affairs, not in regard to speculation, but in regard to the permanent disposition of their funds, considering the probable income as well as the probable safety of the capital.”

MCA 91-13-3 and -5 allow certain investments to be made without specific authority of the court, giving the fiduciary some flexibility to park funds until a more prudent investment, if any, can be made. Those investments, unless prohibited by court order, include: time certificates of deposit; savings or other interest-bearing accounts of any state or national bank whose main office is located in Mississippi, and whose deposits are FDIC-insured; any state or federal savings and loan association whose main office is located in Mississippi, and the deposits of which are FSLIC-insured. Not included are credit union accounts, online banks, e-trade, Schwab or Fidelity, or the mayonnaise jar buried in the back yard.

Whether a given investment is prudent was the issue in the COA case of In re Estate of McGee, 982 So.2d 428 (Miss.App. 2007)in which the court held that, where the decedent had invested in the stock market for many years and the fiduciary had received his portfolio, which he put in the control of a reputable broker pursuant to court order, the fiduciary was not liable to the heirs when the portfolio declined in value after 9-11-01. The court pointed out that “administrators are not insurers or guarantors of the estate’s assets.” Citing Harper v. Harper, 491 So.2d 189, 198 (Miss. 1986).

So what exactly is and is not prudent? For guidance in addition to particular case law you might want to look at the Mississippi Uniform Prudent Investor Act, MCA 91-9-601- et seq., which actually applies to trustees, but would certainly be persuasive authority for any court to consider in weighing the prudence of any other fiduciary. Section 603 sets out factors for the court to consider as a standard of care. Other sections in the law address the duties of diversification, loyalty, impartiality, reasonability of cost, and care in delegation of management responsibility.

The attorney representing a fiduciary has a duty to advise him or her of the responsibilities involved, and to make sure that the fiduciary is acting prudently and in compliance with the law. The subject is more complex than the scope of this post, so consider this an introduction and prompt to study it in adequate depth to be of service to your clients.

[Much of the information here is derived from a presentation by Bob Williford, Esq. to the chancery judges last April]

FIVE MORE MISTAKES THAT FIDUCIARIES MAKE

July 24, 2012 § 3 Comments

We talked here about some mistakes that fiduciaries make. Continuing the hit parade, here are five more:

  1. Failure to account timely and properly. All expenses and receipts must be accounted for annualy or more frequently if ordered by the court. UCCR 6.03-6.06 detail the voucher requirement. There’s a right way and a wrong way to file an accounting. There is a checklist for doing an accounting here. You can read more about accounting and vouchers here.
  2. Failure to seek and heed legal advice.The UCCR impose a heavy duty on attorneys to advise and supervise the client-fiduciary in probate matters. The burden can be so onerous that I call it the “yoke of probate.” You can not blithely turn your fiduciary loose to figure it out for himself or herself. You have a duty to the court and the beneficiaries. A case showing how severely the Supreme Court views the joint duty of the attorney and fiduciary-client, read this post on the case of Matthews v. Williams. And a case showing the disastrous consequences of an attorney’s complicity in the fiduciary’s malfeasance, check out this post on the ongoing Hinds county trainwreck involving (soon-to-be-former) attorney Michael J. Brown. Make sure your fiduciary knows what the do’s and don’ts are. Put together an instruction sheet and have your client sign a copy to keep in your file for your protection. There is a reason that UCCR 6.01 requires every fiduciary to have an attorney. It’s because the attorney is the arm of the court who is responsible to supervise the fiduciary and make sure everything is being done properly. As I have said many times before, if that is an unpalatable concept for you, simply refuse to handle probate matters.
  3. Failure to get authority for investment of the ward’s estate.Your fiduciary is obligated to increase the ward’s estate, if possible. The courts apply the prudent investor standard, which can be second-guessed. There are a few ultra-safe investments that the fiduciary may make without prior approval, per MCA 91-13-3, including time CD’s, savings accounts, and most FDIC- and FSLIC-insured accounts (Note: to my knowledge, credit union accounts do not qualify). Only problem is that in this era, those accounts produce interest rates closer to zero than anything that would actually increase the ward’s estate. So the prudent investor has to look to more speculative investments, which are allowed under MCA 91-13-3 and -5. You should have your investment plan approved in advance by the court, with adequate supporting documentation so that anyone looking at it later will be able to see that the court had a valid basis for its order. Again, one of the transgressions in Matthews v. Williams was the fiduciary’s helter-skelter, unapproved investment scheme.
  4. Failure to give proper notice to close.MCA 93-13-77 requires that the final account in a conservatorship or guardianship must be on file for 30 days, and the ward must have have 30-days notice and an opportunity to inspect it and file any objection. A ward who is a competent adult may waive the notice and accounting. A ward under 21, however, must be served with process and may waive nothing. In estates, every beneficiary or heir must either join in the accounting, or waive process, or be served with process and given an opportunity to be heard.
  5. Failure to keep the attorney and court informed of contact information. Make sure your fiduciary knows and understands that you need to notified immediately of any change of address, telephone number and other contact information. It’s a good idea to get the names and telephone numbers of a couple of local relatives and/or long-standing friends who can help you locate a fiduciary who has wandered off.

There are some simple strategies to avoid these missteps. Here is a link to Five Tips to Improve Your Probate Practice that outlines some things you can do. The primary attribute you need, though, is vigilance. Set up procedures in your office to get the information you need, to instruct and advise your fiduciary, and to keep in touch. It could keep you out of some costly trouble.

CHECKLIST FOR DOING AN ACCOUNTING IN A PROBATE MATTER

April 11, 2011 § 16 Comments

_____ State the time period covered by the accounting, starting with the date of the last accounting, or if a first account with the date the estate, guardianship or conservatorsip was opened.

_____ List all assets of the estate as of the ending date of the last accounting. (MCA §91-7-277, §91-7-93, §93-1333, §93-13-67, and §93-113-259 and UCCR 6.03).

______ List the date, source, and amount of each item of income since the last accounting. (MCA §91-7-277, and §93-13-67).

______ Total the income and state a total.

______ List the date, payee, explanation or description, amount, and authority (the date of each authorizing court order) for each disbursement since the ending date of the last accounting. (MCA §91-7-277, 91-7-279, §93-13-67p, and §93-13-71 and UCCR 6.04 and 6.05).

______ Attach all documents supporting all income and disbursements. This is the “voucher” requirement that was previously posted about here. The required documentation includes ALL statements of any accounts or investments showing income or disbursements. This may also include canceled checks and receipts. (See statutes and rules cited above).

______ Total the disbursements and state the totals.

______ List and explain for all non-financial assets that appeared on the previous accounts, but are no longer in the control of the fiduciary.

______ A request for payment for the fiduciary including a bill or itemization to support request. (MCA §91-7-299 and §93-13-67 and UCCR 6.11).

______ A request for attorney fees, including a bill or itemization to support said request. (MCA §91-7-281 and §93-13-79 and UCCR 6.12).

______ Close with a summary calculation of the value of the estate coming into the hands of the fiduciary at the opening of the accounting period, a total of the income, a total of the disbursements, and a total balance in the fiduciary’s control that will be the beginning figure for the next account.

______ Have the fiduciary sign and swear to the accounting. (MCA §91-7-277 and §93-13-37 and UCCR 6.02).

Thanks to Jane Miller, Senior Staff Attorney for the 12th District.

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